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Saturday Link Love: Back to School Edition

By: Christina
08/16/2008

It’s that time of year again – school buses are clogging the roadways and students everywhere are issuing collective groans as they head back to school.

Here’s hoping you didn’t have to spend too much money on school supplies! Did you find any good deals? Tell us about them!

In honor of back-to-school days, I hand-picked the best related posts for you this week – with a few bonuses!

School Daze:

Growing Your Wealth In Tough Times:

Gas prices are up, the housing market has bottomed out…we all know the state of things. Here are some articles that I loved because they will help you grow your wealth no matter what the economy is doing!

Carnivals, Festivals and Celebrations:

Thanks to these carnivals for featuring our articles this week:

Wishing you a job you love, a 21% return on your portfolio, and an early retirement. 🙂 Have a great weekend!

Image from: 139blog.com

What to Do When Your Credit Card Debt Has Been Charged Off

By: Christina
08/15/2008

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

Sir, I am a credit card defaulter. I changed my address and likelihood of bank finding me is almost zero. But I feel guilty to do this and want to settle my account with bank, However, i am not in a condition to pay the full amount, but would like to get my name written off from bank’s defaulter list. How do I settle my account with bank? What kind of rebate i can expect? Is there any agency to help me out in this?

Thanks for your question Ashok!

You are wise to want to settle the account out for several reasons:

  1. Credit card companies employ entire departments of people they call “skip trace”. Which basically means when someone skips out, they harass everyone you know until they find you.
  2. The credit card company will keep reporting the debt to all three credit bureaus until they write it off. When they write it off, they will sell your debt to a new collection company, who will also report your debt to all three credit bureaus. When they give up on trying to find you, they will simply sell your debt to another company.
  3. If anyone ever does catch up to you, you can expect them to sue you, and garnish your wages.

Now, assuming that they do not ever find you, you will still have to deal with the damage that delinquent account is doing to your credit score. So, you are exactly right to want to make good on the debt. It will begin the process of repairing your credit.

There is one thing you need to be aware of before you begin. Now, I do not know how old your debt is, but I can tell you that if your credit card company has written off your debt already, calling them will “re-open” it, and they will begin collections all over again. This could actually cause you to have multiple negative accounts on your credit report over the same debt – so do a couple of things first.

If you want to make good on your debt what you have to do is pull all three of your credit reports, and find out who currently owns your debt. From that point, you have two options:

  1. Call the collection company who owns your debt now, and offer a settlement for a reduced amount.
  2. Send a certified letter to the collection company that currently owns the debt telling them that you refuse to deal with anyone but the original owner of the account (the bank that issued the card.) This is your right by law.

There are pros and cons to both of these:

Collection companies are used to making settlements, and they will likely settle for less than your original bank will. However, they may have tacked on quite a few additional fees to your account that would not be charged to you if you deal directly with the bank that gave you the card.

The best way to know if fees have been added is to look at your credit report. Look at the amount your bank charged off, and then compare it to the amount the new collection company says you owe.

Settling the debt with the original bank will look better on your credit score because it will show a paid charge off. If you pay your original bank you can wait a few months, and challenge any negative information on your reports that resulted from the collection companies (not the original bank.)

As far as what kind of a settlement you can expect: it depends on how much you are willing to negotiate. In situations like yours, you should easily be able to cut the total by 50% if you are dealing with a collection company. If you deal with the original bank, upwards of 30% is a reasonable expectation.

As far as organizations that can help, yes, you will get the help you need from a credit counseling agency. Just be careful which one you choose, because not all of them do a good job. They will negotiate with your creditors on your behalf, and get the account settled for you.

For more information on how to choose a credit counseling agency, you can check out these articles:



Have a question for us? Leave a comment below!



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What to Do If You Closed Out Too Many Credit Card Accounts

By: Christina
08/13/2008

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

I was recently laid off and have paid off all my credit cards & collection accounts to clean my credit.
The only open accounts I have are 06′ Visa $1000 limit that is with my credit union, 07′ Target w/$200 limit (both w/no annual/monthly fees & low interest rates), and a 07′ $21K auto loan.

I closed an 06′ Merrick Bank acct that had $1150 limit w/$4 monthly fee, 06′ HSBC w/$300 limit and 02′ Capital One w/$600 limit-Low limits but high rates!

Now I’m seeing all these articles about closing accts will drop my score and am afraid because I was trying to get my credit right and not be in serious debt w/o a job!

