How to have a good credit score?

When you applied for a credit or a loan, you consciously agreed to have a debt. And there is a chance that you won’t be able to pay this sum off. That’s why lenders want to check you before giving you money. They want to be sure they will get their money back. On the one hand they earn because you pay interests on money borrowed. On the other hand they can lose money if you won’t be able to pay off the debt. Nowadays it is very easy to check your payment capacity. They request for your credit report and see your credit scores. This figure is one of the most important aspects of your credit.

How does credit score work? Why is it becaming more and more important these days? The fact is that your credit score can cost you lots of money. Credit score becomes more and more important because in the digital age that moves with a speed of light just about every major lender often has to make very fast credit decisions in order to keep up the competition and that’s what they have to do. If they don’t provide relatively quick lending decisions, they may lose a lot. So how do they make decisions and not put themselves into a great risk? Lenders rely more and more on the consumers three digit scores. Based on your three digit credit scores and the related information in your credit report lenders decide whether not to approve your applications and how much interest to charge you.

How does credit score work?

So let’s take a look how credit scores work. There are three major credit bureaus in the U.S. each of them assigns you when you need it. A credit scores have their own name for what is generally known as a FICO score, this name is originating from the Fair Isaac Corporation. Now Equifax calls its FICO score Beacon Score. Experian refers to Fair Isaac Risk Model Score. And TransUnion calls your FICO score the EMPIRICA Score. All the three bureaus use the slightly different formulas to calculate your credit score. That’s why your credit score will vary from bureau to bureau. Over all credit score is generally ranged between 300 and 900. The average credit score in the United States is about 678. If you are above average, you have a better chance to get lower interest rates and save your money. Lower than average, your chances are worse and you’ll have to pay more for credit.

Good news is that it doesn’t matter what your credit score is, you can always improve it. Your credit score is constantly changing as new credit information is added to files. Understanding how the information in your credit report is weighted can give you a good idea of what you can do to help you improve your credit score.

What does your credit score consist of?

So quickly let’s review how the information in your credit report is weighted to determine your credit score:

Your payment history accounts for roughly 35% of your overall score. This category will include account payment and status of your credit cards, retail and department store cards, stored loans, mortgages, finance companies and many more. Paying your bills on time is the number one way you can help to improve your credit score. History of recent payments has most weight. For example, one late payment over the past few months can lower your score more than ninety days late payment several years ago.

Your amounts owed (the amount of outstanding debt) accounts for roughly 30% of your overall score. This includes the amount of money you owe on specific accounts. The number of accounts you have with balances you debt to available credit ration or what proportion of your total credit limit is currently being in use. As a rule, higher credit ratings are achieved by individuals who have a lot of available credits but use not all money that was lended. Lenders like to see consumers who use about 25% to 35% of their available credit.

Your length of credit history accounts for about 15% of your total credit score. This includes the period of time since your accounts have been opened. The longer your history of maintaining of good credit habits is, the higher your credit scores will be. This means you should think twice before closing your old account. Because you could reduce the amount of credit history you are presenting to lenders.

Your amount of new credit or number of credit inquiries accounts for roughly 10% of your credit score. For instance how many applications for credit cards and loans you had recently. When you check your own credit report, this will not affect your credit score. But when lenders check it, your credit score will be reduced slightly for each application. Too many applications for credit over a short period of time will lower your score. Lenders often see this as an indication you may be having rough times with your finances and you are taking too much debts.

The next category is a type of credit used. It accounts for approximately 10% of your credit score. This category includes different mixes of accounts you have: credit card, mortgages, finance companies accounts etc. But there is no secret formula for the mix of credit which produces the higher score. Generally creditors like to see a healthy balance of credit.

It’s important to understand that credit scoring involves all factors are really meaningful, not just two or three of them. And all of them are quite equal for each consumer. And lenders usually will not rely only on a credit score. But other factors as well including income, employment status, using your present address and the type of credit for which you were applying. Over all credit scores can be a very valuable asset for consumer. You should pay attention to know your score, know how to manage and protect it.

How to get money from people who owe you?

