A reader, Sherri, had this question:

I have a few questions.

We called last November to close some of our more recently opened accounts with smaller lines of credit and decided to keep the longer open accounts with the largest available lines of credit.

Q1) Was this a smart move?

When I called Discover to close my account, I was asked if there was anything they could do to make me want to keep the account open. I said no.

Q2) What CAN they do for a customer in this situation?

I almost immediately regretted closing that Discover account, since it was opened in my name and not my husbands name.

Q3) When you are married are your credit scores tied together or is that an individual thing? Should I have kept that account open? I’ve had it since 1996.

My FICO score recently went up 23 points to 744.

Q4) Was this because the 90 days to call Discover and change my mind to keep my account open had passed and it was removed from my open accounts on my credit score? Or did something else effect my credit score increase?

We have about 15 credit cards open and thought we should close some of them. You recently posted it is better to keep credit cards open than to close them. We have approximately $200,000 available to use on credit cards. We chrge about $3000 a month and we pay it off each month.

Q5) How much credit is too much?

Thank you for your questions Sherry.

Question #1: Was It A Smart Move To Cancel Your Credit Cards?

Generally it is better to leave your credit accounts open than to close them. In your situation however, I doubt that it hurt your credit score very much, if at all.

As you said, you have other, much larger lines of credit that are going to factor into your credit score. The fewer accounts you have, the more it hurts your credit score if you close one.

Question #2: What could Discover have done to keep you as a customer?

If you had asked, they could have lowered your interest rate, removed any fees on the card (annual fees, etc.) or possibly upgraded you to a better card entirely.

That’s in theory. Those are all typical customer retention offers. As far as what leeway you had with that individual card, it really just depends on the policy of the issuing bank.

If you are concerned about closing out that account, you can always call them back and see if they will work with you to re-open the account under better terms. I’m not sure how the “90 days to change your mind” works. It definitely doesn’t affect your credit score.

It’s possibly a marketing tactic, making you think that you have a deadline. It wouldn’t hurt to call and ask about re-opening if that is what you decide you want to do, past the 90 days or not. The worst they can say is no.

Question #3: Are your credit scores tied to your spouse’s?

Yes and no. Getting married does not automatically tie your credit score to your husband’s. Only sharing joint accounts, being listed as an authorized user, or signing on a loan together will do that.

Even then, it is only for those specific accounts. If your husband makes a late payment on an account that you do not share, then it will not affect your credit score in any way.

If your Discover card was the only revolving credit account that was in your name, then you do have a problem. You will always want to keep between 1 and 3 credit accounts that have your name as the primary card holder. (Meaning that it is your credit account, and he is authorized to use it) not the other way around.

Question #4: Why Did Your Credit Score Go Up When You Closed Your Credit Accounts?

FICO scores are difficult to predict. FICO itself keeps the top secret formula under lock and key and only releases “guidelines” that we are all supposed to follow without understanding how one area could really impact another. It’s not fair, but it’s the truth.

So, the best I can do in this area is ask a couple of questions:

• Had you recently paid off a credit card or two? If so, it may have lowered your debt to credit ratio and boosted your score.
• When was the last time you opened a new credit account? If it’s been a while, then it could actually be that FICO is starting to reward people for intelligent financial behavior. Applying for too many new credit accounts at once will always lower your score. It’s possible that taking care of the credit you have, and closing out the smaller lines of credit can actually raise your credit score too.

I really wish I could answer that more directly, But the truth is, only the people at FICO know. There’s probably a guy out there that does nothing but walk around with a top-secret briefcase handcuffed to his wrist that contains all the FICO formulas. It’s that difficult to figure out sometimes.

As far as the publicly released guidelines go, you can read about those here:

Question #5: How Much Credit Is Too Much?

This is an excellent question, but a tricky one. The answer is, it depends on which credit bureau the bank checks when you apply for a loan.

I have heard of people being denied credit based off of an Experian credit report that said they had too many revolving accounts.

The problem is, each credit bureau has it’s own credit scoring system. And each of the three bureaus uses a different system than FICO does. Which credit score lenders use is completely up to them, they can pull your FICO score, or any of your scores from the three credit bureaus.

As far as I know, Experian is the only bureau that penalizes you for having too many revolving credit accounts (and even they don’t specify how many accounts is “too many”.)

The best answer really is a financial one: Have as many revolving credit accounts as you can comfortably manage. Whether that number is 0, 1, 5, or 30, as long as you make your credit card payments on time and do not charge more than 30% of your available credit, then all of your credit scores should be pretty healthy.

FICO’s recommendation is a minimum of three revolving accounts all with records of good payment. There is no maximum recommendation.

To go along with this question, I thought you might enjoy Madison’s story. At one point she and her husband had 89 credit accounts, with over $1,000,000 in available credit. She never did get penalized on her credit score for it – in fact her score is very, very high. That might set your mind at ease a bit.

Thanks again for your question!

Have a question for us? Leave a comment below!

Keep Reading and Grab Our Free RSS Feed:

• Can Your Spouse Hurt Your Credit Score? The Good, The Bad, And The Ugly
• Financial Lessons from 10 Years of Marriage
• Do You Lie to Your Spouse About Your Credit Cards?

A reader, Jack, had this question:

Is wage garnishment a possibility in bankruptcy? We have a company that might have to be closed. But as we have given personal guarantee they will come after us after that. If my spouse is a high earner can he be pulled into pay through using wage garnishment?

Jack

Thanks for your question Jack. The laws that cover wage garnishment vary by state, so you will need to have a quick (and free) consult with a lawyer where you live.

I can give you a general idea though. At the very least a collection company will be able to sue, obtain a judgment, and get their hands on your joint assets.

