One of our readers, Sharon, sent us this question:

I am considering credit counseling services. Someone told me if I decided to go through with the program, it could impact my credit - making it worse than bankruptcy. Is this true? I’m having a hard time believing it is, but I’d like to get another opinion. Thanks

Dear Sharon,

Thanks for your question! There is not really a simple answer to this question, because it depends on the credit counseling service that you use. Just using a credit counseling service by itself will not hurt your credit score. Meaning that when you go, and sign up to have them help you manage your debt repayment, it will not show up on your credit score.

However, many credit counseling services can definitely damage your credit score as they attempt to negotiate your debt.

Here are the facts:

When I worked in collections for Providian Financial, we were allowed to negotiate settlements, balance reductions, remove interest, late fees, and over the limit charges. The normal customer service reps were not allowed to do this though.

What that means is that you usually have to be past due, and sometimes seriously past due on your credit cards to get many of these benefits. Credit counseling agencies know this, and it is a pretty common practice for them to hold the money you give them until you are seriously past due, and then negotiate a deal with your credit card companies.

So, yes, doing things that way will definitely hurt your credit score - sometimes more than a bankruptcy does. A bankruptcy is one incident as far as your credit score goes, and it is followed by an immediate reduction in what you owe. So while yes, bankruptcy hurts your credit score, months and months of late payments on several accounts can actually hurt it more.

Before you go to a credit counseling service, it never hurts to get all of your paperwork together, and contact the companies that you owe money to. Tell them you are considering credit counseling, or possibly bankruptcy. Ask them what they can do to help you.

All credit card companies have a policy for removing late fees, over the limit fees, accepting settlements, etc. If you take the time to find out what the policy is, and ask them to remove those fees, then you can probably handle the issue without a counseling service.

However, if you have a lot of accounts that have already been sold to collection companies, then you are probably better off just going to a credit counselor. They have a lot of experience in negotiating settlements with collection companies, and it will save you a lot of time and headaches.

Just be sure that whatever counseling agency you choose, that you understand their policy on debt repayment. Ask them if they plan to hold your money, and for how long? The last thing you need is to have months and months of bad marks going on your credit report while you are trying to do the right thing and resolve your debt.

Thanks for your question!

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TransUnion is in some serious hot water. They violated the terms of the Fair Credit Reporting Act when they sold the personal information and records of consumers (us!) to businesses hoping to target people in a certain credit range.

They have reached a settlement agreement, and pretty much everyone is set to get something out of it.

Here’s the skinny:

If you carried a credit card, mortgage, student loan, or auto loan between the years of 1987 to May 28, 2008, then you are eligible to get something out of the settlement.

Here’s the settlement offer:

• You can get six month’s of free credit monitoring from TrueCredit (TransUnion’s credit monitoring service) This includes your TransUnion credit report and score only. Value: $59.75.
• You can choose nine months of free credit monitoring. This includes your TransUnion credit report, the credit scores used by insurance companies, and TransUnion’s “Mortgage Simulator” service. The Mortgage simulator shows you how your credit score impacts your mortgage. Value: $115.50
• You can choose a cash settlement. Cash settlements will not be paid out for at least two years. If you sign up to receive a cash settlement, you will only be paid if there is money left in the $75 million dollar settlement pool after they calculate the value of all the credit monitoring services that were given to consumers as part of the settlement.

My personal take on this?

By themselves, your Transunion credit report and score mean very little. To get a full picture of your credit rating, at the very least you need to view your credit reports and scores from all three bureaus plus your FICO score. As far as the Mortgage simulator calculator, there are similar tools available for free online.

Personally, I’ll sign up for the cash settlement, and be happy if I receive it. However, if you have never monitored your credit report, and would like a free way to try it out, then it may be a good way for you to decide if credit monitoring is right for you.

You can register to take part in the settlement at the official site.

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There is quite a heated debate going on right now about whether or not you should sign the back of your credit cards.

Some people are staunch advocates of leaving the signature panel on your credit cards blank, while others prefer to write “See ID” because they believe it deters theft.

