Our credit scores are calculated using a long-secret formula created by FICO (Fair Isaac Company), which created and computes our scores. FICO has recently disclosed to MSN financial columnist Liz Pulliam Weston how certain things like late payments, a debt settlement, a foreclosure or a bankruptcy will really affect your credit score.

Liz asked FICO to calculate the hit your score would take for each of these scenarios for someone with a 680 credit score and someone with a 780 score. (A 780 score is considered an excellent score.)

I was very surprised to see that the person with the higher credit score is likely to take a much bigger hit for everything from the late payment to a bankruptcy. Of course, no two customers are alike, so the point deductions will vary, even between two people with a 780 credit score.

According to Liz’s article, the point system takes into account any calculation that you’re in over your head. Things like late payments and maxed out credit cards are considered indicators that you might be headed for financial trouble.

Take a look at the story by clicking here. You can see for yourself how negative credit information may affect your credit score.

The important thing to take away from this is that you do not want to make late payments or max out your credit card. And you certainly don’t want to lose your home to foreclosure or file for bankruptcy if there is a reasonable way to avoid it.

If you have a low credit score, it is important to work to raise it. And if you have a high credit score, you want to keep it high. Credit scores have become increasingly important if you need or want to borrow money, buy a car or purchase a home. Credit scores can also affect your ability to buy a cell phone or how much you’ll pay for insurance.

If you are unable to make your credit card payments on time, are struggling with debt or are facing foreclosure, get help immediately. You can contact the counselors at Advantage CCS for reliable help exploring your debt relief options.

I have seen more and more places claiming that people have a “right” to settle their debt for 50 percent of what they owe. I’ve also seen quite a few ads somehow relating the government and the president to credit card debt relief.

Neither of these things are true.

No creditor has a legal obligation to accept less than the full amount that you owe them. Some companies are willing to consider a settlement offer, but many won’t.  And those that will accept a settlement aren’t doing it because they are legally bound to do so.

As far as the government goes, there is nothing in place to help people pay off their credit card debt.

The new CARD Act that is partially in effect regulates the credit card companies in some areas, but it does not offer any financial help to individual borrowers to reduce their debt.

If you are struggling with credit card debt, there is reputable help available. The best place to start is with a credit counseling session. Advantage CCS has a team of certified credit counselors who can review your financial situation and offer practical suggestions to pay down your debt.

Please research any debt relief company before you sign any paperwork or hand over any money. Make sure you are working with a reputable, non-profit agency that has your best interests in mind. And be especially watchful of companies that make promises that are too good to be true, or simply false.

The Fair Debt Collection Practices Act clearly defines what debt collectors are and are not allowed in do in an attempt to collect money. That doesn’t mean that all debt collectors follow those laws.

The Associated Press had this story today about a debt collection company using downright awful tactics in an attempt to get people to pay their debt. In one case the woman being threatened and harassed didn’t even owe the money. After reading that story, I saw a second story about a debt collection company getting sued over for trying to scam people.

While debt collectors are allowed to make attempts to collect money you legitimately owe, they cannot threaten or harass you. If you think a debt collector has violated these collection laws, it’s very important that you report the company to the Federal Trade Commission.

If you are contact by a debt collector:

·        Get the name, address and phone number of the collection agency.

·        Get the name of the person who has contacted you.

·        Keep a record of the phone calls you receive including the date, time and what was said during the conversation.

·        Ask the collector to send you written confirmation of the debt.

·        If you think that you do not owe the debt, send a letter to the collection agency that clearly states that you don’t believe you owe the debt and why. Keep a copy of the letter for your records. This might be one time where it would be worth it to send the letter registered mail, so that someone at the collection agency must sign for it.

With lenders using stricter standards to screen out risky borrowers, credit reports and credit scores seem to have taken on a whole new importance for people.

The bit of bad news is that if you’re someone with a bad credit history, there is no quick fix for your credit report. Only time can remove negative items that are accurate from your report.

In general, negative items will remain on your credit report for seven years. A bankruptcy can remain on your report for seven to 10 years.

You should review your credit report from each of the three credit reporting bureaus (Equifax, Experian and TransUnion) once a year. You can get a free copy of your reports at www.annualcreditreport.com. If you do see a negative item that is on your report in error, you should dispute the item with the credit reporting bureau. If you get your reports online, you can also dispute any incorrect items online. The web site will guide you through the process.

As time goes on, the negative items will carry less weight. Though it won’t remove the negative items, it may be helpful to pay any accounts that are past due and/or are in collections.

After that, the best thing you can do is to begin to rebuild a positive credit history.

Start by making sure that you pay everything on time. Past due accounts and collection items really hurt your credit score. You need to show potential future lenders that you are responsible and pay your bills on time.

If you have outstanding balances on your credit cards, pay off the balances. Once your cards are paid off, use them sparingly. Charge only a small amount each month and pay that amount in full.

With a little patience and wiser use of credit you can raise your credit score and make yourself more credit worthy.

I always viewed paying down debt and budgeting a bit like dieting. It’s really hard in the beginning. If you can stick with it, it gets easier and you can see progress. But, inevitably, at some point things level off and you feel like it’s a never ending task.

You start to get feel frustrated. You want to see more progress. You’re tired of “being good” and sticking to your diet. You long for a Burger King Whopper or a new pair of shoes.

That’s when a diet (be it a food diet or a debt diet) can really get derailed. That’s also the time not to give in to temptation and to keep moving forward toward your goal.

If you’re in the process of paying off debt, take a moment to look back and see how far you’ve really come. Remember your goal and why you’re on the path to that goal.

It’s also a good idea to look for inspiration. You’re certainly not alone when it comes to trying to become debt-free. There are many, many other people out there who are facing the same struggles and frustrations.

Check out this story about a freelance writer’s path to paying back $50,000 in debt if you’re looking for a little inspiration and encouragement.