Will it lower my score if my lender (and not me) closes my credit account?

No. It doesn’t matter to your FICO score who closed the account.

Will closing a credit card account shorten my credit history?

No. Credit bureaus keep records of closed accounts in consumer credit files for years (seven years for negative information, longer for positive information). So a closed account will continue to appear on your credit report where it is accessible for the calculation of FICO scores. Those scores do consider the age of both open and closed accounts when determining the length of your credit history.

Will closing a credit card account increase my credit utilization rate, thereby causing my score to drop?

Not necessarily. A large percentage of adults (roughly one-third, based on FICO’s studies) habitually uses less than 10 percent of their total revolving credit. Having a utilization ratio that low means, among other things, that closing a credit card account is less likely to change your overall utilization rate. The situation changes if you had only one credit card account to start with, or if you have multiple cards with high reported balances, and so on.

If I close a credit card account that still shows a balance, how will that affect my score?

The reported outstanding balance of your closed account will continue to influence your overall credit utilization rate, so paying off that balance should continue to be a priority. If you miss a payment and are reported 30 days late on that closed account, the delinquency will hurt your score. So to maintain a good score, you should treat that balance on the closed account with the same respect that you give your active credit accounts.

The Difference Between Default and Bankruptcy:

Rarely does a person file for bankruptcy without already having defaulted on at least one credit account. So, if a person defaults on an account, meaning they have failed to repay it as agreed, they have taken the first slippery step toward bankruptcy. That doesn’t mean the person will declare bankruptcy, but they are a step closer to it.  A default occurs with only one account. The problem is that when a person has serious difficulty with one debt, they often are struggling with their other debts, as well.

Bankruptcy is among the worst things that can appear in your credit report.  When you file for bankruptcy, you are telling all of your lenders that you will not be able to pay them in full, or at all. As a result, it will be very difficult, if not impossible to qualify for new credit while the bankruptcy appears on your credit report.

Considering Bankruptcy:

A bankruptcy showing up on your credit is considered a very negative occurrence in regards to your credit scores and one thing is for certain; you can expect a rather large drop in your current scores. Typically, someone with a score in the mid 700s might see their score fall by 100 points or more. Listed below are a few things to consider before filing for bankruptcy.

• Do your homework. There are several things to think about when considering bankruptcy, such as choosing the type of bankruptcy (Chapter 7 or 13) that’s right for you based on your ability to repay your debts, the type of debts you have, and the impact that bankruptcy will have on your future financial picture.

• Consult with a bankruptcy attorney or a reputable debt counseling service. Because bankruptcy is an important decision that will affect many aspects of your life for years to come, it is highly recommended that you consult with a bankruptcy attorney. You may also want to consult a “legitimate” non-profit debt counseling service as an alternative to bankruptcy, as they may be able to arrange a special debt repayment plan with your creditors. Be careful, however, as there are many dishonest debt management companies that charge high fees and provide very little, if any, value toward resolving your credit problems.

Bankruptcy and How It Affects Your Credit:

One of the great myths about bankruptcy is that it erases bad credit history. It doesn’t.

A bankruptcy will always be considered a very negative event by your credit scores. How much of an impact it will have on your scores will depend on your entire credit profile. For example, someone that had spotless credit and very high credit scores could expect a huge drop in their scores. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their scores.

Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on your score.

While there are many things to consider when considering filing for bankruptcy, you can expect it to impact your score for as long as the bankruptcy is listed on your credit report.

What’s The Purpose of Filing Bankruptcy?

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” This means the debtor has no liability for the discharged debts.

Declaring bankruptcy frees you from paying all or part of the debt you owe. These accounts will be updated in your credit report to show “Included in Bankruptcy.” However, the accounts will not be deleted from your credit report. Credit accounts may be deleted at different times depending on their status prior to being included in bankruptcy.

For example, an account that was current when you declared bankruptcy will remain on file seven years from the date it was included in bankruptcy; whereas an account that was in collection when you declared bankruptcy, will be deleted seven years from the original delinquency date that led to the charge off.

Bankruptcy isn’t a “fix” to escape a bad credit history. It doesn’t erase your credit report so you can start over with a clean slate. However, it does stop collectors and creditors from calling, which can take a huge weight off of your shoulders.

5 Most Common Types of Bankruptcies:

• Chapter 7: Also known as liquidation, allows individuals or businesses to give up nonexempt assets and walk away from most debts. To qualify, debtors must pass the means test, which means their income must be less than their state’s median income. In addition, you must have received a briefing from an approved non-profit budget and credit counseling agency within the 180-day period before you will be permitted to file bankruptcy.
• Chapter 9: This type works like Chapter 11 and allows municipalities to reorganize debt.
• Chapter 11: Also known as reorganization, this type of bankruptcy is for individuals and more commonly, businesses to restructure debt. Similar to Chapter 13, in that it allows the filer to draft a plan to repay some debt while retaining assets. Chapter 11 is much more complicated, and therefore expensive, making it financially feasible mainly for businesses and very wealthy individuals.
• Chapter 12: Allows family farmers and fishermen with regular income to reorganize debt. It works very much like Chapter 13, but usually stretches out over three years.
• Chapter 13: For individuals who need to restructure their debt load. Some creditors will be paid back in full with interest, others in full and the remainder will be repaid a percentage of the debt. Also used by creditors who do not qualify for Chapter 7 under the means test. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” Chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. It may cure delinquent mortgage payments over time also. Nevertheless, debtors must still make all regular mortgage payments that come due during the Chapter 13 plan, on time. Finally, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 Trustee who then distributes the payments to the creditors. Debtors will have no direct contact with their creditors while under Chapter 13 protection.

The New Bankruptcy Means Test:

With the new bankruptcy law in effect since October 17, 2005, there is a lot of confusion with regard to the new “means test” requirement. The means test will be used by the courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy.

Prior to the inception of the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005″, the most common reason for someone to file under Chapter 13 was to avoid the loss of equity in their home or other property. While equity protection will continue to be a big reason for people to choose Chapter 13 over Chapter 7, the new rules will force many people to file under Chapter 13 even if they have NO equity. That’s because the means test will take into account the debtor’s income level. (Click here for free on-line test to see if you qualify)

Bankruptcy Law Changes Did Not Affect Credit Reporting:

Changes to the bankruptcy law focused on the rules for filing bankruptcy and what chapter a person could declare. The changes had no effect on credit reporting. The Fair Credit Reporting Act (FCRA) specifies how long bankruptcy can remain on your credit report. The section governing bankruptcy reporting hasn’t been changed since the FCRA was enacted in 1971.

Bankruptcy can be reported for up to 10 years from the filing date. By policy, the credit bureaus report Chapter 13 bankruptcy for seven years, because it includes partial debt repayment. Chapter 7 bankruptcy remains for 10 years from the filing date because none of the debt is repaid.

The discharge date has no bearing on when information is deleted from the credit report. Basically this means that the accounts that were included in the bankruptcy drop off 7 years after the date of their last activity, but the “act” of the bankruptcy itself, remains on your credit for 7-10 years.

Re-affirmation of Debt:

Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court.