As far as garnishing his income, it really does depend on your state’s laws.

Typically with a bankruptcy though, the debt should be covered within the bankruptcy. The collection company should not be able to garnish anyone’s wages over any debt that was included in your bankruptcy filing.

Definitely email a local law office to check, but as long as the debt was included in the bankruptcy (either with a repayment plan or without) then the bankruptcy itself should stop all possibility of a garnishment.

How to get credit without a credit history:

What can you do when you have no credit history and want to build one? What if no one will give you credit?

One of our readers, Amanda , had this question:

Mr Credit Card,

I graduated from high school June ‘08 and am attending college in Fall ‘09. I’ve tried to get credit cards to help pay for my schoolbooks and laptop but haven’t had any luck because I basically have no credit history.

How can you build your credit history if no one will give you credit? Especially someone fresh from high school?

Amanda

Hi Amanda,

It can be a little difficult to get the ball rolling as far as credit is concerned, but not impossible.

Here are a few tips that can help you build a great credit history, so that you never have to worry about getting credit again:

Why You need a secured credit card:

Secured credit cards usually have very fair terms, and they are designed to help you build a solid credit history. Secured cards pretty much always report to each of the three credit bureaus every single month. So as long as you pay your bills on time, you get a positive payment record that will literally raise your credit score every month.

Secured credit cards are also very easy to get since you are securing the loan with your own money. You can start a secured credit account with as little as $200 – $300 dollars. The amount you deposit becomes your credit limit.

Secured cards are also a wonderful fail-safe for someone just starting out like you are. If, for any reason you aren’t able to pay off your bill, then the money you deposited will be used to pay the bill. This default protection can literally save your credit score if something happens.

If all goes well, in about six months to a year, your secured credit card should convert to an unsecured credit card and you will get your deposit money back.

Secured credit cards also have much lower interest rates than unsecured credit cards for people with little to no credit.

You can find out more about secured credit cards by visiting this link:

Why You Need An Unsecured Credit Card Too:

Unsecured credit cards for people building their credit do not always have wonderful terms, but you will still want at least one of them.

Occasionally, some secured credit cards will report as being a secured loan on your credit report. (Most do not, but a few do). So, just in case you want at least one revolving credit account that does not report that way.

Try to make sure that whatever card you choose does report to all three credit bureaus each month. Otherwise that card will never help to raise your credit score.

You can find out more about credit building credit cards by clicking the links below:

Why You Need A Store Credit Card:

The fastest way to raise your credit (as far as I can tell) is to have at least three revolving credit accounts.

Store credit cards are typically very easy to get. Target is probably a great place to start, as well as any place you shop at regularly. Walmart, etc. Someplace where you can buy school supplies as well as groceries.

You can learn more about store credit cards by following this link:

How to manage your credit accounts:

There are a few other things you need to know before you start putting in credit applications. These things will literally save your credit score if you do them right.

You have the chance right now to build an amazing credit history. If you do that, you will never have to worry about being able to finance a car or a house, or get a loan. All you have to do is consistently follow these steps:

1. Make your monthly payments on time, every time: Set up an auto-draft out of your checking account if you need too, but never, never pay the bill late. No matter what you have to do!
2. Keep your balances low: Companies do not like to give cards to people with no credit history because they have no idea how well, or poorly they will use credit. If you want a high credit score, then you should never charge more than 30% of your available credit.

   That means that if you have a credit card with a $300 limit, you should never charge more than $90 on it for any reason. The minute you do, your credit score will not go up – even if you make your payments on time.

3. Pay your balance off in full each month - This last step is the most important one. Please, please do not ever get into the habit of carrying a revolving balance on your credit cards. If you follow this one simple rule from the start, you will always be better off than at 90% of the population of the United States. Don’t fall into the credit trap! If you carry a balance you will never be able to use some of credit’s greatest rewards – things like cash back offers and reward points. They only work for people who pay their bills in full each month.

As a final note, do not apply for all three credit cards at once. Doing so will lower your credit score and actually make it more difficult for you to get a loan. Put in a single application, and then wait at least a month or two before putting in another application. This gives your new credit card time to report positive payment, and it gives your credit score a chance to recover a little before you have any more inquiries.

Thanks for your question, and best of luck as you build your credit history!

Have a question for us? Leave a comment below!

Keep Reading:

• Can Your Spouse Hurt Your Credit Score? The Good, The Bad, And The Ugly
• Debt Your Spouse Doesn’t Know About
• Should One Spouse Have All The Credit Cards?

A reader, Jamie, had this question:

If I co-sign for a loan, and need to get a loan myself, can co-signing prevent me from getting a loan for myself?

Jamie,

Yes, co-signing for someone else can keep you from getting a loan. It will depend on what your credit score is, how much other debt you have, and whether or not the person you co-signed with makes their payments on time. If they do not make their payments on time it will hurt your credit score.

As far as co-signing goes, you are liable for the debt just like the person you co-signed for. It will show up on your credit report just like you had opened up the loan yourself.

Also, if the person you co-sign with defaults, you are the one that is liable for the debt.

Assuming the other person pays their bills on time, you will still want to take a look at all of your total credit accounts. Are you using more than 30% of your available credit limit on any of your credit cards?

If you are using more than 30% of your credit, and you do co-sign for a loan, then it would be best to pay some of your debt down before you try to get another loan.

If you have a really excellent credit score (over 750) co-signing may not hurt you that much. It really depends on your total credit profile.

In your shoes, I would purchase your credit scores from FICO both before and after co-signing. This will give you the best idea of how co-signing for the loan impacted your credit rating.

I wish I could be more specific, but FICO’s credit score formula’s are closely guarded. The best I can do is give you a breakdown of how they are computed, and tell you that yes, co-signing can definitely effect your ability to get credit.