A debtor is a person or a company that owes you specified sum of money. If you have a debtor, it is time to think about recovering your money. Your steps will definitely depend on the size of the debt you are owed. The bigger the debt is the more serious steps you should take to get your money back. You should also have enough information about your debtor in order to be able to prove that you are owed a settled amount of money.

If you are in business, you are likely to face with debtors. You must be ready to these problems and you should do something about people or companies who owe you money but always find excuses for non-payment. This situation can lead to further delays and as a result it will end up with no payment at all. You should be ready to any kind of debt collection practices (http://www.doesnotpaybills.com/).

Below you can find some useful tips that will help you to get back the money you are owed:

1. Stay calm and polite

When you are obliged to negotiate with your debtors, it is hard to stay calm, but it is a necessary thing to do. Always talk to your debtors in a professional manner. Such behavior will protect your company’s reputation and attract customers to your business. If you stay calm and polite, this will help your debtors to understand your financial situation and they will apply efforts to pay as much as they can as soon as possible.

2. Contact your debtor

When you are in a process of recovering a debt, the first thing you should do is to contact your debtor directly and clarify all facts. You can send an email or make a phone call and ask the debtor if he is ready to arrange money for a payment. Some people just forget about the money they are owed, so it is some kind of a reminder from your side. So now you have your money and a satisfied customer is happy to conduct a business with you again.

3. Write a formal letter

If you have not got any payment from the debtor, even after making a phone call or writing an email, it is time to send a formal letter. You should send a letter to the debtor’s address and indicate that there is an overdue payment that is needed to be paid. This letter should contain all the information related to the payment. Write about the parties that are involved in this matter. Send copies of all the documents that are related with the debt. Specify the date by which you expect to receive the payment. Remind your debtor to contact you in writing or by phone, if he has any remarks, disputes or questions concerning this matter. Describe all the details and future steps you will take if the payment is not received on time. But remember about the first tip, that you should always stay calm and polite. Try to avoid being drawn into disputes and do not allow your debtors to drag out the correspondence. Never threaten any legal actions that you are not ready to follow up in case of non-payment.

4. Contact your solicitor

If you do not get any response to your letters and the debtor continues to ignore your requests for a payment, it is better to discuss the situation with a solicitor who has experience in debt recovery cases. He can write a formal letter to your debtor and inform him about the legal actions that can be applied to him if he continues ignoring the payment. Usually solicitor’s letters produce positive results.

5. Claim for a payment

Even after passing all the above steps you are sill unable to receive the payment, the time has come to file a claim to receive your money. You can prepare your claim on your own or contact a lawyer to get a professional help in this matter. Do not forget to save all the correspondence or anything else that you have used during the negotiation with your debtor. This will help you to prove all your claims.

6. Debt collection

If you are still unable to get you money back and all your debtor’s promises to pay are not kept, you should start serious collection activities. You can contact debt collection agencies who provide you with different services in order to collect your debts. When a certain debt is overdue for a long period of time, pass all the bills to any debt collection agency. Do not wait for too long, as the more you wait, the less chances you have to get your money back.

7. Taking a debtor to court

If a debtor continues refusing to pay or even disputes the debt, the time has come to take court actions. Usually taking debtors to court consumes a lot of time and it can cost lots of money. Remember that this action is usually used as a last measure. However, before making any steps towards this direction, you are recommended to contact competent authorities and seek for a legal advice. It is very important to remember that before going to a court, you must be sure in your rightness. If the court rules against you, you will be obliged to cover not only your costs but your debtor’s as well. It is also very difficult to recover a debt, if your debtor declared himself as a bankrupt. The outcome of the affair depends mostly on how much money is involved into the debt. Any legal consultant will not advise you to go to a court if your claim is rather small. You can represent yourself on your own at small local claims courts. Other claims are usually heard in the high courts and you need a lawyer to represent you.

You must not feel guilty about collecting the money you are owed from your debtors. The debtor should feel guilty, because he did not meet his obligations. The truth is on your side and you have all rights to collect your money.

Check your credit report

In this series of articles we are talking about debts, what happens to people who don’t pay debts, how to manage situation if you have debts and how to avoid debts. I want to discuss consequences of your debts. Do you know that if you have different types of debts, or you had them before, they don’t disappear anywhere? And even if you paid them off and made it on time or missed terms, all these information will be shown in your credit report and will have influence on your credit rating.

