Credit Card Debt After Death

The good news is credit card debt can’t follow you into the hereafter - I’m pretty sure there’s no debtor’s hell where you spend time for leaving debt here on Earth. The bad news is that your family may have a hard time of it when you pass.

So what happens to credit card debt when you die?

The answer isn’t a cut-and-dry matter, I’m afraid. There are several factors that you have to consider, including the following:

1.) Are you the sole signer on the account?

2.) Do you live in a community property state?

These two questions make a big difference when it comes to handling credit card debt after death.

This is one instance where the credit card company doesn’t always win and sometimes they just have to suck it up.

If the account was a sole account in the deceased person’s name only, then it is their sole responsibility and the debt is not passed on to their heirs and family members - contrary to what collectors would like to make us believe.

The debt is passed to the deceased person’s estate and the estate is responsible for paying the debt. If there is not enough money to go around for all of the debts, then the creditor’s are notified that the estate is insolvent and they have to write it off. They may still try to collect from a spouse or from the executor of the estate - telling lies that the individual is responsible when they’re not. Keep in mind that this type of behavior is their charming way of trying to collect.

Make sure you keep records of all correspondence with them and seek the help of an attorney if need be. Once it’s been made clear that you are not responsible for the debt and the estate is insolvent, the continued contact from the collection agency is harassment and you have rights. The most important thing is that you stand up for yourself and challenge them if you think they’re wrong. They’re trained to collect and sometimes that may be from those who aren’t even responsible for the debt if they can bully them enough.

Where this gets a little hairy is in community property states. Generally, any assets accumulated during marriage are considered joint property under the law of community property states. In some cases, this is true for debts as well. The other problem is that each community property state has their own variation of the rules when it comes to this, so there’s no one answer for all of them. It’s possible that if a spouse runs up credit card debt, the other could be responsible for it when the spouse passes away. You’ll want to consult your attorney when the time comes to know for sure.

On the plus side, there are certain assets that don’t pass through probate and so the executor can’t use those to pay debts. Things like your 401(k) and IRAs, which are federally protected, go to the named beneficiaries and the credit card companies can’t do anything about it.

Insurance is a little different. It passes outside the estate, so the executor can’t use it to pay bills; however, depending on the state that you live it, you may be required to use it to pay off debts, it all depends on the rules. I can tell you that Texas is a weird state. It’s a community property state, but here, if you don’t want to pay your bills, you don’t have to. Collectors can’t take you to court and they have to accept whatever payment you send them, even if its $5 a month. I don’t know if they’ll be changing the rules on that with the credit crisis, but for the time being that’s how it works. But, don’t worry, that type of behavior still affects someone’s credit report.

When it comes to your house, most states allow that to pass to a family member without any issue, but again it all depends. You’ll have to consult an attorney to know for sure, but it passes outside of the estate, so usually you don’t have to.

Prepare to be hounded!

Like I said, collectors are trained to collect and will often use all manner of disturbing tactics to try and get a payment from you. Don’t back down and don’t let them bully you. If you’re not responsible for the debt, then get an attorney to help you. If they send anything to your credit report, write a letter to the Office of the Comptroller of the Currency (OCC) and explain the situation. They’ve had to step in many a time to get a collection agency to back off.

In the end, it’s best if you do your family a favor and don’t die with a boatload of credit card debt. However, sometimes s**t happens. Have a contingency plan in place for their peace of mind. It’s hard enough to be grieving, but add them trying to deal with debt and it’s a terrible place to be in. They won’t thank you and despite the fact that they miss you terribly, they may have a few choice expletives being sent to you in the afterlife.

Has anyone had any experience with this? What kind of issues did you run into?

Popularity: 2% [?]

Credit Issuers Dig Deeper than Just Credit Reports

For some economists there’s a light at the end of the tunnel. Sure, the economy is bad right now, but things are looking up. For other economists, things have only begun to get bad and what’s coming will be far worse. I suppose it really depends on how you look at life – is the glass half empty, or half full? One thing that is certain is credit card companies aren’t taking any chances.

We’ve seen that it’s become clearly more difficult to get credit. In the wake of the housing market, credit card companies are not so eager to give credit to those who really can’t handle it. And as an additional precaution they’re tightening the purse strings on those who can. However, they’ve begun taking things just a little further.

