Living with Bad Credit

LIVING WITH BAD CREDIT

There is always the lender out there assuring you that you can get a loan in spite of having bad credit, damaged credit or no credit at all. Have you ever stopped to think how expensive these loans are? Most sub prime lenders offer these loans at much higher interest rates, normally about three percentage points above the interest rate at which a prime borrower having good credit would get it. In addition, you have to pay a large amount of fee as well. So, in the course of time, by taking these loans, you will not only have the cost of the loan, but the ridiculous interest to pay, which may ultimately result in defaulting on the loan or even bankruptcy. .
At the latest estimate, about 60 million Americans have negative remarks on their credit reports. These play an important role in judging their credit worthiness. Bad credit or damaged credit reflects that you are not efficient in managing your money and paying your debts.
THE COST OF BAD CREDIT
The rate of interest that you have to pay for a lar loan is determined by your credit report. I am going to elaborate the cost of bad credit with the help of a few examples. Credit is very important in an average American’s life. It is hard to live with no credit these days. If you are capable of managing your credit efficiently, then you won’t have any problems in securing quick loans. On the other hand, continuous late payments, incorrect information and mistakes can severely restrict your financial options. Your bad credit may cost you a lot in the long run because your credit score determines your credit worthiness. Generally, car dealers demand higher interest rates because of mistakes on your credit report. In case you have bad credit, then lenders may charge you sub prime rates for car financing. You will no choice but to accept the crazy interest rates or find an auto you can pay cash for. Not many of us can pay cash for an auto, no matter how old. Even with damaged credit, you will have to pay a lot more than others. You can easily calculate how much additional interest you have to pay for the same amount of borrowed money. It may amount to more than $1000 every year in additional interest and more than $5000 extra during every term! It’s not wise to lose this huge amount of additional money simply because of your incorrect negative credit reports. When you seek a home loan with your bad credit report, then the amount of extra interest that you have to pay for it can be enormous. In case your credit score slides down to 640 or even below it, then you will have to pay a heavy interest rate for a home loan or refinance. Forget the loan amount, even the amount of extra interest that you have to pay for it can be enormous if you calculate it on an annual basis. Can you see the impact of bad credit? THE BOTTOM LINE
As you can understand from the above discussion, ultimately your bad credit or damaged credit can prove to be very expensive. The cost of rectifying your credit can also be very high and often you will not have any success in this venture. There are so many people suffering from bad credit that credit repair has become the most searched term on the Internet. Consumers are always looking for quick fixes to rectify their credit scores. The fact is that there are no quick remedies. You can repair your credit score, but it might not get you all the benefits that you expected. Stay tuned for hints about re-establishing your credit.

Clean Up Your Credit

Introduction
Living with debt or bad credit can be very stressful, but help is closer than you realize. Improving your credit rating requires that you take positive action and change your attitude toward money. Not always easy, but can be done if you honestly want to.

Steps:
1. Request a copy of your credit report from a credit bureau. You are entitled to one free copy per year from each of the major credit bureaus. (http://www.experian.com/, http://www.equifax.com/, and http://www.transunion.com/ )If there is an error, write to the bureau and ask it to fix the mistake. It might also help to contact the creditor who reported the error. Some creditors will contact the bureau on your behalf.
2. If the bad marks on your credit report result from outstanding debts, repay them as quickly as possible. Pay off those with the highest interest rates first. Make sure that nothing is past the Statutes of Limitations. Check the SOL with your state. Some states have credit card debt SOL as low as 3 years.
Check your state's Statutes of Limitations here: http://www.fair-debt-collection.com/statue-limitations.html

