Ever since Congress passed the CARD Act of 2009, consumers have been scrambling to bring their credit scores back to former levels.

At that time, credit card issuers made drastic changes in anticipation of how the act’s provisions were going to affect their profits. One of those changes was to slash spending limits and close unused accounts.

Since “utilization” contributes to 30% of your credit score, thousands of consumers found themselves unable to get the best rates on loans – some weren’t even able to get loans.

Utilization is the ratio between how much credit you have and how much you use. When the credit card companies slashed credit lines to at or below consumers’ current balances, they suddenly showed 100% utilization. Some even showed that they were “over limit.”

Since credit scores impact everything from getting a loan to renting a house to being hired for a job, most consumers are working to improve their scores. They’re paying down credit cards and getting new cards with no plans to actually run up balances.

And that’s where some consumers are making a credit-damaging mistake.

It turns out that carrying cards with zero balances can actually lower your scores.

While staying under 30% utilization is good and staying under 10% is even better, the credit scoring models do want to see some activity and proof of your bill paying habits, so 0% utilization is NOT good.

However, you don’t need to carry a balance. The best way to protect your credit scores is to use up to 10% of the available credit on your cards, then pay the balance each month to avoid interest charges.

The credit card issuers report your balance as of the day they issue your monthly statement, so even when you pay the balance in full, your credit report will show activity.

Of course there are exceptions.

If you’ve been carrying a balance at or near your credit limit, paying off the card and showing a zero balance will help your scores. In addition, having a mix of utilized cards and zero balance cards won’t hurt you.

But don’t make the mistake of thinking that becoming debt free will mean higher credit scores. It just doesn’t work that way.

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Carrying a company credit card to use for business expenses sounds like a good idea. Instead of keeping a log of your expenses and turning it in for repayment, you simply say “charge it,” turn in your receipts, and the company pays the bill.

If they pay late or run up a huge debt, it’s not your concern. Maybe.

It all depends upon how the card was set up. According to a 2009 survey from RPMG Research Corporation, a third of the companies that use corporate cards make employees liable for payment – either individually or jointly with the company.

You’ve no doubt heard of individuals whose credit was ruined because their medical insurance failed to pay bills on time. It wasn’t their obligation, but it was their credit that took the hit. The same situation applies to company credit cards.

It doesn’t matter who is supposed to pay. If the card is in your name and the credit card issuer believes you’re the responsible party (or one of them) the late payment or default will show up on your credit report.

So pay attention. If the boss offers you a company credit card, but then asks you to fill out a form listing your Social Security number and other personal information, you’re probably accepting either individual or joint responsibility for that debt.

If you’ve been carrying a company credit card for years and don’t  remember whether you filled out an application form, it’s a good idea to check. Get a copy of your free online credit report and look for that account.

If you find it, that means you’re liable for payment, and you should take steps to assure yourself that the bill is being paid on time. Your credit report will tell you if the account is or has been past due. Your own due diligence will tell you if it becomes past due in the future.

How can you keep track? By logging into the card’s website. You’ll be able to see the current due date, along with a record of payments. Then log in again on the due date, just to make sure the payment has been made. If it hasn’t, you probably should pay it yourself and seek reimbursement – because your credit scores are on the line. Of course, call your accounts payable department first. The check really might be “in the mail.”

If you find previous delinquencies, you may be able to get them removed by providing a letter from your employer verifying that under the terms of your employment, you are not the responsible party.

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What many consumers don’t understand is that while bankruptcy wipes out debt, it doesn’t wipe out the record of that debt.

The bankruptcy itself remains on your credit report, affecting your credit scores, for 10 years. In addition, the negative accounts that were wiped out in the bankruptcy will remain on your credit report. They too will negatively affect your credit scores.

These now inactive accounts should automatically fall off the report seven years after your last payment or last use. If it doesn’t happen automatically, you can file a request to have them removed.

Thus, after 7 years, the only black mark showing will be the bankruptcy, and it will carry less weight from year to year as long as you’ve been working to re-establish credit.

One record that won’t go away – perhaps ever – is your account with a specific vendor. Consider the old adage: “Once burned, twice shy.” This is how vendors feel about customers who have left them with unpaid debt, and this is why they’ll keep a record of your account in their files.

