Archive for the ‘Credit Problems’ Category

More Unemployed Americans Fear Credit Score Damage

September 1, 2010, by FreeScore

unemployed and credit score damageIn July, the unemployment rate in the U.S. reached 9.5 percent, according to statistics from the Labor Department. Without a steady income, many Americans have grown concerned that borrowing may hurt their credit scores. As Barrett Burns, President and Chief Executive Officer of VantageScore Solutions, notes on the Fox Business website, this is a common misconception.

Losing a job or collecting unemployment benefits doesn’t hurt a VantageScore, or most other generic scores, according to Burns. The Credit Card Accountability, Responsibility and Disclosure Act that went into full effect on August 22 requires lenders to look more closely at borrowers to determine if they can repay debt, but this shouldn’t scare away consumers.

Burns says that credit scores are based on only a few main factors, including how much of a credit line is used, how quickly it’s repaid, and outstanding balances. Industry analysts say that consumers who handle their credit accounts responsibly and read all of the terms and conditions of their credit lines are less likely to suffer from credit score damage

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Credit Card Companies Are Less Profitable as Consumers Manage Debt

August 18, 2010, by FreeScore

credit card delinquency ratesNew reports have shown that delinquency rates across the country are continuing to decline, and for credit card issuers, this has become a cause for concern. Many are having problems generating revenue due to tighter regulations as a result of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. As Americans start managing their debt better, credit card companies are left to wonder what the future holds for the industry.

According to the Wall Street Journal, borrowers lowered their revolving credit lines — mainly card balances — by approximately $4.5 billion in the month of June. Since the end of 2008, consumers have reduced those balances by about $131.6 billion.

“Consumer de-leveraging by definition means that consumers are paying down debt rather than spending and borrowing,” Capital One’s chief executive Richard Fairbank told the paper. “While this pressures loan growth, it also contributes to the improvement in delinquencies and charge-offs.”

By paying off credit card debt, consumers are building more attractive credit histories. Banks are more likely to lend money to applicants who demonstrate that they have the ability to repay their debts.

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Credit CARD Act Misconceptions Can Hurt Consumers

August 12, 2010, by FreeScore

credit card misconceptionsWhile the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 was signed with the intention of bringing relief to American consumers, The Coloradoan found that some consumers misunderstood the new legislation and, as a result, now find themselves in debt.

The act, which is aimed at restricting abusive practices by credit card issuers, took effect on February 1, 2010. Because companies can no longer hike interest rates and penalty fees on a whim, some consumers have been under the assumption that their interest rates can’t be raised at all. The Coloradoan notes that while the bill provides new protections, it doesn’t guarantee that consumers will be immune to new credit card company gimmicks.

Because card issuers are now on a tighter leash, they’ve been forced to get creative in finding ways to work around the new restrictions. The law has put general limitations in place, but companies seem to find more loopholes every day. According to The Coloradoan, the most common tactic taking consumers by surprise is the hiking of interest rates after the first year. Bill Hardekopf, CEO of lowcards.com, feels that this is perhaps the biggest misunderstanding of them all.

“There is a misconception out there that interest rates can’t go up because the CARD Act passed, and that is not true,” Hardekopf told the newspaper. “They can go up. What the credit card act did restrict is [companies] from increasing rates on a new card for one year.”

Credit card rates have increased since the act went into effect, but analysts aren’t sure whether this is due to current economic factors or the new legislation. Regardless, misconceptions can result in harm to a consumer’s finances.

Ultimately, consumers have to make responsible decisions regarding their debt before they’ll see any signs of improvement in their finances. While the Credit CARD Act’s actual effect on the credit card industry may not have been clear to some consumers, it’s still the consumer’s responsibility to educate him- or herself on how the new legislation affects credit card holders.

As a credit card holder, you should take a pro-active approach to protect yourself from the loopholes that credit card issuers continue to find. Companies are required to inform you of changes to your lines of credit, interest rates, and other fees. You’re advised to hold on to any and all letters from your credit card companies to keep track of rate fluctuations and to determine how any such changes will affect your finances.