Debts Not Allowed To Be Discharged in Bankruptcy:

An individual receives a discharge for most of his or her debts in a Chapter 7 bankruptcy case., which means a creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual’s debts are discharged in

Chapter 7: Debts not allowed to be discharged include:

• debts for alimony and child support
• certain taxes
• debts for certain educational benefit
• over-payments or loans made or guaranteed by a governmental unit
• debts for willful and malicious injury by the debtor to another entity or to the property of another entity
• debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances
• debts for certain criminal restitution orders
• government student loans

What Is A Discharge in Bankruptcy?

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien such as a charge upon specific property to secure payment of a debt (such as an automobile loan), will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

When Does the Bankruptcy Discharge Occur?

The timing of the discharge varies, depending on the Chapter under which the case is filed.

• In a Chapter 7 (liquidation) case, for example, the court usually grants the discharge about four months after the date the debtor files the petition with the clerk of the bankruptcy court.
• In individual Chapter 11 cases, and in cases under Chapter 12 (adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan.
• Since a Chapter 12 or Chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing.

Note: The court may deny an individual debtor’s discharge in a Chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.”

The bankruptcy law regarding the scope of the Chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the Chapter 13 discharge.

What Does a Dismissal Mean in Bankruptcy?

Dismissal means the termination of the case without either the entry of a discharge or a denial of discharge. After a case is dismissed, the debtor and the creditors have the same rights as they had before the bankruptcy case was commenced. Dismissal is the penalty for many essentially minor infractions of bankruptcy procedures under the 2005 amendments.

Re-establishing Credit after Bankruptcy:

After the bankruptcy, you’ll want to begin re-establishing your credit as soon as possible. Hopefully you had pretty good credit scores prior to filing for bankruptcy, so you likely understand how to establish credit. Unfortunately, you may have fewer options now than you did when starting with credit, simply because some lenders and credit issuers may deny an application when a bankruptcy is listed on your credit report. However, this is not always the case. Credit card issuers know that you cannot file bankruptcy again for 8 years, so you may just find yourself getting credit card offers in the mail as soon as your bankruptcy is discharged. Make sure you sift through them and with any luck there will be a couple that do not charge annual fees or high interest rates.

If you cannot obtain credit the traditional way, a good alternative is to obtain a secured credit card. This type of credit card typically includes a credit limit equal to what you’ve deposited with the card issuer, so it’s a bit different than a traditional unsecured credit card. When applying for a secured credit card, make sure the card reports your payment history to the bureaus. This way your good payment history will be factored into your score. Check out local credit unions in your area for this type of card, as credit unions typically charge low rates and fees.

In addition to the re-establishing of your credit history, the only other “cure” for a bankruptcy is time. So, be patient and make sure that you continually pay all of your bills on time. By doing so you will gradually see your credit scores begin to recover from the initial drop.

How Can I Minimize the Negative Effect of a Bankruptcy?

A bankruptcy is going to be factored into your credit scores until it falls off of your credit report. While it may take up to ten years for a bankruptcy to fall off of your report, the impact of the bankruptcy will lessen over time.

If you plan to file a bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:

• Make sure your creditors are accurately reporting the bankruptcy filing. To ensure accurate reporting by your creditors, you’ll need to check your credit report after you file the bankruptcy to make sure that only the debts that were actually included in the bankruptcy filing, are being reported as discharged through bankruptcy. Another thing you’ll want to verify is that all of the accounts that ARE included in the bankruptcy show a balance of zero.

• Note the date that your bankruptcy was filed. The credit bureaus have specific rules for when a bankruptcy should be removed from your credit report. In general, Chapter 7 bankruptcy remains for 10 years and completed Chapter 13 bankruptcies remain on your credit for 7 years. You don’t need to count down the days until the bankruptcy falls off of your credit report, but you should know approximately when it should removed or “purged” from your credit report. Make sure to follow up with the bureaus to make sure that happens.

How Long Until I Can Get A Home Home Loan After Bankruptcy?

Fannie Mae Waiting Period—Chapter 7

The rules from Fannie Mae have not changed. It is a 4 year period of how much time must elapse after a Chapter 7 Bankruptcy. The 4 year period can start on either the discharge or dismissal date. The exception for extenuating circumstances is 2 years.

Fannie Mae Waiting Period—Chapter 13

Again, the rules from Fannie Mae have not changed. It is a 2 year period of how much time must elapse after a Chapter 13 Bankruptcy. The 2 year period can start on either the discharge or dismissal date.

In the case of multiple bankruptcies, the current rules that have just been added require a 5 year waiting period from the most recent discharge or dismissal date.

The exception for extenuating circumstances in the case of multiple bankruptcies is a 3 year waiting period from the most recent discharge or dismissal date.

Accounts Are Not Removed Immediately After Bankruptcy:

Neither declaring bankruptcy nor completing a bankruptcy plan will cause the accounts included in the bankruptcy to be deleted from your credit report.

When you declare bankruptcy, the bankruptcy filing is added to your credit history from the public record, and the status on each of your accounts is updated by your creditors to indicate they are included in the bankruptcy.

If a creditor does not report that status to three major credit reporting agencies, you can provide a copy of your bankruptcy Schedule A, which lists all of the accounts included in the filing. The credit bureaus can then update the account status for you.

The accounts still will be deleted seven years from the original delinquency date of each account. The original delinquency date is the date the account was first reported delinquent and after which was never again current.

The public record entry of the bankruptcy filing will remain on your credit report either seven years from the filing date for Chapter 13 bankruptcy, or 10 years from the filing date for Chapter 7 bankruptcy.

As a result, the accounts may be deleted before the bankruptcy filing, regardless of the bankruptcy chapter, but they will not be removed immediately.

Can My Boss Fire Me For Filing Bankruptcy?

No. The law prohibits any employer from discriminating against you because you filed bankruptcy.

Spouse’s Bankruptcy Should Not Affect Your Credit Report:

If your spouse declares bankruptcy independently, it should have no effect on your credit history.

When an account is reported by your creditor as included in bankruptcy, the credit reporting agencies scan your credit history for the public record entry showing you filed bankruptcy. If there is no public record entry for the bankruptcy, the “included in bankruptcy” status is removed.

With no bankruptcy filing in your name or account status showing bankruptcy, there will be no record of the bankruptcy on your credit report. However, the account will continue to appear in your credit history along with any missed payments or a charged off status, if either of those have occurred.

The court record will appear on your spouse’s credit history, and the accounts in his or her credit report should indicate they were included in the bankruptcy filing.

Some states do have community property laws that might make it difficult for your spouse to declare bankruptcy independently. The bankruptcy will affect your credit history equally if you must file bankruptcy jointly.

Even if a community property law allows your spouse to file bankruptcy independently, it still could affect your shared assets. While the bankruptcy will not affect your credit history, it could still take away or limit your rights to assets you currently share with your spouse.

On another note, if your spouse declares bankruptcy on an account that you are jointly liable for, that account will show included in bankruptcy on your credit as well. This will only affect your credit to the extent of any delinquencies on the account and if applying for credit, you may have to write the lender a letter of explanation and provide proof that the bankruptcy was filed in the name of your spouse only.

You are encouraged you to talk with your bankruptcy attorney about any community property laws in your state and what those laws might mean to you beyond your credit report.

