First-Aid For Your Credit

One of the best things about getting a fresh start through bankruptcy is it allows you a chance to rebuild your credit rating. However, your credit rating won't improve as long as all your old, negative information is still listed with credit reporting agencies.

All three major credit reporting agencies collected information about you before your bankruptcy, including late payments, charge-offs and judgments. After your discharge, all these debts should be listed on your credit report as "Included in BK." If they are not listed that way, they appear to still be active accounts in collection status, which could limit your ability to get credit.

Unfortunately, creditors rarely report updates in credit records after a bankruptcy discharge. A couple of months after your discharge, you should order credit reports to make sure all your discharged debts are listed as being included in your bankruptcy.

You can contact the three major credit reporting agencies at the following numbers:
Trans Union (800) 888-4213
Equifax (888) 397-3742
Experian (800) 997-2493


Here are some other tips to help you rebuild and improve your credit rating after your bankruptcy discharge:

Give Yourself Credit:
The best way to rebuild your credit after a bankruptcy is to establish accounts that will report positive information on you. Get a single credit card with a small credit limit, use it very sparingly and pay the entire balance every month before the due date.

Read the Small Print:
After your discharge, you may get several offers for credit cards and other loans. Know what you're getting into before you accept these offers. Make sure you understand the interest rate, any other fees and the expected payments before you open a new credit account.

Prove It:
Even after your debts are discharged, you may need proof that you don't owe these creditors any more. Keep a couple of copies of your discharge papers from the court so that you can prove certain debts were discharged if you need to in the future.

Pay on Time:
Most credit cards and utilities report late payments to credit reporting agencies. If you make late payments every month, potential lenders will continue to see you as a poor credit risk. Also, most credit cards add a late fee whenever you're late with a payment. Avoid late fees and reports of late payments by paying your accounts in full before the due date.

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Your Credit Score: How is it Determined?

Credit, by definition, is your ability to borrow money. Information that is included on your credit report could sway a potential lender one way or another in deciding whether to extend credit to you. There are 3 major credit reporting bureaus:

• Equifax

  1-800-685-1111
  www.equifax.com
  

• Experian

  1-888-EXPERIAN (397-3742)
  www.experian.com
  

• Trans Union

  1-800-916-8800
  www.transunion.com

A credit report is more than just a list of the lenders and a person's payment history. Credit reports contain information that can be used to help lenders determine whether to extend credit to you. Here is a list of some of the things a credit report may list:

• anywhere you have applied for credit
  
• your name, social security number, and your spouse's name
  
• your current and previous addresses, name and address of your employer, as well as your income level
  
• information regarding lawsuits, foreclosures, repossessions, and whether you have filed for bankruptcy

Why are all these pieces of information listed on your credit report? Companies want to know whether you are reliable enough to pay back your debts. Not only do lenders look at your credit report, but insurance companies look for risk factors on it, employers can use it to screen applicants, and landlords can use it to screen tenants to determine if they are likely to pay the rent on time.

Lenders use all of the information on your report to derive a Fair Isaac Corporation (FICO) Credit Score, a number used to rate your credit worthiness. This score ranges between 300 and 850. According to FICO, 40% of the population score at 690 or lower, while 40% score 745 or higher, with just 20% above 780.

Lenders want to know whether a borrower will repay a debt once a loan is extended. Then the lender can use the score to determine how much to lend you, and what interest rate to charge you. Lenders assign points to the various aspects of your credit report. Five factors are weighed heavily when making this calculation:

1. Debt to income ratio. This is the proportion of how much total debt you have relative to your income level. This is the single largest factor that creditors consider in determining whether or not to extend a loan or other credit to you. Even if you have no balance on a credit card, your credit limit is still added to the debt side of your debt-to-income ratio.
   
2. Payment history. This factor considers whether you have paid your debts on time, including mortgages, car notes, credit cards, store accounts and loans.
   
