Brent’s Credit and Debt blog

We all get judged every time we want credit. The judge is impartial, has no compassion, and bases all of its decision on numbers. It doesn’t care what has happened in your life, or how you have changed, or how you deal with adversity. All it cares about is a number.

That number is your FICO score.

This little number, in a range from 300 to 850, is a measure of how responsible you are with your credit. It takes into account your past payment history, your credit line to credit used ratio, and public record entries on your report, how recently you have applied for credit, and several other factors. A score on the lower end of the range shows that you are not very responsible with credit, and a score on the upper end is a very responsible credit user.

So, what is a good score? Let’s take a quick look:

• Below 580: This is considered very bad. You will be able to get loans in the sub-prime market, but usually at very high interest rates. Often, you will have to spend time rebuilding your scores before you can get a large loan.
• 580 to 620: You are now in the ‘almost good’ range. In this range, you can get a credit card, or a car loan. You will need to provide extra documentation for many of your credit applications. You have a good foundation, or have cleaned a few things up. Now it is a matter of maintaining your report to make it better. You are still considered fairly high risk for default, but many companies now cater to your situation.
• 620 to 670: Scores above 620 are considered ‘good’. This puts you in the prime market for interest rates on loans. A 620 credit score will allow you to get better offers for credit, better interest rates, and you won’t have to prove yourself as rigorously as you would with a lower score.
• 670 to 720: Scores in this range are considered ‘very good’. You will have access to better interest rates, higher credit limits, and larger loans for mortgages and other high-dollar items. This is where most people with good credit end up.
• 720 to 770: You are golden. This is about the best most people can do. You have a long, established credit history, you take care of your bills, and there are no bad marks on your credit reports.
• Above 770: You are a ‘FICO High Achiever’. You get the best rates, the best service, and overall have a financial picture to be envied. Remember, though, as you get to these rarified heights, a single bad item on your report will drop you faster than at any other level.

There you have it. A quick definition of what a good credit score is. If your score is low, a little work can carry you a long way towards those higher scores. If it is higher, make sure you monitor your credit so you won’t get surprised.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

OK, you have bad credit scores.  That really isn’t helping your financial situation any.  You are having a hard time getting new credit, you can’t get a credit line increase on the accounts you have, and you feel a constant level of stress because of it.

And then, magically, you see that Internet ad: 

“We Can Fix Your Credit Scores Fast!”

Think about it.  Several hundred dollars, and you will have a clean, beautiful credit report NOW!

Well, it just doesn’t work that way.

These credit repair firms, and law firms that specialize in credit repair, have a couple of tricks they use.  Some of the tricks are legal and ethical.  Some aren’t.

One illegal trick they use is to claim identity theft for you and get you a new SSN.  If you get a new SSN without a real reason, you may be guilty of fraud.

Another trick they use is to write nasty letters threatening legal action to every one of your creditors.  This wipes out both good debt and bad on your reports.  And by the way, the collection agencies can spot the letters a mile away, and often ignore them.

The truth, though, is it took you a while to get in this mess, and it will take a bit of time to get out of it.  You spent months, or even years, developing a history of late and missed payments, and those records are likely going to stay on your report for a while.

But, you can make a huge difference in your scores.  What you have to do is be diligent, and spend a bit of time at it, and you can get the bad things off of your credit reports, keep the good things, open new lines of credit, and improve your scores.

A few things to look at are:

1)      Make sure all of the information on your report is correct.  If it isn’t correct, fix it.

2)      Stop making late payments.  Make your recent history as good as possible.

3)      Call your creditor and ask for a goodwill correction.  Make sure you have a compelling reason for them to work with you.

4)      Make sure you use your credit responsibly.

5)      Pay down some of your balances.

Surprisingly, it doesn’t take a lot of effort to fix this.  You just have to know what to do, and how to get there.  Get started today, get a copy of your report, and you can see a real difference in about a month.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

They came and took your car.  Talk about a mean, ruthless, evil, underhanded thing to do!  Maybe you should have paid for it…

Now you have a big black mark on your credit report.  Don’t worry, it isn’t all bad.  You already had several months of bad marks on your report from the missed payments, so this is more incremental than a major event on your credit report.  I’m not saying it isn’t a big deal, because it is.  But honestly, the 90 or more days you were late before the repossession is probably worse.

So, what will you see?  Well, in the pay status section of the credit report entry for the car loan in question, you will see a notation for ‘Repossession’.  This is a 40 to 100 point hit on your credit scores, depending on what your score looked like prior to the repossession.

The full entry on your scores would look something like this:

As you can see under the Equifax entry, the Pay Status shows Repossession.

How can you go about fixing this?  Well, you may be out of luck for a while.  The auto loan companies have REALLY good record keeping, and probably won’t be willing to let much go.  However, as with any other negative credit entry, you should work to clean it up as much as possible.  Make sure each item on the entry is accurate.  You will notice, as an example, that TransUnion shows the high balance as being $33,462.00.  In fact, the lease was for a third of that.  In this case, the report owner could go back and dispute with TransUnion against this amount.

