A recent federal law requires the nation's three credit bureaus to annually provide consumers with a free credit report. West Coasters have access to this service offered at AnnualCreditReport.com. If you live in the Midwest , you'll be able to get this information in March, while Southerners will have access to it in June and residents in the East will be online in September.
Regardless of when you can access the free report, you should get a new credit report at least once a year as they can be filled with tons of errors. If you plan on making a big purchase, car, house etc, be sure to get a report about six months prior so there's plenty of time to correct any errors.
You don't need to hire someone to repair your credit, you can actually do it yourself. Just be informed, start by reading the Fair Credit Reporting Act to learn about your rights. Remember whenever speaking with anyone about your credit, don't lose your cool. You'll get a much better response if you conduct yourself in a respectable manner.
If you're not feeling up to the task of repairing your own credit you can always hire a lawyer who specializes in credit laws or check out an online service such as TK (Steve, you might have something that would be a good fit here – such as a tool on your site or one that you can promote). These sites typically offer tools and professional advice to help you through the process. But before you sign up with such a service ask about the fees and verify that you can cancel at any time.
Just like getting a physical each year to check the status of your body's health, you need to check your credit reports annually to see how your financial health is doing – and to research what companies have reviewed your credit recently and whether fraudulent charges have surfaced on your account.
The three credit bureaus – Equifax (www.equifax.com), Experian (www.experian.com), and Transunion ( www.transunion.com ) – will all send you a free report annually. (Be prepared for pitches for pricey credit-monitoring or other financial services you might not need, though.) To simplify ordering reports, the bureaus now offer one-stop shopping at the Annual Credit Report Web site: www.annualcreditreport.com . You can also call toll-free at 877-322-8228 or write to Annual Credit Report Request Service, P.O. Box 105281 , Atlanta , GA.
Got bad credit? Follow these three steps to start repairing it. First, take inventory of what's on the reports. Notify credit bureaus and card issuers of account errors, and if your debt has gone to collections pay it off by making realistic repayment plan with the agency. Second, take a look at how many accounts you use and manage them better.
Start paying at least the minimum balance due each month on each account, and, once you've begun doing that, whittle one account at a time down to a zero balance. If times get tight, keep in mind credit issuers measure late payments in 30-day increments: A 30-day late payment isn't as bad as a 60- or 90-day one.
Third, let time pass. As you pay on time, reduce collections balances and overall debt, your score improves.
Free credit report now available in central U.S. states
Every American is entitled to a free copy of their credit reports each year, thanks to a new law that went into practice this year. To handle the anticipated demand for reports, free availability has been rolled out in waves – one region of the country at a time. Residents of west coast states already have free credit report access, and as of March 1 residents of Midwestern states can get their reports.
Southwestern states' residents get access on June 1, and East coast residents get theirs on September 1. If you're ready to apply for your free report, double-check here (www.annualcreditreport.com ) to see the region where your state is located.
Many couples get married without fully discussing finances or understanding how their partner manages money. That's why it's a good idea to look at your partner's credit score before you enter marriage. Discuss how the two of you will handle finances and what will constitute acceptable debt levels. In some states – those with "community property" laws – any possessions or debt acquired during the marriage are considered shared.
In the event of a divorce, you could end up sharing responsibility for a partner's debt. In the event of a major purchase together, your combined scores will often be used on loan applications – so if one of your scores is low it could negatively impact the interest rates you're offered on major loans (mortgages, autos) and other financial products.
Many companies have begun checking prospective employees' credit scores to gauge how responsible you are and because it's assumed employees with low scores are the most likely to commit inside theft. An employer must ask your permission to review your credit score, so if you're aware that yours will be viewed – and that it's not a pretty picture – be sure you've seen a report recently, too.
Be prepared to tell a hiring manager about why you have credit blemishes and what your strategy is for dealing with them. You can't change a credit score overnight, but you can prove your integrity by showing a new boss you're already facing past mistakes – and that you'll correct them going forward.
Shopping for auto insurance? Your prior driving record, years on the road, type of vehicle, and similar factors will obviously impact the prices you're quoted.
But insurance companies often ask for your Social Security number before providing a quote – and that may mean they're running credit checks that can impact the prices they charge. The practice of developing an "insurance score" is legal in most states, but many consumer advocates argue that a low credit score and a person's driving behavior are unrelated. They say it's unfair to penalize low-scorers with high-price insurance premiums.
Fair or not, the practice isn't going away any time soon. To learn more about how the industry uses credit data, and what it means for you, visit www.insurancescored.com .
The three credit reporting bureaus – Experian, Transunion, and Equifax – have been rolling out free online credit reports across one region of the US at a time since December 2004. Get one or all three reports at www.annualcreditreport.com . It's important to check your credit reports annually to make sure that your history of on-time payments or credit line closures is accurately and also to assure that no one has falsely used your identity to establish and use new lines of credit.
As of June 2005, free reports are now available for residents of 11 states throughout the South: Alabama , Arkansas , Florida , Georgia , Kentucky , Louisiana , Mississippi , Oklahoma , South Carolina , Tennessee , and Texas . They'll be available for Atlantic coast states in September.
