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Healing Your Financial Soul

By: Brooke Kaelin
10/12/2008

Healing Your Financial Soul was sent to me by one of our readers, David Hicks. David is a communications consultant, and an ordained minister. He wrote Healing Your Financial Soul to address the deep, underlying issues that force us to struggle with our money every day.

To me, this book is an excellent example of Teddy Roosevelt’s famous quote “Speak softy and carry a big stick“. This “big stick” in this book is the wealth of facts, and David’s excellent understanding of financial psychology. The “speak softly” part comes into play with the generous humor sprinkled throughout the book, and the realization that everyone has money problems, even the very wealthy.

Hicks gets right to the heart of the matter very quickly. In fact, I can honestly say that I learned a lot about myself in the very first chapter. Healing your financial soul is filled with exercises, and visualization tips, all of which have a proven track record in the field of psychology. It was during the first of these exercises that I learned something new about myself.

From the book:

Now, ask yourself this question:
What characteristic describes my heart’s desire specific to finances? What quality of word names it?

Well, the first word that sprung to my mind was greed. So, to fill in the second part of the book I wrote:

I am rich in greed.

Well, let me tell you I almost fell out of my chair laughing, because it’s so very, very true! I will say that the author clearly intended me to come up with something positive here, something good that could be reinforced. But, my mind sure had other ideas!

I am rich in greed, I want. And that wanting is at the heart of most of my major financial mistakes. I don’t think wanting is bad per se, but greed is, and I’ve certainly been hit badly by the greed bug lately. I do want to say, “Thank you David, for helping me to learn something about myself, so that I can freely admit it and stop letting it control me!”

See, that’s the kind of book this is – the sort that gets you thinking, deep down, about what’s really going on with your money. Now, I’m not suggesting y’all are greedy (I’m from Kentucky, I’m allowed to say y’all with impunity!) Just that greed is apparently one of the challenges I am facing. The beauty of this book, is that it helps you come up with your own answers – the ones that fit you specifically.

Let me pull a couple of gems from Chapter Two as well:

If you struggle financially, it’s because deep down,
you were taught,
and you agreed to believe,
and made countless decisions to prove
that you’re supposed to struggle.

While doing research for his book, David ran across an interview with a financial planner. The financial planner had something similar to say:

“I wish some [people] would just get the notion to at least put part of [their money] somewhere they can’t get to it for a while…I don’t want to get too Freudian or whatever about this, but it’s almost as if people feel like they have to get rid of the money because they don’t really feel like they deserve it.”

I love these examples because I believe they are true as well. Many of us watch our grandparents, parents, or friends struggle financially. Somehow, somewhere, we picked up the message that we should struggle too. That you have to struggle for money – you have to fight claw, scrape, scrimp and save just to make ends meet.

But what if that’s really not true? What if the reason we struggle is because we believe we have to?

Hicks believes that the money isn’t the problem, our capacity is.

He sums up the money / capacity issue by explaining that it’s like taking a cup out into the ocean to collect water. Now matter how deep you swim, or how many times the waves break over your cup, you can only carry one cup of water out of the ocean. There are oceans of wealth out there too – money is plentiful. Our capacity to gather it is what we have voluntarily restricted.

I love this book, I truly do. I think it says in 264 pages what multitudes of financial books have skipped, or never even touched on. The power to be wealthy, satisfied and happy is ours. The power to tear down success, fail, and fall into an endless pit of despair is ours too. The difference between the two is determined by our beliefs.

You should know that the examples I am giving, they are just tiny bits from the first two chapters. Healing your financial soul is filled with positive, thought provoking passages all the way to the end.

If I could stress any one thing about Healing your financial soul, it’s that it is a fun book. It’s a happy book to sit down and read. It gives you pause for thought more often that it gives you direct instructions, and with each realization you gain that much more control of your own money – your own life.

This is not just a book I will keep and re-read. This is a book I will share with others, and give as a gift at birthdays and holidays, over the next several years.

If you’re interested in finding out more about this book, you can check out the website here. David has also agreed to be around to answer any questions, so you can chat with him directly by leaving a comment below.

