April is Financial Literacy Month, a time when organizations, institutions, and individuals come together to promote the importance of financial education. With the economic challenges that many people face, understanding personal finance is essential to forging a more prosperous path. Here are some money and credit management FAQs to help you make informed decisions.
1. what are the factors that determine a credit SCORE?
Credit scores help creditors determine whether a borrower is likely to pay their debts as agreed. The factors that impact your score are payment history, new credit pulls, credit utilization (how much credit you have established and how much of it you’re using), length of credit history, and credit mix. Credit mix is the type of accounts open in your name. Having a variety of credit types— such as installment loans, mortgage, and credit cards— may help your score. Payment history and credit utilization have the biggest influence on your score. The general rule for credit utilization is to aim for 30% or less to maintain a good score. So, for example, if your total credit limit is $10,000, you want to keep your usage below $3,000.
2. how long does bankruptcy impact me?
Chapter 7 bankruptcy can stay on your credit report for 10 years while Chapter 13 may remain for seven years after filing. When you file for bankruptcy it means you have debts that won’t be repaid which will hurt your credit score and lessen your chances of favorable financing during the time it remains on your report.
3. how long is a foreclosure on my record?
Foreclosures show up on your credit report for seven years after the first missed mortgage payment. Each payment that you miss will be recorded and lead to further damage. Mortgage payments are considered late and reported to the credit bureaus once they’re 30 days overdue. The impact to your credit score can be improved in less than seven years but many mortgage lenders can’t approve borrowers who have had a foreclosure within the last three years.
4. should i settle my debt?
Debt settlement is when you agree to pay off your debt with a lump sum that is less than what you owe. A third-party debt relief company can be used to negotiate with the creditor on your behalf. There are, of course, pros and cons to settling. One benefit is that if you reach an agreement with the creditor, you won’t be required to pay them the full amount you owe. If your situation is leading you to consider bankruptcy, debt relief could be a viable alternative.
There are several downsides to consider before initiating debt settlement. If the creditor agrees to settle, the portion of your debt that was relieved could become taxable income. If you use a debt relief company, they may advise you to stop making payments to the creditor and instead make regular payments to an account that’s administered by an independent third-party. This account will be used toward a lump payment. While the company negotiates, you will continue to accrue penalties and interest, you could be subjected to collections, and you could even face a lawsuit from the creditor or debt collectors. You also run the risk of these ramifications with no guarantee that the company will successfully reduce your debt as some creditors refuse to negotiate. While the debt settlement company can’t charge upfront fees, you will be charged if they reach an agreement, often as much as 15-25% of the total debt entered into the program or a percentage of the amount you agree to pay.
Another downfall is that debt settlement remains on your credit report for seven years after the date of first delinquency. This will impact your score and your ability to qualify for a home loan. Mortgage lenders may be able to approve your application sooner than seven years while the settlement is still on your report, however, it could take significant time to rebuild your credit or save enough money to offset your creditworthiness.
5. how and when to freeze credit?
A credit freeze can protect you from identity theft or fraud. If you have reason to believe that your confidential information is compromised, you should act swiftly to block access to your credit reports. Freezing your credit is free and doesn’t damage your score. In fact, some people choose to keep their credit frozen anytime they’re not actively pursuing a new line of credit.
To initiate a security freeze, you’ll need your SSN, date of birth, and address. Depending on how you contact the credit bureaus, you might also be asked to provide a copy of your ID, proof of address, tax documents, bank statements, and/or answers to authentication questions.
Here are the three major credit bureaus you should contact:
- Equifax: Call 800-349-9960 or go online
- Experian: Go online or call 888‑397‑3742
- TransUnion: Call 888-909-8872 or go online
For additional security, you can also freeze your credit with these two lesser-known bureaus:
- Innovis: Call 866-712-4546 or go online
- National Consumer Telecom & Utilities Exchange: Call 866-349-5355 or go online
If you froze your credit online, unfreezing it is as simple as logging into the account you originally created with TransUnion, Equifax, and Experian. Doing so will unlock access to your credit report in minutes. You can also unfreeze your credit by contacting the credit bureau’s customer service via phone or mail.
6. how do i initiate a dispute with the credit bureaus?
If your credit report contains an error, you can make a dispute in writing to the credit bureau. Explain the error and include documents to substantiate your claim. Be sure that your letter includes your full contact information, any confirmation numbers from the report, a request to correct the error, and a copy of the report (not the original) highlighting the errors. If you choose to mail the disunite, you can send it via certified mail and ask for a return receipt so you know that it was received by the credit bureau. You can also contact the credit reporting companies online or by phone. You can find contact info for the major credit bureaus, along with instructions and a template letter for disputes, on the CFPB website.
There’s a reason why there’s so many pros in the financial sector— money and credit management can be complex. We hope these tips empower you to have more control over your finances, but don’t be discouraged if you need additional help! To find a local credit counseling agency, you can check the BBB or contact the National Foundation for Credit Counseling
(NFCC) at 1-800-388-2227 or online. Contact your Danberry Realtor for real estate questions or financial advisor recommendations, and our friends at Capital Home Loans would be happy to assist with your mortgage needs!