Some consumers simply sign, and don’t worry about it.

Let’s take a quick look at the real facts of the matter:

1. Leaving your credit card’s signature panel blank: Well, per the terms and conditions of every major credit card company, if you do not sign the back of your credit card, then the card is not valid. If merchants accept a credit card that is not signed, then they could be liable for the charges if your credit card is used fraudulently. If a clerk notices that the back of your card is unsigned, they are supposed to make you sign it in front of them, and then ask for your id.

The problem with leaving your credit card’s signature panel blank: If your credit cards are ever stolen, the thief can simply put their own signature in on the back, and then the signatures will match perfectly.

2. Signing the back with “Ask for ID”: If a store clerk actually checks the signature panel on your credit cards, they will ask you for your ID. This could possibly help prevent identity theft.

The problem with signing the back of your credit cards with “ask for ID”: Your card isn’t valid unless it’s signed, and merchants do not have to accept your credit card unless you sign it.

3. Signing the back of your credit card correctly - This is what Visa, MasterCard, American Express and Discover all say you should do. Your card is only valid once it’s signed. Signed card = smooth transactions.

The problem with signing the back of your credit card: If your card is ever stolen, then the would-be identity thief now has a nice example of your signature to copy. If they can get their signature to match yours very closely, then it can make it very hard for you to prove that you did not make the transaction.

4. Signing the back of your credit card and writing “See ID” : This is probably the best option, since anyone who bothers to look at it might take the time to request your ID, or at least to check and see if the signatures match.

Why it doesn’t really matter one way or the other:

Have you detected the weak link here? It’s the store clerks. Nine out of ten clerks do not ever flip that card over to look at the signature panel. If they do, it’s very likely that they are new, not working during a busy time of day, or they’ve been ripped off before.

No use thinking those in-store digital signature panels actually compare your signature either - they don’t. The truth is, no one is out there checking the signature panel of our credit cards. I wish it wasn’t that way, but it is. For some really hilarious anecdotal evidence of this, I invite you to check out The Credit Card Prank I, and The Credit Card Prank II.

Now, I am very sure that there are some good hearted cashiers out there who will doubtless prove me wrong (”I check the back of everyone’s credit card”)

I know there are good cashiers are out there. Some of them do their job, and do it really well. But 90% of cashiers could care less if your card is signed, or if the signatures match..

The point I’m trying to get across is this: No one is watching over us, or our credit cards to protect us from fraud. As consumers, this is our responsibility. We need to check our credit reports regularly, look carefully at our credit card statements, and not rely on the overworked staff at SuperMart to protect our identities.

Sign, don’t sign. Doesn’t matter.

If you do want to get the best of both worlds, then go ahead and sign your card so that it’s valid, and also write “See ID”. If you really want to feel better about the situation, then check your free credit report once a year, and review your credit card statements each month. You could also consider subscribing to a cheap monthly credit monitoring service that will alert you to identity theft if it happens.

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When it comes to credit monitoring services, there are a lot of options available - and they are not all created equal!

One of our readers, Stacey, sent us this question:

I am thinking of joining Identity Guard or something else to help monitor my accounts and to tell me what my score is. Is it worth it?

Thanks for your question Stacey!

Credit monitoring services are a valuable tool. They help you monitor your credit reports and keep them free from errors, help you prevent identity theft, and allow you to track your credit score. Whether or not they are worth the ongoing expense will depend on your situation.

Most credit monitoring services run about $15 a month and up depending on what you sign up for. Credit monitoring services charge extra for things like tracking your credit scores, and how many of the three credit bureaus you want to view reports and scores from. That said, there are certainly times that you will probably want to track your credit scores and reports no matter what:

• If you are planning to purchase a house, or a car in the near future.
• If you think you may be a victim of identity theft, or if you have had your identity stolen in the past.
• If you plan to get a loan of any type soon.
• If you are rebuilding or trying to raise your credit score.
• If you have secured credit cards and need to know whether or not they report as secured cards, or report to all three credit bureaus.

