Sep 26, 2009

Troubled Economy Leads to Increased Credit Repair Fraud

The current market places some unique burdens on the responsible consumer today. Many people who had no prior difficulties in obtaining loans or financing are finding that their credit scores are no longer sufficient to get the type of financing they are used to receiving from lenders. As the troubled economic situation lingers, you may discover that what was once a perfectly acceptable credit score will no longer qualify you for an affordable loan, or you may find that your credit card interest rate has increased, despite your repayment history on that account. Because of these new difficulties in obtaining credit, more and more individuals are turning to credit repair companies for assistance. And just as quickly, scammers and fraudsters are trying to take advantage. The FTC has recently sued several credit repair companies for violating criminal law, and scamming their customers out of thousands of dollars.

While the warning signs of a scam haven’t changed, individuals who may be not be used to the concept of credit repair services may be more vulnerable as fraudulent credit repair companies target the middle class workers who are the hardest hit in the current financial meltdown. These scam artists charge hundreds, even thousands of dollars in advance, while taking little or no action to help consumers who have contacted them for assistance. How can you make sure that you aren’t taken in by credit repair fraud? Dealing with only reputable credit repair agencies is essential, but if you are looking around for a good credit repair company, there are a few things to avoid:

Large upfront fees – these are a clear warning sign. Be especially wary of any company that wants the money up front, before discussing your particular situation.

Company makes broad guarantees – any company that promises a specific credit score is lying to you. There is no way for a company to be certain that you will go from a 620 to a 700, and no way for them to guarantee that the credit bureaus will increase your scores by a certain amount. Again, be especially wary if they make these types of claims regardless of your actual credit score and/or your current financial situation.

Company suggests fraudulent means of credit repair – some companies try to get their clients to create a new, blank credit card file, using an Employer Identification Number (EIN) or other means. These types of credit repair are fraud, and if you follow their advice, not only will you lose money to scam, but you may also be arrested for breaking the law.

Your credit score directly impacts several facets of your life. Don’t trust credit repair to just anyone – do your homework, ask questions, and avoid high-pressure sales tactics. When you do choose a credit repair company, check them out with the Better Business Bureau, and make certain you are getting exactly what you’re paying for.

Posted in credit repair, credit repair fraud, credit repair scams, credit scores | No Comments »



Sep 20, 2009

College Students and Credit – Staying Credit-wise

In the past, college students could expect a slew of credit card offers along with the typical college entrance paperwork. Touting themselves as a way for students to learn responsible spending habits, most credit cards targeting college students instead left these young consumers saddled with cards that charged high interest rates, excessive over-limit fees, and teaser rates that quickly increased with the first missed payment. Under the new laws set to take effect on February 2010, credit card companies won’t be able to extend credit to students without proof of income to repay the balances, or a parental cosigner – but be aware, if you cosign on your son or daughter’s account, it will definitely have an affect your credit scores as well.

When you cosign an account, whether it’s a loan, credit card, or an open line of credit, that account shows up on your credit report as well as the credit report of the individual you cosigned with so that he or she could qualify for the credit. This means that if payments are not made on time, both individuals’ credit scores will suffer. Additionally, the student credit card that you cosigned for will be added to your current available-credit-to-debt ratios and you could be denied additional credit based on the payment and purchasing activity on that card. Keep the initial credit limit low, and make sure any credit limit increases are only granted with your consent – this will help you to effectively manage both your credit scores, and your child’s credit scores.

Credit card companies probably won’t stop their aggressive marketing to students, and you can expect that the new laws will only encourage some credit card companies to offer additional incentives for new students to get their parents’ agreement to sign up for the card. If you have a student who is currently in college, or that is approaching college age, now is the time to help explain to them how credit cards work – keeping balances low, making payments on time, and paying off more than the minimum balance each month can actually improve your child’s credit, and yours as well if managed carefully.