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Time To Turn Off The TV And Restore Your Sanity?

By: Brooke Kaelin
10/11/2008

The financial “crisis” is eclipsing everything – even the election? I don’t really think it’s warranted either. It’s getting ratings, so it’s being shown continuously. Ever head the phrase “If it bleeds, it leads?” It’s an old newspaper term that meant that the bloodiest crisis got the front page story. That is what we are seeing happen with the economic “meltdown / bailout / rescue / crisis.”

Never forget that the television we watch, the sites we read, the stories we hear – they are all told because there is some profit in it. If it was not profitable for the news media to forecast doom and gloom 24 / 7 they wouldn’t be doing it.

So before we all go off into a blind rush and pull our money out of our 401(k) plans, just please, I beg you, take a moment to wonder who is profiting by perpetuating the madness.

With that said, here are a few down to earth, regular old articles. And yes, some of them mention the e-word (economy). But they aren’t the normal, run of the mill “The earth is going to EXPLODE” articles we’ve all been seeing so much of lately.

Just to make you smile:

Life Goes On:

Game Over…Insert More Money?

Credit Card Debt Settlement – How To Do It Yourself

By: Brooke Kaelin
10/10/2008

If your credit card debt has been sold or outsourced to a collection company and you want to make a settlement then there are a series of simple steps you can follow to have the best chance of success.

1) Get your paperwork together – You will need a copy of your latest bill from the collection agency. This will tell you exactly how much you owe, including any fees or interest that has been added on by the original bank, and the collection agency.

2) Know what you can afford to pay – The goal when making a settlement is to reduce your total amount of the debt you owe by 30% to 50%. You will have to have this amount all at once, or be able to come up with a specific payment plan. If you choose a payment plan you can never miss a payment or all agreements are off.

3) Call the collection company – Be aware that the first person you speak to may not be able to arrange a settlement for you. It may require speaking to a manager, or even a different, more helpful collections representative. Just know going into it that it’s an uphill battle, but it can be won. Be calm, patient and firm.

4) Do not tell them you have no intention of paying the debt – If they make you mad, or you don’t intend to pay until they do agree on a settlement, do not verbally tell the collection company this. It’s know as “a refusal to pay” and it puts you on the shortlist for a lawsuit. If the current collections rep won’t help you, tell them you do intend to pay the debt, but you can’t pay that amount. Keep asking them for a settlement, or for a manager.

5) Once you reach someone reasonable – Work out a plan that you can live with. At the very least you can expect to have all late, over the limit and / or membership fees removed from the total amount of your debt. Start by offering 35% to 40% of what you owe. If they take it, great. If they don’t slowly work up to a number that both you and the collection company can live with. Most likely you can expect to have about 35% knocked off the total. If you are willing to push it, and put off paying the debt a while longer, you may be able to negotiate for better terms.

6) Consider a credit counseling agency – There are a lot of fraudulent credit counseling services out there. If you take the time to do your research, and work with professionals, then they may be able to negotiate a better settlement that you could on your own. Obviously the more you owe, the more this tactic could benefit you. For more information on how to choose a credit counseling agency, you can check out the following articles.

7) Get it in writing – Explain to the collection agency that you will be happy to agree to a settlement for X amount, but that you must have the agreement in writing. If they refuse to do this they are trying to cheat you – pure and simple. Putting things in writing is a standard part of a settlement agreement. Most collection agencies fight the “put it in writing part” because they know that if they can get you to give them money today, and they keep no written record of any “agreement” then it’s just the same as if it never happened, and you still owe the full amount no matter what was said.
So, get it in writing before you make a payment.

8) Keep a careful record of who you speak to – Write down the date, time, name, and operating number of anyone you speak to. You may need to reference it later. If you are having success dealing with a specific person, ask them for a direct line so that you can call them back if you have questions.

9) Once you have the settlement agreement in writing, keep up your end of the bargain. If you promised to pay on a set schedule, then make sure you do. If you default on the agreement, then you are back to square one and the interest and everything else will be tacked right back on.

