Fast Credit Repair

The Complete Guide on How Debt Impacts Your Credit Score

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The average indebted household that doesn’t pay credit cards in full each month carries $8,683 in credit card debt. Eventually, that debt affects the card members’ credit scores.

A credit score impacts the ability to borrow money, leading to higher interest rates, bigger down payment requirements and possibly longer loan terms to make the higher payments affordable. Low credit scores can also affect insurance rates, car and home loans, the ability to get a job and rent an apartment.

By cutting back on debt, consumers can improve their credit scores and make their financial lives a lot easier.

Here are some of the biggest ways debt impacts credit scores:

Your credit utilization rate, also called a credit utilization ratio, is how much of your available credit you’re using when your credit score is calculated. The more credit you’re using, the more it can drop your credit score.

Figuring out the ratio is simple math. Divide an account’s outstanding balance by its credit limit and you’ve got the credit utilization rate.

For example, the equation on a $10,000 balance on a credit card with a $20,000 limit is $10,000 divided by $20,000 to equal 0.50, or a credit utilization rate of 50 percent.

That’s high, and a rule of thumb is to keep it below 30 percent to help improve a credit score. Keeping a credit card balance low by paying off the debt will keep the credit utilization rate low.

If it’s higher than 20 percent, credit score companies consider it an indicator of future repayment risk and that you’re close to maxing out your credit cards. Having a credit card balance that’s over the card’s limit is the worst way to affect credit utilization.

The higher the utilization rate, the greater the risk is that you’ll default on a credit account within the next two years, according to FICO, one of the major credit scores used by credit reporting agencies.

This is part of the “amounts owed” part of a credit score, making up 30 percent of a credit score.

Along with the ratio, there’s the total amount of credit utilization to worry about. This is the total credit balance from all of your credit card balances add up together. A low balance shouldn’t affect this, and could have a more positive impact on a credit score than not using any of your available credit at all.

How you pay your credit card debt is the most important part of a credit score, with payment history accounting for 35 percent of a FICO score. In other words, paying your credit payments on time.

A few late payments are OK, but more than twice can hurt a score — and on more than just credit cards.

Credit payment history can include retail accounts such as department store credit cards, installment loans such as car loans, finance company accounts, and mortgages.

Credit scoring companies may consider how late the payments were, amount owed, how recently they occurred, and how many late payments you have. Having a good track record on paying most of your credit accounts on time will increase your credit scores.

Along with getting information from creditors on late payments, credit scoring agencies will also consider bankruptcies that will remain on credit reports for seven to 10 years, lawsuits and wage attachments.

Having debt can seem like it does nothing but hurt a credit score. But it can help it too. A longer credit history will increase credit scores, even for people who haven’t been using credit too long.

Depending on the rest of their credit report, a longer credit history will generally affect 15 percent of a credit score. This includes how long specific credit accounts have been established and how long it has been since you used certain accounts.

As mentioned above in credit payment history, the types of credit you have can affect a credit score. So can having a mix of types of credit, which accounts for 10 percent of a credit score.

This mix includes credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Varied types of credit show you can handle different types of loans, provided you pay them on time.

You don’t have to have each of the above debt types, but a mix will help a credit score. And don’t open accounts just to have them and add to your mix. Only open credit accounts you need and will use.

Opening several credit accounts in a short period of time is considered a big risk by lenders, and thus credit scoring agencies, and can hurt a credit score. This is especially true for people who don’t have a long credit history.

New credit determines 10 percent of a FICO score. It considers how many new accounts you have by type of account.

New accounts will lower your average account age, such as the length of credit history, as detailed above. If you don’t have a lot of other credit information, opening a lot of new accounts at once can have a larger impact on your credit score. Even for people with a long credit history, opening a new account can lower a credit score.

If you’re working with a debt consolidation company to help manage your debt and pay it off, your credit score could drop because it’s considered opening a new account. A new account will also affect your average credit age.

If you’re shopping around for credit but aren’t opening new accounts, then it shouldn’t affect your credit score too much, if at all — less than five points off a credit score for one credit inquiry.

Inquiries are where a lender makes a request for your credit report or score. Inquiries can have a greater impact if you have few accounts or a short credit history. People with six or more inquiries on their credit reports can be up to eight times more likely to declare bankruptcy, according to FICO.

Inquiries remain on a credit report for two years, though FICO scores only consider them for the past 12 months. Many types of inquiries are ignored completely and “rate shopping” is allowed in determining a credit score.

Suppose you apply for several new credit cards in a short period of time. These inquiries will appear on your report and can be seen as the applicant being a higher risk. 

However, multiple inquiries from auto, student loans or mortgage lenders in a short period are allowed and won’t affect most credit scores. These inquiries within 30 days of each other are usually treated as a single inquiry and will have little impact on a credit score.

If you’re shopping for a home, auto or student loan and find a loan within 45 days, the inquiries won’t affect your credit scores. Some scoring formulas drop that to 30 days.

There are many ways to improve a credit score, but the main ones are:

  • Pay bills on time.
  • Keep credit card balances low, under 20 percent is best.
  • Apply for and open new credit accounts only as needed.
  • Keep a mix of debt accounts.

Your debt directly affects your credit score. Managing it responsibly through the ways listed above should help you improve your score and ultimately make credit work to your advantage with better credit terms.

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Top Credit Tips from the Elusive 850s

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“Practice makes perfect” is rarely true in real life.

