Your credit score is determined by your credit history and the quickest way to change your history is through effective credit card management. Listed below are a few techniques that you can use to influence your score: a. Make payments early. b. Pay more than the minimum. c. Ensure that your outstanding balance does not exceed 25% of your credit limit. d. Take out and then pay off a small loan. This will reinforce your credit history. 11–7. CREDIT FREEZE. A credit freeze is a service provided by all credit bureaus which allows you to restrict access to your credit file. This procedure makes it more difficult for identity thieves to open new accounts in your name. The freeze does not impact your FICO score. A fraud alert is a also good alternative for many consumers. It directs the credit report recipient to contact you before granting credit. 11–8. BANKRUPTCY. If you can’t pay your bills, you should consider contacting each creditor and explain your situation, demonstrate a sincere willingness to make full payment and request that they restructure the payment terms. You can also consider obtaining a debt consolidation loan which would be used to pay off your individual debts while simultaneously lowering your monthly payments. Another course of action is to use the services of a credit counselor who can help you develop a workable plan to pay off your debts. Your last alternative is to file bankruptcy. Bankruptcy is a group of laws which allow an individual to either eliminate or restructure the payment terms of certain debt. Bankruptcy will not eliminate debt involving taxes, student loans, or alimony. Your bankruptcy information remains in your credit history for as long as ten years. Filing bankruptcy has the legal effect of placing on hold any garnishment or other legal actions initiated by your creditors. The bankruptcy process is complicated and usually requires the services of a bankruptcy lawyer. The bankruptcy statutes contain four different provisions. Chapters 13 and 7 focus on personal bankruptcy while Chapters 11 and 12 address business and family farm situations. We will spend a moment looking at Chapters 13 and 7. a. Chapter 13. Under this approach, which is called the wage earner’s plan, a repayment schedule is developed that provides for debt repayment over a 3 to 5 year period. Assets are not seized and the filer is allowed to keep sufficient money to pay normal living expenses. In
The biggest influencing factor on your score is bill payment history. When you miss a credit card payment or other monthly payment, the impact on your score can be devastating. Missed payments can increase your interest rate from 15% to 30% and drop your credit score by 50 points. You should keep your debt load low, but if it is high, you need to demonstrate a steady record of paying it down. Also, repeated searches for new credit lines negatively impact your FICO so you should apply for new credit only when you need it. Stay on top of your credit history by getting a copy of your credit report and credit score. You have the right to obtain a free credit report once a year from each of the 3 consumer credit reporting agencies. You can order all 3 reports at once or at intervals throughout the year. To request your free credit report, go to www.annualcreditreport.com or call toll-free 1–877–322–8228. During these times of COVID-19, accessing your credit is important. That’s why Equifax, Experian, and TransUnion are temporarily offering free weekly online reports. If you dispute an item, report the discrepancy in writing to the credit bureau. They then have thirty days to verify the item and, if applicable, remove it from your file.
1-866-349-5191 www.equifax.com Equifax Credit Information PO Box 740241 Atlanta, GA 30374 1-800-888-4213 www.transunion.com TransUnion LLC PO Box 1000 Chester, PA 19016 1-888-397-3742 www.experian.com Experian Credit Bureau PO Box 2002 Allen, TX 75013
CHAPTER 11: PERSONAL CREDIT
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