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Before you decide to settle your credit card debts make sure you are well informed with the true facts. Debt settlement can hurt your credit score.  Your credit score will not be damage as long as you try to settle your credit on your credit card debts. A debt settlement advertisement sounds appealing but is it true that credit card debts can be settled for less?  You have many options to settle your credit card debts. Your best option would be to consult a non-profit credit counseling organization first so that can help you see your options, advice you on how to increase your income or manage your present budget.

Another option is to try calling your credit card company to inform them of your financial situation.  Make it clear that you are willing to make a payment or are willing to settle with them. They may give you “forbearance” this is explained simply as allowing you to make smaller payments or no payments for the time being (interest will still be charge). Speak directly to whoever is in charge since they are most likely the one who will offer you a reasonable payment arrangement or settlement. You can write a letter address to the department manager or the president of the company stating your plan how to pay or settle your debts with them. Be specific with regards to how much you are willing to pay and the dates that you will make this payment.

The goal of settling your account is to reduce this to a manageable amount. If your creditor is not willing to settle with a 30% to 40% range decline to make an arrangement during that time. Odds are later on you will receive a letter from them that contains an arrangement that is more favorable for you. Although the waiting period can be stressful being patient can help your cause. Credit card companies will settle at a point that will be favorable to them that of settling for something than nothing at all. Get all your deals with them in writing before you send the payment to make sure that the person who negotiated with you has the authority to do just that. Be sure that the payment that you send will settle your credit card debt.

If ever you decide to take another option that of using the services of a debt settlement company here are the facts that you must know. Many debt settlement companies range from either reputable ones to those that are totally a scam. If the debt settlement company (see Curadebt review) belongs to The Association of Settlement Companies (TASC) chances are they are reputable ones since before they can become a member of the association they must comply with standards and TASC bylaws. The biggest difference among these companies is that whether they allow you to control your money or not. Some debt settlement companies keep your money in an account that to negotiate lump sum settlements with your creditor. They charge you with a certain fee for the company’s services.

Credit scores have been developed to aid banks and lenders in making their decision towards a loan application. It helps gauge quickly if the loan applicant is capable of repaying the amount that is going to be lent to him or her. It is therefore a representation of one’s credit worthiness.

The first to develop a scoring model was Fair Isaac Company abbreviated as FICO. The FICO score became a standard in the industry.  I know I have stated it a million times throughout the site, but here it is a again. The formula considers five aspects. They are Payment History, Total Debt Amount, Length of Credit History, Credits Used, and Types of Credits Availed.

When these factors are used in the formula, a credit score is drawn. Under the FICO scoring range, the scores may be around 300-850. If one’s score is around the 700 range, you are perceived by banks as a good borrower. Go beyond that and banks will never turn down your loan plus you’ll get great interest rates from them.  The risky applicants are those that have scores below 500. There will be difficulty in getting loans approved if your scores are interpreted as bad. This is the main reason why people of modest earning must sustain a good credit score or rebuild it if it’s in a bad condition.

And here are the ways to start the recovery process. First, paying on time is a good habit. A tardy or a default on your card gets reported to the credit bureau and it will hurt your score.

Second, when it comes to paying bills you may use either cash or your credit card. Rule of thumb, use cash first if that’s available. Use a credit card only during emergency or if your cash is insufficient. When it comes to paying your credit card bill, never use the same card. Check which card has the least APR to lessen the damage just in case you’d run into the possibility of defaulting in your payment.  If you’ve been a good payer with your credit card for so long, it would be wise to check with your bank if they have a lower APR promotion available that you could switch your card under. This will help a lot at the time when you aren’t able to fully pay your balance. At least the new rate becomes the basis for computing your interest.  Remember the web of credit card debt is so sticky that when you fall trap in it, the means of escape is going to be steep especially if your card has been given a high APR.

Another instrument to improve your credit score is to do a debt clearance. This is a good way to save oneself from a mounting credit card debt. You could transfer all debts to an account that is offering the least APR at a longer term. Debt repayment would be convenient for you and once your debt is cleared, you’d notice a recovery of your credit score. Never close accounts all at once. That’s not the solution and that’s not debt clearance.

Lastly, create a financial map and see where all your earnings go. Ascertain that after expenses and spending, there is still some extra cash left for your savings. Most of the trouble with finances happens because of bad spending habits. So if your credit score is bad then that is indicative of a poor fiscal management. It would be timely to reassess your spending habits to guarantee that moving forward no default would occur.   It all takes a good financial discipline to rehabilitate an awful score.

People often ask the question “Will paying off my credit card debt help my credit?”  The answer is a resounding YES! Credit score also known as FICO (Fair Isaac Corp.) score which can be anywhere from 300 to 850. As of 2010, scores above 700 are rated “good” to “excellent” while scores under 680 are “fair” and scores below 620 are “poor”.  Your FICO score is based on these categories:

• Payment history. This consists of your payment records and list of any judgments, accounts sent to collection or bankruptcies. 35% of your credit score comes from this.
• Amounts Owed. This is the amount that you owe and the amount of available credit that you have used. This accounts for 30% of your credit score. This is the reason why it is better to pay your debts. Often referred to as debt to credit ratio.
• Length of Credit History. Average time that you open your account. Accounts for 15% of your credit score.
• Types of Credit Used. Mix of credit products that you have. Accounts for 10% of your credit score.
• New Accounts. This refers to new accounts that you have open. Accounts for the final 10% of your credit score.

It pays to pay your credit card debts to improve your credit score. Lowering your credit card balance has a positive effect on your debt to credit ratio. Remember that when you were issued credit, your creditor gave you a maximum credit line also known as credit limit.

Most experts advise you to use only 30% of your credit line in order to achieve your best credit score. If you have gone beyond 30% then it is wiser to pay off your debts to help your credit score.

How much Can You Pay? If you have a monthly budget use the information that you have to know how much excess money you can spare to pay for your credit card debts. There are two methods of paying your credit cards:

• Highest interest rate first. This is especially true if the highest interest rate credit card is also the card with the highest balance. Do not lose hope even if you think it is taking a long time for you to pay your debts.
• Lowest balance first. It is quicker to pay off this balance aside from giving you the feeling that you have accomplished something towards your goal of paying all of your debts.

Pick the method that you are more comfortable with. Then write down your debts in the order that you will pay them. Write down the interest rates, balance and minimum payment that you can make. Allocate your excess money set aside just for the payment of your credit card debts by paying off the credit card on the top of your list. Once you have repaid the first one on your list cross it off and focus on the next card and so on and so forth.

While paying off debt seems like an arduous process it is your chance to improve your financial situation. You also have the benefit of paying less in interest if you pay off your debt faster. A good credit score is achievable if you place your mind in it.