Money Instructor | Articles and Informational Resources: Money, Personal Finance, Business, Careers, Lifestyle

Articles - Information - Resources - Advice - Tips

The Credit Report

A credit report is a record of your debt paying history. This includes your history paying credit cards, mortgage loans, student loans, car loans, department store credit cards, etc.

The credit reports are compiled by companies called credit bureaus. The credit bureaus write your report based on information they get from companies that gave you credit in the past. The credit bureaus then sell your credit history to those who are interested in giving you credit, or interested in understanding your credit past.

What is in the Report?
The credit report includes such information as how much money you have borrowed, from whom you borrowed that money, how timely your payments were (did you make them on time or did you miss payments), how much credit you have available, if you ever filed for bankruptcy (which stays on your report for 10 years), and if there is a lien, or a claim against any of your property by a creditor.

Credit Rating
Based on the information contained in the report, you will be given a credit rating, which gives a score of your likely ability to pay future debt. This is sometimes known as the FICO score, which ranges from 300, being the worst, to 900, being the best. If your score is below 620, it will be difficult to borrow additional money or you will likely pay higher interest rates. Scores above 700 are considered very good.

The credit report is sold to credit card companies, banks, mortgage companies, or other financial institutions when you apply for a loan. They are also used in other cases when knowledge of your credit history is desirable, for example by landlords looking to rent you an apartment, or prospective employers. For obtaining future loans, if you have a good credit score, you will get better (lower) interest rates, resulting in lower debt payments.

Mistakes in the Report
It is important to maintain a good credit record. In addition, sometimes your credit report may have a mistake. Do not assume that if you see something you don’t remember that the information is correct. There are lots of chances for your credit report to have incorrect information.

If there is such a mistake, then you should fix the problem immediately, by calling and/or writing to each of the major credit bureaus. Keep a record of all your conversations until the mistake, and dispute, are resolved. Credit bureaus must respond within 30 days of a request to fix a credit error.

Improving your Credit Score
To improve your credit score, you need to show a good credit history. It is important to pay your bills on time, and keep your credit card balances low. Avoiding all credit would be unwise, because then you will not be able to show that you can manage your debt wisely, so having a small, manageable amount of debt, and then paying that debt off on time, is a good way to improve your credit score.

Free Credit Report
You may request a free credit report from any of the major credit bureaus. The Fair and Accurate Credit Transactions Act (FACT Act) is giving each consumer the ability to get one free credit report per year from the credit bureaus.

You may request your report online, by phone, or mail, however, eligibility for an free report depends upon your state of residence. Western states, including California, Colorado, Washington, Oregon, etc are already included. Midwest states including Illinois, Michigan, Ohio, etc are included from March 1, 2005. Southern States including Texas, Florida, Georgia are included from June 1, 2005. Eastern states including New York, New Jersey, Connecticut, etc are included from September 1, 2005. A centralized service has been created for consumers to request their annual report. See www.annualcreditreport.com for more information.

Since having a good credit report is so important, it makes sense to check your report often to be sure that it is correct. This is especially true before looking to get credit, for example before getting a car loan, or a mortgage on a house. Since you only get one free report per year from each of the credit bureaus, if you check one report from a single bureau every four months, then that will help you maintain a correct report.

Credit Bureaus
Here is a list of the three major credit bureaus:

Experian -www.experian.com
Equifax Information Services -www.equifax.com
TransUnion -www.transunion.com

For teaching about credit please see:
Credit Card Lessons
Learn credit card basics and credit card statements. Topics include credit cards, credit, and paying interest.

Posted in Debt & Credit | Tagged advice, credit card, credit report, debt | Leave a comment

Finding the Best Credit Card Offer

Credit card debt is at an all-time high, and more people than ever are burdened with more debt than they can possibly repay in a reasonable amount of time. While part of this is due to simple overspending, part of it is due to the fact that credit card debt carries some of the highest interest rates of all types of debt. Making the credit card company’s minimum payment every month more often than not simply keeps you in debt for decades, and does little towards paying back the principal amount you borrowed.