I’m planning on a career change and will be applying for a student loan soon. Should I go back and re-open these accts or am I screwed in attaining a decent credit score and/or interest rate on my student loan? Please advice! Your help is greatly appreciated. Thank you in advance.

Thanks for your question!

The truth is, since you have already closed out your accounts the damage is done, and your score has dropped some. Re-opening the accounts is probably not a good strategy either. I say this because:

Should I Pay Off My Credit Card Debt Before I Buy A Home?

By: Christina
08/11/2008

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

My husband has a credit score of 560 and it is low because there are 2 accounts that were slow pays and paid off and closed almost 5 years ago.
The problem is we are trying to get a mortgage and with his score it may be difficult. I have tried everything to repair the credit and nothing seems to work.
Since these bad cards, he has paid off 1 vehicle and has 2 car loans on his credit, which are paid for on time every month for 3 years now. He has a few open credit cards which we pay every month. The thing with those current cards is that we owe too much, not above the limit, but maybe only $500 under it.

My first question is: Since I have the money to pay off the cards we have now, do we do that and will it really impact his score?

I just want to know if it really helps. I feel if I pay off all of his debt, we won’t have any money left in savings to our house. It is about $10K in credit cards.
Thanks.

Jennifer, thanks for your question!

Yes it will absolutely raise his score if you pay off those cards – but you don’t necessarily have to pay off the full amount. If you could get those cards down between 20% – 30% of the total available credit then that will be enough to kick his score up some.

Just understand that it will take some time after you pay those cards down for his score to go up. You have to be able to show 6-12 months of keeping your debt under 30% with on-time payments to see the full benefit of your actions.

Paying the cards off completely will raise his score faster, but if you can just get them under 30 percent it will help. That might also let you guys keep some money in savings for an emergency.

Regardless, I would make paying those cards off priority one – because you will end up paying a LOT more over the life of your home loan if he goes into it with a low credit score. If he can get his score up into the 650 range over the next year or so, then you will be in a much better position when you apply for a home loan. Over 700, and you will have a real shot at a nice interest rate.

Your other option would be to take your $10,000 and go ahead and try for your home. It’s really going to come down to what your priorities are. The exactly correct financial thing to do is to pay off the cards completely, do not close the accounts, and wait a year or two to get a home. However, life is not always exactly financially correct, so you guys are going to have to do what is right for your family right now.

There is always the possibility of getting the home at a high interest rate, paying off the cards over the next couple of years and re-financing your mortgage.

So, to sum up, yes paying off (or paying down) those cards will raise his credit score over the next six months. His credit score will not skyrocket overnight if you pay them off – it will take at least a month. To see the full benefit, you have to maintain this for six months to a year.

So the real question is, how much interest are you willing to pay on your home? Buy it sooner and you will have the home, but pay more for it. Wait to it, and you’ll be in a stronger position financially, with no credit card debt, and pay less in interest.

Thanks again for your question, hope this helps!

Saturday Link Love: What Is YOUR Time Worth?

By: Christina
08/09/2008

This post is inspired by an excellent guest post over at Get Rich Slowly. The post “Why I Fought to Save Three Bucks (and Why You Should Too)” was written by Donna Freedman, a writer with MSN Money’s Smart Spending Blog.

Basically Donna fought the cashier (and manager) at Office Depot over a $3 coupon – and won. There were some truly spectacular reader comments on this post. Several of them brought up the issue of their time being worth more than the $3 fight. Even more readers argued that she she was right to stick it to Office Depot no matter what because the coupon was not clear on what the sale price exceptions were.

Now, I have to admit, I roll my eyes when I see people do this in line. I’ve always figured my time was worth more than the time it takes someone else to win an argument at a cash register. But, Donna makes some excellent points about corporate responsibility. One of the readers, Maria, even argued that consumers are expected to keep their words when they write checks or use debit cards – otherwise we get hit with outrageous fees. Is it too much to expect large corporations to do the same?

So, I turn it over to you: What is your time worth? Is it worth it to you to stand in line and argue over $3, or would you just let it go?

Speaking of time, here are some posts from around the web this week that are definitely worth taking the time to read:

On the Home Front:

Moolanomy reminds us that FHA Loans are still out there and available. This is wise advice – especially if you have a less than stellar credit score. Not everyone qualifies for an FHA Loan, but if you do, it could be a real leg up.