Why should you care about the Statute of Limitations (SOL)?
Every day, consumers pay off collection accounts and charge-offs which they do not have to pay off because the Statute of Limitations has already expired for the open account. Consumers pay off these accounts because the accounts still appear on their credit reports.
This information can be a powerful weapon in unburdening yourself of old debts, as creditors have a limited time in which to sue you. Remember: the Statute of Limitations begins to run from the day the debt - or payment on an open-ended account - was due. Tthis has nothing to do with how long an negative credit item can remain on your credit report.
Consumers also pay off these accounts when they are not on their credit reports. Even though an account was removed from their credit file, a collector watched their credit report for any activity (actually the computer was watching any credit activity). When the collector spotted the activity, he called the consumer for payment. All the consumer needed to say to the collector was, "I have an absolute defense--the Statute of Limitations has expired."
The Statute of Limitations does not cause your debt to go away after it expires. If the creditor files suit, the consumer has an absolute defense. The consumer must offer the new evidence to avoid a judgment. The evidence will consist of papers the consumer files to support his claim. If the creditor sues you, and you do not prove to the court that the Statute of Limitations expired, you will have a lost lawsuit and a judgment against you.


When does the Statute of Limitations start?
You might be asking yourself, "It has been such a long time since my "open account" has had any activity. When does the Statute of Limitations started ticking?” Use your credit report as a reference. Your credit report will tell you the date of last activity for your account.
Depending on what state you live in, if you make a partial payment, you could be postponing the Statute of Limitations' taking effect on your collection account or charge-off. A collector might call you one day and say you waived your rights when you made a deal with the collection agency. Do not take anything a collector tells you for granted. Make them prove it to you, in or out of court. For about half the population, the Statute of Limitations started ticking the day they made the last payment for their account.

4. Steer clear of any services that offer you credit-repair or debt-consolidation loans. These companies will plunge you further into debt. Be suspicious of any company that advertises aggressively or sends unsolicited mail or phone calls.

5.Cut up the credit cards but do not close the accounts. Creditors like to see long time credit history. Sell valuables or liquidate assets that will help you repay your debts. Buy the essentials (food and gas) and use the rest of your earnings to pay off your consolidated debts.


6. Work diligently to repay all of your debts. Meanwhile, live a life that will help you re-establish good credit. Pay rent and utilities or mortgages promptly, keep the same residence and job, maintain savings and checking accounts, set a budget and stick to it.

7. Once you have repaid your debts, apply for a new credit card to build a good credit history. It might be easier initially to get a department-store or gasoline credit card or one from an employee credit union.

8. Promptly pay off the balance of the credit card monthly to build good credit and do not pay interest. Use the card responsibly.

9. If you don't qualify for a regular credit card, apply for a secured one. With a secured credit card, you fund an account up front and then "charge" expenses on it. This card will show up as a credit card on your credit report and, if used responsibly, can help you build a good credit history.

Tips & Warnings

Get a copy of your credit report once a year even if you think you have good credit. You may find errors that will damage your credit rating.

Filing for bankruptcy is always an option, although your credit history will reflect it for 7 to 10 years, making it very difficult for you to get a car or home loan in the future.

Creditors agree to reduce or eliminate interest rates under a debt-consolidation plan because it saves them the expense of collection efforts and increases their chances of recouping the balance.

Every application you make for a credit card shows up on your credit report, and multiple applications can hurt your credit rating. To avoid this, use an online service that matches you with credit card companies that will extend credit to you. Search online for "credit card finder" or "credit card search."

STOP THOSE COLLECTORS DEAD IN THEIR TRACKS!!!

Hi. I have been one of those pesky bill collectors for over 30 years now. I began my career by working for a major department store as a collector in the early 70’s. I just retired as a Collections Manager from a major collection agency on the east coast. For many years, I made LOTS of money training my collectors how to demand payment from people just like you. I taught them how to ask probing questions that made you feel comfortable telling them about your self and your circumstances. I taught them how to lead you into grabbing your checkbook and parting with money you needed to keep a roof over your kids’ heads or food in their tummies. Now, let me teach you how to respond when the debt collector calls you. Learn what to say and how to say it when collectors demand payments and answers to personal questions.

