Are old charge-offs still giving you the blues? (Photo Credit: CC BY/Caitlin Doe/Flickr)

Maintaining good credit can be challenging, particularly after a life-altering event like job loss. Understand that if a creditor throws in the towel and charges off one of your debts, that doesn’t mean that you’re in the clear. It’s quite possible that you will still be liable for that bad debt – even after it disappears from your credit report.

Charge-offs: The light side

Imagine this scenario involving a charge-off on your credit report. While the credit item may say it’s going to drop off your credit report at a certain time, that debt may still have legs because the rules for collecting a debt and the rules for reporting a debt aren’t the same, reports Bankrate. The Fair Debt Collection Practices Act (FDCPA) provides the guidelines for debt collection, while the Fair Credit Reporting Act (FCRA) holds jurisdiction over how a charge-off is reported.

On the plus side, the FCRA mandates that a charge-off must be removed from your credit report after 7 years. That includes whatever debt collection agency owned the debt. Check your credit report about a month after the charge-off is supposed to occur. If the bad debt is still there, dispute it with the three credit reporting agencies: Equifax, Experian and TransUnion.

Student loans, tax liens and Chapter 7 bankruptcies cannot be charged off.

Charge-offs: The dark side

Thanks to the FCRA, bad debt will disappear from your credit report. Unfortunately, the FDCPA makes it possible for debt collectors to pursue your debt almost in perpetuity. As there is a lucrative secondary market that purchases bad debt, there is still cause for concern on the part of the consumer who needs debt repair. Each collection agency will likely try to collect at least once before selling your charge-off.

Can a consumer escape from that bad credit card debt amassed during a span of unemployment? Because there is typically a statute of limitations, the answer is yes. The amount of time in which a debt is subject to collection via the court system varies by state, although it is usually 4 to 6 years for credit cards and 6 to 10 years for installment loans, payday loans or auto loans. Contact your state’s attorney general for more specific information.

Know your debt collection rights

If a charged off debt is past your state’s statute of limitations for collection, it cannot be legally pursued and you can ask not to be contacted against regarding that debt. If a debt collector continues to chase, you may have the option to levy a counter-suit.

Legal action will require time, money and the advice of a lawyer, however. The best way to get out from under a debt collector that is pursuing your debt in a legal fashion is to either pay what you owe in full or come to a settlement.

Sources

Bankrate.com
Equifax dispute form
Experian dispute form
TransUnion dispute form

How to deal with collections

A bad credit score or unfixed credit score errors can rob a person of thousands of dollars over a lifetime. Image: CC everydayminimalist.com

Consumers who don’t know their credit score or don’t think a credit score is important are robbing themselves. A credit score factors into everything from getting a job to getting a good deal on a house or a car. The simple process of checking a credit report can lead to action that results in thousands of dollars in savings over time.

A bad credit score costs money

Just about everyone a person does business with, from landlords to mortgage brokers to wireless carriers, uses credit report information to decide how much credit will be extended and how low, or how high, the interest rate will be. The difference between a good credit score and a bad one can add up to $5,000 in interest payments on a $20,000 auto loan. Maxing out credit cards or not paying bills on time could add 25 percent to the cost of that vehicle. The time and effort it takes to optimize a credit score can save an individual hundreds of thousands of dollars over a lifetime.

Correct credit report errors

For most responsible people, ensuring accuracy is the key to a good credit score and credit reports should be checked frequently. Credit scores are available online through FICO and the three credit-reporting agencies: Experian, Equifax and TransUnion. The government site annualcreditreport.com offers one free credit report per year, but it does not include the credit score. The different credit reporting agencies interpret information in different ways, so the best approach is to check all three resources. Information on credit reports can often be erroneous. Federal law requires that credit reporting agencies must correct inaccuracies free of charge. However, the agencies are known for making the process of correcting credit report errors difficult. Sometimes the money spent hiring a law firm that specializes in correcting erroneous credit report information is worth the time saved.

A good credit score saves money

One of the best examples of how a bad credit score costs money is current mortgage interest rates. Mortgage interest rates are lower than they have been for decades, but not for everybody. Borrowers with weak credit scores will pay several percentage points more on a fixed rate loan. According to FICO, a borrower with an excellent credit score might get a 5.9 percent interest rate on a $200,000 30-year fixed rate mortgage and pay $259,074 in interest over the life of the loan. A borrower with a bad credit score, if he or she can get a loan, may qualify for an 8.5 percent interest rate and end up paying $355,200 in interest. The bad credit score will have cost more than $127,000.

