Customer Q & A

Question: I've been offered a settlement from one of my creditors for 60% of the balance that I currently owe. That is pretty much the total of what I had actually charged, the rest were just fees. I haven't been able to pay them in several months and they've charged off my account. Is it worth it to do a settlement, or will that be worse than the charge off?     John G, Dallas Texas Answer: John, it's a good question. You need to look at the amount that you would be saving and your ability to meet their payment schedule. In most cases a lender will require either payment in full, or three equal installments to meet the settlement amount. Unfortunately, in order for the amount saved to be worthwhile, the payment schedule is usually pretty steep.     With the account being charged off, that will be the predominant factor on your credit score. [In regards to this account] A narrative code of "settlement accepted" would not have much more of an impact. It does however show future lenders that previous creditors were not paid in full. Granted that the amount of the settlement is equivalent to the amount that you actually spent, it is an indicator to future creditors that you didn't pay as agreed. Which means, that the possibility exist that if a lender extends you credit, they won't make any money. Question: I have a credit limit on most of my accounts, roughly $70,000 and the majority of the credit limit is still available credit. My creditors keep increasing my credit limit, but I never use it. It's nice to know that it's there if I need it, but it's more than I could ever imagine needing. Is it better to keep the limits, or to reduce them? Matt A. San Diego California Answer: It's good to try to keep your debt load at less than 70-80% of your credit limit. If you have an excessive amount of available credit, lenders see that. If you were to apply for loan, though the credit limit itself won't have an impact on your credit score, a loan officer will look at your application. When they pull your credit report and see a credit limit of $70,000, they have to take into consideration that you could quite possibly have $70,000 in unsecured debt at any given moment. With unsecured credit cards you have no limit as to the amounts that you can spend or what you can spend it on. You could pay off a car loan or an IRS debt with a credit card and there would be no restrictions to you using the remainder of your available credit all at one time.     The key to good credit is to accept, and use it, as you need it. If you see no need of ever using your available credit, get rid of it. It won't effect your debt to income any, it won't effect your credit score and won't show as having the easy possibility of becoming overextended at any time. Keep it so you have 30-40% available credit and reduce your credit limits. It's as simple as contacting your creditors and asking them to lower it. If you receive increase offers in the mail, call or write to have them declined and keep your existing credit limit.