WHAT IS A CREDIT SCORE?

It is more like a "snapshot" rather than a "video".

When you apply for a credit card, auto loan, mortgage, or other forms of credit, the lender will request a credit report from one or more of the three major reporting agencies:

Experian

P.O. Box 2002    Allen, TX 75013     (888) 397-3742

Equifax

P.O. Box 740241   Atlanta, GA 30374  (800) 685-1111

TransUnion

P.O. Box 1000   Chester, PA 19022   (800) 888-4213

Even though the three reporting agencies above provide scores to lenders, approximately 90% come from FICO (Fair Isaac Corporation).

A credit report is basically an evaluation of your credit risk.

In other words, if the lender lends you money (makes a loan or issues a credit card), what is the likelihood that you will repay.  By comparing information from hundreds of thousands of past of past credit reports, the credit score estimates your level of risk.

Obviously, the higher the score, the lower the risk to the lender.

Different lenders interpret credit scores and reports differently, so you may have a score that is not the highest, and yet because of several factors such as:

• Payment History
• Amounts you currently owe
• Length of Credit History
• New Credit
• Types of Credit

That creditor may go ahead and aprove you.

If you  have negative items or errors on your report, you can make a request to the agency to remove those items.

If you have charged off accounts or accounts in collections, you may need to consider a Debt Management or Debt Settlement program to help take care of these.

BEWARE OF CREDIT REPAIR COMPANIES!!!

No company can remove negative items on a report unless those items have been legitimately taken care of.

Click here more receive FREE INFORMATION.

photo by: tj sceneshttp://www.flickr.com/photos/uncut/

Too much DEBT = Too much Stress

Here are 3 Tips on how to cope with DEBT and STRESS:

FIRST: FIND OUT EXACTLY WHERE YOU STAND FINANCIALLY

It may sound like a useless exercise, but believe me, the unknown is usually not as bad as you think it is.

When stress, panic, fear, whatever you call it takes over, your mind has a way of making the situation seem bigger than it really is and impossible to correct. DON'T BELIEVE IT!  Someone once said that FEAR is:

 False Evidence that Appears Real

It's time to face your F.E.A.R and find out what your reality is.  A Basic Budget can be very helpful.  Don't forget to include all of the miscellaneous items like:

• Starbucks
• McDonalds
• Movie Rentals

Those small items may seem insignificant, but they can really add up to a big chunk of your monthly budget!

SECOND: SEE IF YOU CAN FIND 3-4 EXPENDITURES THAT YOU COULD LIVE WITHOUT!

If you are $200-$300 a month short and the stress is overwhelming, could you do without (or at least cut back on):

$4.00 Latte x 5 days x 4 weeks = $80/month

$6.00 Lunch x 5 days x 4 weeks = $120/month

                                      $4.00 Movie Rental x 2 days x 4 weeks = $32

That's over $200 saved!  Could you cut back on your cable bill by eliminating some movie chanels and getting Netflix instead?  What about canceling that gym membership and walking your dog instead?  Just be creative.  There are many small ways to cut back that add upt to BIG TIME MONEY SAVED!

Remember, is the stress of "living without" a couple of things worth minimizing the stress of going deeper and deeper in debt?

THIRD: It's time to get some advise on how to deal with your debt! 

Debt Management and Debt Settlement are two programs that can:

• Stop collection calls
• Reduce you total monthly debt payment
• Lower or eliminate interest rates and late fees
• Help you become DEBT FREE in 24-48 months

REMEMBER:

• Your mind will make the problem seem greater than it really is
• There is always a solution
• It's time to TAKE ACTION

Here's a great question that we get all of the time.

"Why would my creditors settle my debts for less?"

If you don't know mych about the process of Debt Settlement, you might be skeptical of the claims that your creditors are willing to significantly reduce your debt. It may be hard to believe at first, but it is TRUE! Through the debt negotiation process, creditors are willing to settle your debt for a substantially smaller amount than what you owe. (usually less than HALF of what you owe)

Why are they willing to settle your debts for less? It's very simple... To Get Paid! Your creditors would rather get some of your money than none of your money. It makes perfect sense. If you end of filing for bankruptcy, your creditors will not be able to collect any of the debt you owe them. So, if you’re behind in making your payments, your creditors are probably willing to listen to negotiation offers for settlement.

Your creditors have to make a decision to either settle your debt, or risk not collecting any money at all (in the event that you file bankruptcy). Debt Settlement is NOT too good to be true — it’s just basic economic sense for everyone involved.

Too much debt? Not enough money? What can you do?

Millions of consumers carry so much credit card debt that it will be almost impossible for them to ever repay the debt by making just the minimum payments.

