Tag Archives: Credit Info

Understanding Debt Settlement Letters

If you’re unable to pay back a large amount of debt, you might be interested in learning more about debt settlement. Debt settlement works to negotiate with your creditors to forgive all or part of your debt. Throughout this process, communication is usually done with written letters. Written letters work best to convey the clear and detailed terms you have for your creditor.

A debt settlement letter is a written proposal for you to offer a specific amount of money in exchange for forgiveness of your debt. These letters address why you’re unable to pay the debt, how much you’re willing to pay now, and what you would like from the creditors in return. Working through the proposal is how both parties determine the terms and agreements of the debt settlement exchange.

What Is Debt Settlement?

Debt settlement is the meticulous process of negotiating terms with your creditors, in hopes of them forgiving a portion of your debt. Those who look for debt settlement usually are doing so because they can’t pay off all the debt they’ve accumulated. Instead, they offer a decent portion of the debt owed upfront in exchange for the account to close in full.

The following are the key steps in reaching a debt settlement:

  1. Decide if you want to work on your own or hire debt settlement professionals. Professionals can be of great help, but sometimes their fees can get quite expensive.
  2. Save up the amount of money you are proposing before even getting started. If the creditor accepts your proposal, you’ll need to pay the agreed amount within a specified time frame.
  3. Write a debt settlement letter to your creditor. Explain your current situation and how much you can pay. Also, provide them with a clear description of what you expect in return, such as removal of missed payments or the account shown as paid in full on your report.
  4. Ask for a written confirmation after settling on an agreement. Request this before you send the payment, as it acts as an extra layer of liability coverage in the future.
  5. Send your payment. Keep in touch with your creditors until all terms and agreements are fulfilled.

What Is Debt Settlement?

What To Consider Before Sending a Debt Settlement Letter

Sending a debt settlement letter has the potential to do both harm and good. The extent to which you are affected depends on your current situation. Some people may not think that the benefits outweigh the negatives when settling debt. Others may be limited when it comes to other options and are more willing to take the risk.

Pros of Writing a Debt Settlement Letter

Sending out a debt settlement letter can be beneficial if you’re in financial hardship. Many people who can’t afford to pay off their debt end up filing for bankruptcy. While settling is never a guarantee, it may put you in a better financial position. If the request is accepted, debt settlement amounts usually settle for around 50 to 80 percent of the total balance. Reaching out to your creditors and addressing the issue can also relieve some of the stress you feel to pay off your debt.

Cons of Writing a Debt Settlement Letter

As mentioned, debt settlement is never a guarantee. If there’s no agreement made, you may end up owing more than you did originally due to missed payments and late fees. If you hire professionals, you may owe them various fees and payments.

Settling debt can often appear as a bad financial move and can negatively impact your credit health. Missed payments on the account may still appear in your report, even if you were negotiating your settlement during that time. There’s also a chance that your account shows up as a debt settlement on your credit report. This may cause other creditors to see you as an unreliable candidate in the future.

Pros and Cons of Writing a Debt Settlement Letter

How To Write a Debt Settlement Proposal Letter

When writing a debt settlement letter, it’s important to be explicit and detailed. Treat the letter as a contract between you and your creditor. Include your personal information and account number for easy identification. You’ll need to outline the amount you can pay and what you expect in return. If you want to propose a good settlement offer, consider offering around 30 percent of what you owe. This can set the baseline for the negotiations your creditor will put forth.

In order to have your proposal approved, creditors must believe that you’re truly unable to pay off what you owe. This is why elaborating on the reason you can’t pay off your debt can benefit you. Financial hardships can include serious injury, unexpected loss of work, and environmental disasters. Depending on your hardship, creditors may ask for documented proof. For instance, a serious injury may need proof from a doctor.

Below is a template to guide you when writing your letter:

[First & last name]
[Home or mailing address]
[Telephone number]

[Current date]

[Account number of which you’re looking to settle]

[Creditor or organization name]
[Creditor’s address]

Dear Sir/Madam,

I’m writing this letter in regards to the amount of debt on the account number stated above. As a result of financial hardship, I am unable to pay back the amount in full. [Here, take the time to explain your hardship so the creditor has a better picture of what’s going on].

