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These days, it’s not about who has the flashier designer clothes or the faster car – it’s about who has the higher credit score! That’s because the better your score, the better position you’re in to manage your financial future.

Why? Believe it or not, have a strong credit score is one of best ways to save money, says financial lifestyle expert Denise Winston, founder of Money Start Here, which produces financial seminars and DVDs. “Your credit score can determine if you get your dream job, your auto insurance rates, the cost of future loans, if a landlord will rent you an apartment, and much more,” she says.

In order to become a “first class” credit user, start by adopting the strategies of these top-tier score holders.

Credit is No Laughing Matter: Jim Dailakis
Credit Score: 760

New York City-based actor/comedian Jim Dailakis may be a clown on stage, but when it comes to his financial status, he’s straight as an arrow. The Australian-born performer owns two homes and pays his bills on time without fail.

His strategy: “I see when the due date is and then put it on my electronic calendar on my computer,” Dailakis explains. Then, he says, he makes sure he has enough to pay the total amount, to the penny, every time.

Why you should try it: “It’s very liberating not to feel the ‘wolf’ pounding at my door,” says Dailakis. “I’ve definitely acquired financial discipline.”

Lesson learned: Keeping up with your credit can be a challenge, says credit consultant Wayne Sanford of YourCreditSpecialist.com. He suggests setting up an online auto-pay. “This way, you can have the amount you need transfer directly to your creditor and not pay any extra fees.”

Extra Credit: Anna del C. Dye
Credit Score: 804

Anna del C. Dye, a new-fantasy author from Salt Lake City, UT, is proud of her long-lasting marriage as well as her financial acumen over the years.

Her strategy: “When my husband got a raise 10 years ago, we opted to add it to the principal in our mortgage rather than our monthly expenses,” says Dye. “We lived on the same income as before and paid our house faster.”

Why you should try it: “Our house is ours and so is everything in it,” says Dye. “Now we can eat out more often, help others, go to the movies more often, and travel around the world. We get to play and have fun when we are still young.”

Lesson learned: “Our culture’s lenient attitude toward debt is harmful,” says Peter Dunn, personal finance expert and author of 60 Days to Change. “If you want great credit, you must develop an urgency to become debt-free.”

Divorced from Bad Credit: Tammie Aaron-Barrada
Credit Score: 789

Tammie Aaron-Barrada’s first husband essentially ruined her credit just by having his name on her cards, and running her into debt. After they broke it off, she was left to claim bankruptcy. The entrepreneur and inventor from Ruffs Dale, PA, has since made rebuilding her credit top priority.

Her strategy: Aaron-Barrada had to made wise decisions to reestablish her credit standing. She took out 90-day same-as-credit accounts to buy new furniture that she could afford, as well as made sure she put utilities in her name and paid those bills on time.

Why you should try it: Aaron-Barrada says having great credit gives her peace of mind, should an emergency ever arise. Building back up to a high credit limit means she won’t be left high and dry ever again, and has a better credit score to show for it.

Lesson learned: “When you make someone a joint-account holder or you co-sign a loan, you become fully responsible,” warns Denise Winston. She recommends checking your potential spouse’s credit report and finding out if he or she owes back taxes.

“Your credit score has the potential to determine the quality of your life,” says Winston. “It can potentially cost you thousands, if not hundreds of thousands, of dollars over your lifetime.”

Are You a Credit Score Wannabe is provided by Experian.com

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When Jeannine Pesce, a 37-year-old mom from Manahawkin, New Jersey, decided to quit her job and go back to school to become a nurse, she was sure it was a smart move toward a more secure future. But she’s planning to buy a home in 2010 and is worried her lack of income will drag down her credit score.

“This is a common myth I think a lot of folks assume is true,” says Curtis Arnold, founder of CardRatings.com and co-author of The Complete Idiot’s Guide to Person-to-Person Lending. “Income might affect your ability to get a loan (depending on the creditor), but it legally should never affect your credit score, either positively or negatively.” When computing your credit score, credit bureaus only look at items such as your payment history and how much debt you owe; personal information like your gender, age, and location can’t legally be considered. And while residing in a famous zip code like 90210 may be fun, says Arnold, it won’t improve your credit.

These days, many of us are doing some serious head scratching when it comes to credit scores, partly because there is a lot of false information swirling around. How can you move forward with your financial life if you’re muddled with misconceptions? Read on as seven more myths are debunked, leaving you with the “real deal” credit information you need when purchasing a home or taking out an auto loan.

Myth 1: Checking your credit will lower your score.

Checking your credit report will never affect your score, says Arnold. Thanks to the Fair Credit Reporting Act, you’re entitled to one copy of your credit report a year from each of the three major credit bureaus. Arnold says you can order them as many times as you want (by paying for subsequent reports) and it still won’t adversely affect your score. If you do apply for credit by filling out an application, though, your score might be slightly pinged.

Myth 2: Shopping around for a loan will hurt your credit score.

Not anymore. In 1999, the scoring model was changed so that consumers wouldn’t be penalized for comparing rates within a 30-day window, says Heather Wagenhals, author of the Unlock Your Wealth crisis management and financial wellness series. However, if you shop for a credit card one day, a boat loan the next, and a mortgage the day after that, the underwriter may wonder whether you were denied or if the loan hasn’t hit your report yet.