Can I Discharge My Child Support Arrearages In Bankruptcy?

Back child support cannot be canceled in a bankruptcy proceeding. Once it is owed, it will always be owed, until paid. This rule is based on public policy and is meant to discourage those obligated to pay child support from using bankruptcy to get out of having to pay.

The Consumer Protection Act governs the activities of collection agencies and in-house collection departments. If you can gain a working knowledge of this act, you can use its provisions to turn the tables on bill collectors and beat them at their own game!

Rules Collection Agencies Have To Play By

Bill collectors will almost always violate some part of the Consumer Protection Act while handling your case. This is why it is imperative for you to keep good documentation of their contact with you. Often, it takes several steps for them to hang themselves. You must have every inch of the way well documented.

In general, a bill collector may contact you by mail, telephone, telegram or in person. Also, unless otherwise advised, a bill collector can call you seven days a week, between 8 AM and 9 PM local time where you live or work. When calling, a creditor cannot in any way discuss your matters with persons other than you. A bill collector MAY ask about your whereabouts or how to reach you, but, they cannot give information about the reason for their call.

The Consumer Protection Act prohibits bill collectors or creditors from using harassing or abusive practices. Creditors or bill collectors cannot: threaten to use violence or other criminal means to cause you physical harm or harm to your reputation or property, use obscene or profane language, publish your name on a “list of debtors” if you allegedly refuse to pay debts except to a consumer reporting agency such as EXPERIAN, Equifax, or TransUnion, engage you in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass you or any other person at the called number, or place a telephone call to you without meaningfully disclosing their identity.

Using The Fair Credit Reporting Act

Now let’s show some practical examples of how to use the Fair Credit Reporting Act and the Consumer Protection Act in order to stop collection agency. First, let us go back to the process of stopping a bill collector from calling you. It is important to know that the act does not set forth any time constraints. The act states that if I ask a bill collector, in writing, to stop calling me, my request is valid once they have received the request. Once again, always send these letters certified mail with a return receipt requested.

Many collection agencies and companies with in-house collection departments, especially larger ones, are so swamped these days that it may be several days, or even weeks before your letter makes it into their system. By the time it does, you may have received several more telephone calls from them. If you do, you have a cause of action against them for violation of your rights under the Consumer Protection Act.

Another way to bring a larger collection agency to its knees is by using the clause in the Consumer Protection Acts that states, “A bill collector cannot send mail or telegrams that suggest or show that they are debt collection.” Some of the “high volume” collection agencies use impact printing on specially designed envelopes to get their collection message to you. Unfortunately for them, the impact printing, i.e., the collection message, can usually be read from the outside of the envelope.

Contest The Purchase

Another tactic you can use with bill collectors is to “contest the purchase,” which simply means that you are claiming something is wrong with the product or service for which they are seeking payment. Some claims you can make are:

• The product or service was ineffective
• Fraud or deceit was involved in the sale
• The product was not delivered or the services were not done on time
• The product or service was defective

Many third-party collectors may not want to get in the middle of these claims and may defer the account back to the company. The company that originally provided the product or service may agree to adjust the bill or accept a settlement payment of a lesser amount to avoid litigation, or they may allow you to return the merchandise for a refund to settle the dispute.

Offer To Return The Merchandise

Another tactic you can use is to offer to return the merchandise. You can redeem yourself by saying, “I can’t afford to pay for the merchandise so I’m offering to return it.” They will probably argue that it is no good to them used, but, this is a valid offer of settlement on your part. This may work especially well with department stores, or on small consumer credit purchases such as lawn mowers, furniture, appliances.

This tactic is very effective with automobile credit companies or finance companies that hold a contract on a boat or motor home. This tactic can be used to bargain for a “skipped payment” arrangement or the renegotiation of a loan or lease agreement. Simply stated — they do not want the merchandise back!

In most cases, if you threaten to return the car, boat, or motor home to the lot and hand over the keys, they will back down and negotiate. This is because many contracts were executed with little or no down payment; in plain English the car is worth far less than you owe. You are “underneath it.”

Also, if they repossess, they have to pay repossession fees, storage, fix-up fees, auction fees, and the legal fees that will be required to come after you. IT IS NOT COST EFFECTIVE FOR THEM TO DO SO. They would rather negotiate a skipped payment, or a revised payment schedule with lower payments that you can follow. Remember — they do not want the merchandise back!

Remedies Creditors Can Use Against You

Creditors may take one of two legal actions against you. They may file a small claim against you seeking a judgment for any amount up to the maximum allowed by the small claims court (usually $1500 to $2500).They also may file a complaint or a suit against you seeking a judgment in their favor. After a creditor is awarded a judgment against you, they may seek to lien your assets or attach your wages through wage garnishment.

If you ever receive a letter from a creditor seeking to get a judgment against you, go to the hearing. If you do not go, the judgment is automatically awarded against you. At least if you show up and explain your situation, the judge may be lenient with you and you may come out of the situation owing less than you did to begin with.

For more information on how to erase collection accounts altogether, visit www.RepairCreditTrauma.com

How Many Points Will My Credit Score Drop With A Short Sale?

The mortgage that is affected by the short sale should reflect the short sale verbiage within 60 to 90 days. This short sale verbiage is made in the form of a notation made under the account which says “Agreed Settlement Short of Full Payment”, or words to that effect. I’ve got some good news for you though; these types of notations mean nothing as they don’t affect your credit scores in any way.

If you were late on your payments prior to the completion of the short sale, you can expect your credit scores to drop about 120 points on the average. The amount your score actually drops depends on the amount of trade-lines you have, the length of history on your credit, and whether or not you’re late on anything else, among other things.

It will take about 2 years to recover from a Short Sale on your credit if you had late payments associated with it. Of course this is assuming you have good credit in other areas and continue to keep it that way.

How Many Points Will My Credit Score Drop With A Foreclosure?

A foreclosure on your credit can drop your credit score up to about 250 points on the average.

It takes about 3-4 years for your credit to recover after a foreclosure.

Avoiding a Derogatory Mark because of a Short Sale:

If you never made a late payment on your mortgage prior to completion of your short sale, chances are, you may come out of this process smelling like a freshly scooped litter box.

If you can prove to your lender that you are on the road to “Imminent Default”, more than likely they will agree to a short sale. An example would be if you were transferred on your job to another city and you bought a new house. Your old house has been listed for 6 months, your mortgage to value ratio is upside down, and you only have enough money left in savings to make 2 more mortgage payments. The bank at that point will determine that you are in imminent default status, and hopefully agree to a short sale. As long as you can keep up with the mortgage payments until the house sells, you will not have much of a hit to your credit.

Being late on your mortgage payment is what destroys your credit score. The later they are, the worse your score gets. A 30 day late is not going to affect your credit score too much. A 60 day late is a little worse, but it’s still not going to drop your score all that much. Once you get to 90 days and beyond, watch out…..your credit score is going to fall down faster than the Drop Zone at an Amusement Park and it’s going to smell like you haven’t scooped the poop out of the litter for a month! YUCK….

Unfortunately, coming out of a short sale with your credit score unscathed is the exception to the rule. Usually, in order to even be considered for a short sale by your lender, you needed to be behind on your mortgage payments. So we’re back to the stinky cat box scenario.