Whether you're young, new to America , or starting over again financially, you'll need to establish a credit history for yourself in order to borrow to make major purchases such as a home or auto.
First, you'll need to maintain a checking (and/or savings) account at a bank. Secondly, you'll establish lines of credit – preferably small ones – with retail stores. Use those store cards, but moderately, and avoid spending up to the card limit. Always pay on time and pay more than the minimum due. From there, consider applying for a credit card – but be careful to understand rates and terms.
Follow the same rules that you used for your retail cards, and as time passes you should be able to build a strong credit foundation.
One good way to approach ratcheting down your credit card balances is the "50% rule" recommended by some consumer advocates.
This rule suggests you get balances on all your credit cards to a figure that's below 50% of your card limit. This means that if you've chosen a strategy of paying one card off at a time and letting balances hover near their maximum on other cards, you'll need to rethink that strategy and instead pay all your cards incrementally until they've sunk below the 50% threshold.
This rule also means you should avoid taking out new lines of credit, especially low-limit department or chain store cards often offered to shoppers at the checkout counter – when you're likely spending more than half the card balance offered.
The three credit reporting bureaus – Experian, Transunion, and Equifax – have been rolling out free online credit reports across one region of the US at a time since December 2004. In September, residents of the fourth and final region – the mid-Atlantic and New England states – can now also get one or all three of their credit reports at www.annualcreditreport.com .
If you're working to repair your credit, the free reports can help you track your progress. But regardless, it's important to check your credit reports annually to make sure that your history of on-time payments or credit line closures is accurately and also to assure that no one has falsely used your identity to establish and use new lines of credit.
If your credit scores are going up, one of the best things you can do with your newfound financial savvy is refinance car and home loans, and possibly student loans. Before you shop for new rates, get familiar with the terms of your existing loans – then compare them with rates advertised on research sites such as www.bankrate.com .
Calculate the cost to keep your current rates versus lowering them. If you're convinced you can do better, consider applying for new loans online through financial portals where lenders "compete" for your business. But be aware of two things: Avoid an "adjustable" rate with your refinanced loan (which contain hidden costs) and keep in mind that loan applications could make minor hits to your credit score.
American consumers could save a collective $16 billion a year in finance charges by improving their credit scores by just 30 points, according to the Consumer Federation of America, a consumer advocacy group in Washington D.C. While more consumers are showing a better understanding of the factors that influence their credit scores – including past repayment behavior, the amount of debt outstanding, and other factors – they could benefit from learning even more and using their knowledge to improve scores.
The Consumer Federation of America and Providian, one of the three U.S. credit scoring agencies, have developed a consumer test to teach you more about how credit works. Click here to give it a try: TEST IQ NOW
If your finances are chaotic, you need to make a budget. It's not hard – and it can help control spending.
First, add up your monthly income from all sources. Then, deduct from this figure what you pay for debt payments, housing, utilities, food, gas, leisure, medical bills and prescriptions, gifts, luxury items, and what your unexpected expenses were. If you track your expenses in this manner for two or three months – and record each purchase in your checkbook – you should begin to see patterns of where you're spending your money, and where you can adjust your spending to better reflect your income.
You may find you need to earn more – but at least you'll know exactly how much you'll need in order to live in the black. Or you may discover that small steps like skipping a gourmet coffee or occasional meal out may rein in your habits.
Utility costs can add up during the winter months. To curb what you pay, try changing your energy consumption habits. In most U.S. homes, kitchen appliances and typical home electronics (computers, washer/dryers, televisions, stereos) represent 20% of your energy bill, according to the U.S. Department of Energy. When shopping for new appliances, look for energy-efficient products that use the least power.
At home, consider plugging your appliances into power strips that can be switched on and off. Power strips can help prevent appliances from using electricity when they're in “off” mode, which can happen when an appliance is plugged directly into a wall socket.
For more tips, visit the Department of Energy's web site at www.eere.energy.gov.
Credit reports aren’t the only piece of your consumer profile
It's important to stay on top of your credit reports and any inaccuracies they contain. But credit reports aren't the only source of information used by businesses to decide if, how, and how much to charge you for services. If you're concerned about getting good rates from insurers, landlords, and banks, it's worth checking or having your credit counselor help you check some additional reports.
CLUE reports (available via www.choicetrust.com or www.ISO.com) track your prior insurance claims and are used by insurance firms to determine your potential “risk” of filing a claim. MIB reports (available via www.MIB.com) from the Medical Information Bureau track your medical history and debt. Reports on your behavior as a tenant are available from a variety of sources (such as www.choicetrust.com and www.UDregistry.com ). And lastly, reports on your checking history (available at www.consumerdebit.com ) look at your history of bounces.
It's bad enough to have a negative track record with creditors due to tough financial circumstances or moments of irresponsibility. But what if your creditors have reported inaccuracies to credit reporting agencies, or credit reporting agencies have failed to remove inaccuracies from your accounts? Enter the Federal government.
