New Credit Card Act of 2009

This new Act will be going into effect on August 21st. You will notice more statements coming from your Creditors to alert you when your next payment is due. There will also be other changes that will increase your awareness of your current Credit Cards and help you become a more aware Consumer! Follow me on Twitter to get constant updates!

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Basics Of Credit:

Scoring Info:
Your Credit Score is a number assigned to you based on your ability to repay loans. Credit Scores range from as low as 350 and as high as 850. A score of 350 is considered a really bad score and a score of 850 is an excellent score. Creditors usually have four tier groups for pricing your interest rate and loan qualifications. They are A+, A, B, C, and D. The lower your credit score, the higher your interest rate is and the harder it is to obtain credit. There are several ways to build good credit from no credit or even bad credit.

Factors of Score:

There are several factors that go in to your credit score, those being: paid loans, open loans, credit cards, monthly payments(especially late or missed payments), inquiries on your credit, judgments and liens against you, child support and alimony payments, bankruptcy, how much credit you owe in credit cards and other loans, how many creditors you have paid back, collections, repossessions, delinquent credit, and how long you have had credit. People commonly mistake that payments such as rent and other monthly bills show on your credit. This is only true if you have not paid for these things, then they will report as collections. Otherwise these things will not be shown on your credit. Other things that will be on your credit report are your social security number, addresses(past and present), names and alias, date of birth, employers(past and present), plus any of the above mentioned accounts that go into your credit score.

Getting Started with Credit:
The only way to start establishing credit is to borrow money. There are several different ways of doing this, but the best way is to borrow from yourself! Most financial institutions offer "savings secured" loans and credit cards. These are loans in which you put your money that you need to borrow into an account that the financial institution holds. Then, they make you a loan off that amount, you get the loaned money, make payments, and once it is paid back you get your original funds back too! This can be done with credit cards as well, which will help you build a better credit score quickly. A good amount to start with is $500 with a pay back period of at least six months. This will establish a payment history and begin to build up a score.

Co-Signer:

Most people do not realize they need credit until the day comes when they need to borrow money. The best way to get approved for a loan when you do not have credit is to ask some one with average to excellent credit to co-sign for you. When some one co-signs a loan for you, they are just as liable for the loan as you are. If you do not pay the debt, the collection company will bother you for the payment and your co-signer, and it affects both your credit reports.

Piggy-Backing:

If you do not have credit yet, or know some one who does not the other way to help establish credit is to "piggy-back" off some one who does have credit. Usually you can be added as a signer on a credit card of some one close to you who always pays their bills on time! It would be pointless to "piggy-back" off some one's credit card who is always delinquent, because that establishes a bad report for you! This is a very risky procedure!

Credit Mistakes:

Once you have established a score, you will begin to get several credit offers. You must be very careful about which credit cards you choose! Make sure you do not take out too many credit cards, because this can ruin your newly established credit. It is a good idea to have about three major credit cards. Major credit cards means cards that are accepted any where, not just your favorite store. Store credit cards can be damaging to your credit, because they generally have small limits, and people will typically keep them maxed out. The limit to keep on each card is up to you, but as a good rule of thumb you should not take out more than 10 to 15% of your annual income in unsecured debts and credit cards.

Fixing Bad Credit Legitimately:
There are several ways to fix bad credit, but you have to be careful on who you choose to help you. There are several companies out there that claim they can help you make your bad credit "disappear". This is either a scam or not legal, which can put you further in debt or behind bars! The best way to start fixing your credit is to get a free copy of your credit report through www.annualcreditreport.com and start looking for errors and making sure you are not a victim of identity theft. If you find errors on your report, you need to dispute that information. You can start by contacting your creditors directly by simply writing them a letter. You can also dispute errors either online on the credit bureaus website, or by writing a letter to the bureau. Each credit bureau may have different information on the reports, because not all creditors report to all three bureaus. Once you file a dispute with the bureau, they will send a letter to the creditor, who will only have ten days to verify the information. Once the information is verified or fixed it will reflect on your report in 30 to 90 days. It is always your best bet to dispute through the bureau, because it is the most effective way.

Settling:

If there are collections on your credit report that you are trying to clear up, the best way to start is by "settling" with the creditors. The will sometimes settle for "pennies on the dollar" or lessor amounts. Once you have paid it they will show on your credit report as "Settled for Lessor Amount." This will help improve your credit. If you are wishing they will go away, you are making a huge mistake. Collections can stay on your credit for a very long time, like a life time! After seven years they can drop off, or they can be sold to a new collection agency who will try to collect for seven more years, and so on and so fourth! It is in your best interest to take care of those, because it is better to show as paid for a lessor amount, than to be shown as a debt that you never paid.

Debt Consolidation:

A very popular way to pay off debts like this or other debts that have spun out of control are Debt Consolidation Loans. These are loans that you can take out to pay off multiple debts, with a goal of having one manageable payment each month. You are typically required to pay off and close any credit cards that will be paid with this loan. It is good practice to make any settlements with old debts and pay them with this type of loan if you can't pay all the money up front. Debt Consolidation loans can be risky, because they are typically unsecured loans which means a higher interest rate.

Credit Card Counseling:

The other type of credit relief if Credit Card Counseling or CCC. CCC will help you come up with a payment plan and budget that fits you and will help you contact your creditors to settle for lesser interest rates or payments. They are typically non-profit organizations that will not ask you for money up front. There are several of these companies that are legitiamate and reputable, so don't fall for an "upfront money due" scam! If you are unable to take out a loan like this and are falling deeper and deeper in debt it is a very last resort to file bankruptcy.

Very Last Resort:

There are two types of bankruptcy, Chapter 13 and Chapter 7. These stay on your credit report for ten years, and can prevent you from getting new credit. Chapter 13 is basically allows you to keep any property secured by loans by paying the debts back over a three to five year payment plan. You will pay back most the debts you owe in this type, but it will be managed by the bankruptcy court. This is the best type of bankruptcy, since you pay back all you debts you will eventually be able to borrow again. In a Chapter 7, all your assets are sold in order to pay back your creditors. Both of these are very long and stressful processes and will take years to finalize. These are a very last resort.

Your Rights:
You have the right to know what is in your credit report! You have several options to get access to your credit report, like www.annualcreditreport.com. You are allowed one free credit report per year, or if you are turned down for credit, lose your job, get turned down for a job, or suspect fraud. There are also companies you can pay to get a monthly update of your credit. Annualcreditreport.com is government regulated through the Federal Trade Commission, but does not give you your score for free, only the information from all three bureaus. You also can contact each bureau to pay for your credit report. Knowing your rights as a consumer is also important to keep in mind when applying for credit, because lets face it, there are very crude people out there! Some things to look out for are: denial of credit based on biased opinions, knowing what is in your credit report, knowing the cost and terms of the credit you take out, being able to resolve billing errors, and be aware of collection agencies breaking the law by deceiving you.