Thursday, December 3, 2009

Collapse In Consumer Credit May Slow Recovery

Millions seek to repair damaged scores — here’s how to get started:

By: John W. Schoen

Among the many legacies of the housing bust is a widespread collapse of consumer credit. In the space of a few years, bankers have gone from lending to anyone with a pulse to demanding a pristine payment history.

The result is a collapse in consumer credit that shows no signs of easing. In September, the latest figures available, revolving consumer credit fell at an annualized rate of 13.3 percent.

The situation is worsening. In the first half of the year consumer credit was dropping at a rate of just under 10 percent.

No one is suggesting we go back to the reckless days of setting up tables at college orientations to hand out credit lines to freshmen. The credit card industry learned the hard way that when their models break, the results can be painful for all concerned.

But the lending spree has destroyed the credit histories of millions of Americans.

The rules of the consumer credit game suggest it will be years before those failed borrowers are able to dig themselves out of the hole. Until those households get access to credit again, our consumer-driven economy will continue to slog along in low gear.

In the meantime, there are steps consumers can take to get back in the good graces of the financial services industry that helped put them in a hole they find themselves in.

"I am trying to build credit for myself and husband. I have a low credit score, and he has none. We bought a truck and it's under both names, so we are hoping after we pay it off it will help with our credit. He has a repo under his belt and I have a couple of phone bills that I let get too high and couldn't pay them off. So my question is, what can we both do to build and increase our credit scores? We want to buy a house in the future and would like to build our credit so it won't be so hard on us. Any information or ideas that could help?
— Crystal, Amarillo, Texas

There are lots of reasons for financial setbacks, some of which you can’t control. With the “real” unemployment rate pushing 20 percent, job loss is a big one. Health setbacks are another; nearly two out of three personal bankruptcies were the result of out-of-control medical bills.

Letting the phone bill “get too high,” on the other hand, isn’t on the list of uncontrollable setbacks. You can fix that right away.

But it will take more than a few months of prompt payments to get back on track. The formula created for scoring credit doesn’t care why your payment history faltered. Maybe you're one of those people who just can't stick to a budget. Or maybe you happened to have hit a period of bad luck.

The credit algorithm can’t handle that distinction. That’s a pretty big flaw in the “science” of calculating credit ratings.


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Tuesday, November 24, 2009

5 Ways To Kill Your Credit Scores

By Liz Pulliam Weston

One of the questions I'm asked most often about credit scores is exactly how much certain actions affect people's scores.

What good is a good credit score?

Until now, the best I could do was say, "It depends." That's because the company that created the leading credit score, the FICO, has been wary about releasing specifics.

Fortunately, that just changed. At my request and for the first time, the company (also known as FICO) has released details about how specific actions, from maxing out a credit card to filing for bankruptcy, can affect people with different credit scores.

I asked the company to compute the results of those actions for two examples: a person with a 780 score, which is an excellent score on the 300-to-850 FICO scale, and someone with a 680 score. The results:

Effect on a 680 score Effect on a 780 score

Maxed-out card
-10 to -30
-25 to -45

30-day late payment
-60 to -80
-90 to -110

Debt settlement
-45 to -65
-105 to -125

-85 to -105
-140 to -160

-130 to -150
-220 to -240

Source: FICO

The results are given in a range because FICO is still a little nervous about revealing too much about its proprietary scoring. But the range is fairly tight, and we can clearly see the disparate impacts of the different actions.

A Guide, Not a Guarantee.

Before we go further, I have to make this clear: Your mileage may vary.

People with the same credit score can have very different credit profiles: more or fewer accounts, a different mix of accounts, a longer or shorter credit history, use of more or less of their available credit, etc.

Because of those differences, the same action -- maxing out a card, say -- can have different effects on people with the same score, depending on the details of their individual credit profiles.

For the sake of this exercise, FICO assumed both people had several active major credit cards as well as a mortgage, a car loan and student loans.

The person with the 780 score:

Has at least 10 credit accounts in total and a 15-year credit history.
Uses 15% to 25% of her credit card limits.
Has no late payments on her credit reports.
Has no collection accounts or other major negatives.
The person with the 680 score:

Has six credit accounts and an eight-year credit history.
Uses 40% to 50% of her credit card limits.
Was 90 days late on an account two years ago.
Was 30 days late on another account one year ago.

Here's what you need to know about each action and the effect it had:

1. Maxing out a credit card

Using 100% of your limit on any credit card puts you at risk of over-limit fees. It also takes a bite out of your credit score.

Our person with the 680 score might lose 10 to 30 points from this one action, while the 780 scorer could shed 25 to 45 points.

The difference points up an important fact: The higher your score, the more points you tend to lose from "bad" actions. That's because the scoring formula is sensitive to any sign you're getting in over your head. Maxing out a credit card is considered one of those signs.

You also should know that it typically doesn't matter to the formula if you carry a balance or pay off that maxed-out card as soon as you get your statement. What's usually reported to the credit bureaus is the balance on your last statement. Even if you pay the debt in full before the due date, the maxed-out card will hurt your score.

2. Skipping a payment

Mailing a payment a few days late normally won't hurt your score, although you may incur late fees and trigger higher interest rates. The big hurt comes when you miss a payment cycle entirely.

A 30-day-late report would shave 60 to 80 points from our lower-scoring person and 90 to 110 points from our higher scorer. In other words, one lapse of attention could plunge the 680-scorer into subprime credit territory, and our 780-scorer could find credit much harder to get and more expensive.

This is why it's so important to set up automatic payments to ensure your bills get paid on time, all the time. With credit cards, you can set up automatic payments that take the minimum payment out of your checking account to ward against a late payment. You can always make a second payment that reduces your debt or pays it off entirely. You can sign up for automatic payments on the Web site of your card issuer.

3. Settling a credit card debt

All the advertisements about "settling your debt for pennies on the dollar" make debt settlement sound like a great solution. But failing to pay what you owe a creditor will take a serious toll on your score.

The 680 scorer would lose 45 to 65 points with this maneuver, while the 780 scorer would shed 105 to 125 points.

Our scenario assumed that our borrowers would miss one payment before settling the debt with their credit card companies. In reality, debt settlement negotiations can drag on much longer, with each missed payment taking another chunk out of your score.

Settling a debt with a collection agency would hurt less, probably much less, because the FICO formula is set up to weigh more heavily what the original creditor says about you than what a collection agency reports. But if our borrowers were settling with a collection agency instead, their scores would be lower to begin with, because they would have collection accounts on their records.

Also, you should know that the amount of debt your creditor "forgives" in a debt settlement solution is typically added to your taxable income. So you may save some money by settling a debt, but you'll give some of it back to Uncle Sam in higher taxes.