Staying on top of changes to rates, fees, and other credit card clauses can also help you better manage your credit behavior. Reviewing statements and factoring credit card company changes into your budget can help you maintain a responsible, on-time payment pattern. Consumers with a responsible credit history tend to earn higher credit scores and are therefore more likely to qualify for affordable interest rates on loans and lines of credit in the future.

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Credit Card Issuers Reduce Vulnerable Data for Consumer Protection

July 30, 2010, by FreeScore

In response to pressure from the National Retail Federation, Visa has agreed to reduce the amount of personal data they store in merchant systems. Retailers typically store credit card information in their systems to avoid having to repeat the process of inputting data every time they complete a transaction. Many corporations, however, have been victims of security breaches in which customer information was stolen. Credit card numbers can be used to access personal data and eventually lead to identity theft.

“By reducing the amount of vulnerable data in merchant systems that must be protected from compromise, merchants can see greater security as well as more streamlined compliance needs,” said Eduardo Perez, who heads Visa’s Global Payment System Security.

credit card fraudAccording to Perez, the latest objective of the company will be to expand security measures that are already intact. BusinessWeek notes that Visa will be encouraging more banks and merchants to disguise consumer security numbers and passwords when they’re used in public. They’ll also try to optimize their tokenization methods, which substitute proxy numbers for priority account numbers (PANs). PAN data is often used to resolve disputes and for other purposes.

BusinessWeek says that in the coming months, Visa will look to their shareholders for feedback on their security efforts. The company will be relying heavily on banks to follow through on their new measures and keep consumer data from falling directly into the hands of merchants.

While retailers typically try to implement best practices to secure personal data, no one can prepare for the unexpected. As technology continues to evolve, people are finding easier ways to hack into even the toughest security systems. The risk of identity theft runs high once personal information has fallen into the wrong hands. According to SpamLaws.com, approximately 10 million Americans are victims of identity theft every year, and less than half of all victims realize the theft has occurred within the first three months. For this reason, it’s more important than ever to use caution when swiping a credit card.

Credit card fraud can result in long-term credit score damage. After stealing your personal data, a thief can go on a reckless spending spree and do severe damage to your credit card or bank account. It can take years to rebuild your credit history after an identity theft incident, and you may have difficulty obtaining loans, lines of credit, and even employment or a rented residence once your credit score has been tarnished.  Reviewing your credit card statements thoroughly and regularly monitoring your credit reports can help you keep an eye out for possible signs of credit card fraud and identity theft.

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Despite Credit Card Delinquency Rates, Analysts Remain Positive

July 22, 2010, by FreeScore

Capital One reported that their delinquency rate fell in June, according to the Associated Press. Although it only dropped from 4.8 percent to 4.79 percent for the month, financial analysts believe it’s an indicator of a strengthening economy.

Since the recession, consumers have struggled to pull themselves out of debt. Over the past few months, however, the delinquency rate in the United States has been improving. In the latest report from the American Bankers Association (ABA), the credit card delinquency rate dropped to 3.88 percent in the first quarter of 2010. The last time the rate dipped below four percent was in 2002.

“It’s clear that consumer balance sheets are improving,” said ABA chief economist James Chessen. “People are borrowing less, saving more, and building wealth.”

credit card delinquency ratesAccording to Reuters, the positive news may be short-lived. Analysts expect the falling delinquency rates to plateau by the end of the summer. Tax returns from the spring contributed to the low rates the country is currently seeing.

The unemployment rate in the United States is currently hovering around nine percent, according to the Bureau of Labor Statistics. Due to a lack of jobs and income, consumers have adopted better spending habits. A recent survey conducted by American Express determined that 75 percent of consumers haven’t increased their debt over the past six months, while 46 percent are concentrating on reducing their debt.

A consumer with a good credit score is more likely to be approved for loans and lines of credit. Each person is entitled to a free credit report annually from each of the three credit bureaus. While consumers may have to pay a fee for reports after that point, credit monitoring is the most effective way to track one’s credit behavior.

The New Jersey Star-Ledger found that credit card companies are continuing to raise annual percentage rates and institute new fees. For consumers, this could mean growing debt and falling credit scores. Thoroughly reading all of the terms and conditions when applying for a new account can help consumers identify loopholes that may be detrimental to them in the future.

