Debt Settlement's Effect Upon Your Credit Scores

Paying off your delinquent accounts is commendable and lenders will see your efforts to absolve old account balances when reviewing your credit records. Unfortunately, debt settlement is a negative entry on your credit report. Debt settlement -- and the circumstances surrounding it -- negatively impact your credit rating in a variety of ways.

Late Payments

If your creditor accepts your settlement offer while your account is still current, you will suffer less credit damage than if the creditor refuses to accept a settlement until your account is seriously delinquent. Unfortunately, creditors have little incentive to accept a settlement unless the risk exists that you will not pay the debt at all. Thus, if its a settlement you're after, you'll probably have to let your account fall into default before the creditor will negotiate with you.

The downside to this is that each month when your payment does not arrive, the creditor reports the delinquency to the credit bureaus. Each late payment notation further drives down your credit score. By the time the creditor accepts a settlement -- if it negotiates with you at all -- your credit rating will be considerably less than it was before you stopped making regular payments.

Old Debts

Settling an old debt may make you feel better, but doing so adversely impacts your scores. The more recent an entry is on your credit report, the more effect it has on your credit score. Although paying off an old debt will not hurt you, settling an old debt causes the account trade line on your credit report to update. Because the settlement -- a negative event -- is a recent entry, your credit score suffers as a result of settling old, unpaid debts.

Collection Accounts

Consumers who settle debts with their creditors do so under the assumption that the creditor will forgive the remaining balance they owe. Unfortunately, this does not always occur. Unless you sign a settlement agreement with the company in which the creditor agrees not to sell the remaining debt you owe, it can sell the post-settlement balance to a collection agency. Collection accounts on your credit report are inherently derogatory. If you settle a debt and your creditor sends the remaining balance to a collection agency, the resulting collection account on your credit report will lower your credit score.

Impact Over Time

Because the amount of time since a creditor reported a negative entry is a factor that helps determine your credit score, your score will gradually increase as time passes after a debt settlement. According to the Fair Credit Reporting Act, all delinquent or settled commercial debts you owe will vanish from your credit history after seven years and 180 days. Once the settlement no longer appears on your credit report, it can no longer adversely affect your scores.

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The Best Reporting Company for Credit Scores

Your credit score is a number between 300 and 800 that gives lenders a quick assessment of how likely you are to repay your loan. Potential employers also use credit scores during the hiring process. It is good to know your credit score.

Credit Report vs Credit Score

Your credit report is a history of all your credit and how promptly you paid your bills. Your credit score is not automatically included with your credit report; you must order it separately.

Annual Credit Report

Consumers are allowed by law to receive one copy of your credit report each year for free from www.AnnualCreditReport.com. This same service offers your credit score for a one time fee of $7.95. It is the best company to get your credit score.

No Monthly Fees

Many other companies offer your credit score to you as part of a more comprehensive credit monitoring service. If all you need is your score, this is not necessary and you're overpaying.

Avoid Scams

There are some websites that offer free credit reports or credit scores that are not free. Some of these sites are phishing sites trying to get your personal information. It is best to request your credit score only from major credit reporting companies or annualcreditreport.com.

Effect

Contrary to popular belief, ordering your own credit score does not impact your credit history.

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Tips on Maintaining a Good Credit Rating

Credit ratings aren't awarded; they're earned. A credit score, or credit rating, determines whether you qualify for a loan, credit card or service, and often, the terms of that loan are based on your credit rating. Lenders use that number to estimate your ability to repay the debt. Maintaining a solid credit rating requires making regular payments, communicating with your creditors and checking your credit report annually.

Money Management

Credit ratings aren't based only on your credit card use, but also on your payment history with car loans, mortgages and even medical bills. But credit card usage and payments are most often associated with a credit rating.

Carrying too many credit cards, even if you don't use them frequently, can damage your credit rating. It's not always easy to turn down the almost-daily invitations you receive in the mail--low-interest rate cards, free gifts, no-transfer fees--but try.

As for the cards you already have, work to lower your credit card debt by making more than the minimum monthly payment. The interest on a $1,000 purchase, for example, takes more than seven years to pay off if you make only the minimum payment. That amounts to an additional $800 in interest. If possible, pay the entire balance each month.

