credit counseling

12 Surprising Ways You’re Sabotaging Your Credit Score

October 30, 2015 by penn

People today are very concerned about their credit scores. A good credit score can be the difference between receiving a loan, a credit card, a mortgage — it’s the deciding factor between financial success and ruin.

[Read: Ways to Fix Your Credit Score]

720 or higher is considered a good credit score, but every lender has a different standard. If you’ve been actively working to improve your credit score, you may want to take a look at these factors that could actually be sabotaging your credit score!

You Didn’t Pay that Ticket

Many municipalities, in order to encourage offenders to pay their fines on time, will turn the debt of a parking or traffic ticket over to a collections firm, who in turn report the debt “as a collection account to the credit report companies.”

You Didn’t Pay that Library Fine

Knowing what you now know about parking tickets, it shouldn’t come as a surprise that late fees from libraries can also impact your credit score – and yet it does! Nobody expects the sweet little old lady librarians from their local branch to enforce late fees by reporting to credit bureaus, but it’s becoming a commonplace tactic for underfunded libraries across the country.

You Applied for Too Many Credit Cards

According to myFico, “checking your credit report won’t affect your FICO Scores, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.” However, the same principle doesn’t apply to actually applying to new credit cards. When you apply, the lender looks into your credit score, and such inquires can sabotage your score for up to two years.

You Took Advantage of In-House Financing

In-house financing is “a type of seller financing in which a firm extends customers a loan, allowing them to purchase its goods or services.” Although this option is an easier route that cuts out the middleman in a large purchase, this type of lender tends to arbitrarily issue credit, and the poor reputation of the loaner can actually sabotage your score.

You Closed That Idle Account

Some people today have been caught up in the less-is-more mentality. While that may stand true for things like nicotine, it might actually sabotage your credit score. As it turns out, closing a credit card reduces “the average age of all of your accounts [so…] closing a credit card account and incurring more debt have the same negative impact on your credit score.” In this case, if you have to close an account, try to close one that opened most recently or that has an annual fee.

You Connected a New Service

Services such as home utilities, cable, and cell phones might look into your credit in order to determine whether or not they should demand a security deposit for your account. This can have an adverse affect on your credit, especially when you relocate and have to acquire multiple entirely new accounts all at once.

You Opened a New Account

Not all banks do this, but some companies will order a credit report when determining whether or not to do business with you. In this case, an inquiry “takes place when a company has a legitimate business reason to look into your credit report.”

You Rented a Car

The next time you rent a car, don’t use a debit card, which could end up backfiring on you. Many rental agencies “have policies that allow them to run credit checks on customers who use debit cards” in order to ensure that their customers are trustworthy and will follow through on payment.

You Didn’t Pay that Medical Bill

The current healthcare system in America is outrageously expensive. However, if you avoid payment on bills from doctors visits, hospital procedures, or any sort of treatment, that “medical debt goes to collections and shows up on your credit report, [and] it will hurt your credit score.”

You Skipped A Payment

Skipping a payment for a service, a loan, or a credit card can sabotage your credit. In fact, “payment history information typically accounts for nearly 35% of your credit score, making it one of the single most important factors in calculating your score.”

You Have a Tax Liability

Like a parking ticket and a library late fee, a tax liability will accrue interest and fees. After a certain point, “the IRS will automatically file a Notice of Federal Tax Lien, which will appear on your credit reports as a seriously negative item.”

[Read: How Debt Consolidation Takes Care Of Your Credit Score]

You Abandoned a Membership

Make sure that when you cancel your Hulu account or your Gym membership you actually take the steps to properly terminate any sort of contract or agreement. If you don’t, the company could continue to demand payment, even if their service goes unused.

Facts and Truth about Credit Counseling

November 21, 2013 by penn

Have been worried about your debt? You are unable to pay off your liabilities and nightmares haunt you. We would like to tell you that no matter how badly you are covered up in debt, there remains hope. You always have options to deal with your crises. Now the question is which option to select. We will advise you make the right choice that suits best in your situation.

Following are the most common solutions people go for:

Credit counseling
Chapter 7 bankruptcy
Debt consolidation loans

We shall focus on credit counseling today. Before you sign up for it, you should be aware of the following facts.

Introduction to Credit Counseling?

A credit counseling agency helps you to develop a plan. This is specifically known as a DMP or debt management plan.

