Tips to Help Improve Your Finances, Keep You From Falling Prey to Scams
Following a divorce, it’s common for people to see a drop in their credit score as a result of making simple mistakes when separating financial and credit accounts from their previous spouse. Outstanding bills sometimes get lost and go unpaid; accounts wind up going to collection agencies; and misunderstandings about financial settlements and who’s responsible for what, lead to problems with creditors and lenders.
While you can’t change what might have happened in the past, you can take an aggressive and conscientious role to fix your current credit-related problems, which could take six to 12 months (or longer), depending on the severity of your situation. The thing to understand, however, is that there are seldom quick fixes or instant solutions for boosting your credit score or repairing your credit.
Knowing that newly single people require good credit to obtain a mortgage, get approved for a car loan, or to acquire new credit cards solely in their name, for example, there are many companies out there promoting quick and miraculous fixes to credit problems. Unfortunately, the majority of these easy solutions are costly and typically outright scams.
UNDERSTAND YOUR SITUATION
Your credit score is calculated by each of the three major credit reporting agencies (credit bureaus) based exclusively on information listed within your credit reports. Your credit reports are compiled based on ongoing information provided by your creditors and lenders. It includes details about your account balances, total credit lines and how they’re being utilized, and your payment history.
To begin improving your credit score, start by requesting free copies of your credit reports from each credit bureau — Equifax, Experian, and TransUnion — and review them carefully. The easiest and fastest way to do this is by visiting the www.annualcreditreport.com Web site. Avoid other like-sounding Web sites that charge for credit reports or that insist you subscribe to a monthly credit monitoring service in order to obtain a free copy of your credit report.
Pinpoint any errors and have those errors corrected immediately. Legitimate errors can be corrected or removed within 30 to 60 days by filing a dispute” with each credit bureau. The easiest way to do this is online. Fixing errors should result in a boost to your credit score.
Next, begin paying your monthly bills on time. Late payments for car loans, credit cards, mortgages and student loans, for example, will cause your credit score to drop significantly. It’s also essential that you keep all of your existing overdue bills from being turned over to collection agencies. Work with your creditors and lenders to develop payment plans that you can afford.
Once negative but accurate information is posted to your credit reports, your credit score will take a negative hit, plus it could take up to seven years to get that negative information removed.
AVOID CREDIT REPAIR SERVICES
Daytime and late-night television, along with many newspapers and magazines are cluttered with ads from credit repair services” that for a fee state they can quickly remove negative information on your credit report and boost your credit score. The majority of these services can’t actually accomplish what they promise.
Many of these companies will simply offer you a high-interest consolidation loan so you can pay off outstanding debts. However, the fees and interest rates you’ll pay will be extremely high since you represent a credit risk.
Even if a so-called credit counseling” service is a non-profit organization and has an impressive sounding name, this doesn’t mean it can offer you the best solution to address your current situation. A legitimate credit counseling service will teach you how to better manage your finances and will assist you in negotiating with your creditors in order to regain your financial stability and rebuild your credit. Some credit counseling services are offered for free, while others have a small fee associated with them.
One legitimate way that a credit counseling service can assist you, is by developing and helping you implement a debt management plan” or DMP. This is a formal and personalized program that will allow you systematically pay off your outstanding debts over an extended period of time. This type of plan is created in conjunction with your lenders and creditors.
If you believe you could benefit from a free consultation with a certified credit counselor, contact the National Foundation for Credit Counseling at (800) 388-2227 (www.nfcc.org or www.debtadvice.org).
According to the organization’s Web site, The NFCC offers consumers step-by-step counseling to become debt free. This is done by providing each consumer with an individualized plan to help them pay off their debt. If you’ve accumulated severe debt, the organization can help you establish a debt management plan, which is a systematic way to pay down your outstanding debt through monthly deposits to the agency, which will then distribute the funds to your creditors. By participating in this program, you may benefit from reduced or waived finance charges and fewer collection calls.
