You have seen them, everybody has. You open your credit card bill and there it is. A blank check with your name on it, for you to use in any way you want. Best of all, there is a low interest rate...0%... a limited time. Sometimes for as long as six months or more. It looks too good to be true. As is the case most times, when something looks to good to be true, it usually is.
Credit card companies routinely send these magic checks out to people with low balances or who limit the use of the credit card. After all, a credit card that isn't being used isn't doing much for the bank's bottom line. So they make these offers in the hope that their customer will transfer high interest balances, take advantage of low interest for that vacation they have been passing by, or get more air miles just in case. While these are all valid reasons, there are some pitfalls to this plan that many or most people find themselves falling into. Here are some things to remember before you take advantage of these offers.
LOOK OUT FOR THE FEES There is often a transaction fee for balance transfers, often as high as 3%. This term is hidden in the fine print. Be careful. That transfer of $3,000 at zero interest just cost you a cool ninety bucks.
CAN YOU PAY IT OFF IN TIME The low monthly interest is a good idea if you can pay off the amount within the time limit of the offer. It's a good idea to save on interest. But remember that after the six months are up, that interest goes up to the regular interest rate. Make sure that rate is not higher than the rate on your other cards.
DON'T BE LATE If you are late with your payments –even for a day– special rate reverts back to your original interest rate. Often, credit card companies that appreciate your business will raise your interest rate to a default rate, typically over 29%, as a token of their appreciation.
DON'T DOUBLE DOWN Remember, if you pay transfer a balance or use these checks to pay off another credit card, that card now has a zero or low balance. While your intentions may be good, the temptation to use that card is great. Most people will use it. Cautiously at first. Just to buy gas. Maybe to go out to dinner a couple of times. Then they get an email about a great deal on a plasma TV, and before they know it, the six months have gone by and both cards are at the maximum.
DON'T USE THEM If you are not sure that you will be able to make timely payments and control your other debt, the best thing to do is avoid the temptation to take advantage of these offers. If you fail to use the checks in the allotted time, don't worry. You will get more in your next statement. If you don't need them or if it doesn't make sense to use them, don't use them.
DESTROY THE CHECKS IF NOT USED There will be another time to discuss identity theft. But if the banks are enjoying a bonanza with these checks, identity thieves are right behind them. These checks often provide information that can be used by someone else. If you are in the habit of discarding your statements, these checks and other information without destroying them, get out of that habit. People go "dumpster diving" for this information, and often use it to steal identities. It's a sad fact. But it is something we all have to be aware of.
The next time you get one of these offers...check the mailbox...remember this. Credit card companies were given enormous leverage in their ability to recover defaulted debt by the new Bankruptcy rules. Your ability to discharge this debt is severely curtailed. So even if you took advantage of these offers with the best of intentions, you may find yourself strapped with mounting debt and nowhere to turn for relief, or even a claim of fraud from the credit card company. Late fees, over limit fees and 30% interest can turn a $3,000.00 limit to a $8,000.00 lawsuit in no time. For many people, this spiral downward starts when they cash those checks or transfer a balance. Many of them never recover.
So, what do you do with these offers?
1. If you must use them, use them wisely.
2. Make sure you can pay them off.
3. Never make a late payment.
4. If you pay off another credit card, close the account or exercise the discipline it
takes not to use it.
5. Don't pay off a credit card with a lower interest rate.
6. If you don't think you can take these steps, DON'T USE THE CHECKS!
7. Make sure you destroy the checks if choose not to use them.
You have worked hard to get the kind of credit rating it takes to qualify for these offers. Don't let the use of credit be the reason you lose your good credit rating.
As many of us know, a negative credit rating can cost you countless thousands of dollars over the course of your life. Having an account go into default, collections or litigation can literally bury you in debt for the rest of your life. If you find that things have gotten out of hand, get some help. Call the credit card company. Call a credit counselor. Call a lawyer if you need one. But don't ignore the problem. Take control. It will not go away on its own.
-
Brooklyn Credit Repair is a Professional Credit Repair Company located in Brooklyn, New York. We specialize in correcting inaccurate or unverifiable remarks on credit reports with experian, equifax and transunion. We serve all boroughs of NY including Bronx, Queens, Staten Island, Manhattan as well as Long Island's Suffolk and Nassau counties. Identity Theft, Late Payments, Collections, Chargeoffs, Foreclosure, Judgements , Bankruptcies, Liens, Inquiries, Credit Consulting, Credit Repair, and Debt Settlement.