It is important to understand that all three of the credit bureaus have their own system for computing your credit score, and that those scores are separate from your FICO score. Before you agree to pay monthly for a credit score, be sure that you are paying for the scores that you want to see. Credit card lenders will usually check your credit scores at one (or more) of the three credit bureaus. Anything bigger than that (house, car, bank loan) and they will most likely check your FICO score instead.

Some credit monitoring services will show you your FICO score, and some will not. Read those terms and conditions carefully.

As for which credit monitoring service I recommend:

In the past I have faithfully used TrueCredit, Transunion’s credit monitoring service. However recently I have switched to Id Patrol from Equifax, and I am much happier with it. Here’s the lowdown:

Transunion (True Credit):

• Their pages are full of targeted advertising, and it can sometimes be difficult to locate the information you need.
• They offer too many choices - for $15 a month I can either see just my Transunion credit score and Transunion credit report, or I can view only my credit reports at all three credit bureaus. If I want to view my credit scores at all three bureaus I have to upgrade.
• By the time you add in all three credit bureau scores and reports, plus your FICO score, you can pay as much as $45 a month. Personally, I find that ridiculous.

Id Patrol (Equifax), on the other hand has some really neat perks:

• They have far fewer advertisements.
• Everything is well organized, and easy to understand.
• $15 a month gets you your credit reports (not scores) from all three credit bureaus, and your debt-to-credit ratio is clearly spelled out for each.
• They have several identity protection features, including a very nice identity theft insurance package at no extra charge.
• The identity theft insurance pays for a wide range of expenses. It even includes paying for your time off work to get everything straightened out.

With all of those extras, plus the easy to read format, I switched to Id Patrol. I am very, very happy with it. I do recommend it for anyone who wants to monitor their credit, because they have more features in the same price point as all of the other credit monitoring services.

Thanks for your question!

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One of our readers, Kali, sent us this question:

I was wondering how asking my credit card company to increase my credit limit will affect my score. I would like to take advantage of a 0% promotion. thanks - km

Hi Kali, thanks for your question.

Getting a credit limit increase will not hurt your score. In fact, it may actually raise it because it will lower your debt-to-credit ratio. Your debt ratio is factored by weighing the amount of money you have already borrowed, against the amount of money it is possible for you to borrow. In otherwords, your credit limit vs. what you’ve charged. The goal is to keep the amount you have charged well under 30% of your available credit.

So, if you raise the amount of money it is possible for you to borrow (by asking to have your credit limit raised) without going out and spending more money on credit, then your score will go up.

Now this holds true for existing accounts where you just call and ask for the limit to be raised, or where your credit card company raises your limit for you automatically. However, if you are responding to a new offer, like a balance transfer, or a completely new card, then you can expect your credit score to take a small hit because they will have to pull your credit score to approve you for the new account.

The key thing to understand is that new accounts only represent ten percent of your FICO score, while the debt to credit ratio represents 30 percent of your FICO score. That means that going ahead and getting that credit limit increase will help you more than it will hurt you.

Thanks again for your question!

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On August 22, GE Money Bank announced their new Chevron and Texaco Visa Rewards Credit Cards.

The cards offers several tempting features including:

• Gas credits up to 10¢ per gallon when you fill up at Chevron or Texaco Stations
• Gas credits of up to 3% of your total purchase when you buy non-gas items at a Chevron or Texaco.
• Gas credits of 1% when you use your card for anything, anywhere.
• No Annual Fee

Here’s the skinny on the promotional rates. The current offers are good through September 30, 2008.

From the official website:

This offer is available on new Chevron and Texaco Visa Card Accounts and Credit Card accounts approved between August 1, 2008 and September 30, 2008.

Promotional credit offer of $.30 per gallon is good for 60 days from the date the application is approved—on up to 200 gallons per billing month. Credits will automatically appear on the cardholder’s monthly statement. Offer is valid at all Chevron and Texaco branded retail stations.

A maximum of $300 in total Fuel Credits may be accrued and redeemed in any calendar year.

