Archive for 2009
Sunday, May 17th, 2009
Fact: Not everyone who files for bankruptcy does so because they’ve been irresponsible.
The vast majority of bankruptcy filings occur as a result of illness, death of a provider, job loss, business failure, divorce, or some combination of life-altering events that the consumer certainly didn’t plan for. Irresponsibility accounts for only a fraction of the filings.
Between 1.2 and 1.5 million Americans use the bankruptcy courts each year to get out from under unmanageable debt.
Thus, you need not feel hesitant or ashamed if this is the right option for you.
The primary drawback is that filing for bankruptcy is expensive. It not only costs money to file, but it negatively affects your ability to borrow – and the interest rates you’ll pay if you do borrow – for the next 7 to 10 years.
Consumers have two options: Chapter 7 and Chapter 13.
Under a Chapter 7 filing, consumers walk out of the courtroom debt free. In order to qualify, however, those consumers must have a modest or limited income.
Those wishing to file for Chapter 7 must provide:
1. A list of all creditors and the amount and nature of their claims;
2. The source, amount, and frequency of the debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
In addition, he or she must provide a list of “exempt” property, because the bankruptcy trustee will dispose of all non-exempt property and use the proceeds to pay debtors. The definition of exempt property varies from state to state, and there is a Federal list as well. Debtors can choose to use the list most favorable to them.
Chapter 13, also known as the “Wage earner plan,” is actually a debt consolidation program based on the consumer’s ability to repay debt. Payments are made to a trustee, who then distributes funds to creditors.
Depending upon the consumer’s income, these payments are set for 3 to 5 years, after which time the bankruptcy will be discharged. Creditors may or may not have been paid in full.
Under the terms of Chapter 13, consumers must live on a limited budget and contribute all “disposable income” to the repayment plan. A “Hardship Discharge” may be granted in the event the wage earner is no longer able to work as a result of illness or accident.
Both plans require the consumer to complete a course of financial/credit counseling. Both types also negatively affect your credit scores. Bankruptcy remains on your credit report for 10 years.
Author: Mike Clover
Posted in bankruptcy | Comments Off
Tuesday, May 12th, 2009
By now you know your credit score will suffer if you close a credit card account, but what about those times when your account must be closed because your card was lost or stolen – or because of an incident such as the Heartland Payment System’s security breach?
Don’t worry – this action won’t affect your credit scores at all.
When an account is closed due to one of these causes, your credit card issuer will close your account and transfer all of your information to a new account, which is opened simultaneously. This includes your payment history, the date your account was opened, and your interest rate and credit limit.
The card issuer may report this to the credit bureaus as one closed account and one new account with identical information, or they may simply report a change in account numbers.
Either way, as long as your history remains with the new account, it won’t affect your credit score. Remember the length of time you’ve had a credit card does affect your scores. The other reason why this action has no effect is that it doesn’t trigger a hard inquiry.
A change that can affect your credit score is a user-generated upgrade to a currently held credit card. This generally results in the closing of one account and the opening of a completely new account. Since your history is then lost, this move may harm your scores.
With this in mind, it might be wise to research credit card offers and apply for a completely different card – while keeping the old card and retaining the history and the credit limit you have established.
Additionally, when you ask for an upgrade you are generally asking for a credit line increase, and this generates a hard inquiry into your credit report. As you know, the more hard inquiries are made, the lower your scores. The good news is, if you are granted the higher credit limit, the additional available unused credit will offset the damage done by the inquiry.
When the upgrade is credit card issuer generated, it is the result of their own soft inquiry, and won’t affect your scores.
Before asking for a credit card upgrade or making application for a new card, check your own credit scores. Then research the cards and programs available to make sure that your current scores will qualify you for the card you want.
If they won’t, then work at raising your scores before you make an application. That hard inquiry that’s turned down will set you back in your efforts to raise the score.
Author:Marte Cliff
Posted in credit cards | Comments Off
Monday, May 11th, 2009
Rent parties were first documented in Harlem in the 1920′s – and they’re making a comeback all over New York as citizens struggle to meet rent payments.
