How to Improve your Credit Score

Credit card deals: how to choose

2010-09-06T15:01:00.001-04:00

Every body is jumping on the credit card bandwagon these days and that’s good news for consumers. With a little effort you can find yourself a pretty decent credit card deal whether its from your bank, credit union, department store or shopping club. Depending on what your needs are, there are deals out there that offer combinations of low introductory credit card rates, cash back offers, reward programs and other features.

Balance Transfers

First you must wade through the maze of offers to determine what’s right for you. If transferring a balance is important to you, have a close look at credit card deals that offer a low transfer rate with the longest time span for which that rate lasts. But before you chose, read the offer carefully to determine how much that rate will increase once the offer period ends.

Some credit card offers will allow you to make more than one balance transfer although others will restrict the allowable transfer window. Try to decide on all your transfers at once as restrictions could limit you to the initial sign-up period only. And you will want to compare fees charged for balance transfers. The usual rate is three percent of the total amounts being transferred although some companies may offer free transfers or a fixed fee. And if you are using an existing card to transfer a balance, know that your monthly payment may be applied to the original balance you had on the card until that’s paid off, before being applied to the items you transferred at the supposed balance transfer rate.

Annual percentage rates

Introductory rates can run from six months to a year and most credit card deals will then go to a rate that is a few points below what you may be paying now. Again, restrictions apply. Read the fine print on the back of the credit card offer to see what your rate may be should you fail to make a payment on time. You may be surprised to find this could zoom to 25% should you miss a due date or two. Introductory APR’s are not always what they may seem.

Rewards programs

Oil companies tend to favor rewards programs that may include a rebate on your gasoline purchases of one to five percent. These credit card deals are handy if you are already loyal to one particular brand of gas and don’t have to drive out of your way to make a purchase. Oil companies may offer you a debit card, a check in the mail or a set of gifts you can “purchase” with your reward points. Since gas cards are a regular-use item they can be handy for building a track record on your credit report. Most oil companies report to the credit bureaus but you may want to make a call to their customer service line to double-check this.

Store cards

In-store shopping with a branded credit card from a major retailer or shopping club usually comes with an up-front discount on the day you sign up. The drawback is you must make a quick decision while you are in the store, never a good idea at the best of times. I would suggest you check out store and shopping club credit card deals on their web sites prior to going shopping.

As always, buyer beware is the safest method of approaching credit card offers. Start by doing your research online at web sites that feature comparison guides to credit card offers. Some regional financial institutions and small credit unions may be the best way to go, while online banks could make you a sharp offer. College students in particular should be careful of what offers they jump at as their mailboxes are always full of these. Careful decision making is the best way to go.

Managing your money

2010-09-06T14:38:00.000-04:00

The basic principles of budgeting

The love of money is the root of all evil but money is an essential commodity in a modern economiy. It determines how well we function in obtaining the basic human needs of food, shelter and clothing as well as achieving the greater needs of self-improvement such as a good education, our overall well-being and the finer things of life.

So why is it that most of us never have enough money to even provide the basic needs? We work hard to earn our wages and yet at the end of the month we feverishly avoid the telephone calls from debt collectors and end up paying late charges on our credit cards, mortgage and/or rent. The marketplace we live in constantly bombards us with advertisements promising a multitude of products and gadgets that they say we need, with enticing payment plans, no interest for several years, and cash-back offers as well as those never ending sales and promotions.

How can we escape this madness? How can we navigate through the forest of commercialization, unharmed and financially sound, with our credit report score intact and have money in the bank to provide for a rainy day? Wouldn’t it be fantastic if we all had the ability to pay our bills and have money left over for the finer things in life? The answer lies in two basic principles: self discipline and creating a budgeting plan and sticking to it. Both principles work hand in hand; they are not mutually exclusive.

What is self-discipline?

It is the act of consistently doing the things that will create a desired outcome until it becomes the normal behavior pattern.

What is a budget?

Budgeting and planning means creating a list of all anticipated income minus all anticipated expenditures. The desired result is to have the net effect being zero or greater than zero.

Let’s explore what we would require as the desired outcome with respect to discipline. Perhaps the best way to consider this is to actually look at the consequences of not being disciplined when managing our hard-earned funds. Spending above and beyond our limited income causes several severe consequences:

Late charges on our credit card accounts. Did you know that late charges account for approximately 30% of credit card companies’ profits?
Unwanted harassment from collection companies.
Higher interest rate charges on mortgage loans due to a low credit score. This alone could cost you hundreds of dollars per month.
Declined loan applications from financial institutions.
Declined job applications. Many companies do background checks of credit histories as a part of the job application process.
Inability to provide the basic needs for your family due to decreased cash flow.
Finally, indiscipline can lead to unnecessary poverty and helplessness.
For every purchase you make, ask these questions in the context of the 7 listed negative consequences: do I need or want this item?; can I afford this item?; am I budgeting and planning for this item?

Unless it is an absolute emergency, you should avoid confusing wants and needs, especially if your intended purchase was never budgeted for. If these three questions become a part of your everyday purchase decision, then you will be well on your way to achieving financial discipline. Now that we have mastered the art of disciplining ourselves, then comes the next important step of creating a budget.

Setting up the budget

There are several factors that must be considered in creating a budget; they are:

A budget must be reasonable and reflect a true picture of your anticipated net income. Your net income is the amount you actually take home after taxes and any salary deductions such as health insurance, or other personal deductions.
It must be achievable and reflect a true picture of your most important fixed and variable expenses. Important fixed expenses are those payments that remain the same, month after month. Variable expenses may change month after month.
The difference between your anticipated income and anticipated expenses should always be zero or greater than zero.
Check up on your expenditure patterns by saving all receipts and bills for the next two These receipts can then be categorized into various types of expenditures and inserted into a sample budget to get a picture of your past expenditure habits and the impact on your zero budgeting approach.
The principle of paying yourself first is vital. This will ensure that you have started to develop equity in yourself. This must be done regardless of your income level or who you owe. Do not compromise on this issue as it’s your ticket to financial independence.
If item 5 causes your net income /expense to fall into a negative state then you must seek additional income (part time job /overtime if available)
It is always better to understate your anticipated income and overstate your anticipated expenses.
Any surplus funds from the difference between your anticipated income and anticipated expenses should always be used to pay down high interest rate credit cards or loans first before you add it to your savings.
If you use your credit card to pay any item that is included in the budget, that item should be removed from the budget for that month to avoid double counting as the cost would end up appearing in the monthly minimum payment for the credit card.
Managing unexpected important expenses

The most important thing to remember is that large, unexpected expenses should never interfere with your current budget. Use your credit card or seek a short-term loan to cover the expense and then set up the minimum payment or adjust your monthly credit card payment on your next month’s budget. In this way you are able to avoid major interruptions in your cash flow and will be able to satisfy all of your crucial bills. Be prepared to limit your credit card use only for emergencies or very important expenses that would otherwise limit your ability to function productively if those expenses were not paid.

