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Learn How To Control Your Debt
If you are currently in excess debt, there are four ways to control it:
If your credit is not in terrible shape, you can reduce your other expenses, even if it means
making hard choices or changing your lifestyle to fit your income. Consider selling a second
car, taking equity out of your home, applying for a non-secured signature loan, obtaining a
loan from a relative, selling your home and paying off your debts with the proceeds and then
renting, cashing out your 401K/retirement benefits or selling family heirlooms, jewelry, etc.
If you're debts are under control now, but want to improve your credit history, the most
important factor is to make your monthly payments on time. Use pre-addressed envelopes
enclosed with your statements to mail your payments and call the company if you don't
receive your usual statement. Also send your payment as early as possible if you carry a
balance. Most companies calculate interest on a daily basis, so the sooner they receive your
payment, the less interest you'll pay.
Don't procrastinate. It's the day your payment is received that counts, not the postmark date.
Give the post office sufficient time (five business days is a good guideline) to deliver your mail.
Late payments may mean late fees, higher interest, and/or a negative mark on your credit
report.
Never send cash. Open a checking account if you don't have one, or spring for a money
order and keep your receipt. Finally don't forget to tell your creditors your new address when
you move.
If you are worried about making payments, make a list of your debts and when the payments
are due. Contact your lenders immediately if you think you will have trouble meeting the
monthly payments to arrange a payment schedule.
Taking money from your retirement account or tapping the cash value of your life insurance
policy to pay bills or living expenses may have serious implications you haven't considered, so
try to get advice from an expert before you take any major financial actions.
Credit cards can be invaluable in a crisis, since they allow you to charge items and pay them
off over time. But they can also be dangerous if you aren't careful and charge more than you
can afford. If you do use credit cards, choose those with the lowest interest rates and pay
them back as soon as you can to cut your costs.
Credit Scoring - How it Works
Credit scores only consider the information contained in your credit profile. They do not
consider your income, savings, down payment amount, or demographic factors like gender,
race, nationality or marital status. Past delinquencies, derogatory payment behavior, current
debt level, length of credit history, types of credit and number of inquiries are all considered in
credit scores. Your score considers both positive and negative information in your credit
report. Late payments will lower your score, but establishing or re-establishing a good track
record of making payments on time will raise your score.
Different portions of your credit file are given different weights. They are:
35% - Previous credit performance (specific to your payment history)
30% - Current level of indebtedness (current balance compared to high credit)
15% - Time credit has been in use (opening date)
15% - Types of credit available (installment loans, revolving and debit accounts)
5% - Pursuit of new credit (number of inquiries)
The most important factor for a good credit score is paying your bills on time. Even if the debt
you owe is a small amount, it is crucial that you make payments on time. In addition, you may
want to: keep balances low on credit cards and other "revolving credit;" apply for and open
new credit accounts only as needed; and pay off debt rather than moving it around. Also don't
close unused cards as a short-term strategy to raise your score. Owing the same amount but
having fewer open accounts may lower your score.
Recent changes minimize the negative effects that rate shopping can have on a mortgage
applicant. If there is a consumer originated inquiry within the past 365 days from mortgage or
auto related industries, these inquiries are ignored for scoring purposes for the first 30
calendar days; then, multiple inquiries within the next 14 days are counted as one. Each
inquiry will still appear on the credit report.
Every score is accompanied by a maximum of four reason codes. Reason codes identify the
most significant reason that you did not score higher. The reason codes can help a lender
describe the reasons for higher than expected rates or loan denial. Scores are not part of the
credit profile and are not covered by the Fair Credit Reporting Act.
Your credit report must contain at least one account which has been open for six months or
greater, and at least one account that has been updated in the past six months for you to get
a credit score. This ensures that there is enough information in your report to generate an
accurate score. If you do not meet the minimum criteria for getting a score, you may need to
establish a credit history prior to applying for a mortgage.
Credit scoring is a statistical method that lenders use to quickly and objectively assess the
credit risk of a loan applicant. The score is a number that rates the likelihood you will pay back
a loan. Scores range from 350 (high risk) to 950 (low risk). There are a few types of credit
scores; the most widely used are FICO Scores, which were developed by Fair Isaac &
Company, Inc. for each of the credit reporting agencies.
If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7
bankruptcy. A Chapter 7 bankruptcy is the least desirable from a credit standpoint, but you
are typically out of bankruptcy in 6 months and you don't have to repay any debt. The
disadvantage is that this shows on your credit report for 10 years from the date of filing your
bankruptcy. Creditors are starting to tighten their credit requirements, and you may have a
tough time getting future financing.
If CCCS won't take you, you may want to consider bankruptcy. Claiming Chapter 13 bankruptcy
takes longer than a Chapter 7, but your credit will end up in a little better standing. Chapter 13
bankruptcy gives you up to 5 years to pay off your debts. The disadvantage is that you're in
bankruptcy for up to 5 years plus your credit report shows your bankruptcy for 7 more years
after you have finished paying off your debts.
If your credit is already damaged or one of the above isn't an option, go through Consumer
Credit Counseling Services (CCCS). Check your yellow pages for the local number. CCCS may
be able to help you pay off your debts as if you were in a Chapter 13 bankruptcy, but you
don't actually file for bankruptcy. BUT MORTGAGE LENDERS LOOK AT A CCC AS A
BANKRUPTCY.
If you have had credit problems, be prepared to discuss them honestly with a mortgage
professional. Responsible mortgage professionals know there can be legitimate reasons for
credit problems, such as unemployment, illness or other financial difficulties. If you had a
problem that's been corrected, and your payments have been on time for a year or more,
your credit may be considered satisfactory.