4. Losing a property to foreclosure

Foreclosure deals a severe blow to your credit score: 85 to 105 points for our person with the 680 score and 140 to 160 points for the one with the 780 score.

Foreclosures have implications for your future ability to get a mortgage as well. Although your score may start to improve as soon as the house is gone, mortgage lenders may not be willing to extend you another home loan until two to four years have elapsed.

In an attempt to protect their credit, many people attempt short sales, selling their houses for less than what's owed, with the lenders' permission. Unfortunately, these transactions, even if successful, are often reported as settlements. And a settlement, as you've seen, is pretty bad for credit scores.

To lenders, a short sale isn’t quite as bad as a foreclosure, though, and it may be easier to get another mortgage once you’ve rebuilt your credit.

5. Filing for bankruptcy

FICO spokesman Craig Watts once called bankruptcy the nuclear bomb of credit actions. Filing for bankruptcy would shave 130 to 150 points from the 680 score and 220 to 240 points from the 780 score.

This is different from the other black marks, where the higher scorer was still left with better numbers than the lower scorer. In this case, both would wind up near the bottom of the credit barrel. Getting new credit, particularly in the current credit-crunch environment, would be extremely tough.

Sometimes, of course, bankruptcy is the best of bad options. (See "Quiz: Should you file for bankruptcy?") But if you can't pay your bills, you should at least explore the other possibilities: forbearance, credit counseling or even debt settlement.

Finally, if you have any of these five black marks on your record, remember two things: The impact on your score may differ from what's shown above, and regardless of how many points you lost, you can rebuild your FICO score over time.

You can buy your Equifax or TransUnion FICO score from (Experian no longer sells FICO scores to consumers, although it continues to sell the scores to lenders.) With paid scores, you'll get specific advice about how to improve your numbers.

myFICO May Sale - Save 20% on FICO scores & credit reports

myFICO - Official Site

In general, when you're trying to build a credit score, you should:

1. Pay your bills on time, all the time.

2. Reduce your credit utilization; below 30% is good, below 10% is better.

3. Have a mix of credit on your reports, including installment loans (mortgages, auto loans and personal loans) and revolving accounts (credit cards and lines of credit).

4. Refrain from closing accounts.

5. Apply for new credit sparingly.


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Tuesday, November 17, 2009

Confessions of a Credit Card Telemarketer

by Bob Sullivan

What if there were a way to have your credit card debt erased if you lost your job or became disabled? That's the pitch behind debt cancellation, a service offered by many credit card issuers and retailers.

Debt cancellation doesn’t come cheap: it costs between $1 and $2 per $100 balance. A consumer with a $3,000 balance, for example, could pay nearly $60 a month for debt cancellation service.

That might not sound like such a great deal, but thousands of consumers sign up anyway. Why? One telemarketer who sells the service told recently that there’s only one reason: Sellers intentionally confuse cardholders about the programs and their costs.

"I hate flat-out lying to someone, but that's exactly what we do, 150 calls a day," said the telemarketer, who requested anonymity out of fear of losing his job. "I have seen so many people ripped off that I had to attempt to let people know."

He works in tiny Pennington Gap, Va., a small Appalachian town near the Kentucky border that’s been hit hard by the economic downturn. But he works for some of the biggest firms in America. For the past year, the telemarketer has sold debt cancellation for Macy's retail credit cards issued by Citigroup, working for a third-party firm named Aon Integramark, which contracts work to a local firm, the Kavanaugh CallCenter Group. Aon is one of the world's largest insurance firms, with 37,000 employees and 500 offices in more than 120 countries.

"Are you realizing the power of debt cancellation?" the firm asks of banks and retail stores on its Web site. "These programs provide lending customers with new power and control over their finances -- especially in tough times that can affect anyone."

Quietly, a huge industry

Debt cancellation is a large and profitable business for credit card firms and retailers who issued private-label credit cards. In 2003, the Center for Economic Justice estimated that consumers paid $2.5 billion in fees for such programs, but card firms paid only $125 million in benefits. In other words, the issuers kept nearly 95 percent of the premiums paid.

In standard insurance products, firms pay out about 80 percent of the premiums they collect. The enormous margins in debt cancellation are possible because the programs are not considered insurance and are not regulated as insurance products, thanks to a 1986 Circuit Court ruling.

Few financial products are more profitable than unregulated insurance products, and the bonanza that is debt cancellation (sometimes called debt suspension) have led to aggressive sales techniques for the products. Those have been redoubled during uncertain economic times.

Debt cancellation – and its predecessor, credit insurance -- has a soiled reputation. The Internet is littered with complaints from consumers who say they were signed up for the service and billed hundreds of dollars without their consent.

Read the rest of the article HERE


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Thursday, October 29, 2009

The Truth About Free Credit Scores

Though the credit bureaus must give you free annual reports, their important numbers will cost you. Now 3 sites offer free peeks at those scores, but how helpful are they?

If you're curious about your credit scores, you might have tried one of the plethora of Web sites and services that offer some free credit information, then lure you into paying for your scores, usually as part of a credit-monitoring package.
Weird stuff that hurts your credit

Consumers are entitled by law to free credit reports-- which are simply records of your borrowing and repayment history -- but the numerical scores derived from those reports will cost you, in part because credit-reporting agencies aren't required by law to provide them for free to consumers along with the reports.

Now a handful of company Web sites give consumers at least free glimpses at their credit scores. The sites --, Credit Karma and Quizzle -- offer a window into the key factors that go into calculating your scores, what you can do to improve them and how your credit stacks up against other people's. Last week, for example, launched free credit report cards that show consumers how they're likely to rate across five credit-scoring models.

All three sites, which have ties to the credit industry, aim to make money through advertising or through fees if users sign up for products offered on the site, such as credit-monitoring services, credit cards or mortgages.

Read the rest of the article here:


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Friday, September 4, 2009

The New Math of FICO Credit Scores

Those with small blemishes on their record should benefit from the FICO 08 scoring change, while high-risk borrowers and those who "piggyback" are the likely losers.

Even the most responsible borrowers slip up sometimes.

Maybe a utility bill went unpaid after you moved and the missed payment went into collections. Or perhaps there are unpaid library fines or parking tickets in collections that are hanging onto your credit history and affecting your FICO credit score, which is widely used.

With the newest version of the FICO credit-scoring system, however, minor delinquencies are now overlooked in calculating creditworthiness.

Under the updated scoring model, called FICO 08, small missed payments lingering in collections with original amounts of $100 or less will no longer do damage to your credit score.

Consumers also are less likely to be penalized for any single delinquency if it occurred two or more years ago -- and if their credit history is otherwise unblemished, says FICO (formerly Fair Isaac), which developed the FICO scoring system.

"There's more flexibility with missing a payment," said Careen Foster, the director of global scoring product management for FICO. "If you have a more habitual pattern of paying accounts late . . . you're more likely to get penalized for that."