Thus, it’s unlikely that you’ll be allowed to open a new account with a company if you erased your debt to them through bankruptcy. If they do consider extending you credit in the future, it will probably not happen until you’ve begun to re-establish your credit with other vendors. In the case of phone or electric service, cable TV, and satellite service, you may also be required to pay a sizeable deposit.

Is this fair? Of course it is. If you lent money to a friend and they wiped out the debt through bankruptcy, would you be willing to lend them more money?

Is it legal? Yes. Is it discriminatory? No.

The one thing we are allowed to discriminate about is the ability to pay. If any company doubts your ability – or willingness – to pay, they have a perfect right to deny you credit.

What can you do?

Begin rebuilding your credit with other companies. Take out a secured credit card and make all of the payments on time. And most important of all – pay all your bills on time going forward.

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So – you got caught in the housing “boom and bust” and cut your losses with a short sale. Now you’re looking at rock bottom prices combined with historically low interest rates, and thinking that it’s a good time to once again become a homeowner.

And you’re right – it is. Locking in to a low payment now means you’ll be sitting pretty in a few years when both prices and interest rates have gone up.

But what about that short sale in your past? Will it prevent you from buying now?

That depends upon your credit scores, and the length of time since your short sale.

According to the latest Fannie Mae Guidelines, there’s a mandatory waiting period of two years after a short sale if you’re going into a new purchase with a 20% down payment. The waiting period is 4 years if you put only 10% down – unless you can document extenuating circumstances. If so, the 2-year waiting period applies.

FHA requires a waiting period of 3 years after a short sale or foreclosure, but then you can buy with a down payment of only 3.5%.

Of course, you do have to have acceptable credit scores. And while FHA guidelines say you are eligible for a new mortgage loan with FICO scores of only 580, most lenders impose their own overlays that mandate a FICO score of 640 or better.

That means the first step is to get a copy of your credit report – with scores – and see how you stand.

If your credit report shows collection accounts, you may be required to pay them off – and doing so will help your scores. Note that you may be able to negotiate a payoff for less than the full balance. But do talk with a trusted loan officer for advice before going forward with any kind of payoff.

Next, read the recommendations on your credit report for tips on how to raise your scores, and listen to the advice that your loan officer gives.

In general, you should try to pay down or transfer balances on your current credit cards show that no account shows more than 30% usage. You should also “lightly” use each of your cards every couple of months, to show activity and a record of payment.

Avoid opening new accounts or letting any vendor check your credit in the months preceding your home search. At the same time, avoid closing any old accounts.

Read your credit report carefully and correct any errors that could be hurting you. Right now, reporting errors are depressing scores for many consumers who are working to overcome  financial difficulties.

If you’re a “new couple” and only one of you was involved in the past short sale, consider taking out the new mortgage in the “other partner’s” name only. With today’s low prices and interest rates, you might not need two incomes to qualify.

Not simple, but worth it…

If you plan to remain in your community for at least the next few years, purchasing a home right now and locking into low payments is a smart move. That short sale in your past will make the process a little more difficult, but as long as your credit and your financial situation are on the mend, you can do it.

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Mortgage fraud is part of what started this whole housing crash, and it hasn’t gone away now that we’re in an economic recession. In fact, this is the kind of climate that encourages mortgage fraud.

When hearing the term “mortgage fraud” most people think of borrowers falsifying information on their loan application. And that is one form of fraud. However, a new form of mortgage fraud has emerged, and it’s the banks who are promoting it.

That latest form is short sale fraud.

When a homeowner has both a first and second mortgage on a home and the home’s value drops dramatically, the second lien holder often has no equity at all. For instance, if a home sold for $150,000 with an 80-10-10 closing, the first mortgage would have been in the amount of $120,000 while the second was for $15,000 and the borrower would have made a down payment of $15,000.

Unfortunately, when the housing market crashed, values dropped more than 20% in many locations, so that house might now be valued at only $100,000 – or even less.

In a short sale, assuming the house sells for $100,000 the first mortgage holder will lose about $20,000, and the second lien holder will lose the entire $15,000.

During a short sale negotiation, the first lien holder often agrees to let the second take a small portion of the proceeds – often just a thousand or two. But some of those banks want more, and they attempt to “hold the transaction hostage” until they get it.

They ask the seller, the buyer, or the real estate agents to agree to pay them “on the side” before they’ll give approval for the short sale.

