President Obama Announces Sweeping Regulatory Reform
June 19, 2009
By Mike Wayman
In an effort to protect American Consumers from future financial collapse, the President has recently announced regulatory reform that seeks to protect consumers from the abuses experienced in the last ten years. Most of the reform centers on the mortgage industry.
The reform includes the creation of an independent agency to regulate consumer credit of all forms designed to protect the consumer from the abuse of lenders of all types. All banks and non-banking institutions that offer credit will fall under the regulatory power of the new agency.
While consumer groups, in general, are very pleased with the new announcement, lobbyists from the banking and financial services sectors are up in arms. While it’s understandable that bankers and lenders would be upset by further regulation, consumer groups argue that the abuses of the last ten years call for more consumer protection.
In my mind the real question is whether or not expanding government to protect individuals from corporations will actually make a meaningful difference. When it comes to sweeping regulatory change, many people will make off the cuff remarks about their thoughts, feelings and opinions regarding the expansion of government. Personally, I have a more “wait and see” attitude. Let’s see what this new government agency is able to do first and then pass judgment later.
Credit Repair Strategies to Avoid Like the Plague
June 18, 2009
By Mike Wayman
There are vast numbers of credit repair plots and schemes proffered on the Internet. Some are designed to merely take your money. Others, however, while also designed to take your money, can get you in to serious legal trouble. Let me introduce you to the “Personal Credit Number” sometimes known as a CPN or PCN. This strategy requires you to get a new Employee Identification Number from the Internal Revenue Service and the “credit repair” company tells you they will create a new credit profile for you utilizing this new number.
This “new” credit profile is supposed to be a fresh start. In reality, using this new credit profile is considered a misrepresentation of your true identity and is nothing less than fraudulent if you apply for credit using this number. If you default on credit utilizing this fraudulent identity be advised that the credit issuer may very well come after you for fraud and they will be well within their rights.
This scam isn’t new and it has been used to defraud creditors for years. Some of these scams are simple while others far more ornate and calculated. For instance, some companies actually sell credit profiles with active CPN numbers and tell their clients they will never have to pay their debts back. These companies may promise signature lines of credit and credit cards as part of the package in their service agreements.
If anyone tells you they will create a brand new credit profile for you utilizing a different social security number or a CPN stay far, far away from the company. You can find yourself in a heap of trouble.
Credit repair isn’t easy and some people make it seem as though they can perform miracles. A CPN and a new profile may not be a miraculous achievement as many people have acquired these “new credit profiles” but it certainly is something to stay away from.
How to Reestablish Your Credit Properly
June 17, 2009
By Mike Wayman
There are numerous ways of reestablishing your credit after a bankruptcy or if you have impacted your score severely. Each strategy has certain benefits and downsides. This post is intended to provide my readers with a scoop on some of the better strategies and some to avoid.
Department store credit cards may be some of the easiest to qualify for. If you need to reestablish your credit and you don’t want to tempt yourself with a card that has a huge maximum then a department store card may be the best way to go. The typical department store card for those with tarnished credit may only have a $250.00 to $500.00 limit. Beware of the interest rates however! Some of the department store credit issuers can have high rates if you have less than perfect credit. The upside to having a low limit on a card that has a higher interest rate is that you can affordably pay off the balance in full each month if you need to. Paying off the balance in full each month is a healthy habit to acquire and it will help you avoid making massive interest payments.
One of the best ways to reestablish credit is through a “secured” credit card. These are credit cards whose limit is secured by a deposit. Many banks and credit unions offer these cards and require a savings account to be opened and the consumer must deposit an amount in to the account equal to the limit on the secured credit card. Often, these cards are linked to the account for auto payment. This is a great way to insure that the payments are made on time. However, the auto payment may only cover the minimum monthly payment. You’ll want to avoid interest charges on these cards so pay them off in full each month if you can.