A living, breathing budget

Finally always remember that a budget is an interactive document that you should look at daily or at the very least weekly; you must update your expenditures regularly in order to be able to determine if you are on track with your budget or if you need to take corrective action. This means that you must get into the habit of saving all your receipts and totaling them according to the categories in your budget before you discard them. This can be done very easily if you have your budget in a Microsoft Excel file. To achieve effective budgeting and planning you must practice financial discipline. The consequences of financial indiscipline can eventually lead to helplessness and poverty. Remember the three question rule: do I need or want this item?; can I afford this item?; did I budget for this item? These questions combined with creating a written, workable and achievable budget is the easiest way to effectively manage your money.

by K.B.E. Phillips 8.11.07

Payday loans: what you need to know

2010-04-26T20:36:00.000-04:00

There are more payday loan stores in the United States than there are McDonalds restaurants so if you are in desperate need of an emergency infusion of cash you may be one step away from your goal. But if your car is sitting in the driveway leaking vital fluids, you may not even have to leave home to get a payday loan as many purveyors of the service are now online.

How a payday loan works

Before you rush to do a search for “payday loan online” there are a few things you should know about how these types of loans work and what alternatives are available. A payday loan is a short term small-balance loan that is intended to tide you over till your next payday arrives. They can be conveniently obtained as payday loans do not require a credit check. If all you have are a checking account and two recent paychecks, you may be a customer. But there’s a price.

Payday or payroll advance loans are offered by companies that usually fly under the radar of state and local government consumer protection laws. In some sates such as Georgia, which has the stiffest regulations in the country, payday lenders have been accused of predatory practice and have sometimes been run out of town on rails. In their defense, payday lenders say they provide a much-needed solution to consumers with less than perfect credit and who must have a quick infusion of cash to tide them over till their next pay day.

In exchange for these high risk loans, payday lenders charge a fixed fee for a fixed period, usually fourteen days, and if you happen to miss the fourteen day deadline, there’s a penalty fee that is added to your charges along with another set of fees to roll over the loan through another period.

Rapid escalation

In short order, if you borrowed $500 for an emergency situation, you could end up owing as much as $700 if you miscalculated your cash flow and were forced to take a payday loan for a month. That equates to 480% or so per year and on the face of it, looks like a dreadfully large price to pay for a small amount of money. So payday loans are usually a good idea only when you have run out of options entirely.

Whether you are applying online or in person, you must at least have a checking account. Payday lenders will require you to write them a postdated check for the loan amount plus the finance charges. They will be more than happy to extend the life of the loan if your needs are pressing. And the sheer convenience of payday loans online is difficult to resist. These sophisticated sites require your routing and account numbers from your check book and will routinely deposit money in your checking account almost instantly.

What can go wrong?

You run the risk of miscalculating your budget and getting into a cycle of using one payday loan to pay the other. The Center for Responsible Lending, a Durham, North Carolina non-profit, reports that the vast majority of payday loan borrowers do five transactions a year, while more than half of all borrowers take twelve or more loans per year. If you get into a cycle of dependency on payday loans, it may be hard to wean yourself from the habit.

Several states led by Georgia recognize this and have banned payday loans at one time or another, including Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia. But you should take heart if you live in those states, or if you have had all you can take of onerous interest rates.

The alternatives

You may be surprised to learn there are alternatives to payday lending and certainly to the beguiling online payday lending sites. If your credit rating is in the cellar you may find the following suggestions just short of annoying but I’ll make them anyway:

Use your credit card for which you’ll pay a much lower rate than a payday loan.
Ask your payroll department for a salary advance.
Ask a friend or family member for a loan.
Offer your supplier or service person a post-dated check.
Ask for an extension on your car loan that defers one month’s payment and frees up some cash.

The other alternatives

Realistically speaking, if you had good credit or a reasonably well-off family member, you would probably not be in the market for a payday loan. So your only reasonable alternative may be to minimize the damage. Searching for a payday loan online may be your best option for finding a reasonably low interest rate. But you must brace yourself for prompt repayment in order to avoid getting on the lender’s treadmill. Once you have lined up a reasonable rate and obtained your cash, you should start planning how to avoid becoming repeat business.

Breaking the cycle

A great place to start would be to learn how to make a simple personal budget so you can put aside small amounts of cash each payday for an emergency fund. If budgeting does not work for you, consider joining a credit union before your next crisis occurs. Credit unions now offer a nifty device called a Salary Advance Loan Program. State Employees Credit union in North Carolina has one of those. They will lend you up to $500.00 at 18% and with no fees attached and they allow borrowers to set up a loan by phone. They require that you have a direct deposit account with the credit union, into which your paycheck goes.

But what if you don’t work for the state of North Carolina? Or what if you don’t belong to a credit union or have a family member who does? All is not lost. The National Credit Union Administration has a nifty web page accessible from their “Resources” page where you can search for credit unions by type and state. This is pretty useful because some credit unions will allow you membership just because you live in a particular city or county. Take ACCESS Federal Credit Union in New York state for instance. According to their web site, “if you live, work, worship, or go to school anywhere in Oneida County or the City of Oneida, you are now eligible to join.”

Otherwise

If you absolutely, positively cannot find a credit union near you that offers salary advance loan programs, try to minimize the damage by shopping around for the best possible rate, before you run into an emergency. With a little luck, payday lenders online and off may realize a little restraint can go a long way. Any day now congress may decide to take up legislation to cap payday loan rates at lower levels, much as they have done for military personnel, whose rates have been capped at 36%.

How to get a personal loan

2010-01-26T13:18:00.000-05:00

Life sometimes provides small emergencies that can strike at any time and when they find you without a ready supply of cash, these small emergencies can loom large. Say your transmission went out on your car or the dishwasher suddenly goes silent while your credit cards are maxed out. What do you do? You may be in the market for a personal loan.

