Whether a credit card closure or credit line cut will affect your FICO score depends on what else is in your credit report. Here’s what Craig Watts, FICO public affairs director has to say:
Will it lower my score if my lender (and not me) closes my credit account?
No. It doesn’t matter to your FICO score who closed the account.
Will closing a credit card account shorten my credit history?
No. Credit bureaus keep records of closed accounts in consumer credit files for years (seven years for negative information, longer for positive information). So a closed account will continue to appear on your credit report where it is accessible for the calculation of FICO scores. Those scores do consider the age of both open and closed accounts when determining the length of your credit history.
Will closing a credit card account increase my credit utilization rate, thereby causing my score to drop?
Not necessarily. A large percentage of adults (roughly one-third, based on FICO’s studies) habitually uses less than 10 percent of their total revolving credit. Having a utilization ratio that low means, among other things, that closing a credit card account is less likely to change your overall utilization rate. The situation changes if you had only one credit card account to start with, or if you have multiple cards with high reported balances, and so on.
If I close a credit card account that still shows a balance, how will that affect my score?
The reported outstanding balance of your closed account will continue to influence your overall credit utilization rate, so paying off that balance should continue to be a priority. If you miss a payment and are reported 30 days late on that closed account, the delinquency will hurt your score. So to maintain a good score, you should treat that balance on the closed account with the same respect that you give your active credit accounts.
Bankruptcy – A Rough Road Ahead
By · CommentsThe Difference Between Default and Bankruptcy:
Rarely does a person file for bankruptcy without already having defaulted on at least one credit account. So, if a person defaults on an account, meaning they have failed to repay it as agreed, they have taken the first slippery step toward bankruptcy. That doesn’t mean the person will declare bankruptcy, but they are a step closer to it. A default occurs with only one account. The problem is that when a person has serious difficulty with one debt, they often are struggling with their other debts, as well.
Bankruptcy is among the worst things that can appear in your credit report. When you file for bankruptcy, you are telling all of your lenders that you will not be able to pay them in full, or at all. As a result, it will be very difficult, if not impossible to qualify for new credit while the bankruptcy appears on your credit report.
Considering Bankruptcy:
A bankruptcy showing up on your credit is considered a very negative occurrence in regards to your credit scores and one thing is for certain; you can expect a rather large drop in your current scores. Typically, someone with a score in the mid 700s might see their score fall by 100 points or more. Listed below are a few things to consider before filing for bankruptcy.
- Do your homework. There are several things to think about when considering bankruptcy, such as choosing the type of bankruptcy (Chapter 7 or 13) that’s right for you based on your ability to repay your debts, the type of debts you have, and the impact that bankruptcy will have on your future financial picture.
- Consult with a bankruptcy attorney or a reputable debt counseling service. Because bankruptcy is an important decision that will affect many aspects of your life for years to come, it is highly recommended that you consult with a bankruptcy attorney. You may also want to consult a “legitimate” non-profit debt counseling service as an alternative to bankruptcy, as they may be able to arrange a special debt repayment plan with your creditors. Be careful, however, as there are many dishonest debt management companies that charge high fees and provide very little, if any, value toward resolving your credit problems.
Bankruptcy and How It Affects Your Credit:
One of the great myths about bankruptcy is that it erases bad credit history. It doesn’t.
A bankruptcy will always be considered a very negative event by your credit scores. How much of an impact it will have on your scores will depend on your entire credit profile. For example, someone that had spotless credit and very high credit scores could expect a huge drop in their scores. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their scores.
Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on your score.
While there are many things to consider when considering filing for bankruptcy, you can expect it to impact your score for as long as the bankruptcy is listed on your credit report.
How to Stop A Collection Agency
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Here we will show you how to accomplish more than simply stopping a bill collector’s calls. In many instances, mistakes made by bill collectors can not only make them stop calling, but even cause your account to be cleared and closed out.
The Consumer Protection Act governs the activities of collection agencies and in-house collection departments. If you can gain a working knowledge of this act, you can use its provisions to turn the tables on bill collectors and beat them at their own game!