If a consumer's credit usage is high, that will be more likely to hurt his or her score with FICO 08. But getting close to your credit-card limits -- even if you always pay on time -- is penalized in some way in every FICO score, not only the recent edition, Foster said.

The changes were made to provide lenders with a better risk assessment of borrowers, said John Ulzheimer, the president of consumer education for, a consumer education and advocacy site. FICO decided that one small library fine didn't really predict whether a consumer was likely to default, for example.

With the changes, individuals who pose a low credit risk will probably see their scores rise a bit, and those who are high risk could see their scores drop, he adds.

FICO 08 also addresses "piggybacking," a practice used by credit-repair companies to help people improve their scores, Ulzheimer said. In piggybacking, an individual pays to become an authorized user on a stranger's account. The account holder gets paid for allowing the person to be associated with the account, and the new authorized user is able to improve his or her credit score.

"It was a practice to . . . misrepresent what your credit looks like to your bank," Foster said.

FICO 08 aims to single out individuals who are named as authorized sources through deceptive means, Ulzheimer said. Those people won't see their credit scores rise as a result. But the scores of legitimate authorized users will be treated as they always have been.

Credit Restoration Associates recommends that you still need to be proactive about your credit. By being proactive, you can start to work toward a higher score, something that will serve you well every time you apply for a loan.

Some CRA suggestions:

1. Monitor your credit reports and correct errors. Don't just look for negative events on your record; also examine your credit limits to make sure they're accurate. Credit limits that appear lower on the report than they actually are have the potential to hurt your score.

2. Pay bills on time and keep card balances low. Your payment history, and the amount you owe on your accounts as a ratio of the amount of credit you have access to, are important components of your score. FICO 08 is more sensitive to high credit usage, and consumers may see a lower score if their reported balance on one or more cards is near the account's limit.

3. Take on new credit only when you need it. Some credit cards come with great offers, including a percentage off your bill if you sign up at the cash register. If you accept, make sure you're getting a big enough benefit to make it worthwhile -- taking on additional credit could end up dinging your score.


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Monday, August 31, 2009

What is a debt ratio and why should I care about it?

Your debt ratio is the amount of credit you’ve accumulated on a monthly basis compared to your income.

It’s a critical number if you plan to make any major purchases, such as a home or car, since lenders check your debt ratio to ensure you’re capable of repaying the loan.

Mortgage lenders generally won’t approve your loan if your mortgage payment would exceed 28% of your gross income (before taxes are withheld).

Your total payments -- including all other debts -- should not exceed 36% to qualify for a mortgage.

These debts don’t include food, utilities or taxes.

For these calculations, mortgage lenders look at items like credit card bills, student loans and car loans and how your mortgage would affect your overall ability to pay.


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Bankruptcy: 4 Tales from the Trenches

One of the scariest aspects of bankruptcy is the fear of the unknown. These real-life stories can help you know what to expect -- before, during and after.

By Sally Herigstad
MSN Money

Bankruptcy can happen fast -- when a person is successfully sued or when unexpected medical expenses run up. Or it can happen in slow motion, when a business fails or long-term unemployment makes it impossible to keep up with bills. No matter how a person gets to the point of considering bankruptcy, the worst thing about it is the unknown.

The biggest bankruptcies ever

What really happens to you when you file for bankruptcy? What do you have to do? How do you survive afterward?

Four real people, Michael, Robert, Robin and Andrew, shared their experiences going through bankruptcy. (Only Robert allowed us to use his real name.)

Robert Nickell, a pharmacist and chairman of the Nickell Group, filed for bankruptcy in 1999, when he was 39. He lost his business, a pharmacy in Manhattan Beach, Calif., after accumulating more than $600,000 in debt then going through a protracted divorce.

Robin, 31, thought she was covered by health insurance when she spent a week in the hospital after a car accident. She was mistaken. She was already in debt from starting a freelance copy-editing business; with the hospital bill, her debts topped $65,000. Then she lost her job. That was the last straw.

Michael practiced medicine in Oregon for 45 years. He filed for bankruptcy at age 72, when he could no longer work and had no savings to fall back on. He was going through a divorce at the time as well. He owed about $50,000 in back taxes, medical bills and business debts.

Andrew, 36, and his wife, Ashley, 35, owned a retail company in Colorado that sold wireless products, telephones and satellites. They had a great run with it, but between a merger and employee theft, they ran up about $300,000 in debt. They filed for joint bankruptcy two years ago.

Some aspects of bankruptcy weren't as bad as they thought they would be. Other aspects were worse. Here's how it went:

The buildup: How did I get here?

Robert, Robin, Michael and Andrew all found themselves sliding into the circumstances that led them to choose bankruptcy.

Michael had barely broken even in his medical practice for years. He had planned to work until he died, but health problems forced him to retire. His phone rang constantly as creditors sought him out. Eventually, he quit answering it. Bills were stacked all over the office; he stopped opening them. He had given up long before he actually filed for bankruptcy.

Robin had been earning $50,000 a year at a dot-com company. One day, she came to work and was handed a box and a paycheck and told, "This is your last day." Robin moved back to her hometown and quickly found a job. She thought she was getting back on top of things, chipping away at her debt.

Then she was hospitalized, which ended her new job. She could put only a little toward the hospital bills. Living on $1,000 per month in unemployment "gave me a whole new way to look at possessions," Robin says. But cutting back wasn't enough to cut it. Within a few months, her debt was turned over to collection agencies.

Robin hated the phone calls the most. Her father advised her to not answer the phone, but even checking messages stressed her out. Most callers were friendly, but a few were ugly. "One in particular really berated me and said, 'Did you think you could spend this money and not pay it off?' It really upset me because I already did feel guilty."

Robert says, "Pre-bankruptcy is one of these very scary things where you can't believe that you got into this mess.


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Wednesday, July 8, 2009

Bar to Lawyer - You Have Too Many Student Loans To Practice Law

by: Zac Bissonnette

The New York Times reports on the sad tale of Robert Bowman, a law school graduate whose application for admission to the New York bar was rejected -- because he had too much student loan debt and had a history of missed payments.

He was recommended for approval by the applications review committee but that decision was reversed by a panel of five state appellate judges: "Applicant has not made any substantial payments on the loans," the judges wrote. "Applicant has not presently established the character and general fitness requisite for an attorney and counselor-at-law."

With more than $400,000 in student loans and accumulated interest, the judges apparently felt he had not demonstrated the judgment worthy of practicing law in New York.

While there is a good amount of not entirely unfair righteous indignation over the outcome of this case so far, Mr. Bowman's bizarre borrowing record does raise an eyebrow and, to be honest, you do have to question his judgment. Mr. Bowman had not made a single payment on his student loans in the 26 years since he began taking them out.

