While there are a number of nonprofit organizations that are set up to provide honest debt counseling, there are just as many if not more that are simply looking to turn a profit. Unfortunately, these ‘debt counselors’ are usually nothing more than loan sharks or affiliate sites online that want to earn a nice juicy commission off the loan they sell you. Here are a few words of advice gathered from bankruptcy lawyers who are in the business of protecting consumers from losing everything they have worked so hard for all their lives.
The Truth about Debt Consolidation Loans
One of the ways in which less than reputable debt counselors will try to take advantage of you is to talk you into a debt consolidation loan. There are times when these actually may be a good idea, but if you are in serious trouble financially it is doubtful that you would qualify for a loan that would be advantageous to you. For example, some credit card companies offer to let you transfer all your other outstanding credit card debt for 0% interest. Be watchful of these offers because that zero interest is only for a short period of time and you may end up paying higher interest when the introductory period is over.
Home Equity Loans Can Cost You Your Home
Another type of loan that will often be recommended by the so-called credit advisors is a home equity loan. Bankruptcy lawyers are the first to tell you that these loans are dangerous. The reason for this is simple. If you owe unsecured debt such as credit card debt, the only thing they can do is report you to the credit bureau, perhaps sue you in court and maybe garnish your wages if they are successful in court. Unless you owe tens of thousands of dollars, most creditors won’t go through the trouble.
They could sue you and they could win, it is a very real possibility, but they cannot take your home. If you have out of control debt but have equity in your home, it is not advisable to try to pay it off with a home equity loan. What happens if you can’t pay the loan? The mortgage lender can foreclose on your home. You will still have all that debt in one loan but you will be homeless as well.
Debt Settlement Programs to Watch For
Most debt settlement programs charge a fee for their services. They advertise debt counseling as being free, which by law it is supposed to be. Where they get you coming and going is in the fees they charge to settle payments for you. These types of organizations offer to negotiate settlement with your creditors and they assure you that they can get your balances reduced. Perhaps they can, but they don’t tell you that any money they collect from you pays them first for their services and once their fees are met they begin paying your outstanding debts.
If you think about this logically, you end up paying more than you owe in outstanding debt. It is far better to call your creditors directly to see if they will negotiate a deal or payment plan with you and then stick to it. Don’t’ turn your money blindly over to a third party without trying to first settle your debts directly with the creditor. In the end, it is ok to speak with credit counselors. Listen to what they have to say, but keep in mind that most of these organizations are out to make a profit from ‘helping’ you settle your debts. As the old saying goes, “Don’t jump from the frying pan into the fire.”
Although we have heard it over and over and over again just how important it is to have a good credit score, somehow we just never seem to take it to heart. If you could count all the opportunities in life that pass you by because you have a less than perfect credit score, you just might be motivated to do something about improving it.
Credit Scores – the Good, the Bad and the Ugly
So then, what is a good credit score and how high does it need to be in order to get the best interest rates on loans, the lowest premiums on insurance and a good chance of getting that apartment rental or job you are applying for. Actually, you should always shoot for a credit score which is above 700, the higher the better. If your score falls below 620 you will be considered a poor credit risk and if you get any credit at all it will be at sub-prime rates. Any score above 760 is considered to be the upper echelon and will qualify you for almost anything.
As noted above, most people are looking to improve their credit score because they are looking to have credit extended to them. This could be credit cards (revolving lines of credit), mortgages, car loans, personal loans and even installment plans on dental or medical bills. Any time you want credit extended to you, it is imperative that you have a score well above 620 points, over 700 if possible, or you may be denied or subject to extremely high interest rates.
Lower Insurance Payments
Then there is automobile insurance to consider. That auto you are driving is extremely expensive and insurance companies look at your credit rating as a risk factor. Other types of insurance underwriters also base premiums on creditworthiness. If you are looking for private health insurance, for example, your credit score will certainly factor into rates as well as the condition of your health and any preexisting conditions you may have. The lowest possible premiums on any kind of insurance, including homeowners’ insurance, are always offered to those with excellent credit scores.
This is another area where people get into difficulties if their credit score is less than perfect. Apartments, houses and any type of property that is for rent is an investment for the landlord and he/she will want to make money on renting the unit. If you expect to find decent housing, you will need to have a good credit score in order to show that you can afford to pay the rent and that making timely payments is important to you.