I would like to propose an offer to settle this debt for [$ how much you will pay] as a final settlement. In return, I request [what you expect in return; ex: removing late payments on your credit report]. I would also like freedom from any liability associated with the debt of this account. I expect this to appear in my report by stating that the account is now paid in full.

If you are willing to accept this offer, please send me a signed and written agreement. Once I receive this, I will pay the agreed amount within [number of days they can expect your payment]. Please let me know by [a specified deadline].

Sincerely,

[Your Signature]

[Printed Name]

What To Outline in Your Debt Settlement Letter

What To Expect After Sending Your Letter

After sending your letter, you may be eager to see if your creditor approves or declines the request. For this reason, including a response date in your letter will help your chances of a prompt reply. As you wait, ensure you have the agreed amount of money saved up and ready to go if they accept your offer. It can also be a good idea to request confirmation that they have received your payment.

You may want to check and make sure the appropriate changes appear on your credit report and account. Debt settlement may relieve your debt, but it can also negatively impact your financial health. Debt settlement is usually reflected in your report for some time. Seeing this may make you appear as risky to future lenders.

Debt settlement may be worth your while if you find yourself struggling due to a hardship. When writing a letter, remember it’s very important to be careful with your words. A well thought out debt settlement letter can make all the difference when it comes to liability. This helps in ensuring that both parties uphold their part of the agreement.

Since it may negatively impact your credit score, you may feel nervous about settling your debt. You may fear creditors thinking you’re a poor candidate for future financial requests. Keep in mind that there are still many credit card and loan options out there for people who are working towards rebuilding their credit.

The post Understanding Debt Settlement Letters appeared first on MintLife Blog.

Source: mint.intuit.com

What’s a Good Credit Score?

Whats a good credit score?

Your credit score is incredibly important. In fact, this number is so influential on various financial aspects of life that it can determine your eligibility to be approved for credit cards, car loans, home mortgages, apartment rentals, and even certain jobs. Knowing what your credit score is, and what range it falls under, is important so you can decide what loans you can to apply for, and if necessary, if steps need to be taken to improve your score.

So what constitutes a good credit score?

The Credit Score Range Scale

The most common credit score used by lenders and other business entities is the FICO score, which ranges from 300 to 850. The bigger the number, the better. To create credit scores, FICO uses information from one of the three major credit bureau agencies – Equifax, Experian or TransUnion. Knowing this range is important because it will help you understand where your specific number fits in.

Know what factors influence a good credit score to help improve your own credit health.

As far as lenders are concerned, the lower a consumer’s number on this scale, the higher the risk. Lenders will often deny a loan application for those with a lower credit score because of this risk. If they do approve a loan application, they’ll make consumers pay for such risk by means of a much higher interest rate.

Understand Your Credit Score

Within the credit score range are different categories, ranging from bad to excellent. Here is how credit score ranges are broken down:

Bad credit: 630 or Lower

Lenders generally consider a credit score of 630 or lower as bad credit. A number of past activities could have landed you in this category, including a string of late or missed credit card payments, maxed out credit cards, or even bankruptcy. Younger people who have no credit history will probably find themselves in this category until they have had time to develop their credit. If you’re in this bracket, you’ll be faced with higher interest rates and fees, and your selection of credit cards will be restricted.

Whats a good credit score?

Fair Credit: 630-689

This is considered an average score. Lingering within this range is most likely the result of having too much “bad” debt, such as high credit card debt that’s grazing the limit. Within this bracket, lenders will have a harder time trusting you with their loan.

Good Credit: 690-719

Having a credit score within this range will afford you more choices when it comes to credit cards, an easier time getting approved for various loans, and being charged much lower interest rates on such loans.

Excellent Credit: 720-850

Consider your credit score excellent if your number falls within this bracket. You’ll be able to take advantage of all the fringe benefits that come with credit cards, and will almost certainly be approved for loans at the lowest interest rates possible.

Understand the factors that make up a good credit score.

Whats a good credit score?

What’s Your Credit Score?

Federal law allows consumers to check their credit score for free once every 12 months. But if you want to check more often than this, a fee is typically charged. Luckily, there are other avenues to take to check your credit score.

Mint has recently launched an online tool that allows you to check your credit score for free without the need for a credit card. Here you’ll be able to learn the different components that affect your score, and how you can improve it.

You’ll be able to see your score with your other accounts to give you a complete picture of your finances. Knowing what your credit score is can help determine if you need to improve it to help you get the things you need or want. Visit Mint.com to find out more about how you can access your credit score – for free.

