Credit experts answered your questions (Oct. 1, 2008)

A group of credit experts tackled your questions on Oct. 1, 2008.

I am overloaded with credit card debts and have numerous outstanding doctor/hospital bills that have been turned over to collection agencies and now to a credit bureau. I see no way out, as I had to file bankruptcy in 2004. Would you please suggest anything I can do as I am going under quickly. Thank you so very much for your assistance. – C. L. Childree, Zebulon

First, get control of your monthly budget. Pay most important living expenses first. Pay debts as you can. Old collections like medical debts are least important. Try making an appointment for one-to-one credit and budget counseling so a counselor can help you decide what to pay and what to let go.

I would like to slowly but surely get rid of some debt. My first and main concern is a home equity loan. What is the best way to handle this type of debt? – Kimberly Matthews, Sanford

Pay your highest interest-rate debt with any extra you have in your budget. It may not be your equity loan.

I have several items on my credit report that are not mine – a couple of credit cards as well as a tax judgment. They apparently belong to someone with the same name as me. I've tried, unsuccessfully, to get these off, but at this point, would like to hire someone to help me get rid of these items and clean up my credit report. Can you provide me with contact information to an agency or group that does these sort of things? Thanks! – Pat, Apex

Contact a counselor from Consumer Credit Counseling at the NFCC Web site. You can meet with a certified counselor for free. You should not need to pay to clean up credit problems.

We have some charged-off credit cards that show the last payment made was in the end of 2002. One of the accounts is frequently being re-aged by the collection company, which is keeping our credit score right around 600. We figured next December these would fall off our report so we were just going to ride it out until then, but then I was told the statute of limitations for collecting on the debt was long past and we should write the collection companies a cease-and-desist letter to have them stop the re-aging the debt. Please advise us on how we need to proceed so we can hopefully start seeing some improvement with our scores. Thank you so much. – Michelle, Franklinton

Negative information stays on the credit report for seven years from the date of last activity. If you are not making payments, items should not re-age. Wait out the time and see if the items drop. By the way, other things could be holding your score down like how close you are to maxed out on your open accounts.

I got a call tonight from "Card Member Services" and they said they could help me lower my credit card payments. After a few minutes, I hung up but they called me back. The name on my caller ID said "Interest Savings.” I talked to several people and got their license numbers and the corporate license number. I need to know if they are legit. I was given a toll-free number, but it doesn't match the number on my caller ID. I know companies like this exist, but I probably shouldn't have given them as much information as I did. Even if you use this on the air, please e-mail me, in case I miss it. Yes, there was a processing fee that they are to charge on one of my cards, but I am pretty sure I can take care of that with no problem. I just feel a little uneasy. Thanks for you help. – Janis McConnell, Raleigh

I would worry about any call out of the blue with an offer to lower card payments. Seek out an NFCC certified counseling agency where you can talk to a counselor for free. They will review your budget as well as your credit issues.

My daughter-in-law is always opening new credit cards and doing cash advances. Then when her balance is so high, my son finds out and has to pay it off, which is not easy for him. Is there any way to prevent her from being able to get these cards? Can you recommend a credit counselor for them? – Linda Hester, Clayton

If she agrees that she wants to limit her access to new credit, she can register to “opt out” from credit offers so that no new offers will be sent to her in the mail. To find out more about opting out, she can go to the Federal Trade Commission's Web site and type “opt out” in the search box to bring up numerous consumer materials on this subject. The FTC’s Web site is also an excellent source of information regarding how to select a good credit counseling agency. Go to the site, select the “consumer protection” tab, click on “Consumer Information,” then “credit and loans,” then “In debt?” and you will find the article, “For People on Debt Management Plans: A Must Do List.” This article and others on the site will give your daughter-in-law and son valuable information about selecting an agency. Some are definitely better than others!

My significant other and I are going to be buying a house soon (we both own houses now). My credit is not good, but his is impeccable. Will we be able to include my income to qualify for "more" house or does my poor credit negate that? – Cindy Harrison, Raleigh

In general, if your income is being included to get the loan, your credit will also be included. There are things you can do to clean up your credit: you can pull your free reports from annualcreditreport.com and delete all negative notations that are over seven years old and correct other errors. For more information on how to do this, including sample form letters, Go to the Federal Trade Commission's Web site, select the “consumer protection” tab, click on “Consumer Information” then “credit and loans” then “credit reports and scoring.” Good luck!