Credit counseling agencies are non-profit agencies but be aware that it not necessary that they don’t charge you any fee. Their services may not be free always.

They help you develop a fair plan and they try to help you out by talking to your lenders to reduce the interest rates. They try to convince and negotiate better terms with your creditors. If you properly go according to the DMP, it’s quite possible that you recover from your debt crises in around five years.

Truth about Credit Counseling: Poor Success Rate

Sad news for people considering credit counseling: these debt management plans have a success rate of only 20% to 26%. This means only one out of five people actually complete their debt management plan.

Another noticeable thing is that mostly the people who have a reasonable amount of disposable income left at the end of each month are successful in getting out of debt through a DMP. This information is provided by the National Foundation for Credit Counseling themselves. A reason to this has been that the people started believing they can complete the plan themselves instead of continuing with a counseling agency.

Reasons for Poor Success Rate

There is no single and fixed reason why people generally fail to complete their debt management plans. The truth about credit counseling is that lenders offer only a limited amount of concessions during negotiations to the customers who go for credit counseling.

In easier words you can say that when people sign up for a debt management plan through credit counseling, they see that it cannot lower the debts to a significant amount, they are most likely to leave the 3 to 5 year plan.

What Does Credit Counseling Actually Offers You?

Such a lower success rate implies that credit counseling is useful for only few customers. This is because it all depends on the creditors. The debtor cannot call the shots. It’s the creditor who decides what concessions to offer. It is very rare that lenders will reduce your principle amount. We can categorize the offers by DMP into three parts:

The counseling agencies are able to “re-age” their accounts
They are able to lower the interest rates
Late fee penalties can be eliminated or at least reduced.

Successful DMP Requires Discipline

A significant truth about credit counseling is that it requires the customer to have a fair amount of discipline. People get eager for results and they normally quit the program when there is no instant outcome.

A debt management plan wants you to quit using credit cards or take more debt until they complete their plan that is normally five years. Some people just don’t have discipline to handle such a program. They start taking more debt and can no longer make payment to their counseling agency and as a result they quit the program. This is a hard truth about credit counseling!

Other Options You Can Consider

Other options, as we mentioned earlier, are debt consolidation loans and chapter 7 bankruptcies. Both of them have better rates of completion especially the secured debt consolidation loans. The reason behind this is that these loans are secured by a valuable asset such as a house, property or a car.

Chapter 7 bankruptcy is also successful because there is no other alternative. Through bankruptcy, you can clear all your debts and keep safe your most essential assets.

The ugly truth about credit counseling makes you notice that debt settlement is a better alternative because it actually gets your debts reduced and people want results. Additionally, debt settlement consolidates your debts and it makes it easy for you to handle a single payment instead of multiple payments. Normally it take up to 2 to 3 years to clear your debts depending on the amount of debt. Learning about the truth of credit counseling, you must see why this is so.

Make your choice keeping in mind all factors so that you are able to manage your debt.

Improve Your Credit Score and Make It an Asset

October 3, 2013 by penn

Most people know that they have a credit score, but in the press of daily living, learning how a credit score is calculated, and what you can do to improve your credit score, are among the many things that can be put off until next week…and usually are. Considering the impact that your credit score can have on your daily cost of living, that is more than just a little short sighted.

How Does My FICO Credit Score Make A Difference In My Day To Day Financial Life?

In the US there are three major credit rating agencies, of which FICO is the largest. FICO and the other two major US credit rating agencies can best be described as for-profit enterprises that collect information about your money management history that is of potential value to lending institutions. They consolidate that information into a credit report, which becomes the basis for your credit score. When you apply for any kind of credit, lenders routinely purchase that collected information as a measure of your credit worthiness. Does it pay to try to improve your credit score? Here are a few of the important things your credit score determines:

The interest rate you are offered for home a mortgage or a home equity line of credit;
The credit card interest rates you qualify for;
The credit limit card issuers make available to you;
The upfront cash required in order to initiate a car lease agreement;
The interest rate and terms available to you for auto loans, debt consolidation loans, and other installment loans.

What Is In Your Credit Report?

In terms of their relative importance to your effort to improve your credit score, the information that makes up your credit report includes:

Your history of making monthly loan payments in full and on time;
The total amount you owe, especially as a percentage of the credit that is available to you;
The types of loans that you have qualified for in the past, and your success in repaying those loans. Types of loans considered include home mortgages, installment loans for automobiles or appliances, credit cards, debt consolidation loans, and others.
Your recent history of credit applications.

