Debt Collectors, How Not to Deal With Them

It is never fun to deal with a debt collectors. It can be even more stressful when you’re sitting on a pile of debt. There are times a debt collector may fail to follow the rules outline in the Fair Debt Collection Practices Act. If that is the issue you’re facing, it may be best to file a complaint. However, if you’re personally making the following mistakes, your debt issue could go bad to worse.

What Not to do With Debt Collectors

  • Ignoring the debt collectors. Screening calls and avoiding collectors won’t help control your debt. While debt generally has a debt collectorsstatute of limitations, it does vary depending on your state. Once it expires, the collector may not be able to sue you, but you could still be responsible for paying back what you owe in addition to any interest. Letting an old bill pile up can destroy your credit score. Any unpaid debt can remain on your credit report for up to seven years.
  • Watch what you say over the phone. Once you’ve decided to no longer dodge your bill collector, it is important to avoid sharing certain details over the phone. You never want to say that you’ll pay a specific amount by a deadline or give access to your bank accounts. Anything you can say can be used against you. By agreeing to make a payment can even extend the statute of limitations. A collector’s main goal is to collect missing funds. Stay calm, keep the call short and keep your comments to a minimum.
  • Verify the debt is yours. When talking to a collector, it’s important to make sure they’re legitimate. Debt collection scams are common. Before you send over any money, confirm that the debt belongs to you and not someone else.
  • Keep proper documentation. Whenever you communicate with a bill collector, it’s a good idea to take notes. Jot down the details about who you spoke to and what you discussed. If you’re forced to appear in court or report a collector this will help.

Financial Mistakes You Could Be Making Now

Finances do not come easy for everyone. For some, it can be easy to set up and maintain. For others, just the thought of balancing your checkbook can stress you out. Even those who are good with money and finances could be making financial blunders.

Financial Mistakes and How to Fix Them

  • Not taking advantage of increasing interest rates. The financial mistakesnational average for interest on saving accounts is 0.23%. However, there are options that offer a higher rate. It may seem like a lot of work to switch banks, but it is costing you money. Whether you’re opening an account or looking to change banks, it is a best to shop around.
  • Paying too much for your mortgage. You may believe that there is no way around paying your current mortgage. However, you could be eligible for a lower payment. Refinancing could yield a lower rate. If you have a 30-year loan, this could save you a lot of money in the long run.
  • Paying interest on your credit card. The trick with credit card spending is to pay it before the billing period wraps. You want to ensure you’re paying the full balance, if not the remainder is accruing interest. Paying only the minimum may help you get by, but you’ll be paying more in the long run.
  • Not using credit card reward programs. For many a credit card simply allows them to buy now and pay later. However, nowadays there are many credit cards with options to choose from. Most credit cards have their own rewards programs. These can be a great way to earn for your everyday spending.
  • Overpaying student loan debt. When you’re right out of college having to repay student loans can feel like a heavy weight. It can be difficult to understand how the loans work. Often people choose a repayment plan and stick to it. However not adjusting your payment plan can take a toll on savings. You could end up paying more than what is needed.

Collection Accounts, How they Affect Credit

Other than a bankruptcy or foreclosure, one of the worst mistakes you can have on your credit report is a delinquent debt that went into collections. These accounts are various types of debt that you fell behind on. They escalate to the point where a debt collector took over. Collection accounts will cause your credit score to take a big hit. They stay on your credit report for up to seven years from the time you fell behind on payments. If you pay the collection account does it get removed from your credit report? No. It’s a common misconception that it does. However, it is still important to settle any outstanding accounts that have gone to collections.

Why Pay off a Collection Account?

collectionsYou may be asking yourself why pay off the collection if it remains. Settling the account is important for two reasons. It will prevent you from potentially being sued. This can result in the court ordering wage garnishment, putting a lien on your property, or even freezing your bank account until the debt is settled. The second reason is settling a debt can help your credit score over time. While a collection account will stay on your report for up to seven years, the account will be marked as paid. As your credit report gets older, and you maintain good habits, your credit score will gradually improve the closer you get to the seven-year mark.

Can I get the collection account removed? You can, however, in the end the collection account, even paid, will remain on your credit report. If you really want to use every option to remove the collection account, contact a credit repair company. The best way to have collections removed from your credit report is to make sure that you never have an account go into collections. Make smart borrowing decisions, pay all your bills on time, and practice good debt and financial management techniques.

Credit Score, Why a Poor Score Costs

Your credit score is more than just a number. It is the lifeblood to your financial opportunities. You should be aware of how a good credit score can get your loans approved fast, can get you a lower interest rate, and save you money in the long run. However, there is likely a lot you don’t know, mainly how far reaching your credit score is.