Credit rating is very important thing if you are going to apply for mortgage, loan, home loan, car loan or just take a credit. Your credit rating depends on your credit score. The higher your credit score is, the lower interests you will pay and more chances you will have to be approved for credit.

But, let’s go back to credit rating. It is very important to understand what your credit rating is and how you can improve it. The best way to check it is to order credit report.

How credit report works

If you want to understand what role credit report plays in your life you should think about it like a sort of financial report card. This information determines not only whether you will be approved by lenders but also how much will you pay and interest for the privilege of borrowing money. The information in your credit report determines your credit score. Your credit score can cost you saving a lot of money over your lifetime.

Where your credit report comes from

If you need to get your credit report, you need credit bureaus which maintain your credit history. They relish your credit report when you request it. Your credit report may need organizations which are reviewing your applications for credit.

There are three the most popular credit bureaus in the United States and sometimes they are called credit reporting agencies. These bureaus are Experian, TransUnion and Equifax. Each of these credit bureaus has massive credit files on consumers. You should understand that credit bureaus don’t generate information for your credit reports. They just report information which was transmitted to them. All information is stores in huge databases.

Services of these companies usually have similar cost. For example Equifax takes $14.95 per month for Equifax Complete report. It contains reports from all three credit agencies, convenient tools to understand, protect, and track your credit and scores. With Score Estimator you can simulate what will happen when you will make changes. You will have access to information how lenders may evaluate a risk of giving you a credit. Additional protection THROUGH Automatic Fraud Alert. And 24/7 access to excellent customer service.

The information in your report is represented to the bureaus by:

Correctness of information

The most of the information in your file will be correct but in some instances your credit report may contain inaccurateness and negative information that can lower your credit score and cost you money. That’s why it is so important to check for consumers their reports on a regular basis to make sure that they are accurate.

If you discover information in your credit report that you believe to be incorrect, you have the right according to the law to dispute this question with credit bureau. In this case bureau will make the investigation under this question within 30 days. And they have to verify or remove this information from your credit files. All three credit bureaus now allow consumers to file online disputes.

Information contained in your credit report

It is very important to know what you are looking for when you check your credit report.

Personal information

The first category is your personal information. It includes your name, address current and previous, date of birth, social security number and current and previous employer. You should make sure that all of this information is correct. Check carefully for any similar names or incorrect, also check address changes. If there are any mistakes I can be sign that someone tried to change your contact information to make fraudulent charges.

Credit history

The next category is your credit history. It includes your payment history for all your accounts such as your auto loans, home loans, credit cards, finance companies. This section also contains information about your balances, amount of credit available, and your actual payment status on your accounts. When checking your credit list, make sure that all accounts listed are truly yours, your account information and payment status on each of your accounts are correct.

Public records

The next category is public records. This is your public records on file which will indicate your tax liens, court judgments, bankruptcies and etc. Check this section in your report carefully. Public records will remain in your files from seven to ten years.

Credit statement

Following category is your credit enquiries. This section includes everyone who requested a copy of your credit report during the past two years. You should make sure that all requires are familiar to you. As an unauthorized enquiry to your credit report could be a sign that someone has tried to open a credit card account using your name. it is also important to know that when you check your own credit it is known as a soft enquiry and will not create an enquiry in your credit files that counts against your credit score.

Dispute statement

Finally, your credit report may contain your dispute statements. These are statements of explanation that you are allowed to place in your credit files. Over all it is important to you as a consumer to take charge of your personal credit.

And remember the only person who can check and make sure that the information in your credit report is accurate is you. So know your credit, manage it and protect it. Because it can be a key part of your financial future.

Do your customers owe you money? Develop a credit management plan!

It is a great problem for businessmen when they have customers who do not pay the money they owe for delivered goods and services in time. Most business people simply do not know how to carry on with such customers and feel really uncomfortable when they have to lead the conversation towards paying debts. Business is a serious sphere and there is no place for mercy and forgiveness. You came into business in order to earn money and you cannot simply forgive debts to everyone, otherwise, very shortly you will probably have serious financial problems. Your customers should know who is who; they must understand that you do not give an easy time for this matter. Only in this case you will get your money in time.

