Credit card issuers are pushing the concept of prepaid credit cards for those consumers whose credit scores are too low to qualify for a conventional card.

But are they a smart alternative? Only in certain circumstances.

It’s true that a prepaid credit card offers the same convenience as a regular credit card in terms of being able to order on line, reserve a rental car, or pay for your gas at an all-night pump.

But in terms of improving your credit scores, a pre-paid card will do you no good. Since you aren’t borrowing any money to get these cards, their use isn’t reported to the credit bureaus. The only difference between them and the cash in your pocket is convenience.

They even carry the same security level as cash – if you lose the card you’ve lost the money, just as if you lost your cash.

Meanwhile, the cost can be high.

Banks that issue pre-paid credit cards aren’t content with the fees they collect from merchants when you use the card – and since they aren’t collecting any interest from consumers, they add on fees.

You might first pay an application fee, then an activation fee, an annual fee, an ATM withdrawal fee, and perhaps even a transaction fee.

And, since these re-loadable cards branded by MasterCard and Visa are not covered under the consumer protection terms of the CARD Act, card issuers are free to impose short expiration dates and monthly fees for non-use.

From this standpoint, they’re far less safe than cash. You can stuff a wad of cash under the mattress and expect to find the same amount there if you come back a year later. Your pre-paid credit card stuffed under the mattress can lose value each month until it gets to zero – or it can become worthless because it reached an expiration date.

So who should invest in a pre-paid card?

• A prepaid card might be a good choice for a consumer who has no checking account or whose checking account does not offer a Visa or Mastercard check card.
• It can be a convenience for those whose credit scores are too low for a traditional card.
• It is a safer choice for parents who need to send money to a child who is away from home, and can be a useful tool in teaching teens about budgeting and money management.
• Employers can feel more secure when giving an employee a pre-paid card for such things as travel expenses than they might if they gave that employee a regular credit card.

But in general, most consumers are better off working at improving their credit scores so they can qualify for a traditional credit card.

Author: Marte Cliff
CreditScoreQuick.com your resource for credit reports, credit cards, loans and credit news.

Prior to the CARD Act, retailers who sold gift cards could earn big profits from consumers who failed to use the gift cards quickly. They would simply state that the card expired after a set number of months, or almost immediately begin deducting a monthly fee for every month the card was not used – until the balance was entirely used up.

Now, under the CARD Act, gift certificates, store gift cards and general-use prepaid cards which are usable at multiple merchants and branded by Visa or MasterCard, will be prevented from this practice.

As of August 22, when this part of the CARD Act kicks in, cards can’t begin to lose value for non-use until they have been dormant for 12 months.

However, you don’t need to worry about the gift card issuers profit margins. They have found a variety of other ways to make sure selling gift cards remains profitable.

Experts say there are as many as 50 different fees that card issues can impose – all of which effectively reduce the spending power of those gift cards.

For instance, the issuer may charge a fee for issuing the gift card – which is what I found when I wanted to use the Internet to electronically send a Wal Mart gift card to an out of state family. The same card purchased in the store, however, carried no fee. So rather than pay $5 or so to have it electronically delivered, I paid for an envelope and a postage stamp to mail it.

Fees can also apply to making a transaction, checking the balance, or calling customer service. And if you need a replacement card, you’re sure to pay a fee.

Gift card issuers aren’t exactly happy with the CARD Act’s provision that gift cards cannot expire for 5 years after issuance, or since last loaded with money. In the past, they have expired after one or two years.

Aside from the ability to make these gifts disappear, another reason that gift card issuers don’t like the new rules is that keeping track of the gift cards issued and their potential for use is an added burden to bookkeeping departments.

In keeping with the general confusion and loopholes inherent in new government regulations, not all gift certificates and cards are subject to the new regulations. Paper gift certificates, reloadable prepaid Mastercard® or Visa® credit cards, and telephone cards are exempt from the restrictions.

Loyalty, award or promotional gift cards are also exempt, so if you’ve received such a card – use it quickly before it dissolves.

CreditScoreQuick.com

We all know that the mortgage crisis came about partially because home mortgage loans were extended to home buyers who shouldn’t have purchased. But their credit scores were not the only reason. More to the point was their income, and the reasons why their credit scores were so poor.

Today, we have consumers with good incomes and responsible payment histories whose credit scores have tumbled because of actions taken by the big banks. That included closing credit accounts that were unused and reducing credit lines for consumers who had wisely used less than half of their available credit lines.

Thus, thousands of potential home buyers who once enjoyed high credit scores and could have qualified easily are now being turned down for home mortgage loans.

But those consumers don’t have to wait to secure a home. They have another option to consider: Rent to Own

It’s true that their choices will be limited – bank owned properties won’t be sold this way, nor will short sale homes.

