You owe money, you’re late on your credit card payments, and you feel like you’re walking around with a permanent stress-induced headache. What’s more, you have debt collectors calling you about the unpaid credit card debt, past-due student loans, and medical bills. It’s enough to make anyone spiral into an anxiety-filled black hole.
How does someone even begin to deal with the debt collectors – especially when they seem to be ever-present, following you around like a shadow? Our first piece of advice is to avoid debt collectors all-together. If you know that you’re making your way into troubled waters with your debt, it’s best to try to work out a deal with the original creditor before letting a third-party get involved.
Below are some tips to help you navigate these murky waters.
First Off, What Are the Types of Debt Collectors?
To understand how to deal with debt collectors, you must first know the different kinds that exist. Here are the types of debt collectors you may deal with:
- Internal Debt Collectors:
- These are the collectors that work for the company you owe money to.
- They don’t collect debts from others.
- These “first-party” debt collectors do not follow the same rules as others.
- Working your debt out with them can prevent your debt from being given to the credit bureaus, which would ultimately hurt your credit score.
- Collection Agency:
- A collection agency gets involved when your lender cannot work a deal out with you.
- Collection agencies charge the lenders a fee to collect any unpaid debts.
- Collection agencies will be relentless when it comes to collecting your money because they get paid based on the amount of money they collect.
- Collection agencies have to follow stricter rules when it comes to collecting money from you.
- Debt Buyers:
- Lenders that have failed to collect a debt will cut their losses and sell the debt to a debt buyer.
- Debts are bought up for pennies on the dollar.
- A little amount is paid because they know that they will not be able to collect most of the debts that they purchase.
Now that we’ve delved into the different kinds of debt collectors, let’s review how to deal with debt collectors.
The Seven Steps for How to Handle Debt Collections
It’s Important to Know Your Rights
In the midst of your panic, you may not realize that just because you owe a debt, does not mean you don’t have rights. The Fair Debt Collection Practices Act provides a detailed outline of your rights, including how a debt collector can and cannot interact with you. No matter what, harassing phone calls and threats, as well as abusive language, are all considered illegal.
What can a debt collector do? They can:
- Reach out to you at your home. They must clearly state that they are a debt collector.
- A debt collector can charge you interest.
- Unfortunately, they can take you to court.
- They can seek payment for any old debts that you may have long forgotten about.
What can a debt collector not do? They cannot:
- Debt collectors cannot keep you in the dark.
- They cannot simply contact you anywhere or anytime.
- Debt collectors actually cannot keep contacting you if you wrote to them telling them to stop. Don’t be harassed by debt collectors!
- They also cannot pester relatives of yours.
- A debt collector cannot pretend to be someone else.
Don’t Ignore Debt Collectors
When you do not have the financial means to pay back owed funds, it may seem easier to simply bury your head in the sand and ignore the calls and letters altogether. This is not something that is going to go away simply because you don’t want it to be real. By law, the consumer is allowed to send a written request for debt verification within thirty days of a debt collector contacting them.
If you continue to ignore them, debt collectors can provide negative intel to consumer credit reporting companies, like Experian or Equifax, which can remain on your credit report for up to seven years.
Know the Facts
You want to be well-informed, that’s how you avoid being taken advantage of.
Here are some facts you should be aware of:
- The original creditor may sell your debt to a third party and then resell the debt again. When this happens, errors can occur.
- Not that you will be shocked by this next statement, but debt collection practices are actually the largest source of complaints to the Consumer Financial Protection Bureau. What is one of the biggest reasons? Being asked to pay debts that person doesn’t actually owe.
- If you do not receive a validation letter within five business days of first being contacted by a debt collector, request one.
Don’t Let Them Pressure You
It’s easy to feel intimidated by debt collectors. You virtually think it’s the end of the world. Just because you owe money, does not mean you should succumb to the pressure.
- Don’t rush to make a payment just because a debt collector contacts you.
- You need to take time to think about your options before you jump into a contract.
- When speaking with a debt collector, do not pay or promise to pay at that time. Also, do not give payment information to them.