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FICO Report: Over 43 Million Americans Have Poor Credit

July 16, 2010, by FreeScore

bad FICO scoresThe latest FICO report shows that over 43 million Americans have credit scores of 599 or lower. According to the Associated Press (AP), 25.5 percent of consumers are considered a risk for lenders and face extreme difficulty borrowing loans, a sharp leap from the historical average of 15 percent.

“I don’t get paid for loan applications, I get paid for closings,” Ritch Workman, a Melbourne, Fla., mortgage broker, told the AP. “I have plenty of business, but I’m struggling to stay open.”

FICO scores are considered a reliable indicator of consumer patterns, but Workman told the AP that he disagrees with the automated underwriting done by lending companies. Computers look at the numbers but not the actual repayment trends of the borrowers. This often results in lending to consumers who can’t repay their debt in a timely manner, thereby skewing credit score statistics.

In today’s economy, consumers with low credit score will continue to face trouble trying to open lines of credit with affordable interest rates. However, credit monitoring can help consumers track their credit behavior and react as needed to any activity that might raise flags in the eyes of credit issuers.

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Credit Card Issuers Remain Profitable Despite High Unemployment Rate

July 9, 2010, by FreeScore

While credit card issuers are citing an increase in earnings despite the high unemployment rate, a new report from the Wall Street Journal shows that these earnings reports should be taken with a grain of salt. The rise in success for companies such as American Express Co., Capital One Financial Corp., and Citigroup Inc. is due to their number of unemployed clients.

“We have never seen the kind of divergence we’ve seen this time [between unemployment and credit losses],” Discover Financial’s chief executive David Nelms told the Wall Street Journal. ”I expect credit will continue to improve. I’m much less optimistic about the total unemployment rate.”

unemployed credit card ownersPeople who stay unemployed for an extended period of time often can’t stay on top of credit card payments. They lose access to new credit and get written off, which means they’re no longer included in statistics describing the credit market. Card lenders have also adopted stricter standards, making it harder for new clients to find themselves in credit trouble.

Consumers looking to open a new credit card should be aware of the consequences of failing to make payments. Credit cards that are paid late or left unpaid can damage credit scores. Consumers with concerns about their financial situation might want to consider prepaid credit cards with set limits to avoid large monthly bills and long-term debt.

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How to Tell When Your Debt Is Becoming Too Burdensome

July 6, 2010, by FreeScore

At one point or another, most Americans end up taking on a form of debt. While some debt may be necessary to further your future and can even benefit your credit standing, too much debt can be burdensome and dangerous. Mounting credit card balances, unpaid mortgage bills, and lingering student loan fees can not only destroy your credit score and place a black mark on your credit report, but can also result in foreclosure, wage garnishment, and lawsuits.

Like most things in life, education is the first step toward managing your financial situation. Knowing when your debt is approaching dangerously high levels can help you change your spending habits and encourage you to get assistance before it’s too late.

Credit cards have become a lifeline

credit card debtCredit card usage can be beneficial to your credit score if handled correctly. But when you stop using credit for general purchases and start using it to pay for necessities — mortgage, loans and groceries — you may be treading on dangerous ground, according to the Atlanta Journal-Constitution.

This danger becomes especially apparent if you’re only able to make the minimum payments for a credit card that carries a high interest rate. By making only the minimum payments, you risk entering into a situation where your interest charges exceed the principal amount owed.

“With interest payments of 21 to 25 percent, it doesn’t take long for them to really add up,” said Michael Smith, a member of the Financial Planners Association board of directors.

Relying on cash advances to pay for expenses or bills can only exacerbate this problem, as cash advances tend to carry a higher interest rate than traditional purchases.

Consumers should understand their debt-to-income ratio

Often, individuals don’t fully understand how much they’re spending, making it difficult to develop a budget or financial strategy. The Atlanta Journal-Constitution suggests that, as a general rule, your credit card payments and loans shouldn’t exceed 20 percent of your paycheck, while your mortgage shouldn’t account for more than 30 percent of it.

