Assume you or someone you know has had debt/credit problems in the past. The question is, ‘What can you do about it now?’ It wasn’t an overnight problem; there won’t be an overnight solution. Advantage Credit Counseling Service is here to guide you with credit card counseling services that can help with your debt management.
Credit reputation is very important. Restoring that reputation should be a priority. Poor credit can have a negative effect on the three major areas of your life: where you live, where you work, and your ability and cost to get future credit.
Two of the most important things to remember about credit repair are:
- It IS a do-it-yourself job.
- There are NO quick fixes.
Be proactive about your credit and credit card debt situation. Request all three of your credit reports annually, and take appropriate steps to make sure your information is accurate. Beware of credit scams and organizations that claim they can ‘fix’ your credit. Take time to re-establish credit while managing and maintaining it as you begin to get your good credit back.
HOW TO OBTAIN YOUR CREDIT REPORT
Be proactive about your credit situation by annually requesting your credit report from ALL three of the following major credit bureaus:
Equifax Credit Information Services – 1-800-685-1111 www.equifax.com
Experian (TRW) – 1-888-397-3742 www.experian.com
TransUnion Corporation – 1-800-888-4213 www.transunion.com
You are entitled to a free copy of your credit report IF a company takes adverse action against you, such as denying you credit, insurance or employment. You must request it within 60 days of receiving the notification from the one credit bureau that provided the information. To obtain your free report, follow the instructions received from the credit grantor in the notice or mention your denial to the credit reporting agency.
In addition, you’re entitled to one free report per year from each of the three credit bureaus IF you certify in writing that one of the following situations applies to you:
- You’re unemployed and plan to look for a job within 60 days.
- You’re on welfare.
- You’re a victim of fraud or suspect you’re a victim of fraud.
Call the above toll-free numbers for the current mailing address for each of the three bureaus, and then mail your request to each.
You are also entitled to a free credit report every year from www.annualcreditreport.com because of a government law. You can get all 3 reports at the same time, but only ONCE per year. Or you can get one report from Experian, and then 3 months later get it from TransUnion, and then 3 months after that from Equifax to spread it out and watch your credit report all year long. We recommend getting them this way instead of just once per year because a lot can change on your report within a year.
CREDIT REPORTS 101
A credit bureau is the most common type of Credit Reporting Agency (CRA). There are three major credit bureaus (Equifax, Experian, and TransUnion) that gather and sell information about you. The information that each credit bureau has may vary, and it is compiled in what is frequently referred to as a credit report.
Credit bureaus collect the following four basic types of information:
- Identification and employment – includes your name, address, birth date, Social Security number, and employer.
- Payment history – lists your accounts with different creditors and shows how much credit is extended and how you repay them (on-time or late). Collection activity may also be included.
- Inquiries – lists creditors, businesses or persons who have requested your credit history.
- Public record information – events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may be included in your report.
You have the right to know what is contained in your report as per the Fair Credit Reporting Act (FCRA). The FCRA is designed to promote accuracy and ensure the privacy of your information, in addition to outlining dispute procedures if you find errors, you can initiate a credit score repair.
It is recommended that everyone requests and reviews all three credit reports once per year, and three to six months before applying for credit for a major purchase (house, automobile, etc.). This gives you time to correct any inaccuracies and repair your credit score. It is important to note that only the passage of time can remove negative information that is accurate. Generally, accurate negative information can remain on your credit report for seven years and bankruptcy information may be reported for 10 years. The standard method for calculating the seven-year period is seven years from the date the negative event took place.
If you find inaccuracies in your report, both the credit bureau and the provider of the information, such as bank or credit card company, have responsibilities to implement a credit score repair procedure and correct the information. To protect your rights under the FCRA, dispute the information by contacting both the credit bureau and provider in writing, certified return receipt, explaining what is inaccurate. Supply copies of supporting documents, and keep copies of what you send. The item in question must be investigated usually within 30 days. If the disputed information cannot be verified, it must be deleted; if it is incorrect, it must be corrected. You will receive written results when the investigation is complete and a free credit report if the investigation resulted in a change. You also have the right to add a written explanation to your report.
