You have decided to buy a new house. So, you go to the bank to borrow money. The bank checks your credit score and approves your loan. But, the question is what is the credit score and why is it important? It is a way for banks to know if you will repay the loan money and pay bills. This score is calculated between the range of 300-850. A credit score under 629 is poor. If your score lies in this range it is possible you would not get a credit card or loan. From 630 to 689 it is fair. A score between 690 to 719 is ideal. Most people have a credit score in this range. A credit score above 720 to 850 is great. You are sure to get a loan and a credit card. Not only that additional rewards are also applicable for these customers. But, if fail to pay credit card bills or loan amount, it will harm your credit score.
Debt reduces your credit score:
It is because a credit score is a way of showing lenders that you will pay their money on time. The people who pay their debt on time. It reduces the work of lenders. You do not pay your bills on time your credit score will decrease. When you take a loan or credit card a debt settlement plan is made. It states the amount and the time distribution in which you will pay the money. If you even fail to make one payment, the agreement of the plan changes or cancels. This reduces your credit score. So, with every late or failed payment, your credit score will decrease. Other lenders can view the score. So, if it is low they are hesitant.
How is debt settled?
A credit report consists of all the loans or credits that you have taken. The agreement while taking it and the payments you did. It also registers the time of payment. So, lenders can keep a tab of if the payments are on time or not. If you fail to pay back, it is better to settle the debt with the lender. Either you can approach them directly or you can go through a debt settlement company. You will negotiate to pay a part of the outstanding debt and ask the lender to state that you have ‘paid settled’ in the report. Another way is to negotiate with the lender before time about a change in payment and ask them to change it to ‘paid in full’ in a report.
Which debt you should clear first?
You should settle debts that are old and have reached the collection department first. Try connecting debt settlement company and make a new agreement to settle your debt. Settling the debt for more than three years will settle it, but it will be shown on your current collection. Make sure that the creditors will check it before agreeing. If there are huge debts, it will harm your credit score. If you have small debts to settle and all your other payments are up to date.
Staying current vs. debt settlement:
If you have various loans and several credit cards. One of those credit cards is due in 90 days. Do not try paying that debt at the expense of creating new ones. First, do all the payments of the other accounts and later try saving money and do the payment of that due. The better the credit score before negotiations it will suffer more. If you have done late payments, late fees are going to add up. If you avoid paying it will affect your credit score in the future. For creditors, it is better to be a part of outstanding debt than losing all.
Choose your credit card wisely:
Credit cards contain various offers. Many banks have a credit cards with different features and benefits. So, when you want new credit card check cards offered by different banks. Compare their features and benefits. Then select a that best suits you. Look for cash rewards and travel rewards. Make the choices that have easy payment methods. Pay the bill on time or the interest may increase.
How to improve the score?
Now that you have understood, having a bad credit score can cause problems. So, it is always better to have a good credit score. If you have a backlog it will be shown on record for several years. To improve your the score, always be on time with the payment of your bills. Keep your credit card balance lower than 30% of your limit. It is always better to keep a mix of aged credit cards. Settling the bills on them will not cause many dues. Do not create debt on multiple accounts as it affects the score. If you have only one debt and the rest of all bills are clear it would affect your credit score. Keep it high. So, that lender that you will pay them back. Connect with Credit My Debt for more details.
Also read: Ways To Settle Debt Before Retirement