Certainly, the more you practice something, the better you get. Still, a quick YouTube search for “bloopers” will provide hours of entertaining proof that the most talented and experienced actors, athletes, and news anchors are anything but perfect. So, in reality, practice makes better, but not perfect.

But, what about that magical financial goal we should all be shooting for, the perfect credit score? Is that just a pipe dream, too? Or is it actually possible to attain perfection when it comes to your credit?

The answer is, “yes!” A perfect credit score is not only possible, it’s not even that hard to accomplish. What it takes is self-discipline, a little luck, and (for most of us) time.

The following simple, effective tips come from consumers who have managed to “practice” good credit management well enough and consistently enough to achieve the elusive 850 (the highest possible score on the popular FICO credit rating scale). Beyond bragging rights, pay attention to how this feat provides practical help, too.

Tip #1: Learn about credit and respect it

Smart consumers realize that credit is a powerful tool, meaning it can make life easier and help you get a lot of great things accomplished, but it can also be dangerous if it’s used carelessly.

Think of it like a nail gun:

With a loaded nail gun in hand, a skilled carpenter or roofer experienced with the tool can accomplish ten times the work they could get done with a standard hammer, and the chances of bending or breaking a nail are slim-to-none.

However, if someone who doesn’t know how to use it picks up a loaded nail gun, not only are they unlikely to do a very good job completing the work, but everyone on the construction site had better duck.

If you’re shooting for a perfect credit score, you need to learn all you can about how credit works, then concentrate on applying what you’ve learned in making your daily decisions.

Tip #2: Don’t shoot yourself in the foot

Carrying the nail gun analogy one step further, when the inexperienced worker picks up that tool, who’s most likely to get hurt? Yes, the person holding the nail gun.

Once you’ve taken the time to learn how credit works, what affects your credit score negatively, and how you can repair your credit, you need to avoid “shooting yourself in the foot” by making silly mistakes like spending uncontrollably, missing payments, or over-extending yourself unnecessarily.

Just one late payment can hit your credit score hard, (since payment history makes up about 35 percent of your total score calculation) and a negative factor like that can remain on your report for up to seven years.

Tip #3: Mix it up

Lenders like to see that you’re able to responsibly handle various types of credit. This is so important, in fact, that it makes up about 10 percent of your credit score.

There are two basic types of credit: installment and revolving. Installment credit includes things like a mortgage or car loan, in which you borrow a lump sum and are required to pay back a set amount each month for a set period of time in order to pay the loan off. Revolving credit includes most credit cards and lines of credit, in which you are allowed a maximum credit limit, but can borrow any amount under that figure at any time, paying the debt off as you go.

These credit types are further separated into secured and unsecured credit, with unsecured credit relying more on your proven trustworthiness as a borrower.

Consumers with the highest credit scores maintain a healthy mix of these different types of credit and manage all of them equally well.

Tip #4: Play the long game

About 15 percent of your overall credit score is based on the average length of your credit history. The longer your history, the higher your score, since it gives lenders more information on which to base their decisions.

The average length of credit history among consumers with perfect credit scores is about 30 years. To accomplish this, they rarely close any accounts, even if they’ve destroyed the card and never access the account for any reason.

Tip #5: ‘Thanks’ to rising credit limits, ‘no, thanks’ to using more credit

Another important consideration is your credit utilization (worth 30 percent of your score,) which is the total amount of available credit that’s been extended to you compared to the amount you’ve actually used. If you already have a significant amount of available credit, but you’re only using a small portion of it, lenders see this as an excellent sign of your ability to manage credit responsibly. As a result, they’re more likely to offer you more.

Those with perfect credit scores average a utilization ratio of just seven percent. So, for instance, for every $10,000 they’ve been offered in various forms of credit, they’re maintaining a balance of just $700 month to month.

The easiest way to accomplish this — beyond using credit sparingly — is to keep revolving credit accounts open with little or no balance (as noted in Tip #4.) Then, when the credit card company inevitably offers you an increased credit limit, accept it graciously. Just don’t take that as permission to start spending more. By upping your limit, they’re automatically boosting your utilization ratio (as long as you don’t spend more to match.)

Tip #6: Take the application process slowly

The last 10 percent of your credit score is based on how often you apply for credit, or how recently you’ve done so.

The algorithms make allowance for “shopping around,” such as when you’re visiting several different car dealerships to find the best deal on your next purchase. They do so by counting several inquiries for the same type of credit within a few days as just one inquiry.

However, if you’re applying for something new every month or two, it’s going to hurt your score. To lenders, this looks like the behavior of a desperate individual who’s struggling to catch up from some financial downturn, so it makes you appear less trustworthy as a borrower.

That’s why it’s best to rely on credit limit increases (as noted in Tip #5) rather than applying for new credit if you’re hoping to boost your utilization ratio. Likewise, using older, active accounts with no balance in them (as recommended in Tip #4) offers a preferable safety net to applying for new credit if you need access to more funds.

Bonus Tip: Keep an eye on your score and fix errors on your report

If you followed all the other tips above and handled your credit masterfully, you could still end up with less than a perfect score. How?

You could be one of the millions of Americans with errors on their credit reports that are dragging their score down. That’s why consumers with the highest credit scores stay on top of their credit reports through regular monitoring, and routinely dispute inaccuracies with the credit bureaus.

If you’d like to access your credit report for free and learn more about the credit repair process for fixing errors on your report, contact today. Your perfect credit score could be just around the corner.


