Common Misconceptions About Credit

One skipped payment results in one delinquency

If you skip one payment on your home loan it can result in a series of billing currencies being reported to the credit bureau. The reason is that the lender always credits payments against the earliest unpaid obligation. This is according to the accounting rules used for amortized mortgages.
For example if you miss a payment in February and then make a payment in March then that payment will go towards the missed payment of February so you will still owe the lender money for the month of March. If the late payment in February was reported to the credit bureau then a late payment for the month of March we reported now. To the time that you make a double payment in any particular month a late payment will continue to be reported which result in several things going to the courts being created on your credit file.
Mortgage contracts where you are allowed to skip a payment every now and then are common in the United Kingdom but have only started appearing in the United States now and even then not very widely available. Unless your contract states otherwise if you skimp a payment but continue to make regular payments thereafter you remain delinquent and accumulate late fee on your mortgage until the skip payment is made a good by making a double payment.

Paying Off a Delinquent Account Improves the Credit Score

Another misconception that many people have is if they pay off their delinquent accounts their credit score will improve. This is not necessarily true. A credit score looks at the stability and reliability of a person to make and timely payment on the money that he borrows. Having a delinquent account will continue to reduce your credit score even though you pay them off to the time that your payment history can demonstrate that you are now making regular payments on all your credit accounts and are being more responsible with your credit. The delinquent account just does not disappear from the credit report when you have paid it off. A late payment will continue to show on your credit report even when you have paid it.

This includes tax liens, bankruptcies, foreclosures and federal court judgments. They will only be removed from your credit report after the stipulated duration is over. But until then they will remain on your record even if they had been discharged or released. However the impact of these entries on your credit report will have a lesser impact on your credit score as time goes by.

Consolidating Balances Improves Credit Score

One more misconception that people have about their credit score is that if they consolidate the balances on their credit cards into a smaller number of credit cards it will help increase their credit score. While it is true that the fico credit score might look more favorably upon a person who has 5 credit cards rather than 20, there is also the credit utilization factor to look at. The credit scoring models does not view high balances on a credit card very favorably. If you’re consolidating your debt from multiple credit cards to a few credit cards then it is possible that you might max of those few credit cards. Coming close to the credit limit on your credit card is an indication of financial distress. So consolidating your debt into a smaller number of credit cards which results in them getting close to the maximum limit result in your credit score decreasing other than increasing.

Authorized Credit Card Users Can be At Risk As Well

Authorized users on a credit card are usually not responsible for making the payments on the credit card. However, if the primary cardholder happens to default and does not pay off his debt certain lenders may deport the authorized user as being late on the card to the credit bureaus as well. They do it in the hopes of the authorized user making a payment on the card in order to avoid his credit score getting blemished. However, this is against the law and you are in no way obliged to make payment on a credit card when you are just an authorized user. In order to fix this you can write a letter to the credit reporting agency informing them that you are only an authorized user and to verify this information with the lender as per your rights according to the fair credit reporting act.
Edit and Income Can Be Separated in a Loan Application
Some people are under the misconception that when they apply for a loan as a couple they can use a credit score of one spouse whereas the income of another. This is not how it works. When lenders our qualifying a couple for an home loan they will look at the combined income as well as the combined with the treating of both the people. If the mortgage on his being applied for by one person than the credit score as well as the income of that one borrower will be reviewed and considered by the lender.

What Is Debt Management Plan Commonly Offered by Credit Counseling Agencies?

Debt management is a service that is provided by credit counselling agencies.  What the credit counselling agencies do on the debt management plan is to renegotiate with your creditors and set up a contract with the newly negotiated terms.  The new negotiated terms usually involve a low rate of interest and a waiver of other charges such as late fees and financial charges.

One of the main reasons why creditors are willing to work with consumers through a debt management plan is that reputable credit counselling services only and roll those consumers in a debt management plan for genuinely facing a financial problem and are unable to repay the debt under the current terms of interest.  What a credit counselling agency does first of all these carefully overview your financial situation along with the details of your debt and financial resources.

Only after it determines that you cannot pay off your debt by following simpler methods like budgeting and conserving your spending is does it recommend including you for a debt management plan.  Because reputable and legitimate credit counselling services to not abuse the trust of the creditor by negotiating with them for a consumer who could have paid off the debt under the original terms of the contract just by saving on surplus expenditure the creditors are willing to renegotiate and lower the rate of interest when you are a part of a debt management plan through a good credit counselling agency.

