Americans are making higher monthly payments on borrowed money than they should be. Most of the time we just think that if we were approved for a credit card or a loan then our credit must be fine. The thing is, that probably isn’t the case. There could be outstanding credit card debt that’s holding the score back, and debt relief can help get rid of those debts. But will debt relief hurt or help your credit score and your interest rates?
Isn’t Old Debt Written Off?
Just because you haven’t heard from a debt collector about that account you never paid a few months ago, doesn’t mean that they forgot about you. If you haven’t been keeping up with what’s being reported to the credit bureaus, then you might have accounts on there that you’ve forgotten about, but are ruining your credit score anyway.
The three major credit bureaus – TransUnion, Equifax and Experian – offer everyone a free credit report every 12 months. Take them up on this offer; it’s free! You can get request it by sending them a letter in the mail, via phone or at their online site at AnnualCreditReport.com.
But How Can That Affect My Interest Rates?
Everybody knows that your scores decide whether or not you get that credit card or that loan. But not everybody knows that your scores dictate where your interest rates will be set. And even those that do don’t realize how much of a difference just a few points on your credit score can make.
Decrease your score just 50 points, and you can increase your interest rate from around 9% to around 18%. This according to the myFico’s Loan Savings Calculator. A difference of 100 points and you’re increasing what was a 5% APR to one over 19%. On a 36-month, $25,000 auto loan, you’re increasing your payment by $165 per month or $5,940 over the life of the loan.
What if you could spend thousands of dollars less each year just by making sure that your credit reports are accurate and your debts are paid off?
But If I’m Denied They Give Me a Credit Report
You don’t want to find out about a debt when you’re hoping to close on a home. You need to make sure that you have a strong credit profile before you apply for loans or credit. One account in collection can lower your scores over 100 points. And we’ve already discussed what kind of impact that can have; even if you are approved.
If you have outstanding debt, you should try to negotiate with those creditors or see if debt relief services can help you pay them off. Collectors are usually willing to accept a settlement for much less than what you actually owed them.
Can I Change My Current Interest Rates?
On the back of every credit card is a phone number for their customer service. Now you’re going to need to boost your credit quite a bit, changing it 10 points isn’t going to wow them. But if your credit score is 100 points higher, give them a call. It can’t hurt. If they think you might end up with another bank or another credit card, they’ll probably go out of their way to keep you as a customer.
The sooner you pay off your credit card debt, the sooner your credit scores will improve. Remember though, you need to be responsible with the credit that you have otherwise you’ll just end up in the same position a few months down the road. But the bottom line is that debt relief, and obviously credit repair, are only going to benefit your credit scores and your interest rates in the long run.
You’ll be happy you started taking your finances seriously when you’re putting money into savings and building a better financial future.