3. Length of credit history. Lenders look to see how long you have paid on your debts. Good past payment history can help sway a lender to loan you money if you've had recent issues that could negatively affect your ability to get the credit.
   
4. Recent credit or applications for credit. If a lender sees that they are the tenth place this month that you are trying to borrow from, it could send up red flags.
   
5. The type of credit for which you are applying. Lenders that will retain a security interest in collateral, such as a car or mortgage company, may be more willing to lend money to more 'at risk' borrowers when the lender knows that they can always take back the collateral in the event of default on payments.

Other factors that lenders look at to determine who is a good credit risk are:

1. Education level. The higher the better.
   
2. Length of time at current residence. If you move around a lot, you lose points, but if you relocate for a better job and show your income is higher, that helps get you points.
   
3. Length of time at your current job. The longer you have been at your job, the better risk you appear to be.
   
4. Homeowner v. Renter. Homeowners are considered better credit risks than renters.

Creditors like stability. If you can show you are a stable, reliable person who has the ability to repay your debts, you will be a much better credit risk to a potential lender.

Everyone should always review his or her credit report periodically. Errors can be made. Just a few points can make or break your ability to acquire new credit. Therefore, it's crucial to have an accurate credit report. Over the last few years, identity theft has become a bigger and bigger problem as well. An uncorrected error can cause years of stress and frustration. The credit reporting bureaus must correct any inaccurate information on your credit report. Check out our Bankruptcy Resource Center section on correcting your credit report. Once corrected, the bureau will send you a free copy of the credit report showing that the inaccuracy was corrected.

http://www.legalhelpers.com/legal_helpers/brc_articles_credit_things_to_know.html

Pitfalls of Cosigning

Why obligate one customer to pay a bill when you can have two? With more and more poor credit ratings on the books, creditors are turning more towards cosigned debts as a method of repayment. A cosigned loan obligates two people to repay a loan instead of one. Depending upon your perspective, the loan can be an extraordinary benefit or a major liability. For a creditor, another signatory creates a safety net when a primary signor has a shaky financial history. For the extra signor, the loan creates the financial responsibility of paying the entire debt.

Consider this illustration: John Smith wants to purchase a motor scooter from Richard for $2,000. John does not have the upfront cash to pay Richard and asks for a payment plan. Richard runs a credit check on John and discovers John has missed several payments on previous car loans. Nervous about recovering the entire $2,000, Richard tells John he will sell him the scooter only if John's father, Bob, signs the contract as well. Trusting his son will pay for the scooter himself, Bob happily signs the contract.

A few months later, John moves to Michigan and takes the scooter with him. He has not made any of the payments on the scooter to Richard. Richard demands John make his payments, but John tells him he cannot. Richard then sues Bob for the entire $2,000. Under the terms of the contract, Bob must pay the entire $2,000. Bob has no legal defense!

Unfortunately, the above example happens all too often. Studies have shown that for defaulted cosigned loans, three out of four cosignors are asked to repay the loan. If you are considering cosigning or asking someone to cosign for you, be aware of the risks! If you must cosign, make sure you can afford to repay the loan on your own. Be sure that all parties receive a copy of the contract. And, if you are a cosignor, write a letter to the lender asking for a notification of any future default. That way, you can prepare for any default in advance and will not be forced to pay the entire amount right away.

http://www.legalhelpers.com/legal_helpers/brc_articles_pitfalls_cosigning.html

Identity and Theft Prevention

Identity Theft -What is it?

Identity theft is a type of consumer fraud that occurs when a person steals or assumes another person's identity for monetary or criminal purposes. Identity thieves will achieve this by obtaining and collecting vital personal information about their victims, usually social security numbers, birth dates, and credit card/bank account numbers. The thieves then use this information to obtain driver's licenses, state identification cards, credit cards, bank accounts and other legal documents under their victim's names but for their own benefit. In fact, identity thieves have been known to even fraudulently buy cars, houses, and get married under their false names.

Am I a Victim of Identity Theft?

