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Solving
Credit Problems
If you are having problems getting credit or paying your
monthly bills, you may be tempted to turn to businesses that
advertise quick and easy solutions to credit problems. But do
not be misled. There are no instant solutions. Although some
credit counseling businesses "guarantee results or your money
back," you may find that there are hidden strings attached or
that the company is gone when you want your money back.
There are steps you
can take to help solve your credit
problems. However, solving them takes time, patience, and some
understanding of the law. This brochure may help you. It
explains why your credit history is important, how to build a
credit history and establish credit, and what can be done to
improve a bad credit history. It also suggests ways to help
deal with debts you may have, possibly by using a nonprofit
Consumer Credit Counseling Service.
Why Your Credit History is
Important
Although creditors
usually consider a number of factors in
deciding whether to grant credit, most creditors rely heavily
on your credit history. To learn how you have handled credit in
the past, most creditors obtain a report from your local credit
bureau. Credit bureaus gather and sell credit information about
consumers and are a principal source of information about your
credit history. Your credit bureau report is based on
information supplied over time by your creditors. It also
provides information on where you live and work and may note
other matters of public record such as judgments or
bankruptcies. Your report records payments you have made on
credit cards, installment loans, and other credit accounts and
helps creditors predict whether you are likely to be a good
credit risk. A history of timely credit payments helps you get
additional credit.
Some creditors are
reluctant to grant credit to
consumers-who have not established a "track record" with other
creditors first. In addition, many creditors will not extend
credit to consumers with a history of delinquent payments,
repossession, judgments, or bankruptcy. If you are in either
situation, be wary of ads that promise you "instant credit" or
"a major credit card regardless of your lack of credit history
or your past credit record." The fact is that all legitimate
creditors want to know whether you are likely to be a good
credit risk. Whether you get credit will depend on whether your
qualifications meet the creditor's criteria. No one can
guarantee you credit in advance.
How to Build A Credit History
and Establish Credit
Building a good credit
history is important. If you have no
reported credit history, it may take time to establish your
first credit account. This problem affects young people just
beginning careers as well as older people who have never used
credit. It also affects divorced or widowed women who shared
credit accounts that were reported only in the husband's name.
If you do not know what is in your credit file, check with your
local credit bureaus. Most cities have two or three credit
bureaus, which are listed under "Credit" or "Credit Reporting
Agencies" in the Yellow Pages. For a small fee, they will tell
you what information is in your file and may give you a copy of
your credit report.
If you have had credit
before under a different name or in
a different location and it is not reported in your file, ask
the credit bureau to include it. If you shared accounts with a
former spouse, ask the credit bureau to list these accounts
under your name as well. Although credit bureaus are not
required to add new accounts to your file, many will do so for
a small fee. Finally, if you presently share in the use of a
credit account with your spouse, ask the creditor to report it
under both names.
Creditors are not
required to report any account history
information to credit bureaus. If a creditor does report on an
account, however, and if both spouses are permitted to use the
account or are contractually liable for its repayment, under
the Equal Credit Opportunity Act you can require the creditor
to report the information under both names. When contacting
your creditor or credit bureau, do so in writing and include
relevant information, such as account numbers, to help speed
the process. As with all important business communications,
keep a copy of what you send.
If you do not have a
credit history, you should begin to
build one. If you have a steady income and have lived in the
same area for at least a year, try applying for credit with a
local business, such as a department store. Or you might borrow
a small amount from your credit union or the bank where you
have checking and savings accounts. A local bank or department
store may approve your credit application even if you do not
meet the standards of larger creditors. Before you apply for
credit, ask whether the creditor reports credit history
information to credit bureaus serving your area. Most creditors
do, but some do not. If possible, you should try to get credit
that will be reported. This builds your credit history.
If you are rejected
for credit, find out why. There may be
reasons other than lack of credit history. Your income may not
meet the creditor's minimum requirement or you may not have
worked at your current job long enough. Time may resolve such
problems. You could wait for a salary increase and then
reapply, or simply apply to a different creditor. However, it
is best to wait at least 6 months before making each new
application. Credit bureaus record each inquiry about you. Some
creditors may deny your application if they think you are
trying to open too many new accounts too quickly.
If you still cannot
get credit, you may wish to ask a
person with an established credit history to act as your
co-signer. Because a co-signer promises to pay if you don't,
this can substantially improve your chances of getting credit.
Once you have repaid the debt, try again to get credit on your
own.
What Can Be Done to Improve a
Bad Credit Report
You are entitled by
law to correct any inaccurate
information that appears in your credit bureau file. If a
creditor rejects your application because of negative
information in your credit bureau report, it must identify the
credit bureau involved. At your request, the credit bureau must
disclose the contents of your credit file. If you act within 30
days of being turned down, there is no charge for this service.
Check to see whether
the information in your credit report
is accurate and complete. You have the fight, under the Fair
Credit Reporting Act, to dispute the completeness or accuracy
of any information in your report. When you do so, it helps to
tell the credit bureau, in writing, why you think the
information is not correct. Unless your dispute is frivolous or
irrelevant, the credit bureau then must reinvestigate the
matter. The credit bureau must correct any information that it
finds is not reported accurately. Information that cannot be
verified must be deleted. If you disagree with the results of
the credit bureau's reinvestigation, you may file a brief
dispute statement explaining your side of the story. At your
request, the credit bureau will note your dispute in future
credit bureau reports.