Personal loans, once a tiny part of lending institutions’ portfolios, are growing in significance and now make up more than twenty percent of non-mortgage loans. Loans in the order of one to two thousand dollars were not very popular with financial institutions who tend to favor credit cards. Pay off a personal loan after your emergency subsides and you may be lost forever to the issuing bank. Credit card customers tend to stick around longer.

Credit cards as short term loans are risky business for consumers as we tend to pay the minimum payment, locking ourselves in for an extended period of time and extended interest payments. On the other hand, personal unsecured loans have fixed pay-off periods and (usually) lower interest rates.

Going shopping for a loan

Your first step is to decide how much you really need and you will want to pare this down to the absolute minimum as this type of personal loan should be treated as an emergency situation only. Then start your search for a loan with a suitably low interest rate or upfront fees. There are several online services that allow you to compare rates for personal loans and may even offer instant approval. Your local credit union should be high on your list of options to consider while payday loans should be approached with caution because of their high interest rates. Some banks may offer repayment periods of up to two years but you should consider the total interest you will be paying should you stretch your payments out that long.

Micro loans

I tend to favor credit unions as almost all of them offer short term personal unsecured loans without the security requirement and many will offer loans as small as $500. The non-profit nature of credit unions will likely allow them to offer friendlier terms as well. If it’s close to tax time, some lenders will look favorably at your likely tax refund based on two years’ history. And, of course, make sure you have two recent pay stubs handy.

If your credit report is in such bad shape that a credit union won’t touch your application, you may be left with no choice but to approach a payday lender. If that’s the case, read the terms and conditions very carefully to make sure you understand every charge on your loan documentation.

What does this cost?

Your personal unsecured loan shopping should entail more than comparing interest rates to determine if you are getting a good deal. Lending institutions typically charge fees for loan origination, document prep and the loan insurance. Make sure you understand the nature of these fees and are in agreement with them. One trap you will want to avoid is the offer of a higher loan amount than you need as this is a sure sign of a loan officer trolling for a higher commission.

Be prepared to walk away if you don’t like the terms you are being offered. And make sure your questions are being answered up front prior to allowing several lenders to pull your credit report as this can have an immediate negative effect on your credit report score, and consequently, the rate you end up paying.

Paycheck advances

In the good old days you could ask for, and be fairly sure to get, a salary advance. Many small companies still continue this practice. Ask your payroll or H.R. department about salary advances as they may be still a part of many companies’ employment policies. If you have seniority at your company you are likely to be eligible for a salary advance.

Family loans

Most people would say these are to be avoided like the plague as they could put a strain on family relations for years to come. You may want to approach rich aunt Alice as a last resort and if you do, treat it like a visit to a lending institution. You may allay aunt Alice’s fears about risking her savings on your personal unsecured loan by drawing up a simple promissory note that lays out the amount you are borrowing, the interest you will pay and the time period of the loan.

Even if you don’t have an emergency, now may be the time to look at your options, particularly if you have limited savings to draw down in the event of a disaster. You never know what will come up and you can’t be too prepared.

Bad-credit loans you can get

2009-10-04T13:40:00.001-04:00

If you have made some mistakes in the past as far as your credit is concerned, brace yourself for the facts about bad credit loans. You should first try to assess just how bad your credit is before you hit the panic button though. Very often, bad credit items that appear on your credit report can be challenged and sometimes removed. In addition, mistakes on your credit report can have an adverse effect on your credit score, shunting you into the category of a high credit risk.

Items that are good news for you but do not show up on your credit report (or on one or the other of the credit reporting bureaus' file on your credit history), can cost you some valuable points. Last, but not least, taking bad advice from well-intentioned relatives or friends can lower your credit score, making you a candidate for bad credit loans.

Bad news first

Let's look at these possibilities for improving your credit rating one at a time. But first, let's get the hard core issues out of the way. If you have had bad credit issues in the past and know you have made some wrong choices that may have landed you in bankruptcy or wage garnishment it will be almost impossible to fix your situation in the short term. Medical emergencies have unavoidable consequences as well but none of these means you will not be able to find a lender of last resort.

If you are reading this you are probably at the point where you have decided to turn around your spiraling credit history but know for sure that this will take time and will cost you money. Bad credit lenders will equate you with high risk and assign a high interest rate to whatever type of loan you are seeking in order to offset some of the risk that you may not pay back their loan on time.

Bad-credit car loan

Let's say you are in the market for a car. You will be required to make a hefty down payment on a bad credit car loan. I have heard of down payment requirements as high as $3,000 but that is not the only problem you face. Your interest rate on a bad credit car loan may range from 19% on the low end to high as high as 29% on the top end. A high-mileage used car could end up costing you $400.00 or more per month in monthly payments. To minimize the damage from these high rates, I would suggest you start by calling several lenders. They usually both sell and finance the product on the spot. If you can find one whose maximum interest rate is in the low twenties you may be able to save a substantial amount of interest payments. You must make sure though, that they report your payment history to the credit bureaus as this will help to improve your credit score provided you pay on time.

Bad-credit personal loan

Bad credit personal loans are issued by a variety of sources. Here again their emphasis will be on charging you a high interest rate to cover the risk of your defaulting on the loan. Payday loans are an example of bad credit personal loans that carry enormously high rates of interest as they are calculated over a short time span and are designed to get you to the next paycheck.

Other types of personal loans include equity-backed loans. Let's say you have a home or some other asset that is almost or fully paid off. Local and regional banks or home equity specialists will lend you money using your asset as collateral. Although a loan of that nature will be safer for the lending institution, your past credit history will force you into a bracket paying somewhere around 21%, despite the use of your collateral.

Bad-credit mortgage loan

This is the big ticket item that will cost you dearly over the life of the loan. Consumers with credit scores above 650 may find themselves paying say, six percent on their mortgage loan, depending on the prevailing interest rates at the time of their purchase. If you have bad credit, you should be prepared to pay two and a half to three percentage points more and sometimes into double figures on your mortgage rate. Depending on the prevailing economic circumstances you may find it very difficult to get a mortgage at any rate. You can expect that any lender looking at your loan application will expect you to have a substantial down payment in hand, ranging from 10% to 20% of the value of the home you are trying to purchase.

