Apr 14, 2009

Credit Cards, Credit Crisis, and Your Credit Score

Credit card companies are switching tactics due to the credit crunch, and consumers are taking the brunt of the change. Higher interest rates, larger late fees and penalties, along with abrupt, unexpected credit card cancellations for accounts deemed “inactive” are only a few of the ways these companies are seeking to minimize their risks. Unfortunately, even if you’ve been making regular payments, you could get caught up in this sweeping readjustment just the same. Higher fees, when coupled with smaller credit limits can turn even a respectable credit score into one that needs a lot of work.

Amongst the circumstances that could cause you to be flagged for a higher rate, high balances on other cards, along with having an adjustable rate mortgage are two of the most common. So what can you do to protect yourself from an unexpected increase? While there is no guaranteed prevention plan, there are some measures you can take that will help to minimize the chance that your credit card is subjected to these harsh new penalties.

Minimize your balances – if you carry a high balance on one card, that credit card company may consider you to be a risk of default and may lower your limit and increase your rates, even if you’ve been paying on time. This in turn can cause a spillover effect, wherein your other credit card companies follow suit, reducing the limit and upping the rates on cards you barely use. The solution? Carry a smaller balance across all of your cards, rather than a high balance on only one. In this way, you have an active account, but the balance is small, which can be seen as less of a risk.

Pay more than the minimum – if you consistently pay more than your minimum balance, there is a chance that your credit card company will see you as a better risk than those who are only making their minimum payments. If you can afford to pay more each month, do so – not only will it help to keep you out of the ‘high-risk’ category, it will also save you money on interest.

Read your credit card terms – many credit card companies have updated their terms of service to include language that allows them to raise your rates and lower your limits if you are late for even one payment. And late may be defined as 12:01 AM on the due date or the day after. Make certain you know what your terms are, and be prepared to negotiate if you feel you aren’t being treated fairly. If you’ve been a steady, good-paying customer for years, some credit card companies may be willing to negotiate better terms. If not, then you may have to adjust your spending accordingly.

Credit card companies have always been business first, and the consumer now, as always, must be prepared to take proactive steps to build and maintain positive credit, regardless of what the credit card companies decide to do.

Posted in credit, credit card companies, credit cards, credit crunch, late fees | 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 »



Mar 29, 2009

Credit Repair During a Recession

With the credit market dwindling, only the people with the very highest credit scores are likely to remain unaffected. For the vast majority of Americans, buying a car, getting a mortgage, or even qualifying for a credit card with a reasonable interest rate has become more and more difficult. Now, more than ever, it is important to realize that errors in your credit report can cause significant financial difficulty down the line. Should you be considering a credit repair service? If you fall into any of the following categories, credit repair may help you attain your financial goals:

You are Looking for a Job:

If you’re in the job market, having a clean credit record will put you a step ahead of other candidates with similar skills and experience. Employers now, more than in recent years, are scrutinizing potential hires more closely in an effort to make certain that any potential employee will be of the best benefit to the company. Leaving your credit report to chance could leave you out of the running for your next position. Having a good credit score will reflect well on how you will handle the responsibilities of a new job, and allows potential employers to feel confident that you can handle your position effectively if hired. Conversely, people who have problem credit may find it more difficult to get a job as employers look to hire only those who seem to be a ’safe’ investment.

You Want to Buy a Home:

The market for subprime mortgages is virtually nonexistent now, but buying a home in the current conditions could be ideal if you have a strong credit score. Low interest rates, coupled with the current drop in housing prices could mean that the home you want is finally affordable. However, if your credit isn’t in the best condition, this favorable market could pass you by. Removing negative information that is too old, incorrect or incomplete could help you to qualify for the home of your dreams sooner than you realized.

You Need to Buy Insurance:

Believe it or not, insurers also look at your credit score, and a better credit history will net you lower premiums than someone who looks like a credit risk. The savings you receive as a result of a good credit score could allow you to afford more coverage at a higher tier. Having adequate insurance is essential in a troubled economy, whether that insurance is for you, your house, or your car. Keeping the premiums affordable is just another added benefit to a clean credit report.

These are just a few of the main reasons you might want to look at getting your credit repaired sooner, rather than later in the current economic climate. Now, more than ever, a good credit score can help you to reap the benefits that can be found while companies are tightening their lending policies. A good credit repair company can help you get rid of errors, or debts that should have been removed due to age. By taking advantage of a reputable credit repair service, you can open the doors to financial opportunity even in a troubled economy.

Posted in credit, credit repair, credit repair services, credit report errors, credit scores, subprime mortgage | No Comments »



Mar 16, 2009

Paid to Cancel Your Card? Why Taking the Offer Can Hurt Your Credit

American Express recently began offering $300 to certain cardholders if they pay off the balance owed on their cards and cancel the account. While this may seem like a great deal on the surface, this type of paid encouragement to close your account and pay down your debts can actually make your credit situation worse. While American Express seeks to entice some of its customers to say goodbye willingly, other credit card companies have begun closing accounts for lack of activity, certain types of buying patterns, or other activity that has been deemed ‘high-risk’. While the credit card companies’ terms of service often state that an account can be closed for many reasons, consumers often don’t pay attention to the fine print until it’s too late.