Showing posts with label credit repair. Show all posts
Showing posts with label credit repair. Show all posts
Calculating Utilization, Let Me Count The Ways
For the first time in 2010 and what has to be the 100th time overall, here’s how utilization is calculated.
First off, utilization 101…Mark has a credit card with a $1,000 credit limit. That is, his credit reports show a $1,000 credit limit. His current balance as reported on his credit reports is $500. The utilization of that card is 50% because the balance ($500) divided by the credit limit ($1,000) equals .50 or 50%. Now we can get started.
It’s important to note that the figures I use for my next few examples HAVE to be reported on your credit reports to make these math problems accurate. That’s the bottom line. If it’s not on our credit report then all bets are off.
Line Item Utilization – This is the same calculation as described above for Mark but done for every single open credit card or credit card with a balance. So if you have 10 open credit cards, and open in this examples means it’s not closed, then you’ll have 10 different line item measurements. This is important because the number of highly utilized credit cards on your credit report is a consideration in most credit and insurance risk models.
Aggregate Utilization – This is the same calculation as described above for Mark with one huge difference. For this calculation we are going to combine all of the open credit cards on a credit report to do the math. For example, if I have two credit cards and each has a $5,000 balance and a $10,000 credit limit then I have $10,000 in aggregate balances and $20,000 in aggregate credit limits. Divide $10,000 by $20,000 and you again get .50 or 50%. This measurement is important because the higher utilization the percentage the more risky you are to lenders and insurance companies and the less attractive their terms will be.
High Balance in Lieu of Credit Limits – In some cases your credit cards will not have a credit limit reported. (Note: I’m not talking about charge cards. I’m talking about revolving credit cards that are not reporting a credit limit). In those cases most credit scoring models will look for the historical highest balance, which is typically reported by the credit bureaus, and use that figure in lieu of the missing credit limit. So, if I have a credit card with a $10,000 credit limit but it’s not being reported then the credit score will look for my highest balance figure. If it finds, for example, that your highest historical balance was $7,500 then that’s the figure it will use in lieu of the missing $10,000. So, with my same $5,000 balance and a $7,500 “pseudo limit” I appear to be 67% utilized on that card instead of the true 50%. This is a line item measurement and an aggregate measurement, meaning it is the same regardless of which is being calculated. This practice of withholding credit limits got the credit bureaus sued in a class action case several years ago because Capital One was not reporting credit limits. The case was dismissed because, in my opinion, the court simply couldn’t grasp the details of the problem and the breadth of its impact. Shortly after the lawsuit was filed Capital One began reporting credit limits for the first time in their existence. So, some good did come out of the case.
Missing High Balance and Missing Credit Limit - Now this is a tricky one. In some examples a credit card account will be missing the credit limit and the highest balance. Most credit scoring systems will simply ignore the account for the above referenced utilization calculations because, well, you have no limit to include in the math. This can help the consumer’s scores and it can also hurt the consumer’s scores. For example, if you have a very high balance on that particular credit card but no limit or high credit then that balance can’t increase your aggregate utilization because it’s ignored for that math. It can hurt your score in the example where you have a very low balance relative to the credit limit, which isn’t reported because you don’t get any value of the large difference between the balance and the limit, which is called open-to-buy.
Shadow Limits – A shadow limit isn’t a credit card that’s been left under a leafy tree. Instead it’s the unpublished maximum preset spending limit that all credit cards have, even charge cards that are marketed as not having a preset spending limit. That would suggest that you could use your charge card to buy a $100,000 Mercedes, if the dealership took plastic for such a purchase. And while some very wealthy individuals might be given that amount of shopping power, it’s atypical.
The shadow limit is not reported to the credit bureaus so the high balance is the next best figure to use when calculating utilization. And if it’s a charge card the newer FICO scores will not count it in utilization at all. There are, however, revolving credit cards that are also marketed as not having a preset spending limit and, thus, a shadow limit. The moral of this story is simple; you’d like to do business with credit card issuers who do report the credit limit to all three credit bureaus. It give you the ability to strategically use that card so that you never exceed some self applied utilization percentage. For example, if you know your credit card has a credit limit of $10,000 (and it’s being reported to the credit bureaus) and you never want to exceed 10% utilization on that card then you know you can never allow more than $1,000 to be reported to the credit bureaus as a balance.
-
Brooklyn Credit Repair is a Professional Credit Repair Company located in Brooklyn, New York. We specialize in correcting inaccurate or unverifiable remarks on credit reports with experian, equifax and transunion. We serve all boroughs of NY including Bronx, Queens, Staten Island, Manhattan as well as Long Island's Suffolk and Nassau counties.