The irony of course is that without the ability to practice law, Bowman will have virtually no prayer of getting his financial life in order.

But here's the good news for Sallie Mae: Student loans can't be discharged in bankruptcy, and Social Security benefits can be garnished to make payments on loans that are in default. And the more penalties he racks up, the more money, ultimately, they'll collect.

Mr. Bowman's life may be ruined in every meaningful way, but the party has just begun for the lenders.

CRA - this is such a shame, but an unfortunate reality in the world that we live in. Mr Bowman might need to call Lexington Law Firm
to repair his credit - if not apply for a job.

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Tuesday, June 2, 2009

How long does credit repair take?

by Lita Epstein

We've been getting a lot of desperate comments from people who are seeing their credit destroyed as their personal financial lives take a nose dive. Many are losing jobs and others are facing severe medical problems. Some made big bets with investment property in real estate and now face numerous foreclosures. All are probably facing major drops in their credit scores and not able to get new credit in the tight market today.

Without using a professional credit repair company, how long does it take to fix your score, if your score is down dramatically after a credit disaster? The good news is that your most recent history is what impacts your score the greatest, so as these bad debt reports age you will find your score gradually getting better as long as you pay on time starting from today.

I have seen people with bankruptcies get back up to the high 600s within three years. What does that mean in today's credit market? They would probably be able to get credit, but they will likely not get the best credit offers. In order to get the best interest rates you need a score of 760. The next best rates go to people with scores of 700 to 759. People between 650 and 699 can still get credit but they will pay significantly more for it in higher interest rates. Under 650 you probably will find it very difficult, if not impossible, to get credit.

How long will it take to get a clean credit record? Most of the negatives on your credit report will drop off after seven years, but you don't have to wait that long to see an improvement in your score. If you have a clean record of payments on time for three years and you don't apply for more than one or two new cards at that time your score should go above 650. If you want to get that score above 700, you'll need to get your debt levels closer to 10 to 20 percent. Even if you're good, you probably won't reach 700 for at least four years.

Contact CRA if you would like some advice or help with your situation.


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Thursday, May 28, 2009

How to Make (or Break) Your Credit Score

Wise or Foolish?
By Janene Mascarella

If life is simply the sum of your choices, you could say the same about your credit score: everything you do (and more specifically, buy) drives that three-digit number. It's probably obvious to you that smart decisions can send your score soaring and save you money, while bad decisions can drag your score down and leave you digging deep into an empty wallet. So why is it so easy for people to get trapped?

Your credit score is your financial snapshot -- your portrait as a borrower -- but your score isn't set in stone. That's both good and bad, because the choices you make today can shift the number in either direction for the years ahead.

My Not-So-Smooth Move: Closing Two Credit-Card Accounts

Credit Score Direction: Slightly down

When Ralph Garcia, owner of a vacuum-and-sewing store in Redwood City, California, started falling behind on bills and getting slapped with late payments, he was determined to take control. He thought it would be smart to cancel two cards with balances and pay them off over time. But the results weren't positive. "That move lowered my score, because my available credit line went down, and the percentage of debt went up," says Garcia, who has been self-employed for 31 years.

Last year, Garcia's credit score was about 750 ("outstanding"); now it now sits at 691 ("good"). "What I did wasn't a rocket-scientist move, for sure," he says. "I just figured, if I didn't have the cards, I wouldn't use them. I'm just trying to make the payments and get the bills down."

A Credit Lesson Learned

Closed and unused accounts can hurt your score if you're paying off debt, says Ethan Ewing, president of money-management site Ewing suggests rotating the use of one credit card at a time (and paying it off monthly), or setting cards aside, so you're not tempted to use them, but keeping the accounts open. "And if a creditor closes your account, they must notify you 30 days in advance," says Ewing. "Call to ask that they reverse the decision."

To keep cards active, charge a monthly bill, such as your telephone, to a card, and set up an automatic payment or a personal reminder so you don't miss a payment. And never cancel a credit card with a long history, Ewing advises. "The longer you hold a card, the more valuable it is in your credit-score determination."

My Smooth Move: Getting Serious About Timely Payments

Credit Score Direction: Up -- and staying up

Danny Kofke says he and his wife, Tracy, have not done anything drastic to raise their credit scores: they just pay all of their bills on time. As simple as that strategy seems, it came from a conscious decision to secure their financial future. "My credit score is 795 and Tracy's is 813" out of 850, says Kofke, a 33-year-old special-education teacher from Hoschton, Georgia. "Making the conscious decision to pay all of our bills on time has definitely helped us."

Kofke wrote the book on good credit -- literally. The author of a 2007 book called How to Survive (and Perhaps Thrive) On a Teacher's Salary, Kofke says his elevated score is more than an ego boost. "We just refinanced our mortgage, and we qualified for a low interest rate because of our credit scores," he says. Their choices even give them the security to let Tracy be a stay-at-home mom.

Reaping the Rewards of Prompt Payments

"Generally, I think timely payments are the most controllable factor for families today," says Dan Danford, C.E.O. of the Family Investment Center, a commission-free investment-management firm in St. Joseph, Missouri. "There's nothing wrong with borrowing. But your score will get dinged if you borrow too much or foul up the agreed payment schedule."

It's never too late to make a smart move like Kofke did, even if your score isn't sitting pretty. Paying bills on time for as little as one month can raise even a modest credit score by 20 points,'s Ewing says.

My Not-So-Smooth Move: Ignoring My Debt

Credit Score Direction: Down ... way down

Russ Marshalek makes no bones about it: he killed his credit score by filing for bankruptcy, a desperate move often deemed "credit doomsday." Already in credit-score trouble from financing college plus living expenses, the 26-year-old book publicist from Queens, New York, found himself struggling to keep up with the bills piling up.

For a while, Marshalek ignored the consequences of his debt -- late payment penalties, and intimidating collection phone calls -- and hoped it would all just go away. It didn't, and his delinquencies took a massive toll on his credit score. "When I filed for bankruptcy, my credit score was in the mid-300s -- which is basically about as low as it can go," he jokes, "before creditors begin taking parts of your body and various organs as payment."

Wiping the Slate Clean?

Marshalek knew he was in serious trouble. He faced two wage garnishments at his old job, defaulted on his student-loan payment, and got bullied by a collection agent into a payment he couldn't afford. "I didn't really know how to extricate myself from this tidal wave," he says. A consumer credit-counseling service advised him that bankruptcy was his only option.

A bankruptcy stains your credit report for seven years, says Kelli Grant, a consumer reporter at SmartMoney. But that's not a death sentence. Marshalek's credit score has already hit bottom, Grant says; it can only go up from here. "If you can prove you've been doing good things since filing," Grant says, "creditors are apt to look at your recent positive history."