“On the side” means they don’t want the first lien holder to know, and the transfer of money doesn’t show up on the HUD-1. They hide the transaction by getting the homeowner to make an extra payment or two on their account, or by asking the buyer or the real estate agents to pay them after the transaction closes.

What they don’t tell the parties involved is that by keeping this money transfer off the HUD-1, they’re committing mortgage fraud – and the parties who agree to it will be accessories to the crime.

Naturally the buyers, the sellers, and the real estate agents want the transaction to close. Thus, they may rationalize that it’s OK to go along with the bank’s request. But it could be dangerous. Mortgage fraud is a felony. Participation could result in six-figure fines and even jail time.

If you’re involved in a short sale and the bank asks you to do something that simply doesn’t feel right, talk to a real estate attorney before you agree.

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Consumers who have had a major meltdown in their finances have a steep hill to climb to repair their credit scores.

This seldom mentioned reporting error compounds the problem. Here’s what happens:

When a consumer lets a credit card balance become delinquent, the account will begin to show on his or her credit report as 30, 60, 90, and 120 days late. If no payment is made, the account will eventually be flagged as having gone into collections or legal action.

Meanwhile, the credit card issuer will have been sending letters and making phone calls in an attempt to collect. If the consumer fails to respond and the creditor determines that the account might be uncollectable, it will be sold to a collection agency, who will start the whole thing all over again. If they’re unsuccessful, they’ll sell it to yet another agency. This can go on and on.

With each subsequent sale, the collection agencies are taking a bigger gamble over whether they’ll collect or not. Thus, each time the debt is sold, the price goes down, but that won’t reduce the balance owed. It is, however, the reason why some will contact consumers with an offer to accept a lower payoff.

The reporting error: When the account is sold, the original creditor is supposed to drop the balance owed to zero – because they are no longer entitled to the money. The collection agency’s interest should appear on the credit report in its place.

But that doesn’t always happen. Instead, the credit report can now appear as if the consumer has two outstanding debts in that amount. And if the account is sold multiple times, that one past due account could show up as 3, 4, or more accounts past due.

For consumers struggling to climb out of a hole and rebuild credit, this mistake can be devastating. That fact that it happens often is just one more reason why it’s wise for every consumer to keep a close eye on their credit report.

If it happens to you, contact the credit bureau and begin the dispute process. Because the credit bureaus have systems in place to file disputes, contacting them will be simpler than contacting the creditor.

On the other hand, if your credit report shows negative information more than 7 years old or reports an outstanding balance that has been paid off, do contact the lender directly. Note: Whether you contact a credit bureau or a creditor, carefully document every phone call, email, and postal mail contact. Take names!

The sooner you catch mistakes, the easier they are to correct. So no matter whether your credit is poor or excellent, check that report regularly.

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Credit cardholders are asked repeatedly to sign up for credit card protection insurance offered by the issuing bank. Economic uncertainty is one of the primary reasons that cardholders will agree to pay monthly fees just in case something happens. Even if the cardholder does not carry a monthly balance, the bank is successful in selling the insurance. Credit card protection insurance is not as common as a more standard type of insurance like car insurance so care should be taken to understand the details. Prior to agreeing to sign up for the credit card insurance program, there are some facts that every cardholder should know.

Who Benefits from the Insurance Coverage?

Based on the program documentation, the credit card issuer will receive more benefit from the credit card protection insurance program than the cardholders. The structure of these insurance plans ensures that very few cardholders would qualify to have their payments covered. Most banks have designed these plans to bring in large sums of revenue every month to compensate for their recent losses. Banks benefit in the following ways:

1. Fear Factor – Many cardholders are agreeing to carry credit card protection insurance even if they do not carry a credit card balance from month to month. If a life event occurs and credit cards are used for living expenses, the insurance is supposed to cover the payments. Banks that have lost the most money in recent financial events offer some of the most expensive programs because they can make up some lost income by leveraging the fear that exists within the marketplace.
2. Loopholes – Financial institutions have extensive legal teams that are adept at wording contracts to exempt the bank from being obligated to pay the benefits as stated in the insurance documentation. Most cardholders find that the fine print exempts all life events that do not fit exactly into the scenarios defined in the documentation. Those loopholes are written to prevent the bank from being obligated for the most common life events encountered by cardholders.
3. Monthly Cash Cow – Credit card protection insurance rates are stated in pennies per 100 dollars of outstanding balance. Most cardholders do not consider the monthly expense of the insurance premium and additional feels that are added to outstanding balance. Insurance premiums are not added to the minimum payment amount, but are added to the balance and will increase the interest income from each account with the coverage.

