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Want To Avoid Financial Mistakes? Stop Being Too Complacent

money trapWe all make financial mistakes. Despite the negative repercussions, we owe a lot to these mistakes. The wrong turns that we make allows us to appreciate every financial success. Our errors also bring the most significant lessons. Everyone who is considered financially successful have gone through their own set of mistakes. The key is how we choose to rise from the errors that we have made in the past.

While we should never belittle the role of these mistakes in our lives, that does not mean we should not do our best to avoid them. We always need to be careful when dealing with our finances. We should learn the signs that we are headed towards another error so we can correct our mistakes before everything is too late.

But what if we are blinded by something that keeps us from seeing these signs? And what if that thing that blinds us, is our own complacency?

Financial confidence is not really a bad thing. This is what we need to help us take the necessary risks that will improve our financial position. However, too much complacency brought about by financial confidence might be destructive after all.

Your confidence is affected by two factors in your life: your income and expenses. When you have a high income and low expenses, that is when your confidence spikes. According to an article published in Forbes.com, the financial confidence of a person follows a pattern that is tied to their age. The article discussed the report from LearnVest that detailed this pattern. Based on that study, people in their 20s reach the height of their confidence level. It sinks as they reach their 30s and bottoms during their 40s. From there, the confidence level rises.

Now this is an important piece of information because it will help you condition yourself as you reach certain ages. You see, the higher your confidence level, the more complacent you become. The more complacent you are, the more chances that you can commit certain financial mistakes.

Being complacent can lead you to commit 4 money mistakes

Complacency is not a bad state to be in. However, it can lead you to commit mistakes because this is the time when you usually let your guard down. When you are not vigilant, that is when you are not as careful as you should be. Every time you are not careful, you are more likely to make mistakes.

But what are the financial mistakes that you can commit when you are too complacent? We can identify 4 of them.

Acquiring too much debt.

When you are too complacent with your financial resources, the tendency is for you to borrow too much. This confidence leads you to feel like you are invincible and that you can borrow as much money as you can because you are confident that you can pay it off. Well here is the truth. Regardless of how much money you are earning, you have tread with debt carefully. It does not matter if you are earning a six-figure income. You should never use it as your basis to borrow more money. Live within or below your means. Do not make your future self pay for what you are enjoying today.

Failing to check your credit report.

One of the financial mistakes that you can commit because of complacency involves your credit report. When you are too complacent with your credit security, you do not feel the need to check your credit report. The danger in that is your inability to detect if you were a victim of identity theft. According to the data published by CreditDonkey.com, fraudsters are getting better at stealing identities. The number 1 complaint filed in the Consumer Sentinel Network Data Book of the FTC (Federal Trade Commission) was identity theft. The cases are clearly increasing so you need to stay vigilant to keep it from happening to you. While constantly checking your credit report will not keep the crime from happening to you, it will give you early detection. As soon as you spot an unauthorized transaction reported in your credit history, you need to alert the major credit bureaus and the credit or lending company involved. File a dispute against that record so they will investigate and help clear your name of that particular debt. If you fail to spot and dispute this in time, you might end up paying for a debt that you did not make.

Saving too late for retirement.

When you are too complacent that your current financial position will not change, your tendency is to skip preparing for your future. It is the same sentiment as when you acquire too much debt. You feel like you can always start saving in the future and you hold on to that thought. That complacency is dangerous because your finances could change in an instant. If you fail to save for retirement as early as possible, you could face a lot of financial difficulties when you retire. You should not let the strength of your current financial position distract you from the urgency of saving for retirement.

Choosing the wrong debt solution.

There are many options to get out of debt. Sometimes people opt for solutions that are too good to be true and fail to explore the other options that are more suited to their financial situation. You need to understand that there are debt relief options for different financial situations. Do not feel complacent after you have researched one debt solution. Read about the others before you decide what you will use to get yourself out of debt. Choosing the right option will efficiently get you out of debt and will even save you money in the long run.

Best practices to stay financially vigilant

While complacency is a great feeling to have, you should not dwell too much into it that you lose sight of what is happening around you. Enjoy it but stay vigilant – always. Things will not always stay as it is even when you think that you are having all the luck in the world. This vigilance will help you avoid financial mistakes that can affect your future.

Here are a couple of tips that you can do to be vigilant about your finances.

  • Create a plan for everything. Financial success begins with planning. Unfortunately, this is not something that everyone does. According to CNBC.com, 34% of Americans do not have any form of financial plans. 58% create plans, but they believe that it needs improvement. Do not make this mistake. Create realistic plans that will help secure your future. You have budget plans, spending plans, debt repayment plans, retirement plans and college education plans. Think about the plans that you need so you will never forget about your goals regardless of your current financial position.
  • Set up reminders. Another way that you can be vigilant is by setting up reminders. If there are payments to be made, financial milestones to be met – these should have reminders to ensure that you will not forget to meet them.
  • SImplify your financial transactions. Sometimes, we make financial mistakes because we complicate things too much. The truth is, you can simplify your financial transactions. For instance, if you have a lot of credit accounts, you can consolidate debt them so you will not be too confused. Sometimes, your confusion increases the chances of you making a mistake.
  • Keep yourself informed. Finally, you need to keep yourself informed about what is happening all the time. Have the initiative to learn something new that will improve your financial situation. When you keep yourself informed, you can act on things and grab opportunities as they happen.

The key to keep complacency from leading you to commit financial mistakes is to be observant and open minded. Here is a video that lists some of the scariest money mistakes that you need to avoid at all cost.

4 Things You Must Know Before Co-Signing Loans

Loan and related textsCo-signing loans will always be a dangerous transaction. You do not really gain anything and you are setting yourself up to lose a lot. It is actually one of the mistakes that may cost you a good credit history. The idea is, you are acting as a guarantor for someone because the lender deems them unworthy to borrow on their own. If the lender does not trust them with borrowed money, they will be given the option to find someone that can be trusted. Not only that, this cosigner should be willing to take on the burden in case the primary borrower proves to be a bad credit holder.

What makes co-signing loans even more dangerous is the non-financial damages that it can cost you. It is bad enough that you are left to pay the debt even if you did not benefit from the money. You also have to live with the ruined relationship between you and the primary borrower. Whether that is a friend or a relative, you cannot treat each other the same way if this debt is hanging over your heads.

You may argue that you know the person very well and that you trust them enough to put your financial reputation on the line. Even if you owe that person a debt of gratitude, you should still think twice about making this plunge with them. The statistics are not really favorable when it comes to cosigners.