Thanks for your question!

What’s Cabela’s Address?

It’s bad when so man retailers expect you to pay online that they stop printing their addresses publicly!

A reader, Jim, had this question:

I need to know the billing address for Cabela’s visa credit card.

Jim

Jim,

Cabela’s website is frustratingly out dated, wasn’t it? It was difficult to find any information, at all regarding the Cabela’s Visa card.

While I was unable to find a direct billing / payment address, you can call World’s Foremost Bank (the issuing bank for Cabela’s Visa) at 1-800-850-8402. They should be able to answer any of your billing concerns.

What should you do about paid-off credit cards?

Finally, another reader, Mr. Stone, wondered what to do about his paid off credit cards.

I have several credit cards with a $0 balance is it better to close them or leave them open with the $0 balance?

Thanks for your question Mr. Stone.

Congratulations on getting your credit cards down to $0 balance!

If you want to raise your credit score, (or maintain a great one) then there is a two step process that you will want to take.

Step 1: Keep Your Accounts Open

Closing out a credit account lowers your credit score. It is always better to leave credit accounts open than to close them.

My only exception to this rule is if the credit card in question charges a high yearly fee, or if the customer service is so bad that you have to call halfway across the world to make a payment.

Step 2: Charge SMALL amounts to the credit cards each month.

Charge $20 or $30 on those two cards each month. Then make your payments early, before they can charge you any interest. This small balance, and record of timely payments will definitely raise your credit score over time.

It’s trouble to do, and trouble to keep up with. Especially if you want to stop using the cards. However, it’s the very best thing you can do to raise your credit score. Charge a small amount, pay the balance in full each month before the interest is computed.

If there are fees on the cards, call and ask to have them waived.

Now, if charging and paying off the cards each month sounds like too much trouble, just make sure that you waive any fees and leave the accounts open if possible. There is no reason for your credit score to take a hit – especially since you paid off the credit cards.

You can take full advantage of paying off those old credit accounts by leaving the accounts open instead of closing them.

Thanks for your question!

Have a question for us? Leave a comment below!

Keep Reading and Grab our Free RSS Feed:

• How Does Co-Signing A Loan Affect Your Credit?
• Dangers of Co-signing – It Becomes Your Debt!
• The Co-signer Dilemma

A reader, J., had this question

My credit score is significantly lower than my wife’s (medical bills). She put me on as a card holder on one of her credit cards that’s in her name. Does my lower credit effect hers if I’m on her credit card account? Thanks.

J.

Thanks for your question J.

There are some specific guidelines that couples can follow in order to protect each others credit scores.

Authorized Users on a Credit Account

If the credit account is in your wife’s name, and you are an authorized user, then it can actually raise your credit score, and it will not lower hers.

As long as your wife makes her monthly payments on time, and keeps the balance on the shared account below 30% of her available credit, then this card will raise both of your credit scores.

However, if she pays late, or uses too much of the available limit, then that account can damage both of your credit scores.

Medical Bills

You are concerned about your medical bills impacting your wife’s credit. As long as her name is not on those bills anywhere, then they will never effect her credit.

Even if you were to open up an account, and add her on as a joint user, those medical bills would still not effect her credit.

Only the specific accounts (or debt) that you share with your wife matter to your credit scores. Anything that is only in one person’s name will never effect the other person’s credit.

Thanks again for your question.

What should you do if you think you’ve made a bad decision about which credit card to get?

A reader, Fred , had this question:

I have recently applied and paid for an Applied Bank secured credit card but today i found tons of online complaints on this company have i made a mistake if so what do I do?

Thanks for your question Fred.

When you app0ly for credit several things happen:

• The credit card company checks your credit score before o0ening the account – This creates what’s known as a “hard pull” on your credit report, and it slightly lowers your credit score.
• Once you get the account, the bank begins reporting your payment activities to the credit bureaus. In the case of secured cards, they usually report to all three credit bureaus (or at least two of the three credit bureaus) every month. This record of timely payment raises your credit score slightly each month that you have the account.
• Since this is a secured credit card, you do eventually get your deposit back when you close the account. However, closing the account can lower your credit score.

Why does closing a credit account lower your credit score?

When you close a credit account, it effects several parts of the formula that FICO uses to compute your credit score. The number of open accounts you have matters, as does how long your accounts have been open.

In your situation the very best thing you can do is to keep the card for a while unless you have horrible problems with them yourself.

Ever credit card company has records of bad behavior online. Every single one. No business is perfect. Banks that offer “bad credit credit cards” in general can take advantage of consumers a little more than banks that market to people with good credit.

Unfortunately, it is probably something you will have to deal with for a little while if you want to raise your credit score. You were smart to pick a secured credit card instead of a high-fee sub prime credit card. They offer much better terms.

Long story short, just make sure you keep the account open as long as you can stand to. Charge very little on the card each month (about 10% of your total available credit) and make your payments on time.

If you do this you will get the full benefit of having the card, and you will be able to move up to much better credit offers in six months to a year.

When you are ready to move on to better credit cards, make sure that you open those accounts up first, before you close this one out.

If it turns out that the company has treated you well instead of poorly, you can also ask them to convert your secured credit card to an unsecured credit card in the future.

If you do run into problems with the company, you can always close the account out. Just make sure that you open up an additional credit account before closing this one out. That’s the easiest way to manage and improve your credit score.

Thanks for your question!

Have a question for us? Leave a comment below!

One of our readers, David, had this question:

What if I buy a 4k car with 1k down (total 5k) on a credit card and then make the minimum payments for a few months before I “can’t” afford them. What happens?