Unfortunately, many consumers don't realize they are victims of identity theft until they are embarrassingly denied for credit, or are contacted by unfamiliar creditors looking for payment on debts that the thieves have run up.

Your Best Defense

To avoid becoming a victim, periodically check your credit with the three big credit bureaus: TransUnion, Equifax, and Experian (see below for contact information). If your credit report shows bogus or unfamiliar accounts, or even applications for credit that you don't remember making, there is a chance you are a victim of identity theft.

Am I Liable for Debts Identity Thieves Run Up in My Name?

Federal Credit Fraud Law protects consumers in these situations. It says that Creditors who wrongly extend credit to identity thieves are responsible for collecting these debts from the identity thief who duped them. Many times creditors will write-off the loss for lack of their ability to collect.

What do I do if I'm a Victim?

If you discover that you're a victim of identity theft, there are several mandatory steps that you need to take:

Report the Crime-File a Police Report

• File a Police Report with your local police and keep a copy for yourself. This will make your case easier to prove to creditors and to clear your name.
• File a Complaint The governmental agency that investigates identity theft is the Federal Trade Commission (FTC). Contact the FTC to report your crime at 877-ID-THEFT or www.consumer.gov/idtheft.
• Notify the Credit Bureaus Contact the three big credit agencies: TransUnion (800-680-7289), Equifax (800-525-6285), and Experian (888-EXPERIAN). Ask the agencies to have your account flagged with a fraud alert. This requires merchants to seek your explicit verbal or written approval before granting any new credit in your name.
• Close Accounts and Notify your Banks, Creditors and Utilities Close down all your accounts that have been used by thieves. Also, change all passwords and PINs for your accounts even if they were unaffected. Notify all your existing creditors and let them know of your situation.

Identity Theft and Bankruptcy

Seven million Americans were victims of identity theft in 2002, and it is the Nation's fastest-growing financial crime. Because of the volume at which the crime has occurred in the past and will continue to in the future, not all identity theft disputes will be adequately resolved for the consumer-victim. This will mean those fraudulent debts will go unpaid and the consumer will be subject to collection activity.

If you find yourself to be a victim, Bankruptcy may be your best course of action. Chapters 7 & 13 will eliminate the fraudulent debt without having to dispute whether or not you were the one who incurred the debt. At the same time, the bankruptcy will eliminate your own debt, and get you the fresh start you are looking for.

http://www.legalhelpers.com/legal_helpers/brc_articles_identity_theft_prevention.html

Credit Union Loans and the Cross-Collaterization Dragnet!

Credit unions are focused on people, not profits. Credit unions offer more than a friendly smile and a place to deposit your money. Credit unions are particularly adept at offering cross-collateralization clauses, also referred to as dragnet clauses, anaconda clauses, or future advance clauses.

When a credit union loans money to a consumer, the lender often seeks to protect its interest by having a borrower pledge collateral to secure repayment of the debt. Collateral is an asset pledged to a lender, until the borrower pays back the debt. In case of default, the lender has the right to seize the collateral and sell it. Sometimes lenders, particularly credit unions, insert cross-collateralization clauses to protect themselves against risk.

Cross-collateralization clauses make collateral that secures one loan serve as collateral for all loans the credit union has made to the borrower in the past, and may make in the future. This transforms all past, present and future loans into secured loans. Unfortunately, the borrower is often not aware of the cross-collateralization clause.

For example, John Smith secures a credit card via "PAYME" Credit Union and the credit card agreement provides "collateral securing other loans you have with us may also secure this loan." Two years later Mr. Smith obtains an auto loan in which his car also serves as collateral on "any other loans he has with the credit union now or in the future." Two years later Mr. Smith files for bankruptcy and PAYME Credit Union demands that he reaffirm (or repay) all loans with the credit union or it will repossess the car based on the credit card default.

