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% [?]

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% [?]

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?

Popularity: 15% [?]

The Business Credit Score

Just as creditors will look at a personal credit score before making a decision to lend to an individual, business lenders look at a business credit score before determining whether or not to lend to the business. While there are certain similarities between the two systems, they work a little differently.

There have been a number of business credit reporting agencies that have cropped up over the years, but the primary one - and probably the only one I’d concern myself with - is Paydex from Dunn & Bradstreet. The main difference between business credit scores and personal credit scores is that while the consumer side takes many factors into consideration, Paydex only considers two things: whether a business makes their payments on time and whether they satisfy the creditor’s payment terms.

A Paydex score ranges between 0 and 100 with 80+ being in the top tier. A score of 70 means you were 15 days late on your bills and a score of 50 means your were 30 days late. Jut like the consumer side, as you pay your bills on time and practice good credit habits, your score will increase. If you’re trying to establish credit, there are a couple of ways to go about doing this.

1.) You can enroll in the CreditBuilder or Scorebuilder programs offered through D&B

The drawback to this is that these programs can cost several hundred dollars. But, they are a quick way to establish a credit rating.

2.) Apply for a D-U-N-S number

This is a nine-digit identification number that you can use to establish a small line of credit with a company that reports to D&B. Note: if a company doesn’t report to D&B, then don’t waste your time applying there if you’re trying to establish a Paydex score.

It’s not required that you build credit through D&B, of course, though this is the most respected. And it’s not required that you build credit for the business at all. If you’re more comfortable, you can always continue applying for credit under your personal info. However, there are drawbacks to that such as the tax benefits that you’re missing out on.

Like consumer credit, business lenders want to see continuous activity. Once you’ve established your Paydex score, you have to keep using it. Too often business owners make the mistake of stopping and that can cause the score to drop. Even if you’re only using small lines of credit from some of your vendors - like an office supply chain - at least there is some activity to keep your business credit positive. A further note of caution is to continue to be diligent with your personal scores as well. In most cases, a lender will pull your personal credit along with your business credit to get a complete picture of the company’s strength. A poor personal performance can cause problems for the business.

And that’s really all there is to it. Many people think the best way to build credit for the business account is to get a business credit card, but the problem with that is that business credit card applications generally require the owner to pledge their personal property as collateral. Going the Paydex route means that your personal property stays personal and as long as you maintain a balance with your personal score and your business score, you’ll be able to deal quite easily with business lenders.

Anyone with a business deal with Paydex for their scores? If not, who do you use and why?

Popularity: 11% [?]

The bad credit repair guide

So you’ve had some rough times in the past with your credit?  Don’t feel too bad, many of us have.  Whether it be an unexpected job loss, healthcare costs or unexpected expenses many of us find ourselves up against the wall at some point during our lives.

Unfortunately, one mistake – no matter how small – can damage your credit report for up to ten years.   Many of us don’t even realize this until we go to take out a loan and find out that we don’t qualify because of our credit score.

So what can you do to help repair your credit?  There is no magic fix – and it won’t happen overnight – but if you are willing to work on it there are things you can do that will begin to improve your credit the very first month you start.  In 6 – 12 months time you can really notice a difference by following a few simple steps.

#1 – Pay your bills on time, every month.  Make up a budget, write out a calendar, sacrifice that morning coffee – whatever it takes, just make sure those payments make it to the creditors by the due date.  Consider using online bill pay that many of them offer – it’s usually free and a lot faster than the post office!

#2 – Pay down your debt.  If you have a lot of debt consider taking on a second job for a while to pay some of it down.  Your debt ratio is one of the major factors in your credit score.  You should always aim for between 10-20% maximum utilization of your lines of credit; anything above this and it will hurt your score.

#3 – If you have accounts in collection, work with the collectors – but always get it in writing.  Many collection agencies will remove the negative information from your report in exchange for pull or partial payment.  Don’t be afraid to ask – they bought the debt for pennies on the dollar and so they have plenty of incentive to work with you.

#4 – Obtain your free, annual credit report and look for errors and fix them.  Almost everyone has at least one error on their report.  The credit reporting industry is notorious for having data that isn’t correct.  You are entitled to a free credit report from all three bureaus once a year — use them to dispute information you think isn’t accurate.

#5 – If you can’t afford your monthly payments, work with a non-profit agency to help devise a debt plan that fits your income level.  Never consider bankruptcy except as a last resort – bankruptcy will kill your credit score for a period of ten years.

The process is not going to be easy – but you can do it if you set your mind to it.  Setup a family budget and stick to it; keep track of where your money goes; and most of all get control of your debt.  One year from now you could see your credit score increase by 200 or more points — not to mention your peace of mind increase many times over!

You can do it!  Start today!

Popularity: 8% [?]

15 ways to improve your Credit score (Part 2)

Don’t apply for a lot of new credit at once – Making lots of credit applications in a short period of time will severely dent your rating. Every time you apply for credit, the potential creditor will make an official ‘inquiry’ to check your credit history, and about your 10% of your Fico score is based on how many inquiries are made on your file. (Note that this doesn’t include inquiries you make yourself.)

Don’t apply for credit you have no chance of getting - Unfortunately, the expression ‘it never hurts to try’ doesn’t hold water when it comes to obtaining credit. Creditors tend to think alike, and when they see one (or more!) of their competitors has turned you down, it makes them think twice about approving your application. The best way to ensure you don’t get rejected is simply to call the issuer and ask them if you meet the eligibility requirements.

Credit begets Credit - While it’s vital that you never miss payments on your existing credit accounts, the fastest way of increasing your credit score is successfully applying for new credit and demonstrating you can use it responsibly. Even if you can only get secured credit cards, it’s well worth the trouble.