David

David,

If you finance a $4,000 car on credit and then default on the payments, it will ruin your credit. Let’s take a closer look at the situation though.

What happens when you default on a credit card?

Defaulting on a credit card sets a specific path in motion:

1. The credit card company will begin collection activities - This begins with calling your house, and calling you at work or on your cell phone. If you refuse to speak with them, or continue not making payments, you move on to step two.
2. Collection Activities become more persistent - You will get several letters in the mail. If you refuse to speak to your credit card company at all, or tell them they have the wrong phone number, your account will go to what is known as “Skip – Trace”. The skip trace divisions of credit card companies exist to track you down. This means that they will literally call everyone in the phone book who shares the same last name as you do, among other things.
3. Your debt will be sold - After refusing to make payments over several months, and having no contact with you, the bank will most likely cut it’s loss and sell your debt to a debt collection company. Or they will outsource it, and collect a percentage of anything the company manages to get form you.
4. If you refuse to speak to the professional collection company (and they will use even more aggressive and rude contact methods) then the collection company will usually seek a judgment.
5. You will have to go to court and settle your debt, or your wages will be garnished.
6. The only way the debt will disappear after this point is if you either pay it, or declare bankruptcy.

So, that’s the bad route. At every step along that path you will have the opportunity to make a payment arrangement and take care of the debt.

Now with that said, I think what you are getting at is that you want to purchase a car with a serious discount.

If you were to put $1,000 down, finance $4,000, and make the payments for a few months, you could try this alternate step:

1. After making your payments for several months, contact a debt negotiation agency. This agency will represent you to the credit card company, and negotiate to decrease the amount of your debt drastically.
2. In order for the debt negotiation company to do this properly, they may make late payments in order to reduce the total amount of your debt. (Not all companies do this, but some do). It means that you will have late payment records on your credit report. You can challenge those late payment marks later, but there is no guarantee that you can have them removed.
3. The debt negotiation agency will have to close your credit card account in order to negotiate and reduce your debt.
4. You will also need to be prepared to make a larger, one – time lump sum payment. If the debt negotiation company can negotiate the debt down to around 33 cents on the dollar, then that is the payment you will have to be prepared to make in order to get the settlement.
5. Debt negotiation companies can help anyone reduce their debt, even those that probably can afford the payments. However, this method does damage your credit score. You will have to decide whether or not several late payments, a closed credit account, and a record of a settlement on your credit report is worth reducing the $4,000 debt of the car down to around. $1,320.

For help with that decision, I can refer you to a couple of our articles, as well as a debt negotiation expert who can better answer your questions about that process.

Here are the articles for more information:

• The FICO® Score Breakdown - How will these actions impact your credit score? Learn more about how credit scores are calculated here.
• How to Raise Your Credit Score In 7 Easy Steps - If your credit score was damaged from a default, here are some simple steps that will help raise your score back up.
• Can Your Spouse Hurt Your Credit Score? The Good, The Bad, And The Ugly - If you are married, don’t ruin your spouse’s credit with a default. Likewise, do not use a co-signer.

For more information on debt negotiation, you can listen to our interview with Mr. Sam Sky from Debt Negotiation Associates.

You can also ask Sam a question directly by filling out a quick form here.

Thanks for your question!

Carnival Roundup:

Thanks go out to these blogs for featuring our articles in their carnivals this week:

• Carnival of Twenty Something Finances – Oscars Edition! at Stingy Students.
• Carnival of Financial Planning – February 21 2009 Edition at The Skilled Investor’s Blog
• The 25th Bankruptcy & Debt Carnival at Bankruptcy Access
• Money Hacks Carnival: Bailout Edition at Personal Finance Ology
• Best of me symphony at Dodgeblogium
• The Third edition of the Carnival of Everything Money at The Penny Daily

I am married and I used to be the primary card holder on our accounts. Over the years, we have found it easier to have my wife be the primary card holder as she is the one who pays the bills, handles credit card issues, etc.

Am I hurting my credit by not having a card with me as the primary account holder? Should I open one card in my name? Thanks, Jim

Thanks for your question Jim.

Yes, you are hurting your credit score by only having accounts with her as the primary card holder. FICO has been flip-flopping back and forth on the issue of whether or not authorized users count where your credit score is concerned.

The best thing you can do if you want to raise your own credit score is to open up at least one, if not two revolving credit accounts. Charge a very small amount to them each month and pay it off.

The idea is basically just to get a couple of cards that report to all three credit bureaus, make very small purchases and pay the cards in full each month. This will raise your credit score over time, and you will avoid paying any interest as long as you pay the balance in full on time. It’s like raising your credit score for free as long as the card doesn’t have any annual fees.

You could always get a gas card that offers cash back, or gas rewards. Or a travel reward card that gives you airline miles. It is one more thing to manage, but it is always smart to make sure that your personal credit score is as high as it can be. If you aren’t the primary card holder, then your credit score will not go up.

Two or three credit lines (total) are the suggested guidelines for raising your credit score, but they do not all need to be credit cards. If you have your name on the mortgage and auto loan, then one credit account in your name is probably enough.

Once you get your credit card, wait a month or two and check your credit report. You will want to do this to make sure that your credit card is reporting to the credit bureaus as agreed. If the card isn’t reporting positive monthly payment, then it isn’t doing you any good.

You are entitled to one free copy of your credit reports each year. Do wait a couple of months before checking everything though, because it may take that long for the credit bureaus to update your credit records.

Also, make sure that you check all three credit reports, not just one of them. when you are ready you can do this by visiting AnnualCreditReport.com. That’s the only place to get truly free credit reports from all three credit bureaus.

Thanks for your question!

When is the best time to negotiate with your creditors?