Through May 22, multiple Federal government agencies are soliciting comments from consumers about errors and problems on their credit reports. By sharing your experiences, you could help not just yourself but also other people who have had to grapple with the consequences of a negative credit report. The Federal Reserve, Federal Trade Commission, Federal Deposit Insurance Corporation, and other agencies want feedback. For extensive information on how to file comments by phone, fax, e-mail or mail, see this site
The credit reporting agencies – Equifax, Experian, and Transunion – are now teaming up to produce a single credit score for mortgage lenders, credit card companie, and banks in an effort to reduce confusion surrounding what often are three different scores from the three agencies. The new scoring system, called “VantageScore,” ranks consumers' credit on a scale of 501 to 990, versus so-called Fico scores of 300 to 850.
If you're applying for loans or checking credit, make sure you clarify what score you're considering. A high score on one scale could be a low score on another. Some consumer advocates think the new VantageScore system adds more confusion to an already-complex industry. In the mean time, credit counselors can help you navigate.
Individual Development Accounts” help the strapped start saving.
So you've repaired your credit, but your income isn't very high and it seems like you'll never be able to save for a home or finish school without incurring more of that risky debt again. Maybe it seems like there's no hope. But think again: There are more than 250 “individual development account” (IDA) programs in the United States . These programs match your savings with a free contribution from outside sources.
Once you've shored up savings, you can use the money (including outside contributions) for a home purchase, education, or to launch a business. Designed for lower-income Americans, IDA programs aim to reward hard workers for getting out of debt and to help them stay that way. To find a program in your state, visit This site .
Worried about high credit card rates and repaying debt? Then take a look at your bank fees. Changing your habits can help you preserve more money, which you could apply to repaying debt. According to new survey data from finance site Bankrate.com, the average check-bounce fee is $27, and ATM charges for withdrawing money from another bank's machine average $1.60.
The survey also found that in order to earn interest or pay no fees on your checking account, you'd need to have a balance of $2,465. At these rates, one bounced check a month and three non-bank ATM withdrawals could cost you more than $375 per year, and that's before you pay bank fees for check printing, teller assistance etc. So only use your bank's ATM machine—and avoid bounced checks.
No matter what your financial circumstances, it's important to check your credit files each year with each of the three major credit bureaus—TransUnion, Experian, and Equifax. To do so, visit their joint Web site, AnnualCreditReport.com ( www.annualcreditreport.com ) for information on requesting the files in writing, online, or by phone. These reports are free once a year.
Before you can erase debt and improve your credit, it's important to understand what creditors have reported about you to the bureaus. Your credit reports can help decide whether you're granted a mortgage, auto loan, or credit card, as well as what kinds of fees and interest rates you pay for those products. That's why the government and the bureaus themselves encourage consumers to review their information.
Credit reports aren't the only data source out there
Credit reports and your credit score influence what rates credit card, mortgage and auto lenders will offer you. But there are other reports that influence your rates and financial life too. The insurance industry compiles what's known as a “CLUE” (short for Comprehensive Loss Underwriting Exchange) report documenting your insurance claims, and the human resources industry has a service called ZoomInfo that records your past employers.
As with credit reports, these types of reports can carry mistakes that can cost you – in terms of insurance rates, or employment prospects.
To check your CLUE report, visit www.choicetrust.com . To see ZoomInfo's employment history, go to www.zoominfo.com and type in your name. Then clarify or correct any mistakes. Your career, and your insurance rates, may depend on it.
You’ve worked hard to reestablish good credit. Now what? Get to work refinancing your debt at a lower rate, that’s what.
If you took out a mortgage when your credit wasn’t very healthy, chances are the interest rate you’re paying on your debt is higher than it will be if you refinanced. Talk to a credit counselor about options. Similarly, you may have low spending limits and high annual percentage rates on your credit cards. Discuss with your counselor ways to get creditors to lower interest rates as a reward for your newly minted credit score.
Lastly, if you’re in the market for a car or car loan, study what your options are – chances are, they’re brighter than before.
If you’re working to improve your credit, four major rules can help sway your score significantly, according to Transunion, one of the three major U.S. credit bureaus.
Check your credit score every quarter to make sure there are no errors and that you’re not the victim of identity theft.
Work on moving your credit score up to or above 650, a number that will place you into a credit category for which lenders offer better rates.
Lower your balances on credit cards to 35% or less of your total limit, a move that will improve your appearance to lenders.
Create a monthly budget that allows for better-than-minimum payments on debt—and stick to it.
If you have to declare bankruptcy to avoid overwhelming debt, keep in mind that filing will mar your credit for up to seven years and could color your ability to get hired by new employers (if they conduct credit reviews). Bankruptcy will also impact your ability to borrow for a home, car, or other major purchases or only allow you to finance those purchases at high rates.
However, if bankruptcy is the first step in a major campaign to start over financially, and you’ve learned or are working to remove the problems that caused the excessive debt to begin with, it could be a viable option for you. Discuss with a credit counselor whether bankruptcy or negotiating directly with a creditor is best.
