While changes in interest rates require a notice, these reductions to your credit limit can come without warning, leaving many uninformed about the reduced limits until they receive their monthly statement. Reductions of hundreds or thousands of dollars are not uncommon, and can really put a dent in your credit score, regardless of how responsible you are when it comes to making on-time payments each month. What’s worse, you may be hit with over-the-limit fees on newly reduced balances, when your original spending was well-within your old credit limit.

Many consumers are surprised to realize that unlike interest rate changes, changes made to the credit limit can be done at any time, without informing the consumer. This means that even if you have a $1000 credit limit today, there is nothing stopping the credit card company from lowering that limit to $800, or even $500 tomorrow. The only way to stay informed is to check your account information regularly. If your credit card company offers online access to your account, it may be helpful to check your credit limit in this way.

Another option is to set up an alert that will send you an email or text message when you are approaching your credit limit, but this may not be as helpful in terms of saving your credit. Why? The ratio of how much you spend on your cards, versus your available credit limit is a factor in calculating your credit scores. If you wait until you are only a few hundred dollars away from your limit to set an alert, the damage to your credit score may already be done. While you will avoid any sneaky over-limit fees, you won’t be able to prevent the hit to your credit score that comes from over-utilization of available credit.

If one credit card company reduces your balance, others may follow suit as your available-credit-to-debt ratios will now categorize you as a higher risk. While the logical option would seem to be avoiding the use of your credit cards altogether, this choice can backfire, as many credit card companies are actively closing accounts that do not have any activity after a few months. Your best option is to continue using your cards, and pay off the balances each month if at all possible. This will keep you from having an account closed for inactivity, and it will also keep you from being targeted for credit limit reductions due to carrying a balance each month.

While there is no law that requires your credit card company to keep you informed about your credit limit, you can remain informed by keeping a close eye on your balances, either online or via customer service. Don’t let surprise credit limit reductions derail your good credit – set up alerts, check your balance regularly, and pay off as much as you can to avoid unpleasant repercussions.

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Your credit score is not determined by any one type of credit. Loans, credit cards, and other financial obligations all play a role. In general, credit cards are an important aspect in boosting credit scores because credit cards are an ongoing gauge of how well you pay back your debts, how you manage debt, and how responsible you are when it comes to spending. If you can maintain low balances, pay your credit card bills on time each month, and maintain a solid history of repayment, your credit scores will rise.

Getting rid of credit cards in an attempt to boost your credit scores will backfire. A better option is to choose one or two cards with a decent interest rate, and keep those accounts open and current. You don’t need to charge much – it’s actually better if you keep your purchases anywhere from 10% – 30% of your overall credit card limit. This demonstrates to creditors that you can be responsible with the credit you are given. It also makes it easier for you to pay off the credit card in full each month, which is another way to rebuild your credit scores.

If you have several credit cards, you may wonder which cards are best to keep, and which accounts (if any) you should close. In general, keep your credit card account open if:

You’ve had the card for several years. Having a long credit history is more beneficial than having a short one.

You have a balance on the card. Canceling an account while you still have a balance can wreck havoc on your available-credit-to-debt ratio.

The interest rates are low. Lower interest rate cards can not only save you money, but they can make it easier for you to stick to your repayment goals as well.

When should you cancel a credit card? In general, if the interest rate is high, or if the credit card company uses double-billing, it’s probably a good idea to get rid of that card as soon as the balance is paid off. The only exception to this is if the credit card is one with a long credit history. You don’t want to cancel your oldest cards, so in this instance, your best option would be to charge a very small amount on the card each month, and then pay it off again as soon as possible to avoid the extra interest hit.

If you are trying to rebuild your credit, you don’t currently have a credit card, and don’t think you can qualify to get one, try a secured credit card instead. With a secured card, you put down a deposit for a specified amount (usually anywhere from $200-$500) and in exchange you receive a credit card with a limit equal to the deposit. Charge only a small amount on the card, and then pay it off each month – this will let you build your credit, even if you don’t initially qualify for a regular credit card.

Regardless of which route you choose, getting and maintaining a credit card account is an essential part of any credit repair plan. Don’t assume that all credit is “bad” credit. If you want to be successful in increasing your credit scores, you’ll definitely need a credit card – just be sure to pick one that’s easy to manage, and don’t let the balances get out of hand.

