26 May 2009

President Obama's Credit Card Law to Protect Cardholders

Both cardholders and credit card issuers are to blame for credit card debt problems. Many cardholders overspend and are careless about sending in timely payments. Many credit card companies have been sneaky and unreasonable about increasing rates and charging fees and penalties, making it even more difficult for their customers to get out of debt.

At a signing ceremony in the White House Rose Garden, President Obama signed into law a bill that will help protect credit card holders from the card companies' bad behavior. (Unfortunately, Obama is unable to protect cardholders from themselves. They'll just have to grow up and become responsible adults).

President Obama spoke out against unexplained fees, changed payment deadlines, increases in interest rates, and applying payments toward low rate balances rather than high rate balances. Card holders with excellent track records as well as those who are delinquent have all been victimized by the companies' greedy tactics.

“We’re here to put a change to all that,” President Obama declared. He set some new rules for the card companies which will become effective in early 2010:

  • People under 21 cannot receive credit unless they can prove they have the ability to repay the debt or if a parent or guardian co-signs.
  • Rates on existing balances cannot increase until the cardholder is at least 60 days delinquent.
  • Once a delinquent cardholder has paid at least the minimum for 6 months, their card's rate must return to it's original percentage.

  • All cardholders must receive 45 days' notice and an explanation before any rate increase.

  • Increased rates are not retroactive on previous balances for people who pay their bills on time and have been sending in at least their minimums.

Warning - the credit card companies will find other ways to improve their revenue. In danger of extinction are cards with no annual fees and cards with freebies and cash back. Basic interest rates and fees might go up for everyone. The top issuing companies will probably survive this change but smaller banks might decide to get out of the business, giving the surviving companies less competition and a bit too much power for my taste.

For now, I will continue to pay my one and only card in full every month and brace myself for what comes next.

Related articles you might be interested in:

Debt - How to Avoid, Get Out and Stay Out

Credit Scores- Understand and Improving Yours

Cash Back Credit Cards

How to File Bankruptcy Without a Lawyer

21 April 2009

How to File For Bankruptcy Without a Lawyer

Individuals are allowed to represent themselves in bankruptcy court. One doesn't need an attorney but be warned - success is not easy! There is so much to know and do. Do something wrong, forget to do something and one might may mess up their rights and success. Second chances are not often given.

Having a good lawyer who specializes in bankruptcies is highly recommended. Some people qualify for "pro bono" (this means free) legal counseling. Contact the state bar association, court websites, and/or local law schools for more information on getting assistance or at least some advice. Check out the American Bar Association the Legal Services Corporation, or the web site of the bankruptcy court where you intend to file.

One needs to be familiar with the US Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the rules of the local court in which the case is filed. One can find "local rules" and other useful information at the local courthouse and on its website.

Debtors (that's the person trying to get out their debts) must list all property and debts in their bankruptcy schedules. US Goverment Form B200 lists documents and schedules you will need.
  • Be thorough - debts not listed will not be discharged!

  • Be honest - if you are caught with one tiny indescretion, the judge can deny the whole case. No destroying, manipulating, distorting, hiding or lying!

  • Cases are audited. If you are caught cheating, you are guilty of a crime (bankruptcy fraud) which means going to jail. Um, hmmm!
Individulas who want to file for bankruptcy must get credit counseling from an approved provider within 180 days before filing their case. One must also file a Statement of Compliance and a Certificate of Credit Counseling (given by the counselor).

If you do not know where you are permitted to file a case, check the Official Bankruptcy Forms page to see the box on Form B1 (Voluntary Petition) entitled "Information Regarding the Debtor - Venue" and the part of the Instructions relating to that box.

If you are filing or involved in a bankruptcy case and do not have an attorney, check out the web site of the bankruptcy court where the case has been or will be filed as well as the Bankruptcy Resources page.

Non-Attorney Petition Preparers type up information on Bankruptcy Forms (forms are free, available at this link). They must sign every document they prepare; print their name, address, and social security number on the documents, and give copies to the debtor. They cannot sign a document on the debtor's behalf or receive payment from the debtor for court fees. They are barred by law from providing legal advice, telling debtors what to say in court, or helping out during court.

09 April 2009

Credit Scores - Understanding and Improving Yours

Your USA credit rating is very important. It will decide whether or not you get approved for a loan. It will influence your interest rate. It might also influence whether you are hired at a new job, your car insurance rates, and your utility rates. Think of interest as money flushed down the toilet - avoid it as much as possible.

Different ways to obtain your credit report:

* If you recently applied for a loan, the lender/bank did a credit check on you and got a score. They must tell you, for free, what that number was. My bank mailed me a letter.

