Here’s “what we should have learned in school” about credit. Without this information, you’ve probably wasted thousands of dollars, or worse. Now you’re about to learn exactly how your creditors have been taking advantage of you this whole time, and how to flip the tables to win the credit game. This unique info is unlike anything else out there in it’s completeness, effectiveness and simplicity. Please enjoy the benefits forevermore…
Let’s learn how…
First, let me ask you an interesting question:
What do you really need your credit score for, other than acquiring more high interest (bad) credit card debt?
How much is your credit score costing you each month, in real dollars?
(Dollars you could spend on food, shopping, vacation, retirement, your children, education, etc, instead of handing it over to your creditors in interest payments every month?)
What’s most important to you?
1. To have the lowest monthly payment possible on your debts?
2. To get out of debt for the lowest amount possible?
3. To get out of debt as soon as possible?
In 2005 I conducted a “National Debt Relief Survey” while serving as COO of STARTOVERTODAY.COM, a nationwide financial solutions company I co-founded in 2002. I surveyed over 10,000 people who had asked us for help with their credit card debt online this question, “What is most important to you?”
Here are the results for the answers chosen:
When I saw these results, all I could say was, “Wow!”
I was shocked, and so were the executives of several top debt management companies who I shared the results with, because we were all convinced up until then that most people just wanted the lowest monthly payment. As it turns out, most people just want to get out of debt ASAP!
Back to the question I asked you a minute ago, here it is again:
What’s most important to YOU?
1. To have the lowest monthly payment possible on your debts?
2. To get out of debt for the lowest amount possible?
3. To get out of debt as soon as possible?
Would you be willing to lower your credit “rating” in the short term in order to accomplish (Questions #1, #2, or #3 above) if it improved your credit “worthiness” long term?
* See Credit “Rating” vs. Credit “Worthiness” if you do not understand this question.
If keeping your credit score high (assuming it’s already high enough to matter) is more important to you than getting out of debt the fastest, cheapest or for the lowest payment, then the only options you have are either continuing to make your minimum payments or get out faster by paying even more per month and doing what’s called an “accelerated debt payoff plan“.
Still, we must ask ourselves, what do we want credit for?
…A quote I read in an article once said:
“worrying about your credit rating when you’re drowning in debt is like worrying about how your front yard looks when your house has just burned to the ground…”
If you have less than perfect credit, then you may not have much to lose at all, and a whole lot to gain. You’ll learn the specifics of how each option affects your credit and understand which option will eliminate your debt and credit problems, and be easiest to clean up after. Plus, you’ll learn how to repair and build your credit, no matter what you’ve been through.
There’s a myth out there that you can lower your monthly payment, get out of debt for the lowest amount possible and/or get out of debt as soon as possible WITHOUT any negative effect on your credit.
Well, this is simply not true. The fastest ways to get out of debt all have some kind of negative affect, minimal or extreme.
The truth is, there is no option available for you to accomplish what you have in mind whether you want to lower your monthly payment, get out of debt for the lowest amount possible and/or get out of debt as soon as possible WITHOUT negatively affecting your credit in the short term.
So let’s take a look at the debt relief options available to lower payments, reduce balances and get out of debt ASAP, and how each negatively affects your credit…
Any bankruptcy is an extremely negative item on your credit report, often viewed as the worse mark you could ever have. Chapter 7 stays on your credit for 10 years. Chapter 13 stays on your credit report for 7 years AFTER it’s discharged, usually following a 5 year repayment plan, thus damaging your credit for a total of 12 years!
Mortgage guidelines will not allow you to get a mortgage loan or refinance for at least 24 months after discharging a chapter 7 bankruptcy filing, and up to 48 months after discharging a chapter 13 bankruptcy.
Still, if you cannot afford any other option, then you may need to consider bankruptcy.
“Credit Counseling” is also known as CCCS, Consumer Credit Counseling Services, Debt Consolidation and Debt Management Programs.