Myth 3: If you don’t use your credit card account, you’ll lose your credit line.

As a credit fraud measure, your lender may stop reporting your trade line for lack of activity, says Wagenhals. “Your scoring is based in part by open and active trade lines,” she says. “Thirty percent of your score is based on timely payments. If there is no payment due, you may be missing out on a possible one-third of your credit score.” According to Wagenhals, it’s much better to charge your credit cards up to the amount you can comfortably pay off each month and rotate cards to keep them all open and active.

Myth 4: If you co-sign on a loan, your credit score is not affected.

According to Patrick Ritchie, author of The Credit Road Map, when you co-sign on a loan, you are equally liable (along with the primary borrower) to repay it. This debt will appear on your credit report and will have the same ramifications as if it were your debt exclusively. “Consider the payment ramifications,” says Ritchie. “If you have co-signed for someone and he or she is 30 days late on the payment, it will hurt both of your credit scores. In the case of co-signing on credit card, they may pay on time, but if the card is maxed out, the impact on both credit scores can be dramatic.”

Myth 5: It’s impossible (and takes forever) to dispute information on my credit file.

By law, the credit bureaus have only 30 days to complete an investigation on your credit file – all you have to do is request it, says Gregory B. Meyer, community relations manager at Meriwest Credit Union in San Jose, California. “If they cannot determine the validity or accuracy of an item or if it was determined to be out-of-date/expired, it is supposed to be removed from your credit report,” he says. When you mail your investigation request to the credit bureau, Meyer adds, you must mail copies of the request to the creditor as well.

Myth 6: After saying “I do,” your credit scores are married, too.

It’s a common misconception that credit scores are united in marriage, says Ken Lin, CEO of Credit Karma, a credit-score management service based in San Francisco. While you may share financial obligations in marriage, your credit scores will remain separate.

However, your spouse’s credit habits can affect your credit score, specifically activities like paying bills on time. “If your spouse has had credit problems in the past, make sure he or she is committed to a healthy credit future before you agree to co-signing or opening a joint credit account.”

Myth 7: Turning to a credit-counseling service will hurt your score.

“Credit counseling by itself most definitely does not hurt your credit score,” says Ken Clark, certified financial planner and author of The Complete Idiot’s Guide to Getting Out of Debt. “There is no place to report such a thing on the actual credit report, which is the basis for your credit score.”

According to Clark, this myth surfaces because of people who end up working with for-profit debt settlement agencies that deceptively market themselves as “credit counseling.” When these organizations negotiate a repayment plan or debt settlement on your behalf, says Clark, this can cause a drop in your credit score, since it is a further demonstration that you were unable to handle your use of debt wisely.

Credit-Score Urban Legends – Busted! is provided by Experian.com

The World Is Yours… If You Don’t Get Cocky

“Say hello to my little friend.” ~ “Scarface”

Like the submachine gun Tony Montana wielded in “Scarface,” your credit cards are powerful. They can open doors, but they don’t make you invincible.

Denise Winston, money expert for Money Start Here, says, “Just because you own a gun doesn’t mean you know how to use it.” The same principle applies to credit cards. “Respect it, practice using it, clean it, and keep it in a safe place… maybe even under lock and key.”

Having credit cards can lure you into a false sense of security. The best financial protection is a good credit score, which can “dictate the quality of your life – where you live, what job you have, and what you drive,” says Winston.. “Managing and protecting your credit score can make deals happen and command respect.”

Be Wary of Favors

“I’ll make him an offer he can’t refuse.” ~ “The Godfather”

Unless you have a gun to your head, think twice before signing up for a rewards credit card. Real-estate lender Todd Huettner, president of Huettner Capital, says, “Card promotions can lower credit score more than other cards.” Plus, every new card requires a credit inquiry and disturbs the average age of your file, both of which ding your score, says credit education expert Solomon Algazi of Credit Servicez.

Most interest-free periods are costly, with rates over 20 percent if the balance isn’t paid in full by the end of the promotion, says Huettner. “They offer these discounts to make money on finance charges.”

No doubt “The Don” will collect on his favor, so “Only use the promotional card that saves you money if you have money to pay off the purchase immediately,” says Huettner. Miss the drop-dead payoff date – it’ll cost you an arm and a leg.

If It Looks Like a Rat, It Probably Is

“If you had any idea of what we do, we would not be good at what we do, now would we?” ~ “The Departed”

“This quote sounds like the guys who created credit score algorithms,” says Huettner, who acknowledges that the ways to improve your score are often opposite of what you might think:

• Do open a new account. If you don’t have much credit, add some. You need breadth and depth – at least three cards open for at least two years. Boost your score further – get approved for a limit that’s double or triple what you plan to charge on the card.
• Do close accounts. You don’t need a charge card for every store at the mall. Open accounts will show you can manage credit, but too many cards (more than 10 or 15) are suspect.
• Do use a credit card. Make a charge to one or two cards twice a year. Pay them immediately. Demonstrate that you can manage your credit.
• Don’t use a credit card. Having unused cards helps your utilization rate, showing you can have access to credit and not use it.