Finally, a good percentage of Americans just don’t realize how many employers run your credit before they even call you in for an interview. Along with your work history and criminal records, your creditworthiness indicates what kind of moral character you display. Whether or not you will be handling money or other valuables, your creditworthiness is a reflection of who you are.
It is about time we realized that having a good credit score is of vital importance in almost every area of your life. From applying for loans to getting good premiums on automobile insurance, your credit score will impact how much you pay, and whether or not you are even eligible for credit. Take the time to learn what you can do to improve your score if it is below 700 and also get a free copy of your credit report and score to make sure there are no errors or cases of identity theft. Your whole way of living will improve by building good, solid credit.
In recent news, there has been a lot of attention given to a new way in which potential thieves are accessing our personal information. Although criminals have been using something known as ‘caller ID spoofing’ for years to defraud consumers out of money, it is now feared that they will be using spoofing to steal our identities in order to charge thousands of dollars against our name.
What Is Caller ID Spoofing?
Anyone old enough to remember back to the days when caller ID first came out will remember the joy we felt at being able to tell whether or not we wanted to answer the phone. “Oh, it’s just my mother-in-law, let’s pretend we aren’t here!” For years this helped us to avoid the ‘bill collectors’ if we didn’t have the money to pay or to avoid those annoying sales pitches during dinner. However, new technology is able to make it appear as though the person calling is other than who they are. In other words, if you subscribe to a caller ID spoofing service you simply tell the program what number you would like to pop up on the recipient’s caller ID and that’s just who they think you are.
How Caller ID Spoofing Can Affect Your Credit
Consider for a moment that with this service it makes it possible for thieves to access your bank account via telephone to gain information such as how much money you have in the bank, where you made your most recent purchases and even what kinds of deposits are automatically made to your account each month – and worse yet, what day of the month they are made! Remember, the bank’s automated system ‘thinks’ the call is coming from your phone number and will then start detailing the items requested.
Chase and Bank of America Not Well Protected
In an article posted in the New York Times, a consumer advocate named Edgar Dworsky put the theory to the test. Armed with just a bit of the consumer’s personal information, Mr. Dworsky called the automated systems of Chase and Bank of America for credit card holders. The article refrained from stating what that information is for fear of unleashing further thieves on an unsuspecting world, but the article did go on to say that Dworsky was successful at both of those financial institutions. The automated systems recognized the spoofed phone number as being that of the consumer and proceeded to give over the information Dworsky requested.
Not Enough Being Done to Protect Consumers
According to the article in the Times, both phone companies and card issuers can do more to protect their consumers but strict enough measures are not being taken. It is reported that their excuse is in terms of customer convenience. Bank of America and Chase are reported as saying that customers use automated systems for the convenience and that if they have to enter too much identifying information it will just defeat the purpose. However, given the choice between being left open to identity theft and a bit of inconvenience, most consumers would probably gladly spend a few extra moments entering identifying info.
At a time when we are having enough problems keeping up with our credit report and maintaining creditworthiness with a decent credit score, caller ID spoofing is the straw that broke the camel’s back. Since there is no immediate solution to the problem, it is recommended that you continually monitor your credit report and make doubly certain you never divulge your information to anyone on the other end of the line unless you are 100% sure you know the identity of the caller. Until stronger security measures are in place, this may be your best line of defense.
Although the laws are changing, there was a time when the only thing consumers were entitled to for free was a copy of their credit report once each year from each of the three major credit reporting agencies. However, as reported by Bloomberg Business Week, now recent legislation is making it possible for consumers to get a free copy of their credit score if they have been denied credit based on that score. As laws continue to change, one thing remains constant and that is our inability to understand just how we are graded in terms of creditworthiness.
One of the first things that confront us is in understanding just what a credit bureau is. There are local credit bureaus that call us whenever we become delinquent in payments but there are also the national credit bureaus (Equifax, Experian and TransUnion) that keep tabs on anything and everything related to what we have and what we owe. Sometimes these credit bureaus are referred to as credit reporting agencies, which is actually a much better name for them. They are not the folks who call us when we are in arrears on payments but they are the ones who tell potential lenders, landlords and employers whether or not we deserve whatever it is we are applying for.