Lenders have long relied on a consumer’s credit report to give them the information they need to extend the loan. Before it was simply a matter of what was on the credit report; on-time payments, credit ratio, etc., that was the basis of their decision. Obviously things like income, length of residency, and stability were taken into account, but there’s never been much of an emphasis on these factors before.

However, the credit card industry has decided they need to be more proactive in their research on consumers and their ability to repay. Instead of relying solely on what’s on the credit report, they’re now looking into the area in which people live and the industry that they work in. According to industry experts, the heightened focus is directed most at the states who were hit hardest by the housing slump; i.e. California, Florida, and Nevada. Consumer’s who work in struggling industries like finance and construction have also felt the tightening from their credit card companies.

In an effort to cut costs, credit card companies aren’t shy about the tactics that they’re using, either. Long-time customers who routinely pay their bills are finding their lines decreased drastically over a 5-point drop in their score, consumers with poor credit are finding it much harder to get credit, and lenders are demanding less advertising in “high-risk” areas. They’re making geographical assumptions about people’s creditworthiness and requiring higher standards of consumers in general.

Last time I checked, the Fair Lending Laws didn’t allow for geographical assumptions. These credit card companies are toeing the line of those laws very closely and I think it’s important this kind of behavior gets reigned in before it goes overboard. I read a story just today about a guy in Georgia who had three American Express cards that he used to run his business. The main one initially started with a credit line of $42,000. He was never late, frequently paid his bills off every month, and had racked up 780,000 rewards points – so you know he’s spending a boatload of money on the card. But, American Express cut his limit; first to $36,000 and finally to $4,300. That’s a huge decrease when we’re talking about a card for business expenses. Amex’s reason? He hadn’t reported anything to Dun & Bradstreet about his business so they were unable to tell if he was creditworthy.

There’s been speculation that the credit card industry is the next to have a sub-prime melt-down. However, they’re going to send the industry into a tailspin much like the stock market in the 90s if they keep going as they are now. Taking everyone’s credit away, increasing the FICO score required, and generally driving people away from credit cards isn’t in their best interest. While I don’t think a complete lack of credit use would happen overnight, I do think things can’t keep going in the same direction if they want to turn the industry around.

What are your thoughts on the credit industry’s about face? Do you think the industry can bounce back using these tactics, or do you think they could hurt the industry more?

Popularity: 3% [?]

To Cosign Or Not To Cosign: That is the Question

We all know that cosigning a credit card application can be a risky venture – one that doesn’t have a great return on it, either. If the borrower runs up the credit card and then doesn’t pay on time, it not only affects their credit, but ours as well. In addition, we can be held legally responsible for repaying the debt when it comes right down to it.

But, when a family member comes to us and asks for help it can be very hard to say no.

Here are some things that you need to consider before you agree to cosign the application. If they can’t provide an answer to these questions that make sense, then it’s probably a good indication of how responsible they won’t be with the credit card.

• How will they repay the card? Are they working? These questions typically apply to the college student that’s asking for a cosigner. Sometimes they work, but only over the summer, and sometimes not at all so they can focus strictly on their studies. But, signing your name to their credit card application should be considered very carefully, especially if they’re not working. If there’s no income and you’re paying the bills, then you have to consider that you’ll be paying the bill, whatever it is. If it’s a family member just requesting help, the questions still apply. You certainly don’t want to add their bills to your own, so make sure they can truly afford to make any payments they incur before you agree to help them.

• Has the individual handled credit before? Find out whether the person you’re considering cosigning for has ever handled credit before – be it through a credit card or through a loan. Look to see how they handled their past credit. If they’ve handled past credit poorly, how long ago was the infraction? In this instance, you have to think like a lender and determine what kind of risk this person presents to you and your credit. If the credit blunder was recent and they seem a bit risky, I’d recommend not cosigning for them until they improve their habits…family or not.

• Why do they want the credit card? The reason for wanting the credit card could be a major indicator of how the person intends to use the card. There are lots of reasons people want credit cards, but only a handful of good reasons. Make sure you probe them carefully to get to the real reason for wanting one. A trip to Rome over spring break to hang out with their friends is not a good reason for a credit card and something you should not put your name on. If they want it just for emergency purposes, but you’re still not sure, I’d recommend saying no and helping them set up a savings account to put money aside for emergencies. To be honest, I’d probably recommend this option for just about any reason that someone wanted me to cosign for them, but that’s just me.