“It’s never the amount of money you owe that tanks your credit score,” says Algazi. “It’s always your debt utilization ratio – the amount of your overall available credit you’ve used up. The higher your ratio, the lower your score.” For example, a $10,000 combined credit limit on three cards and $7,000 in credit card debt means your utilization ratio is a high 70 percent. “The ratio gives a general idea of the leverage of the individual along with the potential risks the individual faces in terms of their debt load,” says Algazi.

Unlike gangsters, credit cards don’t honor a “code of silence.” Misuse them and they’ll go straight to the credit bureaus to ruin your financial reputation.

You’re on Your Own

“Everybody had their hands out. Everything was for the taking. And now it’s all over.” ~ “Goodfellas”

“Until recently, money was easy to come by,” says Gail Cunningham, vice president for the National Foundation for Credit Counseling. “Now interest rates have gone up, credit lines have been lowered, annual fees have been added on, and accounts have been closed.”

As “Goodfellas’” Henry Hill says, “Your murderers come with smiles… as your friends… and they always seem to come at a time that you’re at your weakest and most in need of their help.” Says Cunningham, “The credit scoring model is similar to the Mob – pay on time or you’ll suffer immense pain!” But it’ll be a lower credit score – not the muscle – that comes knocking.

When you’re strapped, you might be tempted to utilize payday loans and non-traditional forms of credit that are willing to do business with you… for a price. Instead, create a budget, track spending, and try to save. “Lack of savings often delivers the financial knock-out punch, causing people to make decisions that aren’t in their best interest,” says Cunningham.

Don’t Gamble with Credit

“The longer they play, the more they lose, and in the end, we get it all.” ~ “Casino”

Credit card companies are out to make dough. Don’t gamble with your score. Play by the rules. Aaron Patzer, vice president of personal finance at Intuit, offers tips to stay alert for anyone who might try to blow up your credit score… or your car:

• Hire informants to watch your back. Set up bill reminders with lenders to prevent late payments, which have the biggest impact (up to 35 percent) on your credit score.
• Steal your credit report. It’s free, so there’s no crime. Check carefully for errors – they can be like brass knuckles to your score.
• Diversify your operations. A good mob boss diversifies. About 15 percent of your score depends on your credit mix – credit cards, auto loans, and mortgages.

Whatever your credit situation, don’t be afraid to go to the mattresses to win the financial war. Keep a close eye on what’s yours and never underestimate the other guy’s greed.

5 Things You Can Learn About Credit from Gangster Flicks is provided by Experian.com

You’ve resolved, yet again, to pay down some debt this year. Want to increase your odds of success? Then make sure your plan includes all three of these key ingredients: motivation, money and method.

Here are the Cliff notes.

Motivation

Losing weight, losing debt, spending more time with your family: If you want to change your life, you’ll have to change your habits. And changing habits is no picnic; it requires strong motivation.

So, find something compelling to motivate you. I’ve lived debt-free for many years now, and here’s what motivates me: the realization that for every hour of my life that I swap for money (i.e., working) I’ve forever lost an hour of my life. Time is our only nonrenewable asset, so my goal is to spend as much of it as possible doing what I want to do and as little as possible doing what I have to do.

What does that have to do with debt? Everything. Because paying interest is a double-edged sword; it not only wastes money, it carries a high opportunity cost. Opportunity cost is accounting jargon for what money you spend today costs you in terms of the opportunity to have more money tomorrow. Let’s bring the point home with a simple example.

Say you borrow $100,000 with a 9.4%, 30-year loan and make minimum payments. You’ll make 360 payments of $833, for a total of about $300,000: $100,000 in principal and $200,000 in interest. If you earn $30 an hour, that means the interest bill alone totals about 6,700 hours of work: more than three year’s worth.

The real killer is opportunity cost. If you saved $833 a month for 30 years instead of spending it, and earned 9.4% instead of paying it, you’d have ended up with about $1,600,000. Translated into work hours, at $30 an hour, that’s 53,000 hours or about 26 years.

Of course, we can’t know the true opportunity cost in our example until we know what you did with the $100,000 you borrowed. Maybe you invested it into a business that’s going to be worth billions. However, one thing’s for sure, debt incurred to pay for things that go down in value (such as virtually anything that you can buy with a credit card) means huge opportunity cost, which in turn steals from you the most valuable thing you have: your life.

This is my motivator: what keeps me out of debt. However, if that’s not motivation enough for you, find something that is because without strong motivation you’re probably doomed to failure. Of course, motivation alone won’t do the job. You’re also going to need…

Money

The more extra money you can find in your budget, the faster you can be debt-free. Step one in finding it is to use a spending plan (i.e., budget) to track where your money is going now. Then, see where you can save. When you do, don’t launch into a “dollar diet” and deprive yourself of the things you love. Deprivation doesn’t work. Instead, decide what really makes you happy, then try to spend less doing those things. Impossible? Not at all. Eating an appetizer at home, then splitting an entree at the restaurant is still eating out. The books at the library are no different than the books at Barnes & Noble. I drive an $85,000 Mercedes, but I bought it “pre-owned” for $20,000.