If your student will be attending college out of state, it can be difficult to keep track of credit card activity. One way is to sign up for email alerts on purchases, or when the card is approaching its limit. Be aware of how much your child spends while in school, and help him or her to create a budget that will successfully track spending and reduce the risk of over-limit fees. Even better: opt out of any over-limit fees on the new card, and avoid getting hit with extra charges if your student does max out the card.

It’s never too soon to learn the lessons of responsible credit use; just be certain that your college student’s spending habits don’t end up costing you your good credit. Stay informed when it comes to purchases, encourage responsible spending habits, and don’t be afraid to take the credit card away or cancel the account if your child proves that he or she is not ready for the responsibility – it’s better to cancel a card with a small limit early on than it is to pay thousands in fees and late charges down the line.

Posted in credit card offers, credit cards, credit report, credit scores | No Comments »



Sep 8, 2009

Avoid Credit Card Scams and Rebuild Your Credit

If you’re trying to rebuild your credit, you’re not alone. But with the current economic problems facing many Americans, there has been a corresponding upswing in the amount of scams designed to lure those in need of a quick credit fix. So, how can you avoid getting scammed when searching for a credit card to rebuild your credit? For starters, avoid any of the following:

1.    Offers with vague terms. Be wary of credit card offers with wording such as ‘rates as low as __%’ or ‘credit limit up to ___.’ Chances are, most will not qualify for those teaser rates and credit limits, and the card you end up with could be too limited to be worthwhile.

2.    Offers with excessive fees. Likewise, avoid any credit card that offers a low credit limit, but charges high fees to issue the card. Some of these cards have fees totally more than 80% of the initial balance. If you pay off these fees, you’ll still take a hit on your credit rating because the initial debt will be seen as excessive, even though you haven’t actually charged a dime.

3.    Offers that allow you to pay off an already charged-off debt with your new card. While this may seem like a great deal, all too often it turns out to be a scam. Instead of getting your charged-off debt satisfied, along with a new credit card, you’ll find yourself making payments on that old debt for months or even longer before the company will give you an actual credit card. Meanwhile, your credit scores have little or no improvement.

While there are many scams out there, getting a credit card from a reputable bank or finance company can be an important first step to rebuilding your credit. Some of the best places to get that new credit card include:

1.    Your bank. If you have a good relationship with your bank, and a direct deposit account, you may be able to qualify for a credit card even if your credit scores need improvement. Getting a secured credit card from your bank can also make it more convenient to pay the card back on time, as you can set up automatic payments.

2.    A credit union. If you can open an account at a credit union, you may find that you get better interest rates and have more options when it comes to qualifying for a card.

3.    Store cards or gas cards. Although the interest rates on these types of cards are generally higher, you can still rebuild your credit if you are careful about paying off the balance each month. Store cards are generally easier to qualify for, as well. Just be sure to keep your spending in check, and only buy what you can afford to pay off each month.

Credit cards are a necessary component to a healthy credit score. By carefully choosing the right credit card from the start, you can give yourself the best possible opportunity to rebuild your scores and get your financial health back on the road to recovery.

Posted in credit card offers, credit scores, credit unions, rebuild credit | No Comments »



Aug 21, 2009

Why Debt Consolidation Loans Don’t Work

Before the collapse of the housing market, consolidating debt through the use of home equity loans was a popular solution to the debt problem. However, this type of debt solution doesn’t help when it comes to qualifying for new credit and here’s why: your debt-to-income ratio remains the same, or higher. Additionally, assuming you have the discipline not to use those credit cards while you’re repaying your consolidation loan, you now have revolving accounts that are left idle. And without continual repayment on different types of credit, it’s difficult to rebuild positive credit history.

Credit scores are determined not only by your payments, but also by the amount of credit you have versus the amount you use. Credit scores are also partially determined by your “mix” of credit. You want to have active credit card accounts, and installment payment accounts such as a car loan or mortgage. If you cancel your credit cards in an attempt to keep your debt-to-income ratio at the same levels, then you’ve eliminated a third factor in your credit scoring – length of time for active accounts.