According to an article published on FiveCentNickel.com, 75% of defaulted co-signed loans are paid by the co-signer – not the primary borrower. If you really value your relationship with the person asking for help, you need to avoid signing a loan for them. The chances of you being ruined is too great for you to risk it.

Make sure you know these 4 before you co-sign a loan

If you ask experts, most of them will frown at the idea of co-signing loans. In fact, an article from USNews.com simply states that when you are asked to act as a guarantor, don’t do it. There are just so many things that can go wrong and can be compromised.

But just in case you find it in your heart that you want to help, you should not plunge immediately to sign the loan. There are 4 important things that you need to know before you proceed.

The risk you will take.

Start by enumerating the risk that you are taking. First of all, you are equally responsible for that loan. In the event the primary borrower cannot pay off the loan (whether intentionally or because of unforeseen circumstances), you need to pay them off yourself. There are also lenders that will not notify you if the primary borrower failed to meet their payments. You will only know about it when it is too late. The loan is already in default and your credit score is already suffering from it. Make sure that you are aware of all these consequences and the risks that you will be taking on.

The payment terms.

Another thing that you need to know before you decide on co-signing loans will involve the payment terms. Make sure you sit down and discuss the terms of the loan. Ensure that the primary borrower has a payment plan in place and they have the resources that will allow them to repay what they are borrowing. If they cannot explain to you how they plan to pay the loan, do not proceed. Not only that, you have to ask them to put everything in writing. Document your agreement so it is clear that they will pay the loan and it will be done in such a way that you have both discussed.

The options to protect your finances.

The next must-know involves your protection. Discuss with the primary borrower your plans to protect your interests in co-signing the loan. For instance, if they will borrow a big amount, get a hold of a collateral that can cover the payment of that loan. Sign an agreement that will give you the authority to sell that collateral in the event that the primary borrower is unable to pay back the loan. If you will co-sign a business loan, ask them to give you shares of the company – or to make you a co-owner until they have paid back the loan.

The ways you can get out of the co-signed loan.

The last thing that you should find out is how you can get out of your co-signed loan. This actually depends on the type of loan that you borrowed and who you borrowed it from. One of the popular methods to remove yourself from a co-signed loan is by refinancing the loan. Once the primary borrower is able to build up their credit score that will allow them to borrow on their own, they should refinance it to change the accountability for the borrowed money.

Take note of these 4 and make sure you know about them before you agree to co-signing loans for anyone. If you do not have these information, then just say no. Sometimes, saying no can save you from a financial crisis. Think about that before you try and help anyone financially.

When it is okay to co-sign loans and when it is not

While the general rule is to say no when someone asks you to co-sign a loan for them, there are times when you can actually say yes. This is still a case to case basis of course. Here are the situations wherein it is okay or not okay to say yes to become a guarantor for someone.

Co-signing loans are okay:

  • If it will help your child get a student loan. We want what is best for our children. If that means helping them get the finances to help them study, then that is what we should do. According to the CFPB or Consumer Financial Protection Bureau, 90% of private student loans in 2011 were co-signed. The data was published through ConsumerFinance.gov and revealed that a lot of these co-signers are complaining that it is hard to get out of their co-signed loan. So in case you will push through with this, make sure that it is clear with your child that they should pay off the loan themselves. Guide them so they will practice smart spending habits.
  • If it will help someone you are financially responsible for build their credit record. Ideally, this is only applicable to your children. After all, you are financially responsible for them. Helping them build a good credit record is something that you can do. At least, you can help them borrow a small amount and guide them in paying it off properly.
  • If it will help someone with a bad credit record but has a collateral they are not willing to give to a bank. If the person you will help has a collateral that can help cover the loan you are co-signing for, then it may be okay to help them out. Of course, you need to ensure that you will have the authority to sell that collateral to help pay for the debt in case the primary borrower bails out on the loan. Make everything legal.

Co-signing loans are not okay:

  • If it is for someone who has an existing bad credit report. This is true even if it is for someone very close to you like a friend or a relative. Of course, this depends on the reason why the borrower has a bad credit report. If it is because of their financial habits, then you should never agree to co-sign on a loan with them. They are high risk borrowers – do not risk your financial position for them. But if they have a bad credit score because of identity theft, then you may reconsider.
  • If it involves a big amount or a high interest loan. If you know that you cannot save afford to pay for it yourself, then do not say yes to co-signing loans. Unless you are sure that you can pay it off in case the borrower cannot, then you need to just say no.

While there are smart ways to co-sign a loan, you need to consider other options to help out. If you can guide them to build their credit report in the first place, you probably do not have to co-sign for them. Think about these options first.

Want To Improve Your Credit Score? Here’s How

man jumping with a chart behind himDo you ever wish there was an Undo button in life? We certainly do. In fact, there’s some whole years in our lives we wish we could undo. But that’s another story for another time.

The question here is what could you do or undo if you have a less than stellar credit score? The good news is that you could raise your score fairly quickly and reasonably and without financial risk. And it won’t take you years. The following tips are things that you could do to increase your score in around 30 to 60 days.

As Mark Twain once put it the important thing is to get started. And the secret to getting started is to break up big, complex, tasks into small, manageable ones and then start on the first one. So having said that, what’s the first small one that could get you started?

Get your credit reports and check for errors

A study released two years ago by the Federal Trade Commission reported that roughly 20% of us have errors in our credit reports. You need to get your reports from the three credit reporting bureaus – Experian, TransUnion and Equifax – and then go over them with a fine-tooth comb. Are there purchases you don’t remember having made? Are there companies listed you don’t believe you ever did business with? How about that account that was written off? Was that even your account? If you find errors like this you need to dispute them. The way you do this is by writing a letter to the appropriate credit bureau with whatever documentation you have to back up your claim. The credit bureau will contact the institution(s) that provided the information and ask it to verify it. In the event the company can’t verify it or doesn’t respond within 30 days, the credit bureau must remove the item from your credit report. If you find several errors and get them removed this should improve your credit score significantly.

Write the credit bureau

If there is a company that incorrectly reported you had made a late payment you need to contact it and ask that it remove the information. In fact, if the late payment was incorrectly reported or you simply forgot to pay a bill when you’re usually 100% on time, you should be able to negotiate to get the company to remove the late payment from your credit reports.