Not only should you expect to face a high interest rate, but also, your lender will require you to purchase private mortgage insurance to cover the risk of your defaulting on a payment. If your down payment is higher than 20% of the cost of the home you are buying, you may be able to negotiate away paying PMI, even on a bad credit mortgage loan.

As with a bad credit card loan, your history of on-time payments will begin to raise your credit score over time. Given a record of good payments, you may be able to refinance at a more reasonable interest rate. But before you sign for your bad credit mortgage loan in the first place, be sure to check the penalties for getting out of the loan early. Pre-payment penalties may be enormous and most people are so excited to get a bad credit mortgage loan, they neglect to consider what may change three years down the line.

Cleaning up bad credit items

Let's say your situation is so bad that you can't find a lender willing to risk lending you money. Where do you go from here? You could wait a few years until bad credit items on your credit report fall off, usually in seven years for most items. Or you could begin the process of cleaning up your credit report as even a difference of a few points on your credit report score could make the difference between getting a loan or a refusal. If there are items on your credit report that are incorrect or should have been removed because of their age, write the credit bureaus and request their removal. They are required by federal law to make those corrections.

Mistakes on your credit report can be caused by human error. An account with a bad history could appear on your report because a clerk typed someone's social security number one digit off. Rest assured, it happens. You could end up being saddled with someone else's court record but you wouldn't know until you inspect a copy of your credit report.

Include the good news

If you have paid off a delinquent account in the past but it does not show on your credit report, you will want to present proof of payment to the credit bureaus and have their records corrected. That can mean a few points on your credit report score. You may find that a car note you have paid off was never reported to the credit bureau and though your payments were all on time, you are not receiving the benefits of that piece of good credit history. Contact the lender and ask them if they will report your credit file to the bureaus.

A word of caution

Well-intentioned friends and family often "hear" that you should do this, or that, to raise your credit report score and improve your chances of getting a bad credit loan. The most popular advice is that you should close your credit card accounts. This may sound reasonable but may affect you adversely. Make sure that if you take that route, you do not close the accounts with the longest history. It may be safer to close newer accounts but you should know that part of your credit report score is calculated by looking at the ratio of outstanding debt to total available credit. Close some accounts, lower your available credit and your score could go down.

Handling debt collection calls

2009-03-06T00:05:00.001-05:00

At some point in our lives unplanned- for events befall the best of us and some can have far-reaching consequences. Take the loss of a job for instance. That’s a near certainty to occur to us a least once in our working lives and one of the consequences is likely to be falling behind on our bills. Unless you happen to leave your job with a generous severance package and have large pools of savings to draw on, chances are there are going to be some late payments ahead for you.

There are some bills you will continue to pay, no matter what, but there are others you will let slide. The electricity and water must continue to flow unless you relish camping in the backyard, but the tier two expenses like credit card payments, cable and cell phone bills and maybe even the car payment, will take a hit. Rather than cringe in fear waiting for the debt collection calls to come, you may as well buckle up and make a pre-emptive strike.

Making the call

Assuming you have the means to make some kind of payment, round up all your statements, list the balances and minimum payments along with the phone numbers and prepare to start calling.

If you have been a good customer for a number of years, some creditors may actually grant you a grace period on your debt while you search for work. But you’ll never know unless you ask. The first call to your creditor is the most important. Bear in mind that you are going begging essentially and assume the humble position. And if the stars align in the right position on the day of your call, you may get a sympathetic account rep on the other end of the line. But you must be prepared to act your humblest best.

Most service companies spend small fortunes acquiring customers and are reluctant to lose long-term clients. If the account rep can’t suspend your debt payments, ask in the nicest fashion if they think a supervisor would be willing to bend the rules. That’s music to your account rep’s ear as they often are not paid well enough to go out on a limb and will be more than willing to pass you on to someone higher up.

Talk to the right person

Should you be unfortunate enough to get the village crank on the other end of the line, make an excuse to get off the phone by pretending to hear the baby crying. Even the crank will let you off easy without making derogatory statements in your account record if you are taking care of an alleged baby. Wait a couple of hours or until a shift change is likely after 5pm and call again. The next account rep you get may treat you completely differently.

State your case plainly, emphasizing that you are willing to pay your debt but you are between jobs. And ask for the moon. Some auto credit companies may have programs that suspend your payments for as much as three months while most will do at least two. Cell phone and credit card companies may agree to a two month grace period, but you will never find out until you pick up the phone. You may even offer to sweeten the deal by making a reduced debt payment for a fixed period of time but above all else, you must remain as polite and sweet tempered as possible no matter the circumstances.

If your calls turn out to be unsuccessful and your creditors demand full payment, focus on paying your most important bills first. You must keep the phone line on if you are job searching and you may want to consider signing up for dial-up internet service with a low-cost carrier lest you lose the broadband. Those two items, together with a working auto are crucial to your job search activities

Settling your debts

Should you be unfortunate enough to go through an extended period of unemployment, it may be necessary to dig yourself out of a mountain of debt. Rebuilding your credit report score should become a top priority once your cash flow position improves. Start by getting a copy of your credit report to see who has reported your missed debt payments and get a total of what you owe. You are now going to make a different type of debt collection call entirely; once again, politeness is the key and I’ll explain why in a moment.

Know that there are two ways to pay off debts that have gone bad. You can choose to pay in full or you can ask for a settlement. I tend to favor paying in full as the effect on your credit report score is more positive if you have a string of paid accounts than if your credit report shows “settled for less than the balance due.” That being said, if cash flow is a constraint and you want to get on with the rebuilding process, call your creditors and ask if they offer settlements. This will begin a process of bargaining during which you will suggest a modest percentage settlement but not one so outrageously low that you start off on a bad note with the account rep on the other end of the line.

You may even go so far as to ask that the settlement be split into three or four equal payments. If your debt is a year or older, many companies will agree to a sharp bargain rather than sell the debt for 10 cents on the dollar to a collection agency. The larger the debt, the lower the percentage you should offer, but do so in a spirit of amicable discussion.

Get it in writing

And should you be skillful enough to reach an agreement with which you can live, ask for the settlement agreement in writing. If they balk at knocking themselves out writing a letter, explain that your crusty uncle Joe is paying the debt for you and won’t part with so much as a dime unless he sees it in writing. Once you have secured the promise of a settlement letter, humbly ask if you will be able to get a paid letter at the end of the exercise and if they will be reporting to the credit bureaus after you have paid. If they tell you they do not issue paid letters, politely ask to be excused and call the next creditor in line.