Call today for a free consultation (718) 975 - 0155
BrooklynCreditRepair.com
First off, utilization 101…Mark has a credit card with a $1,000 credit limit. That is, his credit reports show a $1,000 credit limit. His current balance as reported on his credit reports is $500. The utilization of that card is 50% because the balance ($500) divided by the credit limit ($1,000) equals .50 or 50%. Now we can get started.
It’s important to note that the figures I use for my next few examples HAVE to be reported on your credit reports to make these math problems accurate. That’s the bottom line. If it’s not on our credit report then all bets are off.
Line Item Utilization – This is the same calculation as described above for Mark but done for every single open credit card or credit card with a balance. So if you have 10 open credit cards, and open in this examples means it’s not closed, then you’ll have 10 different line item measurements. This is important because the number of highly utilized credit cards on your credit report is a consideration in most credit and insurance risk models.
Aggregate Utilization – This is the same calculation as described above for Mark with one huge difference. For this calculation we are going to combine all of the open credit cards on a credit report to do the math. For example, if I have two credit cards and each has a $5,000 balance and a $10,000 credit limit then I have $10,000 in aggregate balances and $20,000 in aggregate credit limits. Divide $10,000 by $20,000 and you again get .50 or 50%. This measurement is important because the higher utilization the percentage the more risky you are to lenders and insurance companies and the less attractive their terms will be.
High Balance in Lieu of Credit Limits – In some cases your credit cards will not have a credit limit reported. (Note: I’m not talking about charge cards. I’m talking about revolving credit cards that are not reporting a credit limit). In those cases most credit scoring models will look for the historical highest balance, which is typically reported by the credit bureaus, and use that figure in lieu of the missing credit limit. So, if I have a credit card with a $10,000 credit limit but it’s not being reported then the credit score will look for my highest balance figure. If it finds, for example, that your highest historical balance was $7,500 then that’s the figure it will use in lieu of the missing $10,000. So, with my same $5,000 balance and a $7,500 “pseudo limit” I appear to be 67% utilized on that card instead of the true 50%. This is a line item measurement and an aggregate measurement, meaning it is the same regardless of which is being calculated. This practice of withholding credit limits got the credit bureaus sued in a class action case several years ago because Capital One was not reporting credit limits. The case was dismissed because, in my opinion, the court simply couldn’t grasp the details of the problem and the breadth of its impact. Shortly after the lawsuit was filed Capital One began reporting credit limits for the first time in their existence. So, some good did come out of the case.
Missing High Balance and Missing Credit Limit - Now this is a tricky one. In some examples a credit card account will be missing the credit limit and the highest balance. Most credit scoring systems will simply ignore the account for the above referenced utilization calculations because, well, you have no limit to include in the math. This can help the consumer’s scores and it can also hurt the consumer’s scores. For example, if you have a very high balance on that particular credit card but no limit or high credit then that balance can’t increase your aggregate utilization because it’s ignored for that math. It can hurt your score in the example where you have a very low balance relative to the credit limit, which isn’t reported because you don’t get any value of the large difference between the balance and the limit, which is called open-to-buy.
Shadow Limits – A shadow limit isn’t a credit card that’s been left under a leafy tree. Instead it’s the unpublished maximum preset spending limit that all credit cards have, even charge cards that are marketed as not having a preset spending limit. That would suggest that you could use your charge card to buy a $100,000 Mercedes, if the dealership took plastic for such a purchase. And while some very wealthy individuals might be given that amount of shopping power, it’s atypical.
The shadow limit is not reported to the credit bureaus so the high balance is the next best figure to use when calculating utilization. And if it’s a charge card the newer FICO scores will not count it in utilization at all. There are, however, revolving credit cards that are also marketed as not having a preset spending limit and, thus, a shadow limit. The moral of this story is simple; you’d like to do business with credit card issuers who do report the credit limit to all three credit bureaus. It give you the ability to strategically use that card so that you never exceed some self applied utilization percentage. For example, if you know your credit card has a credit limit of $10,000 (and it’s being reported to the credit bureaus) and you never want to exceed 10% utilization on that card then you know you can never allow more than $1,000 to be reported to the credit bureaus as a balance.
-
Brooklyn Credit Repair is a Professional Credit Repair Company located in Brooklyn, New York. We specialize in correcting inaccurate or unverifiable remarks on credit reports with experian, equifax and transunion. We serve all boroughs of NY including Bronx, Queens, Staten Island, Manhattan as well as Long Island's Suffolk and Nassau counties.