Non-payers can cause serious financial difficulties to any company, but especially to a small business company. The working capital of such companies directly depends on constant receipt of the expected funds and its further paying for growth and operation. Such financial strain can lead the business to fairly difficult circumstances. On the contrary if you manage to get in time the money from the customers who owe you, your business will definitely thrive.  So you should learn to collect money quickly and efficiently.

First of all, before starting any relations with potential customers, it is very important to obtain as much information as you can find about them. You will probably need this information in future, if it turns out that they owe you money. We recommend you to take the following information during the negotiations with the customers: first name and last name, date of birth, addresses, telephone numbers, partners’ names and addresses, etc. With the help of the above information it will be easy to track down the person or the company very quickly and carefully. Please note that at the beginning of your collaboration and business relations customers do not have intentions to cause you any problems at all and they will be happy to provide you with all the information you require. But if you see that a potential customer does not want to supply the information or tries to hide it, it is time to think about the necessity of your collaboration with such customer.

From the very beginning you must gain control over your money, show your potential customer that you are a serious person and you need you money back in time. Remember that you should not issue a credit without a credit policy. Make sure that a customer fills out and signs a credit application before any business negotiations with him. Before extending a credit, it is important to check customer’s credit references. If you take these preventive steps, you will get your money back in time and as a consequence you will have more money on your account, you will definitely push up sales and have good customers in future.

Let us discuss some tips that will help you get started and avoid collection problems.

1. It is better to start from a little sum of credit. Remember that extending any credit especially for a small business company is a great risk. The most effective method to avoid having financial problems in collecting future debts is to extend the minimum amount of credit at least at the beginning of your collaboration with a new customer. Of course this fact can push away your potential customers, but in this case you are out of risk.

2. Before extending a credit, think and behave like a banker. It is unlikely that a bank would give you a credit without finding out some additional information about us. You should act with your customers just like banks act with the borrowers. We recommend not only to make sure that the customer fills out a credit application, but also to update them every year, because the financial situation changes very quickly. The more customer owes you, the more paperwork he should make in order for you to feel safe and ready for collection actions if needed.

3. Do not forget to remind about the debts. Some people feel quite uncomfortable, when they are obliged to ask for paying the owed money. But remember that it is your money and there is nothing to be ashamed of. You are recommended to create your own system of following up the bills. If you need your money back and the borrower is not really in a hurry, the best thing to do is to make a phone call. A live phone call usually brings more results than an E-mail or letter, because it is hard to ignore the request. But please always stay calm and patient. If your phone calls do not help, it is time to make a visit.

4. Collect all the necessary information. Before making a phone call, you should collect all the information about customer’s account in order to be well informed about the situation in general and to avoid talking in circles. If you are familiar with the customer’s account, it is easier to control the situation and to maintain the conversation in the necessary direction.

5. Be ready to accept the compromise. Customers can simply find themselves in a difficult financial situation that is why they are unable to pay back the debts. Try to understand their position and work with them in order to get your payments. Otherwise, you are in risk to get nothing at all. Do not demand the full amount to be paid at once, but ask for a lower amount.

6. If all your steps fail, turn to a competent authority. If all your intentions to get your money back are not crowned with success and you just feel you are wasting your precious time, the moment for contacting competent authority has arrived. You can put this case into a collection agency or attorney’s hands. It is better to continue developing your business, to find new customers than just calling people to get your money back.

Non-paying customers can cause you lots of troubles, so you should be ready for the credit management in order to succeed in business.

What is a collection agency and how it works?

Americans are nation which has the biggest quantity of debts. We used to take credit when they want to purchase something. Of course credit amounts were bigger before economic crisis but people still borrow money actively. Not everyone manages to pay off the sum in full and in time. And then collectors come in – professionals on debts reimbursement.  At first they start to write letters to borrower and ask to pay off the debt, gradually messages become stricter and actions more persistent and aggressive. You can get email letters, phone calls with threats and other measures of influence. And if all these actions don’t work, collectors go to the suit to get sanction on sequestration and its selling.

Usually when we here about collection agencies, we expect the worst situation. It happens because people don’t really understand what collections do and what authority they have. I offer you to examine what exactly collection agencies deal with and if you should worry about it. 