Marshalek calls his experience harrowing and painful but worthwhile. After filing for bankruptcy last year, he's now paying his bills on time. "Though I'm aware it will take time, now actually achieving and maintaining a high credit score is possible for me."

My Smooth Move: Diversifying My Credit

Credit Score Direction: Up, then a dip

Six months ago, Dawn Allcot's free credit-score monitoring service offered tips on raising her score. She learned that she lacked "diverse" credit, like store cards and personal loans. Her credit score was good (over 620), but she wanted it higher.

"Kohl's is one of my favorite stores, so I opened a card," says Allcot, 35, a freelance writer from West Islip, New York. "I use it to take advantage of sales that require a charge card and pay it off immediately -- sometimes right in the store."

The move raised her score about 50 points. "The perks offered with the cards save me money," she says. "So far -- it's been six months -- I haven't had a problem. I never charge more than I can pay off."

Minor Ups and Downs

To raise your credit score, it's important to have a healthy mix of loans and credit cards, says SmartMoney's Grant. The one move to be cautious about is opening a lot of accounts in a short period of time: issuers tend to see a move like that as a bigger risk. In fact, that very strategy made Allcot's credit score dip. But she should see her score bounce up again quickly, Grant says, once she's established a good credit history with these new accounts.

Generally, if you use money wisely and pay off debts according to an agreed-upon schedule, as Allcot does, then your rating will be good. "It's tough for most families to make a go on cash alone, and lenders understand that. They just want some assurance that you've borrowed and paid back in the past," says Danford. "A few blemishes aren't the end of the world."

Excellent advice!


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Tuesday, April 21, 2009

Keeping ID Thieves at Bay

Identity theft can be both frustrating and costly for the victims. Reporter Stacey Vanek-Smith visits one couple who is still trying to put their credit back together after eight years of identity theft.

Susan and David Litchfield in their home in Norwell, Mass.

by Tess Vigeland

One thing I'm confident no one imagined in the buildup to a culture of borrowers is that one day a stranger would be able to convince debt issuers that they are you, with a simple computer keystroke.

The wide availability of credit has made it easy for thieves to perfect the criminal art of identity theft.

And that means you could be on the hook for bank loans, car loans and credit cards you don't even own.

ID theft costs businesses, banks and consumers more than $50 billion a year.

Once your credit is destroyed, fixing it comes at a high price of its own. Stacey Vanek-Smith reports.

Stacey Vanek-Smith: David Litchfield is a metal fabricator in Norwell, Mass. David Leighton is a repairman in Florida. They've never met, but they know a whole lot about each other.

Eight years ago a man named David Leighton started using David Litchfield's social security number.

David Litchfield: He got a whole pile of credit cards. He'd use one, maxed it out and then go to another one.

Litchfield and his wife, Susan, didn't discover the problem until months later, when their daughter's student loan was refused.

By then, they were sitting on thousands of dollars in overdue bills and David's credit score was in ruins. It took more than two years to repair David's credit. But it looked like the identity thief had been stopped until...

Susan Litchfield: We went to refinance the house and the bank called me. And I just started crying and I said, don't tell me he's done it again? And he goes, "Oh Sue it's a mess. Wait until you see it."

Susan Litchfield produces a stack of settlement offers, collection notices and credit reports, all linked to David Leighton. He had racked up more than $200,000 in debt, and it was all there, on the Litchfield's credit report.

Susan Litchfield: Credit cards, Capital One, Chase, student loans. He had a $98,000 debt for, what we believe was child support.

ID thieves often strike the same victim more than once says Jay Foley, Executive Director of the ID Theft Resource Center. He says ID theft is hard to prove, the cases almost never got to court and the criminals know this.

Jay Foley: At the same time that we're dealing with issue A and B. The bad guys over here are creating E, F and G for us.

The Litchfield's have put a stop on their credit, but they're worried David Leighton might be sitting on a stockpile credit cards tied to their accounts -- cards he got back when credit was easy.

In the meantime, they're still trying to clean up their credit score.

And that can be an epic undertaking, says Foley, of the ID Theft Resource Center. He says every company where a fraudulent purchase was made has to be contacted via certified mail, each one has to call off its collections agency, ask the credit bureaus to remove the black mark, and open its accounts to police. Companies often push back so they don't have to cover the damages. Foley says victims should prepare for a fight.

Foley: Well they can expect to be grilled repeatedly, and if there's anything that you say during that process that is ambiguous, they are going to jump on that as the excuse for holding you responsible for the account.

Foley says it usually takes between six months and two years to correct problems on a credit report.

Susan Litchfield says the mess is so big this time, she and her husband have basically given up.

Susan Litchfield: They just bounce you around until, after an hour of waiting on the phone, you just hang up. Then I get into bed, my head's spinning, I want to cry, I just get so angry. I got to the point where my blood pressure was sky-high, my doctor was afraid I was going to have a stroke. I just put it all away. I just couldn't deal with it.

The credit bureaus don't make things any easier, says Bob Sullivan, author of "Your Evil Twin: Behind the ID Theft Epidemic." He says the three agencies that determine your credit score have no incentive to move quickly.

Bob Sullivan: The credit bureaus have one customer and one customer only, and it's not us - It's the banks. It's the people who lend money.

And lenders are in no rush to see your credit score improve -- the lower your score, the more they can charge you to borrow.

The Litchfields have seen the interest rates on their credit cards jump and the premium rise for their homeowner's insurance. And now David's credit score is so low, he can't even get a card on his own.

David Litchfield: I have a credit card I share with my daughter. Somehow she got me a credit card. It has my name on it but it, but it's hers and mine.

About ten million Americans have their identities stolen every year. But there are ways to minimize the damage says Lucy Duni. She's with TransUnion, one of the three major credit agencies.

Lucy Duni: Place a fraud alert on your credit report. You could also place a credit freeze, so no new accounts can be opened in your name.

Duni recommends being stingy with your social security number and shredding personal documents. ID theft is getting harder, thanks in part to the credit crisis, which has made banks put stricter lending standards in place, says author Bob Sullivan. He blames the era of easy credit for the ID theft boom. He says banks were more than happy to hand out plastic to almost anyone, with very little verification.

Sullivan: A couple of years ago, you could walk into a Circuit City and walk out with a $3,000 television set five minutes later, even if you had nothing in your pockets. That's the reality of where we were and we created this system that made things very easy for identity thieves.


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Monday, March 16, 2009

What You Need to Know About Credit Scores Part 5

5. Inquiries = 10%

Each inquiry will take points off of your score. Multiple inquiries for a mortgage within 45 days will only count as one inquiry (the fact that you’re “shopping around” is a given). Likewise, multiple inquiries for a car loan within 45 days will count as only one inquiry. FYI: Only the first 10 inquiries count each year. Inquiries for a job, insurance or utilities, an account review, a promotion (pre-approval offers in the mail), or your own personal review won’t affect your credit score.