Should you try to negotiate your debt with your credit card company, or wait until they sell it to a collection agency? A reader, Vicki, had this question:

I was reading this site and giving me good information regarding do it yourself credit settlement with credit card company regarding payment plan.

Do it need to wait for a collection agency or i can call them now to a collection department, sorry just into a financial crisis and its too over-whelming.

I will try to do it myself so i dont have to pay to much fee to other company which charge 15% fee of what i owe. I was just thinking that i might as well pay that fee to credit card as my payment. that i think make sense to me.

Thanks, Vicki

Thanks for your question Vicki!

You should go ahead and negotiate with your credit card company. Do not wait until they sell your debt to a collection agency.

If you wait until they sell your debt it will seriously damage your credit score. If you negotiate with your credit card company now, they can still help you reduce your interest rate or lower your payments, and it will not damage your credit as badly.

As long as you are talking to someone in the collections department of your credit card company, they can negotiate with you just like a collection agency can.

The only possible exception is if you want to do a debt settlement for a drastically reduced amount of your total debt. If that’s the case, then usually a collection agency, not your credit card company, is your best bet.

If you can afford to make any sort of payments, then deal with your credit card company first. That is always going to be the best thing to do.

Thanks for your question!

Have a question for us? Leave a comment below!

Thanks also to these carnivals for featuring our articles this week:

• The Eleventh Edition ~ Book Review Blog Carnival @ Linus’ Blanket.
• Carnival of debt reduction @ Green Panda Treehouse
• Carnival of Everything Money #2 @ The Penny Daily
• millionaire mind and making money online @ Millionaire Blog
• The Money Hacks Carnival at One Million Bucks
• Road to financial independence @ One Family’s Blog

Dear Mr Credit,

Thanks for this nice site. I have an important question. I am really worry about my credit right now. Here is my situation:

I am an international Student who just graduate from college. I used to work as a GTA at the University and use to be able to make my monthly payments. I owe 3 credit card with a $1000, $1000, and $500 credit line. I nearly owe now $2300.

The problem is as an International students I am very limited in work right now. I graduated and am not allowed to work at the university.

US Immigration allows me to work for one year but only in my field of work. I am still looking for job but cannot find any (I have 3months to look for a job). If I don’t find one in within these 90 days I have to leave the country. This is pretty much my situation.

If I don’t find a job, I will leave the US but do not have nothing to pay my credit. My question is, how I can explain that to my creditor to have a grace for my credit? I do not want to file for bankruptcy as this may ruin my carreer.

Thanks for your help,
Miss Rokhaya

Miss Rokhaya, thanks for your question. this is a difficult situation, but not an impossible one. You actually have a lot of options.

First, you might want to call someone in immigration and have them define very carefully what a job “In your field” means. I’m betting you can stretch that a little bit if you have to. Especially if it’s just temporary while you look for a better position.

Things like freelance writing in your area of study, or tutoring other students might bring in some money quickly, even if it’s not going to be enough for a permanent solution.

Second step, call your credit card companies. Explain to them that you have lost your job, and ask for a hardship agreement.

Most credit card companies have plans in place to help people who are unemployed – but you are going to have to tell them that’s the case, and specifically ask that they temporarily freeze your payments.

Usually credit card hardship programs can freeze your monthly payments for up to three months. That should give you enough time to figure out a permanent position and get everything sorted.

Don’t be afraid to call and talk to your credit card company. If you get a rude, or unhelpful person, either speak with their manager, or hang up and call back. Sometimes it takes several phone calls to get an issue resolved, but it is possible.

If things do go badly, and you cannot make your payments, and you cannot get your credit card company to work with you, then consider debt consolidation, or debt negotiation instead. Just make sure that you investigate the company carefully, because some of them are scams.

Just take things one step at a time. Call all three of your credit card companies and ask them to help you. While you have them on the phone, make sure you also ask them to remove any fees that are on your cards (late, over the limit, etc.) You can also ask them to reduce your interest rates. Truthfully, many, many things can be accomplished just by asking, and then by being persistent – especially with the credit card companies.

Thanks for your question!

American Express Interest Rates Are Murder!

On a similar note, we had another reader, Rea, who is having problems with her American Express account:

Mr. Credit Card, I hope you can provide some advice on my situation. I have contacted American Express twice via mail requesting they lower my APR – it is currently 27% – crazy.

I was late twice in 2008 and explained to them that my mother became quite ill was hospitalized and eventually placed in a nursing home. Because I was managing her affairs I forgot about my own.

I make my monthly payments and have been a long term customer of American Express. To no avail, they will not budge. I’m thinking of writing a letter to their CEO, Kenneth Chenault and appeal to him for some relief.

Do you have any other suggestions for me? I don’t want to default on any of my debt, but I am getting no where with the American Express debt because all I am paying is interest. HELP!

Sincerely,
Rea

Rea, I am sorry to hear about your mother’s difficulties. It is always hard when you are trying to manage a family member’s finances as well as your own – especially in the middle of health difficulties.

I can tell you from personal experience that some of the financial tools on FlyLady’s website, (The FACE Journal is free) can help with managing multiple people’s accounts.

As far as American Express running you around, yes, you can fix that.

The first thing you will want to do is explore your balance transfer options. Paying 27% on any credit card balance is unacceptable. So, check out their competition first.

Once you know what the competing offers are, give American Express a call back. Talk to a manager, or better yet, someone in the retention department.

Tell the rep you speak to that you are going to transfer your balance today if they can’t help you. Keep reiterating that you are a long-time customer who has always made your payments with them, and that you really hate to switch. However, if they can’t help you, you have no choice, do you?

The retention department is probably going to be your best bet, so go ahead and ask to be transferred to them. If the rep won’t help you get there, then speak with their manager.