Read the Fine Print

Even detail-oriented cardholders are surprised to find out that their credit card protection insurance does not cover their credit card obligations. Carefully titled paragraphs lead the cardholder to believe that certain life events will be covered by the insurance, but the supporting paragraphs explain all of the specific variations of the event that allow the bank to decline the coverage. The following exemptions are designed to avoid insurance payments:

• Unemployment – Under the credit card insurance plan, the cardholder expects to be covered in the event of the loss of a job. If the cardholder is dismissed for performance reasons, the credit card company has a loophole in the documentation to exempt them from paying the benefit. Leaving the job voluntarily also negates the plan coverage.
• Disability – Another possible life event would be disability that prevents the cardholder from performing the skills of their profession. The disability section of the documentation contains a loophole for the person who can perform work of some type. If a surgeon’s hands are badly damaged in a car accident, he is still considered able to flip burgers. The loss of income is not considered, and the credit card company is able to deny payment.
• Other Insurance – If the cardholder carries life or disability insurance, those primary policies must pay out their benefits prior to the bank having to pay from the credit card protection insurance coverage. People who do not have these prior coverage policies would benefit from credit card protection insurance more than people who do.

Actual Costs of the Protection Insurance

Financial institutions use a strong marketing tool to entice cardholders to believe their credit card protection insurance programs are affordable. Insurance premiums are stated in terms of a few cents per 100 dollars of outstanding balance.

1. Minimum Monthly Payment – For those who qualify to receive the benefits from the credit card protection insurance plan, only the minimum payment is made on the account. This action prevents the account from falling into an overdue status and prevents impact on the credit history and score.
2. Interest on Outstanding Balance – Because the minimum payment is made each month, all additional interest will continue to accrue on the outstanding balance. As the balance increases, the total amount of monthly interest charged on the account will increase.
3. Premium Costs – A $5000 balance would require a monthly payment of $30 to $50, which would add up to an additional $360 to $600 per year. The program documentation will say that the premium is between 35 cents and 50 cents per $100 of outstanding balance. Many cardholders are not aware that the premium amount adds up very quickly. Plan documentation will state that the credit card account with a zero balance is not charged the monthly premium.

Final Recommendations

Cardholders would be wise to consider another option instead of the credit card protection insurance offered by the credit card issuing bank. Instead of paying the monthly insurance premium each month, apply the same amount to the minimum payment and repay the outstanding balance as quickly as possible. The best insurance against the unknowns of the future is to live within the monthly household income and have a savings plan for unexpected events. Credit card protection insurance is for people without any other options for insurance coverage. The fine print must be understood by every cardholder to prevent surprises when life events change the household income.

Back in 2003, President Bush signed The Servicemember’s Civil Relief Act (SCRA), which expanded and improved the former Soldiers’ and Sailors’ Civil Relief Act (SSCRA).

Under the new terms, banks are not allowed to charge an active duty service member more than 6% on debt incurred prior to active duty, nor are they allowed to foreclose without authorization from a judge. In addition foreclosure can only happen after a hearing, at which the service member must be represented.

However, the law didn’t stop the banks from charging high interest rates or from foreclosing.

One service member who lost his home is James Hurley. He returned from Iraq in December 2005 to find that his home had illegally foreclosed upon, and sold two months earlier. Now, after more than 5 years and two court cases, he will be compensated. But of course, he doesn’t get his home back. The current owners don’t wish to sell.

According to an article in the June/July issue of VFW Magazine, 23 similar cases are now under review by the Justice Department. And, as a result of ongoing investigations, the Justice Department is considering more lawsuits against lenders. Most are for over- charging of interest and illegal foreclosure.

Now that high interest rates and illegal foreclosures have been exposed, banks are taking steps to make amends.

In March 2011, JPMorgan Chase began mailing $2.4 million in interest refunds to 4,500 military families. They say they are also working to reverse improperly handled foreclosures. But of course, if the homes have already been re-sold, those military men and women won’t be getting their own homes back.

