Final part: Answers to your credit questions

Today is the last in a Biz Beat series featuring your credit questions, with answers provided by Consumer Credit Counseling Service of Greater Atlanta.

If you have a question about credit card debt, worried about foreclosure, or in need of budget counseling, you can call CCCS at 1-800-251-2227.

I’d like to thank everyone who participated and hope it was helpful.

Q: I’m considering a loan modification. I can make the current payment, but I have some expenses on the horizon this year related to college. Is getting set up in this new agreement going to impact my credit scores? How can I avoid a negative impact on my credit history? Should I try to do a regular refinance?

A: If you change the terms to your existing loan, which is what a loan modification does, your credit score could drop. Typically a loan modification drops the monthly payment by reducing the interest rate, or by extending the length of the loan.

If you can qualify for refinancing, that would indicate your credit score is probably already healthy and it won’t be changed one way or the other. If you are struggling to pay your mortgage and can’t qualify for refinancing, you should not let the possible impact on your credit score stop you from pursuing a loan modification if it puts you in a sustainable financial situation.

Q: There are two credit card histories that are showing up on my son’s credit report. We have the same name, except I am the 3rd, and he is the 4th. Initially there were three cards, but we were able to get one of them to switch the card and its history over to my credit report. I have not had any success with the other two cards. They tell me to contact Equifax, but that has proven to be a dead end as well. Any suggestions?

A: Common names of fathers and sons can result in a mixed credit report. It can take persistence to clear this up once it has happened. In addition to Equifax, you should be contacting the other two credit reporting agencies, Experian and TransUnion. When you write the agencies with your dispute, please be sure to say that you are writing as the “3rd.” Also, notify your creditors in writing of the mix-up. From now on you and your son should be careful to use your full name, including suffix, when filling out credit applications.

Q: I have 35,000 in credit card debt. My credit is affected by high balances. I pay everything on time. What is the best approach to pay these cards off? I have a first and second mortgage. I can’t get refinancing because of the credit card balances. I would not get a lower rate than the 6.3% I have on my first mortgage and 9.5% on the 2nd. My income had gone down for a couple years but is back up now. Nothing is leftover after all the bills. I spend $1,500 a month in paying credit cards. What is the best plan to take care of this? I feel like I don’t trust any of these companies out there.

A: The interest rates on your mortgages are not terribly high. It appears your biggest challenge is going to be paying down your credit card debt. You don’t say if you are paying mostly interest on your credit cards, but it would appear that might be the case. Please get some help with your debt situation by contacting an accredited, nonprofit credit counseling agency. You can find a trustworthy referral list by going to the Web site for the National Foundation for Credit Counseling at www.nfcc.org. Of course, you can also get free, confidential credit counseling from CCCS.

Q: How is it that with years of outstanding credit history and no changes in your behavior, a credit card company can lower your credit limit or cancel an account outright? That significantly lowers your FICO score, sends all your other creditors into a tizzy and adversely affects your ability to attain credit and favorable rates and terms.

A: Not many of us read the fine print on our credit card agreements, but many of them say that the terms can be changed at any time for any reason. This is happening more often now because banks are trying to limit their unsecured debt exposure and because a new federal law that goes into effect February 22 will limit their ability to do some of the things you mention.

Among the provisions, creditors will be required to provide consumers with a 45-day advance notice of changes in rates and other significant contract changes. Something called Universal Default will also be prohibited. That’s the practice of unaffiliated creditors raising your rates when you’ve paid late to another creditor.

Here are the links to the other parts of this series:

Part 1; Part 2; Part 3; Part 4

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11 comments Add your comment

ADVICENEEDED

January 21st, 2010
9:23 am

I am in a similar situation as the person with the $35,000 credit card debt except that my total debt is $47,000. My debt includes my car note monthly of $400 and credit card debt. I make annually 47,800 in income and would like to pay off my debt and have more money without paying fees. I need help in how to pay the bills and have money in savings at the end of the month.

Ryan Cagey

January 21st, 2010
9:57 am

Again, this is great information. Keep up the excellent work. Thanks.

Also, there is plenty of great advice at http://www.NewCreditRules.com. It really helped me out, and the resources/commentary are great.

hdhd

January 21st, 2010
10:06 am

For those struggling with credit card debt, I might make a recommendation:
http://www.daveramsey.com/

Dave’s plan can help you. He is also on 640 WGST 3pm-7pm weekdays.

Traci

January 21st, 2010
10:41 am

Yeah – Universal Default — DEAD. Finally!

This procedure did more damage to consumers than any of the “games” credit card companies ever played.

Traci

January 21st, 2010
10:50 am

Pay your credit cards down in chunks. Paying the minimum payment will never get you to payoff anything. Pay the smaller balances off first. Once that’s paid off – use the “extra” and apply it to the next card. Regular Payment+”Extra” will get start to make a dent in the balance.