If utilized correctly, a DMP can take anywhere from 36 to 60 months to help you completely pay off your debt and reestablish your credit. The NFCC will work with you on-one-one, and provide free or extremely affordable counseling services, as well as free educational seminars through its regional offices.
LEGITIMATE COUNSELING AGENCIES
To help you determine if a credit counseling agency is legitimate, ask the following questions:
1. What services are offered?
2.Is the credit counselor licensed in your state to provide the services offered?
3. Does the credit counseling service offer free information or an initial free consultation?
4. Will you be required to sign a formal contract or written agreement with the credit counseling company?
5. Does the organization have a good reputation with the your state’s Better Business Bureau and Attorney General?
6. How much will the credit counseling services cost? How are the individual credit counselors paid?
7. Are they given a commission based on services you sign up for? Do they also receive fees from creditors?
8. Will the information you provide to the credit counselor be kept confidential?
Tips for finding and hiring a reputable credit counselor can be obtained from the Federal Trade Commission by downloading a free brochure, called Fiscal Fitness: Choosing A Credit Counselor.
As a general rule, any company that calls itself a credit repair service, or that guarantees your unsecured debt can be erased, is a scam. Other warning signs to look out for include, if the company promises that your debts can be paid off for pennies on the dollar, if it charges high monthly fees plus a start-up fee, or it claims it can remove negative but accurate information from your credit reports quickly
According to Lucy Duni, director of Consumer Education at TrueCredit.com (TransUnion), There is nothing a credit repair or credit counseling company can do for you that you can’t do for yourself. That’s important to remember. When you hire one of these companies, you typically have to pay them. You could pay someone to do the busy work, or you could invest the time to make the necessary calls and write the appropriate letters yourself. Before choosing whom you’ll work with, learn as much about the company and their services as possible. Many solutions offered by these companies involve consolidating your debt into one new loan, which the debt consolidation company then makes money on. Thus, it’s important to shop around for the best deals and the best service.”
Duni stresses the importance of understanding exactly what services are being offered to you and how much they’ll cost over the long-term. This includes fees you’ll pay to the credit counseling services, as well as finance charges and other fees you’ll pay to your actual lenders and creditors in order to pay off your debt.
BEWARE OF CERTAIN OFFERS
If your credit score dips below 620, you’ll find it difficult, if not impossible, to get approved when you apply for a major credit card from most reputable banks or financial institutions. There are, however, a handful of credit card issuers that specifically target people with poor credit and advertise credit card offers designed to help rebuild credit.
While you can, in fact, obtain a legitimate Visa or MasterCard from one of these companies, like First Premier Credit Card Services, you will be charged outrageously high fees and charges. Ultimately, if approved. you will receive a credit card with only a $200 to $300 credit limit. The fees these credit card issuers charge, however, include an application fee and a recurring annual membership” fee, which could total several hundred dollars. You’ll also be forced to pay a high interest rate (APR), plus fees to make telephone or online monthly payments. These credit card issuers also charge high late fees, cash advance fees, over credit limit fees, and other charges which are significantly higher than what someone with average or better credit would have to pay.
In addition, these credit card issuers, which claim to be helping you to rebuild your credit, will often be the first to report negative information to the credit bureaus, such as late payments (even if you’re a few days late), or if you exceed your credit limit by even a few dollars. This negative information will actually hurt your credit score.
Instead of paying outrageous fees to a credit card issuer whose focus is solely to generate fees and charges amongst its customers in exchange for providing a credit card with a very low (almost useless credit limit), you’re better off obtaining a secured (pre-paid) credit card or utilizing a bank’s debit card until you’ve been able to improve your credit score enough to get approved for a more mainstream credit card from a company like Citi, Chase, Bank of America or Capital One.
Before applying for any credit card, be sure to read the card holder agreement carefully to determine what fees, interest rates and finance charges are associated with the credit card offer. You can compare credit card deals from online services, like bankrate.com or creditcards.com.