What To Do and Not When Looking For A Credit Counseling Agency

Millions of Americans seek the help of credit counseling services in order to combat their overburdening debt situation. When the security of their financial situation is on the point of capsizing due to unpaid debt, a credit counselor can help manage this situation. Specially in the scenario where you cannot manage your own debt and do not know what to do, a credit counseling service can guide you in the right direction. In an ideal situation the legal and Gen. and nonprofit credit counseling service can do the following for you:

  • It can reduce the amount of money that you owe on the debt as much as 50% by never sheeting with your creditors.
  • A credit counselor can help you manage your debt simply by creating a budget for yourself. Nothing could be simpler and takes the least amount of time.
  • A credit counseling service can enter you into a debt management plan where it disperses payment on your behalf to all your creditors.

As many advantages as they might be to using a credit counseling service, you should keep a few important things in mind. We have discussed how to test a credit counseling service to make sure that it falls 100% true on being a nonprofit credit counseling service in the previous post. Here we will discuss some do’s and don’ts of finding a credit counseling agency to help you.

 

Do Not Get Taken in by Flashy Advertisements It won’t be uncommon for you to find several advertisements for credit counseling agencies in newspapers, television, radio and even in your e-mails. Do not get taken up by these and see advertisements that you see. Do not get enticed to take up our credit counseling agencies offer just because you have seen the advertisement but rather go to them when you need dictates it. Most of the estimate and reliable credit counseling services depend upon word-of-mouth and recommendations from the prior plans to get future clientele. Flashy and in-your-face advertisements are the tools of commercial enterprises who might not necessarily hold your best interest in mind, which brings us to the second point.

Make Sure That You Are the Priority When Peeling with a Credit Counseling Service Make sure that the credit counseling service has your best interest in mind. Many so-called nonprofit credit counseling services will do their best to a make a profit out of your financial strife by telling you that enrolling in a debt management plan is the only option. No one solution fits all circumstances. So recklessly and pulling people in debt management plans regardless of their personal situations is a trademark off a credit counseling agency that is working for you their own profit rather than to help you out.

Get the Details for Your Debt Management Program when enrolling yourself in a debt management plan get all the necessary details. Find out what is going to be the method of payment and when will the payment get disbursed to your creditors every month. You should get a written statement regarding all fees and charges. Credit counseling services are required by law to present you 100% transparent statement of all charges involved. They cannot slightly take away a percentage cut from the payment that you make for your creditors.

Do not be pressured into making a Decision Take your time to decide which credit counseling service to work with. When working with a credit counselor will not be pressurized into making a decision that involves joining a debt management plan etc.

Get the Time Estimate of When You Will Be Debt Free Get an estimate of the time that the credit counseling service aims to make you debt free by following the debt management plan. Mostly a debt management plan aims to get you free from debt in the next 2 to 5 years. If your credit counseling agency cannot manage to do this then they are probably wasting your time.

Make Sure the Credit Counseling Service Is Doing a Good Job of Negotiating with Your Creditors If you want your payments to be reduced, late payment charges to be waived, a credit counseling agency can do this for you. You might have to consider debt management programs and debt settlement. Make sure that the credit counseling agency is doing this for you.

Get Regular Statements of Payment Disbursement from the Credit Agency Make sure that your credit counseling service gives you a regular statements of the disbursement of payment that its making to your creditor.

Make Sure That the Credit Counseling Service Offers Continued Support Even when the credit counseling session is done or you haven’t told in a debt management plan, reputable credit counseling services will continue to offer you support toward long-term election ship by offering you credit education and assistance. Many reputable credit counseling agencies also offer free workshops and credit education classes.

5 Steps To Paying Off and Reducing Credit Card Debt

Here is how you can pay off your credit card debt by following these 5 steps systematically. They will greatly help reduce the burden of your credit card debt.

Meeting the Minimum Payment On Your Credit Card To Pay Off the Debt Gradually

It is important to meet the minimum amount due on a credit card bill every month when you are trying to pay off debts on your credit card. This is specially true if you facing a debt on multiple credit cards. You can continue to pay the minimum amount without your account being considered late. Failing to do so will probably result in a late fee being levied on you in the next billing cycle. Your credit card issuer may also decide to increase the interest rate or cancel the credit card altogether for failing to comply with the terms and conditions of the credit card.

