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Credit Report Tips- Settle debts increase the value of your credit report

By Karen Anderson
Published: Friday, April 30th, 2010

The word credit is used by everybody in today’s world. However, very few people know the exact meaning of the word. Credit is when a person borrows some money from a creditor or a lender to pay for goods and services.

The act of borrowing money also includes a guarantee to pay the money back in pre decided instalments at fixed rate of interest. The entire of America runs on the credit system. However, for a creditor to lend you money, he should know the kind of person you have been in the past, financially. This information is found on your credit report. The credit report has all the information one needs to make a decision regarding credit and lending.

Credit reports are prepared by three main agencies in America. These are Equifax, Experian and TransUnion. These agencies obtain information from banks, courts, the IRS ad even post offices. They collect all the information regarding you, concise it and put it on a credit report. The creditor has to only read the credit report to take a decision. Each of these three agencies are should provide you with a free report every year. Make sure you get the report regularly and stay up to date with your credit information.

If there are many delinquent accounts and a lot of credit card debt, it must mean you have run out of options. You can choose to pay the account in full. However, this is not usually possible.

Ignoring the debt is also an option. The creditor will mark your account as charged off. However, you will have to wait for seven years for this entry to be deleted from your credit report. This will affect your credit score adversely and getting new credits will become very hard.

The third option would be to go in for debt settlement. Debt settlement is when a person in debt makes a deal with the lender to pay only a portion of the debt and not the entire amount. The amount of payment is decided after negotiations between the lender and the borrower. The common amount would be the remaining amount without any interest. It usually comes with an option of three or four instalment payments.

This might seem an easy option initially but it is not a great option. The creditor will add an entry on your credit report stating that the account has been paid off. However, the amount received is less than what was agreed. Other creditors might see this as a sign that they might not get full money from you. Debt settlement is only slightly better than a charged off account.

If you have decided that debt settlement is the best option for you, the best way forward would be to hire a company that is trustworthy. Try and notice the first impressions of the company. If the first person you talk to seems to be making a sales pitch instead of listening to your problems, you are better off staying away from the company. Debt settlement may or may not harm your credit score but a bad debt settlement company definitely will.

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