Call today for a free consultation (718) 975 - 0155
BrooklynCreditRepair.com
What Did We Experience in 2009 and What Should We Do in 2010?
2009 was a historical year in the world of consumer credit. We saw property values decline, lenders stop lending, credit card issuers crank up their abusive behavior, a new Federal law passed and a historically high number of credit related lawsuits. The following is a brief synopsis of 2009 and what consumer should do to put themselves in the best possible position for 2010.
Many of us received a letter (or letters) from our credit card issuers with similar messages;
· Your credit line has been lowered to reflect your spending
· Your account has been closed because we believe your card is being used in a manner inconsistent with your Cardmember agreement
· Given the size of your credit line and the way you have historically used your account, we have adjusted your credit line
·We are increasing the Annual Percentage Rates (APR) on your account to 25.49%
· A new service charge of $10 per month will be applied to your account
2009 was surely the year of the credit card issuer’s reign of terror against their cardholders. According to various surveys at least 35% of the population acknowledged experiencing some sort of adverse change to the terms of their credit card account. And, according to two FICO studies the median score for consumer who saw their credit limits involuntarily reduced was 770, which means that credit line decrease really didn’t have anything to do with elevated credit risk.Of course this abusive behavior lead to the passage of the Credit Card Responsibility, Accountability and Disclosure Act of 2009, or CARD Act for short.
This act provides the following rights to cardholders, among others…
· A guaranteed 21 day grace period on payments
· 45 days advance notice of any interest rate increases
· Tough rules around issuing credit cards to consumers who are under 21 years old
· Restrictions on when card issuers can increase your interest rates, and a method whereby consumers can earn back their lower rates by making their payments on time
· Clearer disclosure of account terms before an account is opened
· Restrictions on over limit fees. If a consumer has not "opted in" to allow a credit card issuer to approve a transaction that puts you in an over limit positions, they have to either decline the transaction or not charge you the over limit fee
· No additional fees because of the method of payment
· No more double cycle billing, the method of using the prior month’s balance to determine interest charges for the current month
· Application of payments above the minimum now have to be applied to the balance with the highest interest rate
· Gift cards won’t be able to expire for at least five years. And inactivity fees on gift cards will be banned
Unfortunately 2009 continued to produce decreased property values, which means no equity or worse, negative equity. And while consumers are comfortable with negative equity in their auto loans, they are not used to negative equity in their homes. Your home is your largest investment and it has historically increased in value. This leads to wealth building, a sizable tax deduction, and access to capital in order to send children to college, pay down credit card debt or fund home improvements. The loss of home equity also lead to a significant number of home equity lines (HELOCs) being cancelled by lenders. A HELOC had always been a secured loan, secured by the perceived value in your home. But, with the home values dropping many HELOCS became huge unsecured lines of credit and many lenders simply weren’t comfortable with the lines any longer. The problem with the cancellations is that most consumers were never notified that their equity lines had been cancelled and didn’t find out until they wrote a check from the line, a large check in many cases, which bounced.2009 was also a banner year for attorneys involved in credit related litigation, specifically Fair Debt Collection Practices Act and Fair Credit Reporting Act lawsuits. The total number of these lawsuits filed in 2009 was over 8,000, which is more than any other previous year. Most experts predict similar numbers in 2010 because collectors are continuing aggressive collection tactics and more and more consumers are using the law to get legitimate errors removed from their credit reports.In most years past filing a lawsuit to get something erroneous removed from your credit reports was an expensive and lesser-pursued strategy. But, with lenders increasing their minimum credit score requirements spending the money in order to have credit score-damaging errors corrected or removed actually is a newly smart investment.So what should I do in 2010 in order to position myself in the best place? You can find yourself almost completely exempt from the credit crunch by doing two things; getting out of credit card debt and increasing your credit scores. By getting yourself out of credit card debt it allows you to escape the abusive treatment by lenders. Remember, things like interest rate and minimum payment increases only matter if you carry a balance. Getting out of and staying out of credit card debt puts you in a very enviable position. This is old advice that has taken on a new level of importance. A second byproduct of getting out of credit card debt is the significant benefit to your credit scores. "Debt" makes up a whopping 30% of the points in your FICO® scores, which places it a close second behind whether or not you have negative information on your credit reports. And as many people have learned the hard way, the minimum score requirements to not only qualify but also qualify at the best interest rates have become more difficult to satisfy.This means higher FICO scores equals approvals where in the past a higher FICO score meant an approval with the best rates.