- If you make a single payment, that is enough to get you in trouble with a debt collector.
Have a Written Agreement
Do not do anything before having everything confirmed in writing. Furthermore, have a representative of the debt collector sign said contract before any payments are made. You want to avoid misunderstandings.
Communicate via Certified Mail
It is suggested that any correspondence that you have with a debt collector be done by certified mail. It is even suggested that you request a return receipt so that you have proof that your letter was actually received. You don’t want anything that can be used against you. Remember the point we made before – you have rights.
Look into Hiring a Debt Management Company
As you approach this journey of dealing with a debt collector, you should consider finding an accredited counseling agency. This agency will work out a payment plan for your budget that does not have you scraping by and unable to put food on your table due to debt.
We know that no one wants to deal with debt collectors. It’s not a fun time and it’s a source of immense stress. It’s easy to simply advise not to go into debt. But we know with rising medical costs, ungodly student loans, and credit card costs that were needed at the time of emergencies get in the way. If you find yourself in a situation dealing with debt collectors, there is a light at the end of the tunnel.
You can get back on your feet, you just have to take it one step at a time.
Have you ever seen that episode of Black Mirror where the number of followers you have on social media determined whether you could purchase a car or be accepted into a prestigious apartment complex? This is essentially how credit scores work.
A credit score can help you get a loan, buy a car, or rent a condo. If you have poor credit, this could close a lot of doors for you and affect your financial freedom.
Maintaining good financial standing is no easy feat. The slightest dip can affect you in unforeseen ways. What’s worse, you might be scratching your head in confusion over why your score dropped and what you can do to boost it back up.
Let’s go through some factors as to why your credit score has dropped and what you can do to repair your score. Don’t fret, while the idea of a poor credit score may seem scary, you are in control of it and this article will help you understand why and how.
What are the Reasons Why Your Credit Score Dropped?
You Missed a Payment/Are Late on a Payment
Life gets in the way. While you are pretty consistent when it comes to making your payments on time, there are some months where you either forget because you’re so busy or other financial obligations require you to skip a payment. This can cause a dip in your credit score as late payments make up a large portion of your credit score.
Your Credit Card Limit Was Lowered
Credit card companies reserve the right to lower your credit line, especially if you’ve made a habit of being late on payments. Something like this can explain the drop in your credit score as it will increase your debt-to-credit ratio.
It’s recommended to keep this to 30% of your credit limit and under.
You’ve Closed a Credit Card Recently
While you may have cut up a card and said that you were done with your addiction to shopping, closing an account doesn’t always work in your favor. It’s an incorrect state of mind to think that closing a credit card will benefit you.
This may sound crazy, but the best thing to do is to pay off your credit card entirely and keep the account open. Put your card in a drawer or use it very sparingly.
Did You Apply for New Credit?
If you’ve applied for a new credit card, a home loan, or any sort of loan, this can cause your credit score to drop. It’s unfortunate, but it happens.
When a card issuer assesses your credit report, this is known as a “hard pull.” Unfortunately, this can lead to a slight drop in your credit score, whether you are approved or not for the credit card.
Made a Large Purchase
While you are given a maximum amount on your credit line, it’s never good to max out your credit card or come close to it. Especially if you’ve made a single large purchase.
This shows that you are not utilizing your card properly and can sometimes communicate to credit bureaus that you have no intention of paying your credit card off or it could be difficult to pay off in a timely manner.
Identify Theft Can Hurt Your Score
While you may think to yourself ‘I didn’t make these purchases, someone else did’, you could still end up paying for these fraudulent charges. Identity theft drops your credit score. Regularly check your account regularly to ensure all of the purchases on your card was actually made by you.
Did You Pay Off a Loan?
I know what you’re thinking. You just paid off a loan early. You accomplished a longtime goal. Job well done! You no longer have to worry about holding the weight of that burden on your shoulders. Something like this can cause your credit score to drop.