10) Get it in writing again – Once you have paid down your debt as agreed, keep calling the collections company back until you reach someone who can send you a letter in writing that says you have paid your debt in full. I cannot tell you how many people have made agreements, paid as they should, forgot about it, and then found themselves in court a year later. What happened in that case is stupid, but simple. The collection company re-sold the part of the debt that they “removed” from your settlement offer. If you never got a letter stating that the debt was paid in full, then you have no proof that it happened as agreed. You can fight it in court of course, but it is so much simpler if you just demand the letter of payment until you get it.

11) Check your credit report – Once you are finished wrangling with the collection company and have emerged victorious, check all three of your credit reports. (You can do that for free by going to Annual Credit Report.com). Give it two or three months after your settlement before you check. This gives everyone, including the credit bureaus time to update your records.

What are you looking for?

In either of these two cases, your settlement agreement, and your letter of payment-in-full will serve as proof for you. If you do find something incorrect, you can challenge these items on your credit report, send in your evidence, and have the accounts updated correctly so that they do not continue to hurt your credit score.

If this process becomes overwhelming for you at any point, and you feel like you would rather ignore it than move forward, then the very best thing you can do is to seek the services of a qualified credit counseling service. They do this stuff all day long. And they don’t have to take it personally, because to them its a job. To you, it’s your life, it’s your debt, and it’s your family they are harassing with constant calls. Getting help is certainly a better option than allowing the situation to get worse, or cause you further stress.

Have a question for us? Leave a comment below!

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Past Due Payments And Closed Credit Card Accounts

By: Brooke Kaelin
10/09/2008

One of our readers, Suzette, had this question:

Can a cc still charge late fees and interest on a closed account?

Thanks for your question Suzette!

Yes, credit card companies will still charge interest and apply late fees to closed credit card accounts. Even though the account is closed you will still have to make your payments normally. If you want to pay the card off now that it is closed, you will need to make more than the minimum payment each month – as much as you can afford. Even if it’s only $20 more than the amount due. This will help you not only to pay down the card quicker, but to avoid as much interest as possible while you do.

If you are in collections with this account, then you can call and have the late fees removed. Any collections rep can do this for you as long as you make a payment with them that day. If your account is not currently in collections, you can still have the fees removed, but you will have to speak to a manager because the normal customer service reps will not be able to do it for you.

Thanks for your question!

We also had a reader, Akshay, ask this question:

Hi, i was using a standard chartered credit card in April 2007 which had $50,000 limit, i had used the card to a limit of $57000, the bank did not sent me bills for first 3 months, but after that one fine day suddenly i got a call saying me $3,000 as minimum due payment as they had rounded up my outstanding balance to $60,000. This payments of $3,000 went on for 4 months after that i was out of my job and all this continued for 4 months and because i was out of salary i didn’t paid the minimum amount. They called me last month and said me that i have to pay them $90,000, which is impossible for me to pay, is there any way for me to compromise on principal amount as its very tough to pay all this amount

Thanks for your question Akshay!

The first thing you will need to do is sit down and figure out how much you can pay on this credit card each month. Get a repayment plan together, and make sure it is one that you can stick to no matter what.

Once you have your repayment plan ready, call the collections department of your credit card company. The number should be on the last bill you got. If you cannot find the number, then call the phone number listed on the back of your card, and ask to be transferred to the collections department.

Now, the good news is collections reps are trained, and have a large amount of power to alter your account! The first thing that you are going to have to deal with is the fee removal. Make the collection rep remove every single fee on that account. Explain to them that the fees are killing you, and you need them to remove them. I say this because if you do not ask for this specifically, they will not offer to help you in any way. Ask, and be like a pitt bull! Do not drop it. Make them go get a manager if they have to, but get those fees removed.

Your second step is to set up a payment plan with them, and make the first payment that day. If you cannot pay the minimums they are demanding, then tell them what you can pay, and how often. They will work with you, I promise. Just be honest about what you can and cannot do, and stay calm.

Now, once you have this payment arrangement set up, you cannot miss a payment, ever. If you do, all bets will be off, and you will see the fees tacked right back on, and your balance will go up again.