Be aware that when
negative information in your report is
accurate, only the passage of time can assure its removal.
Credit bureaus are permitted by law to report bankruptcies for
10 years and other negative information for 7 years. There is
nothing that you (or anyone else) can do to require a credit
bureau to remove accurate information from your credit file
until the reporting period has expired. Don't be misled by ads
aimed at people with bad credit histories, judgments, or
bankruptcies. Promises to "repair" or "clean up" a bad credit
history can almost never be kept.
How to Deal with Your Debts
A sudden illness or
the loss of your job may make it
impossible for you to pay your bills on time. Whatever your
situation, if you find that you cannot make your payments,
contact your creditors at once. Try to work out a modified
payment plan with your creditors that reduces your payments to
a more manageable level. If you have paid promptly in the past,
they may be willing to work with you. Do not wait until your
account is turned over to a debt collector. At that point, the
creditor has given up on you.
Automobile loans
present special problems. Most automobile
financing agreements permit your creditor to repossess your car
any time that you arc in default on your payments. No advance
notice is required. If your car is repossessed you may have to
pay the full balance due on the loan, as well as towing and
storage costs, to get it back. Do not wait until you are in
default Try to solve the problem with your creditor when you
realize you will not be able to meet your payments. It may be
better to sell the car yourself and pay off your debt than to
incur the added costs of repossession.
How to Evaluate Credit Repair
Companies
If you are having
trouble paying your bills, you may be
tempted to turn to a company that claims to offer assistance in
solving debt problems. Such businesses may offer debt
consolidation loans, debt counseling, or debt reorganization
plans that are "guaranteed" to stop creditors' collection
efforts. Before signing up with such a business, investigate it
thoroughly. Be sure you understand what services the business
provides and what they will cost you. Do not rely on oral
promises that do not appear in your contract. Also, check with
the Better Business Bureau and your local consumer protection
office. They may be able to tell you whether other consumers
have registered complains about the business.
Consumers who turn to
such businesses for help sometimes
encounter additional problems. For example, debt consolidation
or other large short-term loans may have high hidden costs and
may require your home as collateral. An unscrupulous company
may misrepresent the terms of such loan agreements; if so, you
could end up losing your home.
Businesses offering
debt counseling or reorganization may
charge substantial fees or a percentage of your debts, but fail
to follow through on the services they sell. Some may do little
more than refer indebted consumers to a bankruptcy lawyer, who
charges an additional fee. Businesses advertising voluntary
debt reorganization plans or "Chapter 13" relief may fail to
explain that Chapter 13 debt adjustment actually is a form of
bankruptcy. To qualify for it, you must have a source of
regular income and a plan for repaying your creditors that
meets the approval of the bankruptcy court. Businesses that
sell bankruptcy-related services may not tell you all that is
involved or assist you through what can be a complex and
lengthy legal process. Debt problems can be distressing, but be
careful when selecting a solution. Some "solutions" may only
add to your problems.
Where to Find Low-Cost Help
If you need help in
dealing with your debts, you may want
to contact a Consumer Credit Counseling Service (CCCS) This is
a non-profit organization with more than 850 offices located in
50 states. CCCS counselors will try to arrange a repayment plan
that is acceptable to you and your creditors. They will also
help you set up a realistic budget and plan future expenses.
These services are offered at little or no charge to you. You
can find the CCCS office nearest you by checking the White
Pages of your telephone directory or by calling from a
touch-tone phone 1-800-388-2227 to get the telephone number.
However, if you have other questions, contact:
National Foundation for Consumer Credit, Inc.
8611 Second Avenue, Suite 100
Silver Spring, Maryland 20910
(301) 589-5600
In addition,
non-profit counseling programs are sometimes
operated by universities, military bases, credit unions, and
housing authorities. They are likely to charge little or
nothing for their assistance. Or, you can check with your local
bank or consumer protection office to see if it has a listing
of reputable, low-cost financial counseling services.
Where to Find More Information
The Federal Trade
Commission enforces a number of federal
laws involving consumer credit, including the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Fair Credit Billing Act, and the Fair Debt
Collection Practices Act. It also provides free brochures
explaining these laws. For these or related publications, such
as Building a Better Credit Record, Women and Credit Histories,
and Credit Billing Blues, write to: Public Reference, Federal
Trade Commission, Washington, D.C. 20580.
Although the
Commission cannot solve individual problems
for consumers, it can act when it sees a pattern of possible
law violations develop. If you have a complaint that may
involve a violation of consumer protection law, write to:
Correspondence B ranch, Federal Trade Commission, Washington,
D.C. 20580.
Fast Facts
* Your credit report records your
payments on credit cards,
installing loans, and other credit accounts. It helps
creditors predict whether you are likely to be a good
credit risk.
* Be wary of ads that promise you
"instant credit" or "a
major credit card regardless of your lack of credit
history or past credit record."
* If you are rejected for credit,
find out why. You can get
a free copy of your report if you request it from the
credit bureau that provided it, within 30 days of being
turned down.
* Check to see whether the
information in your credit report
is accurate and complete. You are entitled by law to
correct inaccurate information that appears in your
credit
bureau file.
Bureau of Consumer Protection
Office of Consumer & Business Education
(202) 326-3650
"Hey human, I can only point you the way. I can't go
through life with you because your life is personal to you."
- Van Gogh
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