Cash and Debt Management

Credit Rating and Problems

Evaluating Your Credit

A credit report is a summary of your credit history. You should take a look at yours, especially if you have problems with debt.

Our ‘cashless society’ makes having available credit absolutely necessary.

How much credit you get will depend largely on what your credit report says. The information on it will determine your credit rating.

Credit Reports

Thanks to the 2003 Fair and Accurate Credit Transactions Act, every American now has the right to a free copy his or her credit report every year from each of the three major credit bureaus –

• Experian: www.experian.com
• Trans Union: www.transunion.com
• Equifax: www.equifax.com

To obtain your report, go to www.annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free, or call toll free 877-322-8228. 

The reports contain a list of your credit cards, whether the accounts are active (being used) or not, and a summary of any credit problems you’ve had. If you have a history of paying late or slowly, have had collection procedures initiated against you, or have filed for bankruptcy, these things will almost certainly show up in your reports.

It’s a good idea to check your credit report for errors at least every few years, whether you have debt problems or not. That way you can check for errors.

If you do find errors on your report, each agency has steps you can take to fix them. For many people, the process will take a few months. You can also have a statement placed on your report if you had debt problems for good reasons, like job loss, divorce, or illness.

To send a dispute, write to the address listed on your credit report.

Credit Rating

Most sources of financing or credit now rely on your ‘credit score’ (known as FICO) to evaluate your credit worthiness.  FICO is a numeric method that uses three digits to predict the likelihood of meeting your credit obligations. The score evaluates your credit payment history, number of open accounts, overall credit balances and public records, including judgments and liens. 

A FICO score approaching 700 will generally be looked upon favorably, while a lower score (e.g. below 650) will cause lenders to be increasingly cautious.  Several sources will charge a modest fee to calculate your score, which is based on your credit report.  Services like www.myfico.com will provide you with several report formats and notify you of credit inquiries that could affect your score.

Reasons For Being Denied Credit

There are a number of reasons for being denied credit. The errors we’ve just discussed can do it. Having too many credit cards can be another. Even if you don’t use the cards, they represent credit that’s available to you. If that credit becomes too high a percentage of your salary, no one will want to loan you money. A creditor may even refuse you credit if you’ve had too many credit inquiries over the past few months, because that may mean you’ve got multiple applications being submitted simultaneously.

Another problem is credit fraud. It is all too easy for unscrupulous people to get access to your personal information, which can then be used to apply for credit in your name. If you find that you are getting bills for things you didn’t buy, take action immediately! The sooner credit fraud is discovered, the sooner you can start to make repairs to your credit rating.

In this day and age of internet savvy consumers, and in talking about credit card fraud, we can't forget to mention using credit cards safely over the internet to prevent credit card fraud.

Using Your Credit Card Safely for Internet Purchases

You may be a veteran on-line shopper or you might just be contemplating making your first online credit card purchase over the Internet. Either way, you should take certain precautionary measures when using your credit card online.

In most cases using your credit card online is just as safe as charging purchases at your favorite store at the local mall. As in other circumstances where you use your credit card, there are safeguards you can use to prevent fraud and abuse. The following will help you have peace of mind as you shop the internet.

• Designate one credit card for on-line use. Use this card exclusively for on-line purchases. This will enable you to track your online charges and to easily identify internet credit card fraud if it occurs.
• When ordering on-line, print and save the receipt. Compare this receipt to your monthly credit card statement.
• When you receive your monthly credit card statement, review it carefully. Contact the credit card company immediately with any discrepancies.
• Immediately report to your credit card company any lost or stolen credit cards or any fraudulent activity with your card.
• Do business only with secure sites. These sites use encryption when submitting data over the internet. Computer users can quickly identify whether a site is using encryption by looking for the closed lock or closed key in the lower left corner of the status bar of Netscape Navigator or in the middle of the status bar in Microsoft Internet Explorer. If the lock or key are closed, the site is using encryption software and is secure. Do not send your credit card information unless the site is secure. Although encrypted sites do not guarantee against fraudulent activity, the encryption will prevent your personal information from being stolen before it arrives at the intended site.
• It’s never a good idea to send your credit card information by e-mail. If there is no other way to get the credit card information to the intended user, it is a good idea to send parts of the information in multiple emails, i.e. send half your number in one e-mail, half in a second e-mail and the expiration date in a third e-mail.
• When using passwords, do not use common names or your social security number. Mix letters and numbers whenever possible.
• Try to do business with reputable sites only. Although this may be difficult over the Internet, trust your instincts. If the site does not appear legitimate or if the offer is "too good to be true", don’t take the chance on ordering.
• If fraudulent activity occurs with your credit card, excluding electronic funds transfer (ATM), you will only be responsible for the first $50 of fraudulent charges. Many financial institutions will waive this fee if asked.

Overall the internet is a fairly safe place to do online credit card shopping. As with any other time you use your credit card, common sense is your best protection. Follow the guidelines above and always check your monthly statements to what you actually purchased.

Reestablishing Credit

This can be tough to do if you have a poor history or have declared bankruptcy. The bankruptcy filing remains on your credit record for ten years and creditors obviously shy away from people with a bankruptcy record or a bad history.

Here are some basic steps you can take to start the process of reestablishing your credit.

You’ll need to be patient in order to reestablish credit. It will take time.

Talk To Your Creditors

When you are having financial difficulties, it’s always a good idea to contact your creditors. And if you know you’re heading for hard times (you’re being laid-off or are about to be treated for an illness), contact your creditors in advance to let them know.

Your creditors don’t want to call and harass you or take you to court. These actions are expensive and time-consuming for them. They simply want their money. If you can give them reasonable assurances that they will get their money eventually, they will usually try to work with you.

There are many kinds of arrangements your creditors can make. They can defer your payments for a few months, if your problems are short-term. (The interest will still accrue, though.) They can restructure your debt, so that you pay a smaller amount each month over a longer period of time. If your creditor is a bank, they may even be able to make some suggestions about debt consolidation or restructuring.

If you reach an agreement with your creditors, get it in writing! It is very difficult to prove that an oral agreement exists.

Collection Agencies

You may be past the talking stage. A collection agency may already be at your door. You should know that you have a number of rights under the Fair Debt Collection Practices Act.

• Collectors may not harass or abuse you.
• Collectors may not lie to you or use false statements.
• Collectors may not engage in unfair practices.
• They are not permitted to contact you at unreasonable hours, unless you agree to be contacted at those times.
• They must send you a written notice telling you the amount you owe.
• If you send collectors a written denial of the debt, they may not contact you until they provide you with proof.
• If you have an attorney, the collection agency cannot contact anyone other than the attorney to obtain information about you.
• Collectors DO have the right to contact you, at reasonable hours, by mail, telephone, telegram, or fax.
• If a collector has violated the law, you have the right to sue. The lawsuit must commence within one year of the cause for action.

You can report troubles with collectors to the Attorney General’s office in your state, or to the Federal Trade Commission in Washington, DC.

Credit Counseling

If you feel like you need some help dealing with all these issues, you can talk to a credit counselor. This is a specially-trained person who will help you with your cash flow and intervene with your creditors. The Consumer Credit Counseling Service, a not-for-profit agency, will charge you a small fee for counseling. Their number can be obtained by calling 1-800 directory assistance.

Some credit counselors are not what they seem. Before you pick one, ask how they are compensated. They may want to charge you large fees, yet be of limited help. Check with the Better Business Bureau in your area, or ask your bank for a referral.