You can also get your credit card usage under control by using them only in emergencies, as swiping a credit card is the equivalent of taking out a loan every time you use it. Besides credit cards, pay attention to monthly bills. Whether you use automatic draft or a detailed calendar, bills should be paid on time to avoid negative marks on your credit rating.

If you have loans, pay them first each month, avoiding unnecessary expenses like dining out. You'll see the loan amounts decrease more quickly and your credit rating will remain intact.

Damage Control

A debt doesn't disappear because the creditor has stopped sending notices.The reality is the bill may have been turned over to a collection agency. And once that's happened, the bad debt will find its way to your credit report. Your best bet in avoiding damage to your credit rating is to call the collector and try to work something out instead of ignoring the phone or the mail. Communication and a good faith effort may prevent a charge-off, or negative mark, on your credit report.

Check Your Credit & Take Action

Be diligent about checking your credit rating. Check your credit report at least once each year. The Public Interest Research Group (PIRG) claims that one out of every four credit reports contains errors. Your first order of business should be to get those negative marks off your report. Consumers are allowed by law to obtain a free credit report each year--one from each of the three major credit reporting agencies: TransUnion, Experian and Equifax. To download a copy of your report, visit www.annualcreditreport.com. Or you can call (877) 322-8228 to request a copy to be sent via mail. The three agencies might not all contain the same information. Therefore, consumers should check a different agency every four months to confirm that errors are being corrected and that new problems aren't surfacing.

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How to Boost Credit Scores Easily

At a time when credit is hard to get, it is imperative that you always have your credit score in the best shape possible. There are several ways that you can boost your score with little effort. By following the few simple steps below you will find that your score will improve over the next 30-60 days.

Instructions

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1. Do not apply for any new credit. Anytime that you apply for your credit, your credit score drops. If you apply for credit more than three times is a thirty day period your score will drop by several points. Credit reporting agencies see an influx of credit requests as a sign of desperation, and they will lower your score accordingly.

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2. Opt out of any free credit offers. When you are "pre-approved" these companies pull your credit report prior to sending you any information. This again is seen as a request for credit and your score will drop. Since the credit reporting agency does not know if you will accept the pre-approved card, they automatically drop your score for a short period.

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3. Pay everything on time. Each time you make a payment on an account on time you will raise your score. By paying a little extra on the account will also boost your score. If you pay too much though, your score will stagnate or lower. Credit reporting agencies see overpayments as a breach in contract and score accordingly.

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4. Review your credit report for inaccuracies. These inaccuracies can include a wrong address, mis-spelling of your name or even the wrong middle initial. You must dispute any of these items because the credit bureaus see alternate spellings and addresses as a person trying to get credit under an alias. This will tank your score. Of course, you must review all your accounts for accurate reporting and to make sure there are no false accounts.

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5. Guard your identity. If someone assumes your name or creates an account on your identity you will have a very hard time regaining the credit score you deserve.

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You can obtain your free credit report and score by visiting http://creditreportviewer.com or following the link in the resource section below!

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How to Get in Touch With a Credit Reporting Agency

You can get in touch with the three national credit bureaus--Equifax, TransUnion and Experian--through standard mail, the telephone and online. If you're looking to order a copy of your credit report, skip the bureaus and visit Annual Credit Report (see Resources). That's a website set up by the credit bureaus to offer free copies of your credit report, as required under the Fair Credit Reporting Act. Contact the credit bureaus directly for other reasons including challenging inaccurate information on your reports or reporting identity theft.

Instructions

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Call or write TransUnion or visit the website:

TransUnion Consumer Solutions

P.O. Box 2000

Chester, PA 19022-2000

800-916-8800

transunion.com

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Call or write Equifax or visit the website:

Equifax Consumer Services

P.O. Box 740256

Atlanta, GA 30374-0256

800-846-5279

equifax.com

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Call or write Experian or visit the website:

Experian

P.O. Box 2104

Allen, TX, 75013

888-397-3742

experian.com

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The Best Way to Fix Your Credit Score

Your credit score can keep you from purchasing a home, car or even opening a checking account. To get your credit back on track, you will need to examine what is on your credit report. Obtaining a credit report will help you determine if the credit is accurate, and what steps you need to take to reverse the debt, so you can fix your credit score.