Credit Counseling no longer affects your credit “score”, BUT enrolling in this type of program DOES have a major negative impact to your credit “worthiness”. Lenders view this just as negatively, or worse, than bankruptcy. In fact, seeing enrollment in Consumer Credit Counseling on a credit report is often called a “walking bankruptcy”. This negative affect lasts about 30 days longer than the debt management program lasts, which is usually 5-7 years. If you cannot afford an accelerated payoff plan and do not qualify for debt settlement, then you need to consider credit counseling.
Just make sure you understand what you’re getting involved in: Credit Counseling Lies Exposed – The Truth Non-Profit Credit Counselors Don’t Want You to Know
Debt settlement has minimal to serious damage to your credit rating due to late payments and charge offs, depending mostly on how good your credit rating is in the first place. Debt settlement may significantly affect someone with perfect credit but may not have much negative affect at all on someone who’s already fallen behind. In fact, debt settlement may significantly improve credit rating and worthiness for such individuals rapidly.
NOTE: Debt settlement is not reported on credit report as a bankruptcy and credit counseling are.
If you cannot afford an accelerated debt relief plan, then you may want to consider debt settlement.
Let’s take a closer look into your options to get out of debt:
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
I’m often asked the question, “Will debt settlement affect my credit score?”
It’s interesting that many who call me have already fallen behind on their payments, thus their credit may have already been affected, though it may not be showing yet on their credit report or they just haven’t checked their credit report recently.
If you are current on your payments it is very difficult, if not impossible, to settle your debt. Typically credits want to see that you are in a hardship situation before they are willing to negotiate. Therefore you will have to voluntarily stop paying your unsecured debts allowing them to go into delinquency before settlement.
In addition you cannot pick and choose which debts you wish to settle in most cases. Your creditors or collection agencies may review your credit report and most will be unwilling to negotiate when they see that are being offered less than what is owed to them when others are being paid on time as agreed.
Secured debts such as a home or a car are collateralized. You should continue to pay these accounts on time to avoid repossession or foreclosure proceedings.
By not paying your creditors, you credit will be adversely affected by debt settlement. However, having to experience this circumstance is almost always better than a bankruptcy, especially on your credit rating.
During your debt settlement program, your total balances are being lowered over time as they are settled in full: a great start to recovery.
There is no reason why your credit shouldn’t rebound upon completing your debt settlement program, and while no reputable debt settlement firm should guarantee any form of credit score improvement, case studies of previous clients are a great way to see proven examples of the results experienced by consumers just like you.
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
Debt Settlement Causes Credit Scores To Jump 74-130 Points?
Let’s take a look at an example of two clients, James and Anne of Laguna Hills, California, who cut their $55,000.00+ credit card debt down to just $29,817 (including fees) through debt settlement. Only 18 months after beginning their debt settlement program, they were debt free with over $2,100.00 a month in CASH FLOW back in their pockets!
Perhaps even more liberating was checking their credit scores shortly after graduation. James saw his credit score jumped 74 points while Anne’s score jumped 130!!
Can You Imagine…
Going from a 520 score just before starting her debt settlement program to a 650 immediately after graduating?
How could this be?
Let’s take a look…
How Credit Works
Understanding “how credit works” seems to elude most people. I think it’s that way on purpose, as creditors and the credit reporting agencies make it rather complex and guarded.
I’ve found a simple analogy that will make it clear for you.
So imagine, if you will, a three-legged stool…
And this stool sits on these three legs because your credit is really made up of three main factors.
Each of these factors account for about one-third of your score, while any one of these factors can cripple your credit worthiness (your actual ability to get a loan) regardless of score.
Make sense?
The Truth About Payment History
The first leg is your payment history. Your payment history is whether you pay your payments on time, if you have any past due accounts or this kind of thing.
If you have a perfect payment history, then you have something to lose in this area of your credit. It’s as if the first late payment you get KNOCKS your score out of the sky, and each additional late payment has less and less of a negative affect.
So if you have at least one late payment on your credit report (you’ve fallen more than 30 days behind in recent times), then you’ve already taken the major hit to your payment history.