Penny Jobs wonders if we have seen the last of the Home Equity Loans? This is a valid question. The so-called “Housing ATM” is part of what got us into the current economic situation. Not surprising that lenders are backing off.

The Digerati Life has a very interesting post on how a couple of homes fromthe extreme makeover show has been foreclosed. It is a real shame that the producers of the show did not indicate that with a bigger home comes with more maintenance cost.

Beating the Rat Race:

Free Money Finance believes that a quick path to promotion is to start dressing correctly. Can’t argue with that!

Money Smart Life has an article on how to make more money by using a work portfolio. It’s an excellent thing to do, and it really could help you get a raise or a higher paying job.

The Simple Dollar investigates why people are happier staying in a crummy job they are used to rather than trying to get a new one. Is it general apathy, or something more?

Credit Where Credit Is Due:

My Two Dollars has a list of credit cards that will help you get out of debt! This is a better deal than ocean front property in Arizona, I’ll wager!

Frugal Dad weighs in on the classic debate with, “So, You’ve Paid Off Your Credit Card. Are You Ready for Another One?” This is a touchy subject for those of us with lots of debt. It’s nice to have a fresh take on it.

Free From Broke examines your credit report vs. your credit score. It’s important to know what you are paying for when you purchase a credit monitoring service, or you could end up without the information you were trying to get in the first place!

Being Frugal.net takes a look at the mysterious pull of the credit card and how she fights the good fight each day. Tougher than it looks!

Carnivals, Festivals and Celebrations:

Thanks to these carnivals for featuring our articles this week:

What is a Good Mix of Credit?

By: Christina
08/08/2008

Having a “Good Mix of Credit” is basically ten percent of your FICO score – so what does that mean exactly?

Contrary to popular belief, it does not mean that you should have an Amex, Visa, MasterCard, and Discover Card. Instead it means that you should have different types of credit lines open to improve your credit score.

For example, a good mix of credit would include:

Now, if you don’t have all of these loans, it does not necessarily mean that you need to immediately run out and get them to raise your credit score. Remember, the types of loans you have only make up ten percent of your score overall.

This is where your credit score vs. your financial sense has to come into play. Yes – it might raise your credit score for you to go out and get an auto loan. BUT, if you can afford to a used car outright, then it makes more sense financially to the car without an installment plan, and avoid paying interest on the loan.

Keep in mind that opening new credit accounts temporarily lowers your score. If you do decide that you want to open a couple new cards to improve your credit mix, them make sure you only open one account every 4-6 months or so. That will give your score time to recover before each new account.

The most important factor in your credit score in undeniably carrying a low (or zero balance) and making on-time payments. Having a good mix of credit is like the icing on the cake – not the foundation of your score.

What You Need To Know About The SPIC Phishing Scam

By: Christina
08/07/2008

On July 21, 2008 the Securities Investor Protection Corporation (SIPC) issued a warning on their website about a known phishing scam.

Here’s the lowdown:

Would-be identity thieves are sending out emails claiming to be from a brokerage firm working on behalf of the SPIC. The firm is supposedly handling the liquidation of an SPIC account and trying to “return money” to you – the investor.

Here’s a quote from the SPIC press release:

The scheme involves an “insurance investment claim” supposedly to be made through the brokerage firm on behalf of SIPC.

In order to get the information needed to “file the claim”, the would-be thief includes a fake SIPC “Beneficiary Information for Automatic Deposit of Payment” form that requires information that could be used to directly withdraw funds from an investor’s accounts.

The phony form even includes a false detailed form routing number: “SIPC 4531/09 (4-00).”

The brokerage firm mentioned is legitimate, but is not involved in the scheme. This is just one in a list of schemes that have targeted the SIPC in recent years.

If you receive this email, the SIPC is asking that you forward it to them at this address:vdrew@sipc.org

For more information on how SPIC brokerage accounts are actually liquidated, you can download their PDF here.

Please pass this on to anyone you think might be affected!

Over 40 Million Credit Card Numbers Stolen – Ringleaders Exposed!

By: Christina

Federal prosecutors have uncovered what could turn out to be the largest hacking and identity theft ring to date. Over 40 million credit card numbers are believed to have been compromised.

The credit card numbers were stolen from large department stores including:

There were 11 people charged from as many as five different countries including the United States, China, Estonia and Belarus. Investigators know that at least one of the eleven ringleaders still at large.