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Tips to Help You Get Out of Debt Quickly

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Getting out of debt doesn’t happen overnight, but that doesn’t mean there aren’t steps that you can take to get out of debt fast. With the right determination and dedication, you cannot only learn how to conquer your debt but create positive habits that keep you out of debt along the way.

No matter where your finances are or what your circumstance is, getting out of debt can feel overwhelming. But it doesn’t have to be that way. In fact, there are just as many people taking responsibility and control of their debt as there are people getting into debt. Not only that, but they are putting tried and true methods to use to get out of debt in a short period of time.

Are you struggling with a cycle of debt? Follow these simple steps to start eliminating your debt and take control of your finances today.

1. Stop borrowing money.

It may seem like a no-brainer, but a significant number of people fall into the habit of using debt to fund their lifestyle. If you want to get out of debt fast, the first step is avoiding any and all situations that put you in debt. This means no more applying for credit cards, financing furniture, and test driving cars that you can’t afford to pay in cash. Removing the possibility of putting additional strain on your finances will help you focus on your financial responsibilities at hand. Borrowing can also lead to a lower credit score which can make it even more difficult to get out of debt as your interest rates and payments will be much higher.

2. Start an emergency fund.

Most people are surprised that one of the first steps to get out of debt doesn’t have anything to do with making a payment to their creditors. Getting out of debt starts with making smart financial situations. “Why do I need an emergency fund?”, you might be wondering. Well, if an emergency occurs in your life where are you going to get the money to pay for it? In many cases, credit card debt begins as funding for unexpected emergencies. If you are going to get yourself out of debt, you need a safety net in case something goes wrong – emergencies funds give you the buffer you need between you and your debt.

3. Create a realistic budget

Creating a budget around your income and expenses is key to getting out of debt quickly. Having a realistic picture of your finances and what you might be able to manage concerning a payment every month can help you conquer your financial goals. The goal of creating a budget is discovering if you have a surplus (money left over) or deficit (in the negative) based on your income and bills. Over time, you want to increase your surplus to pay down your debt. There are several ways to do this, such as finding a way to earn some extra cash or eliminating unnecessary bills.

4. Get organized.

There are several approaches you can take when paying off your debt. The first is making a list of your debts from smallest to largest and paying off your lowest obligations first. This is an excellent way to start eliminating your debts and reduce the number of payments you are making each month, and therefore simplifying your financial life.

The second method is known as laddering. This method is favorable because it saves you the most money over time. Start by making a list of your debts, beginning with the highest interest rate and ending with your lowest interest rate debt. Paying off your debts with the highest interest rates first makes sense financially because it saves you in costs yet to be incurred.

Regardless of the method of debt repayment you choose, or if you decided to create a systematic hybrid between the two, it’s important to stick to your commitments. Before you know it, your debt will start reducing and you will be one step closer to your financial goals.

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What’s the Right Way to Pay Off Debt?

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When you get right down to it, any way you go about paying off debt is going to be a positive thing. So, do not let confusion over specific debt-reduction strategies get in the way of taking action. But, there are nearly as many different ways to get out of debt as there are to get into it, so it makes sense to consider the various alternatives and determine which method makes the most sense for you.

For the sake of this discussion, we are limiting the topic to actual debt-reduction strategies that rely on using your own income to fully pay off your legitimate debt. That is not to say that other options for eliminating debt are not worth considering. Depending on your circumstances, these can include negotiating debt with your creditors or even declaring bankruptcy.

We are also not discussing methods of consolidating, refinancing, borrowing against other assets, or otherwise replacing your existing debt with another form of debt, although these, too, have their place in every smart consumer’s book of options.

So, the rest of this article is going to focus on the three most popular and effective strategies for actually eliminating your debt, the pros and cons of each, and why you may choose one over the others.

The Avalanche Method

As defined by Investopedia, the “avalanche method” of debt reduction is, “A method of repaying debts in which a debtor allots enough money to make the minimum payment on each debt, then devotes any remaining debt-repayment funds to repaying the debt with the highest interest rate. Using the debt avalanche method, once the debt with the highest interest rate is completely paid off, the extra repayment funds go toward the next highest interest-bearing debt. This process continues until all the debts are paid off.”

To illustrate, imagine you have four separate debts you are working to pay off:

  • A credit card with a $3,000 balance, $50 minimum payment, and a 22 percent interest rate
  • A car loan with a $7,500 balance, $250 minimum payment, and a 6 percent interest rate
  • A home equity loan (HEL) with a $12,000 balance, $100 minimum payment, and a 8 percent interest rate
  • A personal loan with a $800 balance, $25 minimum payment, and a 15 percent interest rate

Using the avalanche method with this debt profile, you would pay just the minimum payment on every account you are paying off except for the account with the highest interest rate (in this case, the credit card.) So $375 of your $500 budgeted debt payments would go to the car loan, HEL, and personal loan, and the remaining $125 would go toward the credit card.

As time goes on and the highest interest account is completely paid off, you would continue making the minimum payments on all but the next highest interest balance, and move the remaining balance of your $500 to paying off that account. This continues on down the line until all the debt is gone.

Using these figures, and assuming you are not increasing any of these debts, here’s what it would cost you and how long it would take to eliminate all this debt using the avalanche method:


Account Time Until Paid Off Total Interest Cost
Credit Card 32  months $1,001.30
Personal Loan 32 months $216.92
Home Equity Loan 57 months $3,548.68
Car Loan 32 months $646.40
Total 57 months $5,413.12


From strictly a financial perspective, this is the best strategy you can use. That is because it focuses first and foremost on eliminating the actual cost of your debt — the interest payments — as quickly and efficiently as possible. So, in the long run, the avalanche method will always save you the most money.