Despite the presence of teaser rates and other come-ons, credit cards remain expensive. Besides high interest (often increased substantially after the initial “come-on” rate has expired), there are also very often significant fees attached to your card as well.

Getting that “low introductory rate” isn’t always a good deal, so do the math. Often, the introductory rate is good only for any amount you transfer from other cards. A higher rate is charged for new purchases. Also, those attractive introductory rates can become voided if you make a single late payment. Besides determining both the introductory rate and the standard rate, determine how the card issuer calculates interest. Ideally, any new purchase does not start to accrue interest until after the payment date. More commonly though, a card will calculate an average daily balance, and add any purchases made during the month–meaning that you begin paying interest immediately on new purchases.

Another thing to realize is that when a credit card issuer offers you a “fixed rate,” there’s very little that is actually “fixed” about it. The rates can (and often do) change if the issuer gives you 15 days notice. Issuers will also charge varying late fees and annual fees. Those annual fees can be substantial, and are often hidden in the fine print–and can easily wipe out any savings you get from a lower interest rate. Issuers can also add on a wide range of other fees, including fees for taking cash advances or using ATMs, and even an enrollment fee just for signing up.

In addition to all of these considerations, watch out for special premium offerings and “rebates.” Spending rebates in reality very seldom amount to anything worthwhile, and the tiny bonus you may receive can quickly be outweighed by fees and higher interest. Also be aware that the rate you are offered may vary from the rate advertised, depending on your credit rating.

Posted in Debt & Credit | Tagged advice, credit card, tips | Leave a comment

Using Credit Cards — Advantages and Disadvantages

Credit cards are a great concept but they end up bringing financial ruin to many people because they do not use them properly. Too many people get a credit card and then find that it is maxed out within twelve months. Then for the rest of its existence they end up paying off interest and barely making a dent in the principal. This is not a good way to manage your money.

Advantages
Let’s go over some of the benefits credit cards offer before we get into their detriments. A credit card can be a great convenience and provides the safety of not dealing with cash, which is more easily lost. Credit cards are also very useful in the sense that they offer protection under the Consumer Credit Act and you can often get your money back in a fraudulent purchase that you would be unable to do with any other payment method. Credit cards also offer “incentive” benefits such as air miles or credit toward future purchases. Credit cards also give back a percentage of your purchases to approved charities in some cases which is a really nice way to give back at the same time you are spending the money you normally would spend. Therefore there are most certainly benefits for using a credit card.

Disadvantages
Given all of the above, credit cards still cause problems for most people more often than they provide benefits. Most of these problems come in the form of excess consumer debt, which arises when one carries a balance on the credit card while paying the absolute minimum each month. These problems occur when one begins looking at the credit line of your credit card as simply bonus money that you now have to spend. Instead you need to allocate existing funds for every purchase you make on a credit card. This way you know that you will be paying off that principal balance at the first of next month rather than carrying for your foreseeable future.

Another problem that happens with credit cards is that people simply get too many of them. With the credit environment as it is today most people are barraged with new credit card offers practically every day of the week. Unfortunately some people accept each one of those offers and end up with more credit cards than they know what to do with. With increased numbers comes increased temptation. When you have a multitude of credit cards it becomes much easier to talk yourself into carrying a balance on each one of them. This is not a good idea, as discussed earlier.

You also need to be wary of signing up for credit cards. While, most are legal, some companies are really towing the line between ‘legal’ and ‘not legal’. Watch out for companies who charge a “membership fee” or have a substantial charge for late fees.

So what is the correct way of approaching and dealing with credit cards?

Rule #1 – Never use credit cards as extra money.
Always allocate money from your current funds or monthly income in order to pay whatever you finance off immediately.

Rule #2 – Read the fine print.
Too many people simply accept the offers sent to them in the mail without reading the details of the interest rate and credit terms. While it may seem insignificant on first look, over time it can create a negative financial situation for you very easily. Read the print and make sure you get the best terms available.