Beware of credit repair scams – As well as wasting your money, so called ‘credit repair’ agencies can often end up damaging your credit rating even further, or even get you into some legal trouble! Check out the Federal Trade Commission’s page on Credit Repair scams for more info here. 

Spread the love - I’ve already mentioned that your credit utilization is one of the key factors in determining your credit score. A high utilization makes potential creditors nervous and harms your score. By rearranging your debt, you can reduce the percentage of credit you have utilized on any single account, and thus improve your credit score without actually repaying any debt.

For example, let’s assume you have 2 credit cards - a Bluecard and a Redcard, both with credit limits of $1000. You currently owe $900 on your Bluecard and $100 on your Redcard, putting you at 90% and 10% credit utilization respectively. By transferring $400 from your Bluecard to your Redcard, you now owe $500 on both and are utilizing 50% of the credit on each card. Even though your TOTAL credit utilization never changes, you have brought down the utilization on your Bluecard down from a ‘danger level’ of 90%, making you seem like less of a risk to potential lenders.   

Stay tuned for part 3!

Popularity: 6% [?]

15 ways to improve your Credit score (Part 1)

Pay your bills on time – This is the single most important factor in determining your credit rating. Roughly 35% of your Fico score will be determined by your payment history, so any late payments, collections, charge-offs, bankruptcies or liens will bruise your rating pretty significantly. The good news is that the further back in time you go, the less of an impact on your score.

Pay down your debts – It sounds obvious because it is. If you were lending money to someone, the first thing you would look at is how much debt they’re currently carrying. 30% of your Fico score is determined by your utilization. Divide your total balance by your total credit limit and you’ll have your utilization.

Don’t close old accounts – Assuming that keeping an account open isn’t costing you anything (beyond a modest annual fee), leave it be. Why? Closing down an account lowers your total credit limit, and makes it seem like your total credit utilization is higher. Pulling the plug on your more elderly accounts can also shorten your reported credit history, making you seem like more of a risk to potential lenders.

Get rid of questionable accounts – Having said that, some accounts are better off dead. Many retail or gas cards can make you seem like more of a credit risk, particularly if they’re from no-name, relatively obscure companies. As a general rule, if you’re too embarrassed to admit you have it, scrap it.

Get copies of your credit report – By law, you’re entitled to one free credit report every 12 months from each of the big 3 agencies – Experian, Transunion and Equifax – from AnnualCreditReport.com. You might even want to consider paying for a service that allows you to check your score on a more regular basis. Personally, I recommend one of the myFico plans – make sure you check out this thread for the latest discount codes!

Dispute any and all items you think are inaccurate – Mistakes happen, so it really is worth going over your credit reports with a fine toothed comb. You’re looking for errors that could be negatively impacting your score, like accounts that aren’t yours, late payments that were actually paid on time, debts that shouldn’t be showing up anymore (negative entries should be deleted after 7 years, though bankruptcies can stick around for up to a decade) and debts that you’ve paid off but are still showing as outstanding.

The quickest method for filing a dispute is online - here are links to the Big 3’s dispute forms:

• Experian
• Transunion
• Equifax

Note that it does NOT impact your credit score when you make a dispute.

The remaining 9 tips will be up for your perusal tomorrow!

Popularity: 6% [?]

Why FreeCreditReport.com Is a Scam

In 2004, the U.S. Congress ordered the three major credit bureaus – Experian, Equifax, and TransUnion – to craft a website to allow consumers to order their credit reports online for free, once per year.

Not long after, Experian realized the legislation presented a clever, untapped marketing opportunity. They launched FreeCreditReport.com with the (obvious) hope that unsuspecting consumers wouldn’t know the difference between their not-so-free site and Congress’ mandated, free alternative.

Consumers have since been inundated on television, in print and, of course, online with ads for the FreeCreditReport.com website. That sing-song jingle (“Freeeeee Credit Report … dot.com!”) alone should be a crime, but that’s another topic for another day.

Blame it on their need for a catchy website name, but Experian clearly hid the fact that their “free” credit reports were only offered with consumer enrollment in the agency’s paid Triple Advantage program. In fairness, “Twelve ninety-five per month credit report … dot.com!” just doesn’t have quite the same ring.

Evidently, the agency’s marketing and business tactics were a little overzealous and more than a little shady - enough so that state and federal governments took notice. In late 2006, Florida’s state attorney general’s office launched an investigation into Experian’s business practices, citing a “failure to adequately disclose negative option enrollment … deceptive advertising, misleading domain name, and failure to honor cancellations.”

A previous 2005 investigation had the Federal Trade Commission charging that Experian “misled consumers about their association with the annual free credit report program”. The agency flatly denied the claim, but agreed to settle and refund $1 million in “ill-gotten gains” to consumers anyway.

Fast-forward three years and clearly little has changed. As of February, 2008, Googling the search term “FreeCreditReport.com scam” reveals a disheartening 35,000 results. These results include a staggering number of blogs and forums wherein consumers offer comments with variations on a common theme:

FCR is a shady and dishonest venture from Experian. I found that I was billed for a year of their service after giving my information for a one-time “free” check. When I disputed the charge, I thought that I had just been careless in enrolling. What a SHAM! – Erik, NJ (MSNBC’s Red Tape Chronicles blog)

As a victim of Experian’s ploy, I too count myself among the unsuspecting. My “unsubscribing” to their Triple Advantage plan required countless phone calls, e-mails, filling out online forms - everything short of a Papal intervention.

Bottom line: the safest way to request your free annual credit report is through AnnualCreditReport.com. Period.

Popularity: 6% [?]