How Soon Can I Buy A House Again After A Short Sale or Foreclosure?

Fannie Mae will no longer allow borrowers with foreclosures from getting another mortgage through them for five years, unless there are “documented extenuating circumstances. In those cases, they will reduce this time to three years. So make sure you document your hardship and why you had to let your property go to foreclosure. Even after 5 years, if you’ve filed foreclosure, you will have to come in with 10% down and will need a minimum credit score of 680.

A short sale is not viewed the same as a foreclosure. As long as you work on re-establishing your credit and optimizing your credit scores, you could purchase another home getting a fair rate at around 18 months. However, if you do not do anything to restore your credit it could be several years before you are able to obtain reasonable financing.

If you were 120 days late or more on your mortgage before the short sale, it is considered a foreclosure by lenders and will require 3 years seasoning before you qualify for FHA or conventional financing again. If you weren’t 120 days late then you technically would qualify after 12 months without mortgage or rental lates.

What Can I Do To Help Increase My Credit Score After A Short Sale or Foreclosure?

Normally negative occurrences don’t continue to have “as much” of a stinky effect on your credit score after 2 years, so you may be able to mitigate the negative effect Foreclosure has on your credit by immediately adopting good credit habits. Make all your payments on time. Keep old accounts with long histories open and active if you can. Don’t charge more than 30% of your high credit limit on any revolving accounts. Don’t carry an excessive amount of accounts with balances.

If you want to learn more tips in greater detail on how you can optimize and repair your credit yourself, visit www.RepairCreditTrauma.com. This simple 8 step system to repair your credit only takes about an hour and comes complete with step-by-step videos walking you through the whole process in detail. You’ll get a great education about credit and credit scores and what you can do in the future to keep your credit scores at heights you’ve never seen before.

Sending Credit Card Payments Through The Mail:

Some credit card companies actually require you to use their own preprinted envelopes, but even if they do not, it is a good idea to do so in the interest of more efficient processing of your payment. Make sure you have included the billing coupon and have written clearly the amount that you are paying. Include your check, also written legibly, and remember to write your credit card account number on the check.

When Ronald Reagan was running for President, he was asked what he was going to do to make the post office more efficient, to which he responded that he would start mailing postal workers their paychecks. Allow ample time when you send your check to the credit card company.

Change Your Credit Card Due Date To Something That Is Convenient For You:

Many people find that the greatest number of their bills, such as their mortgage or car payment, are due at the first of the month. If this places a burden on your ability to pay your credit card bill that may also be due at the first of the month, a simple way to avoid this problem is to just ask your credit card issuer to change the due date for your monthly payment. There is no harm in the asking, and many credit card issuers offer this ability to change the due date of your bill as an option. One important thing to remember, though, is that it may take a couple of billing cycles before this date change is fully implemented. It is important to make sure that your bill is paid promptly when due until your change of due date becomes effective. Otherwise, you could find yourself on the wrong side of a late fee.

About Late Fees

In the classic television detective series Columbo, which starred Peter Falk, Lieutenant Columbo always seemed to be distracted and disorganized, but in reality he was extremely focused and observant. One common scene that brought delight to fans of the show was when Columbo left a room in which he had been speaking to the murderer. He kept turning around and starting question after question with, “Oh, just one more thing…” Then he trapped the criminal. Well, the credit card companies are not Lieutenant Columbo and we consumers are certainly not murderers, but when it comes to trapping us in the fine print of their credit card agreements, it always seems like there is “just one more thing.”

Make Your Credit Card Payment On or Before The Due Date:

Your monthly payment is due on whatever date of the month it says on your credit card bill. If your payment is late, the fine print of your credit card agreement provides for the right of the credit card company to assess a late fee, which can be as much as $35 for each late payment. In the past, some credit card companies gave their customers five or even ten days of grace after the due date before assessing a penalty, but that is not the situation any longer. So you send your payment with sufficient time to arrive at the credit card company on your bill’s due date.

But, just one more thing: Some credit card companies deem your payment late if it is processed later than 1:00 p.m. on the day of your due date. Some credit card companies don’t receive and process mail until after 1:00 p.m.; therefore, the real date by which your monthly payment must be received is a day earlier than the date indicated on your contract. So you need to make sure your payment gets there three days ahead of the due date. But just one more thing: If the envelope contains a staple, a paper clip, or a note from you, the fine print of the contract specifies that there may be a delay of up to five days in posting your payment. This might cause a late payment to be assessed on a payment that arrived at the credit card company prior to the due date of the bill. I’ll bet Lieutenant Columbo read the fine print before sending in his payment.

Make Your Credit Card Payments On-Line:

The most efficient way to make credit card payments is to make the payment on-line if the company offers that service. You can specify the amount you want to pay, which account you want it deducted out of, and specify the date you want the payment made. By paying your credit cards this way, you can set the payment to be made exactly on the due date so the credit card company isn’t getting your money any earlier than the due date and you have the peace of mind knowing you will never be late on your payment. Just be sure to set this up at least 3 days before the payment is due, otherwise there might not be enough time to process the payment in time.

Avoid Credit Card Interest Rate Hikes:

Another problem with late payments is that they can also trigger penalty interest rates as high as 29%; so, for example, instead of the 10% interest rate your card may carry, your rate will now be jacked up to 29% effective immediately. In fact, even if you are timely in your credit card payment, credit card companies generally reserve the right to raise your rate to a penalty rate if you are late with any other payment to any of your creditors, whoever they may be. Just read the fine print.

Can’t Make Your Credit Card Payment?

If you’re struggling with making your monthly payments, before you’re ever late on a payment, CALL YOUR CREDIT CARD COMPANY! Most credit card companies will come up with a reduced payment plan if you’re experiencing a hardship. You’ll want to do this as soon as you determine that you can’t make your payment, before the due date. You’ll want to negotiate a payment that you can afford with your creditor, then send that payment in on or before the due date so it doesn’t affect your credit.

You’ll want to be sure to get this agreement in writing and be sure to negotiate that this reduced payment WILL NOT be reported as a late payment on your credit report. Sometimes creditors will agree to a reduced payment, but they’ll go ahead and report it as being 30 days late because it’s less than what was contractually agreed to. If you get a letter from the credit card company agreeing to the reduced payment, along with a statement from the company that they will not report you as being late to the credit bureaus, you’ll have the proof you need to send into the credit bureaus if they don’t hold up to their end of the bargain. This happens more often than not, so make sure you protect yourself.

“Settling” Your Credit Card Balance For Less Than The Full Amount:

“Settling” a credit card account basically means that you’re paying less that the full balance. This technique is usually used if the account has already been charged off and can only be done if you have the money to pay them in full. If you’re going to attempt this, you’ll want to try to negotiate a “Pay for Deletion”, which basically means that whatever amount the two of you agree to settle the account for; the credit card company is also agreeing to remove the account from your credit report. By doing this, the charge-off and late payments will no longer negatively affect your credit score. For a sample Pay For Deletion letter, click here.

For more free sample letters to use when negotiating with your creditors, click here.