Sources

MarketWatch

FinanceTalks

BankRate.com

Ignore debt relief ads and consider getting rid of credit card debt by taking out a personal loan with a much lower interest rate. Image: CC TheTruthAbout/Flickr

If you need credit card debt relief, pay no attention to the ads on the Internet or late-night TV. The best way to get rid of credit card debt is to do it yourself, perhaps with a personal loan. Take independent action to boost your credit score faster so you can save money on future borrowing with lower interest rates.

Why credit card debt is so expensive

To find a more manageable way to pay off credit card debt, consider a personal loan. Compared to a credit card, a personal loan can have a much lower interest rate, depending on your credit score. Interest on credit card debt overwhelms so many people because not only are the rates very high, the interest is compounded daily. Some credit cards sock consumers with interest rates as high as 29 percent. Imagine having $10,000 in credit card debt at 29 percent interest. If you paid the minimum monthly payment of $250 every month it would take 143 months to pay off — that’s 12 years.

Why personal loans are so interesting

Using a personal loan for credit card debt relief can save a lot of money with a lower interest rate. Shop around for the best rate possible. Some banks and credit unions have personal loans at between 5 and 8 percent. Call at least three financial institutions. Be honest, and don’t be afraid to explain your situation. If you can manage to find a lender who will give you a personal loan at 6 percent, that $10,000 could be paid off in 45 months (less than four years) with the same monthly payment.

How good credit saves money

By getting rid of credit card debt and faithfully paying down the personal loan, a better credit score will bring many future benefits. For example, a person with good credit can get an auto loan right now for about 6 percent interest. A person with bad credit will pay about 13 percent. That amounts to thousands of dollars over the life of the loan. For a mortgage loan on a $300,000 home, a good credit score will save hundreds of dollars a month in interest and could add up to $100,000 when it’s all over.

Sources

CreditLoan.com

WTOL.com

GM has announced that the Chevy Volt battery warranty extends for 8 years or 100,000 miles in a bid to inspire confidence among potential buyers. Picasa web photo.

The Chevy Volt lithium-ion battery has emerged as the most worrisome part of the electric car General Motors is staking its future on. To inspire confidence among potential buyers of a limited number of Chevy Volts, GM announced Wednesday that the Volt’s lithium-ion battery will be guaranteed for eight years or 100,000 miles, whichever comes first.

Chevy Volt battery different from other electric cars

The Chevy Volt battery warranty is better than warranties on GM’s conventional car engines and transmissions, which run for five years or 100,000 miles. CNN reports that popular hybrid car models currently winning bank loans on the market, including the Toyota Prius and the Ford Escape Hybrid, have similar warranties on their battery packs. But the Volt’s lithium-ion battery uses a chemistry different from Ford and Toyota. And concerns are that the Volt battery will have to work harder, since the car is powered solely by the battery for up to 40 miles before the gas motor kicks in.

GM says Volt battery will last for many years

A GM spokesman told CNN that the Chevy Volt lithium-ion battery warranty will be transferable to a new auto loan when the original buyer wants to sell the electric car. GM hopes the longer warranty will help convince electric car skeptics that the Volt’s lithium-ion battery will last for many years. The Associated Press reports that the Volt’s battery is similar to the chemical composition of cell phone and computer batteries, which often wear out and are expensive to replace. The Volt battery weighs 400 pounds and will likely cost thousands of dollars to replace.

GM confident in Volt battery technology

The Volt battery can charge in 8-10 hours on 120-volt power or about four hours through a 240-volt hookup. Auto Week reports that the GM warranty will cover the lithium-ion battery’s 161 components. The warranty also includes the battery’s thermal management system, charging system and electric-drive components. GM is offering a longer warranty because of confidence in the Volt’s liquid heating and cooling system, which GM says extends the battery’s life by keeping it at optimal temperatures. The Volt is the only such mass-market vehicle with a liquid-powered thermal management system. The Nissan Leaf electric car, available in December, has an air-cooled battery.

