Credit Issues and Advice
Personal Debt Issues
You and Your Credit;
Make it a Happy Ongoing Relationship
by Nancy Osborne, COO of ERATE
- Simply pay your bills on time period. This of course is obvious however sometimes it is necessary to underscore the obvious.
- Be sure that all of the information on your credit report is correct. It is estimated that at least 25% of all credit reports contain errors. Unfortunately, a truly accurate estimate is likely far higher. Check your credit history with all three credit bureaus and take action to correct any errors or misreporting. If your credit report shows late or missed payments that are more than seven years old, request that they be removed. Also ask that reported bankruptcies occurring more than ten years ago be removed from the report as well. Credit bureaus are required by law to respond to consumer requests to fix credit errors within 30 days. Follow up, be vigilant and hold them accountable if they do not act to correct any reported errors.
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- Keep the number of credit cards you have to a minimum and try not to carry a lot of open account balances. The more debt you carry, particularly on consumer loans, the more damage you will do to your credit score.
- Keep any outstanding balances you must carry to a minimum as part of the credit scoring equation may involve the monthly card balance carried as a percentage of the maximum allowed on the credit line.
- Do not be a balance transfer junkie. Transferring balances from one card to another occasionally is okay, but do not make a habit of it. Closing existing credit lines for which you have an established credit history and opening new, unseasoned accounts can be damaging to your credit score.
- Avoid using finance company loans. Beware of these are the so-called great deals that consumers are offered where “no payment is due” for up to a year. A finance company could be behind this deal fronting the money to the retailer and it may adversely impact your credit.
- Keep the ratio of your total debts relative to your earnings as low as possible. (This is something you will hear frequently in world of mortgage loan underwriting as well, particularly if you want to obtain the best interest rates possible).
If you've discovered you do have derogatory credit (the industry's term for bad), and hopefully this has not come as a complete surprise to you, you'll want to rebuild it just as soon as possible. With patience, discipline and a solid plan you will be able to turn things around in short order. So if your credit's hit a bump in the road, consider the following ways to re-establish it fast:
- First and foremost, you must start paying all of your bills on time now. For if you do not, anything else you do from this point forward will be futile. To eliminate any margin for error on your part, sign up for automatic bill pay, which many creditors and companies are set up for and would actually prefer that you use.
- Ask your creditors for more time to pay your bills and if you can avoid closing any existing, seasoned accounts that you have had for some time, you should do so. Because the longer you have had an account open the better it is for your credit score. Closing older, seasoned accounts that have an established credit history will only work against you and will further damage your credit score. However on accounts where you can significantly improve upon the interest rate and fees charged, and you would save good money by closing and transferring the existing balance to a new account, you should certainly consider doing so.
- Apply for a secured credit card, most banks offer them. Many require that you make a deposit with the bank and they will issue a credit card to you with a limit matching the amount (or a percentage) of your total deposit. Also, there will likely be an annual fee in conjunction with higher interest charged but you will be able to re-establish your credit this way. Most importantly don't be late as this is defeats your purpose and will prove to be quite costly. Note that although a secured credit card appears to function much like a debit card, with a debit card you are not actually using credit, as it is tied directly to your checking account and therefore debit cards will not help you in re-establishing your credit.
- Apply for credit with a retail department store. These cards are easy to come by and are offered, frequently with the added incentive of a discounted purchase price at the register (typically as you are checking out by either the cashier or sales clerk). Again the key here is to get the relatively easy-to-come-by credit, use it, pay it off and pay it on time every single month.
- Apply for a service station credit card (aka a gas card). Again, just as with the department stores, this credit is easier to come by and when used responsibly, will help you re-establish good credit. A back door way to obtain a service station credit card is to select a publicly traded oil company, purchase a nominal number of shares in the company (i.e. $250-$500) and enroll in the company's Dividend Reinvestment Plan. This would function in a similar way as the secured credit card but is also considered unsecured for credit reporting purposes. You can then apply for the service station credit card which is tied directly to the amount of shares you have purchased in the plan.
- Avoid for-profit debt consolidators and finance companies. The former has their best interest (as well as their bottom line) at heart, not yours. These for-profit debt consolidators typically charge a usurious-type fee for something you could accomplish on your own. And the latter will only do further damage to your credit score.
It's a discouraging fact that there are many out there who choose to make a living preying upon those who are down on their luck and uninformed. So be forewarned that you may be a possible target. There are a number of alleged “credit repair clinics” out there that will promise to negotiate with your creditors to establish lower monthly payments for you, and will attempt to collect advance fees from you in exchange for their services, and never really accomplish anything that benefits you. Many will simply attempt a “smoke and mirrors” system to remove negative information from your credit report (information that may in fact be true) by simply disputing it, hoping that it won't be verified by the credit bureaus and then must be removed from your report. If in fact a credit bureau suspects that one of these alleged “credit repair clinics” has had a hand in meddling into your credit, they may refuse to investigate the disputed information, with the end result being you've paid them for absolutely nothing. Or a worse scenario, one of these “credit repair clinics” may attempt to solicit advance fees from you in exchange for the promise of future loans that never materialize. These same scam artists may tell you they can create “a new credit identity” for you through the illegal practice of applying for a federal employee identification number which they'll advise you to use instead of your old, damaged credit associated social security number. This may be outright fraud at the federal level. Don't fall into this trap and further your problems, avoid these scammers like the plague.
How to Contact the Three Major Credit Bureaus Yourself:
P.O. Box 2104
Allen, TX 75013
P.O. Box 740241
Atlanta, GA 30374-0241
P.O. Box 2000
Chester, PA 19022
Credit Score Averaging
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.
Fannie Mae & Jumbo Mortgage Rates
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