Repeat the call

Repeat the process until you have your offers in hand and your paid letters secured in a safe place. Then check your credit report a month or two after you have paid the debt to ensure they have updated your record. If nothing has happened, your paid letters will be proof to the credit reporting bureaus that you have paid or settled your debt and they are required by federal law to upgrade their records.

One last tip remains. If your debt has been bought by a collection agency and you have any small doubt they will act ethically, pay nothing until you get a settlement offer letter, and pay with a method that ensures someone signs for your payment instrument and that carries some written record of the transaction.

College students and credit

2008-08-19T02:58:00.000-04:00

If you have a son or daughter on their way to college or currently enrolled, now is the time to start thinking about how they will handle issues related to credit. A good credit standing can have a positive impact on their job search when their college years are over. Most students, however, don’t realize how crucial this can be and oftentimes they cruise their way into a bad credit spiral.

Most major companies run credit checks on potential job candidates as a matter of course these days, so it is important that your offspring pay careful attention to their credit report if they hope to land that all-important first job. Two things are worth paying attention: choosing the right credit card and establishing credit though a “friendly” financial institution.

Credit Union sign-up

Let’s look at the second item first. I would recommend you enroll your son or daughter in a credit union as early in the game as possible. Most credit unions allow membership to families of credit union members while a few actually take “walk-ins.” If you have a family member who works for federal, local or state government, or who is a teacher, it is likely he or she belongs to a credit union and can sign you up for membership. This is completely different from co-signing and perfectly safe from a financial standpoint for the family member.

Credit Unions are great places to start a savings account. They also tend to offer free checking accounts and fairly gentle terms for car loans. Credit Union auto loans are often three to five percent below bank auto loans and are usually available after 6 months of membership. Rather than buy a car under your own name for a student going off to college, apply for an auto that you co-sign at the Credit Union. Even if you are the only one making the loan payments, at the end of four years of college, your child will have developed a track record that will show up as more than a blip on their credit report score.

Secured Credit Cards

Your offspring may choose to establish credit with a secured credit card or risk the commercial credit card offers that flood students’ mailboxes. There is a lot less risk involved with the former, which limits the amount of credit available to the extent of your deposit in a fixed account. After three to six months, their financial institution will convert the secured credit card to a regular card provided the payments have been made on time. Unfortunately, your son or daughter may decide to take matters in their own hands and take advantage of a hard-charging pre-approved offer.

Your only solution is to attempt damage control by educating your student on reading the fine print in these juicy offers. Most credit card offers trumpet zero percent offers for six to twelve months. Even experienced adults have a hard time looking pastthe zero in bold type and reading the print on the back of the offer. And astoundingly, some of these back pages are printed in lighter colored ink! The most important item on the back page will be what the credit card company will do to your child if they fail to make even one payment on time. Quite often, the zero percent rate will jump to 5 or 10 percentage points above the prime rate, and may thereafter rocket to 25 percent and beyond.

Incentive Program

If your college student has lost a job and is temporarily unable to pay their credit card bill, be prepared to step in and help out. And in order to ensure that you do not topple under the weight of their monthly payment, set up an incentive program before they go off to college. Draw up an agreement with your student that says you will pay $100 per month for two years on their credit card bill if they can prove they did not miss a payment through college. If they missed a payment, drop your offer to $50.00 per month, and if they missed two, your offer goes down to $50.00 per month for one year. Withdraw your offer if they have obviously made a hash of it throughout their college life.

Of course, it’s never to early to teach your children about the vagaries of credit and it’s best they learn at home, under supervision. Lessons learned before they go off to college may ensure that they enter the working world with a solid credit report and a good shot at saving themselves the burden of onerous interest rates later on.

How to shop online

2008-07-13T18:08:00.000-04:00

Shopping online has become something we take for granted in the years since Amazon, Buy.com and Yahoo Shopping hung out their online shingles. I have found some great bargains online but like you, I sometimes wonder whether the site I am using is completely safe. Here are a few things I do to make my online shopping as safe as I possibly can.

Stick to the familiar

I tend to buy from a short list of sellers where I have found the shopping experience to be easy and the service prompt. My purchases include items from auction sites and I limit them to sellers who have 99% or above approval ratings. Any online seller with a lower rating prompts me to look at the complaints from previous shoppers. If too many online buyers grouse about delivery times, return policies and charges to their credit cards, I usually move on to the next seller.

My short list of online shopping sites include well known brick and mortar stores who have a known policy for addressing issues. Otherwise I purchase from highly regarded online sellers who have been around since internet shopping was in its infancy. I find it never hurts to take my time reading the fine print and on the one occasion I failed to do that, I ended up paying too much for an item that was, to put it mildly, not properly displayed.

Sweat the details

You may also want to read the return policy of some online shopping sites as you may end up paying a restocking fee if the order you placed was not what you intended. Make sure you understand the charges for shipping and handling just in case the total bill turns out to be less than the stellar bargain you envisaged.

You may want to pay attention to the site’s security measures. Look for a padlock display in your toolbar to tell whether the seller is using secure server technology to protect your credit card information before you enter it. It also helps if the seller displays endorsements from security rating providers at the bottom of the page. While security measures do not guarantee your private information won’t be hijacked in transmission, they do offer some measure of protection. Of course there is no protection if you are lured by a phishing site that mimics the intended online seller and trick you into making a “purchase” on a site that is almost a carbon copy of the legitimate sellers’.

Privacy issues

Some web merchants will sell your information to affiliate companies so you may want to read their privacy policy before you hit the send button. Most reputable online shopping sites tell you up front that they will not disclose your information to a third party. Others make you wade through their site to find their privacy policy. If you are uncomfortable with what you read, move on as there is all likelihood that the product you want can be had elsewhere.
Once you have decide that the coast is clear, go ahead and hit the submit button (remember to click only once) and by all means, print a copy of the order you just made. I have found it useful to download rebate forms at the same time and I usually start filling these out as I log off the online shopping site.

Paying by credit card

Some protection is offered from deceptive sellers if you pay by credit card as you are usually only held liable for the first $50 of your purchase. Your credit card company will investigate any complaint you may have with respect to charges or deceptive representation of goods you bought. I prefer to use an online payment site as a proxy for my purchases from new sellers. I am fairly confident in the measure of protection they offer and I haven’t been disappointed yet. With that being said, it’s a prudent move to check your monthly credit card statement carefully, to ensure you aren’t being slammed with some questionable charges.