Of course, the credit card industry knows this, in fact, they really do not want you to ever pay off all of your debt, because their profits come from the outrageous interest and fees they charge!

But if you have had enough and are serious about getting out of debt, here's a plan:

STOP USING YOUR CREDIT CARDS! 

As long as you keep charging, you'll never get out of debt.

If you are serious about, cut them up, burn them, get totally rid of these monsters!

FIND OUT HOW MUCH YOU CAN APPLY TO REPAYING THESE CARDS EACH MONTH.

You should use a basic budget planner to help determine how much you have coming in (net, after all deductions) and how much you have going out.

If you total all of you balances, the average minimum monthly payment required will be about 2% of the balance.

Example:  If you have $10,000 of total credit card debt, at 2%, your minimum payment would be about $200/month.

If you have enough left over to make more than the minimum payments due on all of your cards, great! (If not, we'll show you what to do later.)

List all of you cards by:

• Balance
• Interest rate
• minimum payment

Let's say you have $300/month to apply to your credit card balances.

Take the lowest balance and pay the minimum due and add an extra $100.  Pay the minimum on the remaining cards, for a total of $300.

Once the first card is paid off, apply the minimum you were paying on it plus the extra $100 and pay that toward the next.

Example:

Card 1 has minimum of $50.  You pay $150 until the balance is $0.

Card 2 has a minimum of $100.  You know pay $150 (minimum of first plus $100) plus the usual $100 for a total of $250.

When it is paid off, you do the same for card #3.

You won't pay them off over night, but you'll probably cut 7-10 years and save thousands in interest and fees.

BUT WHAT IF YOU DON'T HAVE THE EXTRA $100 TO PUT TOWARDS THIS PLAN?

The you will need to contact a professional Debt Management Company to determine if you should enroll in a Debt Management Program Debt Settlement Program.

In a Debt Management Program, your creditors agree to reduce the interest rates and fees.  You will make one payment monthly (probably close to the $200) and it will be disburse to each creditor according to the agreements.

It will probably take about 48 months or so to pay off all of your cards.

BUT WHAT IF YOU DON'T EVEN HAVE THE $200 AT THE END OF THE MONTH?

Then you will most likely be enrolled in a Debt Settlement Program.

Credit card companies will charge off delinquent debts after about 180 days.  These accounts will usually be transferred to a debt collection agency. 

At this point, a settlement of approximately 50% of the balance is possible.

Although it is possible to do-it-yourself, debt settlement takes a lot of time and dealing with professional debt collectors can be very frustrating.

If none of these work for you, then you may consider seeking the advice of a bankruptcy attorney. 

What's your new years resolution? If you're like most people out there you have probably vowed to exercise more, spend more time with family, or even simple learn something new.  I did a little research and one of the top ten new years resolutions being made of 2011 is to become more financially stable.

Here are my top 5 tips to get you financial success in the new year!

#1 REVIEW YOUR CREDIT REPORT - Much of your financial future depends on the contents of your credit report. It is incredibly important to obtain your report, review it for accuracy and dispute any errors. Everyone is allowed one free report from each of the three major bureaus once every twelve months. You can access all three of your credit reports at www.annualcreditreport.com. 

#2 REDUCE YOUR DEBT - If you’ve dug a deep financial hole, stop digging. Piling new debt on top of old is a red flag that you are living beyond your means. Lock up the credit cards until they’re paid in full.  If that is not an option, or you need your credit cards just to maintain your monthly bills, you might need the help of a trained Debt Solutions Specialist.  They can help you determine what options are available to you and work with you to eliminate your debt fast!   

#3 TRACK YOUR SPENDING FOR ONE MONTH – Have everyone in the household participate. Write down every penny that is spent. It’s the small, miscellaneous expenses that often wreck the best of plans. At the end of the month, come together to review your spending. This is the only way you can truly know where your hard-earned money is going.

#4 MAKE A SPENDING PLAN – Once you’ve tracked your spending, you can then make decisions as to how you want to allocate the money. Continue tracking with the new plan in place. Keep doing so until you find a plan that is right for your family. Click on the link below for a FREE BUDGET WORKSHEET!

#5 COMMIT TO SAVE -  If you are anything like me, you are great spender and a lousy saver. However, without a well-funded savings account, you are on a very slippery slope, one that becomes treacherous with the next unplanned expense. Put 10 percent of each take-home check into a savings account. Make this a non-negotiable bill and have it automatically withdrawn from your checking acount. You can also find extra money to dedicate to saving by putting all raises, bonuses, birthday checks, into savings. This will create a cushion that should see you through most short-term emergencies.