As long as you are persistent and you refuse to hang up that phone without a resolution, then you’ll get your interest rate reduced.

If they give you any trouble, then tell them all about the competing offers you looked into. “I can get a 9% rate from XXX, and a 3% into rate from XXX – what can you do for me?”

If American Express still refuses to budge, hang up, wait a day or two, and call right back. Give it at least two chances on the phone before you give up. If, after that you are still in the same boat, then go ahead and balance transfer all or some of your debt.

Just remember that this is your money, not theirs, so you are the one who is going to have to fight for it. If you are willing to fight, you will get what you want.

Thanks for your question!

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Our chapter 7 bankruptcy recently discharged and we reaffirmed the loan on our minivan rather than include it in the bankruptcy since we were current on the payments.

The unfortunate part to this is that the loan is for more than the value of the van. We qualified for a loan for a new car that we would have reaffirmed but because of the upside-down value on the old loan, we could not get a car loan for a replacement in a monthly payment that we could afford so we decided to keep what we had.

Now, unfortunately, the van is in need of some serious repairs that we would have a hard time paying the large sum of money. We just don’t have it yet nor is buying a cheap used car an option, again no money saved yet. My dad who has great credit has offered to co-sign a loan for a new (used) car.

We don’t want to buy another old, junker of a car to get us through the next couple of years until our credit improves since that is what we already have and it is nickle and diming us to death. I did read on the blog that we should avoid a co-signor at all costs but I am not sure we have any other options without paying exhorbitant rates on a new (or newer used) car loan.

One thing about our credit is that we are and have continued to be current on our mortgage, utilities, and both car payments even prior to the bankruptcy so we continue to have record of current payments.

Once we have a bit of money saved for the fees, we do plan to open secured credit card accounts to help improve our credit score. We only included credit card debt in the filing. Our credit scores range from 590-630 since the bankruptcy.

Thanks for the help.
Really Hoping For a New Car

Thanks for your question Randi!

You sound like you are taking all the right steps to recover from your bankruptcy. You are current on your utilities and mortgage, you know your credit scores, and you’re planning to get a couple of secured credit cards. In time these things will recover your credit.

The problem is though, you need a car now, not later. I understand. I debated the very same thing not too long ago.

As far as co-signing goes, it is dangerous for two reasons:

1. The person who co-signs is responsible for the debt too. If you make a late payment, or default on the loan, it will ruin their credit as well.
2. Once lenders see that you have both a bankruptcy, and a ready do-signer, it will be difficult to get a loan without the co-signer’s signature.

So, before you jump into co-signing, take a look at a few things.

Co-signing can be a bit of a trap, but it is a valuable option. In your case, I’d say it’s probably a good option as long as you work hard to repair your credit in the next few years.

One piece of advice (from my own experience) is to look for a temporary part time job. Use the income from this part time job to set up an emergency fund.

You should do this before you get those secured credit cards. Otherwise your new credit cards will become your emergency fund and you will be right back in debt.

As long as you have an emergency fund set up, then you know that you can make the payments on your car too, even if something happens.

The main thing to understand is that your dad is risking his good credit rating so that he can vouch for you. It’s wonderful to have people in your life that care that much. The best thing that you can do to protect his credit rating and yours is to build up that emergency fund as a first priority.

Just make sure that you take a hard look at your monthly budget before obligating yourself to a new loan. It’s best to go into the dealership knowing exactly how much you can afford to pay on a vehicle, rather than letting them lend you as much as they want to. Especially with a co-signer.

Auto dealerships will never have your best interests at heart. As long as you know where you stand financially, and you don’t obligate yourself to a payment you can’t afford, then everything should be fine.

Thanks for your question!

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After yesterday’s post Lost in Debt wrote back in (thank you!) with some more information.

awesome information.

the questions to the lawyer part really open my mind to things that i wasn’t thinking about, especially the income tax aspect. and definitely the student loan part.

just a couple clarifications (since i wasn’t clear in my story) the 10k that i was going to allocate to clearing debts was only a portion of my current savings that i was planning on bringing with me. its almost about 20k. i was planning for about 1700/month for costing of living (10 months) & then 3k for lawyer/bankruptcy fund.

i am fortunate to still be close with people back in the states, so i have an older project vehicle that has been sitting with an uncle that just needs a few things to be running and people who would take me in for a little while (while i get readjusted to stateside living).

the co-signer part was an absolute eye-opener. and now for it is an absolute last resort.

also was just wondering if it made a difference in which state i filed bankruptcy. because the majority of my dead was accumulated while i was living in San Francisco, but when i am planning to relocate to seattle because that is my original home town.

Again thank you very much for the information and i am definitely looking forward to the next installment.

Lost in Debt.

Thanks for the added information Lost in Debt! Let’s take a look at the steps you will want to take if you choose to pay your debt back.

Paying Back Old Debt:

Since you have about $24,000 worth of debt, and around $10,000 to pay on it, it does make you an excellent candidate for debt negotiation.

First Steps:

The first thing you will want to do (even before you move back to the states) is to pull all three of your credit reports.

Specifically you are looking for judgments. If you debt is several years old then it is definitely possible that you have a couple of judgements against you.

If you do have judgments listed on your credit report you can either stop them with Bankruptcy, or pay them back as fast as possible before you get a job in the United States.

If you don’t deal with those judgments right off, then your wages will be garnished once you get a job. I’ve had it happen, and it’s not only embarrassing, but horribly inconvenient if you were counting on the money.

So, pull those reports and check it out because that will be your first step.

You can access your credit reports on line by visiting Annual Credit Report.com

Next, you will want to use your credit report to make a list of everyone that is still reporting the old debt on your credit reports.