-
Brooklyn Credit Repair is a Professional Credit Repair Company located in Brooklyn, New York. We specialize in correcting inaccurate or unverifiable remarks on credit reports with experian, equifax and transunion.
Call today for a free consultation (718) 975 - 0155
BrooklynCreditRepair.com
Many of us received a letter (or letters) from our credit card issuers with similar messages;
· Your credit line has been lowered to reflect your spending
· Your account has been closed because we believe your card is being used in a manner inconsistent with your Cardmember agreement
· Given the size of your credit line and the way you have historically used your account, we have adjusted your credit line
·We are increasing the Annual Percentage Rates (APR) on your account to 25.49%
· A new service charge of $10 per month will be applied to your account
2009 was surely the year of the credit card issuer’s reign of terror against their cardholders. According to various surveys at least 35% of the population acknowledged experiencing some sort of adverse change to the terms of their credit card account. And, according to two FICO studies the median score for consumer who saw their credit limits involuntarily reduced was 770, which means that credit line decrease really didn’t have anything to do with elevated credit risk.Of course this abusive behavior lead to the passage of the Credit Card Responsibility, Accountability and Disclosure Act of 2009, or CARD Act for short.
This act provides the following rights to cardholders, among others…
· A guaranteed 21 day grace period on payments
· 45 days advance notice of any interest rate increases
· Tough rules around issuing credit cards to consumers who are under 21 years old
· Restrictions on when card issuers can increase your interest rates, and a method whereby consumers can earn back their lower rates by making their payments on time
· Clearer disclosure of account terms before an account is opened
· Restrictions on over limit fees. If a consumer has not "opted in" to allow a credit card issuer to approve a transaction that puts you in an over limit positions, they have to either decline the transaction or not charge you the over limit fee
· No additional fees because of the method of payment
· No more double cycle billing, the method of using the prior month’s balance to determine interest charges for the current month
· Application of payments above the minimum now have to be applied to the balance with the highest interest rate
· Gift cards won’t be able to expire for at least five years. And inactivity fees on gift cards will be banned
Unfortunately 2009 continued to produce decreased property values, which means no equity or worse, negative equity. And while consumers are comfortable with negative equity in their auto loans, they are not used to negative equity in their homes. Your home is your largest investment and it has historically increased in value. This leads to wealth building, a sizable tax deduction, and access to capital in order to send children to college, pay down credit card debt or fund home improvements. The loss of home equity also lead to a significant number of home equity lines (HELOCs) being cancelled by lenders. A HELOC had always been a secured loan, secured by the perceived value in your home. But, with the home values dropping many HELOCS became huge unsecured lines of credit and many lenders simply weren’t comfortable with the lines any longer. The problem with the cancellations is that most consumers were never notified that their equity lines had been cancelled and didn’t find out until they wrote a check from the line, a large check in many cases, which bounced.2009 was also a banner year for attorneys involved in credit related litigation, specifically Fair Debt Collection Practices Act and Fair Credit Reporting Act lawsuits. The total number of these lawsuits filed in 2009 was over 8,000, which is more than any other previous year. Most experts predict similar numbers in 2010 because collectors are continuing aggressive collection tactics and more and more consumers are using the law to get legitimate errors removed from their credit reports.In most years past filing a lawsuit to get something erroneous removed from your credit reports was an expensive and lesser-pursued strategy. But, with lenders increasing their minimum credit score requirements spending the money in order to have credit score-damaging errors corrected or removed actually is a newly smart investment.So what should I do in 2010 in order to position myself in the best place? You can find yourself almost completely exempt from the credit crunch by doing two things; getting out of credit card debt and increasing your credit scores. By getting yourself out of credit card debt it allows you to escape the abusive treatment by lenders. Remember, things like interest rate and minimum payment increases only matter if you carry a balance. Getting out of and staying out of credit card debt puts you in a very enviable position. This is old advice that has taken on a new level of importance. A second byproduct of getting out of credit card debt is the significant benefit to your credit scores. "Debt" makes up a whopping 30% of the points in your FICO® scores, which places it a close second behind whether or not you have negative information on your credit reports. And as many people have learned the hard way, the minimum score requirements to not only qualify but also qualify at the best interest rates have become more difficult to satisfy.This means higher FICO scores equals approvals where in the past a higher FICO score meant an approval with the best rates.
-
Brooklyn Credit Repair is a Professional Credit Repair Company located in Brooklyn, New York. We specialize in correcting inaccurate or unverifiable remarks on credit reports with experian, equifax and transunion.
Call today for a free consultation (718) 975 - 0155
BrooklynCreditRepair.com
Subscribe to:
Posts (Atom)