Collection agency is also known as debt agency – agency which professionally specializes in exacting of overdue accounts receivable. It is a form of business when company assists in making payments on liabilities of individuals and corporate bodies. Most collection agencies work as creditor’s agency and collect debts for fee. This fee depends on money collected and is a fixed interest of total amount.

Description of activity

Conception of collection agency appeared in America. In fact this institution is a mediator between creditor and debtor, which takes obligation to carry out work to get debt paid off for appointed interest.

Sometimes big quantity of collection agencies is associated with “debts buyers-up”. They purchase debts from creditors who couldn’t recover debts themselves for some interest of total sum of debt. And then they exact this sum from debtor or even sum plus additional fee. Financial organizations and big trade networks (which are usually creditors) send debts of their customers from accounts receivable group. Difference between sum received and total amount of debt is written off as a loss. First party agency or agency which owes a debt usually takes part in debt repayment in early stages of delay. During this time probability to solve the conflict with minimum loss of time and efforts is the largest. And this type of agencies makes maximum efforts to gain the purpose.

There is another scheme (participation of Third party agencies) – collection agency works with financial organization-creditor without agreement about ransom of liability. According to this scheme debtor still makes payments on his debt to organization-creditor, and debt agency gets compensation in amount of fixed interest of total sum collected. According to the type of debt which agency exacts, amount of compensation fluctuates between 10 and 50%, but standard and usual sum is 15-35%.

Regulation of activity

In many countries collection agencies are limited in their rights by law which prohibits some irksome actions as to debtor. In United States collector can’t phone several times in order to pester the debtor and force him pay off his credit. Also he can’t make calls in night time.

Activity of collection agencies is regulated by Fair Debt Collection Practice Act (FDCPA). All collectors’ and debtors’ duties and rights, order of conflict regulation and order of disputes are described in this document. Collection activity starts from agreement. It can be reassignment of debt and agency service

Practice of activity

Collectors’ phone calls inform debtor about their duty to pay off debts and call up to motivate the fact of payment. Collection agency activities are regulated by legislation of agency residence and duties which were voluntary taken by agency.

Authorities of collection agency activity

There are some limits on collectors’ actions. For example collector can’t use unquotable expressions when makes call to debtor; in most cases he can’t allow aggressive voice intonation. As a rule, collector can’t mislead debtor in order to force make payment, can’t threaten with arrest and has to inform debtor about his name, surname, company name and purpose of calling. 

In rare cases collection agency can make calls using native language of debtor, if his language differs from government or generally used in this region or country. It happens because foreign debtor explains non-payment of debt with lack of knowledge of residence language. Collection agency can collect information about debtor in order to optimize process of debt recovery. Also some collection agencies collect personal information about debtor besides data which he let know himself. For example telephone number that was changed, living address and location, work contacts.

According to legislative acts which FDCPA contains, agency can’t make recurring phone calls to neighbors and relatives in order to motivate them to force debtor to make payment. It can make single call even if agency suspects that these people gave incorrect and incomplete information about debtor.

In case of debtor’s death, his relatives aren’t obliged to pay off to the bank or agency debts of late with the exception of cases when they inherit the property. In United States this property can be used to clear off debts.

Credit terrorists

But of the late years debtors go to law as to collectors. Reason to sue as a rule is violation by agencies of FDCPA regulations.

In 2009 American courts had to examine 8347 suits of borrowers to collection agencies. This figure is 55% higher than in 2008 and twice higher than that in 2007. In most cases people soundly complain on surplus aggressiveness. But there are other claimants. Often it is large debtors who didn’t return tens and hundred thousand dollars.  They register claims to collectors one after another in the hope that verdicts will frighten off other agencies.  This type of debtors, collectors call “credit terrorists”.

Collection agencies representatives affirm that usually they act in strict correspondence to FDCPA rules. But sometimes mistakes happen. They explain this that in the law some procedures are described inexactly. For example it is difficult to understand if they can call debtors and leave answering machine messages.

Every year collection agencies return to American business more than 40 billions dollars. Their clients pay taxes to state from the income, and it goes back to Americans who don’t want to pay off debts.