These are two of the least negative ways of building credit. You should avoid the blanket solicitations that come in the mail or, if you are really interested in getting a card from a blanket solicitation read all of the fine print. Some of these cards charge enormous interest rates.
The Importance of Good Credit in the New Economy
June 16, 2009
By Mike Wayman
Our economy has pushed millions of American consumers over the financial edge. Many have lost their homes, and, likewise, their credit has suffered tremendously. This can lead to a spiral of economic problems as many consumers use credit to bail themselves out of short term cash flow problems.
Imagine the following: one of the breadwinners in the household or the only breadwinner loses their job due to corporate downsizing. Credit card payments and other credit related payments fall behind first, as is common, due to the fact that most people prioritize making their mortgage payments before anything else.
Luckily, the job loss was only temporary. This breadwinner was able to acquire a new job quickly, albeit, at a lesser rate of pay. Money is tight for the family but the family credit score has been completely damaged. Now, due to multiple past due account balances, the score of both individuals in the household is hovering just above 500.
The problem in the new economy is that underwriting guidelines for all forms of credit are now much more selective. Should the family described above encounter any financial difficulties in the near future, it will be nearly impossible to borrow money to help in the short term for a number of reasons. First, many credit card companies will reduce the remaining balances on existing credit cards down to what is owed if the borrower fails to pay on time. These clauses are in most credit card contracts. Second, acquiring new credit will be nearly impossible, that is, unless you are willing to pay rates that are sky high. These are burdens that most would like to avoid but nevertheless, these burdens are commonplace.
Credit repair can help some people but not everyone. Credit repair does not really help borrowers that habitually fail to pay their debts on time, whether they have money or not. However, if your hardship is temporary in nature, credit repair can be an effective way to restore your credit to the point that you won’t be saddled with a terrible score.
New Credit Card Law Bans Deceptive Allocation Practices
June 16, 2009
By Mike Wayman
The recession has American Citizens in an uproar and for good reason. As people throughout the country lose their homes to foreclosure and the unemployment rate continues to increase, watchdogs and legislators are on the lookout for companies, especially credit companies, who typically earn money from the misery of others.
When families fall behind in payments, often times, they engage in balance transfers on credit cards to avoid paying high interest payments or they simply acquire more credit cards to compensate for a lack of household income.
In the past, these strategies may have worked, however, sometimes at a very high cost. This is because credit card companies have had the power to “allocate” the payments made to the credit card company as it feels it should. What this means is that the credit cards you typically use have at least three different rates for the types of transactions we engage in: typical purchases, balance transfers and cash advances.
Allocation refers to the practice of the credit card issuer dividing your payments between these three types of “bills within bills” in your monthly statement. So, as an example, if the rate on a cash advance is 25%, purchases 9.9% and balance transfers 2.5% and you pay $100.00 as a payment, the credit card issuer controls how much of the payment goes to pay down the balance of each type of transaction. Guess what? They don’t allocate the payments in your best interest!
This new law bans the credit card companies from allocating the least amount of money going to the highest rate balance on the card. This is the most profitable form of keeping you in debt within the credit card industry.
If you find yourself in a situation where you need cash advances and balance transfers please read the credit card’s agreement that you signed to determine what the rates are. Call your issuer to ask if they are in full compliance with the new law enacted in May of 2009 that bans them from misappropriating your payments away from the highest interest rate due and by all means…avoid the cash advances if you can. These are the most expensive types of transactions you can make on a credit card.
From CreditCards.com:
Here’s an example of how the new law will work:
Say you have a $3,000 balance on your credit card and a $39 minimum payment. That balance includes $1,000 in purchases at a 12 percent interest rate, $1,000 in balance transfers at a 0 percent interest promotion rate and a $1,000 cash advance balance at an 18 percent rate.
If you make a $500 payment, the first $39 will most likely go toward the zero percent interest balance transfer, leaving that balance at $961.
The remaining $461 will go toward the $1,000 cash advance balance, leaving that balance at $539.
None of the payment will be applied to the purchase balance.
