Solving Credit Problems

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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 counselling 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 non profit Consumer Credit
Counselling 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 bureau 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
judgements or bankruptcies. Your report records payments you have made on
credit cards, instalment 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, judgements, 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 bureau.
Most cities have two or three credit bureau, 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 bureau
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 bureau. 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 bureau 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
bureau record each inquiry about you. Some creditors may deny your
application if they think you are trying to open too many new accounts too

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 re investigate 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 bureau 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, judgements, 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 realise 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 counselling, or debt
reorganisation 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 counselling or reorganisation 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 reorganisation 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 Counselling Service (CCCS). This is a non-profit organisation
with more than 850 offices located in 50 states. CCCS counsellors 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 counselling 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 counselling 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,
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

* 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

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