Bankruptcy & Foreclosures

In case you haven’t read Jason Rich’s excellent book Dirty Little Secrets: What the Credit Bureaus Won’t Tell You, the following excerpt is very useful information and an effective summary of the type of material presented. The actual book contains 10 strategies to improve your credit score. For the sake of space restraints, I’ll break down the strategies presented into two parts (1-5 below and 6-10 in my next blog post).

Strategy 1: Pay Your Bills on Time.

Although this strategy may seem extremely obvious, late payments are the most common piece of negative information that appears on peoples’ credit reports and are often responsible for significant drops in credit scores. When it comes to loans and credit cards, it’s vital that you always make at least the minimum payments in a timely manner each and every month, with no exceptions.

The impact on your credit report and credit score will be considerable if you’re late or skip one or more mortgage payments, however, making late payments on other types of loans or defaulting on any loans will also have a disastrous impact on your credit score that will have an impact for up to seven years.

Strategy 2: Keep Your Credit Card Balances Low.

The fact that you have credit cards impacts your credit score. Likewise, your payment history on those credit card accounts also impacts your score. Another factor that’s considered in the calculation of your credit score is your credit card balances. Having a balance that represents 35 percent or more of your overall available credit limit on each card will actually hurt you, even if you make all of your payments on-time and consistently pay more than the minimum due.

If you have a $1,000 credit limit on a credit card, ideally, you want to maintain a balance of less than $350, and make timely monthly payments on the balance that are above the required monthly minimums.

Strategy 3: Having a Good History Counts, So Don’t Close Unused Accounts.

One of the factors considered when calculating your credit score is the length of time you’ve had the credit established with each creditor. You’re rewarded for having a positive, long-term history with each creditor, even if the account is inactive or not used. The longer your positive credit history is with each creditor, the better.

Strategy 4: Only Apply for Credit When It’s Needed, Then Shop for the Best Rates on Loans and Credit Cards.

If you’re in the market for a bunch of new appliances or other big-ticket items, it’s common for consumers to walk into a retailer and be offered a discount and a good financing deal on a large purchase, if they open a charge or credit card account with that retailer. Before applying for that store’s credit card, read the fine print. Determine what your interest rate will be and what fees are associated with the card.

Strategy 5: Separate Your Accounts after a Divorce.

During a marriage, it’s common for a couple to obtain joint credit card accounts and co-sign for various types of loans. Coming into the marriage, the information on each person’s credit report and their credit score will eventually impact their spouse, especially when new joint accounts are opened or a spouse’s name is added to existing accounts. Consolidating all your accounts once married makes record-keeping easier. If a couple gets divorced, however, this can create a whole new set of credit-related challenges.

First, understand that just because you obtain a legal divorce, it does not release one or both people from their financial obligations when it comes to paying off a joint account. As long as both names appear on the account, both parties are responsible for it.

As your divorce proceedings move forward, be sure to pay off and close all joint accounts, or have one person’s name removed from each account, meaning only one person will remain responsible for it.

In a recent posting, MoneyInstructor.com presents 5 reasons it may be time to consider consolidating your credit card debt into a single loan.

1) Because interest rates are high

The principal reason why most people consider switching credit cards and consolidating all of their outstanding credit card debt into one card is because the interest rates on their existing credit card are just too high.

2) Because of annual fees

Credit card issuers now know they’re in a fight to get new customers and so some of them are offering use of their credit card without requiring you to pay any annual membership fee and not asking members to pay an annual membership fee is a second worthy reason why you may want to consolidate your credit card debt.

3) Personal Loans Sometimes Offer Better Rates

As a way to source debt at a lower cost many of us turn to the option of consolidating all of our outstanding credit card debt as a personal loan (from a bank or credit union) which can then be paid back monthly.

4) Because Consolidating can save Your Credit Rating

Making a single larger payment you can afford is a much more financially sound solution to a bunch of smaller payments that you cannot pay on time.

5) Because some companies will pay you to do it

The last reason to consider consolidating your credit card debt into one loan is because the credit card issuer may pay you to do it! Believe it or not, the credit card industry has now become so competitive that issuers are fighting among themselves to get people to sign up to their card. Here, when the card issuer knows you have an existing credit card, they’ll sometimes offer you the option of transferring the balance of your outstanding existing credit card debt to them, in return for which they’ll reduce some of the debt from your outstanding balance. As always, be careful though, those warning signs regarding interest rates and fees still apply.

Sometimes even the best laid plans go awry and we find ourselves in situations of outstanding debt. As expected, with this come the calls from debt collectors reminding you of your outstanding balance. This can be not only inconvenient but downright embarrassing. What it important to remember is that even if you owe money, you do still have rights when it comes to debt collection. Let’s take a look at how the system works.

A collector may contact you in person, by mail, telephone, email, or fax. However, a debt collector may not disturb you at inconvenient times or places (such as before 8 am or after 9 pm), unless you agree to such arrangements. A debt collector also may not contact you at work once you make them aware that your employer disapproves.

You can stop a debt collector from contacting you by writing a letter to the collection agency requesting them to stop. Once the agency receives your letter, they may not contact you again except to confirm that there will be no further contact or to notify you that the debt collector or creditor intends to take some specific action.

It is important to realize that sending such a letter, under the auspices of the Fair Debt Collection Practices Act, to a collector does not make the debt go away. You could still be sued by the debt collector or your original creditor.

If you have an attorney, the debt collector must contact the attorney, rather than you directly.

A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities, as permitted under Fair Debt Collection, if you are sent proof of the debt.

Remember that even collection agencies have to follow the letter of the law. Any of the following would be considered harassment:

• Threats of violence or harm.
• Publishing a list of consumers who refuse to pay their debts (except to a credit bureau).
• Using obscene or profane language.
• Repeatedly using the telephone (such as calling back continually)

As always, the most effective way to get rid of the collector is make good on your balance.