Experts answer your credit questions

Starting today and running through the week, personal finance experts at Consumer Credit Counseling Service of Greater Atlanta will answer questions that readers have submitted.

Here is the first installment. Please come back tomorrow morning for more answers.

Q: I have $12,000 in credit card debt at 5.9%, but I also have $40,000 cash. Should I pay off my credit card debt or should I keep the debt and keep the cash? I heard Suze Orman say that she is recommending NOT to pay off credit card debt because companies are now lowering limits and/or shutting down accounts after they are paid off. Any thoughts?

A: Unless you have a plan to accelerate the payoff of that $12,000, I would use part of your savings to cancel it out. If you are only making minimum payments, it could take 10-15 years for you to pay that debt off. Discipline yourself to only spend on credit cards what you can afford to pay off in a 30 day period.

Q: I was divorced back in 2007 and had to pay my now ex-wife $40k to cover equity and retirement costs. In order to to this, I had to refinance my existing mortgage. Due to a higher interest rate, my mortgage payment increased over $300 per month. With this increase and child support payments of almost $1000 a month, the $1400 increase in additional payments has caused me to have to bridge the gap of additonal payments with credit cards. I now owe almost $20k in CC debt and B.O.A. not only decreased my credit limit from $18k to $12k, but they increased my interest to 28%. I tried to get help with the HARP program the President instituted to get my mortgage reduced, but I was told that I don’t meet the 35% minimum debt requirement (they use a gross income total). I have never had credit issues before my divorce, but now that’s not the case. Can tell me what my options are here before a lose everything?

A: At this point you should make an appointment with a certified credit counselor. Debt management plans will lower your interest rate and help you get out of debt within 3 to 5 years. Your counselor can also review your housing situation and possibly refer you to a housing counselor to get some mortgage relief. Just because one lender told you that you did not qualify, don’t give up.

Q: I have a lot of credit, and with credit card a company lowering the credit limits most everything is maxed out. I got a letter yesterday from another card lowering my credit limit. I told him it was the last straw that will force me into bankruptcy. He said with a threat like that he was closing my account. Is this somewhere in the fine print? And can they now change the terms such as interest?

A: Unfortunately yes. Credit card companies can and will change credit lines and interest rates on accounts that they feel represent a high risk of default. It is usually driven by your FICO score and by your payment pattern at the specific bank.

27 comments Add your comment

Mark

July 27th, 2009
9:06 am

With some lenders closing credit card accounts when they’re paid off and others lowering your limit close to your balance, your debt-to-limit ration goes up and your FICO score goes down. Then the banks claim you’re too risky, but it’s a situation of their own making. What can you do?

lovelyliz

July 27th, 2009
9:13 am

Your FICO score can be lower arbitrarily by the credit card companies for reasons that have nothing to do with direct actions on the part of you, the consumer. They can lower your limit with decreases the amount of open credit, which lowers your FICO score. They can close your credit card account even if you have never missed a payment again lowering your FICO score.

I am just waiting for the class-action lawsuit that’s been a long time coming suing these creditors for the capriciousness of their decisions that adversely affect the consumer’s credit score, but then again, who has gotten a credit card in the last 20 years that didn’t have a contract clause requiring them to go through arbitration?

John

July 27th, 2009
9:27 am

Neither a borrower nor a lender be.

Karla

July 27th, 2009
9:30 am

What is the statue of limitations for something to remain on your credit report in GA? What is the statue of limitations for collectors?

Kwaku Berchie

July 27th, 2009
9:33 am

I filed for bankruptcy in 2007 and was able to make some few payments on the agreed terms of the bankruptcy but I lost my job in 2008 and has since not been employed. Finding a job has become difficult because of my poor credit score. My home has been forclosed on.
How do I get back on my feet after I am gainfully employed? I owe on my student loans as well.

Tom

July 27th, 2009
9:39 am

Recently received a notification from my credit card company that they were raising my minimum payment percentage from 2% to 5% even though I have been a customer for over 5 years with no late payments, and I always pay more than the minimum. They also told me that I could not opt out of this change, do I have any recourse against this action? Thanks.

Meshia Thomas

July 27th, 2009
9:40 am

I would like to order my credit report from the credit bureaus and I understand that there is a toll free number that can be called for all three (3). Where can I find/get the number from?