In talking to a rep at Ford Motor Credit, I was told that a repossession order, and in fact the late payment history, may not be enough to keep you from getting a car.  You will get a higher rate, but that is sometimes needed to re-establish credit scores.

So, to sum up, a repossession is quite bad, but since it is the final event a series of missed payments, it is not as devastating as some other credit entries might be.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

Well, it’s over.  You went to trial for a bad debt, and the judge, in his infinite wisdom, decided to award the collection company that was suing you a judgment against you.  Legally, you are now bound to pay off that debt.

So what does this mean to you?  What can the collection company do to get their money?

First, let’s look at what was likely awarded:

1)      The original balance.  The judge probably awarded most, or possibly all, of the original balance you had outstanding in collections.

2)      Interest on that balance:  The judge has a couple of options here.  They can set an interest rate, and also an accumulation date for that interest, which dictates when the interest can start compounding against the original balance.  If you are lucky, that would be the date of the judgment, but if the judge is in a bad mood, it can be from the time the collector bought the debt.

3)      Fees and legal costs:  You may have to pay the collection company for their legal fees, and often your own as well.

4)      Court costs:  Typically, the loser in a case gets to pay for the courts expenses.

5)      Other costs:  This could be repossession fees, documentation fees, etc.  It is fairly difficult to get a judge to agree that you should pay for these, but it does happen.

So that is the bill.  You are liable for those monies, and for any additional interest that accrues as you pay it off.

Now that you know what the damage is, a different question arises:  How does the collection company get their money?

At this point, the game has changed.  Prior to the judgment, they had to be persuasive, had to record negatives in your credit report, and called you daily to talk things over.  Now, they have legal leverage on their side.

With the judgment in place, the collector’s lawyer will expect payment.  They may agree to a payment schedule, but don’t have to do so unless it was ordered by the court.  In order to make sure you pay, they may file for some or all of the following:

1)      Garnish your pay.  Payments to them will come out of your payroll until you have paid them off.

2)      Put a lien on your house.  This may not get them paid quickly, but if you sell your house, they will get paid before you do.

3)      Put a lien on other assets.  Boats, cars, and other tangible assets can have liens placed against them as well.

4)      If your debt was secured, say a car securing an auto loan, the car could be repossessed.

At this point, you really have very little that you can do.  You are going to need to pay the balance owed.  They have the legal right to garnish your wages, and will do so if you elect not to pay.  Your best bet may be to set up a payment schedule, and don’t miss the payments.

It may be possible, if you don’t pay, for the lawyer that sued you to go back and ask for other legal action against you, such as contempt of court charges, but it is unlikely that they would do so.  It is hard to collect from someone in prison.

And, just so you know, you will get a brand new entry on your credit report under the ‘public record’ section for your judgment.  That will stay on your report for 7 years, and is a fairly large black mark.

If you are starting down the lawsuit path with a collector, I would encourage you to read this post: http://creditconundrum.wordpress.com/2008/03/22/when-will-a-debt-collector-file-suit-against-me/

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

So you’ve missed some payments on your mortgage.  And now, you get the letter:

‘You must contact us immediately!’

In my case, it was a bit different.  My property taxes went up, and so I wasn’t paying enough on the mortgage.  Every short payment counted as another late, so they were already grumpy with me when I started having to miss payments.  By the time I figured out you really have to talk to someone to make things right, it was too late for me.

You see, I made a mistake.  I tried to make payments when I could, and buried my head in the sand thinking the thing would take care of itself.  But I didn’t understand how my mortgage company worked.  In my case, I missed January and February, and then paid in March.  That March payment was applied to January, so I was still 2 months behind.  Then I missed 2 more in April and May.  4 missed payments, and the proceedings began.

Your mortgage contract will spell out the terms of the foreclosure process, so go take a look at it now.  But the truth is, every state has it s own foreclosure laws that describe how long they have before they can foreclose, and how long you have to try to fix things before they sell your house.

Typically, this is the sequence of events:

1)       Your mortgage company will send you a letter telling you that unless you pay your past due balance, they will start foreclosure proceedings.

2)      Shortly after that, they will hire a law firm to handle the case.  The law firm will file with the county that your property is in to start foreclosure proceedings. 

3)      You will get a letter from the county, and they will run newspaper ads announcing to the world that you are about to lose your home.

4)      If your state has a ‘right to cure’ provision, you can file a document with the county prior to the actual sale date, but you must be able to pay off the property with a new loan by the sale date in order to keep your property.

5)      If you don’t try to keep it, the sale happens and someone else owns your home.

The timeline for this varies by state, but it isn’t long.  In Colorado, it takes less than 60 days from start to finish.  You might be able to get away with as many as four missed payments before they come after you, but the faster you get on track the better.

For more information about your state laws, check here: http://www.foreclosurelaw.org/.

The best thing you can do is CALL YOUR MORTGAGE COMPANY!  Talk to them.  Find out if they will be willing to let you move the late payments to the end of the mortgage.  Or try to refinance.  But if you have the ability to pay the mortgage, do NOT let your home foreclose!  Your credit will suffer for years, and your options are limited.

For more information, see my entry: http://creditconundrum.wordpress.com/2008/03/12/cc12-what-will-my-credit-look-like-after-a-foreclosure/

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.