Your Credit Score How to fix, improve and Protect your credit score Part II

How to apply for credit when you have no credit? 1. Check your credit record 2. Set up checking and savings accounts 3. Use someone else’s good name 4. Apply for credit while you are in college 5. Apply for an alternate card (gas or department store) 6. Get an Installment Loan 7. Credit scores without credit (FICO Expansion Scores) Bounced check, retail purchase payment plan, rent to own

Credit Scoring Myths 1. Closing credit account will help your score 2. You can boost your score by asking credit card company to lower your limits 3. You can hurt your score by checking your own credit report 4. You can hurt your score by shopping around for the best rates (de-duplication within the last 45 days) 5. You don’t have to use credit to get a good credit score 6. You have to pay interest to have a good credit score 7. Adding a 100 word statement to your file to help clean an unresolved dispute 8. Close by customer or else they will hurt your credit score 9. Credit counseling is worse than bankruptcy 10. Bankruptcy hurts so much that it is impossible to get credit

COPING WITH FINANCIAL CRISIS Financial setback such as job loss, divorce, major illness …

Steps to avoid Catastrophe 1. Free up some cash 2. Evaluate options 3. Choose a path and take action Money Troubles: Legal strategies to cope with your debts

Step 1: Free up some cash Evaluate Expenses 1. The easy stuff expenses you can ditch easily, such as grocery bills, utilities 2. The harder stuff expenses that requires more sacrifice to trim, such as cheaper childcare, taking in a roommate, renegotiate loan plans with lender, taking a second job, lower 401(k) contributions. 3. The last ditch stuff expenses you would cut only as a last resort, such as selling a house, consult bankruptcy attorney. Goal: Figure out minimum monthly payment to stay current Note: Refinancing short term loan with long term debt could end up costing you more money

Frugality Resources The Dollar Stretcher: www. Stretcher.com Frugality University: Decision Center: Amy Dacyczyn’s “The Complete Tightwad Gazette”

Step 2: Evaluating Options Prioritize your bills Examine consequence and determine minimum monthly payment to stay current Match your resources to bills and debts After trimming expenses from the first two categories, can you cover minimum required? If not, you need to progress with more drastic cuts Repayment Plan How to pay off nonessential debts, other than family and friends loans in three to five years. If you must use home equity loan or line of credit to repay debt, you must commit to: 1. Do not use credit cards to pile up more debt 2. Do not borrow more than 90% of home equity 3. Pay off debt in the same three to five years

Credit Counseling Ask these questions before signing up: 1. Is it accredited? Is it affiliated with National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies orwww.aicca.org 2. What do regulators say about it? Check with Better Business Bureau and your state attorney general’s office. Ask about how many complaints. 3. What does the agency say about it services? Avoid outfit with unrealistic promises 4. What fee are involved? 5. When and how much will creditors get paid?

Bankruptcy Chapter 7 Wipes out all unsecured debt (ie., debt not linked up to a property), but you must give up some assets. Most filers do not give up anything either because they don’t have anything or their assets are exempt. Exempt or protected from creditors include household furnishings, clothing, tools you need for work, retirement accounts and some or all of the equity in your home.

Bankruptcy Chapter 13 Requires debtors to come up with a plan to repay all or most debt within 5 years. If they are successful, they are allowed to keep their property while having any remaining debts erased.

Bankruptcy can make sense… You can’t pay back most or all of your unsecured debts in 3 to 5 years You don’t have much equity in a home or vehicle or any property You have considerable equity or valuables that wouldn’t be exempt from bankruptcy such has jewels, family heirlooms, artwork, stocks and cash held outside retirement plan – you are willing to agree to Chapter 13 repayment plan rather than Chapter 7 liquidation.

Bankruptcy does not make sense You can repay your debts within five years Most of your debts are the kind that can’t be wiped out such as student loans, child support and recent taxes. You defrauded creditors by hiding assets You recently ran up large debts buying luxuries. Luxury debts can not wiped out. You are reluctant to leave a co-borrower solely responsible for a debt. Creditors can still go after co-signer.

Should you pay old debt? Statute of limitations: 7 to 10 years Even if the creditor can’t sue you, they can still try to collect Contacting old creditor can leave you vulnerable to a lawsuit You are often not dealing with the original creditor You might be exposing yourself to some pretty nasty characters.

Boosting your score in 30 to 60 days Pay off your credit cards and lines of credit Use credit cards extremely lightly Focus on correcting big mistakes on your credit reports Use the Bureaus’ online dispute process See if you can get your creditors to report or update positive accounts

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