What we think:

Now, this is not a bad card, and the offers certainly look tempting enough - until they expire. But if you really want to maximize your rewards consider the alternatives:

• The Discover Open Road Card - You get a 5% rebate on gas and auto maintenance purchases, and you can buy your gas anywhere you want to. You also have the option to double your cash rebate by taking it in gift certificates from participating merchants. To read more about this card you can click here.
• The Chase BP Visa Card - 5% rebate on purchases at BP Amoco, 2% rebate on dining and travel purchases. No Annual Fee. You can read more about this card and it’s benefits when you click here.

All in all the Chevron and Texaco Rewards Visa has a nice initial package, but there are better reward cards out there.

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Good Morning Everyone!

I got up this morning and had a notice in my mailbox from my True Credit monitoring service:

Dear Jenna,

Per recent regulations, credit bureaus are now required to report any account as “included in bankruptcy” if they have a status of discharged in existing public records of a Chapter 7 Bankruptcy. Previously, only creditors were required to report this information.

If you have a credit card, loan or collection account that was never reported as “included in bankruptcy” and was discharged through Chapter 7 Bankruptcy, a credit alert may be sent updating it to “included in bankruptcy.” Due to the age of these records, they may not trigger an alert. However, you should be aware that any possible alert would not indicate recent activity on that account.

You may experience a slight change in your credit score if any of your accounts are updated due to a bankruptcy. The more recent the bankruptcy, the more of an impact it might make on your credit score. Any update would be made by September 1, 2008.

Sincerely,
TrueCredit

So, what does this mean to you? Well, if you have ever declared bankruptcy, then it means a lot.

After my bankruptcy I still had several collection accounts, particularly the ones from GLA (a medical collections company) that continued reporting my debt to all three credit bureaus - even though it had been included in my bankruptcy. My credit score took a huge hit from the bankruptcy, and an even bigger hit when they continued to report the negative collection accounts.

Before this change, it was up to your creditors to adjust their own accounts, and report them to the credit bureaus as being included in your bankruptcy. This would have created a lot of footwork for either you or your lawyer (it did for mine) when you declared bankruptcy because they had to contact everyone you owed, and then hope that they corrected it in their own records.

Now however, you do have a different option. You still need to have your lawyer contact your creditors, but after your bankruptcy goes through you actually have a leg to stand on if these creditors continue to report your accounts as open.

Create free accounts with all three of the credit bureaus (Transunion, Equifax and Experian) and make sure you challenge anything that is still reporting incorrectly. They will update your account (I’m sure it could take up to a month) and it will raise your score.

If you have declared bankruptcy, or are thinking of declaring bankruptcy, then you need to know that just declaring bankruptcy will not always take care of your debt as far as your credit reports are concerned - you have to do that on your own. Yes, it’s trouble, but the upside is that it will raise your score and you will be on your way to recovering from that bankruptcy almost immediately.

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Good morning everyone! We had a couple of quick reader questions I wanted to share with you today.

One of our readers, Brian, sent us this question:

Can one person transfer a balance to another person’s card? Allow me to elaborate.

I have two cards in my name. One was obtained 6 months ago to use the 0% balance transfer feature. My fiance has no cards yet and would like to start building some credit as her score is not stellar. Would it be possible for her to get her own card with a balance transfer deal and transfer a balance from one of my cards? Or can someone transfer only between cards with one name on it?

Thanks for your advice on this topic.

Thanks for your question Brian!

The short answer is no, you cannot do a balance transfer from one person to another, just from one account to another account with the same person’s name on it. It is excellent that your fiancée wants to improve her credit. My recommendation to her is this:

Start with a couple of secured credit card accounts. I highly recommend the Orchard Bank Secured Credit Card. In my opinion, it is the best of the secured credit card accounts out there. You can find out more about secured credit cards by checking out our detailed page that discusses the rates and terms for the available secured credit card accounts.

Just in case you’re thinking “A secured credit card?? Why would she want to get one of those? You can read our recent article on the subject here. They really are the very best way to rebuild your credit.

