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Thread: credit ?
11-05-2007, 06:11 PM #1
I have a few questions about a person's credit report,
as there seems to be a number of people who know a
good bit about it. The first is in reply to an older
Posted by Debbie:
> If you remove cards, you no longer have those 100%
> ones, and are left with cards with a much smaller
> percentage, and it messes up your credit. Cut them
> up, throw them away, but don't cancel them until you
> are caught up!
This is confusing to me ... I always heard that having
a number of open accounts, even if there's no balance
on them, can drop your credit rating as opposed to
only having a couple of credit card accounts. Or do
you mean more that you've gotten rid of accounts that
have 0 balance, so now the only things showing on your
credit report are credit cards that you still carry a
balance on? I guess that makes sense, showing that
some are paid off, and you're not just carrying
ablanace on all your open accounts, if that's what you
mean. Anyway, any clarification would be appreciated.
Also, another question ... I know some of these credit
counselling organizations also offer to help repair
your credit after you're paid off. Is that truly an
option? If you have stains on your credit report, can
you actually do things to get that off there pretty
quickly as opposed to waiting X amount of time for it
to go away on its own? (like they say 7 years for
bankruptcy, or something like that -- can you really
do something to shorten that?) And is this something
an individual can do on their own, or do you need
someone experienced with negotiating such things -- a
credit counselor, an actual lawyer, etc.?
And lastly, just a note from experience ... I haven't
seen anyone mention it here, which is good. But there
is a program out there that is different from credit
counselling or debt reduction programs. It is called
debt negotiation. I highly recommend that you DO NOT
take this option. The way it works is instead of
working out some sort of lower payment or lower
interest and getting you on a program where you pay
your bills off like that, there are people who
"negotiate" with your creditors to get you to pay them
off a lump sum that is quite a bit lower than what you
owe them. The idea is you save X amount of $$ each
month until you have enough to offer a settlement
anywhere from 15% to 50% of your balance due. In the
meantime, you are not paying on your accounts, so
hopefully they will be willing to take a lower amount
and get *something* and be done with it. And the debt
neg. company is supposed to have all these epxerienced
people helping you to keep it from going sour.
Probably all you smart cookies are seeing where this
story is going! (ugh)
This idea appealed to my husband, who saw it as a way
to pay things off quicker and for less money. I had
reservations, particuarly about what if something went
wrong, and how would it affect our credit (despite
their insistence that any dings on our credit could be
"repaired" by them later)? Needless to say, I should
have stuck with my gut instinct. We had to do the
negotiations on the first one or two accounts on our
own, as this company did not handle those creditors.
I think we saved about 20%? Still, we're paying this
company a fee and we have to do the owrk ourselves?
Better just be this one time. Then everything else,
one by one, went to collections before we could even
get enough to offer a settlement. Now that they were
in collections ... we had to handle all that on our
own. Two accounts still are not settled, and we both
(but me in particular, as those two are mine) have bad
credit scores. Anything we did pay off is still
appearing as a "charge-off" on our credit, which
apparently is not a good thing.
Anyway, that is one of my hard-learned lessons, and I
thought I'd share it with people here. Like I said,
no one has mentioned it on here or asked about it,
which is good (and leads me to believe a lot of you
are much smarter than we were). But just in case
anyone had heard of it and was curious, avoid it like
the plague! The two morals of this story: if it
sounds too good to be true, it is .... and follow your
instincts, especially if they're giving you bad vibes.
[see now why I asked about if you can repair your
credit report faster?]
12-27-2007, 10:39 AM #2
- Join Date
- Dec 2007
I have worked in credit unions for more than 13 years and spent much of that time doing loans and collections. While the companies that control credit scores don't share their exact calculation methods, here's the general guidelines on credit scores and bureaus:
There are three primary credit bureaus, Equifax, TransUnion, and Experian. Each of them has a slightly different scoring system (although they're working on one that would score the same across the board) so your exact score may be different from one to the other, but they largely follow the same rules.
Scores can range from approximately 380 up to 830 (again, varies a bit by company). A higher score is better. A score roughly over 720 should get you the best interest rates available on the market. The score is a point-in-time measurement of how likely you are to go delinquent on a loan in the next 24 months, based on your history.