Work on your debt-to-credit ratio

A full 30% of your credit score is based on your credit utilization or debt-to-credit ratio. This is calculated by dividing the amount of credit you have available into the amount you’ve used. As an example of this, suppose you have $10,000 in available credit and have used only $2000 of it. This would yield a debt-to-credit ratio of 20%, which would be quite good. Conversely if you had used up $5000 of that $10,000 your debt-to-credit ratio would be 50%, which would definitely be having a negative effect on your credit score. You need to sit down and calculate your debt to-credit ratio. If it’s about 35% or more there are two ways to quickly improve it. The first is to pay off some of your debts and the second is to get more credit. If paying off some of your debts isn’t doable you might be able to get an increase in the limit on one of your credit cards or open a new one to improve your credit-to-debt ratio. This can be a bit risky if you start using that card so the best thing to do is put it away in a drawer somewhere and forget you have it.

Multiple credit cards in one handDon’t apply for multiple types of credit in a short amount of time

Whenever you apply for any type of credit, whether it’s a credit card, an auto loan or mortgage you’ll face a credit inquiry. Too many of these inquiries in a short amount of time and the credit bureaus may ding your credit score. Any time you apply for a new card or an increase in the limit on one of your existing cards this will result in what’s called a “credit pull” and may decrease your credit score. However, it is good to have multiple forms of credit on your credit reports, such as a credit card, an auto loan and a revolving line of credit, as this shows potential lenders you can successfully handle different types of credit simultaneously. Plus, this accounts for 10% of your credit score.

Settle any delinquencies and then get proactive

Did you know that the bank might report your payment as delinquent even if it’s fewer than 30 days late? Of course, this varies from credit card issuer to credit card issuer and will also depend on your borrowing behavior. Some issuers will hold off on reporting an account as delinquent until it’s 60 days late. In this case, being 30 days late will have no effect on your credit score since your credit report will show no late payment. If you do find delinquencies in your credit reports it’s important to get them settled. This means contacting the creditor or creditors to discuss what you would need to do to eliminate them.

Once you’ve settled any delinquencies get proactive by setting up automatic payments. You may be able to do this through your bank. If not, almost all lenders have ways for you to pay them automatically. This avoids the possibility of accidentally missing payments and removes the brain damage of having to remember to make multiple payments on different days of the month.

Build lifelong habits

Probably the biggest secret to getting and keeping a good credit score is to treat it as a sort of game. It’s a serious game and will require both tactics and strategies. But if you approach the task of managing your credit seriously and begin staying on top of your debts, your credit limits, your balances and your due dates, you will eventually develop habits that will make it easy for you to successfully manage your finances for the rest of your life.

What Will Life Be Like With No Credit History?

credit history being erasedWe all need a good credit history. It can help improve your financial life in a lot of ways.

For those of you who are confused about it, this is basically what is in your credit report. It contains the credit activities of consumers. Every time someone borrows money, it is recorded in this report. When the consumer makes a payment or when they open another credit account, it will be placed in this credit report. It will be part of the history of the consumer’s credit.

Now this report is very important in our society. At least, if you want to make serious financial transactions, you need to have a good credit report. It will help creditors and lenders gauge how responsible you are when handling borrowed money.

But what if you have no interest in building up your credit history? What will happen if you have no entry on your credit report? How will it affect your personal life – specifically your financial transactions?

What happens when you do not have any credit record

One thing’s for certain – when you do not have a credit report, you do not have any debt. As mentioned, this report takes into account all of your credit activities. If you do not have any debt, then you do not have any credit history.

Having no credit report is actually a choice. You can choose not to use any credit to make financial transactions. You can choose to just use cash so you will not be in danger of overspending your monthly budget.

This choice, however, is not a popular one. According to an article published on TheSimpleDollar.com, Americans are notorious for their credit card use – which is obviously a form of credit account. The article cited a report from the Federal Reserve that states how the average American household owes $7,281 in credit card debt. The article does admit that this figure includes even the households that do not use credit cards. If the statistics only include the homes that use credit cards, then the average will jump to $15,609. That means a lot of people have chosen not to use credit cards.

That may seem like a lot of people with no debt. However, you need to realize that there are other forms of debt like mortgages, car loans, student loans, etc. That means almost all Americans that are 18 years and above have some form of debt to their name. It is an indication that almost all of them have credit histories too.

Now deciding not to join this statistic is obviously a very brave one. You will be joining the minority of people who have made a stand against the use of credit. While there may be a lot of benefits to having a credit report, there are also two things that it cannot do for you.

It does not reveal your income situation.

First of all, you need to realize that it does not have any bearing on your financial situation. Even if you do not have a credit report, that does not mean you do not have a salary. There is no difference between someone who is earning a minimum wage or a 6-figure income. A credit report only monitors your credit – not your income. Of course, your income will matter in some way – especially when calculating your debt to income ratio. But that is not a huge factor in your credit history. Your salary will not be reflected in your credit report.

It does not guarantee your financial condition.

Your lack of credit report will also reveal nothing about your financial condition. This is also true for those who have a good or bad credit record. Some people have a high income and stable financial situation and still have a bad credit report. Of course, having a bad credit report would make you more prone to have money problems but it is not a guarantee that you will be headed that way. Some may have a good credit record despite having a low income and unstable employment situation. It is also possible for you to have no credit history and have a very stable financial situation. You will have a stable situation if you have a steady source of income and you have an emergency fund that will allow you to survive even if that source is compromised.

Effects of having no credit report

So, what are the real effects of having no credit report? Will it make your financial life more difficult or will it be an improvement?

There are two important effects of having no credit history.

It will be difficult to borrow money to invest.

You may be wondering, why would I want to put myself in debt in the first place? Well, it is possible to live without debt, but there are some drawbacks to that. For instance, buying a home is usually easier when you take out a mortgage. Saving up to buy a new home in cash will take ages to do. It does not make sense to do that and waste money renting a house. If you really want to be smart about it, you should just take out a mortgage, live in that new home and pay for the monthly amortization. In most cases, your monthly payments end up being lower than the average rental rates.

Having proven that you need to borrow money at some point in your life, you obviously need the help of a good credit report. Otherwise, it will be difficult for you to get the best loan terms in the market – if you can get an approval in the first place. When we say loan terms, the best ones would include low interest rates and reasonable financial charges.

There is no way to gauge your creditworthiness.

The other effect of having no credit history is on your creditworthiness. Every time you apply for a loan, you need to prove to the creditor or lender that you can be trusted with that credit. What better way to prove that than by showing them your past credit behavior. And guess what? Your credit report is the best way you can prove that.

