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Control Your Credit in The United States

Credit Reports
Q: What Is a Credit Report?
A: A credit report is a record of your credit activities. It lists any credit-card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if any action has been taken against you because of unpaid bills.

Four Common Types of Information on Your Credit Report:
1. Identifying Information: Your full name, any known aliases, current and previous addresses, social security number, year of birth, current and past employers, and, if applicable, similar information about your spouse.
2. Credit Information: The accounts you have with banks, retailers, credit-card issuers, utility companies, and other lenders (accounts are listed by type of loan, such as mortgage, student loan, revolving credit, or installment loan; the date you opened the account; your credit limit or the loan amount; any co-signers of the loan; and your payment pattern over the past two years).
3. Public Record Information: State and county court records on bankruptcy, tax liens, or monetary judgments (some consumer reporting agencies list non-monetary judgments as well).
4. Recent Inquiries: The names of those who have obtained copies of your credit report within the past year (two years for employment purposes).

Q: How Long Does Information Stay on Your Credit Report?
A: Generally, all your credit history information, good or bad, remains on your report for seven years. If you file for personal bankruptcy, that fact remains on your credit report for 10 years.

Q: Who can access your Credit Report?
A:

Employers: may check your credit report to see how reliable you are before extending you an offer.
Landlords: may check your credit report before letting you sign the lease.
Lender: may check your credit report before offering loans that you would need to pay for a car.
YOU: may check your credit report for free once a year.

Q: How do I order my free credit report?
A: The three nationwide consumer reporting companies have set up a central website, annualcreditreport.com, a toll-free telephone number, 1-877-322-8228 and a mailing address, Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281 through which you can order your free annual report.

To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form is on the back of this brochure; or you can print it from ftc.gov/credit. Do not contact the three nationwide consumer-reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer-reporting companies at the same time, or you can order your report from each company, one at a time. The law allows you to order one free copy of your report every 12 months from each of the nationwide consumer reporting companies.

Q: How long does it take to get my report after I order it?
A: If you request your report online at annualcreditreport.com, you should be able to access it immediately. If you order your report by calling toll-free 1-877-322-8228, your report will be processed and mailed to you within 15 days. If you order your report by mail using the Annual Credit Report Request Form, your request will be processed and mailed to you within 15 days of receipt.

Q: Why do I have access to free credit reports once a year from each consumer reporting company?
A: The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies ? Equifax, Experian, and TransUnion ? to provide you with a free copy of your credit report, at your request, once every 12 months. The FCRA promotes the accuracy and privacy of information in the files of the nation's consumer reporting companies. The Federal Trade Commission (FTC), the nation's consumer protection agency, enforces the FCRA with respect to consumer reporting companies.

Credit Score

Q: What is a credit score?
A: Credit scoring is a system creditors use to help determine whether to give you credit, and how much to charge you for it.

Q: What is generally on your credit score?
A:

Payment History
Amounts Owed
Number of Accounts Owned
Length of Credit History
New Credit
Types of Credit Used

Q. What is done with this information?
A: Using a statistical formula, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. A total number of points ? a credit score ? helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments on time.

Q. How do credit scores affect my ability to get credit?
A: Generally, consumers with good credit risks have higher credit scores. You can get your credit score from the three nationwide consumer reporting companies, but you will have to pay a fee for it. Many other companies also offer credit scores for sale alone or as part of a package of products. For more information, see Credit Scoring at ftc.gov/credit.

Q. Is there really that much of a difference if you have a good credit score instead of a bad credit score?
A: Below is an examplec

You want to buy a used car for $12,000
You put payment of $2,000 down
So you want to take out a loan of $10,000
The loan you are looking at is a 48-month loan

Below is the difference between having an excellent credit score and a not so good credit score:

Score:	720-850	500-589
APR:	4.97%	15.83%
Monthly Payment:	$230	$283
Total Interest Paid:	$1,047	$3,562
Savings:	$2,515

5 Tips for Building Wealth and Managing Debt
1. Pay yourself first by making saving a priority over optional spending.
2. Track all your expenses for a full month, and be sure to separate your needs from your wants. Your budget should factor in savings. Stick to that budget!
3. Set specific but achievable long-term savings goals for major purchases like a car, education, home, and retirement and healthcare expenses.
4. Benefit from the power of compound interest by saving as much as you can as early as you can. Don't miss out on employer-based retirement programs that often include an employer match. Not taking advantage of this is like leaving money on the table.
5. Benefit from tax advantages that allow you to build savings tax-free for specific purposes like retirement, education and healthcare.

5 Tips on Managing Credit
1. Build savings to avoid higher-cost debt, improve payment options and provide a cushion for emergencies.
2. Pay bills on time to help maintain a good credit score, since your credit score can impact your ability to obtain credit, employment, insurance and housing.
3. Whenever possible, pay more than the minimum payment to avoid finance charges.
4. Comparison shop for new credit, but obtain only the credit you need; and negotiate with existing creditors for best terms.
5. Obtain your free credit report at least once a year to help manage lines of credit effectively and to monitor for instances of identity theft. (www.annualcreditreport.com)

Tips to Improve your Score

Have you paid your bills on time? You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively.

