Five Common Credit Myths … Debunked!

February 2nd, 2012

Five Common Credit Myths

Here are five common credit myths … debunked at last!

Credit Myth #1: Requesting your own credit report will hurt your credit score.

The Reality: You can pull your own credit report every week without having your FICO score suffer. However, if a multitude of potential lenders frequently request your credit report, your score will suffer.

The credit bureaus distinguish between a “soft” inquiry—one that you initiate for the purposes of monitoring your credit—and a “hard” inquiry—one initiated by a lender for the purposes of determining whether to grant you a loan or credit card.

The former is considered responsible and will never hurt your score. But too many “hard” inquiries indicate that you might be:

1. In financial jeopardy and looking for a way to pay your bills.

2. Preparing for a spending spree.

Either way, your score will suffer.

Credit Myth #2: If you pay for everything in case and don’t use credit cards, your credit score will be flawless.

The Reality: One of the biggest myths is that the less credit a person has, the better his or her score will be. But it’s not true.

Having no credit can be just as bad as poor credit. If the credit scoring models don’t have information to judge a person’s behavior, they will take the safe route and assign a low FICO score to that person.

Some people want to wipe their hands clean of credit cards. They decide not to have credit cards, to pay for everything with cash. But that’s not really a good move.

For example, what happens if you have an emergency and need a loan? If you have no credit history, your FICO score will be low or possibly even non-nonexistent.

In that case, you’ll have a hard time qualifying for a loan at a low interest rate. Eventually, most people want to buy homes.

Guess what? A person without credit will only qualify for a loan at the highest interest rates – and pay thousands of extra dollars in interest over the lifetime of the mortgage!

So use credit, and use it responsibly by learning how to build your credit score.

Credit Myth #3: If you pay all of your bills on time and in full each month, you must have a perfect credit score.

The Reality: Unfortunately, the credit-scoring process doesn’t work that way. While paying your bills on time is a very important factor, only 35 percent of your credit score is based on whether you pay your bills on time.

Other key factors and their weight in influencing your credit score include:

The amount of money you owe (30 percent).
The length of time you have had credit (15 percent).
The type of credit you have (10 percent).
The number and frequency of credit inquiries (10 percent).

Even being rich can’t guarantee you a good credit score. I’ve seen people with millions of dollars in the bank have credit scores below 720.

Credit Myth #4: There’s no difference in credit scores reported by the major credit bureaus.

The Reality: There are three different agencies (Experian, TransUnion, and Equifax) providing as many as four different types of credit scores – and they are not all the same!

Depending on who is requesting your score, each bureau will apply different formulas to calculate the score. Plus, each bureaus has different information on file – some credit card companies might only report to one or two bureaus.

All this means that your score can be different on the exact same day!

Credit Myth #5: A smart move for gaining control of your finances is to take most of your credit cards out of your wallet, cut them up with scissors, and throw them away!

The Reality: If you have too many credit card accounts, credit bureaus might think you have overextended yourself.

But getting rid of those extra credit cards could also be hazardous to your financial health. Reason: closing all those accounts might hurt you credit score.

How? By lowering your overall utilization rate and shortening the average age of your active accounts.

Instead of cutting up your credit cards, pay down the balances so they are below 30 percent of the credit limit on each.

But keep the accounts open and active. Doing so protects you from suffering lowered limits, a byproduct of inactive accounts.

Tags: credit scoring myths

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FTC and DOJ Announce Asset Acceptance Settlement Which They Want to Be Framework for Debt Collection Industry

January 31st, 2012

David Vladeck director of the FTC’s Bureau of Consumer Protection and DOJ Assistant Attorney Tony West today conducted a conference call I attended to provide additional information regarding an announced settlement with collection company Asset Acceptance. In the settlement Asset Acceptance agreed to pay the second largest fine ever against a collection company for alleged violations.

Asset Acceptance is one of the larger debt buyers. They purchase and collect old debt that had been previously placed with other entities but problems with accuracy and data create a situation where the data is less reliable, yet it was being used. As a debt is passed from one entity to another the quality of records deteriorates when people with similar names and address are involved. Erroneously people may be contacted about debts that never belonged to them at all. And that’s a problem.

In some states the applicable statute of limitations will prevent suits on this old debt but in others a partial payment or an agreement to repay will restart the clock on the ability for a debt collector or debt owner to sue. Debt buyers and debt collectors sometimes are not clear about this and can trick the consumer into reviving an old debt by agreeing the debt is theirs or making a partial payment.