Young adults, accustomed to good paychecks and moderately affluent lifestyles, were used to spending week-end evenings socializing at dance clubs, concerts, cocktail lounges, and bars.
Now their incomes have shrunk due to layoffs and the reduction in consumer spending. Commission sales people who once brought home nearly $2,000 per week from their jobs at upscale clothing stores are now lucky to see $500. Those who relied on tips are seeing their incomes plummet as consumers order less expensive meals – and thus tip less.
In response to these reduced circumstances, they’re inviting their friends to party in their homes – and charging them to get in the door.
The cover charges vary with what is offered. If the party-giver supplies the booze and food, or brings in some live music, the fee is higher. Others charge a minimum, and tell their guests that it’s strictly BYOB (bring your own bottle).
Typically, party-givers reap between $250 and $400 for their evening’s efforts – but some parties bring in much more.
For their friends, the “evening out” with a cover charge of $5, $10, or $15 is far less expensive than “hitting the bars” where they may also pay a cover charge, and one drink can cost upwards of $5. They also get to socialize with the crowd they know.
Organizing a rent party takes some special skill – and charm. Not everyone has the nerve to ask friends to help pay the rent, even though most friends are more than willing – unless they’re in the same boat.
The New York Times interviewed one party giver who sent out invitations entitled “Rob’s Help Me Make My Rent Recession Extravaganza.” The tag line on his invitation said: “because if I can’t pay, on your couch I’ll stay.”
Not everyone gives parties for themselves – sometimes it becomes a collaborative effort to help a friend in trouble. One such party, featuring entertainment by well known hip-hop artists who donated their talents, brought in over $2,000.
This trend toward friends helping friends seems like a good sign in a society that has become known for self-centeredness.
One young entrepreneur is talking of turning this movement into a TV show, or opening a club where membership dues would create a party-based insurance against eviction.
Author:Marte Cliff
Posted in Uncategorized | 1 Comment »
Wednesday, May 6th, 2009
Homeowners in financial trouble make an easy target for scammers, and right now they seem to be coming out of the woodwork.
Some legitimate loan modification companies do exist, and they offer a beneficial service to those who may not speak English well enough to understand the steps and requirements of loan modification.
However, the legitimate companies are outnumbered by scammers.
These companies not only fleece worried homeowners – taking money that could be better spent on bill payments – they can actually get those homeowners into deeper troubles.
The truth is, as long as you can speak English and have fair comprehension skills, you can do everything they can do for you. No need exists to have a 3rd party “negotiating” for you.
Your success in having your loan modified will depend entirely upon the facts surrounding your loan – not on “knowing the right people,” “knowing what to say,” or any other phrase the scammers might use to part you from your money.
Modification rests on your current income, current obligations, and the mortgage payment – along with your ability and willingness to pay the modified mortgage payment. Contrary to what these crooks will tell you, you don’t need to pay an up front fee to be considered for modification.
Yet, hundreds, if not thousands of unwary homeowners have forked over $250, $500, $750, and even $1,000 to these companies under the promise of help.
The worst of this, according to one source at Bank of America, is that these companies are advising people to stop making their mortgage payments.
That’s the worst thing you could do if you want a loan modification under the Making Home Affordable program. In fact, it could render you ineligible for help.
If you’re having trouble keeping up with your payments, call your lender and ask what help is available. Many have special lines set up to handle such calls – check the lender’s website to find that number.
You may be as fortunate as one couple I know who merely filled out a few forms to get their payment reduced by nearly half. If your lender is using a different system, you may have to wait for an answer. But either way, you definitely don’t need to pay a 3rd party to help you.
Author:Marte Cliff
Posted in Uncategorized | 1 Comment »
Tuesday, May 5th, 2009
If your income has dropped and you’re struggling to keep up with payments, you may qualify for a mortgage loan modification. However, you need to take the first steps.