Registering with a seller

Most online stores require you to register before you make a purchase. If you don’t want to be nagged by emailed offers later on, look for the opt-out box that most sellers provide. I have found it useful to use an email address that I call my junk box and that is usually loaded up with nonsense offers from online sellers of all types.

Whether you are likely to return to the site or not, make sure you use a reasonably secure password made up of both numbers and letters. And try to avoid using easily remembered numbers like your social security number or drivers license. You never want to assume anything when shopping online. Make sure you take as many safety precautions as possible. If you find yourself in a predicament call the Federal Trade Commission or visit their website and fill out a complaint form. As in the brick and mortar world, it pays the buyer to beware.

How to shop online

2008-02-06T15:32:00.000-05:00

How to buy a car

2007-09-23T15:08:00.000-04:00

One of the easiest ways of throwing away your hard-earned money, next to taking a trip to Las Vegas, lies in buying a car. The auto retail industry is one of the greatest money traps ever devised and the average consumer has little hope of beating the odds when purchasing a new or used car. Here are some tips on how to avoid losing your shirt at the dealer's table next time around.

Read to the bottom of the page and you will find a car loan calculator for estimating your payments.

Doing your research

Never walk into a dealership before researching your intended purchase by talking to friends, your neighborhood mechanic or trolling the internet. There are many internet sites that offer free information on prices for the basic car, and in particular, option packages. Markups on some of these packages can run as high as 100%. Having narrowed your choices to a few models you may want to start thinking about the long term effects of what you are buying by running the numbers through a car loan calculator.

Start by gathering information on reliability issues and repair costs. This can save you some grief later if anything breaks just outside of the warranty period. You may want to think about buying an extended warranty while you are doing your research and now is the time to start adding that figure to your total purchase price. If you intend to keep the vehicle for the life of your loan and beyond, an extended warranty could save you gobs of cash should your transmission or engine give out. Many vehicles come from the factory with expensive navigation and audio systems installed so make sure your intended warranty covers those as well. And never, ever purchase an extended warranty from the dealership as the price will include their markup too.

Gap insurance

Here’s where you can avoid a nasty surprise. Let’s say you bought a car for $20,000 and after two years you are broadsided at an intersection by the town drunk. You would expect to call your insurance company who would cut you a check for the value of the car so you could pay off your note and go buy another car. But you may be surprised.

After two years, you may owe $15,000 say on your car loan. But as car values often plummet 25% in their first year, by year two your vehicle may be worth only $12,000. Guess how much money you will recover from your insurance company? You will find yourself on the horns of a dilemma as you are $3,000 short of paying off your loan. Of course, this is a rough example and gaps may vary. Gap insurance covers the difference between the insurance valuation and the remainder of your loan. And, as before, don’t buy this at the dealership either.

The fine print

Having done your research and walked the gauntlet at the dealership, you will be invited into the inner sanctum of the finance office. This is where the dealership often recoups what they lost on the sales floor in order to make the deal. And this is where the numbers often do not add up. The finance office makes its money by selling you extras that don’t come from the factory, such as the aforementioned extended warranty and gap insurance deals. The markups can often be more than they made selling you the car itself. Then there’s the paperwork.

Quite often you have been left in a weakened state sitting in the sales office for three or more hours. I have a friend who spent 7 hours in a dealership buying her dream car and was very groggy by the time she got to the finance office. She did, however notice that the finance manager was offering her a 10% car note despite the fact that her credit score hovered around 750. This is the point at which your laptop or car loan calculator becomes your friend.

Add the numbers

Make sure you inspect, then add the numbers on the contract and ensure they add up correctly. You would be surprised! Your next step is to run the numbers through a car loan calculator or downloaded program that will tell you whether the cost of the vehicle plus junk fees at the quoted A.P.R ends up at the monthly payment you expected to find.

If you suspect the numbers are not adding up you may want to consider walking away. Remember, no matter how much you love the car, there’s another one very much like it on the way from the factory to the dealer down the street. Now is a good time to visit your bank or credit union with the negotiated price of the vehicle in hand. Credit unions rates are often the lowest available but dealers may sometimes offer financing from their captive finance arms that not even a credit union can match. Arrange your financing carefully and you may find that you have saved yourself several hundred, and sometimes, several thousand dollars over the life of the car loan.

Debt consolidation works for you

2007-09-14T15:38:00.000-04:00

Ever get offers in the mail that promise to cut your debts dramatically and make you debt-free in only 48 months? I get them weekly and I am fascinated by the magnitude of the offers. Debt consolidation offers usually come in three different disguises all with variations on the theme. Let’s look at how you can use either of these three debt consolidation methods to your own advantage and let’s examine the some of the shortcomings of each.

The most common of these are credit card balance transfer offers followed by loan offers that roll all your debt into one payment, then come the debt consolidation companies who take over the responsibility of paying your credit card or other debt payments provided you send them a check once per month.

Credit card offers

You should know that credit card deals that offer balance transfers usually come with a few strings attached. Most cards require you to make all your transfers at the time you take up the offer. Another drawback is that most offers are made “up to” $5,000 or $10,000. You never know what you are getting until after the credit card company has run your credit, so don’t be surprised if you are unable to consolidate all your outstanding debt in one go.

The interest rates on credit cards with balance transfers are not all zero. There will often be an introductory period as short as six months, so read carefully to determine what rate will be applied to purchases and what rates are on offer after the grace period. They will often not be the same. A little known fact is that if you also use the balance transfer card for purchases, any payments you make will be applied to the higher rate item before it’s applied to the low-rate transferred item. But if you are using balance transfer credit cards for debt consolidation, it is unlikely you would want to make additional purchases if you are serious about getting your debt under control.

Credit cards that allow you to transfer your debt from other cards often have a fee attached. Most cards charge three percent of the value of the transfers. Others come with one-time fixed fees. Over the long run you will save interest charges by using these and you can calculate the interest saved and apply it to your debt payments. But you must make sure to pay on time as credit card issuers will raise your rate on a zero percent card to the default rate if you miss a payment date.

