Quick Post: New Info On How Debt Effects Credit
The exact method of determining credit scores is a closely guarded trade secret. So it is rather surprising that FICO has released this information. It doesn’t tell us everything, but it does help us understand how much of an impact debt can have on credit scores.
The New Info
| |
Effect on a 680 score |
Effect on a 780 score
|
| Maxed out card |
-10 to -30 |
-25 to -45 |
| 30 day late payment |
-60 to -80 |
-90 to -110 |
| Debt Settlement |
-45 to -65 |
-105 to -125 |
| Foreclosure |
-85 to -105 |
-140 to -160 |
| Bankruptcy |
-130 to -150 |
-220 to -240 |
What We Already Know:
Payment history – 35%
Amounts owed ( amount owed in proportion to total credit limit) – 30%
Length of credit history – 15%
New credit ( recent inquiries and newly opened accounts) – 10%
Types of credit used (revolving, installment, or consumer finance) – 10%
Source: FICO
Another instance that FICO revealed some rather controversial info was during July 1999. They stated that the type of occupation, such as professional or blue collar, was a factor of up to 50 points (FICO Presentation). However, on FICO’s website it clearly states that occupation is not scored (FICO scoring).
Federal Trade Commission’s Facts for Consumers
How to Deal with Collectors
What practices are off limits for debt collectors?
Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, they may not:
- use threats of violence or harm
- publish a list of names of people who refuse to pay their debts (but they can give this information to the credit reporting companies
- use obscene or profane language
- repeatedly use the phone to annoy someone.
False statements. Debt collectors may not lie when they are trying to collect a debt. For example, they may not:
- falsely claim that they are attorneys or government representatives;
- falsely claim that you have committed a crime
- falsely represent that they operate or work for a credit reporting company
- misrepresent the amount you owe
- indicate that papers they send you are legal forms if they aren’t
- indicate that papers they send to you aren’t legal forms if they are
Debt collectors also are prohibited from saying that:
- you will be arrested if you don’t pay your debt
- they’ll seize, garnish, attach, or sell your property or wages unless they are permitted by law to take the action and intend to do so
- legal action will be taken against you, if doing so would be illegal or if they don’t intend to take the action
Debt collectors may not:
- give false credit information about you to anyone, including a credit reporting company
- send you anything that looks like an official document from a court or government agency if it isn’t
- use a false company name
Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, they may not:
- try to collect any interest, fee, or other charge on top of the amount you owe unless the contract that created your debt – or your state law – allows the charge
- deposit a post-dated check early
- take or threaten to take your property unless it can be done legally
- contact you by postcard.
Do I have any recourse if I think a debt collector has violated the law?
You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, the judge can require the collector to pay you for any damages you can prove you suffered because of the illegal collection practices, like lost wages and medical bills. The judge can require the debt collector to pay you up to $1,000, even if you can’t prove that you suffered actual damages. You also can be reimbursed for your attorney’s fees and court costs. A group of people also may sue a debt collector as part of a class action lawsuit and recover money for damages up to $500,000, or one percent of the collector’s net worth, whichever amount is lower. Even if a debt collector violates the FDCPA in trying to collect a debt, the debt does not go away if you owe it.
Where do I report a debt collector for an alleged violation?
Report any problems you have with a debt collector to your state Attorney General’s office (www.naag.org) and the Federal Trade Commission (www.ftc.gov). Many states have their own debt collection laws that are different from the federal Fair Debt Collection Practices Act. Your Attorney General’s office can help you determine your rights under your state’s law.
Source Federal Trade Commission: Facts for Consumers. Feb. 2009. FTC. http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm (retrieved 11/18/09)
Debt consolidation, simply put, is taking out a loan to pay off more than one loan or debt. The new loan may be unsecured but usually it is a secured loan with collateral. This allows you to pay one monthly payment rather than several, as in the case of having several credit card debts or multiple loans. This can offer several advantages. The amount of the monthly payment is usually lower. The interest rate can also be lower, especially in the case of a loan that now has collateral.
- Lower single monthly payment
Who wouldn’t want to simplify their life by making one lower payment a month? Well, let us consider the fine print. The monthly payments are lower because the brand new shiny loan is going to be paid off in a longer period of time, and of course brand new and shiny means more money, significantly more. Lower interest, but in total, much more interest. When people are overwhelmed by debt, they are not always thinking about how a longer term loan can affect their future.
One of the common complaints about debt consolidation are the very high fees. Many companies take advantage of the desperation of their clients. Most fees will be at or near the state maximum. It is a very lucrative business which has led to many consolidation companies appearing overnight. This is where arming yourself with information and research can help to prevent being scammed. Shop around! There are reputable business out there. The key is to allow enough time to find the right consolidation company.
Debt consolidation companies know that their clients are in a rather desperate position. The concept of borrowing money because you owe money only leads to owing much more money! This band-aid approach could lead to much larger problems in the future. Be realistic about why you are in debt. If more money is being spent than being made, this option is not for you.
- Debt consolidation does not get you out of debt. It creates more debt!
Another little known fact about debt consolidation is that if in the circumstance that bankruptcy must be filed, the consolidated debts may not be forgiven! No one wants to consider bankruptcy an option at the debt consolidation stage. However, the disadvantages should be factored in before making any decisions. The last thing anyone wants to do is to file bankruptcy and then still have to pay the debts! Debt consolidation can truly be a financial life saver for some, but unfortunately a long-term curse for others.
