Personal. Give Yourself Some Credit

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Bryce Newman
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1 Personal Give Yourself Some Credit MyGenFCU.org 1

2 It s Never Too Late The bills are piling up and you don t know what to do. Maybe an unexpected medical expense put you behind, or maybe your hours at work were reduced. Whatever the reason, you re behind on your payments and your credit score is taking a beating. It s not too late to turn it all around. There are things you can do to reverse course and begin to rebuild your credit: 1. Contact your creditors to discuss options for repaying loans. If you are having trouble making payments, it s better to establish a payment arrangement than to avoid payments altogether. Once an account has gone to a collection service, a creditor may no longer be able to work with you. Your credit card debt shouldn t be more than 30% of your credit limit. 2. Get it in writing. When arranging a repayment schedule, before any payment is made, request a written agreement that your account will be reported as current or paid off, not late. 3. Know how much you owe on your credit cards. If you have multiple cards close to their balance limit, pay them down before charging more. Your outstanding balance shouldn t be more than 30 percent of your credit limit. 4. Consider a debt consolidation loan. If you are paying high interest rates on your current credit cards, you can save money by consolidating that debt into regular, easy-to-manage payments. Credit Counseling There is no shame in admitting you can t do it all by yourself. For assistance, consider contacting a credit counseling service. These non-profit agencies will set up a realistic budget and repayment plan. Offered at little or no cost to consumers, these programs are typically operated by universities, military bases, credit unions and housing authorities. 2

3 Look up your local consumer protection office online to request a list of reputable, low-cost financial counseling services. Here are some important questions to ask when selecting a credit counseling agency: Services and Fees 1. What services do you offer? Beyond solving my immediate problem, will you help me develop a plan for avoiding problems in the future? 2. Do you have free educational materials you can send me or can they be accessed on the Internet? 3. Do I have to pay any fees before you can help me? Are these fees monthly? What s the basis for the fees? Are any fees voluntary or can they be lowered for consumers Some agencies claim their fees are voluntary, but will put a lot of pressure you to pay the full fee. work with several people? in serious financial hardship? Will I receive a detailed quote of fees in writing? 4. How is your agency funded? 5. Will I have a formal written agreement or contract with you? 6. How soon can you take my case? 7. Is your agency audited? Who regulates, oversees and/or licenses your agency? 8. Will I have a dedicated counselor or will I 9. What are your counselors qualifications? Are they accredited or certified? If not, how are they trained? Are employees paid more if they sign me up for a debt management plan? (Consider going elsewhere if they say yes.) 10. Will you deal with all of my unsecured creditors and not just those that pay the agency a fee? 11. What assurance do I have that my personal information (including my address and phone number) will be kept confidential? Repayment Plan 1. Is a debt repayment plan my only option? 2. How much do I have to owe to use your services? 3. How do you determine the amount of my payment? What happens if this is more than I can afford, or I can t maintain the agreed-upon plan? 4. How will I know my creditors have received payments? Is my money put into an account separate from your operating funds? 5. How often can I get status reports on my accounts? Can I access them online or by phone? 6. How long will it take to pay off my bills? Can you get my creditors to lower or eliminate interest and finance charges or late fees? 3

4 Did You Know? According to the Fair Credit Reporting Act: You are entitled to a free copy of your credit report if you ve been denied credit within the last 30 days. If your application for credit, insurance or employment is denied because of information supplied by a credit bureau, the company you applied to must provide you with that credit bureau s name and address. You can request a free copy from AnnualCreditReport.com, which is the only website officially sponsored by the three nationwide consumer credit reporting companies. You can dispute mistakes or outdated items for free. Ask the credit reporting company for a dispute form or submit your dispute in writing, along with any supporting documentation. When requesting a reinvestigation, identify each item that you dispute with an explanation. If the new investigation reveals an error, request a corrected version of the report be sent to anyone who received the report within the past six months. Job applicants can send corrected reports to anyone who received a report for employment purposes for the past two years. If the reinvestigation finds no error, have the credit bureau include your version of the dispute in your file and in future reports. 7. Are any debts excluded from the debt repayment plan? If so, how will you help me plan for their payment? Will I receive the plan in writing? Don t agree to a debt management plan until the agency has contacted each of your creditors and they have agreed to the plan you were offered. These red flags should alert you to reject their services: High Fees: If the set-up fee for a debt management plan is more than $50 and monthly fees are more than $25, or if the agency is vague or reluctant to talk about specific fees. Voluntary fees that aren t voluntary: Some agencies claim their fees are voluntary, but will put a lot of pressure on you to pay the full fee. Credit Repair Scams You see the advertisements for them everywhere: on a roadside sign, in the newspapers, on the TV and the Internet. No matter the place, a credit repair scam message follows a common pattern of grandiose promises, such as: Your Credit Restored Legally! Improve Your Credit Score Points! Bad Credit? Erase Loans in Two Days, Guaranteed! Many people with poor credit histories often fall victim to these claims, paying thousands of dollars in upfront fees, only to find out the credit repair company has done nothing but vanish with their money. 4

5 If you decide to respond to a credit repair offer, beware of companies that: Want payment upfront before any services are provided Do not inform you of your legal rights and what you can do for free Recommend that you not contact a credit bureau directly Advise you to dispute all information in your credit report, even if it is accurate, or take any actions that seem illegal, such as creating a new credit identity Remember, everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. No one can legally remove accurate and timely negative information from a credit report, but the law does allow you to request a reinvestigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. File Segregation If you ve filed for bankruptcy, you may be at an increased risk of being exposed to a credit repair scam called file segregation, that promises to hide your bankruptcy and establish a new credit identity. Here s how the file segregation scam works: After filing for bankruptcy, you receive a letter from a credit repair company that warns you about your inability to get credit cards, personal loans or any other types of credit for ten years. The truth is each creditor has its own criteria for granting credit. One may reject your credit application because of a bankruptcy, while another may approve you. Also, financial institutions such as credit unions or banks, often offer secured lines of credit (such as a secured credit card) as a way to begin rebuilding your credit. As you establish a reliable payment record, your chances of obtaining more credit increase. For a fee, the credit repair company promises to hide your bankruptcy and establish a new credit identity you can use when applying for credit. If you sign up for the service, you may be directed to apply for an Employer Identification Number (EIN). Typically, EINs which resemble social security numbers are used by businesses to report financial information to the Internal Revenue Service and the Social Security Administration. When applying for credit, you will be instructed to use your EIN in place of your social security number. You will also be advised to use a new mailing address and to include some credit references. The credit repair company may even claim their file segregation program is affiliated with the federal government. 5

6 The federal government does not support or work with companies offering file segregation programs. It is a federal crime to make any false statements on a loan or credit application, misrepresent your social security number or obtain an EIN under false pretenses. In addition, you could be charged with mail or wire fraud if you use the mail or the telephone to apply for credit and provide false information. Also, file segregation constitutes civil fraud under many state laws. Restitution Remember, be proactive and ask the right questions to ensure your credit score gets back on track and protect yourself from the dangers of credit repair scams. If you ve already fallen prey to a scam, don t stay a victim. Contact the correct authorities to seek restitution. Contact your state attorney general or consumer protection office, which can be found at You also can file a complaint with the Federal Trade Commission. Write to: Correspondence Branch, Federal Trade Commission, Washington, D.C P.O. BOX SAN ANTONIO, TX

Credit Repair: Self-Help May Be Best

FTC Facts For Consumers Federal Trade Commission For The Consumer December 2005 www.ftc.gov 1-877-ftc-help Credit Repair: Self-Help May Be Best You see the advertisements in newspapers, on TV, and on the