So what can you do instead of debt consolidation? The standard advice tends to be the best advice – start with a credit card that has the highest interest rate and pay it down first. Conversely, if you have credit cards that have a very small balance, pay those off first and then work towards paying off the ones with higher interest. If you work your way through your credit card debts systematically, you can make a difference in your credit scores.

The absolute worst thing you can do is get a debt consolidation loan and then max out the cards you just paid – not only does that leave you in a worse position financially, but it also makes it extremely difficult to qualify for credit in the future, as these types of actions are seen as high-risk by creditors. If you have a debt consolidation loan in progress, keeping your credit cards active by using them for a nominal purchase ($50 or less) may help you to lessen the potentially negative impact on your credit score. Keep in mind that you should only use the cards if you know you can pay them back in full – use them to purchase items that you would normally pay for in cash or check, and then use those funds to pay off the credit card instead.

Once you have your balances lowered, you want to keep them that way – try not to charge more than 10% – 30% of your available balance each month, and pay it off month to month. You don’t have to carry a balance in order to show a positive credit history, but you do need to have consistent charges that get paid on a monthly basis. If you’re really set on a debt consolidation loan, avoid using one that will tie up your home equity. Instead, get a personal loan through your bank or credit union, and use it to cover the amount of your high interest rate credit cards. In this way, you can continue to make payments on the lower interest cards, and maintain the balance of your credit mix.

Posted in credit scores, debt, debt consolidation, debt to income ratio | No Comments »



Apr 6, 2009

No More MyFICO? Experian’s Decision to Eliminate Consumer Access to Its FICO Scores

Consumers checking their credit scores no longer have access to Experian’s FICO score directly – the company did not renew its contract with MyFICO.com, and has no plans to offer consumers access to their FICO score directly in the future. Instead, Experian offers a different score model to consumers which is supposed to help simplify the scoring process for consumers. Unfortunately, the new scoring system does not use the same calculations or scale as the FICO score, which can lead to confusion among consumers who want to compare their FICO score amongst Experian, Equifax, and TransUnion. Considering the current credit market, and the fact that just a few points on your FICO score can make the difference between an affordable interest rate and payments that you just can’t make, this is a serious disadvantage – not only for people who are trying to improve their credit scores, but for those who may be shopping around for an auto loan or mortgage.

Unless Experian changes its mind in the future, the only way to get a glimpse of your current Experian scores now is if your lender makes those scores available to you during the lending process. Fortunately, you can still check your FICO scores for Equifax and TransUnion, which will give you a fair idea of the range you can expect when it comes to your Experian score as well. If you are concerned about not having access to your Experian credit score, there are a few steps you can take that will ensure that your score is the highest it can be, even if you don’t have access to your credit score directly.

Credit Report Cleanup

To start, you should get a copy of your credit report from all three bureaus and check for discrepancies – make sure that the information listed on each report is accurate, up-to-date and consistent from one report to the next. In this way, you can be certain that all three credit scores are drawing from the same information. Make certain that if you dispute an item on your credit report, either through a credit repair service or on your own, you dispute that same item at each credit reporting agency – erroneous information left on one credit report can drag down your score.

Third Party Reports

If you’re planning on making a major purchase and you are in the pre-approval process, you may be able to get some lenders to part with your credit scores, not only from TransUnion and Equifax, but from Experian as well. Because Experian is selling their proprietary scores directly to businesses, this may be the only way for you to get a clear snapshot of your score for your reference. Don’t apply for an auto loan, credit card or line of credit just to see your Experian scores, however – multiple inquiries on your credit report can sometimes lower your score, defeating the purpose of your hard work.

Overall, your best approach to maintaining a good credit score is the same that it’s always been. Timely payments to creditors over the long-term will improve your credit score, even if you don’t have direct access to it. Take the time to improve your credit naturally, use credit-repair services wisely, and regardless of your access to your Experian FICO score, you can still qualify for that loan you deserve.

Posted in Equifax, Experian, FICO, MyFICO, TransUnion, credit, credit scores | No Comments »



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