If you have a high balance call to negotiate a reduction in the interest rate. They may say no – but call the next day again. Continue to call everyday. Ask for a supervisior – be NICE – and call everyday… why everyday? your’re being persistent about something you want. THEY CAN CHANGE IT. —- Look at it like this: When you are late they call you everyday don’t they?

This works – be persistent. YES, EVERYDAY. ask for a Manager and rate reduction.

mitzymy

January 21st, 2010
10:57 am

I have 12k in credit card debt. This includes department stores and Lowe’s. The plan I have to pay them all off is to start with the lowest balance and work my way up. I take the money saved from paying off the smallest balance, and add it to the next highest, and so on. I hope by the end of the year I will only owe half as much. With my tax refund I will be able to pay off the department store cards that charge 24% intrest. They give you real low monthly payments, but the intrest they charge takes up half of the payment. Don’t let them fool you. They are dangerous.

Jst_Sayin

January 21st, 2010
11:16 am

It is NOT true that modifying your home loan will automatically result in a lower credit score. I recently negotiated a modification (I have excellent credit but couldn’t refinance because I now owe more than my home is worth) and Bank of America allowed me to modify from a 5/1 ARM to a 30-year fixed rate. No hassles! My credit wasn’t negatively affected by the modification. But I should also note that I was not behind on my mortgage. Not sure if this applies for people that are already behind on their payments and are trying to modify their loan.

Tying a knot at end of rope

January 21st, 2010
11:36 am

I can tell you that CCCS cannot help those folks who already have low interest rates (under 14%) on their credit cards. Their specialty is getting interest rates lowered. I consulted with CCCS and their advice to me was to find a higher paying job or get a second job. I’m already a manager level employee who works late and comes in early…hard to do a second job with that schedule, and my job pay has been reduced only because after going 6 months between jobs I took a job that pays $8000 less a year, or $600 less a month. Unfortunately CCCS cannot help in this type of situation where I always pay my bills, have low interest rates on my mortgage and credit cards and have good credit….but unfortunately have a reduced income that came rather suddenly. In place of snarling “Get a job”, the new cynical slogan is “Get another job.” My application at CVS and Starbucks has not garnered even a response. So far I’m resorting to juggling payments monthly and selling stuff on CraigsList.

Chris

January 21st, 2010
11:42 am

A year ago I finally started to accept and deal with the approx $30k in credit card debt I was carrying. Many of my cards had default interest rates (25% or higher) due to making payments late, over the limit fees etc. Even though I had never missed a payment, you get greatly penalyzed (beyond just the $39 fees) for paying them a day late because they will jack up the rates.

The first thing I did was make a commitment to pay all the cards online. Even if you need to charge back the payment that you made, just paying on time will reduce the $39 fees and after as little as 2 or 3 months with some cards they will return your interest rate closer to the original rate (some like Chase refuse to change anyone’s rates right now).

I can’t stress how important it is (if you can in any way possible) to make the payments on time even if you are treading water with the balances. I can afford to make $900/month in credit card payments, but when I started fees and interest were totally approx $700 each month, which would take forever to pay off. Even though I didn’t make much progress on the overall balances in the first year, re-establishing a good payment history drastically reduced the rates, now my interest (on essentially the same overall balance) is closer to $250. So instead of making $200 of progress on the balance each month I’m not making closer to $650 and starting to finally see some real progress and a light at the end of the tunnel.

In my opinion, if you can’t at least make the minimums and tread water, you should stop paying for 3 months. At that point the cards will deal with you and work out better arrangements because they will start to sweat about getting their money back.

Chris

January 21st, 2010
12:07 pm

Sorry for the typos in the above post. In my opinion, I’d stay away from Credit Counseling if you have a large balance – greater than $20k or so. You’ll get a better deal by just negotiating directly with your creditors. The card companies fund the credit agencies as an alternative to bankruptcy for people who are averse to bankruptcy. When you go to the CCCS types you are essentially throwing in the towel and admitting you’ll pay everything you owe to avoid negative marks on your credit report.

If you have default interest rates and can afford to make the minimum payments, just exercise some self discipline and get back on track. If you can’t afford it, either file for bankruptcy or stop paying long enough for the credit card companies to offer you a better deal. If you go bankrupt or stop paying long enough, your creditors will eventually write off your debts or sell it to a collection agency for pennies on the dollar. They would much rather negotiate with you for less than the balance but greater than what they’ll get by sending it to collections. With CCCS types, you agree to pay 100% and take a hit for being in a settlement. If you’re taking the hit by arranging for alternate payments, at least get a discount.

ADVICENEEDED

January 21st, 2010
12:34 pm

Thanks Chris you have really given me some ideas.