Find A Credit Counselor:

Since your debt is so old, it also makes you a prime candidate to settle for less than you owe! A qualified credit counselor can work wonders. They can negotiate debt settlements as low as 60% of your total debt or lower.

Not all credit counselors are created equal though, so choose carefully. We have a couple of articles that might help you with the process:

A credit counselor will take over all the debt negotiations for you. You will simply give them the money that you have to pay on your debt, and continue to write them one check each month until your dbt is paid off. If collectors contact you, you can give them the name and number of your credit counselor, and they will deal with them from that point on.

There are situations where credit counseling can hurt your credit score, but your situation really isn’t one of them. For one thing, you can give them a lump sum to negotiate with immediately, and two, your debt is old enough that they should be able to negotiate settlements pretty easily. If you want to pay your debt back, it really is the best option.

Questions to ask a credit counselor:

• How will any judgments I have affect my repayment plan?
• What is your track record with negotiating debt settlements?
• How much do you think you will be able to reduce my total debt if you negotiate settlements?
• Can you do a settlement on my student loans?
• Is there anything else I need to know about this process?
• Can you negotiate to have some of this negative information removed from my credit report? (Some collection companies will do this as long as the credit counselor requests it and makes a payment.)
• What are my tax implications iif you settle my debt?

Your Credit Score:

Paying back your debt is always going to look better on your credit report than defaulting on your debt. You can expect your credit score to go up if you pay back your debts, and it will make a difference to future lenders that your accounts show paid in full.

I wish I could tell you specifically how much of a boost your credit score will get, but I can’t. The FICO system is notoriously complex, and there really is no way to predict an exact number. That might be a question that your credit counselor can answer once they see each of your accounts.

If you do choose to repay your debt this way, my advice would be to go ahead and get at least one secured credit card right away, and charge a very small amount on it each month.

That regularly paid new account, coupled with the old debt repayments should boost your credit score pretty quickly.

As far as your credit score being over 700, it will still take two to three years.

Final Considerations:

The best way to compare your options is to ask yourself these question:

• How long will it take you to repay all of your debts? If it will take you less than five years (the average length of time it takes to fully recover from a bankruptcy) then repaying your debts makes sense.
• How soon do you expect to need a new loan? Your credit score will go up much faster with debt repayment than with bankruptcy. If you anticipate needing new loans sooner, then repaying your debts is the best option.
• What are you the most comfortable doing? Bankruptcy is a a one-shot deal, with years of credit recovery. Debt repayment is years of payments that works as a credit recovery system on their own.

If you choose to repay your debts this way, you will still want to challenge some of the older bad accounts on your credit report. Repaying your debt, plus a new account in good standing, plus removing anything you can off of your credit reports will give you the fastest method of recovering your credit score.

As far as your question about which state you need to file bankruptcy in – I would search the internet, and email a lawyer in each state asking them. That will give you the best answer since each state’s laws are different.

Thanks again for your question. If there are any parts of these answers that you would like to see clarified, or discuss more, please feel free to leave a comment.

Thanks!

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One of our readers, Lost In Debt, sent this question in:

So here is my situation (thanks in advance for reading and hopefully offering me any kind of guidance).

i am currently contemplating filing bankruptcy. the position i am in right now is that back in 2007 i picked up everything (literally) and moved to the Philippines for family reasons.

At that time the company i worked for was in the process on liquidating assets and I was one of them (was given a severance).

So I decided that it was a good time for me to be with my family (being that they needed me) i decided to liquidate all my assets as much as i could, (alot of people will hate me for this) but i pulled out as much cash from almost everywhere i could (credit, bank, etc) and the only thing i had left behind was my almost 2 year old car which i was just going to let them repossess (but a friend took over payments for 6 months and then it finally got taken away).

So that is the back story (and i do apologize for this being so long) and here is the current situation.

almost 18k worth of credit card debt / misc. (no payments or contact with creditors since AUG 2007)

repo CAR balance (worth 3k; friend will split if need be)

3k student loan (but i am going to pay it off before filing, because it wont come off either way)

Right now i am considering relocating back to the states (home sick to be honest).

I do have the means to pay about 10k or so of the outstanding debt, but that would cut into my relocation fund. because since being out in the Philippines I have been able to save more since i have left all my debt (i know i know, that it was not the right thing to do).

Basically I have enough funds for me to be able to come back to the states and cover cost of living for about 10 months (which includes a rent, food, etc). and that is if I came back and didn’t find work for 10 months. if i were to repay a large chunk of debt, I might end up in the same place again but with no fall back this time around.

Now here is my dilemma, I don’t know whether to pay of the existing debt (which has all been sent to collection agencies and I am no longer dealing with the main creditor) or to file for bankruptcy.

I cant really find much information about how my credit will look if I paid off the debt and then how hard it would be to re-establish my footing and get my credit score somewhere north of 700 and also start getting credit again.

I have acclimated myself to not using credit (and in my honest opinion I like it much better, but you never know).

Also I do have people that have offered to let me lean on them in the case I do file bankruptcy and would be more than willing to co-sign their lives away so to speak (an option, but likely a last option).

How will that help my credit score move if I had someone that has amazing credit co-sign with me on say a car loan or something smaller like the sort (don’t really know how that would work).

So after all that jibberish (again i do apologize), I can sum everything up into 3 points:

1. Pay off debt… How will Credit Look? How will i be affected in terms of getting credit(i.e. unsecured cards / loans / etc)?

2. File bankruptcy…. Save the savings… get say $500 secured card and start for dead scratch …. How will a Co-Signer help with move my credit score & getting Credit (i.e. car loan) and should i be the primary or should they be the primary?