Get in line for your Chevy Volt

If the Chevy Volt lithium-ion battery warranty has convinced you to borrow money to own one, you need to get lucky. Another CNN article about the Volt said GM plans to build only 10,000 Volts in 2011. In 2012, GM plans to increase production to 30,000 Volts but that isn’t expected to meet demand. GM is also limiting where the car will be sold. The Volt will initially only be sold in six states and the District of Columbia. With limited supply, expect to pay more for your Volt than its advertised sticker price of about $40,000–or about $32,000 after federal tax credits for electric cars.

Will financial reform help the average consumer?

Several issues affecting everyday life are part of the financial reform bill. But what isn’t in the financial reform bill is important, too. Credit, when needed the most, was preserved after debate was rejected on an amendment regulating the pay day loans industry. And other aspects of the financial reform package may make a difference in the financial health of most Americans, including mortgage lending and debit and credit card fees.

Cheap pay day loans protected

Money lenders providing convenient access to online cash advances escaped restrictions on their business. Some politicians wanted to go after people who work for their money. The financial reform bill could have limited consumer access to same day cash advances and prohibited cash companies from offering additional products and services. Another provision forced federal regulation on the best practices of payday lenders, such as offering installment loans. Fortunately the Senate rejected the payday loan amendment.

Financial reform: debit and credit card use

Financial reform seeks to limit the fees banks charge retailers for debit card transactions. This could mean either lower prices, higher bank fees or both for consumers. The Christian Science Monitor reports that Visa and MasterCard charge retailers 1 to 2 percent of the cost of whatever people buy with their debit cards. That’s a lot more than what it costs for a computer at a bank to process the payment. The financial reform bill wants to make sure debit card fees are “reasonable and proportional to the processing costs incurred.” Or, in other words, lower. Retailers say they will pass the savings to consumers. But banks, deprived of such easy money, will probably turn the screws in other ways, such as increasing checking account fees. So it remains to be seen if the debit and credit card fee provision of the financial reform package delivers any benefits to most people.

Financial reform: mortgage loans

The financial reform bill could limit banks from lining their pockets when a borrower wants to pay off a mortgage early. For most mortgages, prepayment penalties would be allowed only in the first three years of the loan. For mortgages with balloon payments, prepayment penalties go away altogether. Plus, Reuters reports that the financial reform bill ends kickbacks to bankers and “liar loans,” two shady lending practices that led to so many bad mortgages in the housing bubble. Kickbacks known as “yield spread premiums” encouraged brokers to steer consumers into risky, high-interest loans even if they qualified for cheaper loans. Liar loans let consumers qualify for loans they could not possibly repay if they opted to simply state their income or other assets, rather than waiting for verification.

Financial reform: credit scores

Financial reform package provisions originally called for giving consumers free credit scores every year to go along with the three free credit reports, but this consumer benefit didn’t survive. However, the New York Times reports that an amendment requires those who use a credit score to deny credit to someone to give the score to that person free. When someone doesn’t have the best interest rate on a mortgage, credit card or auto loan, or gets stuck with a high insurance premium, they get to see the score that was used to make that judgment.

Payday loans: no credit score required

No credit check payday loans online often don’t require any sort of credit score. This is good because simply having one’s credit checked can have a bad effect on the credit score. A no credit check payday loan allows a person to get the quick cash they need without waiting for approval or damaging their credit score. Plus, the money can be in their bank account within 2 hours upon approval. Better yet, for people who may have bad credit or no credit, paying back the online cash advance on time can help raise that credit score.

While the 2009 Honda Civic is flashy, you have many options when buying a Honda Civic in Atlanta. Image from Flickr.

The Honda Civic is one of the top-selling cars in the United States, and if you are looking for a Honda Civic in Atlanta, used or new, there are a few things you should keep in mind. A used Atlanta Honda Civic can be a great deal, while a new Atlanta Honda Civic has the style and everyday drive ability the brand is known for. Research what type of Atlanta Honda Civic you want, line up auto loans and make a smart purchase.

