Brent’s Credit and Debt blog

I talk to many people who are on a credit hunt.  They have decided that they are going to build a huge pile of credit cards, and have lines of credit approaching our national debt!

But when is more credit actually too much credit?  Creditors look at your credit, and start to wonder if you are doing what is called ‘debt pyramiding’.

When you apply for a LOT of credit, especially if you try to get it fast with a lot of applications in a short time, a big red flag is raised with a creditor.  While having a large line of credit available with a low balance might help your scores a very small amount, your creditors look at things in a slightly different light.

Creditors have noticed patterns of credit usage over time.  They know that a person that gets a lot of credit quickly may be tempted to SPEND a lot of credit quickly.  Or, you may be on the verge of financial trouble, and you are stocking up on credit lines so you can live off of credit.

When a person is trying to pyramid their debt, that can mean that they are going to by things on one card, and use a different card to make payments.  The interest starts to add up, and soon you can’t keep up with the minimum payments, much less the amount you actually owe.

If you have established credit, one of the best things you can do is manage that credit well, and let it age.  Trying to get additional credit may hurt your ability to get credit, and denials can hurt your score.

Apply for credit slowly.  Get a card, or a loan, and make sure you have no problems with it.  Use it wisely.  In 6 to 8 months, get another and go through the same process.

They are easy to hate, aren’t they?

They call you and demand money for something you couldn’t pay for in the first place.  They try to help you ‘find’ money by taking out additional loans, or by borrowing from family.  They want you to make payments.  They are even willing to waive the interest they charged you.

They are the few, the mean, the Debt Collectors!

But how could someone do this?  How could they spend their days trying to take your money?  Don’t they have a SOUL?

Well, I’ll tell you, I have worked with collectors.  I was working for a company that managed the debt that collectors go after.  I worked on the computer systems, and they hire only the best and brightest.

To the people working in the background, it is just another job.  They don’t talk to people with debt problems.  They only work on the computer system.

Collectors, though, have a pretty tough work life.  They spend all day on the phone, and 9 out of 10 calls aren’t answered.  Very few people call back.  And about half of the calls that connect have an irate person on the other end of the line who is sick of being harassed.

A really good collector will make a little over $20,000.00 per year.  They are mostly young: college students, people looking for a bit of extra income, or people who are having a tough time finding other work.

They don’t particularly like their jobs.  They hate being yelled at, and they hate trying to trick people into paying money they don;t have.  They have heard every hard case story in the book, they are lied to, and they are often ignored.

Are they mean?  Not really.  They just have a mean job.

Are the natural liars?  No, they are trained to manipulate.

Are they ethical?  Most are, but the ones that aren’t give the entire industry a bad…I mean worse name.

For the most part they are people struggling to get by just as we all are.  They really don’t deserve our hate.  They aren’t malicious, they are just trying to make a buck.  By stealing ours.

But I hate their calls anyway.

If you want to learn what NOT to say to a debt collector, download this article:

The Top 10 Questions a Debt Collector Might Ask You

So you have credit problems.  Sorry to hear that.

One thing I can tell you is this:  It isn’t going to last.  Either you will cure the problem, or you will eventually just run out of credit problems.  Either way, the problem will get solved.

Personally, I go for curing things.  I don’t like to have someone else make decisions for me, so I am going to make the decisions myself.  In the case of credit, I choose to fix it.

If you want to know how to protect your credit scores, get ‘The Top 10 Ways You Can Wreck Your Credit’.

Mike Shanahan, the former coach of the Denver Broncos, said this when he was fired from his coaching position:

“Tough times don’t last.  Tough people do.”

Think about that.  Your situation will change.  You WILL be able to move forward again.  No matter what caused your credit problems, you will get out of it somehow.

So, what is the most important thing you can do when fixing your credit?  That is simple.

Start.

Do something.  Get a credit report.  Look at the problems on it.  And then decide what you want to do to fix the problems.

I’ll even help you out.  You can learn how to read a credit report for free by reading this paper:

How To Read A Credit Report

If you don’t want to work on your credit, but you are late on payments, call your creditors and get some help.  They may be able to reduce payments for a while, or cut back on some interest.

Whatever you do, though, make sure you start.  Right now.  Today.  Don’t wait any more.  The longer you put it off, the tougher it will get for you.

Good luck with your credit!

Recently, credit card companies have become real sticklers about your credit line.  In fact, they are often reducing your credit limits, as you can see in my blog entry Why Did My Credit Card Company Reduce My Credit Limit?

If you are a good customer, however, shouldn’t you be able to get your limits raised?  If you have made your payments on time, and kept your balance below your limit, your credit issuer should consider you a good source of credit, right?

Well, not any more.  Becky, who had the problem with her JC Penney card in the blog post above, just got a letter from GE Money bank.  GE Money Bank wrote to let Becky know that she would not be getting a credit line increase.  She hadn’t asked for an increase, but they thought they should tell her she couldn’t have one anyway.

Becky has been making her minimum payments, hasn’t been using the card, and hasn’t been late on a payment.  Her balance isn’t shrinking much because she is making the minimum, but that is what you are supposed to do, right?

Nope.  Now, you have to pay aggressively.  It seems that the credit card companies don’t want to see you carry a high balance any more.  That is just too risky.  They want their money paid back quickly so they can make sure your account doesn’t turn into another default on their books.

Here is what GE Money Bank said about Becky’s account:

1)      Average percentage of credit limit used on this account over most recent 3 months.

2)      Number of months this account has been open.