I’ve heard reports of consumers getting current payments reduced by almost half, just by contacting their mortgage lender and filling out some paperwork. But not all lenders are offering the same solutions, so you do need to call.
One caution: If you do call and tell your lender that your income has fallen, that will become public knowledge and it could affect your ability to borrow from other sources, as well as the interest rate and credit limit on credit cards you now carry.
So think it over before you act.
Loans that are backed by Fannie Mae are now being scrutinized to find homeowners who may need help. Fannie Mae, along with three 3rd party vendors, is flagging loans in which the payment exceeds 31% of the homeowner’s gross income – as reported to the mortgage lender.
Thus, if your income used to be $10,000 per month, your $1,500 house payment won’t alert them of your need for help. You’ll have to call and update your financial information, and you should do it soon because this scrutiny will be taking place over the next 6 weeks or so.
Once the loans are examined, homeowners can expect to get a letter from Fannie Mae, from their lender, or from one of the three vendors. The letter will say you are not eligible, you are eligible, or will contain documents ready for you to sign in order to proceed with a loan modification.
Once approved, homeowners will be put into a 3-month “probationary period” during which they must keep their payments up to date. Once that has passed, the loan modification will be finalized.
The program is set to run for 5 years, after which time the terms will revert to the terms (and payment) the loan carried at the time of the modification.
The person I interviewed today was with Bank of America – who just bought out Countrywide. So while they are in a period of transition, they are still working with Fannie Mae to help consumers keep their homes.
I learned that once approved, consumers will be put on a 3 month probation. I assume, with the lower payment. If all payments are made on time during that 3 months, then the modification will be finalized.
One of the requirements of modification is that the homeowner sign a 4506 T form – authorizing the lender to access their IRS returns. If those returns show a dramatic increase in income – so that the homeowner could easily pay the old rate and stay within the 31% range – the modification will cease and the terms will revert to the original agreement.
Author:Marte Cliff
Posted in Uncategorized | Comments Off
Monday, May 4th, 2009
Credit card companies have been marketing aggressively to college-age consumers, and President Obama would like to rein in their practices.
Today’s average undergraduate student now carries over $3,000 in credit card debt – the highest it’s been since researchers started tracking data in 1998.
Since this much debt – without the benefit of large credit lines plus a long history of prompt payment – can bring credit scores down, new graduates are beginning their “financial lives” with a handicap. This debt, added to school loans, means that college graduates may be beginning their careers without the ability to purchase a car or rent an apartment. Since potential employers also check credit, the debt even adds to the challenge of landing that first job.
Credit card companies targeting college students not only rent lists from the schools and market through the mail, they enter into agreements allowing them to set up tables in areas where students congregate. In order to lure these students into filling out applications “right now,” they offer everything from cash, to teddy bears, to CD’s, to free pizza.
What they don’t offer – or encourage – is time for those students to study the fine print on their offers. Most, if not all, come with annual fees, so the student is in debt before he or she buys the first concert ticket or CD. They may offer low introductory rates – but don’t prominently reveal the rates that will come into effect once that introductory period ends.
Congress is now considering legislation that will “clean up” many deceptive practices in the credit card industry. One of those provisions will make it harder for card issuers to extend credit to anyone under the age of 21.
In response, the American Bankers Association, and others, joined in sending a letter to Congress – warning that the new regulations will force them into raising fees and interest rates to a wide range of consumers and small businesses. In other words, if they cannot charge young people rates that were once considered “usury,” they’ll have to make up the lack of revenue by collecting more from everyone.
While we all should read the fine print before entering into any agreement, President Obama may have been correct when he was quoted as saying that “People have been deceived into paying extraordinarily high rates that they wouldn’t have paid if they knew what they were getting themselves into.”
If the new regulations make it through Congress, those deceptive practices will come to an end. However, at last report, lawmakers were in favor of allowing credit card companies more than a year to make the changes.