Ordering & Examining Your Credit Report

To repair your credit score, you must first know what your score is, and what is on your credit. That's why it is necessary to order a copy of your credit report and carefully review everything listed on the report. There are three credit reporting agencies, therefore you will want to have a copy of each of the three credit reports, because the reports do not all list the same debts or creditors. To order your credit report, you may contact the credit agencies and pay for one, everyone is entitled to one free copy a year, or if you have been denied credit, you may request a copy of your credit report from the reporting agency.

Disputes

When you have received your credit report, make sure you go over it accurately and thoroughly. If there are any mistakes listed on your credit report, you will need to dispute the charges. The creditors may be reporting an inaccurate amount of debt, or the debt may have been paid, but is still showing up on your credit report. For these instances, disputing any debts that should not be listed will help your credit score if the debts are inaccurate. You should document all disputes, so you have proof that you do not agree with the debts listed on your credit report.

Pay And Dissolve Debt

Once you have determined what debts are accurate, you will want to dissolve those debts immediately. You may do so by calling the creditor and arranging a payment plan or arrangement that will allow you to bring the account to a good standing. Some creditors will lower the required payment amount for a percentage off. Once the debt has been paid under the terms the creditor has agreed to, the debt will be removed from your credit report, and your credit score will go back up.

Stabalize Credit

To improve or fix your credit score, you will need to stabilize your credit. You can do this by paying your current lines of credit on time, and this will reflect a positive payment history on your credit report. Do not overextend yourself, because you can end up back in debt like before, and your credit score will drop again.

File Bankruptcy

Another way to fix your credit would be by filing for bankruptcy. There are rules and criteria that must be met before your debt is discharged. In the case your petition is granted, and creditors do not challenge your claims, the debt will be removed from your credit report. However, this will not automatically raise your credit score, but you may be offered credit in the future after the bankruptcy has discharged.

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Can We Actually Fix Credit?

Some consumers accept their bad credit and put forth little effort to improve their score. Consequences of bad credit include higher interest rates on loans, credit rejections and even increased insurance premiums. Credit doesn't improve overnight, rather, it's a gradual process. But with effort, consumers can fix their credit score and qualify for the best loan programs.

Payment Habits

Myfico.com explains the importance of timely bill payments, which involves avoiding late or missed payments. Payment habits contribute to 35 percent of credit scoring, which makes this aspect a crucial factor in maintaining a good credit score. Fixing bad payment habits might involve organizing statements as they arrive in the mail. Schedule payment dates in advance by writing due dates on a calender, or paying bills as they arrive can alleviate lateness and help fix credit scores.

Credit Card Balances

Credit cards serve a useful purpose, but unfortunately, some consumers can't control themselves and they acquire excessive debt buying unnecessary items. The amount owed on credit cards and other debts influence credit scores by 30 percent. In conjunction with paying bills on time, fixing credit and maintaining a high score involves controlling debt and keeping balances on credit cards to a minimum. Tips to help get rid of high debts include paying more than the minimum, paying off credit card balances in full each month and saving up for purchases instead of taking out loans or using credit cards.

Keep Accounts Open

The length of credit history also factors into credit scoring. Credit history starts the moment a consumer opens their first account, and this might include opening a credit card account. Older credit card accounts add years to credit history, which has a 15 percent influence on credit ratings. Closing or canceling an older account can reduce the length of one's credit history by years, and this move can hurt their credit rating. Keep accounts open, and occasionally use credit cards to keep the account active. Make a small purchase and then pay off the balance in full to avoid debt.

Dispute Reporting Errors

No one's immune to credit report issues, and creditors and lenders do occasionally make reporting errors. These can include reporting another person's negative information on your personal file (collections, late payments, liens). Identifying errors quickly and getting these issues resolved involves reviewing your credit report periodically. Order a free copy of your report from Annual Credit Report at least once a year, and consider signing up for credit report monitoring to lower your risk of becoming an identity theft victim.

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