The program, a component of the administration’s $75 billion Making Home Affordable effort, was supposed to attack second-lien mortgages, which are additional, second mortgages taken out on a home on top of the initial first mortgage. It’s like taking out two loans to pay the same debt.

The Second Lien Program is supposed to automatically reduce the payments on a second mortgage when the first mortgage is modified under the administration’s loan modification effort, the Home Affordable Modification Program. The administration says that by lowering monthly mortgage payments, HAMP will eventually help up to four million homeowners stay in their homes

Some housing experts say the second-mortgage component of the plan is necessary to effectively tackle the foreclosure mess — 3 million foreclosure notices were sent out in 2009; another 3 million are estimated to go out this year — because so many distressed homeowners have second mortgages. When rolling out the program in April, the administration estimated that “up to 50 percent of at-risk mortgages currently have second liens.” Addressing only the first lien is insufficient, experts say, if no changes are made to seconds.

Per the administration’s fact sheet on the program accompanying its April 28 announcement:

Second liens contribute to the number of American homeowners unable to afford their housing payments. Even where a first mortgage payment may be affordable, the addition of a second mortgage payment can increase monthly payments beyond affordable levels. In addition, second mortgages often complicate or prevent modification or refinancing of a first mortgage.

The Second Lien Program will help create a sustainably affordable mortgage payment for millions of homeowners who qualify for a first mortgage modification, yet still face challenges in affording their monthly payments because of a second mortgage.

Compounding the problem is the fact that millions of homeowners owe more on their mortgage than their house is worth, putting them “underwater.” About a quarter of all homeowners with a mortgage have negative equity, according to real estate research firm First American CoreLogic.

“The single largest problem [with the housing market] is negative equity,” said Laurie S. Goodman, senior managing director at Amherst Securities and one of country’s top mortgage bond analysts according to Institutional Investor magazine, before a Congressional panel last month. “The [government's] current modification program does not address negative equity, and is therefore destined to fail.”

Goodman is right — the administration’s Home Affordable Modification Program [HAMP] does not address negative equity. Rather, it reduces monthly payments for struggling borrowers. Housing experts and consumer advocates agree that lowering monthly payments is a good start to reducing foreclosures. For borrowers with negative equity, though, lower monthly payments does not decrease the total debt owed on the house. In fact, under the administration’s plan homeowners end up owing more on their mortgage because mortgage servicers have simply cut interest rates and lengthened the life of the loan, putting them further underwater.

Goodman added: “Any principal reduction program requires the [Obama] administration to address the second lien problem head on…It should be noted that second liens have thus far, under HAMP, been treated with kid gloves.”

In an e-mail to the Huffington Post, a Treasury Department spokeswoman confirmed that the eight-month-old program has yet to get off the ground as not a single mortgage servicer has signed a contract with the federal government for this particular effort.

“We don’t have any official contracts signed yet, but servicers are committing to the program,” Meg Reilly wrote. “We have made enormous progress and continue to move forward with innovative technological development and program implementation and expect to finalize servicer contracts soon.”

The hang-up was first discovered by Thomas A. Lawler, a former top official at Fannie Mae and an expert on housing and mortgage matters, who runs Lawler Economic & Housing Consulting.

Part of the reason why it’s taken so long for the program to start is due to the complex nature of mortgages, the Treasury Department argues. Mortgages are owned not just by the lenders themselves, but also by investors, who could be anyone from hedge funds to Wall Street banks to municipal pension funds.

“Because there has not been a systematic method of notification to second lien holders when a first lien on the same property is modified, ramp up has taken some time,” Reilly said.

Some, like influential New York Times columnist Gretchen Morgenson, have pointed their fingers squarely at four specific culprits — the four biggest banks in the country.

As of Sept. 30, Bank of America, JPMorgan Chase, Citigroup and Wells Fargo were carrying a combined $452.4 billion worth of second mortgages on their balance sheets, according to the most recent quarterly data filed with the Federal Reserve. That’s $92.1 billion in junior-lien mortgages (mostly second liens) and $360.1 billion in home equity lines of credit.

While the Big Four — which are also the nation’s four biggest mortgage servicers — may be willing to cut borrowers’ payments on mortgages owned by investors, doing so for mortgages carried on the Big Four’s books would immediately impact their income; after all, less money would be coming in.

But the country’s biggest bank may be poised to finally sign onto the program. A Treasury official told the Huffington Post that Bank of America’s new CEO, Brian Moynihan, re-committed to Treasury Secretary Timothy Geithner this week the bank’s intent to join the administration’s second lien effort.

But for now, eight months after the plan’s announcement, up to 1.5 million struggling homeowners are waiting for a program that’s, thus far, stuck in the mud.

Shahien Nasiripour, HuffPost Reporting

But in November, after Reynolds had made trial loan payments for seven months, Chase told him his mortgage would not be permanently modified. Chase had determined that his personal financial troubles were only temporary — because Reynolds had expressed optimism that the administration’s policies might rescue the housing market, boosting his income.

That’s not a legitimate reason for a loan servicer to deny someone’s modification, according to the Treasury Dept.’s guidelines for the program. And Reynolds’ experience — along with the cases of two other homeowners examined by ProPublica, shows how servicers have created unnecessary hurdles that, in some instances, violate the loan program’s rules.

Housing advocates say they frequently see homeowners rejected or kept in a trial modification for questionable reasons. “There’s a real resistance on the servicers’ part to making permanent modifications,” said Diane Thompson of the National Consumer Law Center.

The administration set a goal of helping up to 4 million homeowners through the $75 billion mortgage modification program as a way to blunt the boom in foreclosures. Treasury has produced a growing number of mandatory guidelines for banks and other loan servicers to review applications and perform the modifications. In exchange for tailoring loan payments to 31 percent of the homeowner’s monthly income, both the servicer and owner of the loan receive incentive payments.

Servicers representing 85 percent of the housing market have signed up to participate. Applicants must first go through a trial period before their mortgage payments can be permanently reduced. But servicers have been slow to convert hundreds of thousands of trials into permanent modifications — as of November, only about 31,000 had been made permanent.

That spurred Treasury to publicly criticize the servicers’ performance and to put out new guidelines in recent months to speed up the process.

Treasury said recently (PDF) that the effort has resulted in a “significant increase” in offers of permanent modifications, but numbers demonstrating how significant won’t be available until February.

ProPublica has reported since last June on homeowners’ frustrations in receiving a prompt answer from servicers, particularly the program’s largest servicers — Bank of America, JPMorgan Chase, Wells Fargo, and CitiMortgage. In response to widespread complaints, those servicers have dramatically increased staffing and touted other improvements, such as new document management systems.

But when homeowners do get an answer, the reasons don’t always jibe with how the program is supposed to work. Housing advocates say this is a direct result of a lack of effective oversight of servicers in the program, something ProPublica has focused on before.

‘An Excuse to Deny Someone’

Reynolds was a prime candidate for a loan adjustment and was among the earliest homeowners to receive a trial modification.

His mortgage brokerage business had followed the market downward, and as a result, he’d fallen three months behind on his interest-only mortgage. Area real estate cratered. His own home, bought in 2001 for just over $400,000, had rocketed up to about $1.2 million in value in 2006, and then down again to about $350,000. With a refinancing in 2005 and a home equity line of credit with Countrywide, his mortgage debt exceeded his home’s value by more than 70 percent.