As a final note, if this strategy does not work for you, then your best bet is to hire a credit counseling agency and allow them to negotiate for you. Credit counselors can sometimes negotiate better than individual people can. This is because credit card companies are used to dealing with credit counseling agencies, and they have special programs with reduced balances and interest rates that they can put you into.

The easiest thing is to take care of things yourself, but if you do not feel you can do this, then there is no harm at all in hiring someone to do it for you. It should not hurt your credit score for you to use the services of a credit counselor.

I say should not because not all credit counseling agencies are created equal. Some of them will withhold your payments for several months so that they can negotiate better terms with your credit card company.

If you choose to hire a credit counseling agency, then make sure you read these two articles first. They will help you discover which credit counseling agencies are legitimate, and which ones will hurt your credit if you use them.

Thanks for your question, and good luck as you work through this account. Just be calm, and persistent and you will be able to get it resolved.

Have a question for us? Leave a comment below!

Keep Reading:

Repairing Your Credit After Bankruptcy Part 1

By: Christina
10/08/2008

After we declared bankruptcy, our credit was understandably in shambles. I searched all over the internet for tips and tricks that would help me rebuild my credit quickly but the fact is, it takes time to build a great credit score. It takes even more time if you are rebuilding after something as disastrous as a bankruptcy!

It can be done though, and my husband and I are about halfway through the process. Our bankruptcy was three years ago, and we have done everything we could each and every month to raise our scores back up. Here’s the shortlist of ways we raised our credit score after bankruptcy. As always, I love your questions! So if you have any, just drop me a note in the comments below, and I will be happy to answer them for you.

How we rebuilt our credit after bankruptcy:

1) We challenged items on our credit report – You can challenge both incorrect and correct items on your credit reports. I am well aware that it’s unethical to challenge correct items. Frankly, declaring bankruptcy was one of the most unethical things I’ve ever done, and I am certainly not losing sleep over the few correct items I was able to have removed from my own credit reports.

Everything about the bankruptcy was done to give my family a future, including the credit report challenges. If you are going to challenge items on your own credit report, you can read more about how to do that in our article “How To Dispute An Item On Your Credit Report” There is a step-by-step downloadable guide at the end that will walk you through the entire process.

2) We contacted any creditors that were still reporting open accounts, and gave them our bankruptcy information – We had a lot of open accounts because of our medical bills. Every time a collection company sold our debt, the new owner of the debt would list another delinquent account on our credit reports. So even though the person who owned the debt at the time of our bankruptcy was contacted, no one else was.

This meant we had to back-track our debts (using our credit reports) and contact the people who used to own the accounts too. Not everyone was cooperative, but in the end we did get most of the old medical accounts to show up as closed w/ bankruptcy rather than still open and delinquent.

3) We opened up two credit card accounts each – The sad fact is, you have to have and use credit in order to build your credit score. A lot of people come off of a bankruptcy and swear off credit cards forever. If this is what they must do do manage their finances, then more power to them! However, my husband and I recognized that restoring our credit was the only way we would ever own a home someday. So, we applied for, and got, two cards each.

Which credit cards did we use after bankruptcy?

Those are the first three steps we used to repair our credit after bankruptcy. I will cover the other steps in part two of this guide. If you have questions or comments about any of these techniques, please let me know. You can use the comments form below.

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The Surprising Truth About Bankruptcy

By: Christina
10/06/2008

We knew we needed to declare bankruptcy two years before we officially did it. We were struggling financially, and we barely had enough money to cover the bills and the gas at the end of the day – which didn’t count the nearly $30,000 in debt and medical bills that we owed.

But still, we struggled. We had been raise to pay our debts, plain and simple. My husband and I took odd jobs in the evening to earn as much extra as we could, and he started back to school through a plan at his work where they paid for it.

I think what finally did it for us wasn’t the vicious collection calls (which followed us everywhere) or the constant stream of overdue bills in the mailbox. It was the realization that at our current rate, it would take us nearly 15 years to pay down our debts in full.

The last straw was when one of the medical companies put another garnishment on my husband’s check. The money that they would be taking out meant that we couldn’t afford our rent, or food for the next 6 weeks.