How Can You Improve Your Credit Score?

If your credit report contains many negative entries, it may take months or years to improve your credit score. The good news is that “recent credit report inputs” are weighted higher than “old credit report inputs”, so it does pay to get started. Here are nine basic steps you can take to improve your credit score:

Get a free copy of your FICO credit report. You are entitled to one free copy of your credit report per year from FICO and each of the other major credit reporting companies. Take the time to carefully check the report for errors. Errors that negatively affect your credit score do occur, and it is your responsibility to find them and report them to the credit rating agency. Finding and correcting erroneous negative credit report inputs is the fastest way to improve your credit score.
Get help from an experienced debt counselor to establish a monthly household budget that includes a regular allocation for debt repayment that exceeds minimum payment requirements.
Build up a “rainy day” savings account to help you through tight budget months and/or to handle unexpected emergencies without missing a “due date” on your existing debt.
Do everything you can to avoid accidental late payments. Setting up automatic direct payments from your checking account for loans that have the same payment every month is a good first step. Some people find it helpful to make all other debt payments on the same date or dates each month.
Establish a “hit list” to focus debt repayment funds on the debts that are most injurious to your credit score.
If recommended by an experienced debt counselor, consider applying for an installment debt consolidation loan to reduce the number of payments you have to make per month, and possibly lower the total repayment amount per month. Be aware, however, that debt consolidation loans often increase the total amount of interest you will pay by the time the loan is paid in full.
Keep a couple of credit card accounts open even if you could afford to close them entirely. Use those card sparingly, and the entire balance in full every month.
Take out one or two small consumer installment loans that you are sure you can pay off easily. MAKE EACH PAYMENT IN FULL AND ON TIME!
Be cautious in authorizing lenders to request credit reports. Bring your own copy of a current credit report to the lender to assure that you will be approved pending his or her verification of the credit information you presented. Avoid applying for credit and being denied.

Stop Collection Calls: Opt For Debt Management

March 10, 2013 by penn

As soon as your debts start to get out of hand, you can expect that collection calls will happen. These calls are made by creditors at the beginning and if they are unsuccessful, they will pass you to a third party collections company. The goal of these calls is to persuade the debtor to pay off what they owe without any decrease in the amount of their current balance.

These are usually phone calls made by agents who are trained to be aggressive, persuasive and if needed, intimidating and threatening. While the FDCPA or Fair Debt Collection Practices Act warn against aggressive, harassing and threatening calls, a lot of collections usually go beyond allowed practices.

All of this can bring so much stress to the debtor. Instead of being able to focus on growing their debt payment fund, they are subjected to calls that discourage, frighten and intimidate them. We all know how stress can be strong enough to paralyze anyone from being productive. Because of that, it is expected that anyone who wishes to get out of debt would want to have this removed from the whole experience.

So how can you get rid of these calls so you are free to concentrate on paying off what you owe? One of the effective ways is to enrol in a debt management program.

Of course, paying off what you owe the traditional way will stop the calls from happening. But if it started in the first place, that signifies a time when you were in such a financial crisis that you were unable to pay off your usual dues. If this is the case, you may want to try your luck by hiring a professional to help you with debt relief.

Debt management starts with credit counseling. A credit or debt counselor will be assigned to you and you will discuss your current finances to find the amount that you can afford to pay every month. This will be your debt management plan. You will follow this plan so your road towards debt freedom is consistent. This plan will be used by the counselor to negotiate and coordinate with your creditors.

As soon as you enrol in debt management, the counselor will notify your creditors that you have chosen to work with them on your debts. This is an effective way for the creditors to stop calling you. Knowing that you are working with a debt management company, they are assured that you have a plan in place and that you have every intention of paying back what you owe.

Apart from helping you create your payment plan, the counselor will also take over all communications with the creditor on your behalf. You will no longer receive calls and you can spend peaceful days working hard to have the income to pay off your credit obligations.

Debt settlement is also an option that involves the help of a professional. They will take over the calls too – just like what debt counselors do. However, the method of debt settlement is different from debt management because you will be defaulting on payments. That will seriously damage your credit score. If that is an important concern to you, then stick to debt management and you should be just fine.