Police believe the hackers drove around looking for loopholes in wireless security networks. When they found one, they installed a “sniffer program” – a program that taps into the merchant’s credit card system and steals their customer’s credit card and pin numbers.

The thieves took it a step further though. They chose some of the credit card numbers and had the numbers imprinted on new, blank credit cards. That way they could withdraw cash at ATM’s, or shop anywhere they wanted to. Right now authorities believe that they sold the rest of the numbers on the black market, as well as selling them on underground internet trading sites.

The head of the identity theft ring is believed to be a man named Albert Gonzalez from Miami. He was indicted Wednesday on enough charges to earn him life in prison (identity theft, computer fraud, wire fraud and conspiracy to name only a few).

Apparently, Mr. Gonzalez had previously worked for the FBI as an informant – that’s after he got his hand caught in the cookie jar the first time. That’s how the whole thing went down. The Secret Service got wise to Gonzalez, and they traced him to his accomplices.

So, what can you do if you are worried that your credit card accounts have been compromised?

Start by checking your credit report, and your credit card statements carefully. If you have reason to suspect fraudulent activity, then make sure you freeze your credit reports until you get things straightened out.

For more information on how to combat identity theft, you can click here.
For more information on the identity theft crime ring you can click here.

What do you think about all this mess? Have you ever shopped at any of these stores?

Does Having A Checking or Savings Account Affect Your Credit Score?

By: Christina
08/06/2008

It’s a standard question on credit applications: Do you have a checking or savings account?

But how much does having (or not having) those accounts really affect your credit score?

The surprising answer is: Not at all.

It makes no difference to FICO or the credit bureaus whether you have seven checking and savings accounts or none at all. The only time that your checking account will affect your credit score is if you bounce checks and do not pay the money back. If the balance you owe your bank gets turned over to a collection agency, then that information will show up on your credit report.

The checking and savings accounts themselves do not show up on your credit report. When you bounce a check it only shows up on your credit report if it goes to collections. When that happens, your credit score will drop.

One warning: If you bounce checks and do not repay your bank, you will not be able to open a checking account at another bank for five to seven years. When you open a checking or savings account most banks use the CHEX System to see how you have treated other banks in the past. If your name comes up on that list, no account for you.

So, if having a checking or savings account has no bearing on your credit scores, why do lenders ask that question when you fill out a credit application?

An open checking account is a mark in your favor – if it’s open, with a positive balance, then it shows that you have the basics of managing your money under control. If you have a savings account then presumably, it shows you are planning for your future.

Other reasons lenders want to know you have a checking and savings account:

Can You Keep Your Credit Cards When You Declare Bankruptcy?

By: Christina
08/04/2008

When you declare bankruptcy you are expected to turn in a list of all your debt – credit cards, medical bills, mortgage, everything. But what happens if you want to hang on to a credit card and use it after you declare bankruptcy? Is it legal?

Technically you can hang onto a credit card or two when you file bankruptcy, but you have to handle it carefully.

The correct way to keep a credit card through bankruptcy:

Now, the main reason for keeping a credit card active is simple. You will not be able to get anything but a secured card (or a card with $250 in up front fees) right after you declare bankruptcy. Being able to keep a card with a decent interest rate through your bankruptcy will help you repair your credit that much faster.

The risks:

If you can’t pay down your credit card balance at least six months prior to your bankruptcy, there is still one way you might be able to keep your credit account.

You can do what is called “re-affirming the debt.” This basically means that you call your credit card company, explain that you are filing bankruptcy, and that you would like to keep your card. It’s sketchy territory.

Your lender will want you to keep the debt and pay them back, but you are going to have to convince them that you really can do it. Otherwise they will close out your account. If that happens you will be stuck with the debt after your bankruptcy, and you still won’t have an open credit account.

Is there a better option?

There might be. Look at it this way: If you owe $12,000 on a card – even if it has an excellent interest rate, you are going to run into a lot of problems trying to keep it open throughout the bankruptcy proceedings. Financially, it makes more sense to include the card in your bankruptcy. Take the $1200 (or $600 or $300) you would have used to pay down that card and put it into a secured card after your bankruptcy is discharged.

Cards like the Orchard Bank Secured Credit Card have very low interest rates, are easy to get, and you even earn a tiny rate of interest on the money in your savings account. This acts as a failsafe too. If something bad happened and you got behind on that card after bankruptcy, then at least you know the savings account will cover your balance in the event of a default.

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