Soon after the loan program was announced last February, Reynolds applied. He received an application in late April and was accepted, making his first payment of about $2,400 (down from $3,300) in May. He made six more payments. Like many borrowers in the program, he says he was asked over and over to send the same documents and later, updated versions of those documents. Finally, in late November, he received an answer: He was denied a permanent loan modification.

The reason? A Chase employee explained to Reynolds that they’d determined his financial difficulties weren’t permanent. In his application, he’d written that he believed that the government’s rescue efforts would “save the U.S. housing market” and that his business “will once again be profitable.” The Chase employee told him that statement indicated his hardship was only temporary.

“That’s just nonsense,” said Thompson of the consumer center. “To me, that sounds like an excuse to deny someone.”

Chase spokeswoman Christine Holevas told ProPublica that Reynolds had been denied “because the skill and ability is still there to earn the income.” Since he’d “stated in his letter that business would be picking up,” it was “not considered a permanent hardship,” Holevas said.

Such a determination contradicts Treasury’s guidance to servicers for the program. A FAQ (PDF) issued to servicers says the program does not “distinguish between short-term and long-term hardships for eligibility purposes.”

When ProPublica asked about this guideline, Holevas did not directly respond. She did offer another reason for denying Reynolds: Chase’s review of financial information showed his income had not decreased.

Reynolds, who has a wife and two small children, says no Chase employee had made such a claim to him and that the documents he provided show that his mortgage business dropped more than 50 percent in 2009. He submitted a new hardship statement in December, in which he tried to make clear that his troubles are real and lasting. Holevas said those documents would be reviewed.

Now, Reynolds says his finances are at the breaking point and bankruptcy appears unavoidable if Chase denies him again. “I did everything that was asked of me, but Chase has me backed into a corner that I cannot get out of.”

The Nine-Month Trial

Six months into a trial modification, Gary Fitz of California still doesn’t know whether or when his mortgage will be permanently modified, and he’s been told he’ll have to wait for a few more months.

Under the program’s design, the trial period was supposed to last three months, giving time for the servicers to collect and evaluate the homeowner’s financial information. At the end of the trial, if the homeowner fit the program’s criteria and had made all three modified payments, the servicer was supposed to promptly make the modification permanent.

Instead, trial modifications routinely last more than six months, homeowners and housing advocates say.
There are a number of adverse consequences of a trial period’s dragging on, said the consumer law center’s Thompson. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop. And most importantly, says Thompson, the homeowner isn’t saving money in case the modification fails and the home is foreclosed. “Keeping someone in a trial modification really does not do them a favor,” she said.

Fitz’s case shows why some homeowners have remained in limbo so long.

He sought a loan modification in the spring of 2009 because his wife’s salary had been cut. Like millions of others, he applied soon after the administration announced the program last February. He was accepted for a trial modification and made his first payment in July.

Fitz was prepared for an uphill struggle. A Wells Fargo customer service representative told him early in the application process that he should make seven copies of his financial information — because Wells Fargo would likely lose it more than once. He says he’s sent the same paperwork in five times.

When the trial stage lasts so long, servicers commonly ask homeowners for updated financial information months into the trial period. Fitz, for example, submitted his paperwork for the first time last spring. But when Wells Fargo requested an updated package in December, it showed that he’d received a pay raise last June of about $80 per month.

Because of that, Wells Fargo started him over on a new trial period – even though his trial payments climbed just $27, from $1,733 to $1,760. His first payment on the new trial period is due Feb. 1, meaning that by the time he completes it, he will have been making trial payments for nine months.

Wells Fargo spokesman Kevin Waetke said the company does not comment on individual borrower’s cases. He did say, however, that “the federal guidelines require a final review of updated financial documents before moving any Home Affordable Modification from trial status to complete.”

That’s not true. In a Treasury guidance (PDF) to servicers issued in October, meant to streamline the review process, it says there is “no requirement” to “refresh” the homeowner’s documentation as long as it was up-to-date when it was originally received.

Wells Fargo also appears to have begun Fitz’s second trial period contrary to Treasury guidelines. A Treasury guidance (PDF) last April said that a servicer should not begin a new trial period if a homeowner has only a minor income change (defined as exceeding the “initial income information by 25 percent or less”). Guidelines issued later (PDF) are even more restrictive about starting a new trial period. The reason is clear: The purpose of the trial period for the homeowner is to demonstrate the ability to pay, and such a small change in income is unlikely to affect that.

Asked to respond, Waetke said that “given the complexity of the program, the volume of calls we receive and the number of modifications currently in process, there is the potential for a mistake to be made.” He added that Wells Fargo would continue to review the case.

Buying Time

Sometimes there seems to be no reason at all for a trial period to drag on.

Cynthia Mason of Texas, another homeowner with a Wells Fargo mortgage, also recently restarted her trial period after several months.

Last spring, she sought a loan modification because medical and other expenses had made it impossible for her to afford her mortgage payment on a fixed alimony income. She’d planned to supplement that income with a job, but has been unable to find anything. Like Fitz, she began the program in July.

In October, good news came with a phone call: She’d been accepted for a permanent modification. She waited for the final paperwork to arrive, but it never did. Instead, while speaking to a Wells Fargo employee about an unrelated issue six weeks later, she found out that she’d in fact been denied. When Mason inquired why, she says she was told some documentation was missing, but the employee could not tell her what it was. She also learned she owed late fees because she’d paid the modified payment, not the original, full payment, in November and December.

When she complained about the late fees (which were eventually canceled), she was passed to a different employee who told her she was being put back into a trial period. She didn’t understand why. Another representative finally told her that she’d been denied because of a negative “Net Present Value” test. The test is the calculation at the center of the Treasury Department’s program: It determines whether the loan’s owner (sometimes the lender, sometimes a mortgage-backed security’s investors) is likely to make more money modifying the loan or not. A negative result means the servicer has no obligation under the program to modify the loan and is a common reason for denial.

But in Mason’s case, a Wells Fargo employee told her she’d nevertheless been put back into the trial period in order to “buy time.”

Wells Fargo spokesman Waetke declined to speak about Mason’s case but did say that the bank sometimes extends the trial period “to allow customers time to get the documents so we can complete the review.” Mason says she doesn’t know of any documents that might be missing, and she’s not optimistic about receiving a permanent modification. By extending the trial, Mason told ProPublica, Wells Fargo is “just prolonging the inevitable” – denial.

by Paul Kiel, ProPublica

Like so many of you, I too have had my share of financial problems the past couple years. During the good times, I got a little overzealous and purchased a 2^nd home and a seasonal vacation rental. Basically this meant that I had 3 mortgage payments and the rental income I received only covered the expenses on the seasonal vacation rental during the summer months. Once winter came around, those came out of my pocket too, so I decided the best thing to do was sell the vacation rental, so on the market it went.

There my listing sat, and sat, and sat, collecting dust with no offers. It got to the point where I could no longer afford to make the payments on the 1^st and 2^nd, so with much hesitation, knowing I was going to ruin my perfect credit rating of the past 20 years, I stopped making the payments on December 1^st, 2008. I had no choice.