Which bills should you pay first?

Do you have tough financial times? Do you have troubles paying bills? Are you receiving overdue bills from you creditors? Well, in this case you should learn how to manage your debts.

Almost every person faces difficult financial problems some time in their lives. Quite often when you find yourself between jobs, you do not get salary but the bills still keep coming and you have to pay them. Sometimes, no matter how greatly you try, you simply cannot get the money you are obliged to pay off. In the following situation you do not even have enough money to pay main living expenses and to pay off you debts to your creditors.

If you find yourself in the situation when your income is quite reduced, you have to change your spending habits for this period of time. The quicker you do it, the sooner your financial situation will change. Your family should be in touch with the occurred situation and take an active part in the decision process and problem solution. By getting a powerful encouragement from your family, you will carry out all your plans and soon after you will resolve all financial problems.

Evaluate your financial situation. The first and the most important thing to do is to evaluate your financial situation rationally. Take a sober view on your problems and get yourself in hand. If the bills go beyond the money you have at your disposal, it is better to contact them and explain the occurred situation. Usually creditors compromise in order to adjust all the payments because they need their money back. But before contacting your creditors, you need to pay attention to some important questions. Firstly, you should calculate very carefully your monthly income in order to understand how much money you have at your disposal for covering basic living expenses and how much money are left for resolving your financial problems. Secondly, work out a table of the owed debts that contains the names of all your creditors, interest rates and the total amount you owe them. By means of this table you can get a clear picture of how much money you owe. Thirdly, think about your present financial situation and try to suggest for how long it is likely to last. It is important to do this for the purpose of drawing your personal crisis management plan and to pay off all your debts as quickly as possible. Fourthly, make a list of items and unnecessary things that could be sold and used to pay off the debts.

Define the priority of payments. At this stage it is important to define what debts are the most important to be paid first. Of course you are obliged to pay all of your debts, but you can choose the priority of these payments. Sit down and think carefully how much to pay and to which creditors. There are two methods of resolving this dilemma. The first method is to divide available money in equal shares between all your creditors. And the second one is to assign priorities which creditors get the most money. In this instance you should think carefully and define which debts would lead to negative consequences for you and your family if they are not paid at the proper time. The first bills on your priority list are the ones that affect your family’s health and public utilities: medical insurance, food, rent or mortgage bills, house utilities such as heat, power, phone, car payments or transportation, taxes, etc. So first of all you should pay priority bills or contact your creditors in order to divide the payments into smaller ones.

Check your credit contract in order to find out which of your debts are secured and which are not. Though you have to pay all your debts, the unsecured ones may have a lower priority, such as credit card debts, doctor and attorney bills, various accounts with merchants, etc. The creditors of unsecured debts usually do not remind you about the payments for a long time, especially if earlier you have paid your bills in time.

You should always remember about your credit record. If you do not pay your bills, this will be recorded on your credit record and in future you will definitely have problems with getting a credit. That is why it is very important to contact all your creditors immediately if you feel you have financial problems and you cannot pay all the bills in time. Remember that if you have a possibility to pay at least something on each of your debt, it is less likely that this will be recorded in your credit record.

Develop your own repayment plan. Once you have evaluated your financial situation, calculated how much money you have to spend for monthly living expenses and paying your secured debts, you should determine how much you can pay to every creditor basing on the priority of payments you have defined earlier. Develop your own repayment plan that will show the presumable sum you want to pay to each creditor. This plan should not be nominal; you should accurately follow it in order to get out of debts as quicker as possible and to make the payments you promised. Do not forget to contact you creditors and inform them about your financial problems and the ways of resolving them. Try to meet your new commitments very carefully, so far as the creditors can hire a collection agency in order to make you pay.

It is very important to remember that no matter how complicated your financial situation is, you do not have to ignore your bills and creditors. Pretending that everything is fine and you have no problems at all will not make the debts go away. Keep your family members informed about all your steps, discuss all the expenses and this will definitely help you to make your repayment plan effective and smooth. Promptly you will forget about all your debts and get back to a normal life.