It might take longer, but try applying for a loan from a company that offers both prime and subprime loans (designed for people with poor credit scores).
If you have a low credit score as a result of a limited credit history – maybe you're a college grad, lenders that offer both prime and subprime loans can have more options. Plus, you have the opportunity to explain the state of your credit. Don't stop there or at just one lender, be sure to ask how your credit history affects the loan price and find out how you can get a better price.
You can get a mortgage with bad credit. If you go to a mortgage broker – a lender who helps clients shop for a mortgage – you can learn about your options.
Few lenders will offer a loan if you have debt in collections. But if your score problem has more to do with past financial management than current outstanding bills, chances are you'll be able to get a loan. Many local governments offer homebuyer education programs to help first-time or budget-strapped buyers and these programs can help you tap better rates than those made available through typical first-time buyer programs.
In addition, ask a lender how your mortgage rates would decrease if your credit improved. Then use a calculator to see how lower mortgage rates would impact monthly payments for the home of your choice:
If you made a low down payment to buy your home, you likely pay Private Mortgage Insurance (PMI) fees each month. PMI protects the lender in case you default.
However, when you have at least 20% equity in your home (i.e., have paid 20% of the total mortgage), you're eligible to cancel PMI. If you bought your home before July 29, 1999 , you must ask your lender to stop PMI; if you bought your home after that date, PMI should automatically stop when you cross the 20% threshold.
Ending PMI can help you save hundreds or thousands of dollars per year. Certain conditions (like on-time payments) apply to removing PMI, and some loans (including government-backed FHA loans) are ineligible. For more information, visit this site.
You've probably seen “lease-to-own” offers on houses. These deals aren't for everyone, but in some cases they work. In a hot market, such deals could help you secure a reasonably-priced home and skip agents' commissions.
Generally, lease-to-own homes are sold by investors who want to give you a “lease-purchase” option to take the home in 12 months. You sign a lease and pay higher rent than a normal renter, but a portion of that rent goes toward a down payment. When the lease ends you'll have the option to buy the home, assuming you can get a mortgage. If you buy, you apply the down payment from your rent – and if you don't, you get that down payment back.
If you're planning a move, don't forget to let everyone – including companies that bill you by mail – know.
Amid all the packing and planning, it's easy to leave address notifications to the last minute. But that can lead to errors on your credit report especially if minor bills or fines from places like the library or video store show up after you've relocated, leaving you unaware of small easy-to-pay debts.
Be sure to notify any business that bills you by mail of your new address, or make a note to yourself to call such businesses after you've moved. If you're working hard to pay the big bills – mortgage, auto loans – why should the smaller, forgotten ones wreak havoc on your credit history?
If you're late on mortgage payments, the time to act is now: Most lenders are able to work with borrowers to resolve financial crunches so that they don't fall too far behind.
After all, it costs both you and the lender if you are evicted from your home and the home must go onto the market. Many lenders allow for “workout” plans that temporarily lower your payments or allow some payment deferment if you expect finances to improve at a set time.
If you fall more than 30 days behind on your mortgage, you may begin receiving notices and if you fall 90 days behind on your mortgage you enter default – meaning your home could be repossessed and sold by your lender and related creditors.
If you're a first-time home buyer or haven't bought a new home over the past three years, you are likely eligible for a Federal Housing Administration (FHA) mortgage loan – a form of loan requiring as little as a 3% down payment and that may view credit scores with more leniency than many conventional bank loans.
There are limits to how much FHA will let buyers borrow, but during the fall of 2005 the FHA raised borrowing limits in many communities – especially densely-packed urban areas where home prices and home price appreciation have risen sharply in recent years. If you're worried you can't borrow enough to buy with FHA, double-check local loan limits for your community at this web site
If you might make a late mortgage payment, don't panic. Most banks allow 15 days past the due date on your mortgage before charging an extra fee. If you can't pay by 30 days, though, you should definitely contact your lender to discuss your situation and how you'll meet your payments.
Most lenders won't begin foreclosure or default proceedings until you've fallen 90 days behind on payments, and if you talk to a lender long before that point most will negotiate with you so you can remain in good standing. If you have unforeseen problems, like work loss or medical expenses, a lender may let you temporarily reduce or eliminate payments and make up the amount you owe over time. It's not a good sign if you have to pay your mortgage late, but you benefit by talking to a lender sooner rather than later.
Owning a home is part of the American dream, but if you're not prepared financially or don't get good rates on a mortgage loan, it can become part of the American nightmare. If you're still struggling to get debt under control (meaning you can only make minimum payments or are negotiating with collection agencies), have a credit score under 600, and don't have enough for a down payment of about 3% of your potential home's cost, it may be too difficult for you to secure a favorable mortgage at a rate that is affordable.
Many prospective home buyers spend as much as 12 months on a “credit clean-up” campaign, addressing not only errors on their credit reports but also paying down debt so that their credit scores improve. Tuck away savings slowly, and your chances of getting a good mortgage will improve – and your peace of mind when you finally own the keys to your new place will be far greater.
