Credit Card Debt Management

Here are some highlights from my CreditReport.com credit score analysis:

* I am using 58% of my credit card limit. This gives me a definite goal to work toward - get my credit card balance under 50% and watch my credit score increase.

* I opened my first credit card account six years and 10 months ago — seven years is the goal, so this will soon improve.

* I had one payment on a department store credit card that was 30 days late. It was three years and nine months ago. Unfortunately, this one will be with me a while. Nothing I can do about it, although the analysis states that being late with a single payment is typically not as harmful as being late with two or more consecutive payments or being late on multiple accounts.

* I applied for credit (auto loan) on August 30 of last year. It hurts my credit score since it is within the last year, but this should improve soon since the one-year anniversary is in six days. Of course, changes to credit reports take some time for processing.

Interesting note: According to my analysis, when shopping auto or mortgage loans, keep your applications within a window of 14 days, so all will be grouped together as one credit application, causing minimal damage to your credit score.

The Take-away: I don’t think I will apply for that balance transfer credit card after all. However, when I finally start negotiating a lower interest rate, I will certainly still lead my creditors to believe that a balance transfer credit card is a possibility. But in about 2-3 months my credit score will be in a much better place, giving me more negotiating power. The best thing I can probably do is pay down the balances on my existing credit cards, continue to establish myself as a long-time, loyal customer and avoid any more credit applications.

Side note: Credit-mending.com offers a great list of definitions to help you sort through the finer points of credit report interpretation.

Well, I checked my credit score recently. It was enlightening.

CreditReport.com offers credit score checks in a free 30-day trial period. I canceled my trial period the day after I read my credit score, but there is still a $1 hold on my debit card which the company assured me would disappear and I would not be charged. Regardless, I liked this web site a lot for its credit score analysis, offering detailed explanations of why my credit score is where it is.

Of course, you can get one free credit report each year from the three major credit bureaus, Experian, TransUnion and Equifax. It’s great for spotting identity theft or any general errors in your credit report. For instance, I noticed that my student loan company has about five different accounts on my credit report, where there should be only two. I intend to research the matter directly.

But equally important is a check of the credit score, so you will know where your credit score stands and what you can do to improve it. It is a great way to be on the offensive when going for a car or home loan, so the lender doesn’t know more about you than you do!

Q: I quit paying my cards, as I lost my job. What can they do to me? I had good credit until then. I just cannot pay. Help.
-F.C.I.
Texas

A: Without knowing more about your specific situation, it is difficult to answer this question. Your age, physical condition and overall eligibility for employment will have a bearing on this situation. You may be eligible for unemployment pay from the government or social security. Otherwise, pound the pavement for a job — any job, even as a Wal-Mart greeter.

Two things right off the bat: Take care of your basic needs first and, if needed, invest in a cheap caller ID machine to screen calls so you don’t have to deal with the stress of collectors. Secondly, do not ever give your personal bank account information or any other account information to creditors so they can set up automatic payments. Horror stories have resulted from that scenario. You do not have to do this, no matter what they say.

It is a shame to see good credit squandered on a minor hurdle. This too shall pass, so try to save face as much as possible.

Type a pro rata letter to each creditor, which essentially asks for a delay of 30, 60, 90 or 120 days on all payments, with a decreased amount of interest during that time. This is only used in a time of job loss or other life obstacle that could prevent timely payment.

The letter should be in standard business format, with date and recipient and sender names/addresses listed at the top. A fourth line should read “Re: INSERT YOUR NAME and YOUR ACCOUNT NUMBER WITH THAT PARTICULAR COMPANY”. From there, address it to “Dear Collection Manager” and explain that you recently lost your job, along with any other relevant setbacks such as health challenges, age, etc. Explain what you are doing to fix the situation, whether looking for a job or awaiting unemployment checks.

Calculate the total minimum monthly payments you owe to all creditors currently and explain that you are simply unable to meet these financial obligations at this time. State that you would like to request a moratorium on payments for the next (30, 60, 90 or 120 days - choose the one that is most appropriate for your situation). Also state that, if possible, you would like to seek a reduction in interest during this time.

Finally, express that you are aware this is an inconvenience for their company, but your basic living expenses must be first priority. You fully intend to repay all creditors as soon as possible, and have enjoyed a good credit record thus far. Ask them to be patient with you as you work through this difficult time and if they have any questions, invite them to call you at a phone number you include at the bottom of the letter.

Thank them for their consideration and then sign it. The letter should be about four or five paragraphs and try to limit it to one page. Keep a copy of all pro rata letters you send.