The FTC and DOJ alleged Asset Acceptance had little or no evidence to support validation of some debts they were attempting to collect on and that Asset Acceptance did not take reasonable steps to validate. They stated Asset Acceptance continued collection efforts anyway. And reported to credit reporting agencies.

The action against Asset Acceptance creates a framework of what is acceptable.

Time Barred Debt / Statute of Limitation Debt: If a collector calls demanding payment Asset has agreed to disclose to consumers that it is time barred and cannot be collected via a lawsuit.
Partial Payments Reviving Debts: Many debt buyers accept partial payments to reset clock without informing consumers this will happen. Asset has waived it’s right to partial payment revival of stale debt.
Collection agencies park debt on credit reports to force consumers to pay off the debt to get rid of it even if it is not accurate. The thought was that a consumer applying for a loan or new credit and who discovered an old collection debt might just pay it off. Asset Acceptance has agreed to give consumers notice when it reports to credit reporting agencies.
Reliability of Information. If a collector or knows or should know the information is not accurate and the consumer has provided reliable information proving the information is not accurate, the collector must take reasonable steps to confirm the accuracy of the information before collection efforts. What those reasonable steps are was not made clear.

Department of Justice Assistant Attorney General Tony West said, “Going forward we have a framework for the entire debt collection industry to follow.” This should be a message to debt collection industry that they will be held accountable, “if they don’t act fairly and responsibly.”

The FTC complaint against Asset Acceptance alleged Asset was:

misrepresenting that consumers owed a debt when it could not substantiate its representations;
failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable;
providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate;
failing to notify consumers in writing that it provided negative information to a credit reporting agency;
failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency;
repeatedly calling third parties who do not owe a debt;
informing third parties about a debt;
sing illegal debt-collection practices, including misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt; and
failing to provide verification of the debt and continuing to attempt to collect a debt when it is disputed by the consumer.

@GetOutOfDebtGuy

Author: This article was contributed by GetOutOfDebt.org, a site that provides free debt consolidation help and debt relief advice for people looking for answers.
Source: FTC and DOJ Announce Asset Acceptance Settlement Which They Want to Be Framework for Debt Collection Industry

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Tough Week?

January 29th, 2012

I had something interesting happen to me this week …

I was listening to my sister talking about how anxious she feels. I was nodding, sympathetic, and at one point, I said, “Yes, I know that feeling.”

She looked surprised and said, “You feel anxious sometimes?” She assumed that I don’t feel anxious simply because I’m in a different place financially.

We started talking, and she asked me a series of questions:

“Do you feel stressed sometimes?”

“Of course,” I told her.

“Do you feel pressure?”

“Of course,” I said again.

Our conversation went on for a while. The point I wanted to make is simple …

Negative feelings and anxiety are normal. The secret lies in how you react to these situations. Here is the formula I use …

3 Questions to Ask When Having Negative Feelings

1) Why do I feel this way?

Instead of reacting immediately, identify why you are having negative emotions.

2) Do these feelings make logical sense?

I’ve found that oftentimes, my emotions are saying one thing, but my intellectual mind is saying another thing. When I think about the situation, I’m able to pinpoint the “hot buttons” that were triggered, but they don’t make logical sense. Many times, simply making this identification helps me move past these feelings. If not, I ask question #3.

3) Can I “be” with these feelings for the next few hours?

The answer, of course, is yes. I can live with negative feelings for a few hours, even a few days. By not trying to suppress the feelings, I can get over them much faster. And by allowing myself to “be” with them for a while, I resist the temptation to take immediate action, which might be inappropriate and reactionary.

What do you think? Comment below to tell me how you deal with negative emotions.

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Build Your Credit with Do-It-Yourself Credit Tricks

January 26th, 2012

Okay. You want to build your credit score, but you don’t want to pay a bundle.

Here are a few tricks that will help turn a bad score into a good credit score.

An obvious place to start is with your credit cards.

Here’s a little trick that can really boost your FICO score. (By the way, even though it’s perfectly legal, not one consumer in a thousand knows this technique.)

Most credit cards have a limit: a maximum credit line.

You are allowed to borrow against that credit line up to the maximum amount.

But, you should NOT!

Why not?

Lenders don’t like to make loans to consumers who are constantly “maxing out” their credit cards, because they consider them spendthrifts.

In fact, if the balance on any one of your credit cards is more than 30 percent of the credit line, your FICO score will be penalized.

So how do you reverse that trend … and raise your FICO score?