In this situation, Mr. Smith must consider the practical implications of reaffirming two or more debts to a credit union to keep his car. Often, the vehicle is not worth the outstanding loan balances and the Mr. Smith will be in a better position if he surrenders the vehicle and discharges all debt owing to the credit union.

It is important to note that courts may invalidate these clauses if the borrowers successfully argue they were not aware of the clause, or did not understand it. However, courts will generally uphold these clauses when they consider the security agreement language to be clear, unambiguous and in keeping with the Truth in Lending disclosure requirements. The Truth in Lending Act Regulations provides that the statement: "Collateral securing other loans with us may also secure this loan," qualifies as a valid disclosure. Do not allow the murky language of dragnet clauses rob you of the fresh start the bankruptcy code is designed to give you.

More importantly, do not allow yourself to be duped into several cross-collateralized accounts with your credit union. Car loans remain a staple in the credit union loan portfolio. If you sign a security agreement with a credit union to finance an auto, tread carefully in all future transactions with the credit union. Be wary of credit union loans that are labeled "unsecured" or "signature loans" as they most likely have a dragnet, or "anaconda clause," waiting to put the squeeze on you.

http://www.legalhelpers.com/legal_helpers/brc_articles_credit_union_loans.html

Profits from Credit Cards Skyrocket

Just as the credit card industry lobbies Congress to restrict bankruptcy relief, industry profits continue to soar. The Consumer Federation of America (CFA) issued its fourth report on credit card debt in April 1999 after decades of a steady climb in industry profits. The principal finding is that cardholders are exercising more restraint while credit card companies increase their marketing, lines of credit, and profitability. The CFA's executive director, Stephen Brobeck, commented in a concurrent press release that credit card issuers "urge Congress to deny families access to bankruptcy relief" while they "enjoy high and increasing profits."

The most recent profit reports of Second Quarter 2003 demonstrate that credit card profits continue to soar¹. For the three months of April, May, and June of 2003 the nation's three largest credit card issuers enjoyed nearly $1.5 billion in profits. Citibank, the nation's largest issuer of bank credit cards reported profits of $659.0 million. While the figure includes some credit cards issued outside the USA, it is 9% over the same period one year ago. MBNA, the second largest U.S. issuer of bank credit cards, reported an even higher 20% increase over last year with $543.3 million in second quarter profits. Although Bank One, the third largest U.S. issuer of bank credit cards saw a rare 2% decline over the second quarter of last year, it posted $270.0 million in profits. American Express, another industry giant, reported second quarter profits of $634.0 million from its credit card business. The reports from the second quarter lead industry analysts to forecast $12 billion in profits for 2003.

Issuer	Profits	Loans
Citibank	$659.0 Million	$113.3 Billion
American Express	$634.0 Million	$36.0 Billion
MBNA	$543.0 Million	$110.5 Billion
Capital One	$286.8 Million	$60.7 Billion
Bank One	$279.0 Million	$73.0 Billion

Revolving credit card debt is now at an astounding $700 billion, with the average American carrying over $8,000.00 of credit card debt. So, as the credit card companies lobby Congress for significant credit card reform that would severely restrict consumers' ability to receive bankruptcy relief, they continue to achieve greater profit and expand their efforts to get those same consumers to incur more debt². In fact, according to the Consumer Federation of America, 3.5 billion credit card mailings were sent out to homes across the country in 1998. How can the credit card companies complain about the credit crisis in the United States when they are the largest promoters of it?

¹ Source: Cardweb.com/cardtrak/news/2003/august/13a/html and CardData (www.cardata.com)
² Source: Savewealth.com/specialreports/smartcredit/

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Watch out for predatory credit-counseling firms

You may have seen the attractive commercials for Credit Counseling Company's that offer immediate debt relief. Before one elects for this option, it is important to have a full understanding of what Credit Counseling can accomplish for your particular case.

Consumers need to be especially cautious when considering using the services of a credit-counseling firm because it has led to an alarming number of cases in which a consumer's debts skyrocket through no fault of the consumer.