Author:Marte Cliff
Posted in Uncategorized | Comments Off
Sunday, May 3rd, 2009
Because they deal with credit to arrange car loans and leases, your local car dealers are now considered “financial institutions.” As such, they are subject to the “Red Flags Rule” that was set to become effective on May 1, 2009.
At the last minute, the deadline for compliance was once again extended to August 1,
to give financial institutions time to put new practices in place. It was originally scheduled for compliance in November 2008.
This rule, which stems from the 2003 Fair and Accurate Credit Transactions Act, is an attempt to catch and stop identity theft when used to gain new credit.
This rule requires all financial institutions to use due diligence in making sure that the person asking for the loan is the person whose credit is being used for that loan. In fact, they must document the steps they take to perform that due diligence. If they fail in that respect, they’ll be subject to fines.
The list of 26 red flags includes:
• Credit card account activity inconsistent with past use
• An increased number of new accounts or inquiries
• An address on your driver’s license that’s different from the address on your credit report.
• An out of state address on your driver’s license and a local address on your application
• Photo ID that doesn’t really look like you
• A desire to complete the entire transaction on line
Not all financial institutions are pleased about these changes, citing the additional expense of record keeping and research. They say smaller banks and car dealerships will face financial hardship in order to remain in compliance.
For instance, some of the red flags revolve around Social Security numbers – Vendors must check to see that the social security number used is consistent with the applicant’s age, that it is a valid, issued number, and that it is not listed on the Social Security Administration’s Death Master File.
You can raise red flags on your own valid application, if you fail to inform all account issuers and the driver’s license bureau of a change of address; if you fail to get a new driver’s license when moving to a new state; or if your photo ID doesn’t really look like you.
If that happens, your car dealer is required to ask questions that you may feel are beyond a stranger’s right to know. For instance, the dealer may ask if you use or have used different forms of your name – such as Mary Smith, Mary D. Smith, M. Darlene Smith, Mary Darlene Smith, etc.
The FTC admits that use of stolen identity is rare at car dealerships. However, since the new definition of “financial institution” includes car dealerships, they must now come into compliance.
Author:Marte Cliff
Posted in car dealerships | Comments Off
Sunday, April 26th, 2009
Q:
Hello,
My wife didn’t pay a credit card that was in her name as an individual. She didn’t pay the bill and it went to collections. She avoided all attempts for collection and a judgment was issues against her in court.
Unfortunately for me we live in a community property state and the judgment reads….WIFE A as an individual and Husband as a community property. The judgment has been paid and I want it off my credit report. Since it was not mine to start how do I get it removed from MY personal report?
Thanks in advance,
Bryan
A:
Hi Bryan,
I find your issue very interesting. Typically a judgment filed against another person will not affect a spouses credit report unless you were part of the judgment. It does not matter if you are in a community property state, your social security number should not be attached to this judgment. I would re pull your credit report through our site by your self to see if it will show up. If you did a tri-merge credit report you may be getting the judgment mixed up with your wifes. Double check the judgment that was filed and make sure you were not part of the judgment. Otherwise I would dispute the credit bureau that is showing it on your credit report. Go here to dispute your credit report.
Mike Clover
CreditScoreQuick.com
Posted in Uncategorized | Comments Off
Sunday, April 26th, 2009
Now that the majority of taxpayers have filed their 2008 Income tax forms, the “phishermen” have a whole new angle to use when trying to gain access to your personal information.
Almost everyone has a fear of being audited. We’ve all heard too many stories about the Internal Revenue Service and how they can punish taxpayers for underpayment of taxes, suspected tax fraud, etc.
So when a letter comes from the IRS, most of us open it with a measure of stress. We know (well, most of us know) we haven’t done anything deliberately to trigger their suspicions – but what if we’ve made a mistake? IRS forms are at best, confusing.
That fear plays right into the hands of the criminals seeking to steal identities and empty bank accounts. Some citizens, worried and anxious to avoid such troubles, respond quickly to any message from the IRS.
The trouble is, those scary messages aren’t from the IRS. They’re from crooks.