Here are two easy methods that work and won’t cost you a dime:

Transfer balances from one credit card to another, so that none of the balances exceed 30 percent of the credit limit. If necessary, obtain another credit card and transfer some of your balances to it. (But keep in mind that you should never have more than five credit cards, and that you should transfer your balance after you have secured the credit card and know the limit.)

Ask the credit card companies to increase your credit limit so that your current balance falls under 30 percent. If you can get the credit card company to raise your limit from $10,000 to $25,000, then you can safely borrow up to $7,499 – and not just $3,000 – on it without jeopardizing your credit.

Now here’s another trick …

You probably don’t know this, but credit card companies routinely under-report the limits on their customers’ credit cards – or, even worse, don’t report them at all. Let’s say your true limit is $10,000. The credit card company might report your limit as only $5,000 to the credit bureaus .

So if you have a $4900 balance, you appear to be “maxing out” the credit card, which will hurt your score.

Why do credit card companies do this? Because it keeps their competitors from offering you other cards.

When competing credit card companies see high limits from another card issuer, they have found credit-worthy borrowers whom they can solicit through the mail.

On the other hand, customers with low limits are not as desirable.

So many credit card companies report incorrect limits just to protect their customer base. But this could be hurting your credit score by causing the bureaus to think you are closer to maxing out your cards.

So what should you do? Simple: Just check your credit report to make sure the bureaus have the correct information. If not, call your credit card company and tell them they must correct the mistake – knowingly reporting incorrect limits is illegal. If you raise heck, the credit card companies will report the correct information.

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Military Student Loan Forgiveness and Discharge Programs

January 25th, 2012

More and more at GetOutOfDebt.org we are getting questions about how to get your student loans eliminated, forgiven, or discharged if you are in or served in the military.

It is absurdly ironic that members of the military can go into harms way, fight in combat and yet return back home only to struggle trying to escape the invisible bondage of penetrating student loan debt.

We almost need a secondary definition for PTSD. How About Prepare to Suffer Debt?

There are some real options that can help you do this but like the military there are rules to follow and hoops to jump through.

Public Service Loan Forgiveness Program

One overlooked program is the Public Service Loan Forgiveness Program. Under this program members of the military that have been employed by the military or a qualifying public service job for the last ten years may have their federal student loans FULLY discharged.

Public service qualifying occupations include:

Emergency management,
Military service,
Public safety,
Law enforcement,
Public interest law services,
Early childhood education (including licensed or regulated childcare, Head Start, and state-funded pre-kindergarten),
Public service for individuals with disabilities and the elderly,
Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations),
Public education,
Public library services, and
School library or other school-based services.

You need to be employed in these position at least full-time which is considered to be at least 30 hours a week or what the employer considers to be full-time.

The benefit of this program is it allows you to discharge your debt after it has been consolidated for a low payment. You can use the online student loan consolidation calculator here.

The way the program works is that after making 120 monthly and on-time consolidated and reduced payments you remaining balance will be forgiven. – Source

Not all student loans are eligible for consolidation. Private student loans are excluded. Loans that are eligible to be consolidated can be found here.

Direct Loan payments that qualify include:

The Income Based Repayment (IBR) Plan;
The Income Contingent Repayment (ICR) Plan;
The Standard Repayment Plan, with a 10 year repayment period; and
Any other Direct Loan repayment plan, but only payments that are at least equal to the
monthly payment amount that would have been paid under the Standard Repayment Plan with a 10-year repayment period may be counted toward the required 120 monthly payments. (February 3, 2010)

And you may actually be able to have zero dollar loan payments count towards your required 120 payments. If you qualify for a zero monthly payment under the Income Based Repayment or Income Contingent Repayment programs then those payments, or lack thereof, will actually count. Pretty cool, huh?

For more information on this program read this publication by the U.S. Department of Education.

National Defense Student Loan Discharge

If you helped to pay for college with a National Defense Student Loan it may be partially discharged.

Recipients of a National Direct Student Loan and Perkins Loan may receive partial cancellation of their loan for their service in the United States Armed Forces if his/her military service was for a full year in a hostile fire/imminent danger pay area.

If you believe that you may qualify for cancellation of your loan(s) due to your military service as described above, you should send a copy of your DD214 (discharge form) and letter of explanation to the agency servicing your loan.

Have More Tips and Information?

We want to continue to help and assist members of the military with information on dealing with student loans so please post any tips and information you can to help in the comments section, here.

@GetOutOfDebtGuy

Author: This article was contributed by GetOutOfDebt.org, a site that provides free debt consolidation help and debt relief advice for people looking for answers.
Source: Military Student Loan Forgiveness and Discharge Programs

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