You've been hearing that the housing bubble will burst and that interest rates are going to start rising precipitously. Is it true? Only a Magic 8 Ball knows. But if you're concerned about a worsening real estate market, now could be a good time to refinance your mortgage.
Buyers who got into a home over the past five or so year by using a balloon or adjustable rate mortgage (ARM) may want to research their options for changing over to a fixed-rate mortgage. That way, if rates do increase, your fixed-rate mortgage will insulate you by locking in your monthly payments, unlike an ARM which can rise, in some cases tracking federally-set interest rate increases.
If you're mulling tapping home equity to make renovations or repay debt, keep in mind that rates are rising now. The federally-issued prime rate which helps determine bank rates on many home equity loans, second mortgages and cash-out refinancing is at 7.25% and expected to rise higher. If you already have a home equity line of credit which tracks that rate, be aware your minimum payments could begin increasing.
While a single-digit rate on debt may sound favorable compared to double-digit rates on credit card and other debt, keep in mind that home equity loans, second mortgages and cash-outs involve large sums of money and even tiny percentage fluctuations have big impacts. Discuss your plans carefully with a debt counselor.
First the good news: Home prices have stopped escalating at their prior clip, according to new data from the National Association of Realtors. That means first-time or new buyers have a little bit better chance of buying a place before prices once again slip out of their grasp. Now, the bad news: Interest rates are rising. Coupled with spotty credit, and you may find that the interest rate on a prospective mortgage is high enough to lower your shopping budget.
If you're thinking of buying in the coming months, be sure to clean up your credit first – and if timing is flexible, wait until the fall months when the busy summer season for home sales is over. House may sit on the market longer, with less chance of multiple buyers creating bidding wars.
Selling your home? While it's on the market, you're still must make mortgage payments—even if the new home you're moving into is costly and you're tempted to skip your original home's mortgage payments to afford the new place.
If the purchase of a new home is contingent on the sale of your present home, talk to a debt counselor about the timing of your transactions and how to handle the difficult period in between their closings. Failing to make mortgage payments puts your listed home at risk of default—which would only make it take longer to sell.
It's possible you might either need to sell your original home outright before shopping for a new place, or that you might need what the real estate world calls a “bridge loan” to give you funding in between the two transactions.
The real estate market is cooling as interest rates on mortgage loans rise. If you're shopping for a home, borrowing to buy it may be more expensive than before. But home prices themselves may be stabilizing, no longer rising precipitously month by month or the subject of bidding wars by multiple buyers.
Those shopping for a home should make sure to shop within their budgets (which a lender pre-approves), demand a home inspection, and not be afraid to have their realtor make some demands (such as repairs) of sellers.While buying a home is never easy for those starting out or with fragile credit, at least it's no longer as hard as it was at the height of the real estate boom.
With U.S. home price appreciation starting to stall, and the U.S. government curbing hikes on interest rates, homeowners and would-be home buyers may be better off with a fixed-rate 30-year loan than with an adjustable rate mortgage (ARM). A fixed-rate loan allows you to make the exact same payment every month, and means you won't have to grapple with changing payments every few years when your loan's interest rate adjusts.
If you're in the market for a home, discuss with your financial or debt advisor what your options are, and what interest rates you can get. Loan rates offered by local as well as national banking institutions are updated daily at the Bankrate Web site at www.bankrate.com.
Ready to buy a home? Congratulations. But before you sign on the dotted line, be sure you're ready to budget for home ownership. Owning presents many more costs than renting, but if you budget carefully handling your new responsibilities should be a snap.
When you own your home, you'll need to be prepared for higher utility bills, to pay water/sewer/garbage fees, and to possibly pay homeowners association dues to your neighborhood or to your condo complex. And if you're moving from a small space into a large one, you'll need to purchase furniture to fill the rooms.
As a rule of thumb, you'll also need to budget 2% of your home's cost per year for general repairs and upkeep. In other words, if your home costs $300,000, you can assume you'll spend about $6,000 per year for upkeep tasks to keep your home's systems running and also to keep the yard maintained.
March is typically the launch of the six-month mid-year home buying season. While cynics have long predicted a housing slump, first-time buyers or those with fragile credit may have more options as housing inventory sits on the market and with interest rates still quite affordable—even for those working to remove a negative credit history.
If you're planning to buy, talk to your credit counselor and also mortgage brokers about financing options. While the high prices and rapid appreciation of prior years pushed many new buyers into riskier loan formats—such as adjustable-rate, zero down, or balloon mortgages—it might be possible to seek a more conventional fixed-rate or 30-year loan in the current environment.
For information on the latest loan rates, check Bankrate.com ( www.bankrate.com ).
Planning to buy a home but have fragile credit? First, the bad news: Many lenders are tightening up rules about who can borrow to buy, creating stricter criteria and requiring more financial solvency. Now, the good news: When you borrow under a conventional loan, you’re less likely to face surprises down the line from interest rates that adjust upward to unaffordable heights.