Good luck on becoming financially organized in the new year. Let's talk next year and you can let me know just how well you did!

When faced with too much credit card debt, you really only have 5 options:

1) Continue to make the minimum payments required by each of your creditors. 

Very few consumers understand that the Credit Card Industry does not want, nor expect you to ever fully repay your accounts!  Billions of dollars of interest and fees are earned from the millions of consumers who only pay the minimum payment each month.  It is estimated that in takes the average consumer 15-20 years to repay a single account at a cost of 3-4 times the total amount charged!

2) Home equity loan or line of credit with your home as security.

This type of loan places your most important asset at risk.  If you have sufficient equity can afford the monthly payment, this option may be viable for you.

The problem is that most consumers, who have a serious financial condition due to too much credit card or unsecured debt, usually will not qualify for a consolidation loan.

If you do qualify and secure a consolidation loan, remember, failure to meet the obligation of the 2^nd mortgage could result in you losing your home! Be very careful in choosing option #2.

3) Debt Management is a program designed to help you pay off your unsecured debt in about 4 years with significantly lower interest rates and finance charges.

Agreements are established with each of your creditors.

• You will have one monthly payment that will be distributed to each creditor according to the agreement negotiated by the Debt Management Company. 
• This payment is may be slightly higher than your total current payment as the minimum payments most companies require is only 2% of the balance and in a DMP, the payment is usually higher.

Will this hurt your credit score?

According to Fair Isaac Corporation (FICO), being enrolled in a Debt Management Program is not a factor in your credit score.  http://www.myfico.com/CreditEducation/WhatsNotInYourScore.aspx

4) Debt Settlement Program (DSP), is a program designed for those who are…

• Facing financial hardship due to circumstances beyond their control.
• Have considered a Debt Management Program, but cannot afford the monthly payment.
• Do not want to file for bankruptcy.

Clients who qualify for a DSP have fallen behind on their payments or most likely, will do so in the near future. 

The objectives of a DSP are basically twofold:

1. Negotiate settlement agreements with your creditor, usually for substantially less than you owe.
2. Help you become DEBT-FREE without seeking bankruptcy protection.

 As the saying goes, "if all else fails...":

5) Bankruptcy should be your last and only option.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era:  With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within SIX MONTHS BEFORE they file.  They also must complete a debtor education course to have their debts discharged.

Bankruptcy is a drastic decision and should only be considered after seeking the advice of a competent bankruptcy attorney.

In the midst of our country's financial crisis, you are not alone.  Maybe you should consider seeking help.

For a FREE Analysis that will help guide you to the right decision, click here.

I need to know about Do It Yourself Credit Repair.

I've been told that there are credit repair companies that can remove all of the bad things from my credit report and raise my scores dramatically...FOR A LARGE FEE!

No company has the ability to remove negative items on you credit report without proof that they are in fact mistakes.

A credit score in the US is a number representing the creditworthiness of a person or the likelihood that this person will pay their debts.

Lenders, like banks and credit card companies, use credit scores to determine if in fact a person should be given a loan and based on the score, what interest rate they will charge.

The most widely used credit score model in the US is FICO or Fair Isaac. 

In 2006, the three major credit reporting agencies, Equifax, Experian and TransUnion, introduced VantageScore. 

Regardless of which reporting agency is being used, they all use a somewhat similar formula to determine a CREDIT SCORE. 

This score is based on:

• Payment History (highest weighted percentage)
• Credit Utilization (debt-to-credit ratios as well as how much debt is available) This is the 2nd highest weighted percentage.
• Current and and Delinquent Balances The total amount you owe relative to your employment/income history plus bad debt will impact your score.
• Length of Credit History If you have little or no credit history, it could be a negative to your score until you establish a credit history.
• Types of credit used (installment, revolving, consumer finance, mortgage) A variety of types of debt and a good history of management helps.
• Recent searches for credit.  Credit inquiries that were made yourself (say, to check your credit score), by your employer (to check prior employment history), or by companies initiating prescreened offers of credit or insurance do not have any impact on your credit score.

 OK, so what do you do if you see mistakes on your credit report?

You can contest and correct legitimate errors on your credit report by contacting each reporting agency.

You will need one or more of the following:

• A statement from the company showing that you indeed paid off this account
• Letter from the company if you negotiated a settlement
• Canceled check showing payment was received and processed

 You can contact each yourself:

FICO  (877) 434-7877 or www.support@fico.com

Equifax  (800) 238-8067 or 

https://www.ai.equifax.com/CreditInvestigation/jsp/ECC_Dispute_Login.jsp

Experian (714) 830-7000 or  

https://www.experian.com/consumer/cac/InvalidateSession.do?code=DISPUTE

TransUnion  (800) 916-8800 or 

http://annualcreditreport.transunion.com/entry/disputeonline

The process may take time, so be patient and persistant.