Lisa Simonelli Rennie is a freelance web content creator who enjoys writing on all sorts of topics, including personal finance, investing in stocks, mortgages, real estate investments, and anything else to do with the world of economics.

The post What’s a Good Credit Score? appeared first on MintLife Blog.

Source: mint.intuit.com

What Do New FICO Changes Mean for Me?

Have you ever applied for a credit card, car loan or mortgage? If so, then one of the first things the lender looked at was your FICO score. It has a major impact not only on getting approved in the first place, but also on the interest rate you will receive after approval.

On August 7, FICO announced some pretty major changes in how they will be calculating that ever-important number. Before you can understand how the changes will or won’t impact you, you need to have a firm grasp of the basics.

What is my FICO score?

Your FICO score, or credit score, is a number ranging from 300-850 that shows lenders how reliable you will be in repaying your debts. A bad score is anything below 560, not very good is 560-659, good is 660-724, very good is 725-759, and anything above 760 is classified as great. While it is best to be in the great range, you can sometimes qualify for the best available interest rates with 720 or above.

In order to calculate your credit score, FICO pulls information from your credit reports from the three major reporting agencies: Experian, TransUnion, and Equifax. When banks and other lending institutions consider your application, they look at several factors. The first is usually your FICO score, which will either get you in the door or get it slammed in your face, but after that they consider other aspects of your finances, such as income and the detailed history on the credit report itself.

What are the changes, and how will they affect me?

There will be four notable changes to how FICO evaluates your credit score once the announced new model is released. Some of them will be very good for some people, some of them will be bad for others, and some of them may prove to show negligible changes.

The first, and biggest, is that medical debts will no longer be considered when calculating your score. This is a huge relief. Many otherwise fiscally responsible people go into massive debt when a medical emergency happens. Others don’t even know they owe money on medical bills in the first place, as they thought their insurance was going to cover their costs. When they realize they owe money, the responsible consumers pay it back, but it still leaves a scar on their credit report and, therefore, their FICO score.

With this new change, your FICO score will not be impacted. In fact, if you have no other negatives on your credit report (which would mean you most likely have a halfway decent score), you can expect to see your FICO score increase by up to 25 points.

Changes will also be made in considering debts that you have paid off. Currently, after you’ve paid off a debt, it stays on your credit report for seven years. That will continue to be the case after FICO’s updates go into effect, but FICO will no longer look at those debts, even though they show up on your credit report. If you have consumer debts that you have paid off, and they’re the only thing holding you back, you may see your score improve, as well.

There will also be an update to consider the creditworthiness of people who do not have an extensive report, taking into consideration things beyond just paying your month-to-month bills on time. (A lot of times, the people you are paying those bills to don’t even report that anyways.) Depending on how this is done, it could be a boon for those who are unable to get credit not because they are irresponsible, but simply because they have never chosen to borrow money before.

The final update is not good news for those who hold consumer debt. If you owe money and it isn’t paid in full, you can expect to see your credit score take a hit.

Hold your horses – and your enthusiasm.

While FICO has announced that it will make these changes, the new model has not gone into effect. It will not be ready to release to lenders until late 2014 or early 2015. Even then, banks have to choose to adopt it. Thismodel will be FICO 9. FICO 8 was introduced in 2009, and some lending institutions still have not updated since FICO 7. Just because they are releasing a new model doesn’t mean that your lending institution will apply it to their evaluation process.

Another thing to remember is that while your FICO score gets you in the door, banks will look at your credit report. All of those things FICO ignores will still show up. If your medical debts are deemed too oppressive for you to possibly be able to pay for a mortgage on top of them, you may still be denied. And while FICO will ignore debt that has been paid off and closed, it will still stay on that pesky credit report for seven years for all of your potential lenders to see.

While these changes could be a great way to get your foot in the door with lenders, they’re not a holy grail to your credit problems. The same tried and true wisdom will still apply: Spend responsibly, make sure the information on your credit report is accurate and pay off any debts as quickly as possible.

Femme Frugality is a personal finance blogger and freelance writer. You can find more of her writing on her blog, where she shares both factual articles and esoteric ruminations on money.

The post What Do New FICO Changes Mean for Me? appeared first on MintLife Blog.

Source: mint.intuit.com