While it may be getting harder to secure a zero-down loan, loans with low teaser rates, or payment option loans (where you pick one of three types of payments to make each month), many mortgage products with fixed rates and easier-to-navigate terms are still available. Talk to your credit counselor and a mortgage broker to find the best options.
Just because you receive an offer in the mail for a low interest rate credit card, there's no guarantee you're going to get that rate or be able to maintain it. he truth is, often times, if you're not eligible for the premium card advertised, you end up with a more expensive non-premium card and its higher annual percentage rate. Additionally, if you're signing up for an introductory rate for balance transfers, you may end up paying up to 5 percent for each balance you transfer.
ay, everything goes as planned and you do get the introductory rate, you're not out of the woods yet. Be sure to read the fine print of the agreement before signing up. You might end up giving the credit card company the right to check your credit report for late payments and if they find some, they can raise the interest rate on their credit card.
Before you cancel a credit card, keep in mind that there are times when it's good to keep a credit card open, especially if you're planning a major purchase requiring a loan such as a car or home. Closing a card can sometimes hurt your credit – especially if you close down an older account – so if you're planning to apply for a home or auto loan discuss this with your lender first.
If a major purchase isn't on the horizon, prepare to close your card by first paying off your entire outstanding balance. Then confirm with the credit card issuer by phone or mail that the balance is zero and notify them that you're ready to close the account – a process that can take up to 30 days. Next, check your credit report within two months to make sure the closure is logged, and that it's logged correctly – at your request, rather than at the credit card company's.
Many retailers offer credit cards with zero percent interest for a certain amount of time – say, 12 months. The offers are good - but only if you pay off the balance within 12 months.
If you fail to repay the full debt in time, you may be on the hook for all the interest you'd owe on the original balance. For example, if you borrowed $1,000 to buy a computer at 0% interest for 12 months, you'd pay no interest if you paid $85 per month. But if the interest – say, 15% – kicked in, and you had only been paying 3% of the debt ($30) per month, you'd fork over $301.70 in interest.
Not so good, huh? Moral of the story: Do the math on monthly payments before you borrow to buy. And click here to see how compound interest applies.
If you're a student, managing credit can be one of the most valuable lessons you learn. Unfortunately, there aren't courses on the topic – but there are ample solicitations on most campuses inviting you to get a card. If you're just beginning to use credit cards, keep these tips in mind.
Review the application: The “teaser” interest rate advertised will eventually expire, to be replaced by a higher interest rate. Never use your credit card for basics like food, entertainment, or travel when you could use a debit card. Avoid using credit cards if you're just making minimum payments – pay the bill down before you use the card again, or go on a fiscal diet till the balance owed is more manageable. Finally, leave credit cards at home if you know you'll be tempted by impulse shopping.
When it comes to checking accounts, one size doesn't fit all. Banks cater to savers with high account balances. If you want to make the most of your account without losing money to fees, it's worth reviewing your bank's account programs.
You might find that switching to a new account format will help you save money on fees for teller-aided transactions, bounced check or overdraft charges, account activity statements, non-bank ATM use, and other charges. If you have a mortgage at one bank but checking at another, it might pay to consolidate all accounts at the institution that holds your mortgage – typically, you'll get a discount for managing a mortgage plus checking and/or savings at one place.
If you resent credit card companies that change the terms of your card usage after you've signed on or that bury important details about your card in the fine print of a lengthy brochure, you're not alone. The Consumers Union, a lobbying and consumer product research group, has launched a public awareness effort to help you.
If you're already buried in credit card debt, you may need professional help from a debt or credit counselor to reverse or reduce unfair charges. But if you want to help others avoid similar problems in the future, visit the Consumers Union's www.creditcardreform.org site for ideas on how to get your political representatives to urge Congress to better regulate and enforce fair practices at credit lenders.
If you're carrying high credit card balances and can only make minimum payments, watch out: Many banks are raising credit card minimum payments from about 2% of your balance to roughly 4%. If you've got lots of cards and are only making minimum payments, the hike could hurt. But on the upside, paying more will lower your debt faster. Banks, it seems, know consumers are over their heads in debt.
Major credit card issuers are prepared for many debt-strapped consumers to struggle with the new payments. If you find it's hard to make a higher minimum payment to a card issuer, it's better to call immediately and make a payment plan than to avoid paying anything, which can send your account into collections and hurt your credit.
So you open your credit card bill and notice that your credit card limit has increased. If you're repairing your credit, is that a good thing – or a bad thing? It might be tempting to call the company up and tell them to lower your limit so you won't end up inadvertently spending it.
But don't touch that dial: Having a higher credit card limit can help scores, as long as you don't spend your way up to the limit's maximum. That's because your credit score is based in part on what percent of your available credit has been used. If you've spent $1,000 of $2,000 available credit, that's 50%; but if you've spent $1,000 of $3,000 available credit, that's just one-third – a percentage that looks better to creditors.