So, we gathered all of our bills and paperwork together, and went to see a lawyer. The lawyer we used was human enough to take payment arrangements (It cost us just over $1000 to declare bankruptcy). I think he allowed us to make an arrangement with him as much because we were organized, as anything else. We only had $200 to offer him when we first walked into his office.

But, he did take our case, and he did stop the garnishment. Within two months we had received our bankruptcy discharge papers. The collection calls mostly stopped, (We still had to give some of them our bankruptcy information) the bills stopped coming, and we slept easier at night.

Now, several years later, I know that there were good and bad things about choosing to declare bankruptcy. For one thing, our credit is ruined. However, it was ruined before, and it would have been close to 15 years before we could have met our obligations and fixed our credit anyway. Truthfully, bankruptcy put us on the fast track to recovery. What little we had, we were able to save instead of giving to a bill collector.

We were able to go out and get secured credit cards immediately, which are helping to raise our credit score. After the bankruptcy was finalized, we began challenging accounts on our credit reports, and this also helped to raise our score.

I think there is a huge myth that declaring bankruptcy will ruin your life forever. It would be more appropriate to say that it will not ruin your life at all, just your credit, and only for about 4-5 years.

I do personally have some guilt that will probably always stay with me. I feel like we cheated. We shortchanged companies that we did owe money to, and did not pay them. We imploded financially. Because we did not carry any insurance, and because we were afraid to ask for help. We waited until things were so bad, that there really was no other way out.

It was a lot like what I imagine living in hell to be, and I know that there are others out there that have it far worse than I did, believe me. But for me it was a worst case scenario and not only I did live through it but I am better off for the experience.

The truth is, we started getting car loan offers before our bankruptcy was even discharged. Less than a year after bankruptcy I could get an unsecured credit card. Five years our of bankruptcy I expect that our credit will have rebounded enough for us to a house. The bankruptcy will remain on our credit report for the next ten years, but the effects of it so far are negligible.

The truth is, my bankruptcy hurt my credit far less than all of the revolving medical accounts did. When one company sold the debt to another, it opened up a new revolving account on my credit report. I had as many as forty revolving medical accounts listed as open on my credit report when we declared bankruptcy.

You know, the real truth is, our bankruptcy didn’t hurt us – it set us free. Free from a life of garnishments, collection calls to my job, friends and relatives, free from the prospect of overwhelming debt for the rest of my life. I would do it again tomorrow if I had to, and happily live with the guilt. Our bankruptcy gave me and my family the chance to have a normal life again.

We took that chance, and today we are far batter off than many of the people we know and work with every day. Because we have been very careful not to go into debt since our bankruptcy, our money is our own.

Do understand that bankruptcy is not for everyone. It takes a long serious look at your finances to decided whether or not it would be the best course of action. I can simply say that for us it was, and I will always be glad that we did it. No matter what the damage to our credit score was, the benefits of being debt free in one fell swoop (instead of 15 years!) were well worth it to me.

Have a question about bankruptcy? Leave a comment below!

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The Richest Man In Babylon

By: Christina
10/05/2008

Every Sunday we review a personal finance or credit book here on Ask Mr. Credit Card.com. I am pleased to be able to tell you that this week’s book, “The Richest Man In Babylon” by George S. Clason was a wise use of both my money and my time.

The Richest Man in Babylon is a collection of parables – stories of those who lived and died in ancient Babylon.

I never cease to be amazed each time I realize the laws of acquiring and growing money have not changed throughout the years. Indeed, the laws of borrowing money have not changed either, as one of the parables in this book illustrates clearly.

So, if the laws of money have not changed, and the laws of borrowing money have not changed, then it is a simple job to discover them, and put them to work in our own lives. The collected wisdom of our forefathers is there – in black and white – just waiting to be seized and put to good use.

The Richest Man in Babylon is not a long book, or a windy one. All told, it’s only 144 pages. Clason says his piece, and lets it rest, leaving the wisdom to sink in as it will. In fact, there is so much wisdom presented so simply on each page of this book, that I am going to be hard pressed to cover everything in a simple review.

