Protect Your Identity!
The following is a story from one of our contributors. There is some very good information about the new paradigm shift in how we spend money and use credit.
2009 is sure to be a watershed year for how we make, spend and save our money. Particularly, the world of credit is in for a major shake-up. Here’s what I expect in the new year:
1. More consumer credit lawsuits. Because of adverse actions taken by lenders to lower credit limits and close the credit card accounts, millions of consumers now have lower credit scores and don’t understand why. We’re predicting consumer’s who have done nothing wrong and class action attorneys will take a very dim view on the credit card industry’s attempts at mitigating their risk by modifying terms of their customer’s accounts.
2. A rush to join credit unions. Little or no exposure to subprime mortgages, no shareholders to impress every three months and plenty of money to lend seems like the tri-fecta to me. Add to that the same level of insurance for your deposits and overall better treatment of their members compared to that of the large banks and this is a slam dunk. As I’ve said on more than on occasion, you’re nothing but a number. 2009 sees consumers growing tired of that moniker and flock to credit unions where they truly are more than three digits and a credit report.
3. Sweeping credit card reform and early adoption. A new set of credit card rules was approved on December 18th by the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Reserve. The new rules mean many more protections for consumers that include longer grace periods, fewer fees and no more Universal Default. The rules take effect in July 2010 but you should expect early adoption in 2009 by many of the 16,000 credit card issuers.
4. A new credit usage paradigm. This is the silver lining of the credit meltdown. Millions of credit users, both young and old, will recognize that credit is a privilege, not a right. They will use this credit disaster as motivation to learn more responsible methods of credit management. Paying 24% interest on credit cards and car loans is just flat out punishing. Many will see the light … and just in the nick of time.
5. FTC smackdown part II. Credit repair organizations felt the sting of the Federal Trade Commission in 2008. 2009 it’s the debt settlement industry’s turn to learn what it means to have “ill gotten gains.” Too many bad apples in this space overshadow any company who legitimately tries to follow ethical business practices. In lieu of the smackdown we may see new regulations governing how these companies do business and how much they can charge.
6. AnnualCreditReport.com will be busier in 2009 than any year except for 2005, when the free credit report laws rolled out nationally from West coast to East. Consumers who don’t claim their Federally mandated free credit reports have been hiding in a cave for the past six months.
7. Academia to the rescue. Thankfully we’ll see more institutions of higher ed run with the financial responsibility torch. Already schools like the University of Georgia and professors like Dr. Brenda Cude are introducing some of their seniors to consumer credit education that does more than just explain what interest rates are. Thumbs up also goes to Counselor Alicia Davis and The Westminster Schools in Atlanta for doing the same for their high school seniors.
8. Credit Repair Organizations Act … a rewriting. If this doesn’t happen it will be a crying shame. The law is too broadly written and prevents legitimate organizations such as the credit bureaus, Fair Isaac and boutique cred-ucators to subsidize the cost of education. When the credit bureaus and Fair Isaac have to settle lawsuits accusing them of being credit repair organizations then you know something is wrong.
9. More people depending on payday lenders. These guys get a lot of bad press but I’ve never seen an industry do a better job educating consumers why you SHOULDN’T use their services. A payday loan is a low dollar loan meant to be paid back in short order, a few weeks in some cases. You give them access to your checking accounts so they’re gonna get paid back. As more people find it impossible to get loans with mainstream lenders the next step on the way toward Tony Soprano type lenders are the payday guys.
10. Some lender will develop amnesia and begin offering high LTV loans again. LTV stands for “Loan to Value” and it’s a common term used in mortgage lending that represents the ratio of the amount borrowed to the appraised value of the home. In the past, mortgage lenders let consumers borrow more than their house was worth. So, you could actually have an “LTV” above 100%. And some really aggressive lenders would even go to 125% LTV. This was considered an acceptable risk because home values had always gone up. Those high LTV loans are next to impossible to find right now but, unlike the saber-toothed tiger, you can expect a comeback in late 2009.
Protect Your Identity!
More than 70 million people in the United States qualify for subprime cards, according to an August 2008 study. While most people wisely avoid these cards — which feature low credit limits, high annual fees and sky-high annual percentage rates — they are one of the best ways for consumers to establish, improve or repair their credit histories before graduating to more attractive cards, experts say.