Since your credit report holds the history of all your credit accounts, any creditor or lender can see how you behaved. Did you pay on time? Did you hold too many debts at one point? How was your credit balance in relation to your credit limit? These are important consideration to gauge if you are a high risk borrower or not. The more appealing your credit history is, the more creditworthy you are. When you are considered to be very creditworthy, then you are a low risk borrower. That means the lender or creditor does not have to take steps to protect themselves in the event that you cannot pay back your loan. These protective measures usually come in the form of high financial charges and interest rates.

Of course, having a credit report is one thing. Having a good credit report is another. According to Bankrate.com, having no credit report, although it is not the ideal situation, is still a lot better than having a bad credit record. Having no credit history means you have a clean slate. Having a bad credit report means you have been a very naughty credit holder. The bottom line is – if you cannot maintain a good credit history, then you might as well just have no history at all.

Tips to build up your credit reputation

Building your credit history from scratch is easier than rebuilding a bad credit report. Here is a video from the Bank of America that will give you tips on how you can build your credit history from scratch.

When it comes to rebuilding your credit report, there are a couple of tips that you need to follow:

  • Borrow money wisely. First of all, you need to learn how to borrow money in a smart way. Unfortunately, some Americans will have to take more lessons when it comes to this. According to an article published on USNews.com, 37% of Americans are in a dangerous financial situation. It is revealed by the study done by Bankrate that 1 out of 3 consumers have more credit card debt than their emergency savings. If something goes wrong, it can put them in a very difficult financial position. You need to learn how to borrow wisely. Although a credit report requires you to use credit, you need to choose which debts can improve your life. Do not just borrow just for the sake of using credit.
  • Pay your dues on time. When you borrow money, you need to pay it back in time. The biggest consideration in your credit history is your payment behavior. If you cannot pay your dues in time, your credit report will suffer greatly.
  • Have multiple loan types. Multiple loan types do not mean having a lot of credit card accounts. Your credit card, regardless of how many you have is only counted as one. Multiple loans mean having a revolving credit (credit cards) and non-revolving credit (mortgage).
  • Be mindful of your credit balance. Credit utilization is also very important. This is the relationship between your balance and your limit. The nearer the balance is to your limit, the more damaging it is to your credit history.
  • Do not open too much credit accounts all at the same time. Opening too many credit accounts is also not good. You need to space your new accounts – if you really need them all. You need to learn how to time your applications so that it will not result in a lot of hard inquiries on your credit report.

A credit history is not really compulsory but it can help set up your future so you can be financially stable.

Want To Be An Entrepreneur? Better Keep An Eye On Your Credit Report

credit score, report and historyIf you want to start your own business, one of the things that you need to consider is your credit report.

We live in a society wherein being in debt is the norm. Just look at how our credit cards have become as prominent as cash in our wallets. For some people, if you want to have something done, you need to borrow money to be able to afford it. We would rather acquire something now and pay for it later instead of just waiting to save up for it.

When it comes to a business, that line of thinking becomes logical. If you want to improve your finances for a better way of living, starting your own business is sometimes the way to do it. After all, the profits from your business may be able to pay for your debts. But if you want to start a business, you need to make sure your current financial situation will allow you to do it. And when we talk about your financial situation, it means taking a good look at your current credit situation by looking at your credit report.

If your credit situation is not appealing, that might keep you from becoming an entrepreneur. Take for instance the start up story of Sir Richard Branson, noted businessman and investor. According to an article published on Entrepreneur.com, when Sir Richard started Virgin Records (now Virgin Group), he has a lot of the characteristics of a great businessman – except for excellent credit. This resulted in him borrowing from his savings and his relatives just to fund his start up business. Thankfully, he had other sources of funding for his new business.

What if you do not have that option? Will you just let go of your entrepreneur dreams? Or will you do something about your credit report so you can finance your dream business?

Your credit score will matter when you start a small business

Obviously, the answer to this is to make sure you credit score is in top shape so you can use it to take your financial life to the next level. You need to work on your creditworthiness because it can affect your start up in three ways.

When getting a business loan

It is very rare that someone has the cash to use for their start up business. This is why a business loan is usually needed by new entrepreneurs. According to an article from Entrepreneur.com, 25% of early-stage entrepreneurs use bank financing and credit cards to help with their funding needs. When it comes to credit from banks, they will most certainly take a look at your personal credit score. Since you are after a start up business, you do not have a business credit score yet. That mean the credit institutions will still rely on your personal credit reputation to see if you are worthy of getting a business loan.

Of course, there are other sources of funding like those from the US Small Business Administration or SBA. Their website, SBA.gov, holds information that you can use to find the right federal loan for your start up company. But while they offer loan programs, you need to know that the interest that they will impose on you will still depend on your credit score – if you qualify at all. If you have a bad score, then you will be given a high interest on your loan.

When getting partners or suppliers

Another thing that you need to be concerned about is acquiring business partners or suppliers. Unless you business will be purely reliant on your own skill, you will need suppliers. The bigger your dreams are for a company, the more likely you will need partners or suppliers. Given that, guess what they will look at before they get into an agreement with you? That’s right – your credit report. If you have a bad credit record, suppliers will hesitate to give you flexible payment terms. Your bad credit score may not keep them from supplying you with your needs, but they might be a bit strict when it comes to payment. With a good credit record, some suppliers allow businesses to pay after 90 days or even more. Since a bad credit record usually means you do not have good payment behavior, they will most likely give you a hard time getting favorable terms.

When bidding for clients

The last thing that can be ruined by a bad credit report is getting clients. When you are bidding for an account with a big client, they will most likely look at your credit score to see your financial reputation. Someone who fails to meet payment on time or have a lot of debt is not really someone that you want to go into business with. Do not give that impression to your clients. You need to appear clean to them so put your credit records in order. These clients will be responsible for giving you hefty profits. Make sure they will not be turned off by your past credit behavior.

Credit management tips to improve your credit records

Thankfully, there are ways for you to improve or fix your credit score. You just have to be committed to cleaning your act because proper credit behavior may involve breaking some of your financial habits. Here are some tips when you need to improve your credit records.