If your credit is not in terrible shape, you can reduce your other expenses, even if it means
making hard choices or changing your lifestyle to fit your income. Consider selling a second
car, taking equity out of your home, applying for a non-secured signature loan, obtaining a
loan from a relative, selling your home and paying off your debts with the proceeds and then
renting, cashing out your 401K/retirement benefits or selling family heirlooms, jewelry, etc.
If you're debts are under control now, but want to improve your credit history, the most
important factor is to make your monthly payments on time. Use pre-addressed envelopes
enclosed with your statements to mail your payments and call the company if you don't
receive your usual statement. Also send your payment as early as possible if you carry a
balance. Most companies calculate interest on a daily basis, so the sooner they receive your
payment, the less interest you'll pay.
Don't procrastinate. It's the day your payment is received that counts, not the postmark date.
Give the post office sufficient time (five business days is a good guideline) to deliver your mail.
Late payments may mean late fees, higher interest, and/or a negative mark on your credit
report.
Never send cash. Open a checking account if you don't have one, or spring for a money
order and keep your receipt. Finally don't forget to tell your creditors your new address when
you move.
If you are worried about making payments, make a list of your debts and when the payments
are due. Contact your lenders immediately if you think you will have trouble meeting the
monthly payments to arrange a payment schedule.
Taking money from your retirement account or tapping the cash value of your life insurance
policy to pay bills or living expenses may have serious implications you haven't considered, so
try to get advice from an expert before you take any major financial actions.
Credit cards can be invaluable in a crisis, since they allow you to charge items and pay them
off over time. But they can also be dangerous if you aren't careful and charge more than you
can afford. If you do use credit cards, choose those with the lowest interest rates and pay
them back as soon as you can to cut your costs.
Credit Scoring - How it Works
Credit scores only consider the information contained in your credit profile. They do not
consider your income, savings, down payment amount, or demographic factors like gender,
race, nationality or marital status. Past delinquencies, derogatory payment behavior, current
debt level, length of credit history, types of credit and number of inquiries are all considered in
credit scores. Your score considers both positive and negative information in your credit
report. Late payments will lower your score, but establishing or re-establishing a good track
record of making payments on time will raise your score.
Different portions of your credit file are given different weights. They are:
35% - Previous credit performance (specific to your payment history)
30% - Current level of indebtedness (current balance compared to high credit)
15% - Time credit has been in use (opening date)
15% - Types of credit available (installment loans, revolving and debit accounts)
5% - Pursuit of new credit (number of inquiries)
The most important factor for a good credit score is paying your bills on time. Even if the debt
you owe is a small amount, it is crucial that you make payments on time. In addition, you may
want to: keep balances low on credit cards and other "revolving credit;" apply for and open
new credit accounts only as needed; and pay off debt rather than moving it around. Also don't
close unused cards as a short-term strategy to raise your score. Owing the same amount but
having fewer open accounts may lower your score.
Recent changes minimize the negative effects that rate shopping can have on a mortgage
applicant. If there is a consumer originated inquiry within the past 365 days from mortgage or
auto related industries, these inquiries are ignored for scoring purposes for the first 30
calendar days; then, multiple inquiries within the next 14 days are counted as one. Each
inquiry will still appear on the credit report.
Every score is accompanied by a maximum of four reason codes. Reason codes identify the
most significant reason that you did not score higher. The reason codes can help a lender
describe the reasons for higher than expected rates or loan denial. Scores are not part of the
credit profile and are not covered by the Fair Credit Reporting Act.
Your credit report must contain at least one account which has been open for six months or
greater, and at least one account that has been updated in the past six months for you to get
a credit score. This ensures that there is enough information in your report to generate an
accurate score. If you do not meet the minimum criteria for getting a score, you may need to
establish a credit history prior to applying for a mortgage.
Credit scoring is a statistical method that lenders use to quickly and objectively assess the
credit risk of a loan applicant. The score is a number that rates the likelihood you will pay back
a loan. Scores range from 350 (high risk) to 950 (low risk). There are a few types of credit
scores; the most widely used are FICO Scores, which were developed by Fair Isaac &
Company, Inc. for each of the credit reporting agencies.
If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7
bankruptcy. A Chapter 7 bankruptcy is the least desirable from a credit standpoint, but you
are typically out of bankruptcy in 6 months and you don't have to repay any debt. The
disadvantage is that this shows on your credit report for 10 years from the date of filing your
bankruptcy. Creditors are starting to tighten their credit requirements, and you may have a
tough time getting future financing.
If CCCS won't take you, you may want to consider bankruptcy. Claiming Chapter 13 bankruptcy
takes longer than a Chapter 7, but your credit will end up in a little better standing. Chapter 13
bankruptcy gives you up to 5 years to pay off your debts. The disadvantage is that you're in
bankruptcy for up to 5 years plus your credit report shows your bankruptcy for 7 more years
after you have finished paying off your debts.
If your credit is already damaged or one of the above isn't an option, go through Consumer
Credit Counseling Services (CCCS). Check your yellow pages for the local number. CCCS may
be able to help you pay off your debts as if you were in a Chapter 13 bankruptcy, but you
don't actually file for bankruptcy. BUT MORTGAGE LENDERS LOOK AT A CCC AS A
BANKRUPTCY.
If you have had credit problems, be prepared to discuss them honestly with a mortgage
professional. Responsible mortgage professionals know there can be legitimate reasons for
credit problems, such as unemployment, illness or other financial difficulties. If you had a
problem that's been corrected, and your payments have been on time for a year or more,
your credit may be considered satisfactory.