Debt settlement, while causing additional late payments, will not have nearly as severe an affect on your credit score as it would if you have never missed a payment and maintained a perfect payment history.
Debt-To-Income Ratio – The Good, The Bad And The Ugly
The second leg on the stool is your debt-to-income ratio. This is how much debt service you pay (what you’re obligated to pay towards debt) each month verses your net monthly income.
Add up all payments you must make each month towards debt, including credit cards, medical bills, student loans, mortgage, auto loans, etc. What’s the total? Divide this amount into your NET (after tax/take home) income.
You want to keep this ratio at or below about one-third (35%), otherwise it becomes a negative factor that hurts your credit score and worthiness. If your debt-to-income ratio is over half (50%), then you’re CRIPPLED and regardless of your credit score you will have great difficulty obtaining any financing for major purchases.
NOTE: In the past year because of troubles in the mortgage industry, underwriting guidelines have tightened, bringing the maximum debt-to-credit ratio to 45% in most cases.
Through debt settlement, you eliminate your unsecured debt ALONG WITH the monthly payment obligations you have, thus improving your debt-to-income ratio.
Take your minimum payments on unsecured debt and subtract them out of your debt-to-income ratio to see how big of an improvement debt settlement will have.
The Least Known (But Just As important) Factor: Debt-To-Credit Limit Ratio
The third leg on the stool is your debt-to-credit-limit ratio or “utilization”. This is how much your current balances are compared to your credit limits.
The way this works is very interesting. This is probably the least known factor that affects your credit.
Basically, each account you have has a credit limit and a current balance. If that current balance is less than 50% of your credit limit, that’s a positive factor.
Now, if you have an account that’s more than 50% utilized (a balance is more than 50% of the limit), that hurts your credit, becoming more severely negative if it gets over 75% of the limit. If your balance gets to the limit, or over the limit, it becomes a crippling factor.
Again, you can have a perfect payment history, always making your payments on time or early, but if you’ve got a maxed-out or over-the-limit account, you’re stuck.
Through debt settlement your account balances are paid to a zero balance, wiping out any over-utilization and improving this area of your credit.
So How Will Debt Settlement Affect Your Credit Score?
To make it simple for yourself, look at each of these three legs… And determine which are GOOD vs. BAD for you now.
No one can say exactly how debt settlement will affect your credit score, but after working with thousands of people for over seven years, here’s how I see it:
If you have ALL GOOD legs, your credit will take a hit. Then the question becomes which is more important, keeping good credit or being debt free? Credit or cash flow?
It’s up to you.
If you have a perfect payment history and 700+ credit score, and keeping your credit is more important than eliminating your debt and freeing up your monthly cash flow ASAP, then avoid debt settlement.
However, if you have one or more “BAD LEGS”, remember that overall, debt settlement will only hurt your payment history (first leg), and not so much if you’ve already fallen behind in the past. Also remember that debt settlement IMPROVES the second and third legs, optimizing your ratios.
The worse these factors are for you going into debt settlement, the greater debt settlement will improve your credit, especially for the long term.
Credit is indeed important, but remember:
CASH IS KING!
(And Cash Flow Rules.)
Keep in mind the “BIG IDEA”:
STOP paying interest and START EARNING interest, ASAP!
This is critically important if you ever want to retire, and makes all the difference between a life of wealth or a life of slavery to debt (seriously).
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
Let’s start with your situation…
The fact that you have high credit scores and have not fallen behind means you have something to lose (your perfect payment history) if you choose debt settlement.
But, let’s first get clear about exactly how your credit will be affected, because along with the negative impact to your payment history, the other two important areas of your credit, your debt-to-income ratio and utilization, are both greatly improved through debt settlement. (more…)
What’s the difference between “credit rating” (credit score) and “credit worthiness?”
How do these two different aspects of your credit affect you? How much money is your debt costing you right now?
Many people are overly concerned with their credit score. Many don’t really know how credit works. Even fewer really understand “credit worthiness.”
