Credit reports are compiled by credit reporting agencies, which are private companies engaged in the business of selling information. There are three national credit reporting agencies: Equifax, Experian and Trans Union. Creditors make reports to these agencies concerning your record with them. These reports include such information as your social security number, address, phone number, your account number, the date you opened your account, the highest balance you’ve ever had, your credit limit (if applicable), your current balance, your current monthly payment, your payment history and the status of the account. The data reported by creditors is used along with data compiled from other sources, such as public records are used to determine your credit score. The exact methods used to create credit scores are not made public as they are considered “trade secrets”. The credit score is supposed to be and indication of risk to the lender. A high score is supposed to indicate a low risk borrower. Lenders are more willing to lend to people who are more likely to pay them back. If everything else is equal, a person with a high credit score is more credit worthy than a person with a low credit score.
It is possible to have a perfect payment history and still not be a good credit risk. The most common way this could happen is to have too much credit. The credit scoring system penalizes your score if you are maxed out on your credit cards. The logic behind this is that if you’ve maxed out your credit, you’re either in financial trouble or you’re not very good at managing your finances. Either way, lenders will think twice about making a new loan to you or giving you a new credit card.
Even if you’re not maxed out on your credit cards, you could be a bad risk if your income has gone down recently. When you fill out a loan application, you are asked for your current household income. The lender pulls your credit report and sees how much you owe and what your payments are each month. If your monthly payments are too high in relation to your current monthly income, you will not be considered credit worthy. This is an important point. A person in these circumstances could have an outstanding credit score but would still be unable to obtain new credit due to not having sufficient income to support new credit. In this case there is a big difference between having a good credit score and being “credit worthy”.
Another factor that should be mentioned as part of this question is the accuracy of the credit report. A very credit worthy individual may have a poor credit report due to inaccurate information included in his or her credit report. Such inaccuracies can be the result of simple mistakes or can be something as severe as identity theft. Identity theft a big problem across the country. You are entitled to a free copy of your credit report once a year. We recommend you obtain your free report each year and review it to ensure that it is accurate. You are entitled to dispute inaccurate information in your credit report. The credit reporting agencies must delete information from your credit report that is inaccurate, obsolete or cannot be verified.
It depends a great deal on what your credit is like when you start a debt settlement program. If you already have bad credit with numerous late payments and collection accounts, a debt settlement program won’t affect your credit much at all.
If you are current on your debts and have a good credit score at the time you start a debt settlement program, it will result in late payments on your accounts. Most creditors will report late payments to the credit reporting agencies. Some accounts may charge off. If your creditors report your late payments or charge offs, they can stay on your credit report for up to 7 years. When we settle accounts creditors report the settlements to the credit reporting agencies in various ways. Common reports are “settled for less than full balance”, “settled”, etc… Once in a while a creditor will report a settled account “paid as agreed” though this is rare. It is important to know that regardless of the wording the creditor uses, if they have agreed to a settlement and you have paid it, they must report that you no longer owe them anything on that account.
Creditors have no incentive to negotiate settlements on accounts that are being maintained and are current. If the account is past due, is about to charge off, or has gone to collection the creditors are willing to negotiate settlements on the outstanding balance on the account. The logic behind this is that if you’re paying you’re not in trouble. If you’re not paying you are. If you’re in trouble and the account charges off, it’s a loss to the creditor. They are therefore willing to negotiate a settlement in order to prevent the loss from a potential charge off or to recover some portion of their loss after it has charged off.
This is why we say that the best candidates for debt settlement are those who can not maintain the monthly payments on their accounts. People in this situation will inevitably fall behind on their payments and their credit scores will suffer as a result. In those cases the damage to the credit score is primarily due to the inability to pay and debt settlement does not make it any better or worse.
The majority of credit card companies and collection agencies are willing to negotiate settlements. However, there are occasionally circumstances or specific creditors who will refuse to negotiate from time to time. It’s important to note that creditors change their settlement policies from time to time and a creditor that was unwilling to negotiate a few months ago may be willing to negotiate a few months in the future. Persistence is important when trying to settle debts.