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Your first and likely best option is to write your creditor and request a pay-for-deletion arrangement. In the letter, offer to pay a percentage of what you owe provided that the creditor agrees to remove the charge-off from your credit report. If the debt is fairly recent, you may need to offer the full amount as payment in order to get the creditor to agree. Not all creditors will agree to this type of arrangement, but if they do, be certain you have the pay-for-deletion agreement in writing before you send in your payment. You will have to use certified funds in this type of an arrangement, so be prepared take the extra step of purchasing a money order or cashier’s check. This option works best, because the derogatory credit history will be gone from your report as if it never existed.

Your second option is to arrange for the debt to be listed as ‘Paid in Full’ on the credit report, in exchange for payment. Just as with a pay-for-deletion agreement, you must be certain to get this in writing, especially if you work out a payment arrangement that is less than what you owe. The ‘Paid in Full’ listing will improve your credit score, but not as much as having the derogatory information removed entirely. What you do not want is a listing of ‘Settled’ on the account, as it indicates to other creditors that you do not fully meet your credit obligations.

Your last option, if you cannot work with your creditors in any other way, is to pay off the debt in full, with appropriate account numbers, reference numbers and any other necessary information included with the payment. Make copies of everything, and once the payment clears, you can dispute the listing on the credit report to have it updated as ‘Paid in Full’. Keep in mind that you must provide proof that the debt was entirely satisfied in order for this method to work, so you won’t be able to make a payment that is less than the full amount owed if you want this to be successful.

One final note: charge-offs remain on your credit report for up to 7 years. If the date for the charge-off to be removed from your credit report is close, you may wish to wait for it to be removed from your credit report entirely. This is true whether or not you ultimately decide to repay the debt, because repaying older debts can cause your credit scores to drop temporarily.

Getting your credit repaired can take some time if you have several charge-offs. Be patient, wait for the written agreement, and make the payments in certified funds in order to obtain the best results.

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While the warning signs of a scam haven’t changed, individuals who may be not be used to the concept of credit repair services may be more vulnerable as fraudulent credit repair companies target the middle class workers who are the hardest hit in the current financial meltdown. These scam artists charge hundreds, even thousands of dollars in advance, while taking little or no action to help consumers who have contacted them for assistance. How can you make sure that you aren’t taken in by credit repair fraud? Dealing with only reputable credit repair agencies is essential, but if you are looking around for a good credit repair company, there are a few things to avoid:

Large upfront fees – these are a clear warning sign. Be especially wary of any company that wants the money up front, before discussing your particular situation.

Company makes broad guarantees – any company that promises a specific credit score is lying to you. There is no way for a company to be certain that you will go from a 620 to a 700, and no way for them to guarantee that the credit bureaus will increase your scores by a certain amount. Again, be especially wary if they make these types of claims regardless of your actual credit score and/or your current financial situation.

Company suggests fraudulent means of credit repair – some companies try to get their clients to create a new, blank credit card file, using an Employer Identification Number (EIN) or other means. These types of credit repair are fraud, and if you follow their advice, not only will you lose money to scam, but you may also be arrested for breaking the law.

Your credit score directly impacts several facets of your life. Don’t trust credit repair to just anyone – do your homework, ask questions, and avoid high-pressure sales tactics. When you do choose a credit repair company, check them out with the Better Business Bureau, and make certain you are getting exactly what you’re paying for.

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When you cosign an account, whether it’s a loan, credit card, or an open line of credit, that account shows up on your credit report as well as the credit report of the individual you cosigned with so that he or she could qualify for the credit. This means that if payments are not made on time, both individuals’ credit scores will suffer. Additionally, the student credit card that you cosigned for will be added to your current available-credit-to-debt ratios and you could be denied additional credit based on the payment and purchasing activity on that card. Keep the initial credit limit low, and make sure any credit limit increases are only granted with your consent – this will help you to effectively manage both your credit scores, and your child’s credit scores.

Credit card companies probably won’t stop their aggressive marketing to students, and you can expect that the new laws will only encourage some credit card companies to offer additional incentives for new students to get their parents’ agreement to sign up for the card. If you have a student who is currently in college, or that is approaching college age, now is the time to help explain to them how credit cards work – keeping balances low, making payments on time, and paying off more than the minimum balance each month can actually improve your child’s credit, and yours as well if managed carefully.

If your student will be attending college out of state, it can be difficult to keep track of credit card activity. One way is to sign up for email alerts on purchases, or when the card is approaching its limit. Be aware of how much your child spends while in school, and help him or her to create a budget that will successfully track spending and reduce the risk of over-limit fees. Even better: opt out of any over-limit fees on the new card, and avoid getting hit with extra charges if your student does max out the card.