Credit Report Errors
In the end, people and technology are flawed. Mistakes happen. If an error occurs, even when it’s ultimately not your doing, your credit score can be negatively impacted. It’s frustrating, especially when you have been doing so well in maintaining a good credit standing.
Paying an installment loan off early won’t necessarily improve your credit score, and keeping it open for the life of the loan may be a better strategy.
How Can You Raise Your Credit?
So, your credit score is not where you envisioned it would be. As we said before, there is no reason to panic. Do not reserve yourself to thinking that you will always be at this score for the rest of your life.
No brand new car. No nice house in the suburbs. You can raise your credit score, and in this section, we will be going over how to do just that because it is possible.
Make On-Time Payments
This point is a little bit of ‘hitting the nail on the head,’ but if it wasn’t obvious already, you should try your best to make your payments on time everytime. Even if you pay $5 more than the minimum and go at a steady pace for a while, it is better to make your payments on time instead of letting your payments build up.
Don’t Use Your Credit Card Too Much
The idea of a credit card is tempting. You don’t have enough money in your bank account for those new pair of shoes, but you have room on your credit card.
So, you get the shoes. Then you get a jacket. Then you pay for a fancy meal out with friends.
Overusing your card on a very consistent basis is not good, so make sure you are aware of how often you swipe that card.
Don’t Close Your Credit Cards
As mentioned before, it may seem like a good idea to close a credit card and not tempt yourself. You are doing more harm than good this way. Keep your credit card open and be mindful of when you should and when you shouldn’t use it.
Raise Red Flags on Credit Report Errors
If you see something on your credit report that doesn’t look right, don’t let it just sit there and fester. Dispute this error before it can affect your credit score too badly.
Don’t Apply for a Loan
While you are trying to raise your credit score, do not apply for a loan. This may seem like a viable solution for helping you escape your credit card debt, but you will drop your score by doing so. While you are looking to boost your score and pay off debts, hold off on any loans.
Request A Credit Line Increase
As mentioned earlier, maxing out your credit card is no bueno. You may feel like requesting a credit line increase is tempting, but you may want to take advantage of the opportunity. By doing so, your credit card balance will be further away from the maximum and not threatening to drop your score.
Bring in a Credit Repair Company
When you feel like you are unsure of how to go about raising your credit score, then it’s time to bring in a credit repair company. These are the experts who do this for a living.
While you may feel like you are out of options and your wheels are just spinning in place, a credit repair company will devise a customized solution to fit your exact needs and help you move forward. These experts will get you back on track and you can take a big sigh of relief.
When it comes to improving your credit score, remember that it is not a sprint, but a marathon. It will take some time to see results, which could be discouraging, but should actually be promising.
You should know that while you may not see changes right away, you are taking the right steps that will pay off in the end. With the help of the tips listed above, along with a credit repair company, you will be on your way to a fixed credit score and leaving bad credit behind.
When your new credit comes in the mail you’re given a paper listing your credit limit. Every so often, if you’re a good borrower, you can increase your credit limit. However, have you ever wondered how this credit limit is even decided?
The method used by credit card companies to determine your credit limit is called underwriting. Underwriting works via mathematical formulas besides testing and analysis. But, the exact details of how this works is kept tightly under wraps by each institution since it’s how these companies make their money.
In this article, we do our best to shed some light on credit limits, how they’re determined, and your credit limit is affected by your credit score.
What Is A Credit Limit?
Simply put, a credit limit is the maximum amount of money you can spend on your credit card. While a high limit allows you to purchase more expensive items, offers you more flexibility, and can improve your credit score, it can also get you into trouble easily if you get buried in credit card debt.
How much of your credit you use determines a portion of your credit score. It’s wise to have more available credit than you’re using to keep your credit score high.
While most Americans have credit cards, few of them think much about their credit limit, which is one reason so many of them get into trouble with their credit cards. Fortunately, it’s easy today to get a handle on your credit limit with the many apps available that assist you in managing your credit cards.
If you don’t have a smartphone or prefer not to use an app to achieve this, you can use the card issuer’s website to get this helpful information. Most of these sites will give you your balance and your limit at a glance so you know exactly where you stand.