But, that is only if you have the self-discipline to truly stick with it, month after month. And, that is why the other two methods are even more popular.

The Snowball Method

Made famous by personal finance guru, Dave Ramsey, the snowball method combines the payment strategy of the avalanche with a twist that’s based in human psychology:

Rather than starting with the debt with the highest interest rate, the snowball method starts by attacking the account with the lowest balance and works up towards the largest accounts. This can be powerful because of its potential motivational impact. By starting out paying down the smallest balance first, you establish what Ramsey calls “momentum” — basically a feeling of accomplishment that encourages you to keep at it — which can make it easier to stay motivated and disciplined over the long haul.

In fact, a study conducted by HelloWallet and the Harvard Business School determined that people using the snowball method paid off their debts 15 percent faster than those who split up their budget equally.

Compared to the avalanche method, the snowball method will almost always cost more in total interest, but when compared to its motivational power and the increased compliance that comes with it, most debtors find that a small price to pay. Still, you should research the numbers before making a final decision between the two.

Using the same scenario described above, this is how the numbers look using the snowball method:

Account Time Until Paid Off Total Interest Cost
Personal Loan 7  months $39.44
Credit Card 33 months $1,294.05
Car Loan 32  months $646.40
Home Equity Loan 57  months $3,568.66
Total 57 months $5,548.54


The Equality Method

The final method is definitely the easiest to manage and does a fair job of balancing out the “interest vs time” argument that rages among proponents of the other two methods described above.

Basically, using the equality method, you again start with a budget and simply divide that amount up evenly among all your debts, regardless of minimum payments, balances or interest rates. That way, you’re working on paying all of them down at once, and you can easily use a “set it and forget it” bill pay arrangement to automate your debt reduction.

In a perfect world, you could always divide it evenly, but one of the downfalls of the equality method is clear looking at our example (which is pretty typical of real world debt reduction situations.) The minimum payment for the car loan requires an outsized piece of the pie. And, once that’s covered, it also puts the home equity loan’s minimum payment above the amount that can be relegated to cover it.

That is why the equality method is only practical in circumstances where someone is highly motivated and willing to do whatever is necessary to commit to a very high budgeted monthly payment toward debt reduction. For instance, if the same creditor we’ve been discussing made a number of difficult sacrifices and vowed to apply $1000 toward debt reduction per month, they would be able to use the equality method successfully, with the following results:


Account Time Until Paid Off Total Interest Cost
Personal Loan 4  months $21.64
Credit Card 11  months $357.63
Car Loan 21  months $449.58
Home Equity Loan 40  months $1,355.44
Total 40  months $2,184.29


In Conclusion…

So, after discussing all three of these popular methods for paying off debt, what’s the best option for you?

Look at it this way:

  • If you have plenty of money to spend every month toward eliminating your debt, the equality method is both the fastest and cheapest way to go.
  • If you have a limited amount (above and beyond the minimum payments) to spend, the snowball method will cost a little more in the long run, but it has a better success rate because it’s easier to stay motivated.
  • If you are highly motivated by saving the very most money, then spend your limited budget using the avalanche method and you will save the most on interest over time.

But, what if you are so deep in debt that even making all the minimum payments is too much? That’s where you would do well to work with credit repair and personal finance professionals to see what options are available to you for reducing or consolidating your debt to get those payments down to a point where you can start applying one of the three above methods to finally paying it all off.

Contact Lexington Law today if you would like to speak to an expert in credit law.



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Personal Bankruptcy What You Need To Know

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You are very likely familiar with the concept of bankruptcy, but you may be less familiar with the fact that there are actually two different types of bankruptcy you can file as an individual. Millions of Americans file for bankruptcy every year, whether they have overspent, lived outside of their means, or been faced with a devastating financial event, such as enormous medical bills.

Before you are able to file for bankruptcy, you will be required to meet with a credit counselor. This person will walk you through all your options and may even help you come up with a plan to repay your debt without having to file for bankruptcy. However, if it turns out that filing is your best option, you’ll want to know the two types of individual bankruptcy and what they will mean for your financial future.

Chapter 7

What is it?

When an individual files for Chapter 7 bankruptcy, they are asking to have all or part of their debt discharged after their liquid assets are used to pay some of the existing debt. Liquid assets are anything easily converted to cash, such as the contents of a checking or savings account. Each state has different laws about which types of accounts are exempt from paying debts under these circumstances, so it’s best to ask your credit counselor about this before you file.

Why would I need it?

If your income is on the low side (less than the median family income in your state), you would qualify to file for Chapter 7. Your liquid assets would then be used to repay as much outstanding debt as possible. Much of the rest would be discharged. (Usually student loans cannot be discharged, but under certain circumstances, they can be.)

Chapter 13

What is it?

Under Chapter 13 bankruptcy, you are simply asking your creditors for some time and space to reorganize your debts and work on paying them down. Corporations often file for a similar type of bankruptcy, and it often helps save them from going under completely. As an individual, it can be the thing that saves you from losing everything you currently have. Of course, it will still have an effect on your credit, so should be considered as a last resort when possible.

Why would I need it?

If you do not pass the means test (your income is the same as or greater than the median family income in your state), then you will only be eligible to file for this type of bankruptcy. Under Chapter 13, you will get to keep many of your possessions (such as your home and car) and continue to pay down the debts associated with them, but in a more structured way.

