For many people, the idea of a credit score is hard to understand. We all understand that the higher your score
is, the better your score is. But some still find themselves.
For many people, the idea of a credit score is hard to understand. Often times seasoned financial consultants don’t fully understand either. But we all understand that the higher your score, the better. But some still find themselves asking, "what does my credit score mean?"
Your credit score tells prospective lenders how much of a credit risk you are. The higher the score, the less of a risk you represent to the lender. It is made up of a combination of factors based on your previous credit use. In many situations, this score can define how much access to new credit you get. It’s always important, then, that you choose actions to help build your credit score to keep your options open.
How Your Credit Score Works
A credit score is a number representing the way you’ve used credit in the past. Today’s technology has you analytically figured out and can factor this behavior in their score. Some of these factors include:
- How much debt you owe
- The type of debt you owe
- If you make payments on time
- Length of credit experience
- How much debt you have compared to how much available credit you have
- How many times you’ve recently applied for credit
- If only making minimum payments
If you have debt, the best way to keep your score above water is to pay your debt as you agreed to pay it when you agreed to accept the credit card or loan. Easier said than done. But, what happens when you have difficulty in making payments? What does the credit score do for you then?
Let’s go further. Understand that there is no "universal’ type of credit score. There are lots of scores. Each of the three credit bureaus have their own scoring algorithms, for many different purposes. Lenders can also have their own scoring algorithms. Lenders may use different scoring algorithms depending on what the purpose of the loan is for. And additionally, does the lender utilize 1, 2 or 3 of the credit bureaus to determine the score value? It gets complicated and hazy. Just how the credit bureaus and lenders like it. And they love to lend you money so that they can collect interest payments for as long as possible to keep the treadmill running.
Let’s be real, a credit score is an "I Love Debt" score and is not a measure of anything. The only way to have a credit score is to go in debt, stay in debt, and pay it perfectly. You can inherit $10 million today or get a pay raise and your score would not change a single point. This may sound crazy but when was the last time the grocery clerk said that since you have a high credit score, your bread and milk is free? So, the score does nothing for you, right?
Well it does one thing and that is to keep you in debt!
Free Credit Reports and Scores Everywhere You Look
Did you ever wonder why are there so many websites where you can obtain your credit scores with no fee? How can companies offer free credit scores and not charge fees? There is a primary reason and it’s a big one. The answer is data. Just like Google and Facebook collect information concerning pretty much everything about you, the free credit score model is based on collecting data and determining what you like and or need. That personal information is sold to marketers who in turn solicit you to buy stuff or seek new credit. Your name, address, city, state, zip and a few other items are treated as gold because, it is.
How Bankruptcy Impacts Your Credit Score
When you need help, you may think bankruptcy is the only option. However, it is less than ideal in a variety of ways. Bankruptcy will remain on your credit report for the next 7 to 10 years. During this time, it will impact your credit score, employment possibilities, access to new credit and your name may appear in a local newspaper. Enough said.
Advantages with Debt Negotiation
If you are reading this far, it is because you have a debt problem, not a credit score problem.
Debt Negotiation will affect your credit score in the beginning of the program as you are agreeing to make negotiated settlement payments on the balances you owe.
A report, https://americanfaircreditcouncil.org/wp-content/uploads/2018.02.05-AFCC-Report-Consumers-in-Crisis.pdf, indicates that
- Debt Negotiation on average saves consumers $2.65 for every $1 in fees paid
- More the 95% of clients receive savings in excess of fees
- Most consumers see in initial account settlements within 4 -6 months of program start
- Clients pay no settlement fees until settlements are obtained
Conclusion: Debt negotiation may not impact your score nearly as much as a bankruptcy. It also is not likely to remain on your credit report as long either. We find that once a negotiated settlement has been paid in full, the derogatory comments generally disappear, and the credit report indicates the debt as "Paid" thus allowing you to obtain more credit. But why would you do that all over again?