Also, I would recommend that you add her as an authorized user on your credit card accounts. FICO has just released a statement saying that they will now factor “authorized user” accounts into your credit score.

Just be sure to keep your own balances under 30% of the total amount you can borrow, and make your payments on time. Otherwise you will not be doing her any favors. If you are carrying a zero balance on the card you just transferred the balance from, then it would be best to put her on that account and not charge anything on it.

Thanks again for your question, and good luck to you both as you build your future together!

A double feature!

We also had another reader, Sherri, who wondered:

Can you use a credit card to purchase a house?

I don’t see why not, if you had an available limit that high. That would be rare though, even if you were looking at purchasing a foreclosed home. Also, charging that much money to one account (or several) in a single month would lower your credit score because you would almost certainly be over the recommended 30% of your available balance. It would be a bear to try to pay off as well!
Interesting question! Thanks for taking the time to ask.

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If you are in the process of repairing your credit, then getting a secured credit card is an excellent option.

In the past, secured credit cards were viewed warily by lenders; they were a mark of mis-managing your debt. Today though, secured credit cards do not really have the same stigma attached to them, and in some cases they can be a very positive sign that you are taking steps to re-build your credit after a disaster.

You are an excellent candidate for a secured credit card if you have ever been through any of the following:

• Bankruptcy
• Judgments
• Credit Card, Loan, or Debt Charge-offs
• Frequent Late Credit Card or Loan Payments
• Unpaid Medical Bills

There are more reasons than ever before to take secured credit cards seriously. Here are just a few of the many reasons you will want to start with a secured credit card while you re-build your credit:

Secured Credit Cards have lower interest rates than bad credit, unsecured credit cards:

Yes, you can probably still qualify for an unsecured credit card of some sort, even with a bankruptcy. However, most cards that cater to people with low credit scores have high fees. It is not unusual to see a $250 application fee, and a $100 yearly fee coupled with a 20% (or higher!) interest rate on an unsecured, bad-credit credit card.

Secured credit cards, on the other hand, require $200 - $300 dollars to open, and you will eventually get that money back. They also usually have interest rates under 10%, and low, or no yearly fees.

Many secured credit cards do not report as “secured credit cards” on your monthly credit bureau reports. This means, that to a lender, those secured credit cards are exactly the same as having unsecured credit cards.

With a secured credit card, you can raise the credit limit any time you want to by depositing more money:

Now, this is huge. With most credit cards (especially if you have bad credit) getting a credit limit increase is like pulling teeth.

Thirty percent of your credit score depends on your debt-to-credit ratio. This means that if you ever charge more than 25% - 30% of your total available balance, your credit score will drop.

So, what happens if you want to put your monthly bills on your credit card to make things easier? Well, with an unsecured credit card, you would be out of luck. With a secured credit card however, you can total up the amount you want to charge each month, and figure out how much you need to increase your limit so that you stay under that 25% rule.

Secured Credit Cards act as a failsafe:

If you lose your job, or have trouble paying your bills, and cannot pay down your credit card, then you can use the money you have in your secured savings account to pay the balance on the card.

You will never again have to worry about defaulting on a credit card because the amount you borrow has been previously set aside. That is real peace of mind – especially if you have defaulted on a credit card before and experienced a number of collection calls.

Banks that issue secured credit cards are more likely to issue you unsecured limit increases, or an unsecured credit card after a couple of years:

If you have an excellent payment history with your issuing bank, wait a year or two, and see if they will issue you an unsecured credit card in place of your old secured one. You will then get your deposit back, and depending on the issuing bank, you may even be paid a small amount of interest on your original deposit.

All in all, secured credit cards are one of the best deals out there for people who are working to re-build their credit. With so many things in their favor, they really are the best place to start out.

Secured credit cards are also an excellent tool for people with no established credit history, or anyone who needs to be able to regularly increase the limit on their credit cards.

To find out more about which secured credit cards are available, and what their terms and interest rates are, please visit our secured credit card pages.

