Posted Friday, July 31, 2009
Credit scores are three digit numbers derived from your credit report that help determine whether you get a job or apartment and how much you pay for insurance or a loan. As important as scores are to us in our everyday lives, a 2008 study by the Consumer Federation of America found that 60 percent of consumers don't understand much about credit scores. And it's no wonder. The formulas for credit scoring are largely secret and different scoring companies use different formulas. Also, consumers who buy their credit scores get what's called a consumer score -- it's not the same score that a financial institution would get from the very same scoring company. Plain Dealer consumer columnist Sheryl Harris and guests make sense of credit scores, Friday morning at nine on the Sound of Ideas.
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What is the long range affect on your credit score when using the credit card debt relief programs that seem to be advertised everywhere? Debt relief representatives are very vague about this.
Good question. I sent this email to our guest, Jeff Blyskal, and here’s his response:
“It’s a negative in the short run. If you enter into a ‘partial payment agreement’ with a debt-relief firm, it’s usually reported to the credit bureaus, dinging your score despite your responsible approach to dealing with too much debt.
“But if you’re struggling to stay afloat, the sooner you get your finances back on track, the better. So don’t let the possible effect on your score keep you from seeking such help. After the initial hit, your score will gradually improve as you exhibit responsible borrowing behavior. A credit counselor can help you set up a five-year repayment plan with more favorable terms.
“But don’t respond to an advertised debt relief come-on. You should do the work of finding and initiating contact with a reputable, nonprofit credit counseling agency that employs trained and certified counselors who are members of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. Go to those web-sites to find such agencies. Also check the agency’s Better Business Bureau report.”