If you don’t have access to an app or a website, you should be able to find this information on your statement each month.
How Are Credit Limits Determined?
Stated by a credit repair company in Austin, when a company sets a credit limit, it’s a sign of how much they trust the borrower to pay back what they owe. If you’re given a high limit, it means the bank thinks you’re low risk and are likely to pay off your debt and make timely payments. You’re considered a good borrower.
However, if you don’t look like a low-risk borrower to the bank, they’ll give you a low limit to start. If you pay your debts responsibly, the bank or card issuer may raise your limit after a set time. After some time, you can also request to increase your credit limit, if need be.
The Role Of Credit History
A major determining factor in your credit limit is your credit history. When you apply for a credit card, the card issuer checks things like your annual income and your credit report to determine what your limit will be.
When they look at your credit report, they factor in your repayment history, your credit history length, and how many credit accounts you have open. Open credit accounts include other credit cards, mortgages, student loans, auto loans, and personal loans.
Card issuers also look to see if you have any derogatory information on your credit report. Bad marks on your report could be things like bankruptcies, missed payments, late payments, tax liens, or accounts that have gone into collections.
Other Items That Factor In Your Credit Score
While the underwriting process is different depending on the company, many consider identical variables in determining your limit. Some items they consider are the credit limits on your other accounts and your work history.
Your debt to income ratio also plays a role. If you have a lengthy work history and low debt to income, you’ll be seen as low risk and most likely be given a higher limit.
If you apply for a card and don’t get the credit limit you were hoping for, it’s most likely something in your credit report that’s holding you back. That’s why it’s a good idea to check your report regularly to know where you stand and what you can do to improve your credit score.
How Do Credit Limits Affect Credit Scores?
While credit card limits affect how much purchasing power you have, they also directly impact your credit score. One of the ways it does this is mentioned above in your credit utilization ratio or known as debt to credit ratio. This ratio is important as it comprises 30% of your FICO credit score.
People with low credit limits get into trouble easily with credit utilization, which is why it’s best to strive for higher limits. If you have high credit utilization, it reflects poorly on your credit score.
Remember that every credit report is different, and just because you brought your ratio down and it reflects positively on one report, it doesn’t mean it’ll do the same on another.
Still, it’s wise to keep your credit utilization ratio low when possible. How low? Well, many experts say under 30% is a good number to aim for.
A good way to increase your score and lower your credit utilization ratio is to ask for an increase in your credit limit but keep your card usage the same.
What About Going Over Limit?
We probably don’t have to tell you this, but going over your limit is a bad move. Going over the limit takes your credit utilization to over 100%, and that’s a bad place to be in.
Most items, your credit card company will just deny the transaction that puts you over your limit, however, some don’t. Some card issuers allow users to opt into an over the limit coverage whereby they pay a fee if they go over and the card issuer honors the transaction.
Still, even if you have this protection, it’s best not to go down that road.
Besides hurting your credit, going over the limit puts you at risk for having your limit decreased or your account closed by the card issuer. Also, being over the limit may cause your card issuer to increase your interest rate. So, avoid going over whatever you do.
It’s important to understand how credit limits work and how they impact your credit score. Equally important is staying on top of your credit score to know where you stand. There are many apps available right from your smartphone that let you access your credit score and show you where you need to improve.
Are you getting your phone out now?
Almost everyone needs a car in our daily lives whether to take you to work or to drive your kids to school. In most cities, it is essential to getting from point A to point B. If you don’t have one yet, you might be wondering whether it’s better to lease or buy one outright.
However, before making any large purchases like a vehicle, it’s helpful to know your credit score so you can find out what kind of loan you can get approved for and what kind of interest rate you will be dealing with.
In this article, we look at the credit scores you need to lease or purchase a vehicle so you can better plan to get your dream car.
What Credit Score You Need To Lease A Car
Stated by a credit repair Dallas expert, the advantages of leasing a car versus buying one outright are that you generally get lower monthly payments. Some experts say you can get anywhere from 30% to 60% lower payments versus buying a car. Another big advantage is that you have warranty protection for the entire time you drive the car.
