Personal Debt and the all-important credit score
Lenders need information about each potential borrower before deciding whether or not to approve a loan. They generally rely on one number to determine the amount of risk they’re taking on. This number, called credit score or FICO score (for Fair Isaac & Co., the company that developed the process), is a composite of data collected by credit bureaus.
It includes these factors among others:
- Your credit and payment history (longer is better).
- The amount you owe (owing nothing is best).
- The types of credit you have in use (a variety credit cards, auto loans, mortgage - good).
Video: Understanding Your Credit Score
Seven things to watch out for
Ideally, your credit score will be 720 or above. If you’re there, you can relax, knowing that, all other things being equal, you can get a loan easily and at a low interest rate. If your number is below 700, you should stay alert and consider taking steps to raise it.
- Obtain reports on your credit and dispute any errors you find. The three main companies that assemble this information are Experian, Equifax and TransUnion.
- Start paying bills and making all other payments on time.
- Pay down the balances on each of your accounts.
- Avoid opening a lot of new accounts at any one time.
- Cut back till you have no more than five credit cards. (You may really need only one.)
- If you must have more than one card, rotate use of them and use all of them. (Any long-dormant account raises eyebrows.)
- Know that debt consolidation may help you to pay off debts efficiently.
Video: How to Raise Your Credit Score
Using debt consolidation
When you're burdened with a great deal of debt, debt consolidation seems attractive as a means of raising your credit score. It is a method of combining many debts into one. You make one payment each month rather than many. It’s possible that the one payment will have a lower interest rate than the combined interest you have been paying on all the separate accounts. However, the payments may be drawn out over a longer period of time, meaning that your overall costs will be higher. It’s a matter of cash flow.
Tips for finding a good company
Do your homework. Debt consolidators differ in the quality of their service, the fees they charge and their overall ability to get the job done. Here are some tips for finding a good one.
- Beware the lowball offer. Often the lowest-cost provider is not the best. There’s more to consider than just money.
- Beware the company that will do nothing for free. Expect a firm to provide some debt consolidation advice without charge. Reject any company that wants to charge a fee before thoroughly reviewing your financial condition. A good firm will suggest an appropriate plan for debt consolidation tailored to your needs and start charging you only after you agree to begin the process of loan consolidation.
- Be sure the company you are considering is more than an e-mail address. Find a phone number and call it. Talk to a real person. Ask enough questions so that you feel confident in the person’s and the company’s familiarity with the task at hand. Get a direct phone number and other contact details for the representative who will be handling your case.
- Check to see if the company offers counseling and debt management services. They may come in handy.
The risks you take on
Remember this: Debt consolidators in some cases will require you to put your home up as collateral. Failing to pay your debt to the consolidator means you could lose your home to foreclosure. And finally, know that if a commercial lender cancels or forgives your debt by way of negotiations with you or your representative, you may have to declare the canceled amount as income for tax purposes. That seems like the least of your worries, doesn’t it?
Debt consolidation firms near you:
Heritage Financial
Canton, OH
(800) 430-5926
Access Financial Services
Charleston, SC
(843) 556-1616
National Equity
Costa Mesa, GA
(800) 363-3143
Askew Investment
Dallas, TX
(214) 392-3366
Vantage Financial Services
East Brunswick, NJ
(908) 238-6316
Advantage Creative Funding
Fairfax, VA
(703) 446-4230
Pacific West Capital
Irvine, CA
(949) 726-8270
Bridge Capital
Las Vegas, NV
(702) 736-8282
Great Lakes Finance
Livonia, MI
(313) 432-3130
The Harvard Lending Group
Metairie, LA 70001
(888) 438-4300
K G Financial
Milwaukee, WI 53216
(414) 463-1334
Frontier Financial
Minneapolis, MN
(612) 920-7877
Creative Financial
New York City, NY
(212) 534-2795
Keystroke Financial Network
Seattle, WA
(800) 664-1003
Clybourn Financial Services
Wilmette, IL
(847) 853-0600