  • Use credit wisely. We are not saying that you should not use debt. In fact, having a credit report means you need to continually use credit. The thing is, you need to use debt wisely. Do not borrow just for the sake of borrowing. You need to know why you are borrowing money and use it as intended.
  • Pay your bills on time. Your payment behavior is 35% of your credit score – at least, this is true if you are using the FICO score. This score is used the most by creditors and lenders. While there are other formulas to compute your credit score, all of them place a huge importance to how you pay your bills. So pay off your dues in time and you can watch your credit report improve.
  • Keep your debt levels low. This is connected to borrowing wisely. If you know that you have a lot of debts already, try to keep a lid on your credit spending. Use cash or lower your overhead expenses so you can send bigger payments towards your debt accounts.
  • Monitor your credit report. Lastly, you want to make sure that you will be monitoring your credit report every now and then. Your personal credit records can become a victim of identity theft. This can ruin your score – especially if someone borrowed under your name and it remained unpaid for a long time. When you look at your credit report often, you can see if an unauthorized financial transaction happened. You can counter that immediately. Even if you start building your business credit records, you still have to monitor it carefully. According to Fundtastic.com, business credit reports have a higher chance of having errors. That is because some businesses have similar names and if your record was pulled out incorrectly, that can result in a wrong entry. You need to make the necessary corrections immediately to avoid problems in the future.

Starting your own business is a great journey to start. Just make sure that your credit report is ready to support you and open the best financial opportunities.

What You Need To Know About Medical Debt And Your Credit Score

stethoscope on top of coinsDid you know that medical debt is one of the reasons why a lot of Americans are having troubles with their credit scores? We all know how important credit scores have become in our society today. This score measures your creditworthiness. Before you are approved of a loan application, the creditor or lender will always check your credit score to determine how risky you are when it comes to payment behaviour. The idea is, when your credit score is low, there is a higher chance that you will not pay back what you borrowed from creditors and lenders.

But recent studies have shown that not all individuals with low credit scores are entirely irresponsible when it comes to debt. According to an article published on CBSNews.com, over half of the overdue balance on consumer credit reports is caused by unpaid medical debt. Most of them are unpaid because of reimbursement delays from health insurance companies. Other causes include medical billing errors and disputes that have yet to be resolved.

Apparently, there is some shady business going on when it comes to collecting medical bills. When the hospital, health facility or medical professional have unpaid receivables, they turn it over to medical debt collectors. These collectors go after consumers for payment – even when it is clear that the payment should be coming from health insurance companies. To pressure consumers into paying their bills from their own pockets, debt collectors file an unpaid report to the major credit bureaus. This results in a low credit score for a lot of consumers.

These findings came from the Consumer Financial Protection Bureau or CFPB. They have been compiling reports, complaints and observations with the intention to protect consumers from this seemingly unfair practice of reporting medical debt.

Based on the article from CBS News, the efforts of the agency is effective because a medical debt collector had been apprehended because of these shady practices. A settlement with Syndicated Office Systems had resulted in a $5.4 million payout to more than 23,000 consumers who had been wrongly hounded for medical bills. This payout is in checks of $100 to $1,000 – depending on how each consumer is affected by the illegal practices of the medical debt collection industry.

New rules when reporting health-related debt to credit bureaus

If you are currently burdened with medical bills, you need to understand the new rules that should protect you from getting a bad credit score.

Based on the December 2014 report published by the CFPB in their website, ConsumerFinance.gov, an estimate of 43 million Americans are found to have overdue medical bills. Most of these consumers are found to have ruined credit reports because of this debt.

According to the findings of the agency, there is something wrong with the way the system incurs, collects and reports medical debt. Among the things that was discovered to be wrong includes the following:

  • Confusing billing process for medical expenses. Some consumers incur a lot of bills – from the hospital, separate treatment sessions, professional fee, etc. These multiple providers can be quite confusing. Not only that the cost sometimes vary from one client to the next because of factors like the insurance, etc. This is why some consumers are unaware of how much they really owe in terms of their medical bills.
  • No standard practice in reporting overdue bills. The lack of standard procedure when reporting overdue medical debt is another reason why this is a big problem for consumers. There is no clear indication when their unpaid medical bills will end up in their credit report. Other debts will wait until after a pre-determined period passes before they report the unpaid debt to the major credit bureau. For medical bills, it can vary from 30 to 180 days. It depends on the health care provider when they will send the report.
  • Practice of “parking” unpaid debts on credit reports. This means the debt collector reports the unpaid medical bill and does not inform the consumer about it. This practice puts the consumer in danger of damaging their credit report without being given the chance of doing something to prevent it.

To deal with these problems, the CFPB required credit reporting companies to provide them with accurate reports on a regular basis. This will help them examine how to deal with the problems that consumers are facing when it comes to their medical debt. The agency would like to make the credit reporting market accountable for the accurate credit reports that consumers have. This market includes the credit bureaus (Equifax, Experian, and TransUnion), and the creditors and collectors providing the report.

Apart from the CFPB, a group of State Attorney Generals are also working on this problem too. According to an article published on Time.com, it will soon be easier for consumers to correct any errors on their credit report – especially if it involves their medical debts. The article mentioned how the three major credit bureaus have agreed to improve how they report medical debt and how they will deal with any errors that customers are complaining about. This change is part of their response to the settlement with Eric Scheiderman, the New York State Attorney General. The changes will be implemented six months from March 2015. The credit bureaus are expected to provide trained employees that will review the complaints of consumers and investigate accordingly.

Not only that, the credit bureaus are required to wait 180 days before they are allowed to add any unpaid medical debt in the report of the consumer. This is meant to give the consumer enough time to work on their unpaid debt before it damages their credit report.

According to the CBS News article mentioned earlier, some of the problems need to be put into law and thankfully, legislators are also working on it. In May of 2015, US Reps. John Carney (D-Delaware) and Andy Barr (R-Kentucky) introduced a bill known as the Medical Debt Relief Act. This bill seeks to allow the erasure of paid medical debts from credit reports within 45 days after full payment. It might be a long time before this is passed but the step in that direction is already taken.

How to keep medical bills from ruining your finances

While all of these steps are being taken, it is important for consumers to take their own steps to keep their medical debts from ruining their personal finances. According to the report from CFPB, there are 15 million consumers who only have medical debt on their credit report – nothing else. 20% of credit reports have at least one overdue medical bill. There are too many consumers being affected by the bad credit reporting practices for unpaid medical bills. You need to make some effort to keep your debt from ruining your financial life.

Of course, dealing with big medical bills is easier said than done. It takes dedication, self control and constant vigilance to help keep your debt from ruining you. Here are four things that you can do.

  • Keep yourself healthy. Prevention is better than cure. If you can avoid it, do not incur the debt. Live a healthy lifestyle so you do not have to spend on medical expenses.
  • Get insurance. If you know that your family is prone to certain illnesses, have yourself insured. It is better to be prepared by buying the right health insurance for you and your family as well. That way, you do not have to break the bank every time someone in the family falls ill.
  • Save up for emergencies. Apart from a health insurance, you can also avoid medical debt if you save up for these unexpected expenses. Grow your emergency fund so you have something to dip into when you need it the most.
  • Deal with your other debts. One way that you can also keep your medical debt from ruining you is by paying off your other debts. In most cases, people with too much debt are stressed. We all know how stress can cause a lot of health issues. Do not let stress rule your life so illness can stay away from you too.