Who’s quick to borrow is slow to pay

It isn’t a secret that when you have some savings and when you are successful in businesses, you feel secured and confident in tomorrow. It happens because money gives us feeling of immunity and even omnipotence. But on the other hand what happens if we lose all our savings and money we earn? It is crash and terror! And now you have to incur a debt, limit yourself in everything… and what will happen in future?

How often do you use your credit card? Or should I ask how often do you use cash? Because using credit card became habitual part of our lives. We use it when buying something in the store or if we need to pay for medical or other services. Also we make purchases online. There are no doubts that using card is very convenient method of payment. Problems appear when borrower loses control of expenditure and can’t close credit “hole”. There are many reasons according to which you can’t pay your bills any more. It can be loss of job or your family income can decrease and you make minimum payments and spend money from credit card for living. And at this moment you can get to bad circle when you borrow money in one place to cover minimum payments in an other. Situation is terrible and it is very important to know what fallows next.  Let’s investigate, what happens to those who stop paying by credit card.

What happens to those who stop paying by credit card.

Credit Card debt is a consumer debt that arises when customer stops paying his bills. If you buy items using your credit card and don’t pay off this sum to credit card company in time, you get a debt that will increase with every following purchase and with interest and penalties that you have to pay. As a result you will have to pay additional charges for late payment and credit card company can report to a credit rating agency, that will influence on your bad credit rating in future.

So, when you have credit card debt following things will happen:

1. Collection Calls
2. Credit Card Cancellation
3. Collection Agents on your Door
4. Increased Interest Rates
5. Bad Credit Score
6. Legal Action
7. Bankruptcy

Snow ball

Most credit cards have preferential repayment period, during this period minimal extra percentage is charged for using of money owed. After its termination you will have to pay usual credit rate (it depends on the bank or credit card company you deal with).

Every bank has its own rules how to offset your debt by credit card. Some ask you to pay off whole sum that you withdrew during the month. Others ask you to pay 5-10% form basic sum of debt and monthly payments. The rest of the sum you can clear off at the end of term. It is important to show your bank that you remember about your credit.

If it is time to pay off money, but you don’t have them, you will get punitive measures. As a rule it is a raise of landing rate and penalty. Of course measures may wary  from company to company.

Next Step

The next bank’s reaction is to block your access to credit card. How soon it will happen depends on bank’s policy. Some financial institutions block your card in the day of default. Others give you some time – from several days to month.

In this period customer is “attacked” by phone calls and letters. It is like notice. Executives will explain you situation and punitive measures. Also they will ask you to promise that you will pay back your debt. If you didn’t manage to do this, you will be offered different ways of clearing off and refinancing.

If these means didn’t help collection agencies start working with you.

Collection agency and legal actions

Collector agency can work on behalf of credit card company, bank or other lender or it can “buy” your debt and you will have to pay off money to the agency. They use different methods to get money back soft, hard and legal. The first one means phone calls and advices. The second one – personal contact (they can visit you at your house, at work or to invite you to their office). And the last one is low suite. If the creditor wins a judgment they will be able to garnish your salary (up to 50% every month); seize personal property such as cars, boats or jewelry; or they can place a lien on your bank account. In some states collection agencies may even seize your home. Also you can be forced to leave your home and it will be sold to cover your debt.

Of course you can hide from collectors and hope that in a couple years bank will mark your debt as bad dept. but you should understand that card holder gets to “black list” of unreliable borrowers forever. It means you will have very bad credit score and credit history that minimize your chances to get another loan in future.

Who can help

Having debts is terrible situation, but if you got in it, you shouldn’t become disheartened. There are companies that can consult you on debt questions. It is always useful to deal with person who understands what is happening and want results of your actions can be. You need professional to realize all problems and find way out. The choice of companies that offer such services is wide. As an example I can name CreditCardDebtNegotiations. They will offer you free consultation and free help. They will provide you with right strategy how to reduce your credit debt.

Some credit card debt statistics

·        Average credit card debt of the family is about $15,700. And every card holder has average debt of $5,100

·        According to US census bureau in 2010 credit card debt of U.S. citizens is over $886 billion

·        According to Consumer Reports survey:

 “ - 54% of Americans pay their balance in full each month

-  33% carry balances up to $10,000 (median balance: $2,254)

-  13% carry balances over $10,000 (median balance: $17,366)

-  21% of consumers said they were treated unfairly by card companies

- 45% of survey respondents say they are charging less

- 11% are charging more than they did a year ago”

Result

Practice shows that it is possible do not pay small credit card debt. And bankers rarely bring an action in such cases. But this debt will spoil your credit history forever.