High interest rate loans

Debt consolidation offers are often made by finance companies who offer the prospect of lowering your monthly payments. We’ve all seen the TV ads that promise to lower your monthly debt payments by twenty, thirty or even forty percent. For some people, the thought of writing one check instead of keeping track of four or five separate debts is very attractive. It saves them the burden of remembering separate payment dates and amounts and they get to keep a little extra money in their pocket. The drawback, of course, is that finance companies and their like may charge you as much as 21% or higher to consolidate your credit card debt into one payment. You will save money in the short run but pay out more in interest charges in the long term.

Debt consolidation loans may work for you if you are willing to sacrifice the higher interest payments for a modicum of convenience. If you can’t summon the self-discipline to make those four or five individual debt payments it may be worth consolidating them. For one, you will run less risk of missing a few payment dates and having late debt payment charges pile up on you.

Debt consolidators...some do some don’t

Most debt consolidators claim to be non-profit and while that may be so, they do require money to stay in operation. Some make a living from charging you ten percent of the payments you are consolidating, while others collect a percentage from the credit card companies with whom the negotiate on your behalf. Debt consolidators however, don’t do an awful lot that you couldn’t do yourself.

Essentially they do two things: they call your creditors and arrange a deal for them to accept a lower payment than you currently are making or a smaller balance than you actually owe. Then they collect your payment and write checks to the companies on your debt payment list. Creditors tend to favor dealing with debt consolidation companies because of the promise of a steady stream of payments they offer. Unfortunately, that steady stream could become a late stream if you run into a debt consolidator with shady practices. If they happen to miss payments your credit report score could at risk if you are reported to the credit bureaus for a late payment.

Do it yourself with equity

If you have the time and are willing to make a few disciplined moves, you can finesse your own debt consolidation. I have met a few people who are adept at playing the balance transfer game, deftly switching their debts from one zero balance credit card to the other just before the teaser offer on the credit card runs out. But not everyone has the time or willingness so to do. You will need to remember to send each credit card company a formal request to close your account as you could otherwise negatively affect your credit report score by leaving too many accounts open at the same time.

You can become your own debt consolidation expert using one of two approaches. Let’s assume you own a home and have substantial equity in it. Negotiating a home equity loan to pay off your debts could be a wise move as you will likely get one at a much lower rate than the rate on the debts with which you are now struggling. You can then decide to pocket the savings but a better idea would be to keep your payment level same as when you were paying multiple debts and pay off the home equity loan faster.

Refinancing your home to pay off credit card debts is also an option but you must resist the temptation to start using your credit cards again. Otherwise you will have effectively changed short-term debt to long-term debt and started on accumulating short-term debt again. I personally prefer to keep my mortgage separate from my unsecured debt but your preferences may vary.

Do it yourself without equity

If you do not own a home or if you have very little equity in your property, there are steps you can take to become your own personal debt consolidator. The first and simplest approach would be to get a personal loan from your credit union. Rates are likely to be much lower than the credit card rates you are currently paying and you will be able to tackle your debt without the use of collateral.

Pick up the phone and call your credit card companies and ask for a better interest rate. Quite often, account reps or supervisors are allowed a band in which they can reduce your debt rate but you wouldn’t know if you don’t ask. If your debt consists of charged off items, most holders of the debt will be inclined to offer you favorable terms consisting of lower payments or longer periods. If you have a windfall around tax time you are the debt consolidation king! Call and negotiate a settlement yourself. I have heard of 35% settlements but usually these are offered on large debt balances of $5,000 and above. And make sure you get these settlement offers in writing.

Another strategy is to pay the minimum payment on all your debts except one. Use the money you saved paying minimum payments to tackle your highest interest rate debt with the most money you can spare. Having seen off that debt, move to the next one with the same strategy, adding the payment you were making on debt number one to the minimum payment on debt number two. Rest assured, you will eventually dig your self out from under your debt mountain. When you are through, start paying yourself the money you used to pay out to the holder

What’s in your Credit Report?

2007-09-14T14:33:00.000-04:00

If you have less than perfect credit and are thinking that you may not qualify for your next mortgage, car loan or credit card, think again. Rather than listen to what friends and family may be telling you, find out for yourself what kind of financial shape you are in. Start by getting a copy of your annual credit report from Equifax, Experian, or Trans Union, the major credit bureaus.

Some states mandate that you must be given two free copies of your report upon request every year. All three bureaus have websites or 800 numbers that will allow you to order a copy of your credit report though they are not required to give you your credit report score and may charge you for that service.

You may be thinking “What’s in my credit report and how does my credit report affect me?” The answer to both is “a lot.” Your annual credit report is a compilation of records of all the credit items you have had and a history of your record of payments. Your score is an analysis of the amount of credit you have available and are using, combined with the record of payments you have made over the past few years. Your credit report score is calculated using a complicated and secret algorithm that assigns you a rating between 400 and 800, your “score”.

Detailed Records

Let’s look at what else is shown on your credit report. It starts with a record of your social security number, current address and telephone numbers and may contain your spouse’s name and social security number and your date of birth. Any public records linked to your name will be displayed on your credit report, including bankruptcies, judgments against you and the like. Next up are detailed records of your credit cards, mortgages, student loans, car loans and most other credit items. Utility companies, rental properties and many other types of creditors may report to the credit bureaus as well.

Most entries on your credit report will show the date the credit item was opened, the credit limit of the account, the highest balance you have used and the monthly payment due. A date next to each item shows the last date you paid and another entry shows whether the account was paid, charged off or still active.

Signs of trouble brewing

Your annual credit report is your financial scorecard and can make all the difference in your being turned down for a loan, credit card, insurance or employment. Late or unpaid items on your credit report indicate to a potential lender that you may represent a risk at some future date, as indicated by your past behavior. Of course, your behavior may have been intentional at the time, as sometimes happens when you lose a job or become incapacitated. Unfortunately, your credit report doesn’t show the whether your failure to pay on time was intentional or beyond your control.

Paying a higher interest rate on a car loan is a painful reminder that you may have been a little careless in the past. But higher interest rates are only a part of what you may pay. Your insurance application could be turned down and so could your job application as many employers now treat poor credit as a predictor of job performance. Rental and utility companies frequently run credit checks before allowing you service and a spotty credit record may mean hefty deposits on your part.

