Shoring up your credit

Success is the sum of small efforts, repeated day in and day out.

-Robert Collier


New rules went into effect this week, simple as a pen stroke. Most probably were not even aware. What it means simply is that there will be additional government oversight to oversee existing oversight. Confused?

Here are the main changes that could affect you and your money.

The new law creates a Consumer Financial Protection Bureau which will oversee just about every kind of loan, making sure for example that home buyers can afford the loans they’re granted. The law also requires lenders to give you a free credit score and merchants will now be able to set a $10 minimum for your credit card purchases. Plus, overdraft fees and interest rates will be regulated.

The banking industry will work very hard to make these regulations work to their benefit. So will the customer benefit?

There are going to be some things that come out of it. This will put an end to certain bank fees and may rein in Wall Street–but banks will find other ways to make money. Banks have made their livings on consumer checking or banking fees. So, naturally, they are going to have to go through a period of “withdrawal”–but they will soon figure out how to make their money.

Small banks and credit unions will have more flexibility to create customer-friendly services. Some consumers question the benefits of this new law. The banks are in a situation that they have created.

Some of the changes take effect immediately; however it could take more than a year before the full power of the law kicks in.

And at the end of the year if no action is taken there will be massive and hard-impacting changes to taxes. It’s too early to tell what they decide to do … but get ready.

So, because much of these changes will affect you, as tied to your credit, I’ve put together a primer to ensure you’re prepared over next few months.


5 Quick Ways To Shore Up Your Credit Score–Fast

Here’s where you start: If you want to fix your credit score, you need to know what your current score is. Most creditors rely on the three-digit FICO credit score, which range between 300 and 850, when determining your level of risk as a borrower. The higher your score, the lower the risk is for the lender and the better your interest rate will be.

On the other hand, low credit scores result in getting denied for credit, or getting credit at extremely high interest rates. Contact a credit reporting agency to obtain your FICO score to see where you stand. You can get a free credit report, but to get the actual credit score you will have to pay (usually around $25).

(By the way, the place for your reports is www.annualcreditreport.com, NOT www.freecreditreport.com.)

Once you have your credit report and score in hand, you can take the following steps to fix your credit score fast:

1. Pay Off Non-Installment Debt First

If you have credit cards, you’ll want to focus your debt repayments here first. Paying credit card bills on time, and paying down the balances or paying them off completely will improve your score faster and more than paying off installment loans (car, student, mortgage, etc).

2. Get Under This Threshold:

Focus on getting your overall debt below 30% of your available credit limit on each credit card and revolving account you have.

This increases the amount of your “available credit” and will improve your credit score as you will be seen as less of a risk. Look at your credit card balances and send higher payments to the cards with balances closest to the credit limit first–to work toward the goal of decreasing your overall debt to less than 30% of available credit limits. Once you’ve obtained that goal, you can focus on paying back high interest debts first.

3. Only Use When Necessary

Try not to use your credit cards, even if you’re paying your bills in full each month. Each month, the balance from your last statement is reported to the credit bureaus, and whether you made your payment on time. Using a card that already has a balance isn’t going to improve your score, so save yourself the extra interest and stop using the cards while you’re working to improve your credit score.

Definitely do not use credit cards from issuers who don’t report your credit limit. For example, American Express tends not to submit a credit limit, which means the credit bureau assumes your highest balance is your credit limit. This will make it look like you’ve maxed out your credit card, which affects your score negatively.

4. Check Your Limits

Verify that the credit limits shown on your credit report match your actual credit limit for each credit card account. If the report is showing a lower limit than you really have, it can cause artificially lower credit scores — because it will appear you’re using more of your available credit than you really are. If you find an error, simply ask the credit-card issuer to update the information with the credit bureaus.

5. Fix Your Reports!

Have your credit report corrected if there are errors with any of the following situations, as they negatively affect your credit score:

* Late payments, collections, charge-offs that you don’t think are yours

* Credit limits reported lower than they really are (as discussed above)

* Accounts which are listed as anything other than “paid as agreed” or “current”, including “settled”, “paid charge-off”, “paid derogatory”.

* Accounts listed as unpaid that were included in a previous bankruptcy.

* Any negative item older than 7 years that is still appearing on your report (it should automatically come off the report after 7 years –10 if you filed bankruptcy)

I hope this helps–feel free to forward along to your friends, esp. those who are considering a major purchase, such as a car or new home.

I’m personally dedicated to the success of your family–and to your finances! Can other tax professionals say that?

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