However, they can probably rent to own a home with a mortgage, so the real qualifying condition is that the seller doesn’t immediately need his or her equity from the sale.

Rental properties and second homes are good candidates for a rent-to-own contract.

The rent to own contract nails down the eventual purchase price, which could be a bonus for a buyer in an appreciating market. It also states how much of the monthly rent will be credited toward the purchase, and the final purchase date.

It does carry some risk for the seller, because the “tenant” can decide to opt out of purchasing. But in the meantime, the tenant will be responsible for all upkeep on the house, freeing the owner from that responsibility.

Usually the tenant will make a larger than normal deposit upon taking possession of the house. This may also apply to the down payment at closing, and will usually be forfeited if he or she doesn’t complete the purchase.

The closing date should be set far enough out to allow the buyer/tenant time to improve his or her credit scores and qualify for a home mortgage.

And there lies the second risk for the seller. If the buyer fails to raise his or her credit scores during the rental period, the seller will either have to extend the closing date or evict the tenant.

This eventuality should be addressed in the contract – which should be drawn by a real estate attorney.

Author: Mike Clover
CreditScoreQuick.com your resource for credit reports, credit cards and credit news.

Credit card debt that has gone unpaid for a long period of time is “charged-off” by the credit card issuer and usually sold to a debt collection company for cents on the dollar.

This charge-off will remain on your credit report for 7 years and will negatively affect your credit scores. However, if you pay the debt, the collection company will report to your original creditor that the account was paid and they will then add a notation to your credit report that the account is a “paid charge-off.”

While this won’t automatically raise your credit scores, lenders who read the credit reports will view it in a favorable light. Thus, paying the account can help you when you want to borrow money in the future.

If you pay off such an account you should wait for 60 days, then check your credit report to make sure that the account is now correctly listed as a “Paid charge-off” rather than just as a “Charge-off.”

But now for the danger…

Some debt collectors are on the up-and-up and some are not. In fact, you could even be contacted by a bogus debt collector who does not own your debt and has no claim to any payment you might make.

Even though you want to improve your credit, don’t jump at the first chance to make things right by paying this old debt.

First, ask the company for verification that this is actually your debt. Next make them prove that they have purchased that debt and have the right to collect from you.

Do not send any money – not even $1 – until you see a complete payment agreement in writing – with all terms and dollar amounts clearly specified.

You want an assurance that if you perform as agreed, the account will be marked “paid in full” rather than “settled in full.” Some of these “agreements” leave the door open for them to ask for fees or additional interest, even after you’ve paid the full amount requested.

Finally, since anyone can type out a document and make it look legal, and since anyone can dream up a company name and sign as an authorized officer, you should do some research. Google the name and see what others have to say about them. Call the Better Business Bureau in the town where they’re located. Ask your attorney if he or she has ever heard of them.

Make sure you aren’t about to send money to someone who gained access to your account information by illegal means and is now trying to “shake you down.”

CreditScoreQuick.com your resource for credit scores, credit cards, and credit news.

By now you’ve seen plenty of information telling you to stay away from sites like www.creditscorequick.com because you can go to AnnualCreditReport.com once a year and get your credit report online for free, with no obligation.

That is true. You can go to their site and get a copy of your credit report from TransUnion, Equifax, and Experian – and it is free. You don’t have to leave a credit card number, and you don’t have to come back later and cancel if you don’t want further service.

But… and here’s a big but… you won’t get your credit scores. And since most consumers have no idea how the items on their credit report affect their credit scores, all you’ll really know is if there’s a mistake you need to correct.

You’ll also be alerted to signs of identity theft, and that is a big plus.

We at creditscorequick.com decided to see just what annualcreditreport.com really had to offer, so one of our staffers volunteered to go there and get her credit report online. She chose just one vendor and ordered her report.

But before she could access the report, she got a warning that her that the credit report alone wasn’t very useful and that she really should order her credit score before proceeding. If she acted right now, it would be hers for only $7.

She said “no thanks” and went forward. She did get a credit report, and it was nicely done and easy to understand. Before she left the site she was reminded of how important it is to monitor your credit report regularly, and was again urged to buy her scores.

Over the next couple of weeks she received numerous messages urging her to buy her credit scores, and urging her to sign up for credit monitoring, because looking at your credit scores once a year simply isn’t enough for good money management.

If you really do feel comfortable with seeing your credit report just once a year – and not having access to your credit scores – then by all means visit annualcreditreport.com and get your free credit report online.

But if you’d like to know your credit scores as well, choose one of the offers at www.creditscorequick.com . If you don’t want to continue with credit monitoring and regular updates, all you have to do is cancel and you won’t be charged a dime.