Rules Collection Agencies Have To Play By
Bill collectors will almost always violate some part of the Consumer Protection Act while handling your case. This is why it is imperative for you to keep good documentation of their contact with you. Often, it takes several steps for them to hang themselves. You must have every inch of the way well documented.
In general, a bill collector may contact you by mail, telephone, telegram or in person. Also, unless otherwise advised, a bill collector can call you seven days a week, between 8 AM and 9 PM local time where you live or work. When calling, a creditor cannot in any way discuss your matters with persons other than you. A bill collector MAY ask about your whereabouts or how to reach you, but, they cannot give information about the reason for their call.
The Consumer Protection Act prohibits bill collectors or creditors from using harassing or abusive practices. Creditors or bill collectors cannot: threaten to use violence or other criminal means to cause you physical harm or harm to your reputation or property, use obscene or profane language, publish your name on a “list of debtors” if you allegedly refuse to pay debts except to a consumer reporting agency such as EXPERIAN, Equifax, or TransUnion, engage you in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass you or any other person at the called number, or place a telephone call to you without meaningfully disclosing their identity.
Believe it or not, a Short Sale does not have to be a negative occurrence on your credit report. On the other hand, a foreclosure ranks up there just under a Bankruptcy, which is an extremely negative occurrence on your credit. Let’s talk about how these two affect your credit.
How Many Points Will My Credit Score Drop With A Short Sale?
The mortgage that is affected by the short sale should reflect the short sale verbiage within 60 to 90 days. This short sale verbiage is made in the form of a notation made under the account which says “Agreed Settlement Short of Full Payment”, or words to that effect. I’ve got some good news for you though; these types of notations mean nothing as they don’t affect your credit scores in any way.
If you were late on your payments prior to the completion of the short sale, you can expect your credit scores to drop about 120 points on the average. The amount your score actually drops depends on the amount of trade-lines you have, the length of history on your credit, and whether or not you’re late on anything else, among other things.
It will take about 2 years to recover from a Short Sale on your credit if you had late payments associated with it. Of course this is assuming you have good credit in other areas and continue to keep it that way.
How Many Points Will My Credit Score Drop With A Foreclosure?
A foreclosure on your credit can drop your credit score up to about 250 points on the average.
It takes about 3-4 years for your credit to recover after a foreclosure.
How to Avoid a Credit Card Charge-Off
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The simplest way to avoid a credit card charge-off is to learn and understand the credit card system. Here are some tips:
Sending Credit Card Payments Through The Mail:
Some credit card companies actually require you to use their own preprinted envelopes, but even if they do not, it is a good idea to do so in the interest of more efficient processing of your payment. Make sure you have included the billing coupon and have written clearly the amount that you are paying. Include your check, also written legibly, and remember to write your credit card account number on the check.
When Ronald Reagan was running for President, he was asked what he was going to do to make the post office more efficient, to which he responded that he would start mailing postal workers their paychecks. Allow ample time when you send your check to the credit card company.
Change Your Credit Card Due Date To Something That Is Convenient For You:
Many people find that the greatest number of their bills, such as their mortgage or car payment, are due at the first of the month. If this places a burden on your ability to pay your credit card bill that may also be due at the first of the month, a simple way to avoid this problem is to just ask your credit card issuer to change the due date for your monthly payment. There is no harm in the asking, and many credit card issuers offer this ability to change the due date of your bill as an option. One important thing to remember, though, is that it may take a couple of billing cycles before this date change is fully implemented. It is important to make sure that your bill is paid promptly when due until your change of due date becomes effective. Otherwise, you could find yourself on the wrong side of a late fee.
Are Second Mortgage Modifications Stuck In The Mud?
By · CommentsAn Obama administration plan announced in April to help up to half of all struggling homeowners modify their second mortgages has yet to officially launch, the
Treasury Department acknowledged Friday.
The program, a component of the administration’s $75 billion Making Home Affordable effort, was supposed to attack second-lien mortgages, which are additional, second mortgages taken out on a home on top of the initial first mortgage. It’s like taking out two loans to pay the same debt.