3)      Percentage of times payment greater than amount due over last 12 months for this account.

4)      Low ratio of payments to amount due over last 6 months on this account.

What does this mean?  Let’s take them in order:

1)      Average percentage of credit limit used on this account over most recent 3 months.

Here, they are saying her current balance is too high.  She needs to drop the balance of the account.

2)      Number of months this account has been open

The account history isn’t long enough for the creditor to feel comfortable.  Becky has had the card for about 18 months (she got it before Christmas 2007).  They apparently want more of a credit history than she can offer.

3)      Percentage of times payment greater than amount due over last 12 months for this account.

Becky has been making minimum payments to prove she will always pay on time and that she is a good credit consumer.  Apparently, giving a creditor a lot of interest isn’t enough.  She needs to pay more on her account than the minimum every month to prove she has the means to pay the card off faster.

4)  Low ratio of payments to amount due over last 6 months on this account.

As with number 3, they want more money.  How much is enough?  Well, 4% is about what they charge as a minimum.  I would suggest 10% as a good starting point, and you can pay a bit more or less depending on your personal financial situation.  Of course, you can always call your individual creditor and see if they will give you a percentage to follow.

As with anything else, the rules change over time.  You need to pay a bit more now than the minimum required, and you need to keep your balance lower, in order to have a good credit standing with a creditor.  Unless you do this, your chances of getting a higher credit limit are greatly reduced.

I normally don’t like the New York Times.  They seem to have a seriously biased slant to their reporting, and I prefer a more balanced view of things.  However, in this case, one of their reporters has things dead on.

Susan Saulny, a writer for the New York Times, has written a story about a new problem with Foreclosure:  The bank may not want your property back!

In some cases, the cost of the foreclosure exceeds the value of the property.  In that case, the lender may not go through with the foreclosure, which means the holder of the title (the current homeowner) is liable for the property.

The real problem, though, is that in some cases the former owner moves out, but when the foreclosure stops, the former owner is liable for the property.  In the article, Ms. Saulny goes on to explain that this liability may include fines if the home is not kept up, as well as other fees.

The rest of this story is available here:

http://www.nytimes.com/2009/03/30/us/30walkaway.html

When you have a credit card, there are times you may slip up and charge a bit too much.  You think ‘Well, it is just a couple of bucks.  I’ll make a payment and everything will be fine’.  But is it fine?  Really?

No, no, no!  Going over your limit is a serious ding on your credit scores!  By exceeding your limit, you may trigger an alert at your credit card company in which they start to evaluate your account for potential problems.  They might raise your credit rate, which costs you more money.  They could reduce your credit limit, which means you will be WAY over your limit.  They might charge you fees (in fact, most do), which can really add up fast.  Worst of all, they may report your account to the credit bureaus!

One little indiscretion like this shouldn’t make a difference, right?  Well, it does.  The way creditors view things, one little problem with one account may mean a bigger overall problem.  In fact, one late payment means you are much more likely to have more late payments in the next 90 days!  In the same vein, one problem with a credit limit typically means you will have more problems.

You can fix this.  If you are getting anywhere NEAR your limit, stop using your card.  Check your balance online on a regular basis and make sure you have room to buy the things you need.  And if you have a debit card, use it first!  Living on a cash basis will help you reduce your dependency on credit and start to live within your means.

When you are looking to rebuild your credit, you have to ask yourself a few questions:

• Have I solved the problems that gave me bad credit to begin with?

• Am I willing to make sure I don’t go down the wrong path again?

• Have I taken care of the debts I already incurred?

• What is my reason for wanting great credit scores?

I talk to a lot of people that are in the credit repair game for the wrong reason.  They are looking for MORE credit, a new car, a new house, or the ability to carry that shiny gold card.  However, they have yet to fix the problem that got them in trouble in the first place.

You need to take stock of your situation.  If you are using credit to extend your ability to spend, you will end up right back in the same bad place you were in before.

Credit was designed as a convenience for people who didn’t want to carry cash.  Later, it became an emergency measure in case something happened that you couldn’t cover with cash.  However, these days credit has become a luxury item.  We overspend, and comfort ourselves that we only have to make a small payment to cover what we buy.

Well, the truth is that those small payments add up.  Over time, small purchases here and there can force you into very large monthly payments that can actually destroy your financial position!

There are a group of people, referred to as the ‘FICO High Achievers’.  These are people with credit scores above an 800 (out of a possible 850).  It is a rarified goal, and one that very few ever achieve.  These people have access to loans, to better interest rates, to lower insurance scores, and generally don’t have the same kinds of credit problems that the rest of us have.  Why?  The use credit as a tool, instead of as a lifestyle enhancement.

I spoke to my banker.  He told me that the people that he serves that have the wealthiest appearance, such as big houses, luxury cars, and luxurious ‘stuff’ in their homes, are typically the farthest in debt.  They are using credit to support a lifestyle they can’t afford, and it catches them in the end.

At the same time he told me that people who learn how to manage their money when they are young are the most likely to be financially successful.  They live well, instead of extravagantly.  The spend money wisely, and use credit only when they are making a large purchase that cash won’t cover.  They don’t buy on impulse, and are less likely to have a 4 dollar coffee in their hands than they are a cup of coffee from the coffee maker on their desk.  These are the people that manage their money, and are more likely to be credit ‘High Achievers’.

You have to make a choice.  You can repair your credit, and go back to the lifestyle that caused the problems in the first place, or you can fix the problems and live better in the long run.

Whatever you choose, I wish you luck in living with credit!