Getting Your Credit Score Is Now Easier Than Ever

Man climbing range of credit scoresYour credit score is that three-digit number that rules your credit life. If you have a number above 660 you should be able to easily get a new credit card, a personal line of credit or an auto loan. You will be able to rent a house or an apartment and you will save money on your auto insurance premiums. On the other hand if you have a score of less than 500 you may have a very hard time getting any kind of credit.

A deep dark secret

Credit scores used to be a deep, dark secret known only to lenders. FICO, the company responsible for developing credit scoring, provided credit scores only to lenders and the three credit reporting bureaus. You could get your score by paying FICO or free from Experian, TransUnion or Equifax. However this would not be your FICO score but your Vantage score, which is based on a model developed by the credit bureaus.

Now easier than ever

Nearly half of us have checked our credit scores within the past year. According to a Bankrate Money Pulse survey another 14% have checked their scores within the past three years. Unfortunately not everyone has done this. Many Americans have never gotten their credit scores. In fact, a 2013 study from the American Bankers Association found that 56% of us did not know our credit scores.

The good news is that over the past few years credit scores have become easier to access than ever before. If you have a certain type of Discover card you’re probably getting your credit score every month. US Bank recently began providing its customers with their TransUnion credit scores. Bank of America is beginning to provide FICO scores to its consumer credit card customers and Chase is providing FICO scores at no cost to its Slate cardholders. Citi now provides free FICO scores monthly to those that have Citi-branded cards.

Even FICO is getting onboard

FICO recently said that it would provide versions of its score free to customers that are financially strapped. This will be done through certain nonprofit credit counseling agencies and government organizations that participate in the program`.

Websites that provide credit scores

In addition to the three credit reporting bureaus there are several websites that provide free credit scores. The most popular of these are Credit.com, Credit Karma, Quizzle and Credit Sesame. If you sign up with one of these websites you’ll get a good idea of your score with each of the three credit bureaus. And if you combine the twice yearly free Equifax credit report from Quizzle with Credit Karma’s free credit reports. plus the free credit reports available at www.annualcreditreport.com you should be able to spot any identity theft early on.

How lenders view youpoor credit score

While getting your credit score is a good idea it’s even more important to understand how lenders view it. They generally look at credit scores in ranges as follows:

• Excellent Credit: 781 – 850
• Good Credit: 661-780
• Fair Credit: 601-660
• Poor Credit: 501-600
• Bad Credit: below 500

How credit scores are calculated

FICO calculates credit scores using a proprietary algorithm. Vantage scores are based on an algorithm developed by TransUnion, Experian and Equifax. No one outside these four companies knows exactly how their credit scores are calculated but it’s known that FICO scores are based on five factors.

  • Credit history
  • Credit Utilization ratio
  • Length of credit history
  • New credit
  • Credit mix

Of these five the most important is credit history or how you have used credit in the past as it accounts for 35% of your score. Credit utilization is sometimes called your debt-to-credit ratio. It accounts for 30% of your score and is computed by dividing the amount of credit you’ve used by the total amount of credit you have available. Length of credit history is how long you’ve had credit. It makes up 15% of your score while new credit and credit mix each accounts for 10%. Your credit mix is the different type of credit you have – for example an auto loan, a mortgage and credit cards. New credit is sort of a misnomer because what it really means is the number of accounts you’ve opened recently. This can be important to potential lenders because it suggests you might be having financial problems and are desperately seeking new lines of credit.

To improve your score

If you have a low credit score and would like to improve it there are only several things you can do. If you’ve seen ads that scream, “Increase your credit score to 700 overnight” or “We’ll get those negative items off your credit report,” we have three words for you: Don’t believe them. There is absolutely no way to get a credit score increased overnight and while it’s possible to get negative items removed from a credit report it’s not something that any third-party can do.

There’s obviously nothing you can do about your credit history because it’s history. What’s done is done. You could improve your credit utilization ratio using one of two options. First, you could pay down your balances so that you would have a better debt-to-credit ratio or you might be able to get one or more of your credit limits increased – although this is generally easier said than done.

You could also improve your credit mix. For example, if you only have one credit card and an auto loan you could open a second card or take out a personal line of credit. The reason why this accounts for 15% of your credit score is that potential lenders like to see that you’ve successfully managed different kinds of credit. Of course, it will take time for this to improve your credit score because you’ll need to show you can handle that new credit card or personal line of credit sensibly.

If you have bad credit

If you have a credit score of 500 or below, you have some hard work ahead of you. The first thing you will need to do is get a free copy of your credit reports either from the three credit reporting bureaus or all at once on the site www.annualcreditreport.com. Go over your reports very carefully looking for the items that have sabotaged your credit score. These include late payments, missed payments, accounts that have gone to collection and defaults. You may be able to catch up on late payments and you could, of course, take care of missed payments. Just because you’ve defaulted on an account doesn’t mean you no longer owe the money. If you pay off the balance of a defaulted account it will still be listed as a default but as paid in full. The same thing is true of an account that has gone to collection. You will need to pay it off or negotiate a settlement with the debt collection agency to get square on it. As you can imagine all of this takes time as well as money. Beyond this you might get a secured credit card. Use it sensibly and this will be reported to the three credit bureaus, which will ultimately help improve your credit score.

Credit Lessons Your Parents Forgot To Teach You

choosing between good and bad creditDid your parents have two “little talks” with you? If so, the first undoubtedly had to do with, well, we don’t have to tell you what it was about. But if you were lucky there was a second “little talk” about personal finance. Your parents might have warned you about not creating debt, about saving and investing and maybe even about the importance of budgeting. But even that talk about personal finance probably did not include some very important lessons about credit. Or maybe they did talk to you about credit but you just sort of tuned them out because it was boring or you didn’t feel it was really something you needed to know. In either event, here are six credit lessons that your parents probably forgot to teach you that you really should know.

Just a half-a-percentage interest rate reduction does matter

Your parents might not have told you this but when it comes opening a line of credit it’s possible to negotiate a better interest rate. You might not get exactly what you ask for but you and your lender could end up with an interest rate lower than what you were originally offered. This is a case where just a .5% interest rate reduction can actually make a difference. As an example of this, if you applied for a $1000 loan at 17% but then negotiated this down to 16.5%, you would save five dollars a month. That’s a beer, a latte or in 12 months, a pair of shoes.