* You are entitled to a free report once every 12 months, thanks to the Fair And Accurate Credit Transitions Act of 2003. This is great for finding out your credit history and credit score. You might uncover items on your history that are wrong or not you. You might discover you are the victim of identity theft. You will receive reports from each of the "Big Three" credit reporting companies - Equifax, Experian and TransUnion.

* Bankrate.com offers an online credit score estimator. It's free and quite fast. I did it and the result matches what my bank recently told me. It's a good starting to point to see if your credit is bad, good or great.

* There are many different companies that monitor credit. To "join" one of these companies you have to pay a monthly fee and in return you receive updates on your credit report, alerts when something new has occured or your score has changed, as well as helpful financial information. Next Advisor has a wonderful online chart comparing several different companies, their costs, and benefits.

The following items affect credit scores:

* Payment history - All payments should be on time. Minimums or more than the minimum should be sent in for auto, personal and mortgage loans. Credit cards should be paid in full each month. Never, ever skip a payment - send in at least something to show good faith. Bankruptcy is bad - it'll be on your credit report for 10 years. Avoid it at all costs - try to work something out with your creditors. You can get loans after bankruptcy but the interest rates will be sky high and will eat like a cancer into your bank account.

* Amounts owed -

  • The total monthly minimum owed is compared to monthly income. This shows the lender whether you are living beyond your means (and have spending control issues or just aren't ready to be financially independent).
  • The balance is also compared to the credit limit. Lenders like a big gap between these two numbers because this leaves room for paying for unexpected bills (car repairs, home repairs, sudden health issues etc). When your credit card is new and the limit is low, try to keep under 80% of the limit and pay in full each month. When your card limits get higher, stay under 30%. Carrying a balance into the next month is okay but avoid it when you can.
* Age of your credit history - The older the better. Get started as soon as possible. A simple gas card is a good first step - it's something you will use regularly and can pay off in full each month. A seasoned credit history gives the lender a very good idea of who you are as a borrower. Some lenders will not give out loans to people with little or no credit history.

* Types of credit - Different types is good. It shows experience which lenders like. One car loan, one mortgage loan, one personal loan, one credit card = good mix. All credit cards and nothing else = bad.

* New credit:
  • This is almost like no credit history. You haven't proven yourself so you are considered a risk. It's a "fear of the unknown" that scares lenders.
  • The other kind of "new credit" is when someone with a longer history takes out new loans or gets new credit cards all of a sudden - this makes a lender nervous - why does this person all of a sudden need money?
  • Never apply for multiple loans/credit all at the same time. When the lenders see your credit report, they will see that everyone else is checking you out at the same time. What might happen is everyone will scare each other away and you will end up with nothing.

Your job history will also affect whether or not you get a loan as well as the interest rate. Don't be a job hopper. Find a good paying job and stay there. If you are new at a job, hopefully you were with your previous employer for many years. Lenders like stability. They feel it reflects good character which is less of a risk to them.

Having a well-paying job is important, too. Lenders will compare your loans to monthly income to determine your ability to stay financially healthy and repay them.

Hopefully, the above information is helpful.

How I established my credit score of 811 (which is excellent):

After 6 months at my first part-time job, I got a "secured" credit card from my bank. I did this for two reasons: I needed a credit card to get a rental car for my uncoming vacation (rental companies do not rent to people without credit cards). I also wanted to establish my credit because, one day in my distant future, I would eventually apply for a car loan and a mortgage - a credit history will be a must.

After 6 months of charging necessities only on my credit card and paying the bill in full every month, I applied for one gas card and used that card every week for fill-ups. I paid those bills in full.

After being at the same job for 12 months, I applied for one department store card and used it once a month only, just to keep it active. I paid my bill in full every month. I also closed my secured credit card account and got a regular account with a higher limit (thru the same bank).

When I moved into my first apartment, I was able to get the utilities in my name because I had a credit history already. Having utilities in my name now contributes to my future credit history. Always paid those bills in full. I want good credit and I want heat!

I applied for another department store card to pay for my refrigerator and couch only. I paid those two purchases off in three months. I did not do any decorating or fun spending because I consider money to be "tight" until all credit cards balances are zero.

When I applied for my first car loan, I paid extra each month, paying it off in 3.5 years, avoiding flusing interest money down the toilet. I also bought what I needed, not what I wanted.

The rest of my life follows that pattern. No fun spending until the credit card can be paid in full each month. Shop around for rates for car and mortgage loans. Refinance into lower rates if possible.

Update: Just applied for a 2nd mortgage to build another room onto our house. My credit score was 890. That's kick ass great!