If you are one of the “lucky” ones who received the paid offer, you may be tempted to cancel your card and cash in while you can. However, if your credit score is already marginal, closing an established account could send your scores dropping even further. Even if you have good credit, canceling an established account will lower your score, possibly placing you in a different risk category, which could trigger further adjustments from other credit card companies. And if for some reason you don’t pay off your balance by the deadline, the $300 incentive is lost, leaving you with a damaged credit score and no reward for your efforts to pay down your debt. Of course, if you paid down your debts without taking the incentive to close your account, your savings in interest alone could top $300 depending upon your initial balance.

Because credit card companies often raise rates, fees, and other costs based upon activity on another account, closing your already established account may cause you to have higher interest rates on the cards you do decide to keep open. This can create a cascading-effect that lowers your overall available credit, which, in turn, can lower your scores even further if your debt-to-available-credit ratios fall below a certain margin. This can make it difficult for you to get a new credit card if you decide to open another account to replace the one that you’ve closed. Even if you don’t decide to open another account right away, the hit to your credit score can cause problems in other areas, such as insurance rates, interest rates on loans, and interest rates on any existing lines of credit.

Your best bet when it comes to keeping your credit score healthy is to pay off your credit cards, and leave the accounts open. Use the cards for incidental purchases, and pay them off again as quickly as possible. Keep your card active, and your balance low, and you may be able to avoid getting hit with a rate spike, or an unexpected cancellation. Getting free money may seem like a great incentive to cancel your card, but when compared to the potential downsides to your credit score, your best option may be to turn down free money in exchange for a little extra financial discipline.

Posted in american express, credit, credit card companies, credit cards | No Comments »



Mar 7, 2009

Debt Relief Companies and Your Credit

When bills start to pile up, some people look to debt relief companies in order to find a way out and improve their credit at the same time. Unfortunately, not all debt relief companies have the best interests of their customers at heart. Depending on the situation, the practices used by some debt relief companies can actually worsen your credit score, even if you are paying down debt. So how can you tell if a debt relief company is reputable, and if the strategies they offer will work for you? Here are some tips to ensure that you aren’t burned by deceptive debt relief practices:

1. Talk to your creditors! Some creditors report the use of a debt relief company in such a way that it negatively impacts your credit score. Some creditors won’t work with a debt relief company at all. If you are looking to settle debt for pennies on the dollar, be aware that even if your creditor does accept such a proposal, settling a debt for significantly less than the amount owed will be a serious blemish with regards to your credit score, and will stay on your credit report for up to seven years.

2. Shop around. There are literally thousands of debt relief companies, with more springing up as the current economic downturn worsens. Some of these companies are little more than scammers, looking to take your money and provide little or nothing in return. So, when you’re looking for a debt relief company, take the time to evaluate several – don’t just choose the first one that seems promising.

3. Nonprofit may not mean reputable. Nonprofit debt relief firms may seem to be a safer option, but beware – in some cases, these nonprofit debt relief organizations funnel money to a for-profit companies, while providing you with little or no real benefit. A true nonprofit credit-counseling organization will help you to get concessions from your creditors such as a lower interest rate or waived late fees, and will provide solid advice on how to improve your situation.

4. Ask questions. When you are deciding on which debt relief company to use, make sure to ask questions regarding how the service works. Be certain your credit counselor spends at least 20-30 minutes evaluating your particular situation, and offers advice based upon that evaluation, rather than canned responses. Be wary of any promises that seem to be too good to be true, or that don’t take into account the reality of your situation.

5. Get it in writing. Make certain that your agreement with the debt relief company says the same thing on paper as you discussed over the phone – ask for clarification of any points that you do not understand, and make certain they discuss the impact that their service could have on your credit score.

6. Be wary of upfront fees. Most reputable debt relief companies won’t charge a large start-up fee in order to enroll you in their program. If it costs more than $50 to start, it may be a scam.

7. Check the BBB. No matter which company you decide to use, always check their standings with the Better Business Bureau – excessive complaints are a sure sign that the company may not have its clients’ best interests in mind.

Debt relief companies can seem like a good idea when you find yourself in over your head with creditors, but the truth of the matter is that these companies can often be risky investments at best. At worst, you could see your credit score plummet and interest rates increase due to late fees and other penalties imposed by your creditors. The best advice when dealing with debt relief companies is to do your research and be certain that the services the company offers are worth the potential consequences.

Posted in credit, credit counseling, credit scores, debt relief, debt relief companies, debt settlement | No Comments »



« Older Entries