The Man Who Desired Gold:

The Richest Man In Babylon opens with Bansir the chariot maker and his good friend Kobi the bard. Together the two men cannot even come up with two shekels, and they decide to go and speak with one of their old friends, Arkad, who is now the richest man in Babylon.

Arkad willingly agrees to share how he made his own fortune, and thus begins the book.

The first advice of Arkad:

“A portion of all you earn is yours to keep.”

By slowly and methodically setting aside one tenth of his income, Arkad began to grow his wealth. It was not always an easy process, but he persisted. Arkad lost his first year’s worth of savings to a bad investment and had to start over. Because he had already developed the habit of setting aside ten percent for himself, he found it easy to start over, and he learned from his mistakes.

The second advice of Arkad:

“Control Thy Expenditures”

In other words *cough* live on less and draw up a budget. Leave the tenth that you are keeping for yourself alone, and allow it to grow and multiply.

The third advice of Arkad:

“Make thy gold multiply”

Arkad multiplied his gold by loaning a sum each year to a shield maker. Every year the shield maker would borrow money in order to the bronze that his shields were made from. As he made a profit throughout the year, he would faithfully pay Arkad back, plus interest.

Each year Arkad re-invested not only the initial sum he lent the man, but also the interest he had been paid. So not only did his original loan earn interest, but the additional interest he earned compounded to earn him interest as well.

The fourth advice of Arkad:

“Guard thy treasures from loss”

Arkad’s first investment was a simple plan. He loaned his first year’s savings out to a friend; a bricklayer who was traveling overseas to Tyre. The bricklayer proposed to some of Tyre’s famous jewels. Upon his return, he and Arkad would split the profits from the sale of the rare jewels in Babylon.

However, when the bricklayer returned, he found that the dishonest merchants he dealt with had sold him glass gems instead of real ones. Thereupon Arkad learned not to take advice on jewels from a bricklayer. Or, in other words, not to invest in anything that he (or his partner) was not familiar with.

The fifth advice of Arkad:

“Make of they dwelling a profitable investment”

Here, simply put is the age old advice of owning your own home rather than renting.

The sixth advice of Arkad:

“Insure a future income”

By this Arkad suggested not only setting aside a portion of your income to provide for you in your old age, but also to re-invest the dividends of your income so that they provide for your future as well.

The author, Clason, puts the lesson eloquently when he says:

Each penny that you keep becomes a slave for you. If you give it a job, it will work hard, and in time, it’s children, and it’s children’s children will work hard for you as well.


The seventh advice of Arkad:

“Increase thy ability to earn”

Arkad suggests having a definite desire, and working to achieve that goal. Decide on a set amount of money that you would like to earn, and find a way to achieve it. As one accomplishment builds on the next, you can soon find yourself earning far more than you could ever have previously dreamed of.

All in all, excellent advice, though I think it suffers a bit in the re-telling. If you are not currently reading books about money, finance, or credit, then this is the book you will want to start with. It is entertaining, not overwhelming, and it does an amazing job of driving the lessons home in an enjoyable way.

What is it about a well told story that sticks with us far longer than a rote recitation of facts? Maybe it is because, for a short while, we can step into the shoes of those who are having the same troubles we are, and watch as they accomplish their goals.

Maybe it’s because we can readily identify with the human problems of overcoming lust, greed, and ambition as they relate to our money, but we have problems when someone says to us directly “Just make a budget!”

Or, maybe that’s just me. 🙂

I do recommend this book to you, with all my heart. It’s one of the best I’ve ever read.

Have you read this book? Give us your opinion below!

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Well, What Now? Some Thoughts On The Economy

By: Christina
10/04/2008

The mess on wall street has degenerated into a fist shaking, back biting, teeth gnashing mess – and I am totally entertained! Ok, so maybe I shouldn’t have quite so much glee as the infrastructure of the economy crashes and burns, I know.

I do have complete faith that big banking and big business will recover with no more than a temporary black eye. Now the little guy? You and me? Well, that’s not such a rosy prospect, now is it? So, I have to admit that while I’m thoroughly enjoying the media zoo surrounding recent events, I do have that small voice in the back of my mind (which sounds a lot like Morgan Freeman!) saying “Well, now, and what will this bailout mean for you in the long run? Hmm?”