FAIR DEBT COLLECTION ACT
The Fair Debt Collection Practices Act is the federal law that outlines how and when a debt collector may contact you. To summarize this law, a debt collector may not call you before 8 a.m. or after 9 p.m. or at work if the collector knows your employer does not approve of the calls. Also, a debt collector may not harass you, make false statements, or use unfair practices in an attempt to collect the debt. Debt collectors must honor your written request to stop further contact, although this does not make the debt go away if you actually owe it.
Consider keeping a log by the phone to document collection calls. If you find a debt collector has violated the law, contact your state attorney general’s Office or the Consumer Protection and the Federal Trade Commission (FTC) Bureau of Consumer Protection at 1-877-FTC-HELP (1-877-382-4357) or file a complaint online at www.ftc.gov.
CREDIT REPAIR COMPANIES
Everyday consumers with poor credit are promised, for a fee, that their credit history can be ‘fixed’ or cleaned up. These promises of credit repair are advertised on TV, on the Internet, and on the radio. You may even receive phone calls from telemarketers or receive letters in the mail from companies that claim they can erase or remove bad credit or tell you how to create a new identity. These companies are known as credit repair companies and they cannot deliver. Don’t believe these claims. Save yourself some money; no one can remove negative information that is accurate. Only time, a conscious effort, and a debt repayment plan will improve your credit.
Credit Repair companies may encourage you to violate federal law. You will be committing fraud and may be subject to prosecution if you:
- Make false statements on loan applications.
- Misrepresent your Social Security number.
- Get an Employer Identification Number (EIN) from the IRS under false pretenses.
Beware of companies that:
- Want you to pay for services up front.
- Do not tell you your legal rights and what you can do yourself for free.
- Recommend you do not contact the credit bureaus directly.
- Suggest that you try to invent a ‘new’ credit report.
- Advise you to dispute all information in your credit report.
By law (Credit Repair Organizations Act), credit repair companies cannot require you to pay until they have completed the promised services, and the credit repair company must:
- Give you a copy of the ‘Consumer Credit File Rights Under State and Federal Law’ before you sign a contract.
- Give you a written contract that spells out your rights and obligations such as payment terms, description of the service and how long it will take to achieve results (carefully read this contract before signing).
Before you do business with a credit repair company, check it out with your local consumer protection agency and the Better Business Bureau in the company’s location. If you have had a problem with a credit repair company, report it to your local state attorney general and the Federal Trade Commission (1-877-FTC-HELP).
REMEMBER, CREDIT REPAIR IS A DO-IT-YOURSELF JOB!
CREDIT CARD SCAMS
Consumers with current or past problems may be targeted for scams as well as those consumers who are unable to get credit through legitimate means. BEWARE!
The following keywords should serve as red flags to credit offers. If you see these words, carefully read the fine print, and ask questions before responding:
Automatic Approval – means little, except that you met the company’s screening criteria to be sent the offer. You know your credit history. A legitimate company will still want to check your credit report before giving you the card.
Checking Account Scams – claims of easy credit if you give your checking account number. Never give your personal information unless you initiated the call and know with whom you are dealing. If you receive a phone call or postcard asking for your checking account number, promptly request the written information be mailed to you before making any decisions.
Credit Card for a Fee (upfront not annual) – you may send the fee and never get the card. Think twice before you send money for a credit card offer.
‘Gold Cards’ – ‘all that glitters is not gold’. Is it a real VISA or MasterCard Gold or merely some type of catalog shopping card with limited use?
One-Shot Credit Cards – used by department stores and outlets so that you can make a one-time purchase (major appliance). You may be deceived into thinking this is a regular revolving account that will build credit while it is merely a single use card which does little to re-establish your credit.
Secured Marketing Scams – offers of easy credit if you pay a deposit. Watch for 900 number calls, which are not toll-free and can be costly. Legitimate companies will still want to check your credit history before giving you the card. Carefully research fees. Make sure your deposit is not being used up by fees. Before you apply ask what the total fees are and if they will be refunded if you are denied the card.
STRATEGIES TO RE-ESTABLISH CREDIT
Credit reputation is very important. Restoring that reputation should be a priority. There is no rule for how long it will take following difficulties to be considered by lenders. It is dependent on the seriousness of the problem as well as the type of credit problem and time period involved.
Consider the following suggestions while keeping in mind that rebuilding credit takes time and patience.
- Open and maintain checking and savings accounts – build a good relationship with a financial institution (bank, credit union, etc.) by showing a pattern of financial responsibility.