Costs of a Poor Credit Score

If your credit is not in good standing, you should start using credit repair strategies today. However, here is a look at some consequences of having poor score

  • Cell Phone: When upgrading your phone or moving to any cellular plan, the provider is most likely conducting a credit check. If your score is poor, your options could be limited. A credit score is an indication of how reliable you are as a consumer. If your credit report shows regular missed payments, what is to stop you from missing your cell payment?
  • Rent: Everyone knows that you need a good score to consider getting approved for a mortgage. However, a poor score can also impact your renting options as well. The same with cell phones, your report is a sign of how responsible you are.
  • Utilities: Most utility companies require an upfront deposit. Having poor credit may require you to have to pay more money upfront than someone with good credit.
  • Car Insurance: Most car insurance companies are now using your credit score. Driver history and experience is still a factor. However, when it comes to car insurance premiums, most companies have found that a credit core can also help gauge reliability.

As we have shown, your credit score reaches farther than just loan approval and interest rates. This is why it is important to take necessary steps to repair your credit now.

Credit Card Mistakes to Avoid

As of April 2015, Americans had racked up $900 billion in revolving debt. While that is less than the $916 billion in 2009, consumers will not be putting away the plastic any time soon. Credit cards, when used wisely, can help save money and improve your credit score.  This is vital for obtaining the best interest rate and for qualifying for loans. However, buying things with a credit card can be a financial disaster if you’re not careful.

Mistakes to Avoid  When Using a Credit Card

  • Late payments or no payments.If you don’t keep track of your bills, its easy to credit-cardforget or miss a payment. You may think that paying a credit card late or skipping the payment isn’t a big deal, but you could seriously damage your credit score when you don’t pay on time.  About 35% of your FICO score is based on your payment history.
  • Maxing your cards and paying the minimum only. Card utilization ratio is another factor into calculating your credit score. This is the amount of credit card debt you have compared to your total credit line. Lenders prefer you to use 30% or less of your total available credit. Maxing out your card can also hurt your credit score. The total amount owed accounts for 30% of your FICO score. One of the biggest allures to having a credit card is making payments on things, rather than buying outright. While paying the minimum seems manageable, your balance will continue to creep up. Your monthly payments will continue to increase. The debt continues to increase and eventually you have a pile of debt and you can’t afford the payment anymore.
  • Taking out cash advances. When short on money, taking a cash advance may seem like a good idea. However, its a temporary fix. The advance may allow you to cover the gap you run into, but borrowing against your credit line typically comes at a high cost. You not only have to pay interest on the transaction,, but you likely will have a fee.

Landlords and Credit Checks

If you’re in the market for an apartment, you may have been told that the landlord will need to check your credit before you sign a lease. In addition to contacting references, landlords will often run a credit check to ensure potential tenants are responsible. You may have been curios as to what landlords look for when reviewing credit reports.

What do Landlords Look for in Credit?

landlordsWhen landlords run credit checks, they’re wanting to learn as much as then can about your financial habits. They do not expect tenants to have perfect credit scores, but having a good score can make the application stand out. In a lender’s eyes, applicants who have a good credit score seem more reliable and responsible. There are, of course, other credit-related factors that landlords consider. Credit checks can reveal if someone has been evicted, sued, or has a history of making late payments. These issues, along with others, like delinquent accounts, foreclosures, or bankruptcy filings, can make your application unattractive.

While your entire credit history can be viewed, landlords often focus on recent transactions. Someone who has a lot of open credit accounts is likely to use a large percent of their income to pay off debt. This may be a red flag. However, keep in mind not all landlord care about the same things when running credit checks. FICO scores are most widely used, but some use other credit scores like VantageScores. There are multiple tools when looking to run credit checks. Once you have provided permission, they can get credit reports and credit scores through tenant screening services.

For a landlord or property manager to run a credit check, they will need your name, social security number, and current address. In some cases, you can provide your own credit report, and landlords must accept these if they were pulled within the last 30 days.

Does Selling My Home Improve Credit Rating

When you’re trying to maintain a good credit score, it isn’t easy. Making late payments and maxing out credit cards are just a couple of ways you can hurt your credit. Selling your home could potentially impact your credit. If you are making good financial decisions, you can use your home to boost your credit score. With the FICO credit scoring model, 35 percent of your credit score is based on payment history. When making on-time payments every month, over the course of your mortgage, you can expect you credit score to rise.

However, if you tend to miss your mortgage payment or make a late payment, this could prevent you from qualifying for another line of credit. Mortgage loans are installment loans. This means they are paid on a fixed schedule. Credit cards are revolving credit. Missed or late payments on credit cards affect your credit more than mortgage payments.