• What’s their driving record like? A bit of a weird question, I know. But here’s the thing, if the person requesting your help has racked up a ton of traffic tickets, been cited for reckless driving or other irresponsible behaviors behind the wheel, or been in multiple accidents, it could be an indicator of how they will handle the credit card. Such reckless behavior generally translates to other facets of their life, including their finances, so it may be a good idea to forego becoming a cosigner for someone like this.

These questions are a great starting point to determine the risk factor involved with cosigning a credit card application. When someone comes to you and asks for your help, they are giving you the right to pry into some of these personal matters, and you should do so because it is your credit on the line. If they balk at the idea of answering your questions, then tell them to seek help somewhere else. It’s not a matter of being mean or spiteful, it’s simply a matter of taking care of your credit and finances.

Have you ever considered cosigning for someone? How did that go? Did you ask any questions, or did you just go along with the process?

Popularity: 5% [?]

Are You Smarter than a Fifth Grader?

About credit cards, that is.

I found an article over at creditcards.com that actually asked a group of 5^th graders questions about credit cards. There was a fair amount of right answers in the group, but what I found so hilarious is that some of the answers that are funny from kids are the same answers I’ve gotten from adults looking for help when they’re already in trouble. So, to that end I’ll post the questions that were asked and my favorite answers.

I do recommend that you read the full article, though, because it was just so cute! You can read it here. Note: the kids’ names were changed in the original article, so these are the names that they used.

Question # 1: What is a credit card?

Favorite answer: A little girl named Leslie says that a credit card is “something paying double for someone else’s money.”

Ha! Funny how true that almost is.

Question # 2: Why do people use credit cards?

Favorite answer: Again, this one goes to Leslie who says, “People use credit cards because they are lazy to use money [sic].”

Wonder what her parents are teaching her?

Question # 3: Where do credit cards come from?

Favorite answer: This one from Dale who says, “Credit cards come from a bank store or credit store or when you get a license you get a card.”

Can you imagine what it would be like to have to buy credit?! Yikes!

Question # 4: How do you get a credit card?

Favorite answer: Adrian replied, “You get a credit card in the mail when you’re an adult.”

Yup, that’s about right.

Question # 5: Who can get a credit card?

Favorite answer: Dale answered, “Anyone who is legally righted for money.”

What do you even say to that? LOL.

Question # 6: Who can’t get a credit card?

Favorite answer: Dale again. “Anyone who has been like in prison or you’re a felony person or something.”

I’m thinking Dale’s dad is a lawyer.

Question # 7: How can you tell if you need a credit card?

Favorite answer: This one goes to Troy who said, “When you get bored walking around with hundreds of dollars in your pocket.”

If that day ever comes, I’ll eat my shoe!

Question # 8: How are credit cards different than money?

Favorite answer: Tony’s the winner here. “A credit card is different than money because you won’t run out so fast.”

You know, people treat credit cards that way, so I can see why Troy would think that.

Question # 9: Who pays for stuff bought on a credit card?

Favorite answer: This one goes to Jamie. “You or Mom or Dad.”

Remember the days when mom and dad paid for everything? Gosh, I miss those days sometimes!

Question # 10: What happens when your credit card is lost or stolen?

Favorite answer: Again, Jamie’s answer was rather nostalgic. “Look for it and call your Mom and Dad.”

Kids say the darnedest things sometimes, don’t they? But, the lesson here is that teaching kids about credit is important. Some of the kids that took this test were pretty close to having the right answers, which means their parents took the time to explain how money works. But, some of the kids have no real clue and those are the ones that end up running into trouble later on, when the credit cards just show up in the mail. Whether you want your kids to have credit cards or not, they need to understand what they are and the damage they can do.

Ok, feel free to share your favorite answers from the original story if you read it. What can we learn and share with our kids from reading stuff like this? Do you think this helps show why financial education is important to children?

Popularity: 8% [?]

8 Tips: Handling Credit Card Debt During a Divorce

Going through a divorce is never pleasant – as Jonathan referred to it in an earlier post, it’s excruciating. In said earlier post, he talked about the fact that credit card debt and divorce don’t mix and why. I’m going to piggyback on that post and talk about 8 tips to help you divide that debt up with the least amount of pain and annoyance as possible. To refresh your memory, you can read Jonathan’s post here.

Tip # 1: Get your own credit card…now!

If divorce is imminent then you’ll want to start making preparations now. Divorces can ruin people’s credit, so it’s best to get your individual cards while you still have a decent score, just in case the divorce proceedings get a little messy. Besides, having you own card will make it easier to transfer your portion of the debt later on.