Paying off a credit card debt just by making the minimum payments can take very long time. You will also pay a large sum as interest by the time the debt is paid off. For this reason a consumer is encouraged to make a payment that is more than just the minimum amount due. That way not only will you not risk going into default but will gradually work to its paying off the credit card debt completely.

Failing to make the minimum payment will probably result in the credit card account as being reported as late to the credit bureaus. This will affect your credit score and your future prospects of getting good deals on credit cards.

Get Current on Any Delinquent Credit Card Accounts

Getting late on a credit card account and then not making any effort to get current on it can result in a debt that quickly spirals out of control. Credit card debt has the highest amount of interest-rate than any other kind of loan. If you have an outstanding balance on a credit card that you have not been making at least to the minimum payment towards them the interest rate and the finance charges can severely mount up the total amount due. Not only will you find yourself in a position where a small amount of initial balance has swelled into a very large sum of money but also do damage to your credit score when the credit card issuer reports the late account to the credit bureau. Each delinquent accounts stays on the credit report for a period of seven years from the date that it was first reported. This can have a similar impact on your credit score as far as the decision of future lenders on a credit application.

Worse still, if your account gets delayed by more than 180 days the creditor might write off your account and pass off the debts to a collection agency for collection.

You should try and at least make the minimum payment due on your credit card and put away whatever money you can towards reducing your credit card debt.

Bringing Maxed out Credit Cards Under the Limit

Bringing maxed out credit cards under the limit is important because the extra fees and charges that are levied on maxed out credit cards will further increase the credit card debt and make it more difficult to pay them off.

Maxed out credit cards not only do damage to the credit score of the consumer but also viewed upon unfavorably by the lenders. While calculating the credit score for consumer most of the credit calculation models consider something called the debt utilization ratio. The debt utilization ratio is the difference between the total amount of credit available to you and the credit that you utilize. The credit scoring model looks at the total amount of credit available to you as well as individually on each credit card. If any particular credit card is maxed out and close to its credit limit, it will have a negative impact on your credit score. Being close to the credit limit of a credit card is viewed as being high-risk. It is presumed that the consumer is overusing credit and flirting with defaulting by not being able to play the high balance. Defaulting on the high balance means more of a loss to the credit card issuer.

Ideally the balance on a credit card should be maintained at about 30% of the total credit limit of the card.

Maxing out your credit card also put you at the risk of going over the limit at any point of time. This is considered to be a high risk by both the credit scoring model as well as the lenders. Whenever you go over the limit your credit card issuer will charge you an extra fee and will continue to charge it to the time that you bring in the balance back under the limit. Once a credit card is over the credit limit, bringing it back down within the limit can be slightly difficult as you will need to pay more than just what is overdue because a part of your payment will go towards paying the over the limit fee.

Paying Off Existing Balances On Your Credit Cards Before You Charge Them Again

You may have more than one balance on a single credit card or have more than one credit card with a balance. You should attempt to reduce the balances as much as possible. Not only should you not have a balance that is more than 30% of the credit limit for a good credit score but also work towards eliminating the balances that you rotate every month in order to save yourself the interest and finance charges.

Reduce the balances to zero before you start making further charges to the card otherwise you may find it very difficult to get out of the credit card debt. Many people have had their credit card debt spiral out of control because they kept rotating their balances along with making additional charges. Different credit card issuers calculate the finance charges in different manner. Some will charge the new purchases with interest along with the original balance. Some will not give a grace period for new purchases in a new billing cycle if you are carrying a balance from the previous cycle making them accrue finance charges from the day that you make them. For this reason pay close attention to the balances that you have on your credit card and completely pay them off before moving on to make new charges.

Paying Off Credit Cards In the Order of Highest or Lowest Interest Rate

If you have a credit card debts that differ in the interest rate that is levied on them, it is better to make a choice as to which ones you are going to pay off first.

There are two common approaches that are used to pay off credit cards. One is to pay the balance with the highest interest rate first. The advantage is obvious. You will save more money that you would otherwise have to pay as interest charges.

The second approach is to tackle the smallest credit card balance first. The advantage is that the smallest debt is the easiest to pay off.

Both these approaches have their own advantages and dis-advantages.

By paying off the smallest credit card balance you are freeing up extra cash that will help you tackle the next higher balance. This process is continued so on and so forth till all the balances are paid off. Not to mention that fact that every time you manage to pay off a credit card balance in full, it leaves you with a feeling of self-worth and confidence that you can do what you have set out to do. This is the easiest method and has more chances of succeeding than if you start with tacking the highest balance first.