Author: Marte Cliff

CreditScoreQuick.com your Credit News Resource.

When Bank of America bought out Countrywide in 2008, party of the package was $25 billion in pay-option adjustable-rate mortgages.

And because Bank of America fully expected that billions of dollar’s worth of those loans would fail, they paid only $13.9 Billion for them.

A pay-option ARM is an interesting loan product. This is an adjustable-rate mortgage in which the borrower chooses the payment. Under one of the options available to these borrowers, they are actually in a negative amortization situation. While their loan interest might be $1,000 per month, they might choose to pay only $800 – and that extra $200 is simply added to the principal balance of their loan.

Now, in a move designed to keep many of those underwater loans out of foreclosure, Bank of America will be offering debt reduction to approximately 45,000 homeowners. If everyone takes advantage of the offer, the amount forgiven could be as much as $3 billion. Far less than the $11.1 billion

In the case of pay-option arms, Bank of America will supposedly offer forgiveness of some or all of the debt that was added to their loan principal as a result of the monthly unpaid interest. Thus, rather than owing more than the original amount, they’ll be set back to their original loan amount.

Since this may not reduce the payment enough to make the homeowner eligible for a modification under the HAMP guidelines and thus remain in the homes, making payments, Bank of America has another, more complicated plan in mind.

This second stage plan is called “Earned principal forgiveness,” but it isn’t what it sounds like. Under this plan, in which the bank “forbears principal,” the homeowner must owe at least 20% more than the house is worth in the current market.

To begin with, the bank will forbear collecting interest on a portion of the loan amount. If you owe $150,000 but can only afford to make payments on $120,000, they’ll remove the remaining $30,000 from the balance upon which interest is charged. But you will still owe that $30,000.

Then, if you stay current on the loan, each year for the first three years, one-fifth of that forborn amount will be forgiven. One fifth of $30,000 is $6,000 – so in this example you would now owe $144,000 at the end of the first year, $138,000 at the end of the second year, and $132,000 by the time you had stayed current with payments for 3 years.

The plans are complicated, and you cannot make application. But if you have a pay-option ARM, a sub-prime loan, or a prime 2-year ARM that originated with Countrywide, you may get a letter inviting you to participate.

Be sure to read the fine print and understand it thoroughly before you agree.

CreditScorequick.com your resource for credit reports, credit cards, and Credit News.

Q:

I applied for a credit card with a great rate and my score is in the 700′s on all reports and my income to debt ratio is outstanding.  I was denied by Discover because they said that I had too much revolving debt.  I was like very astonished so I looked at my Experian report which I supposedly get free anyway.  My 210,000 house is paid for and we just built a 1200 square foot pool house.  I borrowed 29K on my secured home equity line (second mortgage, which is secured by my home up to $50K.  My secured equity line is showing up as and unsecured checking credit line and hurting my ability to get a lower rate card.  My additional unsecured debt is 13K.  How do I get the 3 credit bureaus to list it as a secured loan or mortgage and not retail unsecured revolving debt.  Do I go to the bank and make them re-report it correctly to the credit bureaus or do I go to the bureaus and correct it.  Any help would be most appreciated.  Thanks, James

A:

Hi James,

I would double check whether your loan with the banks was an actual equity line of credit. Typically banks report this as a mtg payment. If it’s a unsecured line of credit, then it will be reported as such. Let us know what they say. In most cases the bureaus report what the creditor sends them.

CreditScoreQuick.com

First we had HAMP – the Home Affordable Modification Program. Now we have HAFA, the Home Affordable Foreclosure Alternative Program.

When we wrote about it back in February it sounded like it might be a benefit to homeowners in trouble because, among other things:

• No foreclosure could be finalized during the marketing period
• Homeowners would have up to one year to market and sell their homes
• Short sales would be pre-approved, which might lead to faster closings
• No deficiency judgment against homeowners would be allowed
• The homeowner will be given $1,500 to use for moving expense

We mentioned then that the stated goal was to simply the short sale and deed-in-lieu procedures, but that the “simple” guidelines were outlined in a 43 page document. That should have been a warning!

One statement taken directly from the 43 page document says:

https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

• Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.

• Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.

Why, if the homeowner made application and was eligible for a loan modification, did he not get that loan modification?  Obviously they were trying to keep their homes. Under HAFA they’ll either sell short or turn it back to the lender with a deed in lieu of foreclosure.

In order to qualify for HAFA the borrower must be in default or in danger of being in default soon, but to qualify, the lender may require him to make payments, up to 31% of his income. Isn’t that how much he would have been required to pay with a loan modification?

While some experts state that the banks do not want to own any more homes, their behavior in granting (not granting) loan modifications makes that statement questionable.

Another strange provision of HAFA says that the homeowner must transfer clear title.