I could go on. Suffice it to say, no matter where your money’s going now, there are ways you can save without sacrificing quality of life. I know because I don’t just write about this stuff, I live it. With the exception of a small mortgage, I’ve been debt-free for nearly 20 years and have accumulated more than a million dollars in savings as a result. And nearly all of it has come from saving small amounts where I can and investing those savings sensibly.

So, if you’re looking for savings, here are the ABCs: A) Ignore what society and commercials are telling you. Make a list of what you really want or need; B) Stop spending on things that aren’t on it; C) Explore ways to save on things that are.

And once you’ve found some extra cash, all you need is…

Method

Pick a system for destroying your debt and stick with it. When it comes to ranking debts for pay off, the method I advocate is called snowballing.

Snowballing means ranking your debts for payoff, then focusing every spare dollar on the first debt on your list till it’s dust. Then, using that old debt payment to help pay off the next debt on the list — and both those old payments to pay off the third debt on the list, and so on. You continue snowballing old payments until you’re debt-free. Then you invest the total of all your old debt payments every month and watch your wealth snowball as compound interest starts working for you rather than against you.

The bottom line? Destroying your debts is doable and it will absolutely change your life. Work it and it will work for you.

The 3 Ms To Paying Down Debt Provided by AskMen.

Our country’s history is rife with examples of unscrupulous individuals and financial institutions that have preyed on the unfortunate. Con artists seemed practically as common as bankers in the industrial age (some even consider them to be one and the same thing). From Charles Ponzi, so infamous he had a “Get Rich Quick” scheme named after him, to the former chairman of NASDAQ, Bernie Maddof who plead guilty in March 2009, to 11 federal crimes built on Ponzi’s example, those in a position to offer loans do so in a manner guaranteed to get the maximum amount back. Here’s a look at a few schemes (not all strictly illegal but certainly of questionable ethics) that deliberately prey on people who are poor and unsophisticated about money.

For more personal finance visualizations see: WallStats.com

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During the construction of his new home, Braun Mincher pulled out the plastic for every new expense. “The contractor didn’t accept plastic, but we had a ‘cost plus’ contract. I was free to directly buy all of the materials. So I used the credit card for appliances, lumber, fixtures, carpet, etc.,” says Mincher, an author, filmmaker, and founder of Braun Media in Fort Collins, Colorado. He then paid off his cards monthly with his own funds or with an advance from the construction loan. The motivation? The consumer protections credit cards offer under federal law and convenience. “I got travel rewards and an easy-to-reconcile bill.”

Mincher generally pays his credit card balances in full every month which makes him feel comfortable using plastic to buy just about everything including a new engine for his small plane, diamonds, office furniture, a home theater, cars, and Lasik eye surgery. He even used credit cards in the early days of his business to make payroll when times were tight.

While Mincher may have the luxury of giving his credit card more of a workout than most cardholders, the perks of some credit cards are prompting people to develop creative ways to use their own plastic beyond the mall and gas station. Here are some other unusual or surprising places where you can pay with plastic.

Construction Site

While your contractor may not accept plastic, you can use a credit card to pay for building materials like lumber, cement, and bricks. In many places, you can charge building permits and other construction-related fees.

Maternity Ward

Charge everything from the delivery room to obstetrician bills (and even those celebratory cigars). Later, use the reward points to spring for a well-deserved getaway.

Adoption Agency

Bundle of joy arriving via adoption? Use a credit card to cover the agency/attorney fees involved. “Typical adoption fees paid to an agency would be between $15,000 and $30,000,” says Nicole Witt, executive director of The Adoption Consultancy. While birth mother expense normally go into an escrow account and are paid to the provider as needed, “legal finalizations costs could be charged, as could any medical expenses such as co-pays and lab tests for the birth mother. And you can use a credit card to cover things like travel.”

Sex Therapist’s Office

Like other types of therapists, most sex therapists accept plastic as payment for appointments and related care. Expanding on the adult theme, credit cards are also welcome at many massage parlors, adult toy stores, and gentlemen’s clubs.

Tuition Office

Virtually all colleges accept plastic for tuition payments. Suggestion: Choose a card that earns frequent flyer miles and you can get free tickets for junior to jet home for the weekend. Got a younger child? Credit is accepted at many daycares, pre-schools, and private elementary/secondary schools, too.

Jail

Thanks to services like Government Payment Service, Inc., more than 1,200 government agencies in over 33 states are now accepting payments from credit or debit cards. Residents in many areas can avoid a night in the slammer by using plastic to pay bail 24 hours a day, seven days a week – even when the banks are closed and the clerk has gone home for the night.

Funeral Home

Whether pre-paying expenses for yourself or covering the costs for a loved one’s arrangements, you can pay for virtually the entire funeral process on plastic, from will preparation to cremation to funeral home fees. If you haven’t made prior arrangements and don’t have sufficient life/funeral insurance coverage, your only option may be a credit card or applying for a loan through the funeral home.

IRS

When you owe the government money, they want it paid yesterday. The Internal Revenue Service offers installment payment plans, but they come with interest and penalties until you pay in full. If you have a credit card with an introductory no- or low-interest period, using that card to pay Uncle Sam would be a money-saving alternative (assuming you can pay the card off before incurring any interest). Many local and state tax departments also accept payment in the form of plastic.