Tip # 2: Take an inventory of all the cards that are jointly held.

You don’t want any nasty surprises later on. Start looking at the financial picture now, while you’re still on speaking terms with the soon-to-be spouse. Go through your wallet and list the credit cards, then – as Jonathan suggested – pull a copy of your credit report to make sure that the cards are listed as open in both of your names. This will be important later on should your spouse try to say you owe jointly on a debt that is solely in their name. Keep all records!

Tip # 3: Call the credit card companies for up-to-date information.

Make a list of what is owed and the interest rates. Depending on where you are in the divorce proceedings, you may be able to freeze the card from further activity until everything is final. Check with your card company to see if this is an option. You don’t want your spouse running up the credit card just before a divorce and you being held partially responsible.

Tip # 4: Try to discuss how to handle the debt with your spouse.

I know that during a divorce sometimes there are bitter feelings and it can be hard to talk to the other person. However, an effort must be made to decide how to handle the debt. Discuss all of the options available. One of the easiest ways is to use any extra cash from a home equity to pay off the debt. When you sell the house, that debt can be repaid and then any remaining funds can be split between the two of you. However, if that isn’t an option then discuss how the debt will be split and transfer it to your individual cards. Once that’s done, close the joint account. It will be much easier and less of a hassle to resolve the issue yourselves. If the courts have to get involved, it could cause problems for you both later down the line.

Tip # 5: If you can’t resolve the debt peacefully, get a mediator.

This can often be a rather expensive option, and one more debt on the list of things to divide. However, if you find that you and the ex can’t be civil, this may be the only option.

Tip # 6: Keep an eye on your credit reports.

During a divorce it may be very beneficial to you keep up with what’s being reported about you to the credit bureaus. You’ll want to make sure no new accounts are being opened in your name, and that none of the old joint accounts have been reestablished and are now being used. I recommend getting a score watch program – I’m a fan of MyFico – and keeping that through the divorce proceedings and for as long as you feel is necessary thereafter.

Tip # 7: Make sure you change your address.

The ideal situation would be to sell the house and split the earnings; however, in many instances one spouse or the other will get to keep the house. In this case, if it’s you that is moving out make sure that you change your address with your creditors. Be sure to file an address change with the post office, but be proactive when it comes to your credit cards. You’re not likely to be told that mail is showing up at your old home, and you’re giving the ex access to a personal part of your new life. Save yourself a headache!

Tip # 8: Follow up and follow through!

If you work in the service industry, you understand the importance of this piece of advice. If you want customers to trust you and your product, you have to follow up and make sure that what you say will happen, happens. A divorce is no different in that sense. If you and your ex agree to a plan, then follow up and make sure it happens until the debt is paid off. If you just absolutely do not want to contact you ex, have your lawyer follow up with them. However, it’s your credit score on the line if the debt doesn’t get paid – even with a court order, it’s a pain to get the credit card companies to update information. It’s much easier to stick to the plan and get it over with.

And there you have it folks. 8 tips to help you get through your debt while suffering a divorce. No one is saying this will be easy – a divorce never is, even if the feelings for one another have dissipated. But, on this, you must be levelheaded and aware of your surroundings if you hope to have your credit come out intact. Starting over is hard enough, but doing so with bad credit is an uphill battle.

Popularity: 9% [?]

Going Beyond Just a Credit Card

Technology is an interesting thing. I’m all for it, but sometimes I wonder if we’re wasting our time with certain things instead of focusing on something that will actually do the world some good.

What am I talking about?

Korea has just released a credit card embedded with a 2-gigabyte flash memory chip that stores multimedia on it. Cardholders must currently slide the card into a terminal to view their stored media; however, Korea hopes to fine tune it enough to play directly on the credit card within two years. The terminal device houses the monitor, playback buttons, and a USB slot that allows users to charge the terminal and connect their credit card to a computer.

Those with this new credit card can also download certain public information by tapping the card against the card bank’s ATM. Apparently the card is PIN-protected so it is “safe” to store personal information like passwords and user ids.

The reports I read didn’t give much information on if there was a difference in how the credit card worked, but I’m guessing that part of it is still intact. The big deal is the chip that stores media on it. I don’t really get the point of this, though. I mean, I’ve never had the urge to whip out my credit card and watch a movie on it. Who comes up with this stuff?