Credit Score, Credit History & Credit Report
Another area which is oftentimes confusing to the average consumer is the difference between a credit score, a credit report and a credit history. Actually, they are all related but a simple way of looking at it is that the credit report details your credit history. Think of it like a report card when you were in school. Your history is all the tests you took, the assignments you handed in and whether or not you were absent or late on any given days. That is all tallied up to give you a ‘report card’ which is your credit report. Based on the history detailed in your credit report, each of the three reporting agencies have some fairly complex mathematical formulas to come up with your credit score. This would be like your final grade at the end of the year.
Benefit of Checking Your Credit Report
Unlike your report card in school, at least you have the option to dispute any errors or fraudulent entries on your credit report. Students usually don’t question the grades their teachers give them. They may complain, but rarely dispute those grades. However, you are given the legal right to dispute any entries on your credit report if you feel they were made in error or that it could be a case of identity theft. In fact, you are encouraged to get a free copy of your credit report from each of the three reporting agencies once a year for just this purpose. If something is not right you can take steps to have it corrected.
The language of credit may be confusing but there are plenty of resources out there to help you have a better understanding of what it all means. Whether you are looking at ways to improve your credit score or are simply looking at how to correct an erroneous entry, help is available. Understanding your credit score may be another matter altogether as each agency calculates your score a bit differently. Even so, if you find a way to keep your payments current, don’t spend more than you make and can show that you use the money you earn wisely, your credit score should not be a problem. The real problem is understanding the language, but have no fear – there are plenty of interpreters out there who are willing to help!
Anyone who spends any amount of time at all on the internet has probably seen a million and one ads and telling them that they can save thousands of dollars each and every year by refinancing their homes. Be careful since this may or may not be the case.
So many times we take what we are told as gospel truth, but in reality it is just a sales ploy to drum up business for lenders. In a recent Wall Street Journal article posted on Yahoo! Finance, it was made clear that many of those ads are posted by lead generating brokers who make it their business to match lenders with potential borrowers. As a result, it is not uncommon to find information on their websites that is either erroneous or incomplete.
For example, when you plug your data into their ‘calculators’ to get a rough estimate on what you would be saving by refinancing, there are several key factors which aren’t taken into consideration. First of all, there are origination fees, closing costs, title searches and a myriad of other oftentimes hidden upfront fees that can significantly reduce the amount of savings you would realize.
Then, of course, there is your credit history and credit score. Most consumers have absolutely no idea what the exact status is of their personal credit rating which is why those calculators often only ask you very broad questions. You won’t typically be asked for your exact score; rather, you will be asked if your credit is excellent, good, fair or poor. This tells them nothing and has no effect on the rate you will be expected to pay! Remember, even those with less than perfect credit can qualify for a mortgage loan but they often pay double (and sometimes more!) the interest than someone with a great credit score.
As a rule of thumb, refinancing your home can cost you anywhere from 3% of your unpaid balance to 6% or more. The point is, you will not be told that after paying these refinance charges you are saving little, if anything. In fact, there have been cases where refinancing actually cost borrowers rather than providing a savings. The ‘rule’ many people go by is called the 1% rule or the 2% rule. You will be told that if the interest rate you are being charged is at least 1% less than what you are currently paying you will save money. Beware! This is not always the case.
Again, the bottom line is your credit score and credit history which combined will be analyzed by a lender to predict your creditworthiness. Also, keep in mind that every time a lender runs your credit history it will automatically result in losing a few points on your credit score. It would be far wiser to get a free annual credit report from each of the three credit bureaus in order to know exactly where you stand. Actually, you can go one step further as there are credit monitoring companies that will also keep you informed of any changes as they occur. This helps to prevent identity theft as well as giving you the heads-up that there may be an error which has been entered to your history.
Nevertheless, there also may be times when refinancing your mortgage could indeed save you a bit of money each year. The point is, talk to a disinterested third party such as a consumer advocacy group prior to finalizing a new mortgage. If you will realize a savings even after all those hidden refinancing charges, then this may actually be a great plan. Just make sure to look before you leap.