While your overall expenses may require you to spend more income than you’re saving, this could put you in a precarious financial situation in the event of an emergency. Paying all of your bills is important, but having some form of savings or an emergency fund is essential to protect your assets in a sudden financial crisis, such as a car repair or unexpected medical bill.

When you owe a great deal of debt, saving money while meeting your financial obligations can seem impossible. However, creating a strict budget and/or meeting with a credit counselor can help you trim costs and unnecessary expenses. To start, you should obtain a copy of your credit report to examine where you may be financially weak.

When paying down your debts, you should begin with the lines of credit that carry the highest interest rates, such as credit cards. Paying back federally funded student loans is also important, since a default on these types of loans can remain on your credit report for ten years, whereas other types of default may only stay on your report for seven years.

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Protect Your Credit Report By Understanding Credit Alerts and Credit Freezes

June 23, 2010, by FreeScore

The majority of consumers know the importance of paying their bills on time and in full. Consumers understand that applying for too much credit can be damaging and that not monitoring their credit report at least once a year is worse. But no matter how diligently a consumer caters to their finances and credit report, all of their efforts can go for naught if someone else obtains their personal information. Millions of Americans fall victim to identity theft each year, and most don’t catch on until they review their credit report and notice fraudulent lines of credit or unpaid debts that they didn’t incur.

Fraud alerts and credit freezes are often used to combat identity theft and help consumers protect their financial security. But the two can have very different implications for your credit, so you should understand them thoroughly.

credit alerts and credit freezesFraud alerts tell prospective lenders to tread carefully when extending credit

Fraud alerts let institutions that check your credit, such as a prospective lender, know that you’ve alerted credit bureaus that you’ve been a past victim or suspect that you’re currently a victim of identity theft, according to Helium. This prompts lenders to be extremely careful about checking identification and ensuring that anyone applying for credit under your name is actually who they say they are.

Fraud alerts can be placed at no charge with one of the three credit bureaus, which will then notify the other two, Helium says. Placing a fraud alert also entitles you to a copy of your credit report. Alerts stay in effect for a three-month period, but you can place an indefinite amount of alerts at intervals, Helium reports. Helium also reports that in more serious cases, in which a police report was filed, a seven-year alert can be placed on your credit report, entitling you to three reports a year rather than one.

Credit freezes inhibit others from securing credit under another’s name

Unlike fraud alerts, which expire, a credit freeze is placed on your report until you lift it. Additionally, you must notify all three credit bureaus separately and pay a $10 fee to each bureau, Helium reports. Credit freezes, similarly to alerts, make it more difficult for others to obtain credit under your name, but they take it one step further. Under a credit freeze, no one, including prospective lenders, can gain access to your credit report. While this may protect you from criminals securing credit under you name, it may also inhibit you from obtaining credit, as lenders don’t issue loans or credit cards to anyone without examining their financial history.

Current lenders will still be able to review your credit during a freeze through a PIN, according to Helium.

Examining your credit report each year may help you avoid the process of placing fraud alerts and credit freezes on your accounts. Most cases of identity theft go unnoticed because consumers don’t check their credit reports. This may allow criminals to run up fraudulent charges under victims’ names, causing significant damage to the victims’ financial standing and reputation among lenders. Reviewing your credit report for suspicious or inaccurate information is the first step in detecting signs of fraud and protecting your financial future.

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Steps to Take After a Credit Application is Denied

June 11, 2010, by FreeScore

credit application deniedHaving a loan application denied can be a frustrating experience, but understanding why you were denied may help them improve your overall finances. Credit card applicants who are denied will typically receive written notification listing the reasons for the denial, according to CNN Money. If you’re denied due to a low credit score, you should obtain a copy of your credit report and examine areas where you may be weak financially.

If you’ve been denied a line of credit, you might also consider applying for a secured card to rebuild your credit history, CNN Money says. If you have less-than-perfect credit, a secured card allows you to open a secured card account by putting down a deposit, typically for the amount of the line of credit. You also have the option of asking a friend or family member to co-sign for a line of credit.

Poor credit can negatively affect your ability to secure loans, low interest rates, and even employment. If you’re trying to rebuild or establish your credit history, you should focus on securing a low line of credit, even if it’s only a department store card, and paying all of your bills on time.

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