The late payment letters and collection phone calls started coming fast and furious by February. I really needed to learn another language or two, because how many times can you tell a collection agent “I don’t have the money” after 3 phone calls from the same lender in ONE WEEK? Maybe if I could say it in Spanish or Greek, they’d understand and stop calling. But no…..persistent buggers they are….and the saga continued until I just stopped answering the phone.

So April came and I got a letter from Bank of America who holds both my Visa and my American Express accounts for the past 15 years. These two accounts didn’t start out with BofA, but being the huge credit sucking siphon that they are, they ended up there much to my dismay. So anyway, I got this letter saying that my $45,000 credit line (that I paid perfectly up to that point I might add) was being cut to $13,000. Guess how they came up with that amount? It wasn’t rocket science or anything. My balance on the card at that point was $12,800, so I guess $13K looked like a nice round number. Ditto for my American Express account. BofA is nothing if not efficient! Nothing like killing two birds with one stone!

Being the so called “credit expert” that I am, I knew this was the start of the ramifications of my not making my mortgage payments on my seasonal vacation rental, but boy, did that hurt the ego or what? I’d had that account for 15 years with a $45,000 credit limit; had never missed a payment or ever been late, and now it was down to $13,000. If that wasn’t bad enough, do you know what happens when your balance is basically as high as your credit limit? It totally dumps your credit scores……as if the late payments on the mortgage weren’t bad enough. I went from a 768 score down to a 569. Thanks for the help BofA! Deep down I knew and understood their reasoning. I was now considered a credit risk and they had to limit their possible loss. I sure didn’t like it, but I understood it.

Okay, so I had to adjust my spending…..move auto payments around to another card that hadn’t cut us yet and generally fight on-going depression for the next few months while I adjusted to my new crappy credit standing. I knew that once the foreclosure was actually done and over with, my credit would start to repair itself, (after about 2 years) and I wanted to get that clock started, but the lender hadn’t foreclosed yet. By September of 2009, I was getting really frustrated, so I wrote a nice letter to my first mortgage holder saying “Please take my house!” and I enclosed the house key. Thought I’d make it easy for them and give them the incentive to just go to sale and get this thing done. I guess it worked because on October 19^th, I lost my house to my first mortgage holder.

I sat back and said “Ahhh….” That chapter is over and I can move on, but noooooooooooo……. I had a 2^nd mortgage with Wonderful Wells Fargo and they wouldn’t go away. In all fairness, I got this 2^nd in 2007 when I saw the writing on the wall with the economy and real estate values. I took as much out of this home as I could…..to the tune of $135,000. I put some of the money into upgrades on the house that got foreclosed on, and I used the rest to live on for 2008. Wells really had every right to want their loan repaid and since they didn’t initiate foreclosure proceedings themselves, I was now being hounded by Wells continuously. “Either pay or we’ll seek legal action.”

Again, being the “credit expert” that I am, I knew if they decided to seek legal action, that would result in a judgment against me which would be another big ding on my credit and it also would start to accrue interest on a much higher scale. Wells told me that if I made payments NOW, directly to them, the interest would stop accruing on the account and any payments I made would be credited directly to the principal. Since I didn’t see any other way around the situation, short of filing for bankruptcy, I started to pay them $200 a month. They really wanted $65,000 and they’d call it settled, except for 1099’ing me for the difference. Isn’t that nice? Yeah, like if I had $65,000, I wouldn’t be in this mess.

So far, so good with the $200 a month until last month, when they tried to talk me into the “10 year plan” for $1,200 a month. Naaaa…..that’s a bit much…….how about $300? They seemed to be okay with that, but now I’m getting a “Wells” call a couple times a week again. That’s okay. I know the number now and unfortunately I’ve been too busy to answer the phone when they call. I know this arrangement is not going to last forever, but for now, I’m dealing with it.

To top this whole sucky last year off, after taking care of my elderly dad for the past two years, he passed away this last October. I’ve spent so much time with him in the past two years, that now I’m a little lost, but he’s in a better place. It was his time. He was 87 and his quality of life was deteriorating quickly in the past 6 months before he passed, so I think it was a good thing that he went before he got any worse. It brings me comfort too, knowing he is now with my mom, who passed almost 11 years ago now.

My sweet, sweet dad, who was my financial advisor forever, looked out for himself well over the years, and I was left with a little bit of money from him. It wasn’t a ton, but I was very thankful for it and it allowed me to pay off my BofA Visa and my BofA American Express last week. I thought, okay, at least I have two credit cards now with $11,000 to $13,000 limits on them, and that should help my credit scores come back up now, because my balance-to-limit ratio is not going to be high anymore. This was going to be the beginning of starting to get my credit rating back.

WRONG!

This past Friday, I logged into my BofA account on-line and noticed that my Visa credit limit had been cut to $500!!!!! I WAS LIVID!!!! Now I felt justified in calling BofA to give them a piece of my mind and find out why they cut my limit again! Luckily my BofA American Express was still at $11,900, but I just figured they hadn’t gotten around to that account yet….

So I called BofA and was transferred over to the credit department. I explained to the girl that I had just paid off this account, so WHY would you cut my limit from $13,000 to $500? She said “Let me check your credit”. Being ever-so-helpful myself, I had to explain that there was foreclosure on my credit, but those two accounts were the only two accounts affected and I have no other dings or late-pays on anything else, not to mention, I’ve never, ever been late on either BofA account. I thought that once she knew that, she’d straighten everything out.

WRONG!

At that point she said to me, “Oh, you have a foreclosure? Well then, I have to close your account.” WHAT? YOU’VE GOT TO BE KIDDING ME? “No, it’s our policy that if you have a foreclosure on your credit, that we can no longer offer you any kind of credit. I see you have another account with us as also. That account will have to be closed as well.” REALLY? You’ve got to be kidding me! I’ve had these accounts for 15 years and never been late! How can you do that? Know what her response was? “Didn’t anyone tell you that a foreclosure affects your credit?” DUH! I guess I’m just not being punished enough.

ME AND MY BIG MOUTH!!!!

Being the so called “credit expert” that I am, I know for the most part, the people in the credit department have limited access to your credit. I’m not sure exactly what they see, but I don’t think it’s a breakdown of each account. I believe they only have access to your score and that determines what they’re going to cut your credit limit to. Why my brain didn’t kick in before I decided to tell her I had a foreclosure showing on my credit is still giving me indigestion.

So now, my longest and best credit accounts have been closed. My scores are going to drop even further into the abyss then they are now because they will no longer report and I lose all that history. I’m still sick to my stomach and I HATE BANK of AMERICA!!!!! So much for my credit score improving for the time being.

Here are a couple tips for you if you find yourself in this situation. I have another credit card with a $20,000 credit limit that I religiously PAY OFF every single month. This credit limit has never been cut and I believe it’s because I pay it off every single month, so no attention is being drawn to me for them to look into my account, or check my credit.

As for the BofA accounts, I used to pay both of them off as well every month, but because I was having financial difficulties, I started keeping a balance on them. I believe that is why I became a “red flag” for them to inquire into my credit status. Once they did that, my credit limits got cut.

I have no choice now but to move forward, continuing to make my payments on time and trying to re-build my once perfect credit rating. I know this is going to take a minimum of 2 years before the foreclosure is not going to have as much of an impact as it does now.