Know your Atlanta Honda Civic facts

The Honda Civic has been in production since 1973 and has been sold in Atlanta and the rest of the United States since shortly thereafter. There have been eight generations of Honda Civic vehicles, and a ninth generation is planned. In 2006, the Honda Civic design split – one type of Civic to be sold in the United States and one to be sold in Europe. If you are shopping for a Honda Civic in Atlanta, you are most likely to find these U.S. specific models or the older-generation used Honda Civics. Once you find the Atlanta Honda Civic that you are interested in buying, get a Carfax or Autocheck report on it so you know exactly what kind of shape the car is in.

Get your Atlanta Honda Civic financing

Getting pre-approved for your Atlanta Honda Civic financing is one of the smartest moves you can make when shopping for a vehicle. By being pre-qualified for financing, you can negotiate much more easily with the car seller. You will also not get locked into a higher-rate loan that is offered at the car lot. Getting pre-qualified for your Atlanta Honda Civic financing is easy. It is just one form, and takes less than an hour. Once you are qualified for an auto loan, you can take that information to the seller and know that a Honda Civic in Atlanta will soon be yours.

After purchasing your Atlanta Honda Civic

As soon as you have purchased your Atlanta Honda Civic, be sure to get it licensed and insured. You should include the costs of this initial setup in your auto financing loan. If you get a used Honda Civic, take it to a mechanic you trust to make sure that it is in the shape the dealer promised. Be sure to make your monthly payments on your auto loan, and your Atlanta Honda Civic will last you years. Congratulations!

The New York bomb that led police to evacuate Times Square Saturday night was parked near Viacom headquarters, home of Comedy Central and South Park. Flickr photo.

The Times Square bomb that failed to explode in New York Saturday night would have likely killed people if it had, according to the New York Police department. As law enforcement authorities look for a person of interest captured on video, the owner of the SUV packed with explosives has been tracked down. As the investigation and manhunt resulting from the Times Square bomb 2010 continues, a group calling itself the “Pakistani Taliban” chimed in to take credit for the botched bombing.

Times Square bomb/South Park Muhammad

The Pathfinder holding the Times Square bomb — a vehicle that was stolen, not bought with an auto loan –  was parked near the headquarters of Viacom, the parent company of Comedy Central. Recently, Comedy Central censored an episode of South Park that portrayed the Prophet Muhammad. The South Park Muhammad episode, and the fact that the Times Square bomb was planted near Viacom, is  fueling suspicions that the attack was related to the controversy surrounding  the Comedy Central cartoon program.

The Times Square bomb scare

The Times Square bomb was transported into Times Square in a 1993 Nissan Pathfinder that a surveillance camera captured on video Saturday. Saturday night, a street vendor noticed smoke coming from the vehicle and alerted police. The Times Square bomb scare led to thousands of people getting evacuated from Times Square. New York Police Commissioner Raymond Kelly told CNN that had the bomb exploded, it “would have caused casualties, a significant fireball.”

The New York bomb was made from gasoline, firecrackers, analog alarm clocks and propane canisters. Police said the canisters of propane were of the type commonly used for barbecue grills. The firecrackers were consumer-grade M-88s, legal in some states.

Taliban claims Times Square bomb plot

The Pakistani Taliban claimed responsibility for the Times Square bomb plot on an Islamist website, muslim.net. Reuters reports that the statement, which has since been taken down, said “The Pakistani Taliban announces its responsibility for the New York attack in revenge for the two leaders al-Baghdadi and al-Muhajir and Muslim martyrs.”  The muslim.net statement also said that Qari Hussain Mehsud, known as the master mentor of Taliban suicide bombers, accepted responsibility for the New York bomb plot “with great pride and utmost bravery.” Federal and local officials said there was no evidence to support the Pakistani Taliban’s statement.

New York bomb plot and Iraq

Investigators were checking parallels between the New York bomb and coordinated attacks in the summer of 2007, Fox News reports. The attacks were at an airport in Glasgow, Scotland, and a London neighborhood of nightclubs and theater. Both attacks involved cars containing propane and gasoline that also failed to explode. Authorities believe those attacks had roots in Iraq.

Times Square bomb plotters’ blunder

The Pathfinder that held the New York bomb 2010 was brought to a forensics center in Jamaica, Queens, where investigators were scouring it for DNA evidence and hairs, fibers and fingerprints. No fingerprints had been found as of Sunday night, officials told the New York Times. The owner of the Pathfinder was identified through the vehicle identification number. Thieves had stripped the VIN number from the dashboard but they didn’t realize it was stamped in other places, such as the engine block and axle.