Leasing a vehicle is like buying because you still need a decent credit score. According to Nerdwallet, “the average score for customers staring a new lease was 722. If your score is 680 or above, you’ll likely have attractive offers.”
Credit scores above 740 are considered excellent by lenders, and those with scores 740 and over get the best rates and deals regardless of whether they purchase or lease.
But, what if your score isn’t so hot?
Well, according to LeaseGuide.com, if you have a score between 620-679, you’re still in the ballpark for getting a lease. However, while you’re more than likely to be approved with those numbers, you may get a higher interest rate.
Now, if your score is below 619, it’s considered ‘sub-prime’ or fair credit. If you have a score in this range, you may or may not get accepted to lease. And if you do, you’ll likely pay a high-interest rate.
If you have a sub-prime score, you’re better off taking a few months to improve that number before you go shopping for a new vehicle, if you can. Keep in mind that lease requirements always change and vary among auto manufacturers. It’s important to note that market conditions play a factor in whether or not you get approved depending on your score.
Credit Score For Buying A Car
Buying a car has its own advantages over leasing. While you do pay higher monthly payments, you have the benefit of owning a vehicle when you’ve paid it off, and can sell the vehicle when you choose to get another one.
Also, you have the advantage of being able to modify the vehicle if you want without the fear of breaking a contract.
But buying a car is similar to leasing because you still need to have a decent credit score to get a loan. Again, according to Nerdwallet.com, “the average credit score to buy a new car is 713; it’s 656 for a used-car loan.”
If your score is in the low 700s or below, expect to have a difficult time getting a loan. You’ll probably have to answer questions about negative entries in your credit report and have to jump through hoops to prove your income and verify payment history.
While it’s possible to get an auto loan with bad credit, which is defined as a score below 600, it’s unlikely. And if you do get approved, you’ll pay very high-interest rates.
As with leasing, if your credit score is bad, you’re better off spending six months to a year rebuilding your credit score back up if you can afford to wait.
How To Improve Your Credit Score
As you can see, having a good credit score is essential to getting good terms on a lease or car purchase. But if you have less than perfect credit, all hope isn’t lost. There are steps you can take to beef up your score and it doesn’t take as long as you may think.
To know what your credit score means, it’s helpful to know how that number is calculated. Credit scores are three-digit numbers that help lenders know how credit-worthy you are. There’s no uniform algorithm that’s used by everyone, which is why you may have different scores from different reporting agencies.
Credit reporting agencies look at a variety of factors to come up with that number, including your payment history, your credit usage, whether your accounts are delinquent, etc.
First and foremost:
The number one thing you can do to improve your score right away is to make your payments on time from now on. Your payment history is the biggest factor that goes into your credit score.
Even if you’ve been late before, start making every payment on time even if it’s the minimum.
The next thing you can do to improve your credit score is to pay off your debts and credit cards. The debt to credit ratio or credit utilization ratio is the second biggest factor that goes into your credit score. Do everything you can to bring down those credit card and loan balances quickly to send your score in the right direction.
Another way to better your score is to not take on any more debt if you can afford it. It seems counterintuitive since you’re trying to take on a car loan, but when you apply for new credit, your score takes a hit. That’s why it’s best to get your score as high as you can before taking on a car loan or lease payment.
The bottom line to take away from this article is that your credit score is very important whether you want to get an auto loan, home loan, or any other type of credit. If you’re in the market for a new vehicle, your best bet is to examine your credit to see where you stand.
Then, if you think you need to make improvements, do so first before you attempt to get a loan. Getting a loan with a high credit score gives you more favorable terms and makes it more likely you’ll be approved.
Having good credit and a good credit score is important to your financial well-being and your life. Having credit allows you to purchase things you need, such as homes and automobiles and can even help you get an apartment or a cell phone contract. Your credit history and your score affect your ability to borrow money, and it affects the interest rate you’ll pay, which can make it easier or harder for you to pay off your loans.