As for my 2^nd with Wells, what impact that has, still remains to be seen. I don’t believe they are continuing to update that account, as it’s been placed in “charge-off” status with the lender. I’m keeping track of every payment I make to them now, because it’s “not their policy” to send me statements anymore.

Maybe one day I’ll win the lottery and give them the $65,000 they want to settle this account. If not, it’ll only take me about 39 years to pay them off at $300 a month.

I can tell you one thing; I will NEVER, EVER do business with Bank of America again.

If you need help with your credit, visit: www.RepairCreditTrauma.com

To establish good credit, you simply need to jump into the credit cycle. You first acquire some credit, use it when needed, and repay as required. After a period of this activity, you acquire some more; use it when you need it, and so on…

By making small charges to your account and paying them on or before the due date, you slowly build your credit and become eligible for credit line increases. Its okay to pay personal consumer accounts on or right before the due date, but you’ll get an even better credit rating for business accounts if you make your payment right after you receive the bill, versus waiting until closer to the due date.

In most cases, you can set up your payments to be deducted automatically out of your checking account on the due date. If you pay off your balances in full every month, this ensures the credit bureaus will always show a balance on the account, and also allows you to keep your money until the exact day the payment is due. If you pay off your balance too far ahead of the due date; it may not reflect a balance on your credit report, which doesn’t help your scores.

You continually increase the quality of your credit as well as the quantity. You’ll replace store charge cards with those from major imprints, such as Visa, M/C or American Express. You’ll convert secured lines of credit to unsecured ones. You’ll increase your borrowing power with your relationships. Before you know it, you have built substantial credit coffers.

Well start from the beginning, with steps to establish or re-establish credit for someone who has no or formerly bad credit. If you already have credit, the challenge is to make sure your credit grows in the ways you need it to for your business.

1. Open a checking account. Use the account regularly and don’t bounce any checks or fall below your minimum balance and you can use this account as a credit reference.

2. Open a savings or money market account. Just having a savings account says to a potential lender, “I think about saving money”. If you are still practicing get out of debt strategies, add just the minimum to this account every month (Pay Yourself First!) until you are through with your debt reduction program.

Add small amounts to this account regularly and keep it above the minimum balance. This is a great place to put the funds from Paying Yourself First. Don’t withdraw the money!

3. Credit Building Fast - Three loans, three banks, three months! For fast track credit building, you will need to spend a little money. First, locate three local banks or any size that report their accounts to a credit agency. Go ahead and tell the banker that you are looking to build credit for yourself or your business and make sure they report to at least one, or better yet, all three of the major credit reporting agencies.

Take some amount of money—as little as $1,000 will work. Deposit that money into a three month CD at Bank # 1 and take out a line of credit secured by the CD. Banks will routinely make this transaction, since they have a completely secured loan at this point.

Take the $1000 you borrowed and go to Bank #2 and do the same thing. Repeat the process in Bank #3.

You can do this for as many banks as you can afford the interest payment on for those three months, plus any loan fees you are required to pay. Make sure that none of these loans has a prepayment penalty. Finally, deposit the money into a savings account and don’t touch it.

Spend three months paying the bill on these loans on time. Some say that making triple the monthly payment will grow your credit faster, but a single payment is sufficient.

At the end of the three months, withdraw your $1,000 from the savings account and use it to pay off the first loan, and then cash out the CD. Take that money to the second bank and repeat the process. You now have three satisfactory positive credit accounts on your credit report.

While this is a powerful and proven method for rapidly growing credit, there are a few drawbacks. First, it will cost you money. Your secured loans will have an interest rate between 5-10% and you’ll be paying that three times, or 15-30% annualized interest. Since you are using this strategy for at least three months, you could be paying $300 to grow your credit.

The second drawback is in using the CD to secure the loan. Although the bank will like this better than a passbook savings, a CD does have an automatic rollover provision. If you don’t liquidate one of the CDs along the chain in time, you may not have the funds to pay off the loan and incur the interest for a much longer period of time. With proper timing of the accounts, you can entirely mitigate this risk.

4. Apply for a department store or oil company card. These are much easier to get than a VISA or MasterCard. You can start with a small credit line. Be sure to do this when you are making an already scheduled purchase, since you will often receive a discount on the bill at that time.

Use this card every month for a purchase you are already going to make. For this reason, cards like Target that have household items are a good choice for establishing good credit. Office supply stores are a great one for business credit building. Pay the bill on time, every time, to prove your credit worthiness. For these types of cards, never carry a balance. The interest rate is just too high!

5. Get a secured credit card. After keeping your account current for a year, ask them to refund your deposit. If you simply had little credit, but not bad credit, you may skip this step.

I really struggled with whether to include this among the list of steps to grow your credit. There are so many secure credit card programs that are really financially ill-advised, that their benefit on the whole is questionable.

Be aware that there are high fees on some of the cards that are advertised nationally, and some names of cards are a red flag to lenders and don’t help you build credit at all! If you can skip this step, I’d recommend it. However for some of you with really bad credit, it may be a necessary step between a store card and a major imprint card. Make sure you read the fine print and determine what kinds of fees are associated with the account.

6. Apply for a MasterCard. It is rumored in the industry that these are easier to get than Visa cards. Likewise, it’s easier to get a card that doesn’t give you anything in return, such as cash back or miles. Regularly use the card, and occasionally carry a small balance.

Before you apply for your MasterCard, call a few numbers on the applications and attempt to determine which credit bureau they use to evaluate the credit score of their applicants. Many of the companies will share this information with you. If you can find a MasterCard imprint that pulls credit scores from the bureau you have the highest score with, you increase your chances of getting your application accepted.

7. Keep Credit Inquiries to a minimum. Keep your credit inquiries to no more than 5-7 per year. Your score can drop by as much as 5-10 points every time your credit is pulled, so be conscious of how many inquires are being made.

8. Build your All-Star Credit. Continually work on improving all the elements of 5-star credit by working on improving those 5 Cs: character, capital, collateral, capacity and conditions.

9. Now that you have established a good credit base, continually improve and upgrade your credit sources. If you have a secured card, first ask for a line increase without providing additional security. After a few months, ask for the card to be unsecured or apply for a new card and replace the secured card. Go from retail store cards to national imprints, secured bank lines to signature lines.

10. Work on building a relationship with one or two banks. At the highest levels of credit use, lending is all about relationships. Create a relationship with a bank that’s large enough to meet your goals over the next few years, but not too large so that your business isn’t important to them. Choose a mid-sized local bank. The longer you establish your credit profile, especially with a particular lender, the wider credit vault doors will open.

The best mix of credit to have is 2 to 3 unsecured accounts, preferably from major imprints, and one or two installment accounts, such as an auto loan or mortgage. Your credit scores like a long history of your accounts, so don’t close old accounts. If you need additional credit, ask for a line increase instead.

Keep in mind that a major factor in trying to establish good credit is to keep your balances at 30% of your high credit limit or below. To eliminate this risk completely, just charge what you can pay off every month and within a couple years your credit will be so good, lenders will be begging you for your business instead of the other way around!

For resources on how to repair your credit, visit: www.RepairCreditTrauma.com