The lender will allow up to 3 percent of each second loan or lien, up to $3,000 in total, to help the homeowner satisfy these obligations. That seems a bit unclear – but it appears to mean that the homeowner will have to pay off any second mortgage or negotiate with that second mortgage holder to accept a minimum amount in exchange for a full release.

Under HAFA the loan servicer will be required to get an independent appraisal of the value of the house. The borrower will not be charged for this unless the short sale or deed-in-lieu is not completed. Should that happen, the cost of the appraisal will be added to the balance due on the home loan.

Of course, use of the HAFA program will have a negative impact on the homeowner’s credit scores. How that will compare to the effect of foreclosure is yet to be seen.

Author: Marte Cliff

CreditScoreQuick.com your resource for credit reports, credit cards and ground breaking  credit news.

Talk about the 2010 Census has a lot of people riled up. Some Internet rabble-rousers have been declaring that this census is the longest and most intrusive of any we’ve ever had – and instructing people to shut the door in census takers faces.

The truth of the matter is this year’s census asks only 10 questions. These are basic questions about population and they do not ask for your financial information nor your Social Security number.

Despite the truth, the news articles and hype surrounding this census have many citizens believing that they will be asked for personal information. And some – especially senior citizens – will feel it their patriotic duty to answer those questions.

And that is where the fraudsters see their opportunity. These crooks, bent on both identity theft and cash theft are posing as legitimate census takers and collecting information and cash from unwitting citizens.

You could be contacted in person, by phone, by postal mail, or by e-mail.

Be aware that there are no official emails going out from the Census Bureau. Anything you get that claims to be from the Census Bureau is an attempt at identity theft.

But that doesn’t stop these crooks from trying. Since bogus email senders can strike and be gone quickly, they aren’t afraid to contact hundreds of thousands of citizens in an attempt to gain information.

Generally, these e-mails say you didn’t fill out the form correctly, then ask for your bank account information, your Social Security number, or even your computer user name and password. (It takes a lot of nerve to ask for that!)

You could also receive a bogus form in the mail. If it asks for personal financial information it’s a fraud… toss it!

If they call on the phone and ask for such information they’re also crooks, even though their caller ID may be set to read “US Census.” Just remember, a legitimate census worker will not ask for your financial information.

Census takers could also show up at the door, and they may ask for personal information or for money – which is illegal. Get their ID and name and report them.

These could be actual paid census takers who have seen the opportunity to make some money on the side. The Census Bureau does screen employees, but they now know that a few identity thieves who have no criminal record are now operating under the protection of their Census Taker status.

Be careful. Don’t give out personal information – ever.

Author: Marte Cliff

CreditScoreQuick.com your resource for ground breaking Credit News.

February 22 marked the effective date of the Credit CARD Act of 2009 – bringing relief to consumers who will no longer be subjected to practices such as increasing interest rates on existing balances and reducing credit lines to less than the balance owed.

The Act, while not covering all credit card abuses, is good news for consumers struggling to keep up with mounting debt during the economic crisis.

But there’s one thing we didn’t hear about while learning the many benefits of the new law: it doesn’t apply to business credit cards.

This can come as a surprise to many of us who never stopped to consider the difference between a personal credit card and a business credit card. Aside from keeping expenses separated for accounting purposes and the fact that the rewards might be different, we probably viewed a business card the same as any other. But, as it turns out, they are two separate things, covered by different rules.

Credit card issuers may choose to extend the CARD Act rules to their business credit cards, but they are not obligated to do so. Thus, the interest rate on the balance you carry on your business credit card can still be increased for any reason.

To avoid this threat some small businesses are transferring business debt to their consumer credit cards, but experts say that is not a good idea. For one thing, using a consumer card for business could turn it into a business card under the law.

Next, using a consumer card for business expenses can lose the tax deductions allowed for interest on business expense. Any time you mix business and personal expenses on the same card, it becomes difficult to calculate interest paid on each, so the IRS will disallow all interest deductions for that card.

This use can also lower your FICO credit scores because business debt will be reported as personal debt. Until recently, no business debt was reported to the credit bureaus. Capital One has recently changed their methods and does now report small business credit use to both business and consumer credit bureaus.

Finally, financial advisors are warning that small businesses should act quickly to create a back-up plan for business expenses. If possible, obtain a fixed rate small business loan to cover any outstanding business credit card debt.

Since the CARD Act prevents credit card issuers from imposing penalty rate increases on consumers, they will be losing a revenue source of approximately $10 billion per year. Experts expect that they will attempt to regain some of that loss through rate and penalty increases on small business credit cards.

Author: Mike Clover

CreditScoreQuick.com your resource for credit report, credit cards, loans and Credit News.