In this article, we look at why having a good credit score is important, and how your score affects your interest rate.
What Is Your Credit Score?
Your credit score is a number that’s derived from your credit history. This number tells lenders how much of a risk you are when deciding to lend you money or extend lines of credit to you.
Since this number is one of the main factors taken into consideration, you need to work hard to maintain a good credit score, because having bad credit lessens the chance you’ll be able to borrow money, and increases the chance of borrowing money with unfavorable terms.
How Companies Determine Credit Scores
The information in your credit report is what’s used to determine your credit score, and it’s vital you understand what information credit reporting agencies consider so you can take steps to improve your score if needed.
There are 5 pieces of information that determine a credit score: Payment History, Amount Owed, Credit History, Types of Credit, and New Credit.
Your payment history comprises the largest percentage (40%) of your credit score. The information a credit reporting agency uses to factor in payment history is the number of accounts you have versus how many payments you’ve made on time.
The number of accounts that are 30 days or more delinquent factors into this.
Reporting agencies take into account whether you’ve filed for bankruptcy or had an account go into collections. Making every payment on time is the most important thing you can do to maintain your good credit and to build it up if it’s not where you want it to be.
The next factor that goes into your credit score (30%) is the amount you owe on your accounts. The credit reporting agency looks at your spending habits and the amount of money you owe to determine if making payments is sustainable should you encounter financial hardship. Factors that determine the amount owed are the number of accounts in which you have a balance, how much credit you’ve used, and how much you owe on all of your cards and loans.
As with making on-time payments, paying down debt goes a long way to improving your credit score and is easy to do if you pay more than the minimum payment every month.
How long you’ve had credit cards and other forms of credit is another factor that goes into your credit score. For example, if you have, say, five years of on-time payments with a credit card, it looks better than if you only had an account for a few months. The longer your credit history, the better the risk you’re seen as for lenders.
Therefore, it’s important you keep your old credit cards instead of cutting them up. Use them for small purchases to keep them active and pay off the balance at the end of the month to maintain a long credit history.
Types of Credit
Lenders like to see a variety of credit accounts, which is why you should have loans, retail cards, and bank cards instead of only credit cards. Having more variety in your types of credit shows you’re a well-rounded borrower.
The last bit of information that credit reporting agencies consider when determining your score is the new lines of credit you opened up recently. Factors in this include how long it’s been since you’ve opened a new account, the number of ‘hard pulls’ to your credit you had in the last year, and how long it’s been since you last had an inquiry into your credit report.
Credit & Interest Rates
Now that you know about what makes up your credit score, let’s look at how that score affects your interest rate.
Lenders & Numbers
So, when you apply for credit, your lender looks at the credit score given to them by one of the major credit reporting agencies. Credit scores usually range from 300 to 850 and the number that comes back to the lender affects the interest rate they’ll offer.
A high score tells the lender you’re low risk and that you’ll most likely make payments on time and won’t default on the loan. This means you’ll usually get a lower interest rate, and some lenders may reduce the amount you have to put down for a mortgage or an auto loan.
However, lower scores (usually below 620) means you’ll probably get a high-interest rate or may not get a loan at all. Many lenders look at scores above 670 to be good, so if you’re below that, you’re better off improving your score before you apply for a loan.
Building Your Score
Let’s say your score is less than perfect, and you want to get a mortgage or car loan. As mentioned, you’re better off improving your credit score before applying for a loan to get better terms and here’s how to do that.
- Make your payments on time. Even if you’ve missed in the past, start making them on time every month from here on out.
- Reduce the credit to debt ratio to be 30% or lower.
- Pay off your high balances as quickly as possible; make more than the minimum payment to do this.
- Get a copy of your credit report and make sure there are no errors that can drive your score down.
- Get help from a credit counselor to help rebuild your credit.
Many people get into trouble with credit because they don’t understand how it works. If you can avoid it, don’t carry over balances from month to month. Be smart about using your credit, make your payments on time and you should have no trouble when it comes time to get a mortgage or loan.