Credit repair is mostly about paying debts on time and about getting credit limits paid down. There are, however, a number of other factors to consider when you are trying to fix your credit. Charge offs can be defined as debts that were not paid, and were eventually written off by the original creditor and sold to a collection agency. Once a collection agency has bought a charge off account, they will aggressively attempt to collect the debt, using collection tactics including persistent phone calls, letters, and in many cases settlement offers.
Obviously, you should make every attempt to meet your obligations and pay your bills on time. Unfortunately, with the current state of the economy, paying bills has become a major challenge to many hard working people. Once a credit card has gone unpaid for a certain amount of time--usually around 5 to 6 months---the card company will charge off the debt. Once you have a debt that charges off, you have that blemish on your credit for the next seven years.
Should you attempt to make payment arrangements or accept a reduced settlement offer from the collection company that buys your bad debt from the original credit card company?
Maybe. Keep this in mind: Once your credit card company has reported you 30, 60, 90, 120 days late and then reported the account as charged off, that is the worst they can do to your credit. It will remain there for seven years, but if you do a settlement, enter into a payment agreement and in some cases dispute the account, you run the risk of re-setting that seven year clock. Simply put, if you have charge offs on your credit report, you might want to consider trying to hold out until they fall off at the 7 year mark.
We in no way advocate not paying debt that you legitimately owe, but if you have a choice between making payment arrangements on an old charge off account and having the account update and remain on your report for another 7 years, or just holding out a bit longer until the original collection account reaches the initial 7 year mark, you might want to seriously consider waiting.
On the other side of the coin, having charge off accounts on your credit report, regardless of how old they are can prevent you from getting home and auto loans and can even prevent you from getting certain types of jobs. The main point is to be aware of the timetable and the potential negative affects of paying off old bad debt accounts as opposed to just letting them fall off at the seven year mark.
By Personal Financial Guide
Showing posts with label credit cards. Show all posts
Showing posts with label credit cards. Show all posts
Tuesday, May 26, 2009
Thursday, May 21, 2009
Credit Card Basics
Credit cards can be useful tools or they can be your financial downfall. Credit cards are a quick, easy way to establish credit history, but can easily get out of hand and become the very thing that destroys your credit.
The basic problem with credit cards goes back to how easy they are to use. Too many people over use their credit cards and quickly find themselves maxed out and with a moderate to large sized loan to pay back. Credit cards that are maxed out are usually difficult and expensive to pay back. The outstanding balance is on a line of credit, so there is no set amount of time in which the balance must be paid off. This means that when the balance is paid down, credit becomes available and typically gets used again by the cardholder, thereby maxing it out again. Also, the minimum monthly payments on a maxed out credit card have very little impact on the princple balance.
Simply put, don't max out your credit cards. Don't treat your $5,000 credit limit as if you have an extra $5,000 to spend. Rather, regard it as a safety net to be used in emergencies. In a perfect world, that is the way to handle your credit cards. In a perfect world. Most people, however, end up maxing out their credit cards at some point and end up making only the minimum monthly payment. Again, the credit cards make spending money very easy and most credit cards have a healthy interest rate as well as various fees that make it difficult to get paid off.
If you are one of these people, the best thing you can do is to put all of your disposable income that you can into gettng that card--or cards--paid off as quickly as possible. Having a balance on a credit card that is more than half of the total limit has a negative effect on your credit score. When you pay your balance down below the 50% mark and when you pay it off entirely, you will see an increase in your credit score.
Sponsored by Personal Financial Guide
The basic problem with credit cards goes back to how easy they are to use. Too many people over use their credit cards and quickly find themselves maxed out and with a moderate to large sized loan to pay back. Credit cards that are maxed out are usually difficult and expensive to pay back. The outstanding balance is on a line of credit, so there is no set amount of time in which the balance must be paid off. This means that when the balance is paid down, credit becomes available and typically gets used again by the cardholder, thereby maxing it out again. Also, the minimum monthly payments on a maxed out credit card have very little impact on the princple balance.
What is the moral of the story?
Simply put, don't max out your credit cards. Don't treat your $5,000 credit limit as if you have an extra $5,000 to spend. Rather, regard it as a safety net to be used in emergencies. In a perfect world, that is the way to handle your credit cards. In a perfect world. Most people, however, end up maxing out their credit cards at some point and end up making only the minimum monthly payment. Again, the credit cards make spending money very easy and most credit cards have a healthy interest rate as well as various fees that make it difficult to get paid off.
If you are one of these people, the best thing you can do is to put all of your disposable income that you can into gettng that card--or cards--paid off as quickly as possible. Having a balance on a credit card that is more than half of the total limit has a negative effect on your credit score. When you pay your balance down below the 50% mark and when you pay it off entirely, you will see an increase in your credit score.
Sponsored by Personal Financial Guide
Monday, April 27, 2009
Learn Financial Responsibility Young
Credit cards, credit history, auto loans, mortgages, insurance, savings, retirement........these are just a few of the things that people should have a basic understanding of from an early age. In fact, a personal finance course should be a mandatory part of high school curriculum, to be taken in the senior year. Many high schools offer a personal finance or consumer economics course as an elective, but it should be a standard part of the basic curriculum.
Why?
There is a long list of valid reasons why high school seniors should have to take a practical finance course, but what it boils down to is this: credit history, credit cards, auto loans and mortgages can have a huge impact, positive or negative, on a person's life. The fact is, many young adults learn about credit history, credit cards and auto loans the hard way. They have not received any structured training in these matters and are not aware of the serious consequences of bad credit and of the pitfalls of credit cards and loans.
If there was a federal mandate to include a personal finance course as a mandatory part of the high school curriculum, the instances of bankruptcy, foreclosures and bad debt charge-offs would decrease significantly over the next 5 to 8 years. Young adults would be introduced to the concept of financial responsibility before they get into the "real world".
Sponsored by Personal Financial Guide
Why?
There is a long list of valid reasons why high school seniors should have to take a practical finance course, but what it boils down to is this: credit history, credit cards, auto loans and mortgages can have a huge impact, positive or negative, on a person's life. The fact is, many young adults learn about credit history, credit cards and auto loans the hard way. They have not received any structured training in these matters and are not aware of the serious consequences of bad credit and of the pitfalls of credit cards and loans.
If there was a federal mandate to include a personal finance course as a mandatory part of the high school curriculum, the instances of bankruptcy, foreclosures and bad debt charge-offs would decrease significantly over the next 5 to 8 years. Young adults would be introduced to the concept of financial responsibility before they get into the "real world".
Sponsored by Personal Financial Guide
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