Car Loan or Home Mortgage

Ken Clark, a certified financial planner and author of “The Complete Idiot’s Guide to Getting Out of Debt,” has seen many people pull out the plastic for the down payment on a new car or house. “The charges don’t hit your credit score until after the loan is completed,” he says.

Church Collections Plate

Want to support your church, but short on cold, hard cash? Some churches will accept plastic, either directly at the house of worship or through processing services like MyChurchDonations.com or HolyProcessing.com.

But, Buyer Beware

Your choices of places to use plastic might seem limitless, but that doesn’t mean you should just spontaneously yell, “Charge it!” anytime the mood strikes. “Remember, most people use credit cards to pay for something when they’re tight on money,” Clark says. “But then again, if you’re tight on money, you should probably ask yourself if you can truly afford it in the first place. Consider ‘sleeping on it’ until your next paycheck and reevaluating the purchase when you actually have funds in your account.”

10 Odd Places to Pull Out the Plastic is provided by Experian.com

(The Consumerist)

For many years, the credit card industry has resembled a modern day Wild Wild West. Unrestrained by regulatory discipline, American credit card companies have made life confusing (to say the least) for millions – often with no serious repercussions whatsoever. This lamentable state of affairs has led to the common complaints we’re all familiar with – unexplained fees, random interest rate hikes and the overall sense that you are being jerked around by “The Man.”

However, it appears that the worst of these excesses may be a thing of the past. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (set to take effect in February 2010) aims to protect consumers from unscrupulous credit card policies; but, banks and credit card companies are not going quietly into the good night. According to the New York Times, credit issuers are taking advantage of the “grace period” between now and Februrary to get their last licks in under current, more permissive laws.

(WoodleyWonderworks)

Sudden interest rate hikes

The most obvious offense has been last-minute interest rate hikes. According to Pew Charitable Trusts’ Safe Credit Cards Project, credit card interest rates leaped 20% in the first two quarters of 2009 – despite the fall in federally-set interest rates. The Times even reports that one consumer advocate, testifying before Congress, “…cited case after case of struggling consumers who had seen their credit card rates more than double for no apparent reason, even when they had faithfully paid on time.” Critics of the industry allege that such hikes are bare-faced opportunism in response to the new legislation, which mandates that customers be notified of rate changes 45 days before they take effect.

Strict enforcement of overdraft fees

A major component of the new credit card legislation bans the long-standing practice of overdraft protection being enabled by default. Under the new rules, Forbes writes, customers will be required to “opt-in” by agreeing to pay overdraft fees if they spend more than their current balance. Customers who don’t agree will simply forego overdraft protection by not being able to swipe more than they have. While this seems only reasonable, banks actually derive a substantial portion of annual profits from such fees. Bank of America, for instance, raked in nearly $700 million in overdraft fees in just three months of 2009 alone. And according to the Washington Post, overdraft fees rose 35% from 2006-2008. In the meantime, however, banks are stepping up overdraft fee enforcement like never before. Consumers who once were able to explain the fees away with a polite call to their local branch are finding that banks are squeezing every last drop out of this precious revenue source before it is taken away.

(Oskay)

“Due date roulette”

More banks than ever have been criticized in recent years for changing due dates without notice. In fact, according to investigative blog FaultlineUSA, some banks have even, “…deliberately designed billing systems to periodically generate payment due dates that are five to six days earlier than normal in an effort to catch automatic bill payers in a missed due date scam.” Victims of this procedure find that their “missed payments” result in permanent interest rate hikes and, “…a whopping late fee.” MoneyUnder30 reported a similar phenomenon in their article “Citi May Move Your Due Date Without Notice.” Faultline calls this abhorrent practice “due date roulette”, and it is outlawed under the new rules that require bills to be sent out no later than 21 days before the due date.

(Andres Rueda)

Reducing consumer credit limits

One of the many factors that influence credit scores is a person’s debt to available credit ratio – that is, how much they owe versus how much they can spend. Unfortunately, many banks (perhaps in response to new rules that require advanced notice of major term changes) are unexpectedly lowering consumers’ credit limits. As SmartMoney explains, even, “…folks with good credit scores and solid credit histories are now getting caught in the fray.” American Bankers Association spokeswomen Carol Kaplan was quoting as saying, “…people with credit scores of at least 720…are not immune. They’re doing it to everyone.” American Express specifically “adjusted the credit lines of 20% of its credit-card holders.” Under such a scenario, someone who owes, say, $10,000 can see their credit score drop simply because their credit limit was lowered and their debt to credit ratio thereby worsened. And since FICO scores are roughly 1/3rd determined by how close you are to your limit, the implications for consumers are serious – perhaps most importantly, because, banks tend to charge higher interest rates to lenders with lowered credit scores.

Universal default

One of the most outrageous (at least from the consumer’s perspective) credit card practices is so-called “universal default.” That’s when missing a payment on one card or account triggers rate hikes or penalties on an unrelated card. For instance, your failure to pay your Visa bill on time could lead to a rate hike on your MasterCard, even though in theory the two cards have nothing to do with each other. According to Tennessee’s Brownville State-Graphic, fees and penalties stemming from universal default may increase during the holidays. Of course, it is worth noting that the very practice of collecting universal default fees is prohibited by the new credit card legislation set to take effect in February.