Chapter 11

What is it?

Similar to Chapter 13, Chapter 11 bankruptcy helps filers free themselves from overwhelming debt by allowing creditors to work with individuals to come to an agreement about the amount that will be paid.

Why would I need it?

It may seem that Chapter 11 bankruptcy should be listed before Chapter 13, but in reality, Chapter 11 is reserved for those who have exceeded the debt limits set forth in Chapter 13. So if you have more than that, and must still file for bankruptcy, you may only qualify to file for Chapter 11.

If you’re considering filing for bankruptcy, then you might already understand how it will affect your credit for many years to come. Before going through with filing for bankruptcy, consider delving into credit repair first. It could be a better alternative you haven’t explored.


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Protecting Your Child’s Credit Future

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Protecting Your Child’s Credit Future

Posted by Erica Steeves on May 21, 2018

                                                                                                                                                                                          When it comes to credit scores and personal finances, there are several threats that people need to be aware of. There’s the actual financial aspect of credit issues, such as credit cards, debt, loans and more that need to be properly managed to maintain a good score. Then, there’s the aspect of identity theft, a serious issue that was highlighted last fall by the massive Equifax data breach, where about half of all Americans had their confidential information potentially swiped.                                                                                                                                                                                                                                   Yes, maintaining good credit is about a lot more these days than just forming good financial habits – and if you have children, part of your responsibility is raising them to learn from some of your generation’s mistakes. Among all the other responsibilities that you have as a parent, ensuring that your children have the knowledge to pave the way for a successful financial future is an important one. With that said, here’s a look at some ways you can help protect your child’s credit future, both from a monetary and identity theft standpoint:

Tips for Protecting Your Child’s Credit Future

  • Their name: Preventing identity theft arguably starts when you name your child. For instance, while it’s important for some families to follow tradition in naming their kids after their fathers or grandfathers, this can actually potentially implicate them when it comes to credit reporting. For instance, if David Jonathan Jones, Sr., has a negative item on his credit report, there’s a chance that David Jonathan Jones, Jr., may also have that same negative item on his credit report.
  • Beware of your online postings: Parents are proud of their kids, which makes sharing photos of them on Facebook, Twitter, Instagram and other social networks somewhat routine online behavior for them. That’s fine, but try to refrain from posting their birth dates, the city they were born in and other information a potential thieve could use to piece together information to steal their identity.
  • Freeze their credit: Experian estimates that about 25 percent of all children will have been victims of identity theft before they reach the age of 18. Noting this, consider calling up the credit bureaus and freezing your child’s credit. This ensures that nobody will be able to take out a line of credit in your child’s name unless they go through a rigorous process, which is very difficult for thieves to do. When it’s time to open a line of credit for your child, all you have to do is contact the bureaus and unfreeze it. To freeze their credit, you can go directly to the bureaus websites.
  • Discuss responsible money management: Certainly the other big aspect of ensuring a successful financial future for your child is instilling good money management habits. Start early in educating them on this important responsibility, and continue to speak with them about it as they get their first credit card, buy their first car and more. Irresponsibly managing money can lead to negative items on a credit report and significantly decrease their credit score, which can seriously jeopardize the things they’re able to accomplish in life.

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How to Negotiate a Settlement With Collection Agencies

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Debts from student loans, credit cards, healthcare, mortgages, auto loans and other daily bills of life can add up. Sometimes a debt collector may be called to ask you for the money owed.

Negotiating a settlement with a collection agency can help you solve that problem if your debts are too high and you can’t afford them.

The good news is that the average amount owed among accounts in collections — $1,000 — is low enough that most people should be able to resolve it if a collection agency starts demanding payment. Here are some ways to do that and negotiate a settlement with a debt collector.

The first step is to ensure that the debt is yours. Federal laws require a debt collector who contacts you about a debt to give you certain information in writing within five days. This includes the name of the creditor, amount owed and the fact that you can dispute the debt. You can also request the name and address of the original creditor if it’s different from the current creditor.

If you’re unsure who you owe the money to, or how much, you can dispute the debt or ask for more information from the debt collector.

If you dispute all or part of a debt with a debt collector in writing within 30 days of receiving the notice, the debt collector isn’t allowed to contact you again until it sends you written verification of the debt.

The Consumer Financial Protection Bureau has sample letters to send to a debt collector on issues such as not owing the debt, needing more information about it, asking that a debt collector only contact you through your lawyer, and specifying how they are to contact you.

You should also know the statute of limitations on the debt before making a payment. This is the period when you can be sued for a debt, and most fall between three and six years. These laws are set by states, and you may want to talk to a lawyer about how they affect your debt.

In some states, a partial payment can restart the statute of limitations on a debt and can extend how long the negative information remains on your credit report.

If the statute of limitations is about to expire, a collection agency may be more willing to negotiate with you and give you favorable terms. If they’ve expired, an attorney could help you stop the debt collector from obtaining a judgment against you.

What a collection agency wants is pretty simple: your money. They only make money when you pay the debt. They can’t seize property or pull money from your bank account unless they sue and get a court judgment and permission to garnish wages.

The agency should be willing to work with you if you’re reasonable. Coming up with a realistic repayment proposal is a good start to repaying your debt, and can be a way to negotiate with them in good faith.

Be realistic about how much you can afford to pay each month. Review your other bills and make sure that tackling this debt each money won’t lead to more problems.