It’s never too soon to learn the lessons of responsible credit use; just be certain that your college student’s spending habits don’t end up costing you your good credit. Stay informed when it comes to purchases, encourage responsible spending habits, and don’t be afraid to take the credit card away or cancel the account if your child proves that he or she is not ready for the responsibility – it’s better to cancel a card with a small limit early on than it is to pay thousands in fees and late charges down the line.

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1.    Offers with vague terms. Be wary of credit card offers with wording such as ‘rates as low as __%’ or ‘credit limit up to ___.’ Chances are, most will not qualify for those teaser rates and credit limits, and the card you end up with could be too limited to be worthwhile.

2.    Offers with excessive fees. Likewise, avoid any credit card that offers a low credit limit, but charges high fees to issue the card. Some of these cards have fees totally more than 80% of the initial balance. If you pay off these fees, you’ll still take a hit on your credit rating because the initial debt will be seen as excessive, even though you haven’t actually charged a dime.

3.    Offers that allow you to pay off an already charged-off debt with your new card. While this may seem like a great deal, all too often it turns out to be a scam. Instead of getting your charged-off debt satisfied, along with a new credit card, you’ll find yourself making payments on that old debt for months or even longer before the company will give you an actual credit card. Meanwhile, your credit scores have little or no improvement.

While there are many scams out there, getting a credit card from a reputable bank or finance company can be an important first step to rebuilding your credit. Some of the best places to get that new credit card include:

1.    Your bank. If you have a good relationship with your bank, and a direct deposit account, you may be able to qualify for a credit card even if your credit scores need improvement. Getting a secured credit card from your bank can also make it more convenient to pay the card back on time, as you can set up automatic payments.

2.    A credit union. If you can open an account at a credit union, you may find that you get better interest rates and have more options when it comes to qualifying for a card.

3.    Store cards or gas cards. Although the interest rates on these types of cards are generally higher, you can still rebuild your credit if you are careful about paying off the balance each month. Store cards are generally easier to qualify for, as well. Just be sure to keep your spending in check, and only buy what you can afford to pay off each month.

Credit cards are a necessary component to a healthy credit score. By carefully choosing the right credit card from the start, you can give yourself the best possible opportunity to rebuild your scores and get your financial health back on the road to recovery.

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Credit scores are determined not only by your payments, but also by the amount of credit you have versus the amount you use. Credit scores are also partially determined by your “mix” of credit. You want to have active credit card accounts, and installment payment accounts such as a car loan or mortgage. If you cancel your credit cards in an attempt to keep your debt-to-income ratio at the same levels, then you’ve eliminated a third factor in your credit scoring – length of time for active accounts.

So what can you do instead of debt consolidation? The standard advice tends to be the best advice – start with a credit card that has the highest interest rate and pay it down first. Conversely, if you have credit cards that have a very small balance, pay those off first and then work towards paying off the ones with higher interest. If you work your way through your credit card debts systematically, you can make a difference in your credit scores.

The absolute worst thing you can do is get a debt consolidation loan and then max out the cards you just paid – not only does that leave you in a worse position financially, but it also makes it extremely difficult to qualify for credit in the future, as these types of actions are seen as high-risk by creditors. If you have a debt consolidation loan in progress, keeping your credit cards active by using them for a nominal purchase ($50 or less) may help you to lessen the potentially negative impact on your credit score. Keep in mind that you should only use the cards if you know you can pay them back in full – use them to purchase items that you would normally pay for in cash or check, and then use those funds to pay off the credit card instead.

Once you have your balances lowered, you want to keep them that way – try not to charge more than 10% – 30% of your available balance each month, and pay it off month to month. You don’t have to carry a balance in order to show a positive credit history, but you do need to have consistent charges that get paid on a monthly basis. If you’re really set on a debt consolidation loan, avoid using one that will tie up your home equity. Instead, get a personal loan through your bank or credit union, and use it to cover the amount of your high interest rate credit cards. In this way, you can continue to make payments on the lower interest cards, and maintain the balance of your credit mix.

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Effective July 1, 2009, the government is instituting a new repayment plan called Income Based Repayment, or IBR.  This new payment plan adjusts your payments to reflect your income as well as your dependents. After 25 years, if you still have a balance on the loans, that balance is forgiven. For individuals who have low income or several dependants, this provides a viable way to keep your credit rating clear, while still maintaining affordable payments throughout your loan term.