A talented hacker can easily duplicate the logos and fonts used in IRS websites – and use them to convince unwary taxpayers that the email they just received really did come from the IRS. Then they can just as easily create a web site that looks official.
Victims receive an email telling them that information is missing, or there’s something they need to clarify. The message might be a “friendly offer” to get something corrected and thus avoid an audit. They might be asked to respond directly to the e-mail, or to click a link to go to the “IRS website.” Once on the fake site, you’ll be asked to verify your identity by entering in personal information – information that will give the crooks all they need to assume your identity.
From there it’s a short step for them to run up your credit card accounts, open new accounts in your name, use your identity to get a job or rent a house, and even empty your bank accounts.
Don’t ever respond to this kind of message – because it did not come from the IRS. In fact, the IRS does not use e-mail to contact taxpayers. If they want to communicate with you, they’ll send a letter by postal mail.
Instead, if you receive such a message, forward it to phishing@irs.gov – so that they can work to track down the crooks and put them out of business. If you have a tax question, go directly to the IRS site at www.irs.gov.
If you have already responded to a message, thinking it was from the IRS, you should contact all 3 credit bureaus immediately and alert them to the fact that you’ve had your identity stolen. Next, contact all your credit card issuers and your banks and alert them.
Get a copy of your current credit report and see if the crooks have already started work. If they have, begin immediately to repair the damage.
Author:Marte Cliff
Posted in Uncategorized | Comments Off
Friday, April 24th, 2009
No. In spite of rumors to the contrary, FICO has not changed its scoring system to bring credit scores down.
Credit scores are falling because of actions on the part of credit card issuers.
These lenders, in an effort to make more money while reducing risk, are lowering credit limits and raising interest rates. And it isn’t just the “risky” borrowers who are being singled out for this action.
In fact, prime targets are consumers who keep low balances, use their cards sparingly, and have few if any late payments.
For the banks, unused and under-used cards limit profitability, so they’re lowering credit limits to reflect the actual use of those cards. In some cases, they’re even lowering them to less than the balance owed – putting unsuspecting card holders over-limit and triggering penalty fees.
A recent survey by the Federal Reserve Board revealed that about 45% of all domestic card issuers are taking this step.
Unfortunately, this action on the part of just one card issuer will lower a consumer’s credit score – which can in turn trigger the same action on the part of other card issuers. As you can see, this is a trend that can snowball, causing a responsible card holder to see his or her credit scores falling like a rock.
The FICO scoring system bases 30% of the score on debt to available credit, and some financial experts are calling on FICO to amend this ratio due to the “no-fault” nature of these shrinking credit lines.
FICO, however, is not budging. They say that the consumers who have been affected by this arbitrary reduction in available credit are holding their own. They’re able to raise their scores fairly rapidly after the dip by paying off existing balances and discontinuing use of their credit cards.
Card holders can expect to see this trend continuing into mid-2010, when new regulations limiting card issuers actions will take effect.
Right now, they are able to change your credit limit and your interest rate for any reason – or for no reason. They can also change your payment date, causing you to receive your statement too late to make an on-time payment.
When the new regulations go into effect, card issuers will be required to give 45 days notice before making such changes, and will be prevented from increasing the interest rate on current balances. They’ll also have to send your statement 3 weeks before the due date and will be prevented from charging you a late fee if your payment was postmarked 7 days ahead of the due date.
In the meantime, do read every message that comes from your credit card company, do read your statement each time it arrives, and do go check your account on line before setting out to make a purchase. Your $10,000 credit limit on which you owe $560 may have shriveled to a $500 credit limit since your last statement. It’s best to learn that kind of news at home rather than when you’re standing at a check out counter.
If your card issuer has done this to you, you may be tempted to tell them to keep their darned card. But that’s not wise. Do transfer your balance to a friendlier lender, but keep the account open. Even with a lower credit limit, the credit it represents will help keep your credit score from falling even further.
Author:Marte Cliff
Posted in FICO | Comments Off
Disclaimer: This information has been compiled and provided by CreditScoreQuick.com as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.
|