It's the oldest trick in the book: Retailers give you a 10% discount on a purchase if you apply for their credit card right now. Usually you're offered this deal at the cash register, when you're about to spend—and that means you gloss over the paperwork related to the offer and neglect the high interest rate your new card carries.
Is that headache worth it for a one-time 10% discount? We think not. If your credit is fragile, you're better off using one or two general credit cards (Visa, MasterCard or Discover, for instance) that can be used at mall stores as well as in other locations. Use these cards responsibly and your credit will rise, allowing you to save far more on interest fees than you would if you got 10% off a pair of jeans.
When using a credit card to make a major purchase at a department store, such as a piece of furniture or appliance, make sure you understand how the store will charge you for the purchase. Some stores will open a separate “account” associated with your name for the type of major purchase you’ve chosen, which can make things confusing for you at bill-paying time – especially when you see words like “revolving account,” and “credit account” and other confusing terms.
To keep matters straight from the outset, ask a sales representative or store credit representative to explain how you’ll be charged and how you’re to pay for the charges (with one check to one account, or two checks to two accounts, etc.).
Are you considering borrowing to buy a car, or refinancing an automobile loan? It pays to study auto loan interest rates – and to keep in mind that if you’re debating between a new car and used car both listed at the same price that the used car may carry a slightly higher interest rate. To model how much car you can afford, try this calculator:
www.bankrate.com.
To model how large your loan payments will be based on different car prices and loan terms, try using this calculator: www.bankrate.com You may be surprised to learn how a slight increase in interest rates effects monthly payments, or how a higher down payment could lower those payments over time.
If your credit has improved since you bought your car, check and see if you can
refinance your car at a more favorable rate than your current loan offers.
Don't just shop for a loan by checking interest rates. Ask a lender if a potential loan program has prepayment penalties (it shouldn't). Also, study whether your loan options involved fixed-rate loans (payments and interest are the same each month) or variable-rate loans (payments can fluctuate because the loan's interest rate varies). If you're comparing your current fixed-rate loan to a variable-rate loan, be sure to understand how high the variable-rate loan's interest can go. Once you know the terms of potential loans available to you, analyze your options here.
New auto or used? That depends. New cars come with extensive warranties, can be bought with lower-interest car loans, and are good for people who need a vehicle they plan to keep for more than four to six years. But new cars lose up to two-thirds of their market value over the first two years and may cost more to insure.
Used cars cost far less, are cheaper to insure, and may work for owners who plan to switch car in less than five years. Though auto loan interest rates are higher on used cars, the principal borrowed isn't much. Used cars get expensive at the repair shop and need more maintenance, and their resale value is low.
This quiz can help you decide between new and used.
If you're having trouble making car payments, talk to your lender immediately. Cars bought on credit can be “repossessed” – taken away from you by your lender – if you fall behind. Depending on your state's laws, a lender can take your car without first bringing you to court or even warning you. The lender can even resell it – and charge you the difference if the sale doesn't fetch enough to cover what you owe.
Fortunately, many lenders are open to workout plans, as repossession costs them time and money. It's important to know your rights if your finances are shaky and you need to prioritize bills other than your car payment. The National Foundation for Consumer Credit explains how repossession works: Click here
Car insurance is costly, especially if you have poor credit. If you'd like to lower your premiums while improving your credit, take heart. There are other steps you can take to reduce your insurance costs aside from staying out of accidents and fixing credit by paying bills promptly.
Among them: Research applicable discounts (via associations, for people in your age group, or by signing up for a policy with your home insurance policy company), keep your driving record clean, and reconsider whether a shared policy is right for your household. Outfit your car with additional safety features, or, if car-shopping, research the latest safety rankings on new models. Finally, comparison shop for a new policy from time to time on insurance portals like www.insweb.com or www.insureone.com .
Spending money on gas and oil is a fact of life for most Americans. Gas prices that began rising in 2003 have only gotten worse – and while you can't make the prices go down, you can curb what you pay at the pump by driving and maintaining your car carefully – and by avoiding pricey high-octane gas (unless your vehicle really needs it).
Other tips: Keep your car tuned up and tires inflated – and opt for steel-belted radial tires if you're replacing them. Also, if you have a choice of car, don't drive an SUV or pickup, but rather opt to use your smaller vehicle. When driving, accelerate and pull out from stops gradually, and if you're on the highway opt for an even speed. Bunch errands geographically so you don't make multiple trips to the same place unnecessarily.
If you need a new car but don't have a lot of cash for a down payment or monthly car loan payments, a lease could make sense. Leases typically require some down payment, followed by monthly payments – but these payments may be far smaller than those on an auto loan. If you have other expenses or are looking to repay other consumer debt, a lease allows you with a relatively new car at a lower price than buying outright.
Leases of two to four years typically place a maximum on the number of miles you drive each year (typically 15,000 is a maximum), and they do require you to perform basic maintenance on the auto. However, some leases provide some warranty or maintenance work. And if you're improving your credit, a lease may offer some very favorable loan terms.
