Brent’s Credit and Debt blog

There was a credit company practice that has been around for a while called ‘Universal Default’.  Basically, what this means is that a creditor, usually a credit card company, could raise your credit rates if you were late on a credit account that THEY DID NOT OWN!

Let’s look at an example:

You have 2 credit cards, one for Bob’s Bif Burgers restaurant, and one for Jake’s Jiant Jambalaya (yes, I am hungry).

You have been making regular payments on both cards, but one month your Bob’s payment gets lost in the mail.

Jake checks your credit report, and sees that you made a payment late.  So, Jake decides that your interest rate should be 29% instead of the 14% he had been charging you.

Universal default also covers making a late payment to a credit card company and having that company raise the rate.

For many cards that are considered ‘sub-prime’ (in other words they were easy to get), a single late payment would result in a rate increase after a very short grace period of a few days.  They did this to protect themselves by taking in larger profits in case you were going to default on the card.  However, what this really did was take someone who was in trouble and make matters worse for them.  The net result was a much longer life on credit card debt.

The new bill stops that.  Now, a debt has to be at least 60 days late before a company can raise your rates.  This is a big boon to the consumer, and will cover simple mistakes.  However, I would expect those rate increases to be bigger now, as the credit companies will be protecting against default more agressively.

Score on for the consumer, but this this is a big blow to reputable credit companies.

A senate bill that is expected to be signed into law soon is going to change the way credit card companies do business.

In addition to putting limits on interest rate change policies and the fees that can be imposed for credit mistakes, the bill also seeks to place limits on who can get a card based on age.

Like any change to an existing business practice, this will have big implications for both the credit industry and the consumers of credit.  I will be analyzing the impact of this bill over the next several days.

In the mean time, take a look at this:

Senate OKs bill to reign in credit industry

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.

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.

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!

I see a lot of ads for ’30 Day Credit Repair’ or ‘Credit Repair Fast’. The ads are on the radio, on the internet, and I wouldn’t be surprised if they show up in your mail box.

Can they really fix your credit in 30 days?

Well, the honest answer is yes, and no. (I know, the answer sucks, but it is real.)

You can make changes to your credit in 30 days. Things like aged accounts, old accounts without validation, and possibly even a few good will adjustments can be yours in a short time. Those items will absolutely help your scores.

However, there are things on your report that are tough to crack. Changing information, getting rid of collections, and trying to make bad items look better all take time. You have to be willing to do the work to make things as good as possible. If you try to take shortcuts, like hiring a law firm that specializes in credit repair, you will likely end up with a credit report that is clean, and has nothing useful on it at all.

A great credit report requires several things:

• A history of using credit responsibly.

• Maintaining lower balances on your credit cards.

• Making payments on time.

• A good mix of credit.

• Not trying to get credit too fast.

If you can achieve these things, you will have great credit.  It is more about understanding how to use credit as a part of your lifestyle than a ‘quick fix’.Credit repair takes diligence, time, and a consistent effort. If you put the effort in, you can improve your scores and have a credit report that will get you ahead in life, instead of leaving you where you are.

The most important thing you can do is start working on your credit today!

That’s it.  The Top 10 Ways to Protect Your Credit During Divorce.

Your life is already tough.  Going through a divorce is one of the hardest things you will ever do.  It touches every part of your life, and you need to protect yourself while going through it.

Remember, it is you taking care of yourself now.  You HAVE to stop thinking about things as a member of a couple, and start thinking about things as a single person again.

I have posted a video series to the MyCredEd YouTube channel discussing how you can protect your credit during divorce.  Remember, your divorce will be over soon, but the effects of a credit problem can last years longer!

You can view the Conclusion video here: 

Remember to ask your questions about credit and debt in the form to the right.  I will answer via blog or video as soon as I can!

When you fill out the form, your question goes straight to my email inbox.  I am an email addict, so I will see it quickly.  If I put your question into a video, or answer it in a blog, I will send you and email back to let you know the answer is ready.

I found an interesting article today on MSNBC about a $38.00 cup of coffee.

Banks are increasingly covering overdrafts, and charging a large fee for the ‘privilege’ of not having a bounce on your account.

Now, personally, I would rather not be able to pay for something than have to eat a $34.00 fee from my bank.  But the banks don’t always give you that option.

Take a look at the article and let me know what you think.

http://www.msnbc.msn.com/id/29879567/