How does selling my home affect my credit?

sellingSelling your home will not automatically hurt or help your credit score. However, the impact is all dependent on the state of your credit history before you sell. If you have a negative credit score, selling will not help. Black marks can remain on your score for up to seven years. Past mistakes can continue to haunt you for long after you’ve sold. This can hurt you if you’ve sold with the intent of purchasing a new home.

With your FICO score, 10 percent depends on the type of credit accounts you have. If a mortgage is your only installment loan, you should expect your score to drop a bit. However, remember that if even you no longer have your mortgage it can stay on your credit history for up to 10 years after it is paid off. In conclusion, it comes down to how you handle your payments. If you have a negative payment history, you will continue to have negative marks after you’ve sold your home.

Why is your Debt-to-Income Ratio Important?

We all know that having more income than debt is a good thing. But the question is, what is ideal ratio between income and debt. This is where you need to consider your debt-to-income ratio. If you have to high of debt-to-income, and any thing negative effects your income, you could be swimming in debt. This does not mean you want to completely avoid debt. Debt-to-income ratio, also known as DTI, is the direct relationship between your monthly debt and your gross monthly income.

Every month you must budget with what you have coming in and what you have going debt-to-incomeout. You have recurring bills such as phone and internet. Regular expenses such as groceries. Then there is your debt. This includes rent, car loan, student loans, and any personal loans or credit cards you may have. If you feel like you’re living paycheck to paycheck, or that all your income goes to making credit card payments, you may have a high debt-to-income ratio. The formula is DTI = total monthly debt payment/gross monthly income.

Why is Debt-to-Income Important?

DTI is an extremely important number to keep an eye on. This is going to tell you about your financial situation. The higher the debt percent, the harder time you’re going to have making payments if your financial state changes in a negative way. From a creditor or lenders perspective, DTI is a measurement of risk. Those with a higher DTI are more likely to default on a mortgage or miss credit card payments. Assessing your DTI is part of the mortgage underwriting process.

So, what counts as a good DTI? Generally, you want this to be under 36%. The bottom line is, your DTI is an important measure of your financial security, and responsibility. The lower the ratio, the more affordable your debt is, and the more wiggle room you have should your finances change.

Charge-offs and You

A charge-off is when your debt is significantly late and the creditor has considered it a loss. In one sense, you may think that this is a good thing, the company has considered your debt a loss and it has been eliminated. This is where you’re wrong, a charge-off can be very damaging to your credit. Here are some important things you need to know about your charge-off.

 When does a charge-off happen?

How long is a significant amount of time? Generally, a charge-off happens after 180 days of not receiving payment. There are some installment loans that can be charged-off after only 120 days. In some cases, there are accounts that can be charged-off even when making payments, usually that is when the payment is below the minimum payment.

 Do I still owe the debt?Charge-offs

The simple answer is yes. Just because the debt has been charged off by the creditor, it does not mean it has been cleared. Your creditor is still owed that money. They can choose to use an internal collections service or even pass the debt to an external collection company.

 What do I do now?

Since your debt has been charged off it has left a black mark on your credit for seven years. Combined with the missed payment reports your credit score may fall dramatically. However, you can soften the effect of charge-off by paying the debt in full. This will help by showing “charged-off and paid in full” rather than “settled for less than full balance” or worse, that you haven’t paid the debt at all. Better late than never. Not all hope is lost, if you’re having difficulty making payments, consider debt management or even credit counseling. If the debt was due to a layoff or medical emergency, consider speaking with your creditor. It helps if you can provide a solid history of on-time payments and provide a reason for falling behind.

Understanding Late Payments

You paying your bill late may not be a big concern, but to creditors it is. Late payments cost you, not only in possible late fees and overdraft fees, but also by damaging your credit score. One of the most important things you can do to keep your FICO score in good standing is paying your bills on time. One of the largest factors in determining your FICO score is payment history, continued late payments will keep your score low.

don't be lateBeing a little late one time, causes little damage that you can easily rectify. However being late more than 30days or even up to 120 days will drop your credit rating by up more than 100 points. Being 30 days late will only do damage if it is reported by the lender to credit score companies. 60 days late will go on record as “currently late 60 days”, if you’re late often it can cause long-term damage. At 90 days late you’ve caused serious damage to your score, this will stay on your credit score for 7 years. While 120 days does not do more damage to your credit than 90 days, you do run the risk of your account being sold to a collection agency. Once that happens it is reported to credit score agencies and lowers your score by more than 100 points.

When you go beyond 90 or 120 days late the account will go into collections, which will either be an internal collection department or a third-party agency. It may seem like there is no way out once you get to this point, but that is not the case. The first step is to start paying the bills on time. Once you have made the payments and are caught up, check your credit report and make sure those lenders are reporting you as current.