Credit Education 101
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Keeping Debts at Bay

By Janet Lacey
Published: Sunday, December 13th, 2009

The skills and techniques of managing debt if learned can make any individual capable of changing his or her credit worthiness rating. Bad debt is the most common reason for lowered FICO score and a bad report from the credit bureaus. An unpaid debt will appear at the shortest time span of 7 years in any credit record which means that a bad debt can result to having to bear the impacts of negative information for a long period of time. The worst part is that most of the time debts are reflected for an indefinite period of time as long as it is unpaid and when it has been paid in full then it will be reflected as a late payment for seven years. It is a hard fact that having negative information that long can make even the most credit worthy person struggle to compensate for its negative effects.

Unfortunately, it is not every time that an indebted individual can pay off all of his or her debts. It is a common case that debts are paid partially under certain conditions like progressive interest rates. Indebted individuals still have a chance to improve their credit reports and FICO score. They can only opt to use damage control in dealing with the problem. Paying off bills with the highest interest rates is the most commonly prescribed damage control plan for indebted individuals.

Managing debt this way does not only free the individual from paying of more dollars but it also keeps the balance in the individual’s revolving account limit. There is an existing 50% rule in revolving accounts which states that the available balance limit and the unpaid balance when computed as a ratio should balance as 50%. If this ratio is exceeded negative effects on reports and scores are sure to follow.

Refusing to add more debts can also be done as a damage control. If an individual has reached the 50% mark and he or she can not fully pay for the debt adding up more debts is the last thing they should do. Debts tend to pile up and can fully bury the credit account holder if unchecked and unpaid. Debts should always be the last option for those who would want to appear as credit worthy. Unpaid debts can also be managed through settlement agreements.

Managing debt through settlements are the result of negotiation between the borrower and creditor regarding the existing payment terms given that the individual was not already able to uphold his or her end of their first deal. Finding a fair settlement agreement will not only insure lower dollar debts but also a better credit report and score.    

Secured debts should be the priority of the indebted individual because these debts are those that are tied up in the listing of his or her assets. Secured debts include house and car payments. This type of debt are also the most expensive kind, if an individual can pay for this debt sooner the better will his or her credit report and score will be.

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