The fact is, most people agree that the bailout is A Very Good Thing. But I have yet to see anyone accurately predict what it will mean. We’ve reached the proverbial rock-and-a-hard-place, and there are no graceful ways to save the day. Only hard choices.

From a mass media perspective, this is the government’s attempt to swallow Pop Rocks and Coke. They’re just hoping no one’s stomach explodes.

Think it’ll work? It’ll take a miracle!

(Don’t know what this photo is? Sit back and let Miracle Max explain why the economy is only mostly dead! Memo to Washington: Please note that a chocolate coating will make the bailout go down easier. )

So. With all this uncertainty, let’s take a look at some of the folks who are giving us the real facts this week, shall we?

The Chocolate Coating (There’s A Pork Lining In Every Cloud):

For some fun facts on the wacky things that will be subsidized as part of the $700 million dollar bailout (Including wooden arrows and Jamaican Rum!) Check out these articles:

The Bitter Pill:

From the individuals actually daring to put forth an opinion on the bailout, here’s the news:


The Secret Ingredient:

Along with the continuation of the bailout saga, there were a few less-publicized but decidedly better smelling proposals from Washington this week.


Common Cents:

(The blogs for the rest of us!)


Editor’s Choice:

I had to pass these two on…

Carnivals, Festivals, and a Cuppa Cheer:

Thanks to these carnivals for featuring our articles this week.

Well, that concludes this week’s edition of “Help, we’ve fallen and we can’t get up!”

Sincerely wishing that both you and the economy will live long and prosper!

Can One Bad Account Ruin Your Credit Score?

By: Christina
10/03/2008

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

I monitor my credit frequently and I seem to have capped on score increases. About 6 years ago a family member used my identity to gain credit and goods and as a result I have spent the last 6 years raising my score and being meticulous when it comes to
paying on time, etc.

My scores were as low as 420 and now they are right around 630.

I have one account that I was never able to get removed and it is just sitting there in the midst of good accounts on my reports. It reads on the report “Derogative” and has a balance of $380; yet it also says write-off as well. I have consulted with the company and they are not requiring the debt to be paid… BUT is this the reason the scores have stopped going up? Even though this creditor is NOT reporting in my “accounts past due” section?

I am really trying to figure out how to get my scores to 700 and it seems as though they are at a halt… Any suggestions?

Dustin,

Thanks for your question!

The short answer is no, this account is most likely not what is keeping your credit score from going up – unless it’s a recent account.

This is because the credit bureaus and FICO consider your current credit activity more important that your past credit activities. If that account is over a year or two old, (since it was written off) then it is definitely not your problem.

So what’s going on?

I am assuming, that since you have raise your score from 420 to 630 that you have gotten into the habit of paying your bills on time. As long as you are paying your bills on time, then you are going to have to look a little deeper into your situation for the answer.

How much of your total available credit are you using? If you are carrying a revolving balance on any cards at all – pay them off as quickly as possible. That will increase your score.

Once you have all of your accounts paid on time, and your balances paid off, you should take a close look at your other lines of credit (besides credit cards).

Do you have a mortgage? An auto loan? Can you start sending in a little extra to get them paid down faster?

The reason I am bringing up your total amount of debt is because your debt – to – credit ratio (The total amount you are able to borrow vs. the amount you have already borrowed) is 30% of your credit score. If you really want to raise your credit score up over that 700 mark, then make sure you keep the total amount you have borrowed under 20% of your total available credit on your credit cards, and pay down any other loans as quickly as possible.

Once you are sure that you are paying on time, and your revolving balances are as low as possible, then you will need to take a look at which types of credit you have. If you do not have a mortgage or an auto loan, this could be one of the reasons your credit score is not going up as fast as you would like it to. Now, I am not telling you to go out and borrow a bunch of money for a house or a car!

Just understand that what’s known as a good “mix” of credit does matter. If you do not have a mortgage or auto loan, and you still want to boost your credit score, then I would recommend investing in a CD. You then use the CD as collateral for a personal loan from your bank.

