Managing debt, credit scores



By Jerry Jackson
Joint Base San Antonio-Lackland Military and Family Readiness

130508-F-TG467-016Managing bills and budgets are a daunting task for people and families who have multiple credit cards, student loans and home mortgages to pay every month. These types of expenses are used by credit reporting agencies to calculate your credit scores and determine if you are a risk for all types of credit from auto loans to store credit cards.

Having a proactive plan to manage debt will help mitigate long-term financial issues that could affect your credit scores. Developing a budget and working with creditors and debt collectors will help curb the damage created by poor financial management. Here are some tips to handle overall debt:

  • Pay your bills on time, especially your credit cards and loans. These expenses, along with other monthly expenses, will result in negative entries on your credit report if they are not paid in a timely manner.
  • Limit the amount of outstanding debt you have. The amount you owe is compared to your income and the limits you are given by creditors. When you owe a lot, creditors will lose confidence that you will be able to make the required payments on time.
  • Live within your means.
  • Every budget or spending plan should contain less total monthly expenses than income.
  • Limit the amount of loans and credit card accounts you have. The more you have to manage, the greater the potential for errors and mistakes.

Have you reviewed your current credit scores lately? The Fair Credit Reporting Act allows consumers to request a free copy of their credit report once every 12 months from each of the three major credit reporting agencies (Equifax, Experian and TransUnion). Credit scoring models consider the following types of information in your credit report to help compute your credit score:

  • Payment history is a significant factor, and if your credit report indicates that you have paid bills late, had an account referred to collection, or declared bankruptcy, it is likely to affect your score negatively.
  • Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.
  • How long have you had credit? An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.
  • Have you applied for new credit recently? If you have applied for too many new accounts recently, it could have a negative effect on your score. However, every inquiry isn’t counted. For example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered liabilities.
  • It’s generally considered a plus to have established credit accounts, but too many credit card accounts may have a negative effect on your credit score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your overall credit score.

There are several government resources to assist people in managing their financial future. The Federal Trade Commission is the nation’s consumer protection agency that works to prevent fraudulent and unfair business practices. Service members and their families can also visit their local military and family readiness centers for individual financial counseling and basic budgeting and investment information.

PHOTO: According to Air Force Instruction 36-2906, Personal Financial Responsibility, consequences for financial irresponsibility may lead to involuntary allotments made on behalf of the creditor or garnished pay. With the help of resources such as classes and workshops held by the Airman and Family Readiness Center, counteracting and even preventing finances from becoming an issue is the first step to financial freedom. (U.S. Air Force photo by Airman 1st Class Monet Villacorte/Released)

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Managing debt, credit scores