Write down your monthly take-home pay and all of your monthly expenses, including debt repayments. Try to have money left over for emergencies and unexpected expenses.

From that you should be able to decide on a total amount you’re willing to pay to settle the entire debt as a lump sum or monthly payments for a certain amount of time. It shouldn’t be more than you can afford, and it can be less than the total amount owed.

Once you’ve decided that the debt is yours and that you’re still legally required to pay it — and you have a budget in mind to repay it — it’s time to negotiate with the collection agency.

Explain your financial situation, how close the debt is to the statute of limitations, and detail how much you can afford to pay each month. The older the debt, the more likely you can convince the collection agency to accept less than full payment.

Remember that you’re no longer dealing with the original creditor, so the collection agency should have some wriggle room to negotiate a final amount to be paid. If you need help, seek a credit counselor or attorney.

Don’t discuss your income or other financial obligations unless you’re sure it will help in your negotiations. You may have to speak to several people at the collection agency to get what you want. Stand your ground and don’t let them bully you.

Once you agree to a repayment or settlement plan, record it in writing. Include the debt collector’s promises, such as that they’ll stop collection efforts ad will forgive the debt once you’ve completed the payments. Get the agreement in writing before you make a payment.

Lastly, be wary of debt settlement companies that charge in advance to settle your debts for you. Some promise more than they can deliver, and some creditors won’t work with them. The debt settlement company may not be able to resolve it for you, and you’re better off on your own.

About Author

Aaron Crowe

Aaron Crowe

Aaron Crowe is a journalist who specializes in personal finance. He has written for AOL Real Estate,, US News & World Report, Wisebread, LearnVest, AOL Daily Finance, AARP, Wells Fargo, Allstate, the USC Marshall School of Business, and, as well as other insurance, credit and investment websites. Check out his website at

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Steps to Refinancing Student Loans

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Students today are experiencing higher student loan debt than ever before, so it’s no surprise that many are looking for ways to reduce monthly repayment amounts.

One great way to lower costs is to refinance student loans, which means taking out a new loan with a private lender to repay your current ones. Both federal and private loans are eligible for refinancing, which allows borrowers to:

  • Combine multiple repayments into one single loan
  • Change repayment terms e.g. changing loan timeframe to span 5, 10, 15 or 20 years
  • Move to a more desirable lender.

Refinancing vs. Consolidation

One thing to keep in mind is refinancing is not the same as loan consolidation. Only federal student loans can be consolidated, which allows you to keep your loan with the government while simplifying monthly payments.

Most lenders allow you to refinance federal and private loans. Since refinancing a federal loan means opening a private loan to pay off the original, your loan will no longer come from the federal government. As a result, you will not enjoy benefits like income-based repayment, loan forgiveness, or deferment. If these perks are important to you, refinancing may not be a good match for your financial needs.

Is Refinancing the Right Fit for You?

The goal of refinancing is to lower your loan’s interest rate, thereby lowering your monthly costs and total amount over the loan’s term.

If you decide to refinance, make sure to comparison shop lenders as well as their repayment terms, and select one with low interest rates, excellent customer service, and minimum requirements that fit your financial needs. Here are some areas to consider:

When can I refinance? Those currently enrolled in school are ineligible for refinancing since most lenders require that you complete your degree before applying. There are exceptions to this rule, and some only refinance for specific degrees, such as MBAs or law degrees. So, make sure to check the lender’s minimum requirements.

Will refinancing impact my credit score? Comparing offers will not impact your credit score. However, once you submit the loan application, the lender will run a formal credit check to confirm your credit score, which can affect your score.

Do I need a certain credit score to qualify? You can use a credit score calculator to determine your rating, and in general, lenders look for a score of 650 or higher. If you have a lower credit score, consider asking someone with strong credit to cosign your loan.

Since your repayment standing affects both of your reports, it’s important to make on-time payments. Also, some lenders will release the cosigner once you’ve made consistent on-time payments in a set period of time.

I graduated, so is that the only requirement? In addition to receiving your degree, you also need to have graduated from a Title IV school, which is an institution that is eligible to receive financial aid. Some lenders waive this requirement, so as you’re comparison shopping loans, keep this in mind. If you are no longer in school but haven’t graduated, there are a few lenders that will still work with you on refinancing.

Does a lower interest rate matter? Yes! A lower interest rate means lower monthly costs. But, before you shop for lenders, you need to determine your current APRs. So, take the interest rates from each of your loans and find the average. Those higher than six percent will see the most benefit from refinancing, whereas lower averages are unlikely to provide a noticeable return.

In addition to finding a lower interest rate, make sure to look closely at the repayment terms. A lower interest rate is likely to bring down the monthly amount you pay, but if the repayment term is longer than your current loans, the full loan amount may end up close to or higher than your current one.

What’s the difference between fixed and variable rates?

Most federal loans come with fixed interest rates, which are set by the government. Once a fixed rate is applied to the loan it cannot change, so you’re locked into a set monthly repayment amount. Private lenders, on the other hand, primarily use variable rates, which are driven by market behavior. This means your monthly amount will vary depending on market-driven rates, potentially increasing the total amount you repay over time.

Should I go with a fixed or variable interest rate?

There are pros and cons to both, so it depends on how much change your budget can withstand. Variable rates fluctuate depending on market behavior, meaning your monthly payments can increase or decrease without notice and you could end up paying a total loan amount that’s higher over the life of the loan. Conversely, a lower interest rate could drive down both your monthly and total costs. So, if your income is stable and you’re willing to take a chance for the possibility of lower interest, then variable APR might be a good fit.