Facing the Consequences:

When it comes to mortgages, car loans, and credit cards, what you don’t know can certainly hurt you. Your score is a reflection of your actions: choose the behavior, choose the consequence. According to the Gallant Group, a diversified investment and financing firm:

· 30 days late on a payment can damage your credit score by at least 50 or more points;
· 60 or 90 days late, or a 30-day late payment on multiple accounts can drop your score by 100+ points;
· Balances more than 40% of your credit limit affects your score by as much as 100 points;
· If multiple credit cards are maxed out or approaching maximum balances, your credit score will be diminished by at least 80+ points.

Every financial choice you make can affect your credit score, says Clark. If you keep your credit report healthy and cared for, says Clark, you’ll have nothing to worry about come scoring time.


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What You Need to Know About Credit Scores Part 4

3. Credit History = 15%

How long have you been credit worthy? If you have a long history of making payments as agreed, it will help your credit score. But this can also hurt older people. By closing old accounts, you are removing all those years of payment history from the credit-scoring model, which is why experts urge you keep accounts you’ve managed efficiently open. FYI: One thing lenders had done in the past with younger borrowers is to have the parents add the child as an “authorized user” on to a credit card account they have had for 20 years. This immediately upped the credit score of the child because he/she had “inherited” a long credit history. However, within the past year, credit bureaus began ignoring any “authorized user” accounts when figuring out a borrower’s credit score.

4. Mix of Accounts = 10%

Ideally, the credit bureaus like to see a mortgage, an auto loan, and three to five credit cards. For a borrower, if you have a Home Equity Line of Credit (HELOC), it will be treated as a revolving account unless it is greater than $40,000. FYI: If it is greater than $40,000, it will be considered a mortgage.



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What You Need to Know About Credit Scores Part 3

1. Payment History = 35%

Are you paying your bills as agreed? The most recent six months have the greatest impact on your score. The highest weight is placed on the highest payment. Usually, this is your mortgage, next would be a car payment, followed by student loan or credit card payments. Bankruptcies, judgments, liens, and collections/charge-offs will negatively impact your score, as will late payments. FYI: The severity of the delinquency is determined by the amount, how much time has passed, and the number of times you were late on an account. It could be 30, 60, or 90 days late.

2. Balances Carried = 30%

This is the actual dollar amounts you owe on various accounts in relation to how much credit you have available. You want this ratio as low as possible. Keep in mind, mortgages and installment loans are not factored into this as much because they are not really a credit line. FYI: If you’re thinking of applying for a home loan, don’t pay off collections or judgments prior to qualifying. By paying off the collection, you are, in effect, starting the collection process all over again; accordingly, your score will take a big hit. Pay off the collection at closing. Once you have the loan, you can handle a few months of a lower score.



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What You Need to Know About Credit Scores Part 2

Learning the Lingo

The terms “credit score,” “credit rating,” and “FICO score” are often used interchangeably, explains financial expert Ethan Ewing, president of in San Mateo, Calif. “This is basically correct. FICO simply refers to Fair Isaac Corporation, the company that originally developed a ‘score’ method of rating consumers’ credit histories.”

Today, the three major reporting agencies (Experian, Equifax, and TransUnion) each report their own credit scores. There’s the Plus Score, calculated by Experian; the Empirica Score, offered through TransUnion; and Equifax’s Beacon Score. And though lenders use different factors to rate your overall credit worthiness, says Ewing, “it basically comes down to whether you pay -- and pay on time -- and whether creditors have reason to believe you might be overextending yourself.” The more responsible you are with credit, the higher your score will be.

Factoring the Formula

While you won’t be quizzed on this later, you can earn some real-life “extra credit” (and lower payments) by studying the factors that drive your credit score. Doug deBruyn, a Seattle-area loan originator and certified mortgage planning specialist with VanDyk Mortgage, teaches a credit-scoring class for realtors and consumers, and shares his smarts to help you pass your next nerve-wracking credit test with flying colors. Sorry, there’s no “cramming” come loan-time.

Click through the next slides to brush up on the five key components that factor into your credit score:



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What You Need to Know About Credit Scores Part 1

By Janene Mascarella

Nothing sends fear through the heart of a child more than report card day. Prepare yourself for a sense of déjà vu when applying for a loan ... many say the situation ignites that same blast-from-the past feeling as they await their financial fate. And what to do if, ultimately, that application is stamped "denied”? Figure that your credit score had a lot to do with it, and start making big changes.

Now is the time to get savvy about your finances and credit standing -- being clueless about any aspect of your credit health can really cost you.

Slam-Dunking Your Credit Smarts

Quite simply, your credit score summarizes your credit risk based on a snapshot of your credit standing at a particular point in time. It isn’t so much a grade, it’s more like a grade point average, explains Ken Clark, a debt/credit expert, certified financial planner, and author of 'The Complete Idiot's Guide to Getting Out of Debt.' Think of it as an overall assessment of your financial responsibility, one that influences the amount of credit available to you and the conditions you may have to agree to in order to get that credit.

One major misconception, Clark says, is that people often confuse credit report with credit score. “A credit report is an objective history of who you’ve been as a borrower -- it passes no judgment,” says Clark. “The credit score is a subjective evaluation of that history.” Whether it’s a credit card, car loan, or mortgage, lenders want to know your level of risk, and how likely it is they’ll get paid on time.



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Wednesday, February 25, 2009

Common MoneyMistakes Part 3

7. Staying Debt-Free

In a topsy-turvy economy, you may be tempted to avoid all debt like the plague. It's a good idea in theory, but if you don't have a dime of debt to your name, lenders have no way to gauge whether you'll be a reliable borrower. "It's a double-edged sword," Levin explains. "The good news is, you can sleep at night. The bad news is, when you're trying to get something that requires credit and you have a thin file, they really can't find much of a history."

A sizable chunk of your score reflects your ability to handle a few types of credit (such as mortgages or revolving credit). No debt means no track record -- and that could cause your score to suffer.

8. Crossing Your Fingers

You don't want to find out about a flaw in your credit report when you're bidding on a new house or negotiating with a car dealer. So be proactive: Once a year you may request a free copy of your report from, which is sanctioned by the Federal Trade Commission.

Should you need access to your credit reports at other times throughout the year (if you're about to make a home purchase, for instance), you can always request the three-in-one credit report from Equifax
, for a small fee. Comb through it to make sure there are no glaring errors, and be extra-vigilant if you have a common family name. "John Smith III could have creditors that show up on John Smith II's credit report," Davis cautions. If you spot anything fishy, file a dispute form immediately and keep a written record of it. After all, you've worked hard to ensure the best credit score possible -- and it's up to you to make sure your prudence is paying off.


