Monthly Archives: June 2015

Impact To Your Credit Score From Small Debts

Are you dealing with a small balance collections account and wondering if it will effect your credit score? Today the collections industry is booming. Literally, in Buffalo, NY collection agency’s are one of the number one employers regionally, only medical services and government services beat that out. In their effort to maximize profit margins collection agencies now buy debt from anyone willing to sell it, which can include debts as low as a few dollars. Anything from credit cards to old library fines to movie rental late fees can end up in debt collections as a charge off. I have seen clients with collection accounts for as low as $1.27 believe it or not.

Basically any goods or services you use but do not pay for fully can incur a collections account no matter how small the debt is. The next question is will it effect my credit. The answer is that it depends. If the collection agency decides for whatever reason to report the past due account to the credit bureaus then yes your credit score will likely suffer. Yet it also gets more complicated than that as I will explain further on. The amount of debt owed does not impact your credit score, rather just the fact you did not pay for something as agreed upon with the creditor, your score will dip regardless if the debt was $1,000,000 dollars or just $1.00 for a late movie rental charge that was never paid.

There is two exceptions to the above rule of course. There is always exceptions to everything in life am I right? The first exception is for the VantageScore 3.0 credit score model. While many creditors do not use this model some do. The VantageScore 3.0 credit score model does not factor in any past due accounts that have been settled or paid in full, so if you pay the small past due account it will not effect your credit score with any lender using the VantageScore 3.0 credit scoring model. Of course other credit scoring models it will impact your credit score. You can’t win them all of the time, only some of the time.

The second exception to the above rule is for lenders who opt to use the FICO8 credit scoring model. While this model was released in early 2009 many lenders do not use it, but many more lenders today are using the FICO8 model. Under the FICO8 model collection accounts with amounts under $100 are excluded from affecting your credit score, so a small debt of say $10 will not drop your score under this model. It is important to note that unless the past due account is 6 plus years old you should pay it off. If the account is 6 or close to 7 years old at the 7 year mark it automatically falls off your credit report, so you could simply opt to not pay it and let it fall off your credit report in the coming year.

If you do find that you have a debt appearing on your credit report or after being contacted by a collection agency, you should pay the debt off after verifying that the debt is valid. The reason I state you should verify the debt is I have worked as a debt collector and know from first hand experience that many mistakes are made on the collections end or on the creditors end and so called debts actually do not exist, such as debts that were paid on time but an error caused it to be reported as not paid.

Is Whole Life Insurance Considered a Good Financial Investment

When people talk about assets, there is one asset often times left off of the list. Life insurance is an oft forgotten asset class. Assets are anything you pay for today and hedge to be worth cash flow at some point in the future. Life Insurance, specifically Whole Life works exactly like that. Many of you will not even know what whole life insurance is, as after the 1981 Tax Equity and Fiscal Responsibility Act (TEFRA), many insurers began to push Term life insurance. People at the time began to question the need to pay a little bit more for whole life insurance. Term life is cheaper when you are younger and have little need for life insurance, but whole life policies bought when you are younger become cheaper as you get older. When it comes to insurance, most people do not understand fully the polices they buy, this is especially true today with life insurance, more so in the difference between whole life and term life policies.

Term life insurance has a temporary lifespan. for a time the premium is level, but after a period of time, the premiums increase yearly, until such a time as the premiums become so expensive that continuing to hold the policy becomes cost prohibitive, and the need to terminate the policy occurs, often when it is needed most, when the would be policy holder is near their time of death. The only benefit to term life insurance is the death benefit.

Whole life insurance the premium is set, the premium will never increase. If you can afford the premium today, chances are you can keep the policy for life. The big difference with whole life insurance is it is also an asset. Whole life insurance policies are a tax-sheltered cash account. The money you put into a whole life insurance stays with you for life. Whole life insurance accounts also gain interest, and you do not pay taxes on these gains. Much like stocks, whole life insurance has dividends. The dividends can be used in one of two ways, to reduce the cost of the premium, or added to the cash inside the policy and the face amount. Term life insurance has little to no dividends, and no way to reduce the premium, the premium only increases with term life insurance. With whole life insurance policies, you pay no current federal income tax on potential cash value growth. As the cash value of your whole life insurance policy rises, it is not subject to current taxation. You can also borrow against your whole life insurance policy, and you will not pay federal income tax when you borrow from the cash value of the policy through loans. Loans you see are treated as debts, not taxable income. Carrying a whole life policy for 5, 10 or 20 years can help you build up a sizable non taxed nest egg you can tap into for loans, and borrow against in retirement, if the loans are structured properly. The only thing one needs to keep in mind about whole life insurance when it comes to borrowing against it, is that there is interest being charged, and can reduce the death benefit and overall cash value of the policy. Yet with whole life insurance you only get a death benefit, nothing that you can use when alive, and the premium increases at a steady rate as you age. You can also be dropped from term life insurance, but whole life you cannot be dropped due to age or health conditions, and your premium cannot be jacked up due to any health conditions you might develop as you age.

To sum things up with whole life insurance:

* Policy builds up cash value that can be borrowed against

* Policies cash gains are tax exempt

* Premiums never increase, hence the name “whole life insurance”

* Considered an asset class due to the fact these polices gain value and can be used to borrow against in times of need.

* Principal protection guarantees of your money. Not subject to lose like mutual funds and stocks.

* Dividends paid to policy owners are not taxable.

* Properly structured whole life insurance policies carry high cash value even in the early years of the policy.

* Unlike some assets like a retirement IRA or 401(k)s, you have access to your cash value at any age, at any time, for any reason, without taxes and penalty’s.

* A whole life insurance policy is like your own personal bank that you can loan from to pay debts or to create more wealth.

* Unique tax benefits. Any funds inside the policy are tax-free for life. When you do finally pass on, the death benefit is also tax free for your beneficiaries.

* No other investment carries the sheer amount of benefits that whole life insurance carries, not stocks, bonds, term life, 401(k)s or IRAs or real estate.

Money saving tips on loans, credit cards, financing and insurance provided by the editorial team @