If you’re looking for more stability and consistent payments, a fixed rate is the way to go. Once the rate is set, it’s locked in so your monthly amount is flat over time.

Does the lender charge a penalty for early repayment?

Most lenders will not charge if you want to pay more than your monthly amount or repay early. However, they may charge an origination fee for processing your application. Generally, it’s one to six percent of the total loan amount.

Do you need a loan deferment in the future?

Whether you’re returning to school or have other life plans that require a deferment, make sure your new lender offers this benefit.

What’s my credit score?

During the application process, lenders will look at a number of qualifications, including debt-to-income ratio and credit score. Most will require a minimum FICO score of 650, and the higher your score, the better your loan terms will be, including interest rates. If you have a low FICO, consider adding a cosigner with better credit.

I refinanced once. Can I do it again?

If you refinanced a federal loan, you cannot refinance it again since it’s no longer through the government. However, you can refinance a private loan, even if it was opened to pay off a federal loan. You’ll get the highest value, meaning best rates, the first or second time you refinance. If you can’t significantly lower your rate, hold off on refinancing since there is no upside.

If I refinance, can I still deduct the loan interest on my taxes?

You can deduct up to $2,500 on your annual taxes, even if you don’t itemize. Regardless of who carries your loan, there are still considerations that may impact this, such as total income, whether the loan comes from a qualified lender (as opposed to a loan from a family member), etc. Check out the IRS website to get a clear breakdown of what you can deduct for loan interest.

Lenders will look at your credit history as part of the application process, so if it’s less than glowing, consider working with a credit repair company.


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Five Steps to an Easier Home-Buying Process

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This article was updated May 2018.

In today’s market, the opportunity to own an affordable home has become harder for many. Increasing real estate prices and rising interest rates have made once-attainable properties almost impossible to buy. However, this doesn’t mean purchasing a home is beyond your reach. There are just a few real estate regulations requiring homebuyers to meet minimum lending requirements before securing a mortgage. For some, that may require that they begin some personal credit repair. Whether you are a seasoned property owner or first-time buyer, follow the steps below to pave the way toward an easier process.

Get Serious About Credit Repair

Good credit is the most effective financial tool in your belt, so use it to your advantage. FHA-approved homes require a minimum FICO credit score of 580, while regular properties usually require a score of 620 or higher for the best interest rate. If you haven’t committed to credit repair, the time is now. Attention to unfair credit reporting, overdue accounts, exorbitant debt, and excessive credit accounts could save you thousands in mortgage interest. Obtain a copy of your credit report (free from Lexington Law with a credit consultation) and outline the problem areas. If you see unfair or inaccurate information, begin investigating, challenging, or disputing with your creditors and, where applicable, the credit bureaus. If you are feeling overwhelmed, ask Lexington Law for help.

Save, Save, Save

Gone are the days of no-money-down mortgages; most lenders require a minimum down payment of 3.5 to 10 percent. After achieving success in credit repair, start saving for a future down payment. A high credit score coupled with a hefty savings account is bound to score a competitive interest rate.

Examine Your Income and Expenses

Affordability is the defining factor of any home purchase. Before falling in love with an expensive property, sit down and determine your price range. While you may be able to afford a $2,000 per month mortgage, lenders could view your situation differently. Most allow a maximum “front-end” ratio of 33 percent. This means that your mortgage, property taxes, and insurance costs should not exceed 33 percent of your gross monthly income. Your lender will also consider revolving debt load in addition to taxes and insurance costs, also known as the “back-end” ratio. This number usually carries a maximum of 50 percent without a large down payment. As you can see, affordability isn’t always so cut-and-dry. Credit repair and savings are paramount in the buying process.

Consider the Past

Established homeowners understand the importance of a well-maintained mortgage record, especially when the time to buy arises once again. Many lenders offer conditional mortgages to weed out high-risk borrowers. If your record displays a foreclosure, for example, buying a new home could be a difficult task. In the interest of full disclosure, provide potential lenders with up-front information about your real estate past. Good credit and a sizable down payment could help you overcome the stigma of past mistakes.

Work With a Qualified Lender

Lenders rely on the business of homebuyers, so why not find one with your best interests in mind? Shop around for a company that boasts an excellent service record and can provide competitive rates. Use a 30-day timeframe to find the best company in your area, and ask for approval terms and rates. The process of comparison will help you understand your best option.

Buying a home is a big decision, one best made with the right tools and strategies. Take an investigative approach and look deeper into your finances and the changing market. Your efforts could make all the difference.



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How to Choose the Best Credit Cards for the Recent Graduate

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Recent graduates — from both high school and college — face similar questions and potential roadblocks when it comes to establishing and maintaining a good credit score and history.

It makes sense: they’ve likely been living at home with their parents, or with roommates in dorms, with little or no need to worry about their own personal finances. But, once graduation comes and goes, reality can crash down pretty hard on former students who are heading out into the workforce for the first time, and starting to consider where they’re going to live, what they’re going to drive, and so on.

So, the challenges come, not just from their relative lack of knowledge and experience in handling their personal finances (by the way, WHY isn’t this a required high school course for every American!?) but also from their lack of a substantial credit history. Just like the catch-22 they’ll run into looking for a job — no experience without a job, but no job without experience — they’ll find that lenders are leery of offering credit to someone who’s never had it before.