Of course, some people like to get the biggest credit card balance out of the picture first as that is the cause of maximum worry for them.

Reasons for Fair Debt Collection Practices Act

The reason that the Fair Debt Collection Practices Act was created is that debt collection agencies were not following honest, straightforward and principled approach to debt collection. Even now they are known to be unreliable and unethical in their collection practices. Collection agencies are often guilty of going after the wrong people or misstating the amount of money owed.

Some  of the salient features of the Fair Debt Collection Practices Act are:

  • You can ask the debt collector to validate the debt in which case he is required by law to stop collection efforts from you till the time that he can provide you proper proof from the original creditor of the transfer of debt.
  • You can ask the debt collector to cease and desist in which case he is required by law to stop making all collection efforts from you.
  • The Fair Debt Collection act also makes clarifications about a lot of other things like the debt collector cannot call you before or after certain hours of the day, he cannot contact your employer and place of work and make them aware in any way of the debt, he cannot send mail that in any way discloses that it is concerned with debt collection etc.
The right to ask a debt collection agency to validate the debt is meant to protect the consumer against collection mal-practices.

To verify a debt the debt collection agency will need to present documentation and paperwork from the original creditor that will prove that you are responsible for the debt. The right to debt validation is an important tool in your hands since it can help in clearing your credit report of various collection accounts. It is common for collection accounts to pass from one collection agency to another every six months. It is quite possible that the collection agency does not have the documentation required especially if the debt happens to be an old one. Just providing use a computer printout a statement of the amount owed does not constitute as proof as the federal Trade Commission has made it clear that America itemize edition cannot constitute sufficient proof of the validation of a debt.

The process of debt validation can not only get rid of the debt that belong to you, but it might also help you get rid of some of the collection accounts that don’t belong to you.

While the law prohibits removal of negative information that is accurate from the credit report, if a collection agency cannot validate a debt, it can no longer collect on it since they’re not following the legal regulations that apply to a debt collection agency as per the Fair Debt Collection Practices Act.

You must also understand that your application for debt validation applies to only one collection agency. If your debt happens to be sold transfer to another debt collection agency then you will need to repeat the process all over again.

How To Report A Violation of the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act lays down rules and regulations on the practices that a debt collection agency supposed to follow when collecting a debt of you. Every consumer should be aware of these guidelines even though you may not have a debt that is in collection. This is because it is not uncommon for a person to receive a collection calls on a debt that does not belong to him. In such a scenario you should be aware of your rights and the action you can take to refute and fight a debt collection agency. In case your rights have been violated under the Fair Debt Collection Practices Act, these are the actions that you can take.

Whenever you are making a claim against a debt collection agency, it helps to have as much paperwork, documentation and hard evidence to prove your claim. You should try and have at least a record of the dates and times of phone calls, name of the collection agency and the name of the person that you spoke to.

 

· File a complaint with the Federal Trade Commission against the collector.

· File a complaint with your state’s attorney general.

· File a complaint with the Better Business Bureau.

· File a civil suit in your state or federal court for up to $1,000 including damages.

10 Places to File Complaints Against Creditors

When your rights are violated by a business in the credit industry – whether it’s bank, credit bureau, collection agency, or credit repair company – there are several legal entities you can complain to.

Federal Trade Commission

Send complaints about any business breaking a credit law to the Federal Trade Commission. This includes creditors, debt collectors, credit repair organizations, and credit bureaus.

Your State’s Attorney General

Better Business Bureau

You can send complaints about all type of banks to the Better Business Bureau.

Office of the Comptroller of the Currency

Send complaints about banks with “National” in the name to the Office of the Comptroller of the Currency.

National Credit Union Administration

The National Credit Union Administration regulates federal credit unions.

Your State’s Credit Union Charter

If your credit union isn’t federally chartered, use this website to get the contact information for your state’s credit union charter.

Office of Thrift Supervision

The Office of Thrift Supervision oversees federal savings and loans (S&L) or federally chartered savings banks (F.S.B.).

Federal Reserve Board

The Federal Reserve Board (FRB) regulates state banks.

FDIC

The FDIC handles compaints about state banks that are not regulated by the Federal Reserve Board.

Consumer Action

Consumer action is a national advocacy group that focuses on finance, credit, and telecommunications.