If you're considering buying a used car – or selling your used car – it can be difficult to figure out an appropriate price for the vehicle.
It's important to do your homework. Several web sites, including Kelley Blue Book ( www.kelleybluebook.com ), Edmunds ( www.edmunds.com ), and CarsDirect ( www.carsdirect.com ) can provide quotes on the potential market value of your car – but these sites use different methods for gathering price data, so research results for any one model car can vary.
If you're trying to conserve money by buying a used (versus new) car, you'll save money off the bat, however: New cars depreciate in value more than 50% during the first year you own them, unlike used cars which are cheaper.
Before you shop for a car, it's important to set a budget. With today's flexible loans, it's easy to get in over your head by borrowing for a car that's too expensive.
Most auto industry experts say buyers should spend no more than 15% of their monthly (after-tax) income on a car payment. If you're heavily in debt or spend a large portion of your income on rent or a mortgage, it'd be smart to lower that percentage further. And don't forget that auto loan interest rates (which have hovered between six percent and eight percent in recent months) can also influence what you pay.
Bottom line: Familiarize yourself with your budget before you shop so that a pretty car or convincing salesman doesn't persuade you to spend too much.
If you've got an old car and are pouring money into fixes, it may be time to consider buying a new car. Most car industry professional say consumers take up to two months to identify and buy a car.
This means you should start researching financing options, based on your credit, as well as what your car-buying budget might be. Before you shop, map out what you expect to pay for your existing car's repairs versus how far that money would go toward the purchase of a replacement vehicle. Then save that money for a down payment. If you're repairing credit, consider whether you can carpool or share a car with a spouse until you've saved enough or established a credit profile that enables you to borrow at consumer-friendly rates.
If you plan to sell an old car in order to buy a new one, rather than trade in your vehicle at the dealership where you're buying the new car, consider selling your vehicle independently or to a dealership that specialize in your old car's particular make. According to Cars.com, you might make more money from your trade-in this way than you would by trading in your old car at the same location where you plan to buy your newer one, since most dealers pay wholesale (versus market) prices for trade-in cars.
Of course, your credit, auto loan borrowing power, and other factors will influence your transaction, too. But getting the most cash you can for your existing car is one way to make sure you borrow less to buy your new vehicle.
How much car you can afford? To find out, you'll need to figure out how much down payment you can make, and how much money you'll have to borrow to complete the purchase. This second part—the borrowing—is where car buying can get expensive. If your credit is lousy, you won't necessarily be able to afford the best, advertised car loan rates. However, by working with a credit counselor both to improve your score and to demonstrate to lenders that you have undertaken a credit repair plan, you may become eligible for better rates sooner than you think.
If you've been shopping for a car, use this worksheet from the Federal Trade Commission to model how much different types of loans may cost you:
Consumer car buyers are taking longer to pay off car loans, with over 89% spending over four years in repayment, according to research from the Consumer Bankers Association and Benchmark Consulting International. Should you stretch out an auto loans? That depends. If you're strapped, a longer-term loan may allow lower monthly payments; the down side is that you'll pay more interest over the life of the loan.
If you can't otherwise buy, however, a longer-term loan may work in your favor. And you can always pay more than the required monthly payment to pay off your wheels sooner. If you're working to repay debt, talk to your credit counselor about whether it makes sense to look at long-term loans among your auto borrowing options.
If you're in the market for a used car, you'll need to do some homework to make sure you're prepared for the car's particular issues.
Before you buy, identify problem areas common to the make of car you're considering. Frequently, manufacturers or consumer car magazines will include checklists to review. If you're buying from an individual, ask to see auto repair records and for the name of their mechanic.
You'll also want to test drive the car on different roads (neighborhood streets, city streets, the highway) and, if possible, in different weather conditions. Finally, invest in a mechanic's “car buyers” check-up, to make sure that the car is ready for use or to find out potential repairs which can be negotiated out of the price.
If you've had trouble managing credit in the past, think twice before retiring. Financial advisors recommend taking a look at the ratio of your debt to current income, noting that if your monthly payments for debt account for 35 to 40% of your income you're too debt-ridden to retire safely. If you've managed to reduce debt to about 30%, that's better – but you might be living a bit on the edge, unprepared to pay for unforeseen medical or other expenses.
Best is if you can achieve a 20 to 25% ratio. Consider paying off all credit cards and other debt before retiring, and, if you plan to relocate, secure a mortgage while you still have steady income to get a favorable interest rate. Try this calculator to view your debt/income ratio:
If you're repaying student multiple loans from college, you may want to consolidate them into a single loan that carries a fixed rate. Consolidation has its pros and cons, but for many borrowers the benefits of holding a fixed-rate loan with set monthly payments adds a welcome element of predictability to budgeting. You can only do it once though – there's no “refinancing” your loans once you've completed consolidation. So it's important to do your homework on rates.
With interest rates at historic lows, now's a good time to consolidate. The Federal government will by July 1 announce new interest rates that will influence (and likely increase) consolidated loan rates. For more information on loan consolidation, click here