Payday loans are extremely difficult to settle.
Smaller accounts are harder to get large discounts on but not out of the question.
Results can vary widely on medical or dental bills. Some doctors and hospitals will negotiate and steeply discount their bills, others will refuse to settle at all.
Creditors are also willing to negotiate settlements on accounts with judgments. They usually don’t discount them as much as they do on accounts without judgments.
Tell the creditor verbally that you are not allowed to receive any kinds of personal calls at work, including creditor calls. Tell them the best way to reach you is at your home number. After work, write a short letter to the creditor/collector with instructions to call your home number. See “How can I stop the collection calls at home or on my cell phone?” in this FAQ. Keep a copy of the letter and send the original out to the creditor by certified mail. This is more expensive than regular mail, but it is important to have proof that you mailed it and that it was delivered. If you want to speed up delivery of the written notice to the creditor you can ask the caller for a fax number and fax you letter over to them.
If you are being called by a collection agency that is governed by the Fair Debt Collection Practices Act, you can write them a letter telling them to cease contacting you. This will stop all calls and letters. This is not usually advisable though. When you cut off communication with a collector this way the only avenue they have left to attempt to collect the debt is through the legal system. Therefore they could decide to file a lawsuit as a direct result of your cease and desist letter.
A better solution to managing creditors is to designate a phone line they can call in on that has an answering machine or voice mail connected to it. Preferably this is a land line phone number that most of your creditors have. If you have a cell phone and your creditors have that number then do two steps. (1) Get a new cell phone number but do not have your old number forwarded to it. Tell your friends and family what your new cell phone number is but do not give it out to anyone else. (2) Get a forwarding message put on your old cell number that directs callers to call the land line with the answering machine. You don’t need to even listen to the messages on the machine if you don’t want to. Just erase them a few times a week so that the machine can still answer and take messages.
For information on how to stop collection calls at work, see “How can I stop collection calls at work?” in this FAQ.
If you are being harassed by any creditor(s), there are several steps that may be taken depending on who the creditor is that is harassing you. These steps are:
- If the bank has the word National or N.A. in its title, the complaint should be sent to Comptroller of the Currency, Customer Assistance Group, 1301 McKinney Street, Suite 3710, Houston TX 77010, 1 (800) 613-6743.
- A complaint about a state-chartered bank that is a member of the Federal Reserve System should be sent to the Board of Governors of the Federal Reserve System, Director, Division of Consumer and Community Affairs, Washington, D.C. 20551, (202) 452-3693.
- Complaints regarding state-chartered, federally insured banks that are not members of the Federal Reserve System should be sent to the Office of Bank Customer Affairs, Federal Deposit Insurance Corporation, Washington, D.C. 20429, 1 (800) 934-3342.
- Complaints about federal-chartered savings banks should be sent to the Office of Thrift Supervision, Division of Consumer Affairs, Washington, DC 20552, 1 (800) 842-6929.
- If the complaint is on a collection agency, collection attorney or any other debt collector who is not employed by the original credit-issuing bank as described above complaints should be made to the Federal Trade Commission by calling 1 (877) FTC-HELP or going to www.ftc.gov and clicking on “file a complaint”.
Creditors are still adding interest and late fees. How can I stop them and how am I going to settle my debt with this?
Unfortunately there is no way to stop the creditors from charging interest and late fees. According to your cardholder agreement, credit card companies are allowed to charge interest on the outstanding balance on your account until it is paid off. When it comes time to negotiate a settlement, it is negotiated based on the balance at the time negotiations begin. Thus you can still settle the debt because our negotiations include the principal plus any interest or additional fees the creditor has charged. Depending on how long it takes to accumulate sufficient funds for the settlement, your settlement amount might even end up being less than what you owed when you ran into trouble.
Creditors are allowed to contact family members or neighbors but they are very limited in what they can say.
