How Did This Happen?

If you are in financial trouble, and the creditors are calling daily to dun you, you need more than a stiff drink and a night out to relax. You need serious help!

If your difficulties are not the result of major life events, such as medical problems, divorce, loss of job, then you have to look at how you got where you are. Chances are you got to this point because you lack basic personal financial responsibility. Don’t beat yourself up over this – you are not alone, and financial responsibility is not simply acquired by osmosis or instinct. It is a skill, acquired through good teaching, practicing, and having good adult role models as you grew up.

Help Is Out There

You need to find a good credit counselor to help you out of your current jam and to get you on a lifelong path of responsible spending. Fortunately, with some investigation, and some “comparison shopping,” you should be able to find a good one. There are a number of federally-funded or religiously-sponsored organizations that provide credit counseling for free. For-profit credit counseling services charge a fee, but many provide additional services for their fees, so do not discount them immediately. As stated, do the research and find out exactly what each counseling service offers. Then compare your needs to their services.

Pick Your Poison

Debt counseling is not fun, but it is important that you choose the service that can best meet your needs. Among services offered are the following:

1. An objective outsider who can analyze your debt, its ratio to your income, and your ability to repay that debt.
2. The development of options for you to eliminate your debt and a truthful listing of pros and cons for each option
3. Negotiations with your creditors to lower interest, spread payments out over a longer period of time, or to reduce the amount of the total debt.
4. Assistance in securing a bill consolidation loan if that option is viable for you. You will have one payment which is lower than the total of your old payments.
5. Thorough instruction and training in the development of a realistic budget based upon your income, your expenses, and your goals.
6. Consistent and regular follow-up counseling to insure that you are meeting the guidelines which you have developed together
7. Assistance in obtaining additional counseling and training, if you need it. For example, if your habits have been the result of obsessive/compulsive behaviors, such as gambling or shopping to excess, you need professional help in changing those behaviors. This is a more long-term effort, far more than just getting your immediate financial house in order.

Credit counseling can provide two important services – assistance with your immediate debt problems and the development of long-range education, planning, and counseling as necessary to alter your behaviors.

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Credit cards debts have limitations just like other types.

Time

All states have laws stating the legal statue of limitations on debts of various types. The exact time frame varies from state to state. Some states have statutes of limitations as low as 3 years, while one allows a full decade before it is removed from your responsibility.

Legalities

Many people do not realize that there is a legal statute of limitations on credit card debt. In fact, there is a time limit for all forms of debt. After the statute of limitations has expired in your state, you cannot be held legally responsible for your debts. This only means that the debtor cannot take you to court on the issue; it does not mean you can no longer choose to repay it. Collection agencies are legally required to follow certain procedures when attempting to collect debts; one of these standards is that they cannot threaten legal proceedings after the statute of limitations has run out. This is required by the Fair Debt Collection Practices Act. This act is federal law; it is the same regardless of the state in which you reside. Also, it should be noted that not being present in the same state is not considered a viable excuse for violating these procedures. This is why many good collection agencies will not mention litigation regarding delinquent accounts at all—it is simply too difficult to keep the different statutes straight.

Credit:

Although you cannot be legally forced to pay a delinquent debt past statute, it does not disappear. It will likely still be on record with the debt holder. More importantly to most people, it will still appear as delinquent on your credit rating for another 5-7 years AFTER the statute runs out. Debts that severely delinquent can damage your credit rating heavily.

Individual States:

As of October 2006, each state had the following statutes of limitations: for Alabama, Arkansas, Delaware, the District of Columbia, Kansas, Louisiana, Maryland, Mississippi, New Hampshire, North Carolina, Oklahoma, South Carolina, Virginia, and Washington each have 3 years. California, Florida, Georgia, Idaho, Nebraska, Nevada, New Mexico, Texas, and Utah all have 4 year limits. Illinois, Iowa, Kentucky, Missouri, and West Virginia have 5 year statutes, while Alaska, Colorado, Connecticut, Hawaii, Indiana, Michigan, Maine, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont, and Wisconsin have 6 year limits. Wyoming has an 8 year statute, while Rhode Island has a full 10 years before you are no longer responsible.

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A credit union is a not-for-profit financial institution chartered by the state or federal government and owned by its members. Credit unions may be formed by any group with a common bond, such as teachers or farmers. It is governed by a board of volunteers who are elected by their fellow members, and can be formed by any group with a common bond. Because credit unions are nonprofit organizations, they don’t pay taxes on their profits the way banks do. This means they can provide low-cost financial services such as loans, checking and savings accounts, CDs, debit cards, and even credit cards. Most credit unions protect their accounts for up to $100,000 through the National Credit Union Share Insurance Fund but check with the individual credit union before you become a member.