What to do if you cannot pay your bills?

Nowadays due to complicated economic circumstances many people find themselves in a situation when they cannot pay their bills. A lot of people face financial problems some day in their lives. These financial problems can be caused by the loss of a job, long illness or overspending. Your financial situation can be and must be improved and there are some strategies you can follow that might help you to solve your problems.

So what to do if you do not have enough money to pay all your bills? The first thing you must do is to decide what bills you should pay first and deal with you debts.

Track your budget. You should put in order you finances and develop your budget. It is very important to take control over your expenses and understand how much money you get and how much you spend: list all your income and all your expenses. It is important to write down not only your fixed expenses (mortgage, rent payments, car loans, electric, water, heat bills, insurance bills, court ordered payments and of course food), but also expenses that can vary (closing, entertainment, recreation, cable television). By tracking all your expenses you will understand what expenses are unnecessary and create a plan to save your money and after all pay down all your debts.

The order of paying bills. Now it is important to start paying your bills. But what order you have to choose in order to pay them? The fixed expenses must be paid first. First of all you should think and understand what is important right now for your living. Housing expenses come first as every person needs a place to live in. You also need some food to eat. Credit card payments and other insignificant bills should be at the bottom of your debt list. It is better to pay some amounts towards all your bills, of course if you have money. You can also develop a special strategy for debt repayment. Think about how to pay each bill: maybe paying smaller amounts over a long time period will help you to maintain your financial situation until your financial matters change.

Contact your creditors. You should immediately contact your creditors if you have troubles paying the bills as far as lack of knowledge can lead you to a court. You must be honest with them and try to explain the occurred situation. It is better to let them know beforehand about the problems you have and get some help than to avoid your creditors and sooner or later your bills will be sent to collections and you will definitely not get any help. Some creditors can compromise and develop a repayment scheme that can satisfy both sides. You can even offer your creditors your own scheme of repayments, the one you can afford. If they do not want to accept it and will take you to court, it will set the repayments that you will be able to afford.

Increase your income. Try to find any ways of increasing your income. You can find a part-time job or refuse something that you do not obligatory need: second car, landline or cell phone, cable television, etc. You can sell something that you do not need and return something you haven’t been used. Try to get any extra income you can in order to improve your financial situation.

Debt collections. Remember that you have certain rights, if your bills have gone to the collections. Debt collectors can contact you only from 8 a.m. to 9 p.m. They cannot contact you at inappropriate times or places or call you at work unless you agree with it. It is forbidden to threat or to use indecent language. They are obliged to send a validation notice and explain how much money you owe and to whom.

Begin paying your credit cards. Once you have paid all your main payments such as housing, transportation, taxes, you can start paying your credit cards bills. It is very important to maintain your credit history clean and avoid high fees. If you have several credit cards bills and you cannot pay them all at once, try to pay at least the minimum payments just to keep the account current. If you do not have the enough sum of money to realize even the minimum payments on all of your credit cards, you have to choose and assign priorities. You can make some steps towards limiting the negative impact. Check all your cards in order to find if there are any grace periods. If there is a grace period, you have several extra days until the last payday that will help you to avoid a late payment. But remember that the main consequence of being late with the payment is that the credit card company can increase your interest rate.

If you do all the mentioned above, you have a lot of chances to get back on your feet and improve your finances very quickly. Once you are back again, take some reasonable steps in order to pay everything back as quickly as possible.

Eventually, in future you should try to make all the payments and settle all your bills in full and on time. Making late payments should not become a habit for you as it can cause only big troubles for you and your family. Unfortunately, financial problems can occur to everyone and it is not always possible to pay all your bills dead on time, but you should do your best. If you are unable to pay your bills too often, it is time to calm down and think about your financial situation in order to make some proper changes to you personal financial management. Take a closer look at your expenses in order to get out of this rut. Stay calm and do not panic, try to do all your best in order to work out an effective plan of action.