Working to restore your credit is not always an easy endeavor, especially if you have more than one account in arrears which is affecting your credit score. With an easy to use online credit score estimator, sometimes referred to as a credit score calculator, you can estimate approximately what your current score is as well as what it will be in the future.
Six Questions to Answer Using a Credit Score Estimator
There are actually six different categories which most online credit score estimators use to calculate a rough approximation of your current score. Of course you will need to know what has been reported to the credit bureaus (Equifax, Experian and/or TransUnion) along with how much money you currently owe in back debts. This will also include current debts, such as outstanding balances on credit cards. The questions usually fall into these categories:
- Negative items listed on your credit report
- Number of open and closed accounts listed on your credit report
- Total of all credit card accounts
- Sum of all current credit card balances
- Within the past 6 months, how often you have applied for credit
- The age of your oldest loan or open credit card
However, the second question usually has multiple parts. The number of open and closed accounts listed on your credit report also fall into rough categories. For example, you may be asked how many of the following accounts are listed on your report:
- Credit Cards
- Finance Accounts
- Auto Loans
- Student Loans
- Other types of loans or revolving lines of credit
Each web site you visit will have a different variation of these questions, but they will be quite similar. The purpose for this is because your FICO score is based on certain criteria and in order to estimate your score it is important to have the information handy for the calculator to evaluate and give weight to.
How to Get a Copy of Your Credit Report
There are a few ways in which to get your credit report, all of which are free but some ways will not reflect on your credit score. The first thing you should realize is that every time a creditor runs your credit history it will reflect on your credit report. If you apply for credit and are denied, you are legally entitled to a copy of your credit report for free but keep in mind that each inquiry is reflected on your report as is the fact you were denied credit. The law also states that each and every consumer in the United States is entitled to a free copy of their credit report from each of the three credit reporting agencies one time per year.
Many people contact each of the reporting agencies individually but this can be time consuming. There are, in fact, credit monitoring companies that can help you get your free credit reports while also monitoring any changes that occur. There is a fee for the credit monitoring service but the reports themselves are free. Every time a change occurs on your credit report you are notified of the change which enables you to keep tabs on whether or not there are any errors or fraudulent entries being made.
Once you have a copy of all three credit reports for free, you simply plug in the information requested on the credit score estimator and you will have a pretty close approximation of what your FICO score will be. Remember, the government entitles you to a copy of your credit report so that you can monitor what is being reported but you would need to pay for a copy of your credit score. For this reason, many people regularly take advantage of free online credit score estimators.
It would seem as though three years of economic turmoil would be enough to send anyone over the edge, but Americans are still being beaten down day after day with the debt crisis that is assailing not only us, but the entire world it seems like.
According to finance professor Werner De Bondt and his associate Richard H. Driehaus from De Paul University Center for Behavioral Finance, we are in a vicious cycle from which there appears to be no end. Americans are starting to feel the weight of the problems besetting them since the mortgage meltdown of 2008 ushered in what is being called “The Great Recession.”
Actually, the pair feels that, for the most part, Americans have three different reactions to the current financial problems besetting our economy. Some are angry at the debt crisis and the way in which government attempted a bailout. Others are expressing anxiety, not only about their own future but the future of our economy on the whole. A third group of people are simply resigned to the situation and feel that there may be no way out.
In a recent article in the Personal Finance section of the MSNBC website, De Bondt is quoted as saying that Americans “have had it…..with this whole thing,” referring to the elite group of Washington politicians and Wall Street big businessmen. He says that our worries are only natural if you look at what has been transpiring over the past few years.
Literally millions of Americans are out of work and have no hope in the near future of finding a job. Companies are downsizing, homeowners have been foreclosed on and millions of loans have gone into default. It seems as though the bubble burst just as many of us were pulling ourselves up out of debt that we incurred when the credit card wars lured us in.
For years, vying for our business, credit card companies were mass mailing credit cards to consumers around the country in order to get them to sign onto high interest rates. Unfortunately, tens of millions of us fell into the credit trap which led to bills we just couldn’t pay. For a while all went well until they kept raising our limits to the point where even paying the monthly minimum was beyond what we could afford.
