Brent’s Credit and Debt blog

After my bankruptcy was filed, I made a huge mistake. I didn’t apply for any credit. In fact, I waited two long years before even attempting to get a credit card. My credit scores didn’t go up much, and I was in pretty bad shape from a personal credit standpoint. Then, I discovered the sub-prime credit market.

One of the little secrets about credit is you have to use credit in order to build your scores. If, after a bankruptcy, you don’t have any credit, your scores will stay very flat. In order to fix this, you have to get credit, and use it responsibly. Each month that you make an online payment, you will get a small boost in your scores. This small boost, over time, will give you a much better credit score. You will also have access to more credit as your scores build. You HAVE to make sure your report stays clean!

The first thing you can do is try to apply with a couple of different creditors. Orchard Bank, Household Bank, and Target will all give a person a chance on rebuilding their credit. However, they may want your bankruptcy to be discharged before they will talk to you. Orchard bank usually gives a starting credit limit of $300.00 to $500.00, and Household bank is at about the same level. Target starts most people with a $200.00 limit.

You can apply for all of these cards online. They are real credit cards, unsecured, and they all report to all three of your credit reports monthly.

If they turn you down, try for a secured card. In my next blog entry, I will give you more information about that.

Here are links for the banks I mentioned:

Orchard Bank: http://www.orchardbank.com

Household Bank: http://www.householdbank.com

Target Redcard: http://www.target.com

The important thing is to make sure you can handle the credit! If you get cards and use them irresponsibly, you will ruin your credit. Make your payments on time, and don’t go over your limits!

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

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.

You’ve heard the commercials: ‘Settle Your Debt For Pennies On the Dollar!’ ‘Credit Card Companies WANT to work with you!’ ‘Call American Debt Relief at’…

Right. Your credit card companies really want to work with you. They want to say “No, really, keep your money. We were being aggressive and rude. Please, don’t pay us a cent”. Did you sense the sarcasm here?

The truth is that creditors want to be paid. When they are faced with a choice between getting nothing and taking a lesser amount, they might bend, but they are going to do their best to make sure you feel some pain. In this case, pain is going to be felt in 3 ways: A reduced credit line or cancelled card; additional legal or collections fees; and a seriously bad mark on your credit report.

According to Fair Issaac, the company that provides credit scoring formulas to the major credit bureaus, any item that is settled may be shown as ‘Not paid as agreed’ or ‘Settled’ will have a serious hit on your credit scores. A single occurrence, such as one charged off card, is bad enough. You can lose 60 or more points from that one occurrence. Having several, though, is seriously bad for your credit. And that means your interest rates can go up, your insurance can go up, and you can be denied credit. These negatives will stay on your report for 7.5 years, although the scoring models start to discount the impact of a settlement after about 2 years.

But the noticeable cost of a ‘debt relief’ or ‘debt consolidation’ company is more real than just an interest rate increase. Like all businesses, they want to make money. And they have things set up so that they do exactly that.

Here’s how it works: The first thing you do is turn over all of your debt payments to the counseling company. They work out payment plans with your creditors, at a reduced interest rate, a reduced balance, or both. You send your money to the counseling company, and they make payments for you. Eventually, you are out of debt.

Simple, right? Well, not really. There are two primary ways consumer credit counseling firms make their money. The first way is through up-front fees. You have heard companies advertising that you have to have $10,000.00 in debt or more to qualify. Well, they are going to negotiate about a 50% reduction in your debt, mostly in interest, and then charge you between 10% and 40% of your debt load as a fee. So, taking $10,000.00 in debt as an example, let’s see how that pays out:

Debt: 10,000.00

Reduction in debt: 5,000.00 (50%)

Fees: 4,000.00 (40%)

Savings: 1,000.00 (Yikes!)

The second way they go after your money is by charging you a fee for each payment they make on your behalf. Again, that fee ranges between 10% and 40% OF YOUR PAYMENT AMOUNT! Think about it: You send in $100.00 in payment, and they keep 40 bucks. Only $60.00 of your payment reaches the creditors! You talk about high interest, this is the equivalent of paying 40% more than the interest rate you already have on the card itself. Personally, I don’t see the benefit here.

The long term effects are even worse. Let’s say, just for the sake of discussion, that you had 5 cards that you wanted to settle. Those 5 negatives on your credit report will be there for more than 7 YEARS!!! Just think about it: Your life improves, your income is better, you want to buy a house 4 years from now, and you can’t get a mortgage. Or, you get one, but pay 5 percent above market rate, costing yourself several hundred dollars a month in additional interest. Again, probably not the best solution you could come up with.

These debt consolidation companies have more ways of messing with your funds, your accounts, and your credit standing. If you really need help, look for an agency that is a member of the National Foundation for Credit Counseling (NFCC, http://www.nfcc.org). Remember that radio and TV ads are expensive, and they are being paid for by your money when you sign up. Another resource is the Department of Justice at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm. You can also check with your local Credit Union. Many have free services for their members that include debt counseling at low or no cost.

You can do this yourself. You can negotiate with your creditors, getting a lower interest rate and making payments over time without a substantial penalty. You may get a ding on your credit report, but you can usually ask them for a goodwill removal when the payment plan is complete.

To sum it up, many debt relief companies are in business not to help you, but to help you part ways with your hard earned money. If you really need help, find a reputable firm. Or spend a little time and do it yourself. You’ll feel richer in the morning.

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.