Thanks to the Credit Union Membership Access Act, signed by President Clinton in 1998, more people are now eligible to join credit unions through associations, churches, schools, civic groups, and even members of communities. Members of these organizations are allowed to sign up immediate family members. This definition has been broad ened to include spouses, children, siblings, parents, grandparents, grandchildren, stepparents, stepchildren, and step-siblings, as well as “household members,”which includes people living in the same residence as a single economic unit. Over to 10,000 new groups have joined credit unions since 1998.

Credit unions are a great concept. At this writing, there are nearly 13,000 credit unions in the United States. While credit unions may offer higher rates for consumers on deposits (such as CDs and savings accounts) and lower rates on loan products (such as mortgages) than traditional banks, they may not compare with the rates that online banks now offer consumers.

Credit unions started through work groups where the facilities were generally located onsite. Unlike banks, credit unions are owned by the members who elect their own board of directors and have voting rights (because they are actually stockholders). If you can’t find a financial institution that will allow you to become a customer or a member due to your past financial difficulties, ask what you need to do to become financially stable in their eyes. Then work toward that goal and reapply. Talk to one of the officers of the bank or credit union when you want to initiate this conversation. Of course, ask whether they are FDIC- or NCUSIF-insured before you go further.

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You should examine your credit report at least twice a year. In examining your report, it is important that you be on the lookout for any erroneous listings on your credit report. While it is necessary to question any irregularities and contact the credit bureau with any challenges, it is a federal offense to lie when disputing your credit report.

To get a copy of your credit report, contact the three major credit bureaus. If you have been denied credit within the past 60 days, they will issue a free report to you. If you live in Colorado, Georgia, Maryland, Massachusetts, New Jersey, or Vermont, you can get a report at no charge; otherwise, the charge is $8 unless your state has arranged a different fee with the credit bureaus. When I last checked, Maine’s cost was $3 and Connecticut’s was $5. All of the credit bureaus may not have the same information, so you will have to look at all three.

There are offers on the Internet to send you a compilation of all three. Only Experian and Equifax allow online delivery, so the three agency report must be sent to you by mail; you may find several companies that make this offer for various prices.

To order the credit reports, you need to send them copies of some identification that shows your name and address. Your driver’s license, a recent utility bill, or a recent credit card bill will do just fine. You also need to include your signature with the letter so they know you are authorizing the credit report. You may order your report and your spouse’s at the same time, but your spouse must include the same information and also sign the letter. There are stiff fines and possible imprisonment for ordering a credit report without proper authorization.

If you have a spotty credit history, you may feel shy about asking for your credit reports. You can’t clean them up if you don’t know what is in them. Don’t waste time beating yourself up; just boldly ask for your credit report and do what you need to do to fix it.

If you need some help creating a form to order your credit reports, try this as an example.

After you have received your credit reports, go over them very carefully and make sure that they are correct. If you find that you have old credit cards or store cards still on your credit report, call the creditors and ask them to close the accounts and inform the appropriate credit bureau. Each of the three major credit bureaus is supposed to inform the others of changes you requested, but you will need to look the next time you get your credit report to see if it was done.

While it would be ideal to have a perfect or near-perfect credit report, the reality is that many people have negative marks on their credit history and still get loans. This doesn’t mean that you won’t be able to get credit; it just might affect the size of the down payment required to make your purchase or the rate of interest.

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To develop a credit scoring model, random loan customers are sampled statistically to identify characteristics that relate to patterns of repayment. Then, each of these characteristics is assigned a weight based on how strong a predictor it is of the likelihood of repayment. The higher the score, the lower the risk for the lender. A borrower with a score of 660 or greater is considered to be of less risk for the lender, while a score of 620 or lower is a poor credit score. Credit scoring cannot rely on factors such as race, religion, gender, income, address, employment, national origin, or marital status, but some scoring systems may use age as a factor in determining a credit score.

Credit scores rely on the following:

• Occupation and time at present job.
• If you are a homeowner.
• Past payment performance.
• A pattern of late payments brings down the credit score.
• Credit utilization, or the way credit is used. Borrowers who borrow to the limit of their credit cards are considered higher risk.
• Having both a checking and savings account can improve your credit score.
• Credit history, or how long the borrower has been borrowing.
• Someone who has had credit for a long time is considered less risky.
• Inquiries into the applications for credit. The number of times a person has asked for credit or has had an inquiry into their credit record affects the credit score. Frequent requests for credit or frequent inquiries in a short period of time bring down the credit score.
• Types of credit in use secured credit card, installment loans, revolving loans, or finance company lines.

Practicing more responsible borrowing and repayment habits will help improve your FICO score. One thing to be aware of is that while consolidating your bills and closing some of your credit cards may seem like a good idea at first in an attempt to raise your FICO score, it can actually negatively affect it. It brings you closer to your credit limit by removing available credit without reducing your existing debt.

As you can see, your credit score is determined by a number of factors and it is important to take all of these into consideration before taking any action. Improving your FICO score is not something that happens overnight, but taking steps now will get you far on the road to less debt and more cash.

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