Jr

July 27th, 2009
9:42 am

I recently received , what I thought was a privacy notice from Citibank, however, after reading it I realizedas it was an account change notice stating that due to changes resulting from credit card law passed by congress,rates were being increased.The noticed then
went on to say that I had a CHOCIE -I could Opt-in and pay the higher interest rate or Opt-Out and they would close my account yet allow me to keep the previous lower rate while I paid off the card. By doing this they are adversely impacting my credit by increasing my debt to limit ratio. This seems so unfair to someone who has been paying their bill on time. Who is looking out for the CONSUMER?

Needabailout,too!

July 27th, 2009
9:45 am

Y’know, what’s ironic is, that with all this economic upheaval affecting nearly everyone in every financial way imaginable, the credit scores of millions are being negatively affected, reducing each by hundreds in FICO points, that the FICO scoring range as we know it today will become obsolete in the future. Most everyone’s scores are going to be so far in the cellar that hardly anyone will qualify for credit anymore. It will be interesting to watch how the financial scoring institutions and all lenders will accomodate this seismic shift in consumer qualifiers.

Cecil D'Antignac

July 27th, 2009
9:51 am

I encourage all of you to go get the book the Total Money Makeover by Dave Ramsey. It will help you kick the debt out and gain your life back. Bible passage says “the borrower is slave to the lender”.

Mary Johnson

July 27th, 2009
10:08 am

I recently paid off 7 credit cards by refinancing our home. I want to close all but about 2 of the credit cards but husband thinks it would be better to keep them open but not use them. which is better?

Stiffback

July 27th, 2009
10:14 am

A company purchased my auto loan and charges a $10 fee every month we make our payments no matter if its a check or on-line. Tell me how they can do this without breaking some type of law. $10 dollars for the next 40 months is a lot of extra money going to this clown of a lender.

jcinacworth

July 27th, 2009
10:15 am

Well people, many of us are going through tough times right now. I lost my job last month through corporate downsizing after 25 years with a company, so this “new economy” will force each of us to re-think how we provide for ourselves and how we’ll handle our own finances. Over time, I’ve convinced myself through my experiences that corporations are criminal in nature as they will do anything to remain profitable. Yes, they’ll tell you that they’re ethical and they care about their employees and their customers, but at the end of the day, the management only cares for the bottom line for the company and themselves. Banks have proven to be the least ethical of all businesses as with the trends that have been established throughout time, they care NOTHING about their customers issues and concerns. I bank with one of the nation’s largets banks, and their level of customer service has deteriorated to unacceptable levels as time has progressed. I’ll vote with my wallet as any complaints to large corporations fall on deaf ears. I’ll be shutting down my accounts with the “big bank” and will open new accounts with either a credit union or a smaller, more personal bank. Get with it folks, these big mega corporations care nothing about you! So, strap down, pay your bills off, and tell these banks to POUND SAND, as their days of robbing people have hopefully come to an end. For me and my family, we’ve stopped using credit cards a while ago and are paying off our accounts as quickly as we can. They’ve earned my mistrust. These banks can only screw you if you let them, so get out of debt and watch them squirm for a while. They’ve earned it, so let them pay the price! Let the criminals who run these banks go to some other corporation and add to their corruption, then we all can stop using their products as well! It’s a vicious cycle!

Ormans A Dingbat

July 27th, 2009
10:15 am

This is poor advise:

Unless you have a plan to accelerate the payoff of that $12,000, I would use part of your savings to cancel it out. If you are only making minimum payments, it could take 10-15 years for you to pay that debt off. Discipline yourself to only spend on credit cards what you can afford to pay off in a 30 day period.

You should use part of the $40k and pay off the credit card and never use it again. Check out Dave Ramsey’s Total Money Makeover for true advise to get out of debt.

DMC

July 27th, 2009
10:19 am

I plan to purchase a house this year (first time home buyer) but I have a credit score of 630. Is there anything other than paying bills on time of course, that can do to get increase that score fairly quickly (before year’s end)?

Bill

July 27th, 2009
10:34 am

How much of an effect will paying off debt raise your credit score? I had three debts – house, car, and one credit card. I have paid off the car (5K) and the credit card (1k) and need to raise my credit score another 40 points. I have one bad debt (an ambulance charge I thought my insurance paid for – I paid it off as well)

Mishap

July 27th, 2009
10:34 am

If a credit card company has cut your limits it is b/c you fit the profile of somebody who will not pay enough in interest to make a profit. If their software models predict your likelihood of charge off or bankruptcy is greater than the 30% interest + 3% retailer charges then they’re going to drop your limits to minimize their losses. For anyone at this point, there is usually something in your profile that is a red flag. Be it income level, changes in buying patterns, or late payments; there’s almost always something that ID’s a person as a poor risk.