To most it’s a mystery…
Now that you know “How Credit Works,” let’s go to up to 30,000 feet for just a moment and look down at this situation to get a clear perspective…
We have to realize what’s actually going on here, because most people think making payments on time is all there is to having “good credit,” so they make their payments on time month after month, year after year, paying insane amounts of interest along the way…
Most mistakenly think their credit score is the most important thing.
Why is this happening?
It’s happening because the credit bureaus and the credit card companies are in cahoots. Working together they make billions and billions of dollars a year through this system of credit, designed to prey upon human nature. The industry capitalizes on financial hardship, something you may have experienced yourself firsthand.
What am I talking about here?
I’m talking about the credit card industry having the deepest pockets and the tallest buildings in the land. They do lots of advertising and sell their ideals well to the public through mass propaganda. This is what’s caused people to mistakenly think making your payments on time is the holy grail of credit.
Payment history and credit score are important, but they are not everything, or even the ultimate thing…
Remember “the big idea” is to earn interest, not pay interest. The credit card companies know this. They’ve built their business around this idea, but here’s the catch: “they” depend ON YOU to pay them interest!
The reason your payment history has been made to seem like it’s the most important aspect of your credit is because the credit card companies want you to simply make your minimum payments every month, paying the highest interest rate possible, for the rest of your life!
This little secret was exposed in 2004 by the award winning investigative journalism of the PBS Frontline/NY Times Special Report “Secret History of the Credit Card.” I encourage you to watch this special some time if you haven’t already. You can watch it all for free online through the link above.
It turns out credit card companies actually label you as a “deadbeat” if you pay your cards off every month. The credit card industries want you to pay the minimum monthly payment every month, so that’s what they promote because it’s how they make their money. That’s okay; you just need to understand the difference between propaganda and reality.
Credit isn’t made up of just your payment history. There are the other two factors, each almost equally as important. Either can ruin your credit worthiness, even if you have a “perfect payment history”.
Here’s an example:
You may have a credit score greater than 700. If you walk into a mortgage broker they’re going to be happy to see you, rubbing their hands together and smiling, because they can get you any loan you want! Or so it might appear at first…
However, if they pull your credit report and see you are enrolled in credit counseling (which the credit card companies, the credit bureaus, and the whole credit industry promote), your credit worthiness (your actual ability to get a loan) will be crippled. You are not likely to get a loan at all these days, and if by chance you do, you will pay higher fees and interest despite your high credit score because your credit worthiness is poor.
Credit counseling, non-profit counseling, debt consolidation, and debt management programs are all different names for the same thing. These programs are heavily promoted by the credit industry. The credit bureaus themselves, along with most credit counselors will tell you credit counseling does not affect your credit score and that’s true. “They” have made it this way, and so, if you’re in credit counseling, it’s no longer going to negatively affect your credit “score.” You may be able to keep that 700 credit score. But it’s only a “half-truth,” or in other words, in light of your credit worthiness, it’s a lie.
It’s a “half-truth” (lie) that credit counseling doesn’t affect your credit score.
(Hint: credit worthiness)
When your mortgage broker pulls your credit report, each account included in a credit counseling program is listed as “THIS ACCOUNT IS INCLUDED IN CONSUMER CREDIT COUNSELING SERVICES” (or similar). The industry term for what this looks like to a lender is a “walking bankruptcy.”
It’s like having a BIG RED “X” on top of your three-legged stool!
Here’s why credit counseling hurts (even cripples) your credit worthiness:
Statistics came out a few years back showing the average failure rate for credit counseling is around 70%. Roughly seventy percent of the people that enroll fail to finish the program and will not get out of debt. It’s no secret most of those people who fail end up filing bankruptcy. This makes you a much bigger risk to the lender. Therefore, lenders see you as mush less credit worthy than your credit score would make you appear.
As you can see, it isn’t just about your credit score; your “credit worthiness” ultimately affects your ability to get a loan.
Someone with the 700 credit score enrolled in credit counseling may not get as good of a loan as someone else who filed bankruptcy two years ago and now has rebuilt a good payment history with zero debt and cash flow freed up to commit towards monthly payments on new debt.
