Credit & Credit Repair

I cannot tell you how many times I have been asked how settling your outstanding debt effects FICO! People I speak with in all walks of life tell me “I was told that settling my debt will lower my credit score”. Well yes and no, let me explain.

When people say “lower my credit score”, I have to stop and ask them; “lower than what? Lower than it is now?” Chances are that if they have negative debt on their credit report, simply paying off a settlement will help their credit score. If they have a very high credit score to begin with then yes, it very well could hurt their credit score. Most people with high credit scores have good credit, have the money to pay debt, and probably should not have any reason to have bad debt to begin with anyway, in theory.

If they’re struggling day to day, paycheck to paycheck, or experiencing a hardship and do not have any way out in the near future. The simple act of paying the debt will reduce their debt to income ratio, and by doing this alone this can increase their credit score.

Now, I don’t have the formula for FICO, and I have read on the internet where other people seem to be able to calculate it. To be honest I have never met anyone who was able to give me a straight answer on how to calculate FICO and I have not met anyone who can calculate it themselves. So most of us are at the mercy of the bureaus calculating it and telling us what it is.

There is a hidden clause that most people and creditors will not tell you about when dealing with settling debt. The IRS repercussions, yep that’s right; Uncle Sam has his hand in this cookie jar too! By IRS (federal) law, anything more than $600.00 can be reported to the IRS as unearned income. Think about it, the creditor is due this money, the debt has been created; the creditor has 2 choices here…they can pawn the debt off on you and make you pay taxes on it or they can pay the taxes themselves. Since they are not receiving any compensation for the write-off amount, they don’t want to pay the taxes on something they never recovered. So most companies will 1099 (IRS tax form that you will get at the beginning of the year) you for the difference in the outstanding balance and the amount you settle the debt for.
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Clay Bowden has been a debt collector for 15 years, and is now the owner of Epic Internet Ventures. Which “Empowers People With Information So They May Help Themselves”. You can also visit The United Credit Authority to learn more about credit and credit repair laws.

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Tags: Clay Bowden, credit, Credit Repair, debt settlement, Epic Internet Ventures, united credit authority