The Second Lien Program is supposed to automatically reduce the payments on a second mortgage when the first mortgage is modified under the administration’s loan modification effort, the Home Affordable Modification Program. The administration says that by lowering monthly mortgage payments, HAMP will eventually help up to four million homeowners stay in their homes
Some housing experts say the second-mortgage component of the plan is necessary to effectively tackle the foreclosure mess — 3 million foreclosure notices were sent out in 2009; another 3 million are estimated to go out this year — because so many distressed homeowners have second mortgages. When rolling out the program in April, the administration estimated that “up to 50 percent of at-risk mortgages currently have second liens.” Addressing only the first lien is insufficient, experts say, if no changes are made to seconds.
Loan Modifications – Banks Not Following The Rules?
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Nathan Reynolds is something of an expert on the government’s foreclosure prevention program. A mortgage broker who’s worked in the Chicago area since 1998, he’s seen both his business and his home’s value plummet in the past few years. After receiving his own trial loan modification from JPMorgan Chase, he’s helped others apply for modifications through the program on his own time.
But in November, after Reynolds had made trial loan payments for seven months, Chase told him his mortgage would not be permanently modified. Chase had determined that his personal financial troubles were only temporary — because Reynolds had expressed optimism that the administration’s policies might rescue the housing market, boosting his income.
That’s not a legitimate reason for a loan servicer to deny someone’s modification, according to the Treasury Dept.’s guidelines for the program. And Reynolds’ experience — along with the cases of two other homeowners examined by ProPublica, shows how servicers have created unnecessary hurdles that, in some instances, violate the loan program’s rules.
What Can Happen To Credit Cards After Foreclosure
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Like so many of you, I too have had my share of financial problems the past couple years. During the good times, I got a little overzealous and purchased a 2nd home and a seasonal vacation rental. Basically this meant that I had 3 mortgage payments and the rental income I received only covered the expenses on the seasonal vacation rental during the summer months. Once winter came around, those came out of my pocket too, so I decided the best thing to do was sell the vacation rental, so on the market it went.
There my listing sat, and sat, and sat, collecting dust with no offers. It got to the point where I could no longer afford to make the payments on the 1st and 2nd, so with much hesitation, knowing I was going to ruin my perfect credit rating of the past 20 years, I stopped making the payments on December 1st, 2008. I had no choice.
The late payment letters and collection phone calls started coming fast and furious by February. I really needed to learn another language or two, because how many times can you tell a collection agent “I don’t have the money” after 3 phone calls from the same lender in ONE WEEK? Maybe if I could say it in Spanish or Greek, they’d understand and stop calling. But no…..persistent buggers they are….and the saga continued until I just stopped answering the phone.
10 Tips on How to Establish Good Credit
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Attempting to establish good credit is a task that takes a little effort, a lot of time, and can even cost some money! In order to establish good credit you have to use credit, and this almost always means incurring an interest charge. Fortunately, you can use these strategies to keep your interest payments down while getting the biggest boost to your credit scores.
To establish good credit, you simply need to jump into the credit cycle. You first acquire some credit, use it when needed, and repay as required. After a period of this activity, you acquire some more; use it when you need it, and so on…
By making small charges to your account and paying them on or before the due date, you slowly build your credit and become eligible for credit line increases. Its okay to pay personal consumer accounts on or right before the due date, but you’ll get an even better credit rating for business accounts if you make your payment right after you receive the bill, versus waiting until closer to the due date.
In most cases, you can set up your payments to be deducted automatically out of your checking account on the due date. If you pay off your balances in full every month, this ensures the credit bureaus will always show a balance on the account, and also allows you to keep your money until the exact day the payment is due. If you pay off your balance too far ahead of the due date; it may not reflect a balance on your credit report, which doesn’t help your scores.
You continually increase the quality of your credit as well as the quantity. You’ll replace store charge cards with those from major imprints, such as Visa, M/C or American Express. You’ll convert secured lines of credit to unsecured ones. You’ll increase your borrowing power with your relationships. Before you know it, you have built substantial credit coffers.
Well start from the beginning, with steps to establish or re-establish credit for someone who has no or formerly bad credit. If you already have credit, the challenge is to make sure your credit grows in the ways you need it to for your business. Read More→