The credit card industry understands this, but, from the consumer’s point of view, this can be both good and bad:

  • Good, because lenders have put programs in place to make it possible for students and recent graduates to begin building a good credit history, whether their current credit score is good, bad, or non-existent.
  • Bad, because the number of available programs can be overwhelming and confusing, and, in some cases, the choices are NOT in the best interests of the consumer.

So, how can a recent graduate and/or their concerned parents weed through all the offers that are probably coming regularly in the mail and email inbox, and choose the best credit cards for their unique situation?

The key elements to look for in any credit card offer

David Weliver, editor-in-chief of, and a noted expert on young adult finances, makes an excellent recommendation:

“When choosing the best credit cards for young adults, I look for cards that:

  1. Offer better-than-average approval odds for consumers with shorter credit histories.
  2. Reward spending in categories most popular with our readers such as dining, travel or Amazon purchases.
  3. Do not charge excessive fees.”


The first key is that you want to find a credit card that will approve you, including whatever credit history or score you personally have right now. That’s important because many recent graduates come out of school and into the workplace with the belief that operating without a credit card is a good thing.

This makes perfect sense, and their heart’s in the right place. After all, today’s college graduates watched their parents struggle through the worst economic downturn the world has seen since the Great Depression, and high credit card balances probably factored into some unpleasant circumstances during their childhood. So, their attitude seems smart: by avoiding credit altogether, they can avoid overdoing it, and all the problems heavy debt can bring with it.

Plus, if they’re just out of college, they may well be saddled with significant student debt already, and feel that getting a credit card can only make matters worse.

However, there is a real flaw in this thinking.

Kevin Yuann, credit cards director at NerdWallet, famously noted, “not having a credit card is probably one of the worst mistakes you can make financially.” That’s because if you have no credit history, a lender has no information to use when deciding what sort of risk you will be. That means, if you ever want to make any sort of large purchase in the future — a car, a home, a wedding ring — you may be unable to even consider it.

Really, it’s in your best interest to develop a credit history as soon as possible and do everything you can to keep that history positive and active. The longer you have a credit card and demonstrate you can use it properly, the better your credit score will be.

If you need to fix credit mistakes you’ve already made, it’s never too late to get your credit history back on track with the help of a credit repair company!

There are other potential issues with avoiding credit altogether:

So, even if you’re dead set against drowning in debt (which you should be) you should try to get approved for a credit card as soon after graduation as possible.


A second important factor in choosing the best credit card for a recent graduate is the rewards the card offers.

Every credit card company has cards in their portfolio that include some sort of reward. These can range from cash back on every purchase, to points you can accumulate toward certain items or privileges, to frequent flyer miles or other brand-specific perks.

If you have an established credit history and have maintained a good or excellent credit score, you can probably pick and choose from a host of different reward offers and find the ones that appeal most to you, personally. If you currently have little or no established credit, or if your score is on the lower end, you may not have as much choice available to you.

The most important thing to consider when it comes to credit card rewards is this: will the card be rewarding you for actions you would have taken anyway? And, are the rewards you’re receiving valuable to you?

For example, if you’re deathly afraid of flying and don’t expect to travel anywhere by plane at any point in the future, frequent flyer miles aren’t going to help you much. On the other hand, cash back is almost always good. And, special incentives for brands you frequently purchase or events you love to attend can be especially intriguing.

DO NOT, however, obtain a rewards card, then begin using it uncontrollably strictly to rack up the rewards!


Finally, there is the matter of fees.

If you have some level of established credit and your score is decent, you should definitely seek out a card with no annual fee. Many exist, and their interest rates and reward programs are generally competitive with those cards that do require an annual fee, so it only makes sense to save that money.

Again, if you have little or no credit history or you’re sporting a low credit score, you may find that a card with an annual fee offers better terms and/or rewards than you can qualify for otherwise. In that case, it may be worth paying the annual fee, at least until your credit score rises to the point that you can apply for a card with no fee.

If you plan to use your new credit card to consolidate any outstanding balances, pay attention to the rules and fees surrounding balance transfers. Some cards are specifically designed to make transfers very appealing — low or 0% introductory interest rates on balance transfers are popular — but, read the fine print: You may find that the terms change dramatically after the introductory incentive runs its course, and if you aren’t able to realistically pay off the balance you transfer by that time, the retroactive accumulated interest may make the option far less beneficial.

What options are available if no standard credit card approves you?

Unfortunately, recent graduates with no credit history or very low credit scores may find it impossible to get approved for a standard credit card using the factors described above.

Don’t worry, that doesn’t mean you’re doomed. There are two good options available for just this circumstance:

Credit repair

If your credit score is low, it’s quite possible it can be raised by working with a credit repair service.

These professionals can help you review your credit history, identify and eliminate any errors that may have crept into your report, facilitate any needed credit bureau dispute, and set you on the road to boosting your credit score.

Secured credit cards

A secured credit card requires a cash deposit that then serves as your maximum credit limit. In other words, you’re using your own money, so the lender isn’t taking any risk. But, since you’re using it in credit card form, it affects your credit score and report just like any other card would.

Obviously, there’s no real benefit to using a secured credit card once you qualify for a real credit card, but it can be a powerful tool in the meantime.

Which credit cards are best for recent graduates?

Taking all of the above into consideration, there’s still a tremendous number of choices to consider. Here are some sources you can trust with information on specific cards that measure up well for recent graduates:

For information about credit restoration and improving your credit profile, explore the Credit Repair Blog and our other educational resources around credit repair.


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