“Low-limit credit cards are a great way to get in the credit game, says Steve Bucci, president of the Money Management International Financial Education Foundation and author of “Credit Repair Kit for Dummies.” “If you’re new to credit and have no history, you’re going to build it very quickly — if you take some precautions.”
Lenders will take a chance on high-risk users by offering cards with credit limits of $250 or $500 and APRs which typically exceed 20 percent. These cards have long been one of the best tickets to building a shinier credit report — as long as cardholders mind their credit Ps and Qs. In fact, at least 35 percent of users of low-limit, or subprime credit cards improved their scores within two years, and more than 60 percent of that group increased their score by 40 or more points and earned a credit limit boost, according to an August 2008 study by Citizens for Equal Access to Credit, a Washington, D.C., based nonprofit working to ensure low-income Americans have fair access to credit.
Protect Your Identity!
Nothing can ruin your credit quicker than charges your ex is running up that you are responsible for. For example medical charges! These can add up fast and before you know it, you have a pile of bad debt Click Here! . Take it from me; I’m talking from personal experience.
Make sure you have some sort of document such as a judgment from divorce court stating that your spouse is responsible for his/her own medical and co pays! Don’t forget procedures and treatments that are not covered by your health coverage.
Just today I received three collection letters with charges adding up over $2500! I’m the responsible party on our health coverage. However, per the court she is responsible for her own “out of pocket” expenses. I will be faxing a copy of the court judgment to the collection agency on Monday! So many people, particularly men get burned this way. It can take months or even years to undo the damage of an angry ex.
You don’t have to be a victim! Take charge of your credit and finances and protect yourself. If you are going through a divorce or have already been divorced watch your credit like a hawk. Sometimes it’s not always a stranger who does harm to you. More often than not, it’s someone who is close or in this case, used to be close to you!
Ok, so you’ve messed up. Maybe you lost a job, made an ill-fated relocation to another city, missed a payment or encountered an unanticipated medical expense. It can happen to anyone! Even if you’ve suffered a foreclosure, have had multiple charge-offs or late payments, you can have a better credit rating within a year. There are many ways of improving your credit and the good news is that the last year or two is most important in determining your credit score , so you won’t be mortally wounded from past mistakes forever.
Improving credit scores involves avoiding many things. In the order of importance, they are late payments, high credit card balances, closing credit card accounts and having too many in-store charge cards. Late payments carry 35% of the weight in terms of your credit score, so do not take them lightly, even if it’s just a store charge card, a cell phone bill or a rent payment. Your credit score can drop by as little as 20 points or more than 100 points, depending on how often you are late and how many accounts you’re late on, as well as whether you are 30, 60, 90, or more than 120 days late.
Secondly, your credit usage should be no more than 40% of what is offered to you. If your credit line is $1,000, then you should owe no more than $400, and that goes for all lines of credit you have open. If you have any maxed out cards, then pay them down until you hit the 40% mark! Some people think they should close out their accounts to “do the right thing” or “prevent overspending,” although this will decrease your overall credit offering and will reflect negatively on you.
Instead, work on paying those balances down and once you’re finished, aim to purchase one thing a year on those cards to keep them active, and pay them off right away. Lastly, opening and closing store charge cards just to get that 10-15% initial discount is a signal of irresponsible credit behavior and will not result in high scores for your credit.
While you’re trying to improve your credit rating, there are a few common mistakes people make. First, avoid asking a creditor to “lower your credit limit.” Some people assume that will mean less temptation to spend, when instead they should be exercising discipline, learning to live within their means and working at reducing the percentage of total credit used. Remember, you want to be using no more than 40% of the credit that’s extended to you, so by closing accounts you’ll actually magnify your debt. Secondly, don’t make any late payments, as the first one always hurts worse, sometimes by as much as 100 points. The subsequent string of late fees don’t take off as many points generally, but if you re-establish credit again, the worst thing you can do is to miss a payment. The third mistake is consolidating your accounts, since applying for new credit will take off 5-10 points. Applying for an installment loan will improve credit scores though.
To get a better credit rating, you may want to call in and ask that new, updated information be added. Lenders like to see that you have steady employment, so including your current employer could be an asset. You can also include your date of birth, checking account and current residence. If your credit report is missing accounts you regularly pay on time, then you can send the credit bureaus recent statements and payment history records to prove you’re re-establishing your credit score. You can also use a Chevron credit card to buy gas each month and pay it off in full right away.