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Keep Reading:

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One of our readers, Matt, sent us this question:

I am 36 make 100K and have no credit cards or savings. I am married with 4 kids 9-15. I have a mortgage (30year fixed 6.125%) I owe about 79K, payment is $800, 2 new cars with $359 5% (26K balance 5 years left) + $589 0% (28K balance 4 years left). Boat payment $150 6% ($6500 balance with 6 years left)

My score is last I saw just under 700.

How many credit cards should I get to boost my credit score? Should I try to get credit cards with the highest limit? If I do not use the credit cards will they still increase my credit score.
I have always been against using money I did not have, but apparently this is not good for your credit score.

Quote from above
“If you give your accounts time to age, get your total debt to under 10 percent of your available credit”

Does this only refer to credit cards? If I open available line of credit at the bank but do not use it would this also boost my available credit? Do mortgage and auto/boat loan balances get considered as available credit? Or do the count as debt so it equals out? Should I open 2 credit cards, 1 or 3?
Please advise as to how I can boost my credit/FICO score?

Hi Matt, thanks for your question!

Let me pull your questions out and answer them one at a time:

> I have always been against using money I did not have, but apparently this is not good for your credit score.

I totally agree with you there! The truth is the most responsible use of credit is to have plenty of available credit, but not use it.

Having the available lines of credit can act as an additional safety net for your family in a time of need, and as long as you do not use the cards or charge them above 20%-30%, then your score will continue to go up. Just make your payments on time, and keep your balances low.

> How many credit cards should I get to boost my credit score? Should I try to get credit cards with the highest limit? If I do not use the credit cards will they still increase my credit score.

I would try to get two or three rewards credit cards, or at the very least, a couple of low-fee credit cards. Having the cards and not using them will still increase your score.

Open each new account up about 6 months apart to minimize the inquiry damage to your credit score. 2-3 credit accounts is plenty. Do not get cards with no pre-set limit. Some of them report the amount you charge as being the limit, which will not help you raise your score. Just stick to regular Visa or MasterCard accounts.

>If I open available line of credit at the bank but do not use it would this also boost my available credit?

Yes, it will. You can also consider taking out a loan, putting the loan amount in a savings account, and then just using it to repay the loan. You will have to pay the interest on the loan, but the timely payments will raise your score as well.

> Do mortgage and auto/boat loan balances get considered as available credit? Or do the count as debt so it equals out?

It’s pretty much just like a credit card. As far as your credit report is concerned, you borrowed X amount of dollars, and you still owe X amount. The debt-to-credit ratio makes up 30% of your credit score. The end goal is to get the entire amount you owe on everything under 30 percent.

The total financial picture:

You have nice interest rates on your current loans, and you obviously make payments on time. The only part that bothered me was this sentence:

I am 36 make 100K and have no credit cards or savings.

Ok. So, let’s take a look at that. You make 100k a year. You currently owe $139,500 on all your accounts. My very frank advice to you is this: Open a single credit account and then work towards having at least 10k split between a high interest savings account, and an investment account. (Not a retirement account).

Make sure that you are carrying enough life insurance too. You need to have at least $150,000 worth of insurance to pay all of your debts and cover burial expenses. Term life is cheap, and readily available without a physical.

I would go ahead and get one credit card now. Then, wait six months to open up the other new account. Once you have your emergency fund set up, and your insurance in place, consider getting one more; say a low interest, low fee Visa, or maybe a rewards MasterCard. You can get the details on those here.

Three accounts is the most you should really need, and you may not need that many. Check your FICO score periodically to see how well it is going up before you even open up a third account.

The reason I recommend doing things this way is because together your savings fund and your credit cards will be a powerful shield for you and your family in a time of need. Right now, if you were to lose your job, or something were to happen, you would not be able to make your payments.

Having even $5,000 in savings would give you time to find another job, or pay unexpected medical bills. Having your credit cards as a backup to your emergency fund will give you and your family real security no matter what happens. Remember that you do not have to use your cards to raise your score, you just have to have the open accounts.

Thanks again for your question!