At some point many people became aware of what they were doing to their credit scores and simply tore up those cards. Now they are paying the price for it because the economy is still on a downward spiral and it is becoming increasingly difficult to keep up with current bills let alone pay off old debt.
Actually, people are behaving fairly rationally, according to George Loewenstein, economics and psychology professor at Carnegie Mellon University. They are spending less, saving more and recognizing that the economy is not recovering as quickly as Washington said it would. The time has come to rely more on our own resources and less on government – a message which appears to have been heeded.
If you are looking for some sound advice to help you weather the current debt crisis, the first thing to do, as Loewenstein observed is save more and spend less. Secondly, keep tabs on your credit report. If you are like 90% of working class Americans, you are probably worried about whether or not your job will still be there tomorrow.
This means it is time to sincerely think about paying down the debt you have without running up any more. Make sure that your report details debt that is truly yours and not an error or case of identity theft. By keeping a tight reins on your finances and monitoring your credit, you should be able to withstand the current problems until the economy bounces back.
Most of us are struggling just to make ends meet and to keep current on bills as they come in each month. We worry that if we don’t keep a decent credit score we may not be able to borrow money in case of an emergency and we worry that we won’t get a good job, a good apartment or will not be able to arrange medical payments ‘on time’ if we can’t maintain a decent credit history. Not so for the super affluent as they are invited to carry a credit card that is by invitation only.
What Is an Invitation Only Credit Card?
According to Yahoo! Finance, most of the major credit card companies and several banks such as Chase have their own versions of an invitation only credit card. Unfortunately, little is known about these cards as they are cloaked in secrecy. Only those members who have been privileged with an invitation actually know why someone would want one. What we do know is that many of them come with an extremely high initiation fee, sometimes as much as $5,000, and that they may carry high annual rates as well. It is known that the American Express Black Centurion is one of those cards that carries a $5k initiation fee and the annual fee is $2,500. Oddly, most of us would like to have a credit score worthy enough to have a $5,000 credit limit on a basic card!
What Do You Get For All That Money?
Besides the prestige of having an invitation only credit card that is offered to the wealthiest card holders (or at least those who have probably charged hundreds of thousands of dollars in a single year), there are reputed to be some pretty nice perks along the way. Among the ‘known’ benefits are travel perks above and beyond those frequent flyer type miles such as extra special service at hotels around the world. These cards hold private discounts and as mentioned, free upgrades for all sorts of travel arrangements and accommodations. Some of credit card companies also hold dinners for invitation only cardholders at which they are given a ‘bag of personalized loot.’
Achieving a Happy Medium
While most consumers could never hope to be a member of such a select few who would qualify for such a swank invitation only credit card, we can work towards achieving a happy medium. By keeping tabs on our credit score we can work our way up the credit card ladder in order to perhaps qualify for a credit card with low annual fees and perhaps even a fairly high credit limit. Unless you have a bank account with perhaps $20+ million which would qualify you for one of those ritzy bank invitation only credit cards that is about the most you can hope for – a credit card which has low rates and a high limit.
Take the time to get your free annual credit report to keep tabs on what could be affecting your credit. If there are any errors, contact the credit reporting agency (Experian, Equifax or TransUnion) that reported erroneous information. Make sure that you are not the victim of identity theft and then look at how your creditors have been ‘grading’ you. Have you been paying bills on time and in full? Did a creditor report that you had paid off a loan? These are the types of things you should be looking for that will affect your credit score and future credit. You may never qualify for an invitation only credit card, but why would anyone want one? Don’t you think they could purchase so much more than they are getting with that $2,500 annual fee? I guess we’ll never know.
There are a multitude of consumer advocate groups up in arms about the way in which the three credit reporting agencies, TransUnion, Equifax and Experian are rating consumers’ ability to pay future debts. It all ties into the new laws pertaining to credit cards and the ways in which those agencies are allowed to rate your income.
According to Liz Weston writing for MSM Money, lenders are now using a new ‘secret’ way to evaluate your creditworthiness, the income estimation model. In fact, there are more than one model for estimating consumers’ incomes as all three of the credit reporting agencies use their own version. This is significant because lenders not only look at your credit history, but how you can be expected to pay further credit. In other words, they look at your income.
