Can accumulating enormous debt have an effect on your credit score?

Share |  Posted April 19, 2013 by guest writer Andy Raybuck at AscendantEquity.com

Can accumulating enormous debt have an effect on your credit score?
If you have incurred enormous debts, then you will have to take the necessary steps to pay them off. The company may write off your debt so that they can get tax benefit but, generally, your debt gets sold to a collection agency. The agency may either take legal action against you or sell it to the other collectors. This will ultimately fall off your credit report and leave a negative impact on your credit score for several years. If debts have become unmanageable for you, you may take the help of credit card consolidation and get rid of debt problems soon.

Old debts – What is their reporting time?
The old debts generally get charged off when you do not agree to pay them. As such, the banks usually write off credit card outstanding balance within 180 days of negligence. The bill then gets sold to the debt collectors and it appears on your Equifax, Experian and TransUnion credit reports for seven years. The collection agencies may add up their own entries that will stay on the credit report for the same period of time. With having old debts, your credit score will get lowered till they get removed automatically in seven years.
Debt – What effect does it have on your credit score?
There are several factors such as old and new debts that affect your credit score to a great extent. The old debt consists of collection agency accounts and charged off bills that are a part of your credit report. This includes 35 percent of your credit score. You counterbalance the effects of the old debt by maintaining revolving account balances low and paying off the present accounts within their due date. Lenders will show more interest in your present financial condition than your previous mistakes.
Debt Settlement Law – What do you need to know about it?
Debt settlement is an industry that has conventionally not been regulated. As a result, many consumers have taken undue advantage by deceitful individuals in this sector. It has been undecided as to what organization should be controlling the debt settlement industry. Attorney Generals of individual states have varied in their approaches to safeguard the people. This has created a puzzled network of rules and regulations that often leave the consumer susceptible to untrustworthy debt settlement companies.
The Federal Trade Commission (FTC) has formulated a set of new regulations that will enable the FTC to better administer the debt settlement industry in a more uniform manner. The new FTC rules require that you do not need to pay any fees till debt settlement services takes place. This provides assurance to the clients that they’ll receive the services they had enlisted for implementation.
Old accounts – What are its considerations?
The old accounts usually get removed through the dispute process by the Fair Credit Reporting Act if there appears any error in the credit report entries. You can obtain your free credit reports through AnnualCreditReport.com and find even a small incorrectness to dispute with Equifax, TransUnion and Experian. The credit bureaus are needed in order to attempt legalization with the lender. The lender may even be out of the business if the debt is old by many years. However, if they fail to validate, it means that the wrong entry will be removed from your credit report. This, in turn, will help you raise your credit score.
Old debt – How is statute of limitation different from one state to the other?
You need to know that old debt has a statute of limitation that varies from state to state. This is the reason as to why the collection agency or the creditor cannot file a suit against you when the statute has been passed. The NOLO legal website cautions that dishonest debt collectors purchase your old debts and, in turn, make false threats to get the payments. They may even tell you that they’ll put previous bill on your credit report and hurt your credit score. However, they do not have the legal right to do so. Tell the debt collectors that you are aware about the law very much and will dispute for change in the credit report and report them to your state attorney general in case they may follow through.
Thus, if you have accumulated huge debt, this will hurt your credit score. As such, you should try to pay off your debts on time. This will prevent you from dropping your credit score.