Errors on your report

Errors on your annual credit report can have as adverse an effect as if you had defaulted on a debt. It is possible that your credit report contains erroneous information meant for someone with a closely related social security number, a similar name or a nearby address. Even errors in addresses could cause good credit information to be left off your report, and that can have as much effect on your credit score as bad news. If you are trying to build or rebuild your credit, you want as much good information as possible to show up on your credit report. Should you find any errors on your credit report, send a formal request to the credit bureaus and have the incorrect information removed. If you don’t have the time to do it yourself, there are online credit report tools that can walk you through the process.

You are allowed by law to request a detailed statement substantiating your debt from any company that posts information to your credit report. The Fair Debt Credit Reporting Act requires creditors to give you a response within 30 days of your request, otherwise they must remove the item from your credit report. If the statute of limitations has run out, you can request removal of the item from your credit report. But do not take this to mean that you don’t owe the debt any longer, as I do not endorse walking away from one's obligations.

There are many other details to learn about your annual credit report and about improving your credit score but you can start now by calling the three main credit-reporting agencies: Trans Union (800-916-8800), Equifax (800-685-1111) and Experian (800-682-7654).

Your credit score and what to do about it.

2007-09-10T15:02:00.000-04:00

If you are concerned about your credit report score and wondering what to do about it, read the following tips on taking charge of your credit future and raising your credit report score. With a little patience and a lot of persistence, you may be able to add significant numbers of points to your credit report score within a few months.

Paying on time

Late payments on regular monthly bills will quickly reduce your credit report score and should be avoided at all costs. Bank loans and credit card debt are probably the easiest to miss paying as they are not as life-threatening as forgetting to pay the electricity or gas bill. If you are internet savvy, one of the best ways of avoiding late payments is setting up automatic payments through your financial institution’s website. Credit unions are perhaps the most amenable to this form of bill payment as some banks may charge for the service. Automatic payment of your major bills will help you avoid the hit to your credit report score from going more than thirty days late and is handy for the perennially forgetful like myself.

If you are in danger of a job loss, you can take steps to protect at least your credit card debt from showing up as late payments if your severance or unemployment benefits run out. Most major credit card issuers offer programs that will cover your monthly payments if you lose a job or become disabled. Of course you won’t want to wait until you are out of work before you set these up. And you won’t be surprised that they come with fees attached.

Closing Accounts

Credit scoring companies put a lot of weight on the length of your credit history. I have spoken to many people who thought shutting down their credit cards would improve their credit report score. Sadly, this is not necessarily so. Closing newer credit accounts may well improve your score by reducing the amount of credit you have available and the chance that you may go out on a shopping spree. But closing your oldest accounts reduces your credit report score because it removes you longest history of payments from consideration when your score is compiled.

Accounts you will want to close are the obvious ones like utility and telephone services if you move houses. You would be surprised at the number of instances I have encountered of well-intentioned people who move across the country and wrongly assumed they had got the final, final bill from their gas or electricity company. If you have moved recently, or are planning a relocation, make sure your utility or cell phone provider has a forwarding address. I closed an account in December with my natural gas provider, only to be surprised by a residual bill the following March.

Moving abroad is particularly tricky as your mail may never follow you for several weeks, if not months. And if you are in the military and stationed abroad, be very careful to ensure that someone back home is taking care of your bill payments. Some military personnel incorrectly assume that the Soldiers and Sailors Relief Act suspends their obligation from paying recurring bills.

Credit card imbalances

Let’s says you have three credit cards with limits of $10,000, $5,000 and $4,000 each and you are carrying balances on all of them or are about to make a large purchase using one of the cards. You would assume it may be best to use the card with the lowest interest rate and this may be the one with the $4,000 limit. But your credit report score could take a hit while you are trying to minimize interest charges. That’s because your score can be adversely affected by having a high debt to credit ratio on one of your credit cards. If your big purchase cannot be avoided, use the card with the higher available total credit to lower the impact on your credit report score.

Paying down your debt

Lowering your total debt to income ratio can have a dramatic effect on your credit report score as the scoring algorithms are reported to weigh heavily in favor of your ability to “cover” your debt. If you are running on fumes from month to month, as I have done at some point in my life, you know it will take serious discipline to chip away at your debt. One of the most obvious ways to reduce your monthly outlay of cash and thus provide more funds for your debt-reduction plan is to avoid recurring expenses like the plague. And the ugliest of recurring expenses can be that old staple, the car loan.

I have avoided paying a car note since 1982 by buying a succession of modest used cars that I have rigorously maintained. I can hear you groaning now and I realize this is not for the faint of heart, but if you are struggling under a $400 or $500 installment loan, you may be shoveling your hard-earned paycheck down a pit. You could save yourself one or two hundred dollars each month by switching to a used car and purchasing an extended warranty.

Goosing your credit report score

What if you are fresh out of college or just stepped off a plane and have no credit? You may be surprised to learn that no credit is worse than bad credit just as no track record is worse than a spotty but existing track record. If you have made it though college while avoiding the credit card trap to which many college kids succumb, one of the easiest ways to jump start your credit report score is by applying for a secured credit card. You can do this by depositing some cash in a restricted account.

Most banks will issue you a credit card with a limit set by the amount of cash you have deposited. If you use the card regularly and pay on time, they may then lift the restriction on your deposit and change your account to a non-secured designation. After you have developed a feel for paying your credit card on time, it may be a good idea to call your credit card issuer and ask them to raise the limit. Remember, the higher your debt to credit ratio, the higher your credit report score is likely to be.

Oddly enough, an auto loan can work wonders for building your track record as a disciplined payer, and building a flawless credit profile will improve your score, provided your income comfortably exceeds the debt you are taking on.

Avoid card collecting sprees

I have seen many instances of consumers carrying credit cards from several well known department stores and electronics and computer manufacturers and retailers. You should avoid a proliferation of credit cards with small limits like the proverbial plague. And be very careful what you sign up for, whether on the internet or at in-store promotion booths.

Paying off old debt

I am reluctant to advise you to avoid paying off old debt as I am a stickler for living up to my personal obligations. This may become a matter of personal choice for you but you should know that paying an old debt that has languished on your credit report for years revives the account as a current collection activity, a certain means of lowering your credit report score. Better to boost your score, sign your loan, then pay off the old debt.

All this sounds simple enough when you are reading about it but can be difficult to put into practice. Remember that there is no quick fix for boosting your credit report score. It will take discipline and patience and will create some annoyances in your life, but in the long run it can save you bucketsful of cash.