The person who filed bankruptcy may have a lower credit score but may be much more credit-worthy than the person with the good credit score who’s enrolled in credit counseling and strapped for cash every month trying to keep up with payments. Statistics say the person in credit counseling will fail. How would you feel about lending money to such a person?
A/B Example:
Problems in either of the second or third legs (too high of a debt-to-income ratio or balances over 50% of your limit, maxed out or over the limit) can also hurt or cripple your credit worthiness, despite having a perfect payment history or a good credit score.
A = Perfect payment history, maxed out utilization, high/maxed out debt-to-income ratio
B = Bad payment history, but NO DEBT = low debt-to-income ratio and low / no utilization
Go ask any mortgage broker…
2009 WAKE UP CALL: “These days”… very few people are left with “perfect credit.” With the collapse of sub-prime lending, it’s very difficult to get financing today if you have “less-than-perfect” credit. So if your credit is not stellar, then you may not be able to get financing at all, and it’s time to look at solving the underlying problem of debt now, while your credit takes a back seat.
What’s more important to you, your short term credit rating or long term credit worthiness?
Where is your credit score right now? ___________
How is your credit worthiness? GOOD? BAD? CRIPPLED?
Keep in mind the difference between credit rating (credit score) and credit worthiness as you evaluate your options to be debt free.
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
Credit Repair
Credit repair is the process of using the Fair Credit Reporting Act to dispute negative items and get them removed from your credit report, resulting in an increase to your score. I work with my clients to show them how they can do this on their own or hire a low-cost law firm to do it for them. Either way, you are likely to get some positive results once your debt is paid off, and each negative item that is removed from your report will have a positive effect on your credit rating.
The FTC website provides all you need to “do it yourself” here: Credit Repair: How to Help Yourself
Another great DIY resource is the Credit Info Center. HOWEVER, while the credit repair information is good and can help you, beware of the rest of the information. The website has become extremely hypocritical. On one hand, they say all “debt consolidation companies” are bad, grouping all credit counseling and debt settlement companies together and publishing a long list of which ones, in their opinion, are “bad”. On this list is Credit Solutions, which I agree is one of the most notoriously shady companies with a looong list of complaints on their BBB report. My last check showed over 1,500 complaints!! Also on the list are companies which I know are providing a good service to consumers with few complaints.
Here’s the hypocrisy: Credit Info Center is now promoting “debt relief” and generating leads for these same “debt consolidation companies” they have demonized for years.. and GUESS WHO they will send you to when you fill out the form on their website for help? Yes, in the spirit of true hypocrisy, Credit Info Center is selling their leads to Credit Solutions. Might as well sell your soul to the devil.
So use the credit repair info, sample letters, etc. It’s good stuff, BUT watch out getting debt help from these guys.
Also, no need to pay $45 for a 15 minute consultation,
http://www.creditinfocenter.com/repair/Repair.shtml
Credit Rebuilding
You can re-establish a good payment history quickly by using credit in an optimal way.
Without having to throw hundreds and hundreds of dollars into the toilet each month on minimum payments (most of which is interest), you will be able to create a savings very quickly after your debt is eliminated. You can then open 2-3 “secured” credit cards with banks. Use these cards responsibly by charging them up to just below 50% of their limits (so you don’t get dinged on your credit score for going over 50%) and pay them off each month down to about 25%.
* You actually want to carry a balance because creditors will flag you in their computer systems as a “deadbeat” if you pay your cards off each month, as they make no money on people who do this.
If you use secured credit cards in an optimal way like this for 6-12 months during the credit repair process, you will begin to re-establish a good payment history, while keeping your DTI low and avoiding utilization problems. From there you should be in good shape with your credit score and much better long term credit worthiness.
Was this valuable to you? Feedback? Question(s)?
Please share your thoughts and ideas below. I respond to any questions posted as a comment in detail by email.
Thank you for the opportunity to serve you!
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com