Bank of America has joined in, saying they will reduce active duty service members mortgage loans to “as low as 100% of the current market value,” and will reduce interest rates to 4%.

Chase is also reducing interest rates to 4%, and has promised to donate 1,000 homes to service members and veterans. The article didn’t mention how the recipients would be chosen.

It’s a shame that public scrutiny and legal action was required in order to force banks to comply with laws that protect our military members. After all, without our veterans, no one would be free to purchase homes or use credit cards.

For an over-view of the protections offered by the SCRA, visit Military.Com. (http://www.military.com/benefits/legal-matters/scra/overview).

If you’re a veteran and need assistance, visit the Pentagon’s Homeowners Assistance Program at hap.usace.army.mil. If you’re an Iraq or Afghanistan vet, check out www.usacares.org.

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While the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the  CARD Act) placed restrictions on credit card issuers, it left enough loopholes to get unsuspecting cardholders in trouble.

For instance, according to the CARD Act, your credit card issuer cannot raise the interest rate on your existing balances unless you’ve been 60 days late with a payment, or when a promotional rate expires.

However – in addition to imposing a penalty fee for missed payments and overlimit violations, they are free to penalize you by raising the interest rate on all your future purchases. In fact, they can raise your rate on future purchases for no reason except that they want to do so.

They are required to notify you 45 days before charging that new higher rate. That should give you time to get your mail and discontinue using the card well before the new rate goes into effect. But… that requirement isn’t quite as it seems. Any new charges accrued 14 days after the bank sends the notice can and probably will be subject to the new rate. The loophole: They can’t bill you at the new rate until the 45^th day.

So if you’ve been late with a payment – even by one hour – or if you’ve gone over your credit limit, stop using the card immediately. Otherwise, you may find yourself paying as much as 39.9% on any new purchases. In fact, it could be more, because the CARD Act did not impose any limits on the interest rate that credit card issuers could charge.

If you have gone over limit and been hit with a fee, do ask for proof that you opted in to over limit protection. Issuers aren’t allowed to assess an overlimit fee unless you’ve agreed to allow transactions that exceed your credit limit. Of course, the alternative is that your card would be rejected at check-out. But you do have a choice.

If you’ve been a faithful credit card user, making payments on time for years and never going over your limit, you could be justifiably angry if they penalize you for being two hours late with a payment.

It might even make you angry enough to cancel your account. But do think twice before you do that.

Your card issuer can’t require you to pay in full at the time of cancellation, but they can double your minimum payment percentage or require you to pay off the balance within 5 years. And of course, loss of a credit line will be damaging to your credit scores.

The CARD Act promised protections, but it’s just as important as ever for consumers to use their credit cards wisely and to avoid going over credit limits or making late payments.

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When it comes to government regulations and banks, “You can” doesn’t translate into “You will.” This was the case with loan modifications and “underwater” refinances, and now is the case with the new FHA guidelines.

The new FHA guidelines allow a minimum credit score of 500 when the borrower makes a 10% down payment. Borrowers with only a 3.5% down payment are eligible with a score of 580. Gift funds are allowed, as are seller contributions.

That sounds good, but in reality, only 5-10% of all banks will approve such loans – and then only if all the other requirements are met and borrowers are willing to pay higher interest rates.

Most lenders impose their own requirements, known as “overlays.”

Many banks adhere to an in-house credit score overlay, regardless of what FHA says they “can” do. But there are other overlays as well.

Some lenders will go along with the low score/ low down payment requirement, but will prohibit the use of gift funds. Others impose stricter debt-to-income ratios. Others impose overlays related to job security and primary residence.

Some banks even impose different requirements for borrowers who apply through their own retail branches as opposed to those who apply through a mortgage broker.

As it turns out, the bottom line is that you still need a credit score of 640 or higher if you want to be assured of getting a mortgage loan. You also need a reasonable debt to income ratio and a reasonably secure source of income – just as everyone did before the whole mortgage crisis began.

Some are up in arms…

The National Community Reinvestment Coalition has filed a complaint with HUD, charging 22 lenders with violating several laws, such as the Federal Fair Housing Act, by imposing these overlays.

They allege that these banks are discriminating and illegally denying qualified African-American and Latino borrowers access to FHA insured loans.

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