Many of the major points regarding credit scoring have been covered here but I would like to add just a couple thoughts based on my experience as a credit risk analyst for a very large bank.
The FICO score which you are given based on your credit has many contributing factors; your age, # of trades, # of trade file months, amount of revolving balances, proportion of balances to limits, # of recent inquiries, # of open trades, as well as delinquency history to mention just a few. How all of these factors are weighted in order to actually calculate a FICO score is extremely complex. The bottom line is the three reporting agencies (Experian, TransUnion, and Equifax) don’t divulge exactly how they calculate the scores. Most often the scoring process is fairly accurate, other times it is very far off. The strategies discussed here about how to manipulate your credit score will work for some and not for others. Ultimately, unless you are an analyst for Experian, Transunion, or Equifax you don’t know exactly how your FICO score is calculated and what helps or hinders it.
Secondly, most lending institutions look much farther than just your FICO score because they realize it’s a very limited tool. In most cases an underwriter is going to spend some time assessing your entire trade history and will make a judgement of your credit worthiness based on the big picture. If you have a low score but you know your credit is good don’t sweat it…a good underwriter is going to come to the same conclusion.
Finally, this thread references both debt consolidation and credit counseling services…these are two very different things . Generally, debt consolidation strategies (transfering balances to a 0% card, home equity LOC etc) won’t negatively alter your credit score to any great degree. Consumer Credit Counseling services however will wreck your credit for a very long time. If someone is in CCC this tells a lender that the borrower is incapable of paying their debts on time without outside assistance (bad). When you enter CCC your creditors are not being paid what you originally promised to pay them (very bad). Personally I often look at CCC as a precursor to bankruptcy (extremely bad). Having said that, there are still plenty of situations where good people are fooled into entering CCC.
Consumer Credit Counseling services however will wreck your credit for a very long time.
Very true, and that’s what I really meant by saying to avoid consolidation. I used the wrong term. Going to these counseling services is nearly as bad as bankruptcy, since the service works over the card company to get you better terms. The card companies (and all lenders via the Big Three reporting agencies) have a memory a zillion years long, and they will have a red flag next to your name forever.
So, here is a question: Most of the cards I’ve had since '92 and I’ve been in very good standing. I’ve never missed a payment in over ten years. So, should I just call these companies up and if they don’t give me a “good guy” rate, just close the account and go shopping around? Does the length of time that I’ve been a “customer” mean anything credit reporting wise? If all of my 10+ year old accounts get closed and let’s just say I have one tidy closed-end loan from my credit union that starts in '04, will that not look as good as having a lengthy, good track record with my two current banks? It’s really a tertiary issue with me, but I don’t want to cut off my nose to spite my face.
Thanks again for all of the input and confiriming what I thought would be a bad move on my part.
Student loan consolidation is an entirely different beast from what we are talking about here. No impact on your credit. Great idea if you actually pay off principal quicker. A lot of the time, however, the student loan consolidations actually lengthen your payments out in order to lower monthly payments. You end up paying a lot more interest that way. That is the wrong reason to do them, unless you are in an absolutely unmanageable bind. Debts should be paid in the quickest manner possible under most circumstances.
Another thing on the 401(k) loan. Remember that 401(k) contributions are pre-tax. Any money that you use to pay back a 401(k) loan is money that has been taxed. Later when you start to draw on your 401(k), the cash is taxed on the way out. Basically the money you pay back for the loan ends up being taxed twice. This does not mean that a 401(k) loan is always a bad idea. What would you rather do, pay up to 23% interest to a bank or about 5-10% interest to yourself? Any money you loan out of your account is no longer working for you in funds or whatever. Given the performance of the markets in recent years, a higher interest 401(k) loan might not be a bad idea.
I too like the 0% interest balance transfers if you can find an agreeable deal. Remember to cancel old cards though. What you call “available credit”, creditors call “potential debt”. It ain’t the best idea to have a ton of cards around. Even if you cancel a card, they hang out on your credit report for quite a while.
For obvious reasons, I need to remain anonymous. My husband owns a business. He started it years ago. Several years ago, I started working with him. We experienced a very severe cash crunch. We decided to “save” his credit, and paid all of his debt in a timely fashion. My credit rating got destroyed in the process, and I have quite a bit of debt to pay off. Two credit card companies sent my accounts to collection agencies. The bank closed down a bank account of mine, as I was overdrawn, and did not pay back the overdrawn amount. They sent my account to court. I paid off that one. However, I have not paid off the credit card accounts for several years. At the end of it all, my husband’s credit rating is excellent. Mine is awful. But the good news is that we are now making lots of money with the business, with lots of extra cash. I am now in a position to pay off all of my debt. What should I do to repair my credit rating? What can I negotiate with the collection agencies / credit card companies that would accelerate the restoration of my credit rating. I.e. if I pay the full amount owing, is there anything they can do to repair my credit rating? The collection agencies have offered to let me write off the debt for about 80% of the full amount. Should I take them up on their offer? At least I’m in a position to pay off everything now.
is to never buy anything that depreciates in value on credit. Real estate, education, and businesses (should) appreciate and can be put on credit. Cars, cashmere, and carbon depreciate and should be purchased with cash.