Those of you complaining that this hurts your FICO and keeps you from getting other cards are missing the point. FICO is doing exactly what it is supposed to at this point. If CC1 determined you’re a terrible risk and cut you off why should CC2 hand you another card? The mere fact that you’re concerned about getting another card so soon demonstrates your addiction to credit. Those of us who use credit responsibly tend not to care about the month to month fluctuations of our FICO score b/c 20-30pts each way won’t dramatically change your risk profile. If you’re needing credit cleanup, piggy backing, or other schemes to keep your score in the prime range, then you aren’t really a prime borrower.

I’ve opened 2 new cards and borrowed for a student loan within the past year and that didn’t stop me from getting a sub 5% mortgage last month. No card has raised its rates on me or lowered my limits. It probably helps that I utilize less than $6k of my $50k in available credit and pay off everything but the $4k at 0%. I’ve also never had a delinquency in my 10 yr credit history but get 0% offers almost daily.

Michelle

July 27th, 2009
10:37 am

Why is that a revolving account is much better than a car or personal loan? I have been making payments for two years on car loan and personal loan but it does not give me more points than a revolving account.

Dee

July 27th, 2009
11:00 am

Visit annualcreditreport.com to view and/or print a FREE copies of your credit reports from each of the 3 major credit reporting companies. I printed mine out last night and am glad that I did because there were at least 6 accounts on my Experian report that I know did not come from me.

Mserica

July 27th, 2009
11:07 am

I had and bank of america account about 4 years ago and this account was with my exhusband. And right now I can not open an bank account right now because they say I need to send a dispute letter because the account closed and charged off by the contributor, in whole or in part, via an automated process, where the contributor has recorded a loss and where the Contributor does not, or is not able to identify the closing of the account as due to account abuse or fraud. What do you recommend?

janisha

July 27th, 2009
11:18 am

I had some credit card debts from 2000 that I could not payoff. Those debts were repeatedly sold to the collection agencies who are mailing me and telling me to pay off. How long can they do that? Thank you for help.

abc

July 27th, 2009
11:44 am

Clark Howard’s message board titled debt will give you much more accurate information than these guys.

Read the contract!

July 27th, 2009
4:08 pm

To Stiffback – take a look at the original contract you signed when you got your car loan. Unless it’s a subprime loan from a very shady lender I can’t imagine the addition of a $10 fee being legal. The terms you originally signed for should continue on to the new lender unless they send you a “change in terms”…in which case you would have had a time period to “opt out”.

You should look at getting a LOC and a local credit union. They will treat you right!

clyde

July 27th, 2009
7:14 pm

I have a credit card with zero balance,no mortgage,and no other debt,and it’s going to stay that way and the credit bureaus can lower my rating to zero if they so desire.I am going to slide through this recession/depression without spending any money other than on bare necessities.I just put my auto/house insurance on monthly payments.It costs a little more but I don’t want to be paid in full to an insurance company that may go out of business.

@ janisha

July 27th, 2009
8:59 pm

It depends on when you sent your last payment…the statute of limitations “clock” starts then. They can only keep the account(s) on your report for 7 years (longer for judgements or bankruptcies). I would guess that the collectors are from one of the bottom feeders who do not have any documentation on the debt. You could send then a cease & desist letter telling them not to contact you in anyway or ask them to validate the debt (even though they will tell you that you had 30 days from their first contact to ask for validation). If they are outside the SOL, which I believe is 6 years in GA for credit cards, you have a defense to any lawsuit they would be stupid enough to file & have the suit dismissed before it ever gets to court. Do some research, goggle FDCPA, FCRA & the name of the collection agency.

Jane

July 28th, 2009
10:13 am

You can get your free annual credit reports online, but you can also call 1-877-322-8228.

Melissa

July 28th, 2009
4:05 pm

We really need to bring our voices together all in one place and show that there are enough people out there that are having bad experiences with the lack of participation with these programs. If lenders really are modifying mortgages, I think they need to tell us and if there are additional qualification requirements that are affecting homeowners we need to know that too. PLEASE SIGN this petition!!! We’re off to a slow start but once we gain momentum and have hundreds of thousands of signatures they won’t be able to turn a blind eye: http://www.petitiononline.com/afford/