In the first editorial in this series, we defined a myth as:  something you believe because you heard it from someone else or saw it on a website like "credit repair is a scam".  This is soooooo not true.

Today's "myth" talks about:

PAYING OFF YOUR OLD DEBTS WILL REMOVE NEGATIVE INFORMATION ON YOUR CREDIT REPORT.

This myth is one of the most prevalent, and most damaging.  Paying off your debt helps you have no debt, but it does not necessarily help your credit score.  It can take two years for a paid off account to register as an improved score. 

Remember, your score is made up of five different categories:

1)   35% of your score is made up of your payment history.  The fewer late pays and partial pays that you have, the higher this percentage will count.

2)   30% of your score is made up of the amounts you owe, versus the overall credit limit you have.  For instance, if you have 3 credit cards, each one with a $5,000 limit, your available credit is $15,000.  If you have charged $3,000 on a combination of those cards, then your debt to credit ratio is 20%.  If you have charged up $12,000, then your debt to credit ratio is 80%.  The bureaus count 30% or below as good; the higher amount you owe, the lower your score.

3)   15% of your score is based upon how many years you have had credit.  Your parents may have had credit for 30 years, but you may only have had credit 2 years.  The bureaus take this into account, and favor the consumers who have a longer history.

4)   10% of your score is based upon how long it has been since you received new credit.

5)   10% of the score is weighed based on the types of credit you are using:  mortgage, installment payments like a car or furniture, vs. unsecured credit card debt.  The more diverse, the better your score.

Having explained that, one can see that paying off your debt completely, and closing an account could actually be harmful.  Lets use that same $15,000 total available credit scenario.  You decide to pay off one of your credit cards and close it.  Now you only have $10,000 in available credit.  If you owed the same $3,000, your debt to credit ratio is now at 33.3% instead of 20%.

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Credit bureaus will most often remove negative credit information that is not verifiable. This is why we work so hard on your behalf.  If you wish it, and select this path of credit restoration, we will challenge the creditors for you.  They must be able to provide the paperwork that proves you owe the debt.  If they cannot do so, we can most likely get the debt voided and removed.

However, let us be clear.  We cannot claim to remove “accurate” reporting.  So if you have a negative item that can be verified, it may need to be paid off to take the next steps to a better report.  Ask your Credit Concierge™ for more information.  Click here.

After all, from their point of view, if you have defaulted once, you will default again.  Why should they trust you?  It is especially tough if you have “worked out” a payment arrangement, and then default on that agreement.  It happens every day in this economy.  You negotiate in good faith to repay your debts, and then…BOOM!…something happens that you did not foresee…loss of a job, major illness for which you have no insurance, your mom is ill and needs to live with you.  Now all of a sudden, a catastrophic occurrence in your life has strapped you financially, and something has to give…the debts seem to be the least important of those financial requirements now upon you.

If you are afraid that one or more of your creditors may sue you, or if you are getting threatening calls or letters from them, you may benefit from a prepaid legal expense plan we offer.  For the cost of a nice dinner out for two each month plus an enrollment fee, you can have protection against that eventuality. 

Once you are enrolled in the program, and a short waiting period has passed, you are fully protected.  If a lawsuit comes your way, don’t worry.  Send the paperwork to the legal plan office, and their attorney’s answer the claim for you.  Should a lawsuit ensue, they represent you…you do not even need to show up in court.  And there are no other costs, unless there is a court filing fee or something like that.  No additional costs for the lawyers who represent you!  The attorney reaches a settlement with the creditor, and you use the funds you have saved to settle the claim.  They are experts at negotiating the lowest balance possible.

Even better is the fact that you will be taught exactly what to do when you receive a call from a creditor, and the

Donna Perkins

steps you need to accomplish to register that action.  You could, over time, receive some compensation from the creditors or collectors breaching the Fair Debt Collection Practices Act (FDCPA) for their misconduct. 

You can cancel the plan at any time after the first ten days of enrollment.  Why not contact us today to learn more?  Click Here.

It’s The Little Things.  When kids get into the first grade, they are introduced to coins.  They are taught their amounts, how to count coins, and what combinations of coins equal a dollar.   Addition and subtraction are also studied, and the beginnings of multiplication and division are explored.  But learning these things doesn’t actually help them UNDERSTAND money, and its uses.  You can help.  By giving them “play money”, and talking to them each time you take them to the grocery or other store about how to decide which items they want and how much money they have to spend on those items, sets the pace.  Just like in every-day life for us grownups, they will have to put things back and make good decisions.  Be prepared for some tears and upsets, but it is all done in the spirit of learning.  Encourage the kids to use their play money at home playing “store” as well.

Allowances.  A weekly allowance, especially for doing chores, is a great way to get kids into the spirit of budgeting and saving.  An allowance of $5.00 per week, as an example, for doing a series of chores to help out around the house provides a rich medium for kids to learn that there is “no free lunch” in life.  No matter what “chores” you give them to do, it is important to keep a chart of their progress, and give out “stars” for completing tasks…read more here

Donna Perkins