First off, most debt collectors, working for a collection agency do NOT have the authority to sue you, to attach any assets, or to garnish your paycheck. Those are idle threats, no matter how they say it. For instance, “this credit card is a first payment default. Do you realize my client could press charges for fraud?” Maybe the client could. However, obviously, the client has not and this is an implied threat and is against the FDCPA. (For more about the FDCPA, http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm) Now, attorneys are different. (BTW…lots of collection agencies are named like a law office for intimidation, ie. Jones, Black and White, Inc. Ask, are you an attorney and refuse to say anymore until they answer this simple question. Misrepresentation is also against the FDCPA!) Attorneys DO have the authority to sue you, obtain a judgment and attach your assets. If you are dealing with a law office, do what you need to do to keep them from suing you. We are talking now about collection agencies. There will be more about collection attorneys later. If you are receiving phone calls regularly from a collection agency regarding a debt, rest assured, they feel they can simply harass you into dealing with them. (again, harassment is an FDCPA violation!) When you need to worry, is when you receive one phone call from a collector and no more.
Bill collectors have a job to do and many collectors perform this duty in a very profession manner. Debt collectors who act professionally, usually do so because they received training on how to collect debts without violating the FDCPA. In order to stay focused on their collection efforts (and not violate the FDCPA) many collection agencies and independent bill collectors use a dunning script. For a sampling of collector scripts please click on tomorrow's blog.
Below are two sample scripts that, in my opinion, are a good way to handle debt collection calls.