Is he the Times Square bomber?

The FBI is studying hundreds of hours of surveillance footage from more than 80 cameras, including images of a man leaving the vicinity of the Pathfinder in Times Square shot by a tourist. The person of interest in the video was seen taking off a shirt and walking away shortly before the vehicle began to smolder.

Kelley Blue Book has added a free iPhone app to its quiver as the universal source for pricing used cars and trade-in value for auto financing. Flickr photo.

Kelley Blue Book is the universal source to determine the market value of used cars for auto financing. But Kelley Blue Book has come a long way since Les Kelley published his first guide to used car values in 1926. Today Kelley Blue Book has evolved from a pocket-sized pamphlet into a powerful web-based resource library and automobile search engine with its very own free Kelley Blue Book iPhone app.

Kelley Blue Book, used cars and much more

Kelly Blue Book demonstrated its clout Monday with the release of its choices for the Top 10 Green Cars for 2010. The announcement that ranks the Toyota Prius at the top of the list, received major coverage from news outlets across the U.S. The Kelley Blue Book list of Top 10 Green Cars for 2010 includes a selection of vehicles for all purposes, from the Honda Insight Hybrid at number two to the Chevrolet Tahoe Hybrid at number 10. Should someone want an auto loan for any of these cars, they can simply go to Kelley Blue Book, enter a zip code, and find the location of the dealer offering the best price.

Kelley Blue Book free iPhone app

The Kelley Blue Book free iPhone app offers a Seller’s Toolkit that lets you access the book value of the car you’re looking at by plugging your iPhone directly into the Kelley Blue Book database. You can also find trade-in value, dealer locations, read reviews and look at 360 degree views of the car in question. If you’re selling a car, the Kelley Blue Book free iPhone app even has quicklinks to Kelley Blue Book’s website for buyers to find your car, and tools to create slick ads for craigslist, Facebook, Twitter, e-mail or blog.

Kelley Blue Book used cars, trade in value

To determine the value of used cars and trade in value, Kelley Blue Book uses other factors besides make, model and miles. The condition of a used car is judged with tough criteria for car loans. Unless the used car is showroom immaculate, a well-kept vehicle will likely be judged as “good,” rather than “excellent.” Cars that need a little work are “fair” and smoking, sputtering heaps are “poor.” The most interesting factor in Kelley Blue Book used cars trade-in value is location, which is why you enter a zip code when you research used cars and trade-in value on the Kelley Blue Book site. For example, an SUV is worth more in Montana than Miami. A Corvette convertible is worth more in San Diego than North Dakota.

Kelley Blue Book, the used cars bible

Kelley Blue Book has been so successful in identifying its brand with its services the term “book” is universally understood as the benchmark price used cars and trade in value. Wheeling and dealing today includes standard terms like “what’s the book?” “over book” and “under book.” Kelley Blue Book has actually trademarked the terms blue book and blue book value.

Reconsider the Lexus GX 460, which Consumer Reports found prone to rollovers like this one

The Lexus GX 460 earned a rare “don’t buy” warning from Consumer Reports following performance testing by the magazine. If you thought about getting auto financing to buy one, bear in mind that the tests exposed a handling problem with the Lexus GX 460 that may cause a rollover of the SUV in everyday driving. The Consumer Reports test of the Lexus GX 460 is the latest black mark to Toyota Motor Corp’s battered reputation that began last year with braking and unintended acceleration problems.

Lexus GX 460 earns Toyota a rare rebuke

The Lexus GX 460′s stability problems became evident when the rear of the vehicle broke away during what David Champion, the senior director of the Consumer Reports auto test division, said were “unusual turns.” The Lexus GX 460 skidded sideways through the turn before the SUV’s electronic stability control engaged. In an interview with the New York Times, Champion said “This is the first time we have seen it in an SUV with ESC,” referring to electronic stability control. Consumer Reports said it was “rare” for the magazine to “judge a vehicle’s performance not acceptable.” The last instance was with the 2001 Mitsubishi Montero Limited in 2001.

Lexux GX 460 unsafe in everyday driving

The Lexus GX 460 rollover potential goes beyond the test track. Mr. Champion told the New York Times that the Lexus GX 460 electronic stability control could fail in everyday driving. For example, speeding through a sharp curve on a highway off-ramp. The Lexus GX 460, with a high center of gravity, could easily roll hitting a curb or soft shoulder. “I wouldn’t want anyone else in it,” Champion said.