- Balance your checkbook monthly, don’t bounce checks, and regularly make deposits in your savings account. Bounced checks may pose a problem; make sure they are paid before attempting to open new accounts.
- Take out a small loan from your financial institution using your savings or Certificate of Deposit (CD) as collateral, save the money (don’t spend it) and make on-time payments to build your credit history. Make sure the lender will report the loan to the credit bureaus.
- Pay any outstanding debts – if you owe it, pay it. If you cannot pay the bill in full, contact the creditor to set up a payment plan.
- Plan a budget to ensure new credit purchases are affordable, and live with it. If you cannot afford a new debt now, wait and save.
- Check your credit reports from the three major credit bureaus once per year to ensure accuracy and promptly dispute any errors.
- Start a file called your non-traditional credit history with all of your positive credit/payment information that is not found in your credit report. Reporting to the credit bureaus is only voluntary and there may be good payment references not reflected in your report such as rent, certain utilities, auto insurance, medical bills, etc. Save receipts and statements for your file, and ask your landlord for a letter of credit reference. Show this to the loan officer or bank manager when you are pursuing a loan.
Credit Use – When you are ready; begin to apply for credit after careful thought and research, and use it appropriately. Start small and build slowly by:
- Applying for a department store card or gasoline card.
- Financing a purchase through a local dealer or store.
- Applying for a secured credit card through your bank or credit union. A secured credit card can be a good start. It requires you to make a deposit that is used as collateral to secure a line of credit.
- Ensuring the lender that you can handle the debt and are less of a risk. You may need to provide collateral, make a larger down payment, have a co-signer or offer a payroll-deducted loan or automatic bank draft for payment. If you have a co-signer, make sure the loan is being reported to the credit bureaus in your name and not just the cosigner’s name.
- Not applying for too many credit cards at once. Applications for credit are called inquiries and are listed on your credit report for up to two years. Too many inquiries can be a red flag to creditors.
SECURED CREDIT CARDS
Specifics of Secured Credit Cards
A secured credit card is a credit card that requires you to make a deposit that is used as collateral to secure a line of credit. This can be an ideal way for consumers with no credit history or previous credit problems to build good credit. You build credit by demonstrating the responsible use of credit and making payments on time.
If you have had credit problems and are getting back on track, you should be considered for a secured credit card as long as your credit problems are in the past and are now under control. Even if you have filed bankruptcy, many companies will still consider you as long as your credit report does not show earlier unpaid debts not settled in the bankruptcy proceedings. In general, make sure your bills are current and there has been no negative information reported on you in the six months prior to applying.
There is no physical difference between a secured card and an unsecured credit card. They look and work the same. The difference is that you make a deposit (for a secured card) that is used as collateral in exchange for a line of credit. An unsecured card does not require a deposit. Your deposit is not accessed unless you seriously default on the credit card account, and if you close the account, most issuers wait for two billing cycles before releasing your deposit. Many companies pay interest on your deposit. Think of it as a savings account that may even earn interest while building a good credit history.
Minimum deposit requirements can vary among companies. Some issuers will accept applicants with a deposit as low as $100 while many require $500. You can deposit more than the minimum required. Generally, the amount of your deposit equals your credit limit. A good general rule of thumb is to try to deposit at least 5% of your annual income. Keep in mind that even though you’re making a security deposit, that doesn’t guarantee you’ll be approved. If you’ve ever been convicted of credit card fraud, bankruptcy fraud, or have unsettled tax liens, you’ll rarely be approved.
Most charge higher annual fees and interest rates than unsecured cards. Once you have a secured credit card, use the card once or twice a month for something you were going to buy anyway and pay off the balance every month. Think of it as a stepping-stone or temporary (one-two years). When you are re-established, you can shop for a credit card with better terms.
Policies vary with secured credit card companies for converting a secured card to an unsecured card (one without a deposit). Some (not all) secured card issuers will review your payment record at the end of the first year and, if favorable, return your deposit and convert your account to unsecured. Others may raise your credit limit, and others may require you to request an account review to convert your card to an unsecured card or raise your limit.
Finding a Secured Credit Card –
If you are considering using a secured credit card to build good credit, take your time, ask questions, and do your research because policies vary. Start with the bank or credit union with which you already belong and ask if they offer secured credit cards. If you don’t belong to a credit union, consider joining one at your place of work, through a family member or through organizations with which you belong. Learn more about credit unions at www.cuna.org. You may also search the Internet for secured credit cards at www.cardtrak.com (click on find a card under Card Locator and then select secured).