It’s plain to see that banks and credit card companies are sucking up every last fee, penalty, and point of interest available under current laws. Life after auto-overdrafting and unexplained rate hikes won’t be pretty for these financial behemoths, and it’s hardly surprising to see them gorging upon the American consumer while there’s still time. With luck, some of the common-sense reforms included in the new credit card legislation will curb these practices once and for all.

Photo: danaspencer

Just a few years ago when Melody Brooke applied for credit in anticipation of co-signing a loan for one of her adult children, she was told she had such good credit that she could buy a jet.

Today, she couldn’t buy a toy truck. The combination of a weak economy, which forced her to close her private counseling practice and caused her husband to lose a lucrative contract, has taken her family from a six-figure income to barely any income at all. To add to the constant barrage of debt collectors calling them, her husband hasn’t been able to obtain a job. “He’s only gotten two interviews and one offer,” says Brooke, who lives in the Dallas area with her husband. “But when they ran our credit, they told him they couldn’t hire him.”

The current financial crisis has brought about many economic anomalies, including throwing a whole new subset of the population on the radar of debt collectors – upper-middle class and affluent consumers like Brooke.

No More Easy Street

“We are seeing people who’ve never been down this road before” says Phill Hudson, a partner for the law firm of Arnstein & Lehr, with offices in Chicago, Ill., Milwaukee, WI., and throughout Florida. “Most people in this situation haven’t focused on what they’re facing, and the first thing we tell them is don’t ignore it and don’t become paralyzed.”

“Most people are in shock and they’re entering a world they’ve never dreamt of,” says Robert Markoff, president of the National Association of Retail Collection Attorneys, based in Washington, D.C. “The first thing consumers must do is talk to whoever is calling you.” Financial experts agree that speaking to debt collectors, especially in the early stages of delinquency, can go a long way in assisting a consumer’s cause.

According to Cena Valladolid, chief operating officer with Consumer Credit Counseling of Southern Nevada (CCCS), a non-profit organization that offers budget education, debt counseling, and elimination programs to consumers, talking to creditors can afford you an opportunity to become educated on special programs and repayment terms.

Part of honestly assessing your situation is looking at your assets that possibly can be sold such as a vacation home, timeshares, recreational vehicle, or non-essential vehicle. Also examine your savings, says Brooke. While she didn’t have anything with equity to sell, she used what small savings she had to settle three loans with a bank willing to work with what she could offer.

Don’t Panic

Perhaps just as bad as ignoring debt is getting into further trouble when trying to eliminate it. Sending all of your money to one creditor won’t make your problems go away, and can get you in deeper with other lenders. “People have a tendency to send the creditor who is making the most noise all of their money,” says Hudson, “but consumers need to make arrangements with all of their creditors.”

The priorities start with the essentials first, says Markoff. “It’s clear that you will need to provide shelter and food for yourself and your family,” says Markoff. “If you don’t have anything left, then you cannot work out plans.”

Markoff also advises consumers against falling into the trap of believing that if a payment plan cannot be worked out, an unsecured creditor can take their home or other property. “Generally, we don’t usually see a company taking property,” he says. If the problem seems overwhelming, he says, law firms that specialize in debt management and bankruptcy may be able to help consumers work with creditors.

“We eventually act as more than lawyers,” says Hudson of the services his firm offers. “We know the banks and lenders and the ins and outs of what they’re doing and accepting,” says Hudson. “Our clients may not always be happy about the options, but if we can get past the initial hurdle, we can help them move forward.”

Seek Extra Help

In addition to seeking paid counsel, there are also non-profit financial counseling alternatives. Services such as those offered by CCCS provide assistance with setting up budgets to accommodate precarious financial positions, and negotiating with creditors.

“Many creditors will reduce or eliminate penalties and interest,” says Valladolid. “We hope to put people in a situation to eventually help maintain or rebuild their credit.”

But, debtor beware. Valladolid cautions against companies that promise to help you immediately increase your credit score or rebuild your credit, or companies that offer to settle debts for very low amounts. “Anytime there is a public financial crisis with long-stretching arms, it always leaves room for scams,” says Valladolid. “I’ve heard of companies say they can eliminate debts up to 80 percent and settle them… we’ve never seen that here at CCCS.”

Additionally, Valladolid says legitimate non-profit credit counseling agencies will not charge a fee for their services. “We don’t charge because there’s nothing we do that the consumer cannot do for themselves for free, including negotiating settlements,” he says.

Markoff also cautions against companies that ask for fees in return for negotiating payment arrangements and settlements. “I see consumers daily who come to me saying they’ve sent all of their money to a company, and when they get sued they realize the company didn’t help them,” says Markoff.

When Should Bankruptcy Be Considered?

Before you consider bankruptcy as an option, speak with an attorney or credit counselor, says Markoff, as it might give you a different perspective. “If there’s a judgment entered, it doesn’t mean a person needs to file bankruptcy,” says Markoff. “It’s a black market on the credit, but the credit reports are already not looking good.”