Dozens of SUVs safer than the Lexus GX 460

When it comes to committing to an auto loan for your next SUV, there are plenty of safe choices. Consumer Reports tested dozens of SUVs in addition to the Lexus GX 460. To cause what consumer Reports calls “trailing-throttle” or “lift-throttle oversteer,” the driver takes his foot off the gas while driving fast through a sharp turn. While the Lexus GX 460′s rear end slid toward the outside of the turn, electronic stability control quickly stopped the slide in the other SUVs.

Lexus GX 460: low volume could drop further for Toyota

Before Consumer Reports called out the Lexus GX 460 for rollover danger, Toyota wasn’t selling too many of them. Starting at about $52,000, the GX 460 is a small-volume vehicle for Lexus, Toyota Motor Corp.’s luxury brand. Only about 5,000 have been sold since November 2009. But the warning is the last thing the embattled automaker needs as it struggles to fight a litany of bad press. But the true impact could be seen as fewer car buyers borrow money to purchase any SUV manufactured by Lexus.

If you’re getting tired of paying increasingly high fees and penalties to your bank while getting only pennies in interest every month, you’re not alone. A growing number of Americans are now closing their bank accounts and moving their hard-earned cash to credit unions instead. What if you were to do the same? Would you really be treated any better, and would it be worth the hassle?

Credit Unions vs. Banks

The main reason consumers tend to have better experiences dealing with credit unions is that their corporate structure is totally different from the banks’.

• A credit union is owned by its customers, each of whom automatically becomes a member. Each member has one vote, regardless of how much money they’ve deposited in the credit union, or how much they’ve borrowed – which makes the credit union a uniquely democratic institution. In contrast, a bank is owned by its shareholders, whose interests are always given a higher priority than those of its customers.
• A credit union is a non-profit, whereas a bank is in business to make money for its shareholders. This means that instead of working to maximize profits, a credit union’s management can focus on giving all its members the best possible deal. Since credit unions don’t pay taxes, there’s more money to go around, too. If there is a profit, it’s distributed to members in the form of a dividend. You’ll also be pleased to learn that the members’ money isn’t used to pay the kind of sky-high salaries and bonuses that bank executives receive.

Lower Fees and Loan Rates

If you go overdrawn or bounce a check on your credit union account, you’ll have to pay a fee and/or a penalty, but it will still cost you far less than your bank would charge. You’re also less likely to pay for ATM withdrawals, checks or electronic banking if you’re with a credit union, plus you receive a slightly higher interest rate on your money. These factors combined are likely to net you a decent chunk of change every month.

If you get a mortgage, auto loan or other loan from a credit union, you’ll benefit from a very competitive interest rate, which can save you thousands of dollars over the life of the loan. For instance, the current average rate on a 48-month car loan from a credit union is 5.15 percent, while one from a bank might have a rate of 6.34 percent. Similarly, if you obtain a one-year adjustable rate mortgage from a bank, you’ll typically pay 4.73 percent – but get one from a credit union instead, and the rate could be as low as 4.32 percent.

Credit Cards are Cheaper

A recent Pew Charitable Trusts survey found that credit unions charge 20 percent less interest on credit cards than banks do. Only 25 percent of credit unions charge a fee for transferring your balance from another credit card, compared to 88 percent of banks. A word of caution, however: make sure your credit union issues its own credit cards. Many of the smaller ones simply offer credit cards issued by the major banks such as Chase, in which case you’d be subject to Chase’s fees and conditions.

It’s easier to get a loan from a credit union

Since credit unions mostly stayed away from sub-prime mortgages, they were largely unaffected by the recent credit crisis that is still making the banks reluctant to issue loans, even to those with good credit. Credit unions have taken up part of the slack, and have been increasing their lending lately. So if you have a reasonable credit history and FICO score, a credit union could be your best bet if you’re seeking a loan.

Who can join a credit union?

You might think credit unions are open only to specific groups, and that you have to belong to a particular trade union, church or ethnic group to join one. Actually, these days anyone can find a credit union that will accept them. You do need to have a common bond with other members, but membership rules are often a lot more relaxed now, and many credit unions are open to entire communities or occupations.

