Bad Credit and Personal Loans
Written by amster88 on February 16, 2010 – 7:31 am -Bad Credit and Personal Loans Questions and Answers
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Question: i have two hits on my credit that concern me and that i would like to fix if any way possible. i have two accounts with a credit card company in which a settlement for less that the total balance owed was offered by the company and accepted by me. they stated that this would be neither a bad or good hit on my credit. i have sense obtained a credit report and my credit score is very low. everything else that i have on my credit is current and never late. my question is, can settlements for less than total amount owed be a negative hit on my credit?, and if so, how can i get them removed or paid in full?
Answer: Credit reporting agencies determine credit ratings based on an extremely complex formula that considers a large list of variables, including number of credit accounts open, the credit limit and the current balance on those accounts, whether and how many past due payments have been made, and whether any debts are in default (not paid according to the original agreement).
I am guessing that the two accounts you reference were defaulted on, because companies will only usually accept partial settlements once the accounts are way overdue and it does not appear likely that they will ever receive full payment.
The fact that you settled the accounts with these companies by giving them the partial payments is not the main cause of your low credit rating. The reason your credit rating is so low right now is because those accounts were defaulted on before final arrangements were made with the companies.
While full payment of the debt might have kept your credit rating from being slightly less low than it is, the difference is very small compared to the effect the defaults themselves are having on your credit rating. Even if you go back and pay the rest of the amount now, it is not going to change the fact that the defaults happened. Unfortunately, now that they have happened, there is no way to erase these defaults from your record.
The Bad News: The law allows credit reporting agencies to use data from the last 7 years in your report. At this point, you can only move forward and wait for the 7 years to elapse, so that these negative incidents drop off your credit report.
The Good News: What you CAN do, in the meantime, is improve your credit rating gradually by doing as many of the following things as possible:
- Pay EVERY bill on time: pay them as soon as you get them, if you can. This is one of the BEST ways to make yourself look like a better credit risk to a lender if you try to get a mortgage, loan, or credit card.
- As far as credit cards, pay them in full every month if you can. If you can’t, pay as much as you can every month, not just the minimum payment. (If you don’t charge any more, and you only pay the minimum payment on a debt of several thousand dollars, it will take you more than 40 years to pay it off!)
- Better yet, don’t charge anything. Spend money only if you have it in your bank account.
- You should never have more than a couple of active credit card accounts. Pick the two that are most useful or important, then cut up the other cards, and write to those companies, asking them to close your accounts (you need to put this in writing, and save copies of your letters).
- If for any reason, you ever have a catastrophic month or period when you are unable to pay all or part of your bills, CALL ALL YOUR CREDITORS IMMEDIATELY to let them know you are having a problem, and asking them if they will be willing to lower or waive your monthly payments for a short time. You will be surprised about how willing companies will be to work with you if take this approach. The worst thing you can ever do is just not pay a bill because you don’t have the money — this will absolutely trash your credit rating, in addition to possibly getting your accounts declared in default and sent to collection agencies.
Many, many years ago I got into bad credit trouble by paying bills late. I learned my lesson, and it took awhile, but by following these guidelines I have been able to get my credit rating up so far now that it is considered stellar.
One final note: DO NOT EVER be taken in by companies promising to “fix” or “repair” your credit rating. They can NOT erase bad debts or other “black marks” for you, and if they tell you otherwise, they are lying. These so-called credit-repair companies are, at best, companies who are charging you for doing what you can do for yourself, and at worst, they are total scams.
Hang in there, be patient, and follow the guidelines. Eventually, you will see it pay off in an improved credit rating.
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Secured Credit Cards Canada
Written by admin on April 9, 2009 – 6:41 am -Whether you have no credit or damaged credit, secured credit cards are a good tool for building a good credit history.
Several months ago Tom, a member of CreditBoards.com, filed for a Chapter 7 Bankruptcy. Now he is in the process of rebuilding his credit history. It’s a task that is not easy, but with patient persistence he is seeing progress already. Daily he checks his credit score and is slowly seeing improvement.
1 – In addition to correcting every mistake, even the smallest ones, on his credit report, he is using a secured credit card.
2 – This secured card is an important tool in the overall process of building or rebuilding credit.
Who should consider a secured credit card?
Someone who has no credit history.
Someone with a damaged credit history.
What is a secured credit card?
Secured cards are credit cards opened with a deposit into a savings account, money market or certificate of deposit. The amount of deposit required varies from card to card, but generally minimum amounts range from $250 – $500. These funds are considered your security and will even earn a little interest since they are being held in a savings account. Your credit limit is determined by the amount you deposit into the savings account. Sometimes the limit will be for the full amount of the deposit; other times it will be a percentage of the total.
