7/1/2013 7:15 PM ET|
Answers to common credit questions
Credit impacts our finances in many ways, some of which we don’t readily understand. Here is an 11-part primer on credit scores, debt, bankruptcy and other factors.
Our readers ask us questions every day on every kind of credit problem you can imagine. While everyone has their own unique concerns, there are also many universal issues out there. So we rounded up 11 of the more common questions asked and we answer them right here for you.
1. How can the credit card companies raise my interest rate if I've paid my bills on time? What can I do about it?
It used to be that credit card issuers could raise your rate, even on existing balances, at any time and for any reason. Thanks to the Credit CARD Act, a federal law, they can no longer do this. They can, however, raise your rate on your outstanding balance if you are more than 60 days late with a payment and they can increase the interest rate on new purchases, but only if they give you 45 days advance notice so you can cancel your account.
As for what you can do, the best thing is to try to negotiate a lower rate. Call your card issuer and suggest you will take your business elsewhere if you can't get a better deal. This works best if you have other credit cards with available credit lines, since the issuer will no doubt review your credit report to decide whether or not to work with you. It's always worth a try, though. As author Marc Eisenson says, "Not asking is an automatic no!"
If you can't negotiate a better rate, try transferring your balance to another card -- either one you already have, or a new one.
2. A debt collector has contacted me about an old debt. Do I have to pay it?
Maybe; maybe not. Every state has a statute of limitations, which governs how long the creditor or collector has to sue you. If this debt is too old, and they try to sue you to collect, you can raise the statute of limitations as a defense. That means they don't have much leverage in terms of forcing you to pay. And that gives you more leverage to negotiate a settlement -- or just to tell them to leave you alone. For more information, and to fully understand your rights, check with your state attorney general's office or a local consumer attorney.
If the debt is too old, you can simply write to the collection agency, indicate that you believe the debt is outside the statute of limitations, and instruct it to stop contacting you. Send your letter via certified mail and keep a copy for your records.
If you are worried about your credit report, keep in mind that collection items may only be reported for up to 7 1/2 years from the date you fell behind with the original lender, regardless of whether they are paid or not.
3. What is the ideal number of credit cards to carry?
It depends on what you mean by "ideal." Most people will be just fine with two major credit cards. One should be a low-rate card for times when you must carry a balance, and the other should be a card with a grace period. No annual fee is ideal, unless you plan to use the card heavily to earn some type of reward. If that's the case, weigh the cost of the annual fee against the freebies you will earn.
If you are asking about the ideal number of credit cards to obtain a strong credit score, two is a good number as well, though you can have many more and still maintain a strong credit rating. Generally, it's a good idea to have at least four credit accounts of different types (for example, a mortgage, car loan, a major credit card and a retail card). Keep your credit cards active by using them periodically. It's good to pay your bill in full each month to avoid finance charges.
Finally, if you have a lot of credit cards already, don't close them in the hopes that it will boost your credit score. Your score may actually drop if you close old accounts.
4. My child has a lot of debt. What is the best way to help?
The best way to help your child is to give him or her some financial literacy materials to learn about how to manage debt.
But my guess is that you may be writing because he or she is asking you for a consolidation loan to help pay off the debt and, while you want to be helpful, you are not sure that's the route to go.
First, trust your instincts. If you think your child has trouble handling money, then it is likely you will just be enabling him or her to go a bit longer without having to shape up. Even if your child is truly in deep straits, your loan is unlikely to solve the problem. He or she needs crisis intervention, not a loan.
If you simply can't say no, then do one of two things:
Give a gift rather than a loan. You'll never have to worry about whether you will get paid back and there will be no hard feelings if you aren't.
Agree to lend the money only if your child will agree to sign an official loan agreement. It would also be a good idea to have them set up automatic transfer of the payments to your checking or savings account from your child's. There will be no wondering about whether a check has been mailed.
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Credit is an integral part or our economic system. Unfortunately many Americans do not understand how credit works and quickly become mired in debt that haunts them for years. Some basic rules:
- DON'T PAY INTEREST. Pay off balances each month. Don't get in the habit of carrying balances even if there are 0% interest cards out there. They eventually will begin to charge you interest.
- Watch your credit ratio. Look at your credit limit and try to keep your balance to less than 15% of your limit. Using more than that will ding you a few points on your score. If your limit is not high enough, spread it out to another card or two. But once again pay them off each month.
- Check your credit reports. You get a free one from each bureau. Pull one every four months and you will always have a good idea of what is going on with your credit. if you see anything that does not make sense - find out what is going on.
- Cosigning, avoid it if you can. You are legally just as responsible for the loan as the primary signer but you get none of the loan proceeds. Sign up only if you could take the loan on. If possible get access to balances and payment information so the loan does not go into arrears and you not know about it until it is in collections.
If you can observe these basic premises you will have very solid credit and be eligible for the best interest rates on your loans...cars, mortgages et. al.
The sheeple appear to have no idea that they have sacrificed their privacy and liberty at the altar of the credit card.
Oh what fools they are.
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