This year is off to a great start now that my path to financial freedom is in full swing. Now that I have established the majority of my credit card accounts on a balance reduction program my debt is really getting knocked down.
This first quarter will probably show the biggest dip in my debt do to the fact that Chase's BLP program took off approximately $9,000 in interest payments. I'll be giving a full report on the progress of my five year plan to eliminate six figures of debt in the next couple of days.
One thing I need to do is check my credit report. I haven't done this in quite a while and I am afraid to look. I once had a high FICO score of 811 and I am sure this has been decimated by the high amount of debt I have plus late payments.
I began letting my payments go late as my financial house of cards collapsed. I had warned my creditors that there was going to begin to be a problem, but no one would listen. Once things became late they listened and as previously mentioned I was able to get on the debt reduction plans.
I will be pulling my credit in the next couple of days and I will report on that as well. But what has become of my credit score?
I have two main things against me when it comes to my FICO...late payments and big balances. How do those two things come into play?
If you have a great credit score a late payment can knock down your score by as much as 110 points. An average score can be dinged an average of 80 points. So my score I am guessing has been whacked pretty hard, but getting back on track should start pushing the credit score back up.
Barry Paperno, consumer operations manager at FICO says, "This continues to be the number one reason scores are lower. In addition to being a heavily weighted part of your score, if you're late on a payment, it's going to continue to appear on your credit report for about seven years."
It's a good thing that the longer it has been since you have been late on a payment, the less it impacts your score. So as time goes on this should help my score improve. The bad part is payment history accounts for 35% of your total score.
How much of your credit is used determines for about 30% of your score. So my six figures of debt was not only costing me a fortune in interest, it has probably killed my credit raing.
Bill Hardekopf from Lowcards.com says, "The best thing to do is pay your bills on time and pay as much of the balance as possible to try and keep your debt utilization ratio down and raise your credit score."
We discussed the other day that as part of the CARD Act that went into effect in February, creditors must provide a chart on your statement of how long it will take to pay off your balance if you only pay the minimum payments. In most cases it would take you 22 years to pay off your debt. The chart also shows if you pay a little bit extra you can have the debt paid off in 3 years.
I think this is going to be a huge wake call for most people and Hardekopf thinks the same.
He says, "It was shocking. This is going to have a dramatic effect on how much people are re-paying when they see it in black and white, and will be a positive move for their credit score."
So with my cards on BLP plans and me paying extra towards my other credit cards I am expecting my score to start improving almost immediately. I'll be posting the progress on my credit score with correlation of my six figures of debt soon. Stay tuned.
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