As long as your bank reports the loan to the credit bureaus, then paying off that loan will raise your score as well. The beauty of this trick is that you just put the money you borrow into a savings account, and let it earn a bit of interest for you while you are paying down the loan.

For more information on this you can check out our article: How to use a CD and Personal Loan to Raise Your Credit Score.

Opening up a credit card for improving credit may help you too. Just do not apply for too many accounts at once because the inquiries will lower your score slightly. Leave any new accounts that you open alone. Do not charge on them. By having unused credit you will decrease your debt-to-credit ratio and raise your score.

One last thing to consider. Make sure that you are not an authorized user on anyone else’s account. It’s ok for them to be listed as authorized users on your credit accounts since you are managing your credit wisely.

It’s just that if you are listed as an authorized user on a relative’s account, and they are not managing their credit properly, then that will lower your score – even though you aren’t the one responsible for the debt.

Here are a few articles that go into more detail about each of these issues. If you check them out, they will give you more detailed information about how to raise your score.

Thanks again for your question!

Have a question for us? Leave a comment below!

The Pitfalls of United’s Rewards

By: Jason Steele
10/02/2008

In a previous compare and contrast of United/Chase, I mentioned some of the rewards offered to customers who sign up for their cards. These include a $25 United Discount Travel Certificate, a one-way, 1,000 mile, One-class Upgrade Certificate, and in the case of their Platinum card, a companion travel certificate.

What Are These Worth?

I can tell you from personal experience that the $25 Discount Certificate is an invitation to a bureaucratic nightmare. Unbelievably, these certificates cannot be redeemed online, forcing you call United and incur their “telephone reservation fee”. You are then instructed to mail your certificate to their processing center, where you risk it getting lost and/or incurring their “ticket by mail fee”. Also, Platinum card holders loose the chance to earn elite qualifying miles through purchasing from United online. The worst part is, that they do not even inform you at the time of reservation that they will apply this fee to your credit card. It was only after I saw a separate line item on my credit card statement for “ticket by mail” that I contact United to express my outrage. They apologized and offered me yet another travel certificate! I declined to accept their offer for fear of entering into causality loop that could rip apart the space time continuum. Only by threatening a chargeback to my credit card, was I able to receive my money back. In keeping with United’s philosophy of endless unnecessary paperwork, I received a check in the mail rather than a credit back to my card. Ultimately, I wished I had never received the $25 certificate.

But I Can Get Upgraded, Right?

As for their one-way, 1,000 mile, One-class Upgrade Certificate, I found this to be nearly as useless. The small print excludes reward flights and a host of discounted fares. Upgrades can only be requested 24 hours in advance, and confirmed 20 minutes prior to boarding. In short, you are at the bottom of their upgrade list, and you will probably be risking your available overhead luggage space just by attempting to use it. Who knows if you will be forced to pay the checked baggage fee when that happens. Finally, all of my eligible flights in the previous year had been greater than 1,000 miles, so I never even got a chance to use it. Bicoastals beware!

Companion Certificate

The pattern is clear, United’s certificates are an invitation for frustration and disappointment, so why should their companion certificate be any different? As one blogger notes, the certificate can only be redeemed over the telephone, and guess what, the price is often different on the phone than it is online. You also have the pleasure of dealing with their poorly trained outsourced reservations agents who are frequently misinformed. Finally, since the certificate cannot be redeemed online, Platinum card again holders loose their chance to earn elite qualifying miles through purchasing from United online, one of the few benefits the Platinum card offers over their other cards.

How To Create Unhappy Customers

These practices give a bad name to the concept of credit card rewards, as well as the airline industry in general. It is companies like United, and by implication Chase, that have created an alternative niche in the market for air travel and credit cards. Fortunately, this void is being filled by Southwest Airlines with their Fees Don’t Fly campaign as well as Capitol One’s No Hassles reward cards. It has been customer experiences like these that recently prompted Business Week magazine to declare about United that “Liquidating the carrier is the only way to fix its uniquely embedded problems.” If you don’t agree, you probably have not tried to redeem their $25 “Discount Certificate.”

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