According to the Better Business Bureau, as the number of Americans seeking assistance from credit-counseling firms has increased, so has the number of complaints against credit-counseling firms. In 2003, the Better Business Bureau recorded six times the number of complaints as it received in 1999, a mere four years earlier. Consumers need to be especially cautious when considering using the services of a credit-counseling firm.

Currently, the Federal Trade Commission, as well as Attorneys General from four states, are investigating and prosecuting some credit-counseling firms for engaging in deceptive business practices. Furthermore, the U.S. Senate is holding hearings on what one insider terms "predatory practices" in the credit-counseling industry. In certain cases, the firms are said to have misled their clients regarding their fees, as well as whether the fees would offset the individual's debts. In other cases, credit-counseling firms are charged with accepting consumers' payments but neglecting to pay their bills in a timely manner.

According to financial experts in the field, some credit-counseling firms will offer you a free financial review and will not begin to discuss a debt management plan with you before examining your situation with due care. Other credit-counseling firms may charge you a small upfront fee, as well as a monthly transaction fee, but you need to ensure that the firm's payment cycle coincides with the due dates for your original debts. If the credit-counseling firm does not pay your bills on time, you can be held liable for any accrued interest and late charges. Once these charges begin to mount, your chances of escaping from your debt will decline sharply.

The moral of this is that all consumers need to look beyond the appealing commercials that promise debt relief via immediate credit counseling. A consumer's failure to investigate a credit-counseling firm can result in increasing his debt ratio.

http://www.legalhelpers.com/legal_helpers/brc_credit_counseling.html

Consumer Alert Issued:

IRS and FTC Investigates Credit-Counseling Organizations

The Internal Revenue Service and Federal Trade Commission announced a joint advisory, warning consumers of some of the pitfalls of Credit Counseling. They plan to team up to investigate both deceptive practices of the industry and the often-misleading nonprofit status of some of these credit-counseling agencies.

"Consumers who are struggling financially need to be careful not to lose even more money to someone offering a quick and easy way to fix credit problems," said Timothy J. Muris, Chairman of the FTC. "We want all consumers seeking help to take some common sense precautions."

The IRS, FTC, and state agencies urged consumers to be wary when choosing a credit counseling organization. A large number of complaints from consumer advocate groups have alerted these groups of some of the deceptive practices and hidden costs associated with some credit counseling agencies. Consumer complaints have centered on high fees, hidden charges, and the lack of actual help these organizations have been able to offer.

The IRS is concerned that some credit counseling agencies are abusing their status as "tax exempt organizations" in order to avoid state and federal consumer protection laws. Many credit-counseling agencies have been able to operate using deceptive practices and hide under their "nonprofit" status. As nonprofits, the agencies are now exempt from dozens of state and federal regulations.

The IRS also warns consumers that a "nonprofit" status does not ensure the quality of an organization; it is merely a tax code classification. Consumer groups have also criticized the large salaries of many of the credit counseling agencies' executives. "Consumers need to know not to read too much into not-for profit status - that's no guarantee that someone is legit," said a director of the FTC's Midwest Operations.

The IRS has begun auditing some credit counseling services to see if they meet the criteria for their nonprofit status. To obtain tax exempt status, a credit counseling agency must limit its services to poor customers or must primarily provide education and counseling to the public. Many credit counseling agencies have been criticized for focusing on higher profitability and just acting as a middle man funneling money to the creditor and just taking a cut of the payments. The IRS said that simply enrolling people into payment plans is not enough. They also plan to more aggressively screen new applicants from credit counseling organizations.

There is heightened concern as more and more consumers enter into credit counseling programs. The number of consumers involved in some sort of credit counseling sky rocketed to an estimated 9 million in 2002. This number is expected to grow as more and more consumers will be required to undergo some sort of credit counseling prior to filing bankruptcy under the proposed new bankruptcy laws.

http://www.legalhelpers.com/legal_helpers/brc_articles_consumer_alert.html