How to Deal with and Handle Debt Collection Agencies

The truth is that when it comes to dealing with unpaid bills and unpaid debts many people do not know how to tackle it. Many people use the opportunity to settle their debts and his of their credit issues because they do not know how to go about it. Being reactive rather than proactive results in people staying under debt and not dealing with their creditors and debt collection agencies when they should be making an effort to work these issues out.

Ignoring unpaid credit bills and debts is not going to make them go away. The longer you wait and procrastinate over and out of control’s debt situation the worse it is meant to get. Accounts that have been reported as late and is delinquent may soon be sold to a collection agency. Having collection accounts means that you are letting yourself open to subterfuge and harassing tactics of debt collection agencies. Furthermore you might soon be facing a lawsuit in a court of law which will force you to make payments on a debt if the creditor or the debt collection agency can get a judgment against you.

Here are some of the common questions and answers that will help you to work out a deal with a debt collection agency.

Can an account sent to collection be deleted from your credit report?

Is a paid in full collection account better than a settled account?

Can you be sued for a debt when the statute of limitation is over?

Can a collection account be deleted from your credit report?

Can You be sued if you have more than $2000 in debt collection account?

Can You Make a Payment Arrangement With A Debt Collection Account?

Will You Get Sued for Debt Collection Account? How to Try and Settle a Collection Account For Deletion From Credit Report

It wast believed that you will not be sued if you have more than $2000 in debt collections. In fact you have more likely to be sued the higher the balance of credit is. This is because once a statute of limitation is over there is more money to be lost by the creditor. For a lender to decide whether he is to sue or not he will first look at the total amount of the debt. He will also look at the employment status of the person along with other financial information. They will also review the credit report in order to determine whether it is worthwhile to  pursue the consumer are not.

In most of the cases the creditor or a collection agency will sue once it can determine that a consumer has the ability to pay back the debt but is unwilling to.

It is usually advised that you should pay in full for a deletion of the account from your credit report for debts that are greater than $5000.

A settlement for credit cards that will also depend on whether the person intends to keep the card account opened. If the person intends to use it in the future then they should be willing to pay a higher amount to settle or delete the debt from the credit report. Deletion from the credit report of a collection account is not something that can be very easily negotiated.

When it comes to collection accounts of less than $2000 getting a deletion of the account is usually better than getting a deal. If you’re only willing to pay less amount of money such as $.50 for a dollar to settle the account it may not be possible for you to get the deletion. The higher that you’re willing to pay the more willing the collection agency will be to delete the account. For someone who is more concerned about his credit report for the sake of a better credit rating in the future, making a higher payment and getting the account deleted may be more important than settling the account for less.

Can You Be Sued in a Court of Law after the Statute of Limitation Has Expired?

While technically you can be sued for a debt even though the statute of limitation has expired, the collection agency will not be able to win the lawsuit in case you can provide proof that the statute of limitation has expired on your debt. This means that once the statute of limitation is over the collection agency cannot take a judgment to take action and force you to pay such as get your wages garnished. The time for the statute of limitation a set according to the state laws and is typically between 3 to 6 years but can be as high as 15 years. The statute of limitations longest for the documents that have been notarized and the shortest for actions on open or revolving accounts such as credit card debts.

The period for the statute of limitation is measured from the date that the last activity occurred on the account. There are certain actions that can reset the clock on the statute of limitations such as promising to a creditor of the collection agency, making a payment on the account, using the account and reaching an agreement to pay the account with the collection agency.

The statute of limitations is suspended if the consumer leaves the state or is sent for imprisonment.

While the statute of limitation prevents the collection agency of the creditor to take a judgment against the consumer in a court of law it does not prevent either of them to continue to make collection efforts to recover the debt. It simply prevents them from taking any legal action such as filing a lawsuit or garnish your wages.

It is commonly believed that once the statute of limitation is over you probably don’t want to settle a debt. If you do choose to settle a debt beyond the statute of limitation the collection agency and the creditor is more likely to agree to delete the account completely from your credit report because it knows that it cannot sue you for the debt.

It is probably true that most of the times collection agencies do not sue their consumers for recovery. They might however sue in cases when they feel that the consumer has the ability to pay but is not willing to.

A collection agency or a creditor can check the payment ability of a consumer by reviewing his finances, employment record and having a look at the credit file of the person.

Consumers are forewarned is that they should not agree with the collector even on the phone or send even a dollar because the statute of limitations will start all over again.