Posted in Debt & Credit | Tagged advice, credit card, debt management | Leave a comment

“Goodbye” to your Credit Card Debt

If you are one of millions of people who have managed to maximize the limit on their credit card and are now living the nightmare of wondering how you can eliminate your credit card debt, worry no more. By simply following our 5-point credit card debt elimination plan, you’ll be able to take back control over your financial well-being and eliminate that nasty credit card debt:

Step 1
List all of your current credit cards, the amount outstanding on each of them, the interest rate accruing to each of them, the annual fees (if any) payable on them, and the minimum repayment you have to make on each of them.

Step 2
List, but this time in table format, the same details in a list that has the credit card with the highest rate of interest at the top, and the credit card with the lowest rate of interest at the bottom. Then put the minimum payment you need to make against each of these in a third column. So, when looking at the table you should have the name of the credit card in column one, the interest rate charged on each card in column two, and the minimum repayment amount in column three.

Step 3
Add up all the amounts you have in the minimum payment column (column three) of the table you made in Step 2.

Step 4
Calculate how much money you earn each month. Deduct the sum of: (i) your rent/mortgage payment; (ii) your average home bills (e.g. electricity, water and phone); (iii) your food and transport costs. Once you have done this, you should have a net sum remaining. Work out how much of this you can reasonably afford to use to repay the credit card debt in your table. Where possible, try to allocate as much money as possible BUT NOT at the cost of you having to use one of the credit cards during the month to see yourself over to the next pay-day.

Step 5
Make the minimum payments to each of your credit cards listed in the table. With the extra money you have from your cost of living calculation, arrange to pay the credit card at the top of your list.

Once you have completed the steps in 1 to 5 enough times to make sure you have repaid the debt on the credit card that is at the top of your list, wipe this one off and move the credit card that was second on your list to the top of your list. Continue to repeat this step program until such time as there are no longer any credit card debts listed in your table.

Success
You’ve now successfully managed to eliminate your credit card debt. Note, however, that the above credit card debt elimination plan only works if you do not rely on using your credit cards again. On the other hand, if you continue to use your credit cards, the credit card debt elimination plan above still works, but the process will take much longer to come to a successful conclusion.

And finally, “good luck” with saying goodbye to your nasty credit card debt!

Posted in Debt & Credit | Tagged advice, credit, credit card, debt elimination, tips | Leave a comment

Federal Protections for Credit Card Users

In the current climate of fast and easily available credit, it pays to know your protections as a credit card holder under federal law. Here is a six point summary of your protections under federal law:

Getting a Card
Under federal law, a credit card issuer can provide a renewal card or substitute card to a current cardholder, but cannot issue a new card unless requested to do so. Don’t make payments on any card for which you did not apply.

Payments
Payments must be credited on the day that the issuer receives your check. However there are two exceptions: First, a creditor can delay posting your payment if no additional charges are incurred. Second, you must follow the requirements regarding payment set forth by your creditor. For example, if you don’t send your payment to the correct address or if you don’t use the provided billing envelope then you could be left with extra charges or late fees because your payment was not received in a timely or correct manner for processing.

Credit Balances
If you have a credit balance of $1.00 or more then the credit card company is required to provide either a refund or to maintain your credit balance. By law, your credit company must send a refund within seven business days of your request.

Billing Errors
All issuers must provide a statement concerning their rules for correction of billing errors. During the time that a billing error is under investigation, consumers are not required to pay the amount in question.

Unauthorized Use
You can be held liable for charges up to $50 if an unauthorized individual uses your credit card. Look on your card or billing statement for a toll-free number to report suspected theft, lost cards or unauthorized use.

Resolving Disputes
If you dispute the charges on your statement or have a problem with merchandise purchased on your card, you can withhold payment if you have made a good faith effort to resolve the problem. Rules vary if the card was a bank or travel or entertainment card so be cautious and do some research before withholding payment on any charges. In addition to varying amounts depending on the type of card, rulings pertaining to dispute resolution vary state to state. Check with the small claims court process in your state.

Get smart about credit use or you’ll find that your “easy” and “free” credit may prove to be more expensive than your budget can afford.

Posted in Debt & Credit | Tagged consumer, credit card | Leave a comment