What’s more, you have to pay for this little convenience. The card and terminal together will run you about $225…more than an iPod (some of them, anyway). I don’t know, I say leave social media out of credit cards. That seems like a very dangerous practice and we’re just opening ourselves up to more trouble than it’s worth to sit and listen to our credit card belt out tunes. Maybe I’m just a dinosaur that way. But, outside of that, it’s spending unnecessary money. We can already view our media from out computers, phones, iPods and MP3 players, and even our TVs. Credit cards don’t need to be added to the list.

Anyone else find this really weird? Would you buy one of these? I know some of the techies out there would enjoy it just because of the challenge the technology presents. But, looking at it from a regular consumer’s standpoint, what’s the point of this technology? Is it just because it’s “cool,” and if so, is that really the most responsible way to use our knowledge of technology?

Let’s discuss.

Popularity: 9% [?]

Check out this weeks Finance Fiesta!

Penelope over at Our Fourpence worth did a great job hosting this weeks Finance Fiesta, and one of Kristy’s posts - ‘Credit and Debit Card blocks at the Pump - was selected as an editors pick! Be sure to check it out here!

Popularity: 10% [?]

Managing Your Credit Cards While Moving

I absolutely HATE moving! I would rather have my wisdom teeth pulled without anesthesia while lying on a bed of nails. I really hate it that much. It’s stressful, I hate packing, and I especially hate unpacking. I’m terrible about it, too. I’ll be living in a place six months or more before I finally get all of the boxes unpacked. As a matter of fact, I moved into my new place in October and I still have boxes that I need to go through…eight months later.

But aside from the aggravation of the move itself, I worry over finances and it seems that I’m in good company. A recent study by Forrester Research found that moving was also a time where people relied on their credit more. It’s expensive to move. Deposits, movers - or beer and pizza for friends which is just as expensive and takes three times as long! - new things for the new place. Everything comes at once and sometimes it’s very overwhelming. The study also suggested that during a move, people tended to forget things like credit card payments, which can drop your score and cause any new credit to be at higher rates.

Moving your financial life from one household to another should be given the same amount of time and attention as anything else, and I would argue it deserves quite a bit more. Here are some suggestions on how you can make the move easier.

• Be proactive. Several weeks prior to your move, make a master list of phone numbers and account numbers to have on hand should anything be lost in the shuffle. Also call your credit card companies and change the address as opposed to just filing the change of address with the post office. This will help ensure that you get your mail promptly.

• Automatic payments. Because you’re likely to forget payments when moving, the best way to avoid any issues with your credit is to set up automatic payments for at least the minimum payments. You can always go back later when things have settled down to pay off the rest; however, setting up auto payments alleviates one less thing for you to worry about while you’re moving.

• To pack or not to pack. What I’ve always done is kept my financial life in an accordion file and I carry it with me when I move. However, if you pack your financial information, just make sure you don’t write “Financial Records” on the box. I don’t recommend spreading your financial records out amongst several boxes, either. It’s an easy way to loose something that you need…and have you ever noticed how hard it is to find stuff in a box? Or is that just me? But, I have a friend that spreads his records between boxes and he’s constantly losing stuff. I bought him an accordion file for his birthday.

• Cancel or add credit cards with caution. Many times places like Home Depot, Lowes, and other retailers offer special discounts for those movers who open a new line of credit with them. Just be careful. If you take out too much credit all at once, then it could hurt your credit. Similarly, if you close out too much credit - particularly your longest standing accounts - you can hurt your credit.

• Don’t be tempted! When we move this sense of newness takes over us and for some that can be very dangerous. If you’re starting over after some major life change, then it may be reasonable that you’re buying new furniture and televisions - although I’d argue you’re old ones are probably just fine. However, just because you’ve moved doesn’t necessarily mean that you have to go shopping for new things right away. This is especially true for first-time homebuyers. A friend of mine had this problem where they bought all new furniture, appliances, and furnishings at one time. Now they’re trying to get out of debt. If new things must be bought, prioritize and buy the things you need (or want) one at a time, if possible.

While moving can be stressful, managing your finances and credit cards while you move doesn’t have to be.

Does anyone else tend to worry about their financial information and credit cards when they move? What kinds of things have you done to protect your information in a move?

Popularity: 11% [?]

MasterCard’s New “inControl”

Technically this isn’t all that new, it’s been out since April. But, I hadn’t heard of it before because it’s only available for businesses to use.