They are allowed to ask how to reach you. They can only identify what company they’re calling from if they are asked directly for that information. Under no circumstances are they allowed to give any information about your debt.
If they go beyond these restrictions or if they repeatedly call your family or neighbors, they are in violation of the Fair Debt Collection Practices Act and you should file a complaint with the Federal Trade Commission.
Unfortunately I cannot give a specific answer to this question. This site is not intended to offer legal advice. What I can say is that wage garnishment laws vary from state to state. If a creditor sues you and obtains a judgment against you, your wages can be garnished if wage garnishment is allowed in your state. In some states a portion of your income may be exempt from garnishment under certain circumstances. You should consult with a lawyer familiar with these laws in your state to find out how the process works in your state.
If you are settling your debt yourself you can start offering settlements after whenever you have sufficient funds and the account you want to settle is more than 90 days past due. Creditors usually will not consider settlements if an account is less than 90 days past due. Many creditors will not start negotiating until the account is four or five months behind.
If you are working with a debt settlement company they will usually follow the above rules of thumb. However, they may have additional policies as to what accounts get negotiated when or even when they will start offering any settlements. Many debt settlement companies require that you pay their enrollment fee in full before they will make any settlement offers to your creditors.
This is a common problem with joint debts. The divorce decree might say that one party is responsible for paying particular debts but the creditors can still hold the other party responsible.
From the creditors’ viewpoint the parties are co-signers on the account. This has nothing to do with marriage or divorce. You could co-sign a debt for a friend, child or sibling and if that person fails to pay as agreed the creditor will come to you for payment and any derogatory information on the account will show on your credit report as well as that of the primary borrower. The same is true of debts that are divided up in a divorce proceeding. The only way to ensure you are not held responsible for a debt the other party is supposed to pay is to insist that the account is transferred or refinanced to an account in the name of your ex alone.
Creditors have the right to sue you to collect their debts. Whether they will actually exercise that right is determined by each creditor’s internal policies. The rule of thumb is that creditors won’t sue if they don’t feel there is sufficient potential for successful recovery of the debt plus the costs of prosecuting the lawsuit. In recent years there has been an increasing pattern of creditors filing lawsuits and then selling the debt once the court renders a judgment in their favor. Apparently they are able to recoup the cost of the suit by selling the account for a higher than normal price once they’ve obtained the judgment.
If you are sued by a creditor it is vital that you get legal advice as to how to respond to the suit. The wrong thing to do is ignore it or hope it goes away on its own. If you do not respond to a suit you will usually end up with a “default judgment” against you. If you seek legal advice and follow it, you may be able to buy yourself valuable time. In rare cases we have seen law suits from creditors dismissed by the courts because the debtors’ attorneys spotted something improper about the suit and filed the appropriate documents with the courts. Those few debtors would have ended up with judgments against them if they had not gotten good legal advice.
One workable rule of thumb when you’re settling your own debt is start negotiating when you have 50% of the balance available. Your initial offer should be much lower than that. You are then free to negotiate up to 50% if needed.
You could also start negotiating with less money on hand. When you go this route, if the creditor doesn’t accept your offer you would have end negotiations there and wait until you have more money to work with. From time to time creditors will be willing to agree to settlement terms with healthy discounts off the outstanding balance and allow you to spread the payments over 2-6 months.
If you are insolvent at the time the debt is forgiven, you may be able to exclude this type of income from your tax return. There are specific tax forms that have to be filled out to show that this income should be excluded. If you don’t fill these out properly, you could end up with a tax liability. We recommend that those engaging in debt settlement hire a professional tax preparer for the tax years in which a settlement occurred. See the IRS website for more information on this subject.
You can try, but it will probably backfire on you.
Creditors often pull credit reports on debtors who are seriously behind and/or attempting to negotiate a settlement. On numerous occasions we have seen creditors go from perfectly willing to negotiate reasonable settlements to complete refusal to negotiate at all after they pulled a credit report and saw credit card accounts that were current. A settlement program is most successful when it includes all unsecured debt.