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Common MoneyMistakes Part 2

4. Not Sweating the Small Stuff

Cassandra Hubbart, AOL

If you're juggling several sources of debt -- and these days, who isn't? -- experts will tell you to chip away at high-interest accounts first. But realize that everything from unpaid parking tickets to library fines can wind up on your credit report. "Look out for smaller bills that you may have overlooked," Davis cautions. She recommends extra vigilance after a move; a few leftover pennies on your utility bill may haunt your credit report for years.

If you're having trouble keeping up with payments, resist the urge to stash your past-due notices at the bottom of a drawer. Instead, contact your lender and ask for a little lenience. "The truth is, more lenders are willing to be flexible right now," Levin says. "But you're never going to know unless you talk to them. The worst thing they can say is no, so don't be afraid to call and ask."

5. Consolidating Your Loans

Merging your debts might make it easier to keep track of bills, and it could help you avoid astronomical interest rates. But lumping all of your loans together can also reduce your debt ratio if you're not careful.

Arnold offers this example: Say you have three credit cards, each with a $3,000 balance; if you transfer those balances to a zero-interest card with a $10,000 credit line, you're suddenly using a whopping 90 percent of the credit on the new account. "You've got great intentions, but it could tank your score potentially," Arnold says. You may also be hit with hefty interest rates after the card's introductory period ends, which will increase the amount you owe. But consolidating isn't always a bad idea -- if you do your research and find a good rate, you could save thousands in interest, and that might offset any resultant blip in your credit score.

6. Charging Everything

With credit cards offering attractive rewards programs, it may be tempting to put every purchase on plastic. But even if you pay your balance in full every month, racking up too much debt can wreck your score -- you'll get points for paying on time, but your credit report will show a consistently high balance.

"If you have an unusually large balance, it may not be a bad idea to pay early just to keep it as low as possible," explains Levin. There's also a scary side note to your spending. Some credit card companies track where customers shop and penalize them for purchases that could signal financial difficulties.

Swipe your card at a red-flagged establishment -- such as a discount store, auto repair shop, even a marriage counselor -- and your creditor may lop your credit line or hike up rates. "Whether it's right or wrong, fair or not fair, that's the way it is," Levin advises.



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Common Money Mistakes Part 1

By Kara Wahlgren

As the ongoing credit crunch forces lenders to tighten their wallets, your credit score has become more important than ever. In short, you currently need a stellar score to secure the lowest interest rates.

"Credit impacts every element of your life," says Adam Levin, co-founder and chairman of, a consumer advocacy website. "The stronger your credit, the easier it is to get the things you want."

So it's no surprise that consumers are looking for simple ways to boost their score -- but credit scoring can be counterintuitive, and some seemingly smart financial strategies can actually damage your score.

Read on:

1. Closing Your Old Accounts

After whittling your credit card balance down to zero, closing the account may seem like the responsible (and liberating!) next step. "I think anyone with common sense would view that as being financially prudent, especially if that line of credit is a source of temptation for you," says Curtis Arnold, founder of, a website that evaluates credit cards.

But Arnold warns that shutting down an account will affect two major components of your score -- your credit history and your utilization ratio, which weighs the amount of credit you have against the amount you’re using.

Instead of closing the account, set up the card to auto-pay one small bill (like your cell phone plan) and deduct the balance from your checking account each month. You won’t have to worry about maintaining the account, but you’ll reap the benefits of a low balance and a long-running history.

2. Putting Your Cards On Ice

Freezing your credit card or burying it in the backyard is such age-old advice, it’s practically a cliché. But letting your account go stale isn’t a smart solution. If your account goes dormant, the company may stop reporting it to the credit bureaus -- or they could shut it down completely.

Not only will your credit history be impacted, but an account that’s been closed by the creditor carries more stigma than an account that’s been closed by the consumer, according to Clarky Davis, the "Debt Diva" at CareOne Counseling, a credit counseling and debt management service in Columbia, MD. Again, the simplest solution is to set up an automatic monthly payment to keep the account active and maintain your credit history.

3. Going on a Credit Bender

Opening new credit card accounts may seem like a good way to rack up more available credit, but every time a potential lender looks at your credit score, it counts as an inquiry -- and stays on your report for two years.

Too many inquiries could hint that you're planning to open up several new lines of credit. "If you appear to be going on a credit binge, that will scare creditors," Levin says. But what if you're shopping around for a mortgage or car loan and simply want to find the best rate? No worries -- as long as you finish your applications within 30 days, your score won't be affected.



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Thursday, January 29, 2009

Eight Ways To Raise Your Credit Score

By Christina Couch

In an age of slashed credit limits, tighter credit card restrictions, and anxious lenders, having strong credit is more important than ever. According to Experian, one of the country's largest credit scoring agencies, the national average credit score sits at 692; however, Linda Call, vice president of the Richmond, Virginia - based mortgage brokerage firm, Berkley Mortgage, says that in today's market, those even slightly below average could be in trouble. "With the economy so down, 620 is the minimum for getting a loan, but people really need credit score around 700, preferably 720, to get something with decent rates," Call says. "It's very scary right now for anyone with a low credit score."

Here are eight ways to give your credit score an extra boost.

1. Keep the Balances Balanced

In a tough economic climate, keeping your credit balance under the limit isn't enough. According to Scott Scredon, director of public relations for the Consumer Credit Counseling Service of Greater Atlanta, GA, simply maintaining a balance that's close to your limit could weigh down your credit score.

"If you carry a balance on your credit card, you need to make sure the difference between your credit limit and your balance is 50 percent or less, so if your limit is $1,000, you need to keep your balance at $500 or less," says Scredon. "Not using all of your credit is a signal to card companies that you're managing your credit properly." Scredon adds that keeping an even lower balance -- 30 percent or less -- will boost your score even more. Should your balance go over the 50 percent mark on one card, Scredon recommends focusing any available financial resources on cutting the balance down, even if it means sacrificing a few daily luxuries until the credit's in check.

2. Eliminate the Mistakes

One of the fastest ways to up your score is to make sure it's yours. According to a 2005 study by the Federal Trade Commission, an estimated 8.3 million Americans are victims of identity theft each year. Of those victims, 1.8 million have new credit cards, loans, or financial accounts opened in their name without their knowledge.

An easy way to prevent paying off debts you didn't incur is to keep tabs on your credit score.

3. Diversify Your Credit

"People don't realize that 10 percent of your credit score is determined by what types of credit you use," says Gail Cunningham, marketing director for the National Foundation for Credit Counseling. "That's determined not only by how you manage revolving debt like Visa, MasterCard, and store credit cards, but also how you handle fixed payments like your car payments or your mortgage payments over time."