But, if you just don't have the time, you may consider seeking professional help...AT A PRICE!

If you or a debt management company has successfully negotiated a settlement of your credit card debt, and the amount is over $600, you may receive a 1099-C.

It basically states that unless the amount forgiven (IRS terminology for settlement) is exempt, then it has to be included as additional income subject to normal taxation. 

So, how do you determine if the forgiven amount is exempt?

According to IRS Form 4681, there are several exemptions to including forgiven amounts back into taxable income.

For the purpose of this article, let's focus on the settlement or forgiveness of credit card or unsecured debt.

On page 4 of IRS Form 4681, there is an explanation of  "INSOLVENCY".  As usual, the government has a hard time explaining the rules (I think they do it on purpose!), but basically the rule states:

If at the time of the settlement or forgiveness you were INSOLVENT, then the amount of the forgiveness IS NOT INCLUDED as additional taxable income.

How do you determine if you were insolvent?

At the time of the settlement, you need to show that your liabilities were only equal to or greater than your assets.

You need to complete a basic budget showing all of your income, outgo, and assets:

• Equity in your home
• Net value of your automobile(s), boat, etc.
• Net value of jewelery, stocks, bonds, etc.
• Savings or investment accounts
• Net furniture value, coin collections, etc.

For most people who have negotiated a settlement of their credit card or cards, they usually do not have any real assets and therefore the amount forgiven is not included as additional taxable income.

You will need to complete IRS Form 982.  You will check a couple of boxes and sign, and along with the Budget Worksheet, turn in with the 1099-C and your normal tax return.

Don't be surprised if your tax preparer or accountant is not really up on this procedure!  You might want to download IRS 4681 for their review.

We have helped dozens of tax preparers and accountants deal with the 1099-C issue and would be glad to assist.

Got Questions? We've got ANSWERS!

877-492-4109

photo by: alancleaver_2000

How to Stop Collection Calls

You've just sat down to dinner and the phone rings.  Another collection call. In fact, this may be the 10th time they have called today! Is there anything you can do about it? YES!

If a collector calls you about a debt, you need to talk to them at least once to see if you can resolve the matter. But be aware...

Collectors are professionals who have been trained with techniques to get you to send them money...PERIOD! They don't care about your circumstances or feel sorry about your problems, so don't wast time trying to explain.

If you cannot resolve the problem by phone (and most of the time you can't), then how can you get them to stop calling?

You will need to get the address of the collector in order to write a letter.  Asking the collector who called for this information usually is a waste of time as the collector knows that you are most likely going to send a request to stop calling you and they do not want you to do that.  Most collectors are paid by commission in relation to the amount of debt they can collect.

You should have received a statement or letter that will have the address of the collector. If not, you should receive one soon.  In the meantime, do not talk with them.  You may want to screen your calls using caller ID or simply turn off your ringer.  You can always listen to your messages later.

Once you have the address of the collector:

• Write a simple letter stating that you don't want the collector to contact you again. Be sure to include your name and account number.
• Make a copy of the letter for your records.  Send the signed orriginal letter by certified mail and make sure to pay for the "return receipt" so that you can document and prove that the collector received your request.
• When the collector receives the letter,they may only contact you once more. They will either call you to tell you that they received the letter and will not callyou again or to let you know how they intend to pursue collection of the debt in the future.

What You Need to Know About Credit Card Debt Repair

Many people call in asking us about credit card debt repair.There are many companies who call themselves "credit repair" companies.  They claim to be able to remove negative items from you credit report in order to improve your credit score. 

It is a big mistake in thinking that any company has the ability to remove a negative item on a credit report without adequate proof of erroneous information. Any item that is removed with fraudulent proof will most likely be placed back on the report.  This could produce a legal issue, so be careful.

The real question is, "Can I do this myself?"  The answer is YES!

You can contest and correct legitimate errors on your credit report by contacting the three major credit reporting bureaus yourself.  You can use the forms provided on their websites or you can write a simple letter stating the item that you are disputing. Make sure to include proof that your dispute request is legitimate such as:

• A statement from the credit company showing payment
• A letter from the credit company showing settlement
• A canceled check showing payment was received and proccessed

Mistakes on your credit report can significantly reduce your credit score, so make sure to review your credit report and dispute any errors as soon as you find them.  Here is the contact information for each of the three bureaus.

*You may be required to submit an additional form to TransUnion.  This form can be found at http://bit.ly/ctNrKE