There is lots of advice out there for proper debt ratios, but my rule of thumb serves me well.
IMO, if you can get a better deal for yourself with a loan from your credit union this wouldn’t adversely alter your credit to any large degree.
Yes, the length of time you have been a customer does have relevance in credit reporting. But if you close the accounts they don’t go away. They stay on your credit report for years and having that decade+ paid as agreed history will continue to help you.
anonsusie: There is no quick fix for your credit rating. The delinquencies, collection accounts etc are going to stay with you for a long time. Having said that, the best way to help your credit is to pay 100% of what you owe. By paying the full amount owing you demonstrate that even though you went through a few bad years you ultimately made sure your creditors received the full amount due to them. I would not recommend taking the collection agencies up on their 80% offer. This will show up on your credit report as something like:
“Collection account- settled for less than amount due.”
Getting back to Anonsusie question, “What should I do to repair my credit rating”? What about these services that say they can help restore your credit ratings by challenging and having unfavorable remarks removed from your report.
Every consumer should review their credit report every year or so to ensure all their trades are reporting accurately. If there are inaccurate unfavorable trades then *you *can discuss and fix them with the creditor. You don’t need to pay an outside company to do this. If you have accurate unfavorable trades there is no way to remove them…only pay them off 100% (if applicable) and focus on building good credit.
I’ve been unhappy with the research I’ve come up with regarding the real deal on debt consolidation. Does anybody have thoughts/opinions/firsthand knowledge they would like to share? To keep this triathlon related, the less money the bank gets, the more of my money can go to enter races and buy tri gear. Quick sit-rep: Not too bad in debt, never late, no calls from creditors, not a shop a holic (I have enough room on my cards to buy a P3, sorry Gerard), just the accountant in me is sick of seeing me pay all that interest (I have one card at 10 percent, another at 15 percent). Most of the debt consolidation websites I have visited seem to be geared towards homeowners with a shit-load of credit card debt and getting harrased by the creditors. I have some debt left over from a business venture that went sour when the commercial fishing industry in Alaska went from boom to bust in the 90’s, plus some cc debt from when my fiance dumped me “overnight” for a wealthier man. PM me or reply to the forum. Thanks in advance.
Brett
As a general rule, financial services are there to liberate you of your money when you’re too lazy, or foolish to figure out where the catch is. There are exceptions I’m sure.
Rule one: Don’t ever buy something with a credit card unless you have the money to pay it off before accumulating interest. If you treat a credit card as a loan account, you’re likely going to be chasing debt forever.
Rule two: If it sounds complicated, chances are it’s hiding the real cost or risk in the details.
Rule three: If it sounds too good to be true…
If you’ve got multiple debts accumulating interest, identify what debt is costing you most and prioritise closing that out, then move onto the next worst and so on. Pay as little as you can to service the others until it’s their turn. If you can consolidate your debt by getting a lower interest, lower risk loan to pay off the high interest stuff, do it. If you can’t do the maths yourself, or get someone (not trying to sell you something) to do it for you, it’s very possible you’ll just make things worse. Remember rule 2.
…I just keep rolling to another zero percent deal while my cash sits in an interest-bearing account…
But aren’t you paying transfer fees for the balance? As a % of the transferred amount? If not, how are you avoiding them?You can do a lot of rolling in 15 yrs…
I wouldn’t close any accounts outright if I were you. Doing so will increase your debt/income ratio and lower your credit score. Simply stop using the high interest cards and transfer any balances to the card you have that has the lowest interest rate. Another suggestion is calling and requesting credit limit increases. While you might take a little ding to your score in the short term, your debt/income ratio decreases and will help our score.
That being said…you’ll shoot yourself in the foot if you increase your credit card spending after consolidating them or using the limit increases!
It was top of my feed. Wasn’t me that revived it - I blame *Michaer27 *
Wow, I guess it was me. But I don’t know why. It just showed up in my feed and I didn’t check the date. Guess I can now claim to be a paleontologist as well as an animal behaviorist. Or resurrectionist.
