Being Smart About Your Credit
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Finance > Credit
Jan 23, 2008
stephfoster
Being Smart About Your Credit
If you've recently found yourself eyeball deep in debt you're not alone. Today's consumer carries more debt then ever before, and as anybody dealing with debt problems knows, big debt means two bigger problems - debt collectors and credit score problems. While neither of these two are very pleasant, the bigger problem usually comes from consumers dealing with them improperly making a bad situation worse. Below are the top five myths about credit repair that will help you recover from your credit and debt problems faster then you may have thought possible. Myth #1: Charge-offs can't be deleted from your credit report. False. Charged-off debts are deleted everyday. It doesn't mean it's going to happen every time, but it does happen. You're going to have more luck deleting a charged off account from a smaller retailer or collection agency then you will a larger bank in most cases. Larger banks have a lot of red tape they have to go through to get special requests such as deletions obtained. Whereas collection agents in many cases can make their own calls in regard to matters such as "pay for deletions". At the end of the day collection agents want your money and are usually more willing to delete accounts if they're going to get paid. Just make sure you get any agreements in writing before sending any money. Myth #2: You can't be sued after Statute of limitations. False you can still be sued but it's easy to avoid. The statute of limitations (SOL) is the maximum time a collection agent can take legal action on a debt and it varies state by state. Once the SOL has passed there is only one circumstance where a debt collector can take legal action; if the debtor reaffirms the debt. This is a common mistake we see consumers make and many times it's from the advice of a mortgage broker. If you make a payment or a promise to pay in writing, your debt can be re-aged and the SOL starts all over again. If you're trying to repair your credit and the SOL has passed I wouldn't waste my time settling or making payments. It is however a good opportunity to pay for a deletion if you're in a financial position to do so. Collectors know they have very little recourse and are much more likely to do whatever they can to recover anything at all. Myth #3: A Paid In Full Collection is Better Then Settled. False. You're going to get varying opinions on this one but with all things considered, I just don't see the benefit in most cases of paying in full vs. settling and here's why. Paying off an old collection or charge off is going to do very little if anything to improve your credit score. It's the notation "collection or charge-off" that's doing the damage and they don't go away by paying them off. Settled for less then full amount however will have about the same impact as a paid in full collection on your credit score, but you're only paying .50 cents on the dollar in most cases. The only time I would consider paid in full is if they were willing to delete the tradeline. If they're not, you might as well save some money if you're going to end up with the same net result. Myth #4 Accurate Information Cannot Be Removed From a Credit Report. False: Another almost true statement and one the FTC won't agree with, but I'm just stating the facts. The Fair Credit Reporting Act states that any information a consumer feels may be inaccurate or misleading the credit bureaus must verify it within a reasonable amount of time (30 days). If they cannot do so, the item must be removed. Again, we don't recommend you dispute items you know to be true, but facts are facts. Myth #5: Credit Counseling Lowers the Amount of Debt You Ultimately Pay. False. In my opinion, Credit Counseling is a horrible mistake for people facing financial difficulties. On the surface it appears to be helping because your monthly payments are lowered. The fact of the matter is that in most cases it is lowered because they are stretched out over a longer period of time. Let's say your payment is currently 600.00 for the next 24 months. Under credit counseling your payment may drop to say 350.00 but for 48 months. While it may give you that immediate relief making it appear as a feasible solution, in reality its only digging the hole deeper.
Stephanie Foster blogs at http://credit-blog.findcreditonline.com/ because she knows that credit can be both a useful tool and a trap. Learn more about managing your credit wisely at her site.
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