I’ll start by giving you a run down on the card and then we’ll talk how that could, and should, be applied to consumers.

Here’s how it goes:

Two backstage passes to a concert with a meet & greet afterwards: $2400. An upscale, 5-course meal with the client: $600. An email from your boss at 8:15 am the next day asking what company business took you to a strip club at 2 am: priceless.

And so it goes with employees who have free rein to ‘wine and dine’ their clients. Sometimes it’s pretty pricey to build that relationship, but sometimes bosses have to wonder how much the employee is taking advantage of the privilege. By the way, I can tell you with first hand experience that - as stereotypical as this may sound - men do take their male clients to strip clubs for a night cap. I’ve had to attend one awful meeting myself and will never do it again. Not once did we get the opportunity to discuss actual business.

Anyway, with MasterCard’s new “inControl” card, bosses can set predetermined limits on the card, block out certain places - like the strip club - have the card declined after a certain hour, and even be sent real-time text messages and emails when the card is being used.

The technology is amazing and there’s a lot of potential with it. On the business side, I can see micromanagers having a field day with this and it could leave room to ruin the employee’s image with high dollar clients that expect a higher limit than $300. But, I have to wonder what kind of business deal would you have with someone that had to be ‘wined and dined’ for $3000, just to hear your pitch? Seems to me that’s money wasted and could have been better invested elsewhere.

MasterCard has established that such a card is possible with those types of capabilities, which has been an argument for years that the technology wasn’t possible and that it would cost too much. Still, they’ve made progress and though the cost for MasterCard to run this program hasn’t been disclosed, being that they rolled it out to the business class first may mean that it’s not as expensive as we were lead to believe. So, in light of the credit crisis how come this hasn’t been rolled out to consumers? I think this is definitely a product we can benefit from, don’t you?

Think about it. If we know we’re fairly susceptible to certain places and we tend to go crazy at those places, we can blacklist it on our card, or simply set a strict limit that we can spend there. Now, the argument comes up that someone could just use another card. Well sure, they could, but if they have to pull out another card, the hope is that they will really consider the purchase.

What I really like about this idea is the fact that you can set limits. If you don’t want that card with the $5000 limit because it’s tempting, then lower it to $500 or whatever number you think is reasonable, but not pushing it. Technically, you can limit yourself on your cards now, but it comes with a price - either by the company or your credit score because companies just jack up your limit without your permission; and lowering it again messes with your ratios - hopefully this won’t be much of an issue when FICO 2008 rolls out. With the “inCharge” card, the limit is set before the card is issued and cannot be raised without written approval.

I think the way that it would work is that you’d be given a specific limit that you can go up to, like $5000, and then you can set a predetermined limit within that amount. If you want to change it in the future, you can go up or down within that amount without impacting your score. Anything over the $5000 and you’d be subject to credit approval and so forth. There hasn’t been a lot of information released on that, so I’m just speculating, but that makes sense - at least, in my mind.

I think this type of card would be a great starter card for preteens and teens. Parents could get the card and set a very small limit, maybe $200 or less. They could have the card declined at places like the mall or other frivolous stores as they deem necessary. It can be used to get gas, car maintenance, school books, that sort of thing. Anything outside of those items would then be declined per the parameters. The same holds true for adults that need to relearn how to manage a credit card. With limits and restrictions in place, they can learn to curb their spending habits and reduce their financial risk by avoiding the overspending trap.

What are your thoughts on this? Do you see this card causing more harm than good, or do you think like me and see it as a benefit?

Popularity: 11% [?]

How to Get Perfect Credit

I know there are some of you out there who would like to have a perfect credit score. According to the Fair Isaac Corp’s scale, the number that defines perfection is 850. Only about 1% of the population has achieved such perfection and I’m going to teach you how to be among them. Just so you don’t think I’m blowing smoke up your…ok, you get the idea there, I am well on my way to this perfect score, I just don’t have the longevity needed yet. The point is, I know what I’m talking about here.

If you looked into the credit files of the 1% carrying an 850 credit score, you’d see a lot of similarities in their files. Following is a list of the most common traits these guys share and you can use it to gage where you are.

