Paying Down Debt: Part 2 – The Credit Report

In our last article we discussed the various steps in paying down debt. Each gave a basic description involved, some sources of which to consider and then the process.

We are going to take a closer look at the first step of the paying down debt process, the credit report. There are three main sources involved with credit reports, Equifax, Experian, and TransUnion. Each report is free and will give you your score along with some other specifics regarding your finances.

The important thing to keep in mind is that credit reports that you request are also the same ones which creditors use in determining how much of a credit risk you are. When you consider a purchase and seek to put it on credit rather than pay in cash, the creditor is pulling a credit report. Also, keep in mind that one credit report will not be the same as another in terms of the information reported on them and also the credit score. Companies do not use all three in terms of reporting your credit situation and in fact you will find that only certain creditors will only report on one and not the other two. It is very important that you obtain a report from Equifax, Experian, and TransUnion.

After you have obtained the the three credit reports your next step after looking them over is develop a list of outstanding debts in collections. Create a list of all the outstanding debts in collections including their amounts. This will be used in your household budget and we will cover this later in the article.

The credit report specifically contains various sections or parts and here they are:

• Consumer information. This section has your name, date of birth, your address and employer.
• Consumer statement. Is a short message which could Include a fraud alert or an explanation of late payments which occurred during a specific time period.
• Account history. Detail information concerning your credit accounts you either have open or once had. Real estate, open credit and collection accounts which will include when the account was open, is it active or closed, and the existing balance. You will also find a 7 year payment history associated with the account. This is the most important section of your report and one that creditors will look at when considering you as a buyer.
• Public records. This section will list any records regarding bankruptcy, liens or judgement filings that have occurred.
• Inquiries. Each company that has accessed your credit history in terms of applications you have completed in the last two years is listed here. An important thing to keep in mind if you are doing shopping for a particular purchase item and you go to multiple sources and request a credit application. Future credit applications can encounter a denial for credit out of multiple credit inquiries. Multiple credit inquiries is a signal to creditors that you are a potential credit risk.
• Credit contacts. In the final section of the credit report you will find a list of all creditors with their mailing addresses and their contact phone number. Information you will need when you have completed your household budget and have a figure in which you can approach a collector to obtain a payment agreement.

Now that you know the various sections of your credit report, you are ready to start with your budget. A budget is a tool for identifying your household expenses and also your income. Similar to a bank statement where it lists all your debts and credits and provides your account balance. Collecting all your bank statements for the current and previous year is an important step in creating a budget. Categorize your expenses and also include all income, any account bonuses for use of account card, as well as anything else posted to your account for income.

After you have accomplished your budget for expenses and income now you are ready to start taking a look at increasing your income and eliminating or cutting back some expenses. Determine their necessity and also the amount of which can be expensed without a significant problem for the household. Cutting back and coming up with a figure which can work with or eliminating the expense, will result in additional income or savings to your household.

With the budgetary expenses and income set, the final step is applying the budget to the collectors of the credit report and working toward reducing or eliminating collections. In paying on collections or resolving any delinquencies is going to raise your credit score. If you stretch your budget out by maximizing all your income to collectors should an emergency occur you will be at risk of not being able to financially resolve the situation. Therefore, determine a percentage of which you can put into holding for savings and protection of your household then if a matter of urgency occurs you are protected.

In this article we addressed the credit report process and to familiarize yourself with each report, create a household budget and then come up with a plan for effectively paying down any outstanding debt.  In paying down debt you are increasing your financial status and also your opportunity to increase how much you will keep on your income.  The important point to remember is that it is not how much you make but how much you get to keep after expenses that determines your financial worth.

This information is being provided to you as informative guide for paying down debt. It is not intended as professional or financial advice. If you have concerns or need additional direction for working with your credit report consult your financial advisor with either your investment or financial services company. They are there to professionally assist you in this process and offer their services free of charge to all their members.

Paying down debt is not an impossible task but can be a difficult process. Having the right tools and reports can help assist you with creating a plan. Taking the first step in securing your credit reports will provide you the key resources to effectively paying down debt.

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