3. Stay where i am and just come back for a visit and hope i dont get detained when flying back out to the Philippines.

If you made it all the way to here. I do greatly appreciate any feedback that you might have more me. and I do apologize for it being so long.

Thanks and looking forward to your response.

Lost in Debt.

Thanks for your question Lost in Debt. And thanks also for being so specific about your situation. I’m answering this one instead of Mr. Credit Card because I haven been through bankruptcy – I hope you don’t mind.

I am going to break this answer up into two parts so that we can give both situations (Bankruptcy vs. Debt Repayment) the attention they deserve. Today we’ll take a look at what will happen if you declare bankruptcy, and tomorrow we’ll cover what you need to do to repay your debt and get a fresh start.

I’d also like to welcome any readers to comment: those who’ve been through bankruptcy and those who haven’t. The more people than can give you the benefit of their experience, the easier it will be to make an informed decision. Help us out guys!

Bankruptcy As An Option:

Here’s the basics of your situation:

You have around $24,000 worth of debt. If you take all the money that you can pull together right now, you have about $10,000 to pay on the debt.

Because you have no real assets (house, car, etc.) you are an excellent candidate for Chapter 7 bankruptcy as long as your income isn’t too high.

The cost of chapter 7 bankruptcy is around $1,000 depending on your lawyer (possibly a couple of hundred dollars more). You will also still have to pay off your $3,000 in student loans.

Total cost of declaring bankruptcy / student loans: $4,000.
Money you have left to begin a new life: $6,000

What happens to your credit if you file bankruptcy?

Actually, my bankruptcy hurt my credit less than all of the negative accounts did. After bankruptcy my credit score was 590. Before bankruptcy it was around 630. That was a 40 point drop for me.

Now, credit scores are difficult to compute and predict (FICO does that on purpose) so your credit score may be affected differently. In my case, it was 40 points. I was able to recover that 40 points in about a year.

Anyone else out there who knows their credit score before and after bankruptcy, please let us know. I can only speak from my own experience.

Starting Over After Bankruptcy:

If you declare Chapter 7 Bankruptcy your bankruptcy will usually be discharged within 4 to 6 months. (Possibly a little sooner depending on your lawyer and your state’s laws.)

Once your bankruptcy is discharged:

Apply for 2 or 3 secured credit cards. A $500 balance on each is a great place to start, just do them one at a time if you can’t do all three right away.. Make sure you get all three though, because you need several positive accounts being reported each month to the credit bureaus.

Charge no more than $50 a month on your credit cards – but do charge a little bit each month. Otherwise you have no record of payment.

Also, avoid applying for “bad credit” unsecured credit cards. The terms are rotten, and you never get your money back. A secured credit card will serve the same function, and instead of paying the deposit in fees, you get it back when you upgrade your credit card account.

Make sure that all three secured credit cards report to all three credit bureaus (TransUnion, Equifax, and Experian). Otherwise they aren’t doing you any good.

Your next step will be to pull your credit reports, several months in a row and double check that all the accounts you included in your bankruptcy show up as actually being included in your bankruptcy. Don’t let any negatives slip through once the debt is included. That really is essential to raising your score.

We have instructions on how to challenge items on your credit report here:

If you keep the balances on your credit cards to less than 15% of your available credit, you clean up your credit reports, and you make all of your future payments on time you can expect your credit score to go up easily.

How long will it take to get your credit score over 700?

Well it depends on what your credit score is after bankruptcy, but Most people can recover their credit in a minimum of three to five years. The bankruptcy will not fall of your credit report for ten years. After seven years, it will not matter as much to lenders.

The hard truth about bankruptcy:

With a bankruptcy on your credit report some lenders will not lend money to you for any reason, no matter what your credit score is. If that happens, you just move on and find a lender that will work with you.

The surprising truth about bankruptcy:

You can get car loans and home loans (at terrible interest rates) immediately after bankruptcy. The higher your credit score is, the better the interest rates will be. You can always consider refinancing as your credit score goes up.

The important thing to realize is that you can still get loans, even in the current economy with a bankruptcy on your record. It won’t be easy, but it is certainly possible. Especially when you have a reasonable down payment.

Co-Signers and Bankruptcy:

The best advice I can give you is to avoid getting a co-signer on anything after bankruptcy. Once lenders see that you have a ready co-signer you will never be able to get a loan without one until the bankruptcy is off your credit reports.

Instead, I suggest getting those secured credit cards, buying a cheap used car that you don’t have to make payments on, and avoid borrowing money for a couple of years. That will give your credit score enough time to recover enough that you should be able to get a loan without a co-signer.

Additional considerations:

Remember that moving back to the states is going to involve considerable expense. Since your credit is poor (from the defaulted debt) you are going to have to have hefty deposits on a car and apartment. You will also need money to live off of as you look for a job. Make sure you have all the details of starting your new life accounted for before you make a decision on debt repayment.

As a last consideration, make sure that you do speak with a lawyer. Sit down with one who offers a free consultation, and explain your situation. A lawyer working in your new state is going to be the only person who can explain the bankruptcy laws in that state, and help you make your final decision.

Questions to ask your lawyer:

• How will the fact that you’ve been out of the country affect your ability to file bankruptcy?
• Will you need to use the last tax returns you filed in the United States to pre-qualify you for a bankruptcy?
• Some student loans (non-government) can be included in a bankruptcy. Can you include yours?
• Will the $10,000 that you have right now affect your ability to declare bankruptcy? (And what should you do with it if it will?)

Tomorrow we will cover all the details you need to know if you want to repay your debt, how it affects your credit, and the steps you can take to do that.

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Thanks again for your question!

Have a question for us? Want to share your experience? Leave a comment below!

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