Student loan debt is often a factor when determining whether or not you qualify for credit. Unless you are currently in deferment or forbearance, the total amount of your student loan debt is part of your debt-to-income ratio. However, most lenders view student loan debt as “good” debt, and are less likely to penalize you in that regard. Showing a consistent payment history out of forbearance and/or deferment can help to build credit as well – if your monthly payments are lower under IBR, this can also be a factor when creditors are deciding whether or not you have the ability to repay.

Regardless of whether or not you have your student loan payments adjusted under IBR or some other program, it’s important not to let payments on student loans lapse. While having student loan debt may not prevent you from qualifying for the credit that you deserve, missed payments on student loans certainly can. And because student loans fall under a special category of debt, in most cases you cannot have student loans discharged with bankruptcy, or any other means. If student loans are a potential tipping point for you with regards to your ability to repay financial obligations, IBR’s lower payments may be useful to you as well.

For individuals who have a higher income level, or who expect to have a higher income level in the future, IBR may not be the best option. Because the repayment plan is so lengthy, it is best suited for individuals with lower income jobs over the long term. If you have a temporary financial setback, forbearance and deferment are still your best options. Whichever repayment or deferment option you choose, you should check your credit report to ensure that it accurately reflects your current payment status. Often, missed payments can be removed from the credit report if you have your deferment or forbearance take effect retroactively – this will give you a clean slate to start with when you begin your repayment again, and will give your credit scores a natural boost as well.

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Some common mistakes with regards to positive information on your credit report include the length of time the account has been open, the credit limit on the account, and any accounts where you may be a joint account holder but the account isn’t listed on your credit report. When it comes to these types of mistakes, adding the positive information to your credit report can usually be accomplished one of two ways:

Contact the creditor. If it’s a case of not having a joint account listed on your credit report, you’ll want to contact the creditor directly. In many instances, your creditor will be able to add the account to your report for you. This is especially true if the account is listed for the other joint account holder already.

Contact the credit bureaus. After you’ve contacted your creditor, you’ll want to confirm that the information has been changed within the credit bureaus. Wait a couple of weeks, and then check your report – if you still see errors, send a letter to the credit bureau asking them to correct the information, or use the online contact form.

For accounts that are in your own name, but that aren’t listed on your credit report, you should verify with your creditor that they report to the three national credit bureaus. Not every creditor chooses to report to the bureaus, and without their voluntary reporting, the credit bureau won’t be able to help you. If you do confirm that the creditor typically reports and just hasn’t reported your account, you can take the same steps above in order to have the situation resolved.

For creditors that do not choose to report your credit to the agencies, you can still help your chances of obtaining credit if you can get a certified copy of your payment history. If possible, request a copy of the payment history on company letterhead, and signed by a manager or someone else in charge. By having this documentation on hand to bolster your credit report, you may be able to convince some lenders.

Adding positive information can be a helpful step when it comes to repairing your own credit. Listing accurate, positive information can counteract some negative marks on your report. Additionally, by verifying these positive items, you will can be more vigilant to potential errors in the reporting process overall. Don’t just look at your negative items – always look at your credit report as a whole to attain the best results.

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• “Any disputes related to this credit card account are subject to binding arbitration…” Binding arbitration means you are not allowed to file suit in a court of law over any disagreement that you may have with the credit card company. It eliminates the possibility of class action law suits, and any number of legal rights. There is no way around this – if you use the card, you are agreeing to the binding arbitration clause. Be aware that your credit card company will most likely be the one who chooses the arbitrator as well, and your usual options for legal relief will be severely limited should you decide to pursue legal action.
• One to watch out for if you are taking advantage of a balance transfer to a lower-interest card: “Balance transfer fees are added to the purchase balance and are subject to the APR for purchases…” This basically means that any fees associated to your balance transfer will be treated as if you made a purchase, and will be added to your credit card balance. In addition, you will pay interest on that balance transfer fee. Something to keep in mind if you are close to your limit with the balance that you are transferring – the balance transfer fee may push you over, and cause over limit fees, just as a purchase would.
• Here’s the phraseology that indicates your credit card is subject to universal default laws: “If the cardholder is reported as delinquent on an account with any other creditor, we may increase the APRs on your account up to the maximum default APR…” Universal default is one of the many terms that will be modified under the new Credit Card Holders’ Bill of Rights, but until that goes into effect, you may be charged a default rate on all credit cards which have this phraseology, even if you’ve only missed a payment with one of those creditors.

The terms and conditions that accompany any new credit card are often lengthy and complex – one of the reasons that many consumers don’t bother to read them. However, this strategy can cost you money and hurt your credit in the long run. Understanding the fine print will help you to make a more informed choice when it comes to your credit, and will help you choose the best credit cards for your overall financial health.

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