- 35% of your score is based on whether or not you pay your bills on time. Always, always pay your bills on time.
- 30% of your score is based on this thing called "Capacity". It's basically how high you've charged against the limits on your credit cards. This is the concept that was quoted in the prior post when it talked about cutting up your cards but not closing them until you have to. We'll chat about that a bit more later.
- 15% of your score is based on the age of your credit. A loan you've had for 48 months looks better than a loan you've had for 6 months.
- 10% of your score is based on how much new credit you have. It looks at how many people have inquired against your credit bureau recently and how many accounts you've opened recently. One or two inquiries isn't the end of the world, but you don't want to be shopping for credit every day.
- 10% is the mixture of credit that you have. How much of your balances owed are on credit cards vs loans on automobiles and homes? Loans on autos and homes represent assets. If all of your debt is in credit cards instead of autos or homes it may lower your score.
So let's go back to Capacity for a moment. The question is, should you close credit cards you don't use? The answer really depends on a couple of things:
1. If you close unused cards, will the balances you are left with be over 50% of your available credit limits? If the answer is "YES" then you might consider leaving those unused cards open until you're forced to close them...but still cut up the plastic.
2. Will your unused cards charge you an annual fee or a no activity fee? If so, you might want to close them anyways. If you're not tracking the activity on an unused card and out of the blue they charge you an annual fee that you're not monitoring for, you could accidentally go delinquent and create a bigger issue for your score.
The bottom line is you don't want the balances on your credit cards to exceed 50% of your available limits. It will hurt your score.
Another thing to be aware of is that you can get a free copy of your credit report every 12 months from each of the 3 credit bureaus. You can pull all 3 all at once, or you can pull 1 the first time, 1 about 3 months later, and the last one about 3 months after that. I suggest the latter technique because it allows you to monitor for ID theft without costing you money. The official site to get your free credit report is http://www.annualcreditreport.com . This is the ONLY site where you can get copies of your bureau at no cost. However, the copy of your bureau does not automatically include your credit score. You may have to pay extra to find out what your score is.
As to the services that offer to "clean up" your credit - unfortunately they're often just a drain on your money. There are no quick fixes to poor credit. It takes about 24 months of on-time payments on your loans and credit cards to start reversing the effect of slow payments...and even then it will still take some time. Bankruptcies and collections do show up on your credit report for 7 - 10 years and unless they're inaccurate there really isn't anything you can do to get them off (you can ALWAYS dispute inaccurate items, though). However, your SCORE *can* recover from bankruptcies and collections if you pay your debts on-time after those events for longer than 24 months.
Reputable, non-profit credit counseling agencies are a bit different. They can work with your creditors to reduce your interest rates or your monthly payments...but it means you have to develop and stick to a budget, and you cannot go out and get additional loans until you complete the repayment plan for your creditors. These can be a good solution for people who have gotten in a bit over their head and just need some help getting out. Just make sure it's a reputable, non-profit company. You should not have to pay anything out of pocket for this assistance.
Ask your local credit union or bank about options for rebuilding credit. Many credit unions offer a "credit builder" loan that helps this process plus gets you in the habit of saving at the same time. Other options can include share-secured credit cards where you deposit a lump dollar amount in a savings account and it is pledged against your credit card and unavailable for your use until the credit card is closed.
I hope that helps a bit. Good luck!
02-04-2008, 02:33 PM #3
- Join Date
- Feb 2008
Re: credit ?
I also agree with nyle escpecially being part of the financial industry myself. Getting to and maintaing a high credit score is one's ability to manage credit, not one's ability to pay everything off. What I have done is only have 2 credit card accounts open at a time. I use one solely for making purchases and the other for a back-up (in case the other card is not accepted). I will always keep a small balance on the card, say $100 to $200 a month and pay for all the charges that we're racked up during the previous month to avoid finance charges. That way I am showing to the credit agencies that I am managing my debt effectively and thus receive a credit score close to 800.
As for the debt consolidation progams that are out there, I would steer away from them. First off, they show credit agencies that you cannot manage credit and need the services of another business to manage it for you (i.e. set up a program to pay down debt). Spending less to pay down your debt is the best approach, but one has to be discliplined and committed in doing so.