• Between 4-6 revolving accounts (this means credit cards)
• At least one installment loan (i.e. mortgage, auto loan, etc)
• A few accounts with 20 year positive payment history (note: in order to reach the 800s you have to have at least 10 years of positive history…this is where I run into my problem as I’ve only been in the file for 9 years, but only 7 have been good)
• Around 30 years of credit use (also a problem for me)
• No late payments or other mistakes for the last seven years
• No more than 1-3 credit inquiries within a six month period
• No collections, bankruptcies, or other derogatory behaviors
• Debt levels less than 35% of credit limit

Ok, so now that you’ve seen what it takes to get to perfection, let’s look at how you get there if you’ve been less than stellar so far.

1.) Check your credit

This seems obvious enough, but many people don’t bother. I know we’ve talked about it a lot here, in great detail as a matter of fact, but when you’re trying to improve your credit score, it’s imperative to check it! You get one free report from each of the bureaus every year. I always recommend pulling one every four months, this way you have a running idea of what’s going on. You’re certainly welcome to pull all three at once, but one at a time spreads it out for better monitoring.

When I started looking for ways to improve my score, I purchased the MyFico and that was definitely worth it to me. I only did one credit bureau, so mine was less than $10 a month, but it notified me each time more score changed and I found those little emails rather motivational.

2.) Check for errors

Very often there are errors reported on your credit file. I had a collection showing on my report that wasn’t mine. I lived in a roommate situation for about 7 months and the time came for us to go our separate ways. The apartment complex we lived in allowed one roommate to be signed off of the lease and no longer responsible for the rent - it was in the contract and everything. So, we signed me off the lease and I moved on. About 6 months later I start receiving harassing phone calls and letters for money due to this apartment complex. As it turns out, the roommate bailed on the apartment complex and my information was the only information they had.

Needless to say, I wasn’t happy that the apartment complex reported me to begin with. I should have taken them to court at the beginning of this fiasco because while I got the balance taken care of immediately, it was still showing as a collection on my credit report. Even though I sent the documents showing that I wasn’t responsible - including a copy of my lease with all pertinent info high-lighted - the collection agency refused to take it off my credit report. It is still on there and now the apartment complex has been through so many management changes that they refuse to even get involved. They say it’s a matter between me and the collection agency. Naturally I’ve tried speaking to them and I’ve gotten no where. The whole ordeal has literally made me sick, so I’ve stopped fighting it. I’ve written a letter of attachment to the credit bureaus that included the documentation showing I was not at fault and left it at that. The collection is due to fall off my credit report this year and I haven’t been turned down for any credit I’ve applied for.

The lesson learned was that I’ll never live with another roommate again, and I’m much more cautious when it comes to my credit report. Take a look at yours and see if there are any mistakes. Getting those cleaned up right away can help improve a credit score quite a bit.

3.) Straighten-up your credit act

Many of us have those self-inflicted credit wounds - the late pays, the no pays, and just general bad behavior when it comes to credit. All of these things need to be corrected now if you want to get to 850. Make your payments on time every month. Follow the “get-out-of-debt” plan that works for you - you all know my take on that, so we won’t cover it here. But, the amount of debt you have is impacting your score as well, so work on getting that brought down to improve your rating. Since your most recent behavior carries more weight than past behaviors, you can make a difference in a short amount of time.

4.) Don’t spend more than you have

Remember that credit cards aren’t cash and they should be used only in emergencies or if you’re certain you can pay the balance off at the end of the month.

5.) Watch your debt-to-income ratio

In lending, the debt-to-income ratio is a tool to measure how much money you have going out every month versus how much is coming in (after taxes). This indicator helps lenders decide if it’s in their best interest to loan you more money. In most cases, the ideal ratio is 25-30%; however, many will consider lending all the way up to 50% depending on the relationship they have with you.

That’s way too much. You should try to keep it under 25% if at all possible. Sometimes that’s easier said than done, but it certainly doesn’t need to be up in the 50% range. If half of your income is going to debt then you’ve got a debt problem and you don’t need to add more to it. The exception to that is consolidation, but you have to make sure you’re not going to put yourself in the same position or worse once you’ve paid off all those credit cards.

As you can see, it’s not necessary to go to extraordinary lengths to improve your credit scores, and certainly nothing fancy involved in achieving perfection. Pay your bills on time, watch your spending, don’t apply for a bunch of credit you don’t need, and watch the inquires. Don’t expect miracles overnight, just keep doing the right things and you’ll see the improvement before too long. I will add one more thing to this already long post. Don’t beat yourself up if you don’t get to 850. Lenders are going to give you anything you want once you reach 730, the rest is just bragging rights.

What do you think? Can you reach 850, or do you have some work to do? Do you even care if you reach 850?

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