There are several online resources where you can find out more about credit unions and locate one that will accept you as a member. You too can benefit from moving your deposits, loans and other financial products to a credit union today!

We’re in the middle of a credit crunch, and getting an installment loan – whether it’s an auto loan, a home loan, or a personal loan – requires better credit than ever before. Creditors have their guards up and lending standards are becoming increasingly strict.

The most common credit-scoring model used by lenders is the FICO score. The FICO model (originally Fair Isaac) was established in 1956 by an engineer named Bill Fair and a mathematician named Earl Isaac. A FICO score can range from a very risky 200 to a perfect 900.

In a recent CNNMoney.com report, John Ulzheimer, president of consumer education at Credit.com, stated that FICO requirements are on the rise: “You need a 750 or better today to have the same treatment you got with a 700 two years ago,” he says. John D’Onofrio, CEO of Autoloandaily.com, concurred: “Two years ago a 680 was enough to get a great car loan rate. Today it’s often the minimum to qualify at all.”

How to maximize your FICO score

If you’re thinking of borrowing money (other than hard money loans like small payday loans or emergency cash loans that don’t require credit checks) you need to do everything you can to boost your FICO score before you apply. Here are some things you can do to maximize your credit score:

Find your score

You can get free estimates of your credit score at any number of websites (like Creditkarma.com). But if you’re serious about getting an installment loan on the best available terms, you need to see what your lender will see. Lenders will be looking at your actual FICO score, based on credit reports from three credit bureaus: Experian, Equifax, and TransUnion. To get a better sense of what lenders will actually see, for a small fee you can get one representative FICO score at myfico.com.

Look for mistakes

According to a Zogby International poll, one-third of people who pull their credit reports find errors, so check yours closely. When you get your FICO score at myfico.com, you’ll get a copy of the report it was based on. You’re entitled to one free report from each of the three credit bureaus every 12 months. So once you have your score and the report it was based on, you can get the other two reports for free at annualcreditreport.com

If you find errors, request corrections, following the instructions on each credit bureau’s website. Inaccurate delinquent marks are common. Fixing just one of those can improve your FICO score dramatically.

Never be late on payments

Your payment history is the most important part of your credit score. Lenders can’t report late payments to the bureaus until they’re 30 days past due. But keep track of your payment due dates and take precautions not to be late at all.

If you know you can’t pay a bill on time, think about getting a quick payday loan to pay the bill. If you will be able to get by on your next paycheck after paying the loan back, a cash advance can save your credit score, but don’t let payday loans become a habit. If you make a late payment, getting right back on track will eventually improve your score, but if you fall more than 30 days behind, the damage to your FICO score can haunt you for years.

Don’t use more than 20% of your total available credit

Another important factor in calculating your score is how much you owe compared to how much credit is available to you. According to Ulzheimer, 10% is ideal, but a ratio as high as 20% is acceptable. Unfortunately, banks are scurrying right now to raise interest rates before new regulations go into effect (read Credit Card Company Comeuppance), and they’re also rushing to lower credit limits and cancel unused accounts, all of which make it more difficult to maintain an ideal ratio.

Be aware of the limits on your credit accounts, watch closely for changes on your monthly statements, and don’t use more than 20% of your available credit on any card or in total. If you’re thinking about getting a home or auto loan, try to reduce your account balances even farther before you apply.  If you’re working to pay down your debts before applying for new credit, remember that it may take a couple of months before reduced balances will appear on your credit report.

Preserve old accounts

A long credit history without late payments is the most important part of your FICO score. Closing old accounts not only increases your credit utilization ratio, it shortens your credit history.  So don’t cancel your oldest cards. You can avoid having lenders close old accounts by transferring recurring charges to them from the accounts you use more regularly.

Don’t try to out-smart the credit bureaus

Other, less important factors are involved in calculating your FICO score, but they are more difficult to manipulate. For example, part of your score is based on your mix of credit types, such as mortgages, car loans, and credit cards. But don’t buy a car or apply for new credit cards just to boost your score. The effects of new credit on a FICO score are complicated, and it is much easier to improve your score by carefully tending a few long-standing credit accounts and making your payments on time.

If you’re looking for a car loan today, apply here!