Protecting your Credit
How you handle your credit and other loans affects your creditworthiness. Remember to use your credit responsibly and be sensitive to the terms of the payment agreements you made when you established your accounts.
Whether you choose to pay the total outstanding balance on your bills each month or just the minimum payment due, your payment must reach the financial institution or business by the payment due date. Your payment due date is typically within two or three days of the same time every month. If that time of the month is not convenient because it doesn't coincide with your paydays, contact the creditor to see if your billing cycle can be changed. Or, adjust your budget accordingly.
If your payment is late passed 30 days of the due date nearly all companies will report that late payment on you credit report. This will be considered as a negative entry on your report which does have a direct affect on your credit score. Because many people know this, they consistently pay after the due date but make sure the payment reaches the company before 30 days. However… recently, what a lot of credit card companies have been doing is charging you a $20 to $35 late fee if your payment reaches them 1 day passed the due date. So it will not affect your credit but it will cost you money if you pay late but within 30 days. Just think of how this can add up if do this month after month.
Take the time to establish a monthly budget. Differentiate between the things you "need" and the things you "want." Start with your fixed expenses or "needs" like rent, food, utility bills, phone bills, loans & credit cards, and insurance payments. Then figure in variable "wants" like a new pair of shoes, eating out, and entertainment. Subtract your expenses from your income and you have your starting point. If the sum is below zero, it's time to reduce your expenses by cutting out any unnecessary spending on "wants." You'll be amazed how much money you'll save by looking at all opportunities to cut back.
Ideally, your credit report is an accurate, up-to-date reflection of your credit history. However, since we don't live in an ideal world, there are many reasons that your credit report could contain inaccuracies that might prevent you from receiving the credit you deserve. The good news is you can take action to keep your report accurate.
Here are some reasons why you should make a practice of regularly reviewing your credit report:
1. MISTAKES ON CREDIT REPORT: Many inaccuracies on a credit report can be the result of simple human error, and are therefore are not difficult to dispute and correct. Whether the inaccuracies relate to payments not credited, late payments, or data mixed in from the credit file of someone else with a name similar to yours, you will want to contact the credit bureau to dispute inaccurate information promptly. The only way to catch mistakes is to periodically order and review your credit report!
2. KEEPING UP WITH PAYMENTS: One of the most important elements of credit is a demonstrated history of on time payments. Keep in mind that once you send the check though the mail… anything can happen; a delay in the payment being received can kick you over to a 30-day delinquency. This has a negative affect on your credit, and creditors don't take it lightly. If you call your creditor and explain the situation, they might adjust the info, but you need to see your credit report to know whether you have a delinquency on it or not.
3. BE VERY CAUTIOUS BEFORE YOU CO-SIGN FOR ANYBODY, FOR ANYTHING!
We all have friends, family and loved ones that we are willing to help out. But many people do not realized the basic concept that when you co-sign it is exactly the same as if you got that credit card, or loan, etc. yourself! And too many times it ends up bad.
* If the other person makes late payments it will affect you and your credit!
* If they stop paying all together and default on the debt you will be held responsible!
* Even if they pay perfect... the outstanding balance of the co-signed debt will always be counted along with all the other bills you have. It could keep you from getting the car you really want or the house you really want because the lender for the loan you’re trying to get may feel you already have too much debt.
* Make sure you can afford to re-pay the loan or make the payments. If you become responsible for the loan and can't make the payments, you will likely be sued and your credit will be damaged.
* Before you pledge your collateral (real estate, RV, boat, auto) to secure the loan, make sure you understand the consequences. If the borrower defaults, you could lose the pledged property.
* Get the lender to agree to notify you immediately if the borrower misses any payments. This will give you time to deal with the situation before it becomes a major problem.
* Get complete copies of all the loan documents.
4. Identity Theft: This issue alone is reason to order your credit report immediately. Identity theft is an insidious crime, involving a thief who assumes your name to open new accounts, divert your statements to another address, and run up all sorts of bad debt without you ever knowing about it until collectors start calling. The best way to catch a thief who is using your name is by getting a copy of your credit report, which will show you if there are accounts listed you know you haven't opened. For example, if a thief has intercepted a pre-approved credit offer in your name and sent it in with a change of address, your credit report will include the account.
Identity theft is one of the fastest growing crimes in America! To protect yourself you can sign up for a credit monitoring service. Over 8 million people are victims of credit fraud and identity theft every single year and that number is growing.
Everyone should have a service to alert them and block suspicious activity on their credit. As long as you are a member of this service you can access your credit report as many times as you want! However if all you want to do is just get your credit report... you can sign up... view and/or print you credit report as many times as you like... and then cancel at anytime.
5. Credit Fraud--Unauthorized Charges: Credit fraud involves the theft of your credit card or account number to make unauthorized charges to your account. Though consumers are protected financially from this abuse, other creditors may take note of all this activity and decide to raise your interest rates or refuse to grant you a loan. Ordering your credit report will help you catch new activity on accounts that you haven't been using, or may have closed. When it comes to managing your credit worthiness, your credit report is your best resource. Your credit report gives you the opportunity to manage your credit wisely today, while planning your credit strategy for achieving future goals.
6. Inquiries: If you're shopping around for a loan or more credit, you should know when creditors check your credit; it places an inquiry on your credit report. Inquiries can add up, which is often interpreted as negative by creditors. Inquiries indicate to other credit grantors that you have applied for new credit that could result in additional debt. Potential lenders view multiple recent inquiries on your credit report as a sign that you are overextending yourself. For this reason, too many inquiries can actually make getting credit more difficult.
(TIP: If you are shopping for a car, or anything like that... instead of going from dealer to dealer having each one pull your credit, and telling you what they can do... you get your current credit report yourself... black out your ssn and just have them look at it. They should be able to tell you exactly what deal they can get you... and then pull their own credit report only after you agree! Then you only have 1 inquiry instead of 10 or 15 or 20)
If you do not authorize someone to look at your credit report and they do, they may have broken state & federal laws by pulling your credit.
7. Lost of Income: Given the current recession and bad economy… losing a job is a very real possibility. What can you do to protect yourself? The best way is to build a sizable savings to ride out the bumps that may get put in your path. But, that is hard for many people to do.
It is not the purpose of this book to discuss this matter in detail. There are many excellent personal financial management books that deal with this budgeting and saving. What this book can discuss is a way to protect your credit rating.
If you ever get laid off or otherwise find your source of income has dried up, contact everyone to whom you make payments. Call your credit card companies, the bank with your car loan, the bank with your home mortgage, your utility, and Phone Company, etc. Talk to the credit manager or equivalent person at each place. Explain your situation and ask if you can skip a few payments without them reporting it to the credit bureau.
You may state something like "I was just laid off from my job and don't have an income. It’s going to take some time for me to get a new job and get back on my feet. Is there my way I can skip a few payments, or make partial payments, until I get that new job and can start paying you again?"
After this, let the lender talk. He or she will discuss options with you. Some will not be able to give you any bargaining room while others may give you a 1-6 month grace period from payments. You don't know what you can get until you ask.
After calling them all, you now know what bills you have to pay and what ones can wait for few months. If your unemployment and savings can cover the "must pay" bills, your credit rating will stay okay. And, if you find that replacement job in time, your good credit rating is preserved, just as though there were no financial crunch.
With this disaster planning and a bit of luck in the job market, you will get through these troubles with your good credit intact. And, if things don't work out well and it takes a bit longer than expected to get back to work, this method will at least minimize the damage done to your credit rating. And this will make the subsequent cleanup of your credit report much easier to accomplish.