Your credit rating before your debt became a problem, how it looks today, and what you want to do with it later, can play a HUGE role in what you decide to do to resolve personal finance concerns. We cover many elements of credit reporting and debt throughout this site, and on the DebtBytes YouTube channel. This page is set up to be more of a resource guide that will evolve and grow over time.
There are exciting changes to credit reporting that have only recently begun to take shape. The credit bureau settlement with 30 some state attorney generals is still making an impact, as are efforts from the CFPB. I highly recommend subscribing to this page so you can be alerted to updates and comments. Before I start outlining resources, let’s hit the basics.
Your credit report is a record of your credit use over the years, from the time you turn 18. Every time you use revolving credit, lines of credit, or loan products, the way in which you use and pay them will be documented by one, two, or all three of the major credit bureaus: TransUnion, Equifax, and Experian.
A FICO score is a “predictive” credit score that uses the information in your credit report to place you on a scale of bad to excellent credit. Your score can range from 250-900, where higher scores are considered better. You FICO includes (in order of importance) your:
- payment history – paying consistently and on time
- amounts owed – how much you owe, current debts
- length of credit history – age of accounts, new and old
- credit mix – types of accounts (revolving, loans, etc)
- new credit – accounts opened in short amount of time
The higher your credit score, the more likely you are to qualify for lower-interest credit products at higher limits. If you fall into the low end of the credit scale, you may still be able to qualify for loans or credit cards, but the rates will be high, making it harder to pay them off in the long run.
Credit allows us to accrue debt in small or large increments, in the form of secured and unsecured debt, usually regardless of whether we have excellent, good or bad credit. Having great credit makes it easy to qualify for the products you want, and terms, limits, and rates will be much more appealing than rates offered to those with lower scores.
When You Can’t Make Your Payments
When life happens, such as job loss or sickness, you may not be able to make your monthly payments consistently, or at all. When these debts go unpaid, your credit report and score will definitely be negatively affected.
If you find yourself in debt, it might be time to consider possible debt solution strategies to resolve your financial troubles as soon as possible. Depending on your situation, these methods and strategies may help to get you on the other side of it, but understand that most debt relief programs temporarily affect your credit report and score, but it is a small price to pay for the freedom you will feel after getting out of debt.
See some of the following resources:
- Buying a Home with Bad Credit
- Date of Last Activity (DOLA) is Important for Settlement
- Why Cleaning up Your Credit Improves Mortgage Options
- How long does credit counseling stay on my credit report?
- The Truth About What Happens to Credit Scores When You Need Debt Help
Rebuilding Your Credit After Setbacks
Depending on the debt option you choose, your score may be not be impacted at all (balance transfer, debt roll-up, etc), where others may impact your credit significantly (debt settlement, bankruptcy). While you’re waiting for things to heal, there are some additional ways to nudge your credit score in the right direction:
- Become an authorized user on a family member’s account who has excellent credit. This will allow you to “borrow” their great credit without acquiring any additional debt.
- Apply for a small ($300-$500) secured credit card, utilizing up to 30% (20% is better and safer) and paying off the balance each month, on time.
- Dispute any errors found in your credit report. If corrected, they may give your score that extra push it needs.
Over time, and with some rebuilding efforts on your part, your credit will improve, allowing you to take on new debt again. And, that’s how the vicious cycle of debt keeps circling – hopefully with better habits and money management skills.
Questions about Debt Relief and Credit Reports:
- Pay for Delete – Does it really work?
- Can a judgment be removed from my credit report?
- Do collection accounts age off my report after 7 years?
- Can I get my rental history to show up on my credit report?
- How do I repair my score after repo, default, or foreclosure?
Virtually every page I link to above provides much needed details, along with open discussion in the comments. You can also post in the comments below for feedback and additional resources.
Now that I have settled accounts with my 3 creditors, I have a question about the way it is being reported on the credit report and if this is accurate.
1) BofA reports it as “current” and “closed” and has remarks as “canceled by credit grantor”. The settlement is paid in full. I suppose this is accurate.
*2) However, US Bank reports the status as “Coll/Chargeoff” and “closed” and remarks of “Payment after charge off/collection”. This settlement is now paid in full. It was arranged with US Bank well before charge off. The credit report shows missed payments at 30, 60 and 90 days late, and then current payment after that (when settlement agreement was made).
**Are they reporting it incorrectly? Or are they using a broad term that encompasses both internal collections as well as charge off? Should I be disputing that reporting, or just leave it? To me it implies the more negative ‘charge off’ event, which is what I tried to avoid by settling early.
3) Finally, the TD Bank credit card is still showing as open, even though it was settled and paid in full. They wanted a lump payment on the spot in order to accept my offer, but it took a few weeks for them to send the settlement letter by mail. I assume I just need to wait on this one.
The charge off credit reporting really does not have an additional impact in this situation. Check out this video for more on why: https://youtu.be/Y7ymhn-26ps
I generally see it take 30 to 60 days for all of the credit reporting updates. Post an update if the credit report does not accurately reflect a zero balance owed, and settled account, 60 days after your payment cleared.
Congratulations on your success!
Thank you!
Incredibly, bank of America seems to have no derogatory remarks placed on my credit report… and they were the largest creditor (by far) and settled for the lowest percent. It is bizarre.
US Bank and TD Bank have it reported as Collection/Charge Off and seem to make no distinction between the two. They both (but especially TD) have the dates reported inaccurately… as far as when the accounts were closed and when they were paid off. etc. It means that it will be damaging to my credit for a couple extra months… but I don’t think it is worth the energy to correct it. I don’t ever want to carry a balance on credit cards again. I don’t even want to HAVE a credit card again… except that it may be required for certain things.
Have your readers experienced problems doing the following without a credit card:
1) Renting a car
2) Reserving a hotel room
3) Purchasing airline tickets
etc..
It seems that most things can be done with a Visa Debit card, which seems to function almost exactly like a credit card.
I would like to have a card for these sorts of situations when it is required. The easy option is a secured credit card. Do you have any experience with the Chime credit builder account?
One other question: My wife is foreign and had no credit history in USA. I long while ago I had her as an authorized user on my TD credit card. Any purchases that she made on her card (separate card number but same account) have been long paid off. All the charges in recent years were mine. Since I settled the account (on charges that only I made)…. it seems to be showing as derogatory on HER credit report. This seemed strange, as she was only a user, not responsible for payment. I completely forgot about this, and wish I would have removed her prior. But still, is this normal for her to de damaged by it?
Thank you for all the help.
Check out this video about how an authorized user can be damaged by the account holder usage and payment history.
I am not familiar with that Chime product.
I would prefer a credit card over a debit card for online purchases, and with hotels and cars while traveling. There is typically better fraud protection.
New unsecured credit cards will be available soon after settling debts, but I understand wanting to keep it to a secured card.
Hi Michael. I just had a random question that I thought maybe you might be able to assist with. Equifax has me having excellent credit and 0% debt because it doesn’t have my 3 large balance credit cards on file. Capital One, 5/3, and HSBC. Any idea why this might be? Sheer luck? They are on the others I think. (Maybe not HSBC) Do hardship plans avoid reporting to the Big 3? I wouldn’t think so..
If you are on a hardship plan, that your creditors agreed to, it typically does not look like you are from a look at your credit reports.
It is odd that Equifax is not showing those 3 accounts at all. Most major banks credit cards and loans find their way on to all three bureaus.