Paying interest can be really, really painful

It’s just not fun having to make monthly credit card payments. But it becomes much more painful when you add interest to your balance. Most credit cards today have an interest rate above 12%. If you make just the minimum payment or, worse yet, carry balances forward from month-to-month it can get really painful. As an example of this if you owed $5000 on a credit card at 15% and paid just the minimum each month it will take you 56 months to pay off that $5000 and will cost $1974 in interest.

Using a credit card can protect you from fraud

If you are asked to name the safest way to make a purchase and your choices were credit, cash or debit what would be your answer? The odds are that you would say a debit card. But you’d be wrong. The best way to protect yourself from fraud is by using a credit card to make your purchases. The reason for this is if you became the victim of identity theft most credit card issuers will remove those fraudulent purchases as soon as you alert them to suspicious activities. Plus, they generally limit your liability to $50. If you use a debit card then filing a claim could be much more complicated and it might be two weeks or more before you’re reimbursed for those fraudulent purchases.

man jumping with a chart behind himGood credit doesn’t just happen

The harsh truth is that good credit doesn’t build itself. You need to be proactive. Getting and keeping a good credit score can save you a lot of money over the long run. If you have a good credit score you can lock down lower interest rates and make larger purchases such as taking out a mortgage. If your goal is to build good credit, you should start soon and start small. Make a few small purchases with your credit card and then immediately pay for them. When you make small purchases and pay them off immediately this will help you build good credit habits early on as well as a good credit score.

An even better idea is to start with a secured card. If you’re not familiar with this type of card it’s where you deposit money with a bank – usually $300 or $500 – and then use the card to make purchases until your balance reaches zero or near zero. At that point if you want to keep using the card you will need to deposit more money. There are two good things about a secured card. First, it prevents you from creating debt. Second, how you use the card will be reported to the three credit reporting bureaus and, assuming you use it sensibly this will help you build a good credit score.

Your credit limits aren’t just suggestions

When you got that first credit card and saw it had a limit of $2500 that was pretty exciting. Just imagine! You instantly had $2500 at your disposal, right? Well, yes and no. Just because you have a credit limit of $2500 doesn’t mean you should use it. Most financial experts say that you should keep your credit utilization or how much of your limit you’ve used below 30%. This means is that you should use only 30% of that $2500 or $1500 total. The reason for this is because your credit utilization counts for approximately 30% of your credit score. If your credit utilization were 40% or even 50%, this would definitely ding your credit score. Do the math. If you find that your credit utilization is above that magic 30% you need to either get to work paying down your balance or open another credit card so that your credit limit would go up accordingly.

Your credit score will ultimately depend on your financial philosophy

Whether you have a good or bad credit score will ultimately depend on your financial philosophy or whether you’re an ant or a grasshopper. If your approach to finances is that of an ant where you’re saving money, paying off your balances on time every month and have an emergency fund, you’ll ultimately have a very good credit score. It may take a while but it will happen. On the other hand, if you’re more of a grasshopper – if you spend money as fast as it comes in or if your approach to debt is that of Scarlett O’Hara and “I’ll worry about that tomorrow” – it’s absolutely certain that you will end up with a poor or bad credit score. And a bad credit score will cost you money in the form of higher interest rates, higher insurance premiums and might even prevent you from renting an apartment or house.

Don’t Think Credit Is Critical To Your Everyday Life?? Better Think Again

Whether you think about it this way or not credit can have an incredible effect on your life and even on your employment. One good way to think of it is as a cloud that follows you everywhere you go. It can be a nice, fluffy, little cloud or a big, black cloud.couple going over bills

Learning where you stand

Your credit score, which is a little three-digit number, tells where you stand and how potential lenders will view you. If you don’t know your credit score one good place to get it is using Credit.com’s Credit Report Card. This tool will even divide your credit score into sections and show you a grade for each of them. For example, when you access it you will be able to see how your payment history, your debt and the other factors affect your score.

Automobile loans

When you apply for an auto loan your credit score will dictate the interest rate you get. Most auto lenders won’t review your financial history or read your complete report. They will rely instead on your score and the data on your application. If your score is 750 or above you will get the best interest deal available, which can be 0%. What happens if you have a low credit score? You’ll still be able to get that loan but it will come at a very high interest rate. Where can you get the best auto loan interest rates? The answer is generally from credit unions and online lenders and not auto dealerships.

Cell phones

You’re probably not aware of this but cell phone companies generally check your credit before they give you a service plan. If you have bad credit you may be required to put down a larger down payment or pay extra for your contract. Some cell phone companies don’t require a credit check so if your credit is bad your best bet would be to hunt down one of them. Also be aware that some service contracts give the company the right to review your credit at any time.

Renting in apartment

Perspective landlords and rental agencies usually will review your credit report. What they look for are missed payments and other negative information on your report that shows you might not be a reliable tenant. People that have bad credit are often required to put down a much larger deposit or to get a co-signer. In a worst-case scenario your application might be turned down. Unfortunately, if you have been making your rent payments on time this won’t help your credit score because this is not reported to the credit bureaus. However, this may change. More and more property management companies and landlords will now report a positive rental history, which can help you build your credit. One good tip is to ask your landlord if it currently reports your rent payments. If not, you could suggest that it use a service such as RentTrack where you pay your rent online. Your payments would then be reported at least to the credit bureau Experian.

Checking and savings account

Banks and credit unions don’t check credit reports when you apply for a checking or savings account. However they will use ChexSystems to review your history of banking negatives such as bounced checks before giving you an account.

poor credit scoreCredit cards

Make no mistake about this. If you apply for a credit card, the issuing company will review your credit score to determine whether you qualify and the terms you will receive. There are credit card offers that actually have different interest rates for borrowers depending on their credit scores. As a general rule cards with low APR’s or that offer rewards require high credit scores. While you might know that credit card companies will check your credit score when you apply for a card you might not know that some of them review your credit scores even when you are an existing customer and may then adjust their rates accordingly.

Potential employers

More and more employers now routinely check the credit reports of prospective employees. However, they must get your permission in writing before they can do this. What employers generally look for are major negatives or discrepancies. In the event a prospective employer takes “adverse action” based on your credit report, it must first notify you and then give you a copy of your report.

Insurance

When you submit an application for home or auto insurance, the company will use your credit information to determine your terms and rates. While the scores and reports that insurance companies use are a bit different than those used by creditors and lenders, your basic data and standing will be the same. The insurer must ask for permission to access your credit reports and may use that data to determine your “insurance risk score.” If you have a high score your rates will be better.