Sample One – You believe you do not owe the debt
Collector: "Hello, is Bill Debtor there?" (Or is this Bill's wife, or just Hey, Bill)?
You: "Who is calling please?" (Do not let the use of your first name throw you off guard, always confirm with whom you are speaking. Under the FDCPA, collectors must identify themselves and their company)
Collector: "This is John Jones. Is this Bill?
You: “Yes, this is Mr. Debtor.” How can I help you? “
Mr. Debtor, my name is John Jones from ABC collections. The reason I am calling you today is regarding the $8,000 debt you owe ABC Lumber. ABC Lumber has hired me to find out if you intend to pay this voluntarily or involuntarily today.”
You: "Hold on while I turn on my tape recorder." (After turning on recorder ask the caller to repeat his or her name, company and reason for calling.) Then say, "I do not believe I owe this debt. Send me the information on this debt according to the Fair Debt Collection Practices Act so that I may review it."
Expect the collector to use questions or statements in an attempt to get you to admit the debt is yours. Do not answer these questions, stick to the answer outlined above and insist on the collector following the FDCPA by sending you the proper information - stay focused
Their script tells them to ignore your response and press on with asking you a bunch of questions. By refusing to take the "bait" you frustrate their efforts because your answer is not on their script. At this point, many collectors are unsure of what to say or do next so they resort to anger. Remain calm and be sure your tape recorder is on!
Once you've verbally disputed a debt, there is only one legitimate question that you need to answer:
Collector: "What is your correct address?"
You: Go ahead and provide your correct address.
DO NOT answer any additional questions! If the collector insists on asking questions, terminate the call. Expect the collector to call right back. Turn on your recorder and answer the phone. Don't say anything except, "I am recording this call and, since I disputed this debt during your last call, this call from you violates the FDCPA and forces me to report your violation to my State Attorney General. Then, terminate the call again.
Sample #2 - You believe the debt might be valid but you're unsure.
Collector: "Hello, is Bill Debtor there?" (Or is this Bill's wife or just Hey, Bill)?
You: "Who is calling please?" (Do not let the use of your first name throw you off guard, always confirm who you are speaking with. Under the FDCPA, collectors must identify themselves and their company)
Collector: "This is John Jones, is this Mr. Debtor?
You: “Yes, this is Mr. Debtor. How can I help you?”
Mr. Debtor, my name is John Jones from ABC collections. The reason I am calling you today is regarding the $8,000 debt you owe ABC Lumber. ABC Lumber has hired me to find out if you intend to pay this voluntarily or involuntarily today.”
You: "Hold on while I turn on my tape recorder."
Take your time and THINK before saying anything. Is it possible the debt has expired? See statute of limitations (SOL) If the SOL has expired (or you're not sure) revert to scenario #1.
If the SoL has not expired, then ask,
You: "Are you collecting on behalf of a creditor, your employer or yourself?" Until the collector answers this question, DO NOT answers any other questions.
IMPORTANT: If the debt is new, the collector is probably working for the creditor. If the debt is more than 1-2 years old it's a good bet the debt was sold and this collector (or his company) purchased it.
If the collector owns the debt and you do NOT wish to pay the debt state: (be sure your tape recorder is on beforehand).
You: "It is my policy to never deal with debt collectors who are not representing the creditor. Give me your address so that I may send you a cease and desist letter in accordance with the FDCPA."
Be prepared for any and all of the questions below and consider each question carefully before answering. Remember; you DO NOT have to answer any question. However, if you choose to answer questions, see the "questions which won’t hurt you" section below for which questions you should answer and which ones you should not tell strangers.
If the collector owns the debt and you still wish to pay it, then you must decide on how much to pay. Just remember Debt Buyers purchase old debts for pennies on the dollar.
Questions which will NOT hurt you to answer:
1. Do I have your address right at 123 Main St., Any town, Any State, 12345?
2. What is your daytime phone ?
Note: After answering this question, inform the caller that any future calls between (hours) and on (days) are inconvenient.
Note: Collectors are allowed to call and verify employment BUT that is all! They are not allowed to discuss your information, nor are they entitled to any information about your income or any other personal information.
Questions you should NOT answer:
1. Where do you work?Are you paid weekly or bi-weekly?
2. How much is your take-home pay?
3. Where does your spouse work?
4. Where, how paid, amount, etc.?
5. What other sources of income do you have? (child support, part-time work, in home day care and so forth)?
6. Do you rent or own?
7. How much per month? Is it current?
8. How much is your car payment? Is it current?
9. What are the make, model, and year of your car(s)?
10.Where do you bank? (checking and savings, name of bank)
11.Do you have any bank loans? How much do you owe? Are they current?
12.Have you ever borrowed money from (parents, relatives, and friends) in the past? If so, how long ago? How much? Did you pay it back?
If you answered any of the above questions then expect the collector to put you on hold while he figures out the best suggestion for you to pay off the debt. Typically, they will come back with, "If I could show you a way to pay this debt off, and save you some money, would you be willing to work with me?"
Unless they suggest a payment plan that you can afford DO NOT agree to anything! They will suggest borrowing from others, refinancing your home or car loan, or putting the debt on another credit card. Using these options is simply robbing Peter to pay Paul and, more than likely, will just push you deeper in debt.
Consider your answer carefully!! Counter offer with a payment agreement of your own (only suggest what you can truly afford) and ask about credit reporting information. You want to keep it off your credit reports so make this part of your payment agreement.
Collectors are trained to dun (collect or ask for payment) in the following priority...
1. Balance in full;
2. Settlement (in no more than two payments);
3. Payments over 3 or more months, usually not to exceed 6 months;
4. Good faith payment while you ask others for loan (parents, friends, bank etc.)
...and since they want the full amount as quick as possible, they will refuse just about anything you offer and try to force you to agree to their terms.
Unless you are extremely good at negotiating, never negotiate terms on the phone, you will lose every time. Offer your terms once (maybe twice) and if they refuse to work with you, end the conversation!
WARNING! Be certain the Statute of Limitations (SOL) has not expired before agreeing to anything, but especially before making a token payment! In many states, a token payment or a written agreement to pay resets the SOL clock!
Collection agencies, bill collectors and junk debt buyers are trained to get payments in the following priority:
Auto Pay: involves withdrawals from your bank accounts via post-dated checks, automatic electronic withdrawals or similar methods.
Priority Mail
Certified Mail
NOTE: Although collectors will insist on you paying by their preferred method, there is no law compelling you to pay by any of these methods! Pay by any method that does not provide information about your bank account to the collector. The best method is to pay by bank draft and send it via official mail.
CAUTION! Never pay by post-dated check or an automatic withdrawal process. I have seen it happen too many times where the check is cashed early or more funds are withdrawn than authorized! This causes even more problems with returned checks and overdrawn charges!
Once they have a payment agreement, collectors usually end the call by saying:
"Please repeat the arrangement to be sure I've documented it correctly."
"What guarantee can you give me that you'll send the payment?"
"For what reason would you not send the payment?"
Hopefully you have been taking good notes or, even better, tape recording the call (inform the caller at the beginning of the call that you are taping the call) so you can also keep accurate records of what actions were agreed upon.
WARNING! Do NOT send any money until you have a signed payment agreement letter in your possession!