The following is a list of questions to ask when shopping for a secured credit card. Remember to ask your questions before applying, so that an inquiry does not show on your credit report. If you are not interested, don’t like the terms or if the company will not consider you, find another company.
- Do you accept people with previous credit problems or those who have filed bankruptcy?
- Do you report my payment history to the credit bureaus?
- What are the terms and fees associated with this card (make sure you understand them)?
- What is the minimum security deposit required to open an account?
- Will my credit limit be equal to my deposit?
- Is interest paid on my deposit, and if so, how much and when does it begin earning interest?
- What is the annual percentage rate (APR)? Is it fixed or variable?
- Are there transaction limits? For example, if you are limited to five transactions per day, this might pose a problem if you are out of town or on vacation and need to use your card frequently.
- Is there a grace period? How long is it?
- What are ALL of the fees involved with this credit card including annual, monthly, over-the-limit, late, and cash advance. In addition, ask about any one-time setup fees, such as a processing or application fee.
- Does the issuer charge a special fee to access or review information on your account? For example, will they charge you every time you check your balance even from an automated system? Will they charge you to review your account to increase your limit?
- How long will it take me to be considered for an unsecured card? Is this automatic or must I request it?
- For what reason(s) would my account be revoked and what is the fee to reinstate the account?
- Is there a 24-hour customer service number?
- Lastly, READ THE AGREEMENT including all fine print!
MANAGING FUTURE CREDIT
It is important to use your new credit appropriately to avoid any more problems. Successful credit management includes learning to be a better shopper and keeping records of credit use and finance charges. Follow these suggestions:
- Plan how to pay for an item before purchasing it rather than buying it now and worrying about it later.
- Track credit expenses by keeping a written record so you know how much you charge each month. Paperclip a piece of paper to your credit card and promptly write the date, amount, and merchant. This helps you to not overcharge and provides an easy reference when reviewing your statement for accuracy.
- Keep an eye on your creditors by always reading your statement and all inserts. Make sure you know your due date, credit limit, APR, annual fee, minimum monthly payment, APR for balance transfers or cash advances, etc. Creditors can change your terms of agreement with as little as 15 days notice. If you don’t agree with the new terms, consider canceling the account. Before canceling, find out if the company will expect the balance to be paid in full when the account is closed or if you can continue to make monthly payments until the balance is paid in full. Also, ask if the interest rate changes (increases) on the balance if you close the account. If so, wait until you pay off the balance before closing the account.
- Develop a system for paying bills on time to avoid late fees and protect your credit history. Know when bills are due to arrive, and when received, put them in a safe place. If your bill does not arrive when expected, call the company to inquire. Use a monthly calendar to write the amount on the due date, and mail your payment, at least, one week before the due date. Save credit receipts and payment stubs for future reference.
- Don’t charge disposable items (gas, food, or other debts) unless you intend to pay the balance off every month. Who wants to finance a gallon of milk for 7 months?
- Transfer high-interest balance to a card with a lower rate. Watch interest rates and always shop for the lowest rate, while paying close attention to any fees. If you transfer a balance, always cancel the higher rate card by notifying the company in writing and be sure to send it to the appropriate address. Make sure there is not a transaction charge to transfer the balance. Ask the issuer of the new card what is the method to transfer balances. For example, do they have payment checks they can send you? Make sure the lower interest rate on
- Only charge what you can afford to pay off each month. Use credit to your convenience. Think of credit cards as an interest-free loan that you pay in full every month. Limit credit use to 15% of your monthly net income.
- If you can’t pay off the balance, always pay more than the minimum payment. Do not fall prey to the minimum payment syndrome where you squeak by each month by only making the minimum payments. Consider this example: A consumer has a credit card with a $5100 balance at 27.99% APR. The minimum payment is $104 and the interest charge is $109. Making minimum payments, will this ever be paid off? NO, you will never pay off this balance.
- Concentrate on highest interest credit card. If you have more than one credit card balance, pay as much extra money each month as you can on the highest rate account while still making payment to the others. Once the card with the highest interest rate is paid off, use that payment and apply it to the card with the second highest interest rate. Repeat as necessary.