Chatz says speaking to an expert in bankruptcy is a must. “There are different types of bankruptcy that are best for different people,” he explains. “And people need to realize that you cannot file bankruptcy on government debts such as IRS debts or student loans, as well as on child support debt.”

Markoff says if a bankruptcy isn’t right for you, more often than not, creditors will usually just sit on a judgment until the consumer’s situation improves, at which time, the consumer can then make arrangements for payments or settle the account.

“The most important thing to do is to not panic and focus on the future,” says Chatz. “Accept it and work through it. Things will turn around, they always do.”

For Brooke, she and her husband are still both seeking employment, as well as trying to take destiny into their own hands by starting another business. “We are launching an Internet business that uses his technical skill and the model I developed as a counselor and an author, but who knows how long that will take to go to fruition,” says Brooke. In the meantime, they move forward with credit lessons learned.

“Think Debt Can’t Bury You? Think Again” is provided by Experian.com

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The stock market crash leading to the recession at the end of 2008 caught many by surprise. If you’re among those whose savings and investments were ravaged by the economic downturn, don’t despair. To lose your assets in such a manner is a traumatic experience, to be sure, but you can bounce back. The first thing you should do is explain the situation to your loved ones so they can offer their support during these trying times, then follow our 7-step financial recovery plan to reclaim your monetary standing.

1- Evaluate the damage

The first action to take in our 7-step financial recovery plan is to catalog all of your losses as well as your remaining capital. Don’t rely on your initial panicked realization. You need to look at hard numbers, which is why it’s important that you take every asset into account, including your house. The situation may not be as dire as you think. You should also contact the credit bureau or any of your financial institutions to check your credit report.

2- Set short-term financial goals

Don’t try to achieve everything all at once. Getting back on your feet is going to take some time, which is why our 7-step financial recovery plan recommends that you set temporary objectives to minimize your debt. This can include saving a modest sum every month and paying off high-interest loans. Make sure to keep your goals realistic. You may not be able to clear all of your credit cards immediately, so it’s a good idea to rank them by interest rate to determine which should be handled first.

3- Redo your budget

Given your current monetary situation, you’ll likely need to tighten your belt to achieve your short-term goals, so track your spending habits and eliminate any superfluous expenses. Be reasonable about it and avoid compromising your health. You may not have much use for cable television or a golf membership right now, but you still need to eat. As part of our 7-step financial recovery plan, we also suggest that you get rid of any unnecessary debt, such as the lease on a second car.

4- Follow your revised budget

Depending on how you typically deal with stress, this can be the most difficult part of our 7-step financial recovery plan. If you’re prone to splurging, it’s imperative that you resist your compulsive spending habits for the time being and that you always follow through on your new monetary decisions. This is not to say that you shouldn’t adjust your budget if you find you were overly optimistic about certain expenses, but keep in mind that you can’t afford your usual luxuries anymore.

5- Update your budget regularly

A key point in our 7-step financial recovery plan is the importance of revisiting your budget every few months. This will allow you to track your progress while adapting to the ever-shifting economic climate. However, be careful not to let your expense budget escalate each time you review it. A slight increase can be expected from time to time as your immediate needs change, but you should always prioritize your short-term financial goals.

6- Pad your income

The most obvious way to increase your revenue is to take on additional work. If your current occupation allows it, you can either volunteer for extra shifts or stay late to accumulate overtime. Otherwise, you may have to get a part-time job elsewhere. Our 7-step financial recovery plan also advises you to develop a passive source of income such as accumulated interest or paid advertisement on a blog. If you’re a homeowner, you can rent out a room as well.

7- Set new financial goals

Once you have achieved all of your short-term goals from the beginning of our 7-step financial recovery plan, it’s time for you to assess your overall monetary situation and formulate long-term objectives. To ensure that you can weather another market decline, your aims should include building a retirement fund (or replenishing it if you already had one), saving a fixed amount of money every month and establishing a more flexible budget. It’s also crucial that you maintain a practical lifestyle that’s adapted to your monetary means and needs.

Making a full financial recovery

Though our 7-step financial recovery plan will help you get back on your feet, keep in mind that the process can be particularly long and arduous, depending on the gravity of your situation and the extent of your responsibilities. Some days will seem harder than others, but it’s important that you never get discouraged. Try to learn from your experience. After all, what doesn’t kill you only makes you stronger — and you’re not dead yet.

7-Step Financial Recovery Plan Provided by AskMen.

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Teaching Your Kids To Be Credit Score Savvy

To prepare your children for successful financial futures, you open savings accounts, pay allowances, and teach them to spend wisely. And with financial institutions toppling all around us, the woes of poor money management is more in the face of this generation than ever before. That’s why it’s up to you to use all the negative economic news to emphasize – from this day forward – that every financial decision they make will impact their credit score.

In the midst of the current credit crisis, a young person’s credit score is more essential than ever. “Young adults today are confronted with a series of financial challenges that their parents never had to experience,” says Dara Duguay, director of Citi’s Office of Financial Education and author of Please Send Money: A Financial Survival Guide for Young Adults on their Own. “They have easier access to credit than older generations. Credit is a powerful tool, and a big responsibility.”