However, the problem with this is that the credit bureaus are not required to actually report your creditworthiness based on reported wages. They make their own models based on certain criteria such as how you have paid your bills in the past, the amount of outstanding credit and then they come up with some kind of calculation that will project how much more money you could feasibly borrow and still be able to make the payments on. In fact, you are not even required to report how much money you actually make.
Unless they can get this information from the Internal Revenue Service (you would need to give permission) they have no way of knowing what you make which is why many decisions are based on your history of making payments. Lenders figure if you have been paying your bills on time then obviously you are making enough money and if you have been paying them steadily, then you are probably creditworthy for future loans.
In addition to these unfair methods of evaluating your creditworthiness based on the amount of money the reporting agencies ‘feel’ you are making, they will not provide your actual wages to lenders unless they pay for them. Now consumers are getting what amounts to a double whammy because lenders are not apt to pay extra for the information on your actual income. Instead they will simply base their decision on what the reporting agencies tell them your creditworthiness is for future loans.
When it comes to your credit score, there are certain things which won’t actually count for or against you. While these things may matter to a lender, they are not allowed to base your score on the length of time you were on your job, how much money you make, whether you have been refused credit, how long you have lived at your current address, and whether or not you own your home.
It’s amazing how all this adds up to the fact that lenders can pretty much do what they want when it comes to approving new loans. You could have an exemplary credit history but if the reporting agencies say you are not creditworthy then you may lose the loan. You might only make $8 an hour and be in debt over your head but if you have found a way to pay your bills on time a lender might grant you a loan for $100k.
Because of all these inadequacies in the reporting and decision making processes, consumer advocate groups are calling for tighter reins on the ways in which consumers are evaluated. In the meantime, it is vitally important to monitor your credit report, get a copy of your credit score and make sure that all information is as accurate as possible. Since this is all that a lender has to go on, you want your credit report to shed the best possible light on your ability to pay a loan.
For two weeks the price of stocks has been plunging on Wall Street which is causing a great deal of anxiety among economists in the United States. There are growing concerns that we may be heading back into a recession of the enormity experienced in 2008, or worse.
Anyone who is just working their way out of the financial difficulties they experienced during that year and the year to follow will need to pay special attention to events as they continue to unfold. If you are just at the point of building up your credit score to a point where you may be ready to apply for credit, you may want to put a hold on that – at least temporarily.
What is causing so much concern is that lower stock prices indicate that many Americans’ wealth is shrinking as well. With lower confidence in the market they will be less likely to invest, less likely to spend and employers will certainly be less likely to take on new hires.
According to an article published in Yahoo! Finance, when the Dow’s average plummeted by 513 points, it is indicative of the fact that investors have growing concern over the European debt crisis and the problems we are having here at home with our own national economy.
When these types of drops in stock prices become evident, consumers will invariably spend less money which will further compound the problem. As we watch our bank accounts thinning down we are less likely to make major purchases and this fact alone places more strain on already endangered jobs. We saw this with the automobile industry at the height of the debt crisis in 2008-09.
New reports released by the government state that consumer spending was reduced for the first time in almost two years, 20 months to be exact. Retailers across the board from budget stores to high end luxury shops are seeing a drop in spending which is also an indicator that another recession just might be on the horizon. Whenever consumer spending drops significantly, it is a direct reflection of the uncertainty among consumers.
For those who have been struggling to pull themselves out of a financial hole they found themselves in within recent years, this news is all the more depressing. If it were not for the fact that we have just begun to see the light of day after our most recent depression and if it were not for the fears infiltrating the EU that Spain and Italy would soon default on debt, it might not be so bad.
However, if things continue as they are going at the moment, now is not the time to apply for any new credit if at all possible. What you may want to do is get a copy of your credit report, make sure everything is accurate, and then sit tight until you see which way the wind is blowing. If the economy rebounds then you may want to apply for credit, but if it continues to be uncertain, hold tight a bit longer.
The point is, you have already been victim of a poor credit score and are trying to rebuild it step by step. While times of economic crisis are not the best times to apply for credit, you may be forced to do so under certain conditions. If you have no other alternative than to purchase on credit, at least take the time to shop around a bit for the best loan at the lowest interest rate. In other words, if at all possible protect yourself from becoming a victim once again of a floundering national economy.