Debt relief will affect an individual's credit rating. It is important to note that the more debt an individual has, the lower their credit score is likely to be. While debt relief can negatively affect an individual's credit rating in the short-term, it is important to note that a person's credit rating would almost always be much lower by holding on to their debt than by using the resources available within debt relief programs.
By learning exactly how debt relief can affect a person's credit rating, individuals can decide whether or not they think debt relief would be beneficial for them to investigate, and therefore to potentially utilize for their personal financial needs.
Debt relief is, in general, very subjective. As a result, it is very difficult to come up with individual numbers and specific cases that can be reviewed. However, by speaking with a debt relief representative, it is possible for individuals to know exactly how such a program would affect their lives. The conclusion will also depend on what a person's credit score is at the time that they enter into their chosen debt relief program. Almost any financial assistance will affect a person's credit score. Some of these assistance programs include Consumer Credit Counseling, declaring bankruptcy or taking part in debt reduction programs and services that are available. Most debt relief programs will be able to offer interested parties a free consultation in order to offer more information about how debt relief will affect them as individuals.
In time, it is likely that your credit score will improve, and this is primarily because debt relief will make your bills and debt more manageable. Not only can your payments be lowered with debt relief, but so too will your interest rates. With lowered bill payments, it is easier for most individuals to pay their bills on time. Thirty-five percent of a person's credit score is related to whether or not that person pays their debts on time. When your bills are more manageable, you are more likely to pay them on time. This can improve your credit score the thirty-fiver percent that your score that is based on history.
Debt relief is pointless if you are not going to be able to meet the one main goal of debt relief, namely to manage debt by making it more affordable for you as an individual. Whether you are able to increase the amount of months that you have to pay off a bill or decrease the amount of interest that you are being required to pay on your debt owed, your main priority is still to make your debt more manageable. If you cannot get a grip on your finances as a result of debt relief you will just end up in the same situation that you presently find yourself in. If you choose to increase the number of months over which you will pay off your debt, it is important to remember that you will be paying more in the long run thanks to interest. Nonetheless, you need to weigh this against whether or not your current bill payment is affordable and manageable.
Affect My Credit Rating
Almost everyone of eligible age has a credit card. We are becoming more and more attached to plastic and use it for most transactions. Ever so often it becomes necessary to transfer our balances to new credit cards so we can take advantage of lower interest rates. Most lenders offer attractive rates but it is often only those with the best credit ratings who qualify and enjoy these benefits.
Your three digit credit score is generated when the credit bureau applies a mathematical algorithm using information held about you. The higher your score, the better interest rates you are be able to attract. So what affects your credit rating?
1.Payment profile:
Lenders are interested in whether or not you can pay your bills on time or if at all. This is very important in influencing their decision to grant you new or additional credit. Bad payment profiles result in a lower credit rating.
2.Maxing out your credit card:
If you have many credit cards that are all maxed out or very near to your limit, this would adversely affect your credit score. This indicates to the lender that you are living off borrowed money. Ideally your balance on your credit card should not be more than 25% of your limit.
3.Bankruptcy:
If you filed for bankruptcy this would stay on your credit report for a period of 10 years. When a potential lender looks at your history they would be very cautious about lending to you as they would see you as a potential risk. There are institutions available to help you rebuild your credit rating if you are bankrupt, but your credit history would still be negatively affected.
4.Liens:
Such information lowers your credit score and stays on your credit profile for seven years. It shows lenders that your debt management is so bad that creditors had to use your home as security for the promise that you would repay your debts.
5.Credit period:
The longer you have been building credit, the more of a picture the lender would have of how well you manage your finances. Providing you have a good payment history, chances are you would score higher in this category.
6.Multiple searches:
If you apply for credit from various lenders, each time a footprint would be left on your report even if your application was not successful. A high number of searches would indicate to lenders that you are unable to meet your commitments without applying and obtaining additional debt. This also would negatively affect your credit score.
To keep your credit rating up, practice proper debt management. Spend only what you can afford and always pay your bills on time. If you realise that you would not be able to effectively manage all your debts, seek advice from specialist firms as they would have the knowledge and expertise to help you and may prevent many unfavourable outcomes such as filing for bankruptcy.
Both Ratetake & Anthony Samuel are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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