Instead of putting long-term purchases on cards, Cunningham recommends taking out short-term one to two-year loans in order to build a diversified credit portfolio. In addition to receiving lower interest rates and more flexible payment terms, consumers who use loans over cards also build positive credit and gain better credit terms in the future.

4. In With the Old, Out With the New

Another 15 percent of your credit score is determined by how long you've been managing credit. Those who can manage cards wisely by paying on time and keeping balances lower than limits can improve their credit score by getting plastic early. It's up to you to figure out when the time is right.

"It's to your advantage to get a credit card as early as possible and start building credit early," says Call, "but you have to do that when you're ready. People who start building credit in their early 20s will have a significant advantage when it comes time to apply for a home mortgage." Though college students are statistically poor at managing plastic -- ­the average college student graduates with nearly $2,200 in credit card debt according to Nellie Mae -- learning the basics of credit early can benefit in the long run.

5. Add Some Positives

Consumers in dire credit straits may be able to boost their score simply by showing credit scoring services what they're doing right. "If the consumer has positive histories in things like rent and utilities, adding those histories can greatly help the credit score," says Mark Guimond, executive director of the American Association of Debt Management Organizations.

"There are companies designed to get positive information on your credit score and that can have a significant impact," he says. Organizations like Credit Restoration Associates in Richmond Virginia can help consumers add daycare, insurance, rent, and cable credit histories to their score and set up online bill pay services to make sure those debts keep getting paid on time.

6. Flex Your Negotiation Muscle

If you see trouble on the horizon, nip it in the bud, says Scredon. "Making a late payment could affect your interest rate, not just on the card you're paying late on, but on all your credit cards," he explains. "If you know you're going to have trouble making payments, get in touch with your lender and have a discussion about it. We are hearing more and more from our counselors that lenders are willing to look at whether you can put together a different payment plan." Since even one late payment could lower your credit score, preventing disaster before it happens can protect your credit for years to come.

7. Prioritize the Debt

Those who are already in the plastic trap can begin digging themselves out by creating a debt attack plan. Start by making a list of all of your credit debts, then pick out which is harming you the most.

"If you have a card where you owe more than 30 percent of your credit limit, power pay that one down first to keep your credit score in tact," recommends Cunningham. "After that, I tell people to pay off their largest debts first unless it's just too daunting. If so, tackle your smallest bill first while making minimum payments on everything else, and once you've paid it and have that sense of accomplishment, move on to the next one."

By focusing your financial resources on eliminating one problem debt at a time, Cunningham says consumers can eliminate long-term out-of-control debt from impacting their credit score.

8. Research the Bargains

Credit inquiries are a major obstacle that prevents consumers from comparing loan rates and terms. While inquiries on your credit report can lower your score -- as much as five points according to -- consumers have a 30-day window before choosing their loan when all mortgage and auto loan inquiries only count once.

An easy way to avoid racking up inquiries on your account, says Guimond, is to comparison shop as much as possible before filling out a formal application. "Don't just apply to ten different lenders, talk to lenders, talk to customer service people, get as much information as possible," he says. "It pays to do the research."
CRA never charges for good credit advice.

Christina Couch is a freelance writer based in Richmond, Virginia, and Chicago, Illinois. Her writing credentials include,, Yahoo! Finance, and MSN/Encarta Online. She is also the author of "Virginia Colleges 101: The Ultimate Guide for Students of All Ages" (Palari Publishing, 2008). She can be contacted at


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Wednesday, January 21, 2009

Identifying a Legitimate Credit Repair Firm

Text originally from the Better Business Bureau of Chicago and Northern Illinois:

Due to the troubling economic situation, many consumers seek out credit repair or debt settlement companies- here is what you need to know about them and how to determine their legitimacy.

1. These services cannot ask for money in advance.

2. They cannot automatically get legitimate negative reports off your credit report.

3. Be extremely cautious about a service that recommends you not pay your creditors so it can negotiate with them for you. This could negatively affect your credit report. A service should never guarantee that they can cut your debt by a specific percentage.

It is against federal law — the Credit Repair Organizations Act — for any credit repair company to charge you in advance for their services. The only time they can ask for payment is after all of the services they were to do for you are completed.

A credit repair company cannot tell you that they can get negative (but legitimate) items off of your credit report. The main aspect of credit repair organizations' work is writing to the credit reporting agencies to dispute the items on your report by asking for their validation.

If the items on your report are real, such as liens, bankruptcies, etc, the credit reporting agencies will not have a problem validating them. Also, keep in mind that disputing items on your credit report is something you can do by yourself, for free (although it is very time consuming). You can easily find the appropriate dispute letter templates on the internet

Many debt settlement or negotiation companies request that you don't pay your creditors and wait until you are behind in payments so that they can contact your creditors and attempt to negotiate to have your debt reduced in exchange for making a payment on the spot.

While some creditors may agree to this to get at least partial payment, your credit rating will suffer, your interest rates may go up, and you may have trouble obtaining future loans or financing.

Debt settlement or debt negotiation companies should not guarantee that by enrolling in their services, they can cut your debt by any specific percentage, such as "40-60 percent".

At CRA, we do not believe that debt negotiation is a way to go. It will destroy your credit rating. Many of our clients have used services such as this before enrolling in our program, and it is very difficult (but not impossible) to repair their credit.

Please call us for a free professional credit consultation. We can answer any questions about debt negotiation companies at that time - 1-800-671-1454.


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Monday, January 12, 2009

CRA Exclusive: 10 Ways To Help You Beat a Credit Hangover

It’s economic Armageddon. House prices are cratering, banks are begging for spare change, and it seems everywhere you turn someone is in need of a rescue plan -- including you. With the incoming bills from this past holiday season's charge-fest, you're starting to get buyer's remorse, big time.

Don't panic, we have 10 ways to help you beat a credit hangover.

Credit Hangover Tip No. 1:

Don't Panic

First, calm down and stop hyperventilating. According to Lesley A. Hoenig, a bankruptcy attorney licensed in Michigan, Illinois, and Minnesota, realizing that your debt problem is not the end of the world is extremely important. “You will make it out of this situation one way or another,” says Hoenig. “What's imperative is to make a definitive list of all the debts you owe.” She explains that doing this will help to ensure that everything debt-wise can be dealt with properly, which should help you breath a lot easier, thus avoiding a credit-induced aneurism down the road.

Credit Hangover Tip No. 2:

Pay Off High-Interest Debts First

It's always a good idea to pay off the debt with the highest interest rate first, advises Hoenig. “The higher the interest rate, the more interest that will accrue. With an APR of 30 percent it takes only three years before you wind up paying more than twice what you originally owed.” Determine which credit cards or debts are costing you the most interest, and work double-time at paying them off first. Remember, the two-fisted monster of compound interest works in your favor when you’re saving money, not when you’re borrowing it.

Read the rest of the article at:


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