The Financial Fingerprint

Teens must understand that their credit (FICO) score will essentially become their financial DNA. Just like you’d drill them with new vocabulary words to prepare for the SAT, you should also make sure they absorb the ins and outs of credit information. Let them know that they’re striving for a “perfect score” of 850. Just as colleges look at SAT scores as indicators of academic success, credit scores will be used to predict grades of potential borrowers.

“Credit scoring is more stringent than ever,” says Beth Frantz, a loan originator with Eagle Nationwide Mortgage Company who’s worked in the financial industry for 25 years. “We cannot lend to anyone with a credit score below 580… period,” says Frantz, explaining why an excellent credit score is so important. “[A score of] 740 is now the benchmark for determining the best credit, and additional fees are charged for anything below 740. This is not lender specific – these are Fannie Mae and Freddie Mac requirements now.”

Adds Duguay, “Practicing good spending and payment habits now – and building a strong credit history – is essential to getting credit later to rent an apartment, buy or lease a car, or apply for a job.”
While the mathematical models used to determine credit score are complex, the steps to obtaining one are not. Let your teen know that like a resume, a good credit score is something that is built over time – starting today.

Avoid the Early Credit Card Trap

“Credit cards have a message,” says Paul Richard, the executive vice president of the National Center for Finance Education (NCFE), a nonprofit group dedicated to teaching money management. And that message is “spend.”

The proper plastic position to take, says Frantz, is reminding your child that it’s OK to be “poor” and do without while in college. “That’s why they’re there: to learn to earn.”

Todd Huettner, a financial analyst and consultant specializing in credit issues, reminds parents that although these tips are obvious to adults, they may not be obvious to children who are accustomed to always seeing credit in use, so be sure to hammer the point home. “Use cash for all discretionary purchases,” Huettner tells students. “If you run out of cash, then you are out of money. It takes self discipline.”

So how can your teen build a credit history without plastic? For starters, consider that FICO uses credit diversity as 10 percent of the overall credit score. “The best way to establish credit is to save up enough money for a substantial down payment on a car,” advises Frantz. ”Teens may qualify for a car loan on their own or with their parents cosigning.”

Officially on His Own

When your child is earning a regular income, he’s finally ready for the responsibility of a credit card. Candi Hinton Sparks, author of the Can I Have Some Money?, puts it simply: “Have an income if you are going to use credit.”

Encourage your teen to shop around. “Signing up for a credit card is not an impulse purchase – it takes research to find the best credit card,” says Bill Hardekopf, CEO of Low Cards, the leading consumer resource for credit card information. “Compare cards by looking through terms and conditions and the actual interest rates and fees. Look for a card with a low APR, no annual fee, and a grace period of 21 days.”

Dissuade your child from responding to every offer he receives “to build credit.” Joseph Onesta, former director of education for Consumer Credit Counseling Service of Los Angeles, warns young adults to avoid the temptations of T-shirts and other freebies they can get for applying. “Excessive inquiries and application for credit can damage a credit score for upwards to two years,” says Onesta, and such activity comprises 10 percent of the overall FICO.

And, don’t try building your child’s credit history by adding him as an authorized user on your own credit cards. “New FICO scoring guidelines don’t create a score for authorized users,” advises Siegel, “so this will not establish a credit profile.”

Young adults can, however, build credit by taking out student loans, explains Bob Friedman, director of student finance at Yeshiva University. “Students should borrow only what is needed and exhaust federally guaranteed student loans first.” Then they can use state and institution loan programs to bridge any gaps.

Using Credit Responsibly

The ultimate goal is not just to establish credit, but to establish good credit. At 35 percent, punctuality of payments is the single largest contributor to one’s credit score. Since you won’t always be around to remind your teen to send a payment, encourage her to sign up for payment alerts or schedule payments online.

And stress that credit does not replace cash. “Credit cards are not supplemental income intended to help people buy things they can’t afford,” reinforces Onesta. “Those who get the most out of their credit cards understand the value is convenience, not available credit.”
It’s just as important to not use all available credit. “Maxing out a credit card is nearly as bad as being late [with payments] in terms of the immediate impact on the credit scores,” cautions Patrick Ritchie, author of The Credit Road Map. A significant 30 percent of the FICO score is represented by the utilization rate – the ratio of debt (balances owed) to total available credit (credit limits). The lower the utilization rate, the better the credit score.

Patience, Planning, and Self-Control

A good credit score takes years to develop, but far less time to destroy, and raising a low credit score isn’t easy. Scott Mitic, founder and CEO of TrustedID, a consumer and business identity theft protection company, says, “There is no quick fix. It’s like losing weight. There are things you can do to look better for a few weeks, but if you really want good credit health, you must behave well over a long period of time.”

It’s important to teach your kids about responsible spending while you are still there to support them. Gayle Reaume Skiera, founder of The Money Academy, an educational company that works with youth to help them become financially independent and responsible – sums it up well. “Kids learn best through hands-on experience. Transfer financial responsibility to kids gradually, letting them make decisions and mistakes while the stakes are small.”

Reading, Writing, and…Credit Scoring? is provided by Experian.com