Are you maxed out? Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it's likely to have a negative effect on your score.

How long have you had credit? Generally, scoring systems consider the length of your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.

Have you applied for new credit lately? Many scoring systems consider whether you have applied for credit recently by looking at "inquiries" on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isn't counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not considered liabilities.

How many credit accounts do you have and what kinds of accounts are they? Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.

Credit Counseling
If you're not disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling organization. Many credit-counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that just because an organization says it is "nonprofit," there's no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or pressure consumers to make large "voluntary" contributions that can cause more debt. Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals. Reputable credit counseling organizations can advise you on managing your money and debts help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Contacting Creditors

Contact your creditors immediately if you are having trouble making ends meet. Explain why you are having difficulties.
Try to work out a modified payment plan that reduces your payments to a more manageable level.
Don't wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Bankruptcy
Personal bankruptcy generally is considered the debt management option of last resort because the results are long lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. People who follow the bankruptcy rules receive a discharge ? a court order that says they don't have to repay certain debts. The consequences of bankruptcy are significant and require careful consideration. Other factors to think about: Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows you, if you have a steady income, to keep property, such as a mortgaged house or car that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7, known as straight bankruptcy, involves the sale of all assets that are not exempt. Exempt property may include cars, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official ? a trustee ? or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait eight years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings. Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary by state. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it. Another major change to the bankruptcy laws involves certain hurdles that you must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.

You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a gmeans test.h This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program at www.usdoj.gov/ust.

For more information, see Before You File for Personal Bankruptcy: Information About Credit Counseling and Debtor Education, Knee Deep in Debt, and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit.

Debt Collectors

Debt collectors cannot contact you at work if the collector knows that your employer doesn't approve of the calls.
Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Fine Print

Know if you have good credit.
Comparison shop for credit terms that are best for you.
Make sure you understand the terms of the credit before you accept the plan.

Plain Language terms

Annual percentage rate (APR)?The APR is a measure of the cost of credit, expressed as a yearly interest rate. Usually the lower the APR, the better for you. Be sure to check the fine print to see if your offer has a time limit. Your APR could be much higher after the initial limited offer.

Grace period?This is the time between the date of the credit card purchase and the date the company starts charging you interest.

Annual fees?Many credit card issuers charge an annual fee for giving you credit, typically $15 to $55.

Transaction fees and other charges?Most creditors charge a fee if you don't make a payment on time. Other common credit card fees include those for cash advances and going beyond the credit limit. Some credit cards charge a flat fee every month, whether you use your card or not.

Customer service?Customer service is something most people don't consider, or appreciate, until there's a problem. Look for a 24-hour toll-free telephone number.

Other options?Creditors may offer other options for a price, including discounts, rebates and special merchandise offers. If your card is lost or stolen, federal law protects you from owing more than $50 per card?but only if you report that it was lost or stolen within two days of discovering the loss or theft. Paying for additional protection may not be a good value.

Additional costs--Some gold or platinum card promoters charge $50 or more for their cards. Only after you agree to pay this fee are you told there's an additional fee, sometimes $30 or more, to get the merchandise catalogues. Yet, these catalogues are the only places you can use the cards.

'900' or '976' telephone exchanges-- Ads for 'gold' and 'platinum' cards may urge you to call numbers with '900' or '976' exchanges for more information. You pay for phone calls with these prefixes -- even if you never get the 'gold' or 'platinum' card. The cost for these calls can be high.

Misrepresented prices and payments for merchandise-- You're not allowed to charge the total amount when you buy merchandise from 'gold' or 'platinum' card catalogues. Instead, you often must pay a cash deposit on each item you charge -- an amount usually equal to what the company paid for the product. Only after you pay your deposit can you charge the balance. Also, catalogue prices can be much higher than discount store prices.

Promises to easily get you "better credit"-- Marketers of 'gold' and 'platinum' cards often claim its easy to get major credit cards after using their cards for a few months. In fact, the only major cards you usually can get through these marketers are secured. A secured card requires you to open and maintain a savings account as security for your line of credit. The required deposit may range from a few hundred to several thousand dollars. Your credit line is a percentage of the deposit, typically 50 to 100 percent.

850
The perfect credit score. Getting yourself in here will unlock many doors for you. Heck, getting yourself a credit score anywhere near 800 will set you apart as an outstanding, credit worthy individual. The point is to aim high.

Good credit means people (and even big institutions) will trust you. And that's empowering.

It means when you find that sweet apartment and the landlord runs a credit check, you've got nothing to fear. It means when you want to buy a car, the dealer flies through the paperwork. It means when you want to take out a loan to start your business, you'll get a better rate. It means when you're on a date, the waiter won't ever come back and say "Sorry sir, the card was denied. And I have to cut it up."

Whether applying for a job, taking out a loan, or making a big purchase, a high credit score gives you options. And the possibilities are endless.
Take a deep breath and enjoy the amenities.
And if you should ever leave the elite accommodations of the upper digits, do try to come back.

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Copyright © 2008 by Mark McCracken, All Rights Reserved