Utility accounts

You will probably need to give your permission but cable, electricity and other utilities companies will check your credit report. If you have a problem with your credit you will probably need to put down a bigger deposit, pay higher rates for your utilities or get a co-signer. If you live in a state that has community property laws such as California, Texas and Arizona, the utility companies might even check your spouse’s or partner’s credit history.

Mortgages

If you apply for a mortgage the lender will review all three of your credit reports and credit scores. Since a mortgage loan is typically much bigger then a student or auto loan, the review process is much more comprehensive. You’ll need to have a credit score above 700 to get a standard mortgage interest rate.

Child support

Agencies that enforce child support routinely check the child support payment and credit histories of delinquent parents. When they make an inquiry about your credit history this will not appear on your credit report and will not change your credit score. However, if you don’t pay child support this will be reported by the child-support enforcement agencies to the credit bureaus and can damage your credit score.

Student loans

If you or your parents apply for a private student loan the lender will check your credit report. However, the interest rates on federal student loans are set based on national rates so these loans do not require a credit check.

Omnipresent is the word

As you can see from what you’ve read in this article your credit is totally omnipresent or threaded throughout your entire financial life. If you have a good score of 750 or above, the world is your oyster. You should be able to rent an apartment, get a credit card, open a checking account or get a cell phone plan with no problem at all. Unfortunately, the opposite is true. If you have a poor score that big, dark cloud hanging over your head is going to make your life much more difficult.

Is The Idea Of Credit Repair True Or Just A Scam?

Man in ski maskWe heard a radio commercial just yesterday by a company that promised it could repair your bad credit. We have also seen promises such as:

“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever“!”

“Create a new credit identity — legally.

“Credit problems? No problem!”

“We can erase your bad credit — 100% guaranteed.”

Is this really possible or are these just the false promises of scam artists?

First, let’s get one thing straight. No company can get your credit totally repaired if your credit reports are riddled with judgments, a bankruptcy, liens and items that have gone to collection. Once those types of items are on your credit reports they will stay there for seven years – all those promises to the contrary.

Know what can be done

There are some things that can be done to your credit reports to help repair your credit. But here’s the good news. You don’t have to pay a company to do this. These are things that you could do yourself and that are not all that complicated or time-consuming.

Do first things first

Maybe this goes without saying but we will say it anyway. There is nothing you can do in credit repair until you’ve seen your credit reports. The first thing you need to do is get the latest copies of your reports so you can see what it was you did that resulted in your current fix. You actually have three credit reports, as there are three credit-reporting bureaus. You can get them free on the site www.annualcreditreport.com. or from the three credit reporting bureaus –Experian, TransUnion and Equifax. In the future you may want to get each of your credit reports at four-month intervals so that you can continually monitor your credit. But for now you need all three of your reports because the credit bureaus typically don’t share information and it’s possible that there is different information in each of your reports. When you get all three, this will give you a total view of your credit situation and will enable you to repair your credit at all three of the credit-reporting bureaus instead of just one. You might also want to make a copy of your reports in the event you need to dispute some information on them. That way you could send a copy of your report to the appropriate credit bureau but would still have one for your records.

Correct any errors

As you review your credit reports look carefully for errors. These could be purchases you don’t remember having made, wrong amounts or merchants you don’t remember having done business with. If you find errors and believe they’re having an adverse affect on your credit score you need to dispute them with the appropriate credit bureau. You’ll need to tell it in writing the information you think is inaccurate. You will need to identify each thing in your report that you are disputing and the reasons why you are disputing it. And you’ll need to ask that it be corrected or removed. It’s good to enclose a copy of the credit report and circle the items that you’re disputing. Be sure to send your letter by certified mail return receipt requested.

When the credit reporting bureau receives your letter it must investigate the items you have questioned within 30 days. It must forward to the organization or business that provided the information all the relevant data that you sent it. When the business or organization receives that information from the credit bureau it must review it and then get back to the credit-reporting agency within 30 days. If it cannot verify the information or fails to respond within the 30 days, the credit-reporting bureau must remove it from your credit file. The credit bureau must give you the results of the investigation in writing and if it has corrected your credit file it must send you a new credit report free.

Tackle your past due accounts

If you have any past due accounts that are less than 180 days past due you can save them from being charged off. You will want to do this because a charged off account is one of the worst things that can happen to your credit score. To save that past-due account from being charged off you will need to contact your creditor to figure out what you will need to do to get current. In some cases, your creditor might be willing to waive some of the late penalties or even spread your past due balance over several payments. It’s important to let the lender know that you’re anxious to avoid a charge off but will need some help.

Pay charged-off accounts

If you find that you have accounts that have already been charged off you should pay them, too. You’re still responsible for them. The only good news is that as they get older they will not have as much an effect on your credit score. However, if you have a charged-off balance, it will make it difficult – and in some cases impossible – to get new credit or loans. When you pay a charged-off account in full it will show on your credit report as having a $0 balance and that the account was paid but the item will still stay in your credit files for seven years.. Alternately, you might be able to talk the creditor into settling for less than the original balance. Or you might talk the lender into deleting the status of the account as charged off if you agree to pay it.

What to do if an account has gone to collection

Many lenders will sell your unpaid account to a debt collection agency after six months. If this happens to you your approach should be about the same as for a charge-off. You’ll need to pay your balance in full or try to settle the debt for less than the original balance. Be aware that collection agencies cannot change what was on your credit report before they received your account. However, they can change any information they added to your account after they received it. Before you pay your balance in full you need to determine what information was added to your account and make sure the agency agrees to delete it.

Where to put money toward repairing your credit

Since it’s likely that you will only have a limited amount of money to put towards credit repair each month you’ll need to prioritize where you put it. You should first focus on any accounts that are close to becoming past due. Try to get as many of them current as you can. Next, go to work bringing down the balances on your credit cards. Third, work on any accounts that have already been charged off or have gone to a collection agency.

man jumping with a chart behind himGet new credit to help your credit score

Once you’ve done all you can to repair your credit, your next step should be to work on getting new credit. When you get new credit and make your payments on time this will help your credit score. You may not be able to get a major credit card so try applying for a retail store card. Retail merchants have the reputation for approving those applicants that have a bad or limited credit history. A second option would be to get a secured credit card. This is where you make a deposit to secure the card. Just make sure that the bank that issues the card reports how you use it to the credit reporting bureaus – to help you build a new and better credit history.

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