It is important to keep in mind that a secured card is a credit card, not a debit card. If full payments are not made each month, then interest is charged on the outstanding balance. And the lending institution uses the security money to pay off the debt only as a last resort. Even though the card is secured, it is still possible to damage credit.
What are the benefits of a secured credit card?
Establishing credit. If you have never had a credit card, a good first step in establishing good credit is applying for a secured credit card. Assistant Professor of Economics at Austin Peay State University in Clarksville, TN, Jerry Plummer says, “A secured card is most useful for the person starting out on their credit history, since it says that the person is willing to take the extra step to establish credit.”
Reestablishing credit. If your credit history is damaged, you may only be able to qualify for a secured credit card. Using this secured card appropriately and within the set parameters will help rebuild your credit and qualify you for an unsecured card. If you have had to file for bankruptcy, however, you may not qualify until it has been discharged.
Preset limit cannot be exceeded. If poor spending habits were part of the cause for bad credit, then a secured credit card will help keep spending in check.
Useful for transactions that require a credit card. Hotels and car rentals require the use of a credit card. If you don’t qualify for an unsecured card but you do for a secured card, then you are still able to make the transaction.
What should I look for or avoid when shopping for a secured credit card?
Fees. This is the area you will really want to research when shopping for a secured credit card. Some cards will come with fees that run into the hundreds of dollars, eating away much of the credit you secured with the savings account. Professor Plummer says a card with no fee is the best, but a small one-time fee can be okay. Annual fees for attractive secured cards typically range from $20-$35. Be sure to watch out for hidden fees such as “registration charges” and “setup fees.”
Interest Rate. Just because you have no or poor credit doesn’t mean you have to settle for the highest interest rate. Interest rates for attractive secured cards should not exceed 19%. Shop around and get the most competitive rate available.
Read the fine print. Linda Tucker, Director of Education for Consumer Credit Counseling Service for Arkansas and Memphis, TN, stresses the importance of reading the fine print. Doing so will let you know your exact obligations to the issuing company: for example, the grace period, what happens if you don’t make a full payment, and what fees are attached if you don’t make the full payment. Understanding these details will help make sure you are not further damaging your credit.
Fraudulent Offers. As with unsecured cards you need to watch out for fraudulent offers.The Federal Trade Commission gives the following advice to protect yourself from credit card fraud:
- Offers of easy credit. No one can guarantee to get you credit. Before deciding whether to give you a credit card, legitimate credit providers examine your credit report.
- A call to a ‘900′ number for a credit card. You pay for calls with a ‘900′ prefix — and you may never receive a credit card.
- Credit cards offered by “credit repair” companies or “credit clinics.” These businesses also may offer to clean up your credit history for a fee. However, you can correct genuine mistakes or outdated information yourself by contacting credit bureaus directly. Remember that only time and good credit habits will restore your credit worthiness.
When will I qualify for an unsecured credit card?
It can take several months to see an improvement in your credit history. Bankrate says it’s a good indicator when you start receiving flyers in the mail for unsecured cards that your credit is improving. However, it’s a good idea to continue taking things slowly. Using a secured card will help you learn healthy habits so that when you do get an unsecured credit card you remain in control of your spending and credit.
Where can I find a secured credit card?
Most companies don’t advertise secured cards. But you can visit the Card Reports section of http://www.CardRatings.com to find out where and how to apply. Click on the link entitled “Cards for Consumers with Poor or No Credit”.
Other tips
Tom recommends sticking with only one or two cards and keeping spending to a minimum. The goal is to pay the card off each month.
Tucker emphasizes the importance of paying the amount due each month; otherwise late fees can be charged, interest rates raised, privileges lost, and credit history negatively affected.
Make sure you are getting a credit card as opposed to a gas card or a department store card.
Make sure a reputable bank or credit union, even a local one, is issuing the card. And, don’t automatically assume a bank is issuing the card.
Not all issuers report to the three major credit agencies (Experian, Equifax, and TransUnion). It’s important to get a card that does report to all three agencies; otherwise you will be wasting your time. Fortunately, secured cards normally report to the credit agencies just like unsecured cards (you should verify this before applying).
If you have filed for bankruptcy, you may need to wait until it has been discharged before qualifying for a secured card.
Get one only if you cannot get credit, since you have no credit record; or if you have poor credit. Plummer says, “Many companies will not even count them as credit, such as automobile F&I (Finance and Insurance) people, although they will not admit it.” So, if you don’t really need a secured card, you will be doing more harm than good.
Finally, whatever situation you are in, no credit or poor credit, the best way to build good credit is to set up a budget and then stick with it.
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