I graduated from college two years ago (with my master's), and I have incurred a lot of debt. My current monthly loan payments total $700 (it’s more than my rent). My loans are with Sallie Mae and I would really like to save more money. When asked to reduce my loan payments, they only consider my gross income when determining my payments and they won't lower it further. What are my options? – Michelle Reid, Raleigh

Have you already consolidated your loans? If not, this can be a one-time way to reduce your payments if you can obtain a favorable interest rate. If you can make the payments that are being asked for, try to do so. The faster you pay off your student loans, the better off you will be. If you really cannot afford your current payments, try to get information on an “Income contingent repayment plan.” You can also go to the U.S. Department of Education Web site and search for other options. If you get turned down by one person, ask to speak to a supervisor and tell them that you need help.

Does a zero balance on credit cards count as a debt, although in potential? – Phaed Aumen, Durham

An open account counts as available credit. Keep it zero – it may improve your score.

When I make a mortgage payment, the bank will turn around and send me the next payment's statement. Paying ahead doesn't matter, they just sent me January's bill and, like the others, I pay it ASAP. My question: Am I saving money on interest by paying these mortgage payments months in advance and if so, which would be the most beneficial: 1) Not paying not months ahead and adding extra money toward the principle, or 2) Simply making the payments as far ahead as I can manage? – David, Cary

You will save more if you pay on time each month and pay extra on the principle. But GOOD JOB being ahead.

My credit card company has replaced my credit card with a new account number twice in recent years due to account numbers being compromised at stores where we shopped. Will the changes in accounts negatively affect my credit score? – Jason, Raleigh

No, this will not affect your score.

Are there any local places I can go for credit services like counseling? How do I know whether they are legit? – Tracy, Raleigh

Consumer credit counseling, a part of Triangle Family Services, has certified counselors in both Raleigh and Durham – and the counseling is free.

I recently was late by one day on my credit card payment. This is the only time it has ever happened to me, and I had really low APRs on my credit cards. I have three open. Will this affect my credit score by a lot and will effect my other APRs? – Malania, Raleigh

Late payments do not show in your score until they are 30 days late. They should not affect your other APRs.

Is it more important to pay off certain types of debt on your credit report first? For example, does an outstanding cell phone bill weigh heavier on your credit score than another bill? I know all are important to clean up, but wanted to know if they needed to be taken off in any particular order. – Mother of 2, Raleigh

Pay the most recent accounts first. The older the account, the less it affects your score.

Is it wise to refinance your ARM home loan with the same company (CountryWide) that has the loan and contacts you every week? My understanding is it will cost $3,000 to have a loan approved (appraisal, etc.) for this supposedly lower rate. – Sarah Pace, Louisburg

Compare rates at local banks or credit unions. It can be OK with your current lender. Ask about a streamline loan that does not need an appraisal.

Due to a change in employment five years ago that created by a health issue, I have some credit card accounts listed as charge-offs on my credit history. One of the companies has pursued and obtained a legal judgment against me (without effect, since I have no assets to collect), but the others have not. I know these have a significant negative impact on my credit score, but will that improve if I repay the debt at this late date? What should I do? – Haley, Raleigh

Companies can file judgment up to three years after you stop paying the debt. Paying them off will not have a large effect if they are several years old. Negative information stays on your credit seven years, judgments up to 10.

How does entering into a debit management program affect my credit? So far, I have managed to make payments on time, but it is becoming more difficult with credit card debts. I have considered entering into of these programs that negotiates and gets lower interest rates but I don't know whether I should or if, indeed, that would help. Will you please advise? – Nadia Boone, Garner

Your creditors can report they are being paid through a plan so it can show on your credit report.

Be sure you use an agency with certified counselors – find one that is a member of NFCC. Ask if they have a local office and do in-person appointments. There is an agency in Raleigh. The fees should be low for any plan.

Does being an authorized user on a spouse’s credit card affect my credit? – Pat Wigington, Wake County

Yes – the card can appear on your credit report. Pull your report to check. If the card is paid on time, it can improve your credit.

My brother and his former girlfriend bought a car together. The loan is in his name only, but she made all the payments and she alone drives the car. His only part was obtaining the loan. They are no longer together, and she wants him to take over payments. Does he have to or does the fact that she drives the car and makes all the payments put the responsibility on her? – Sherry Gaskins, Roanoke Rapids

The loan is in his name – he alone is responsible for the payments.  Who has the car and drives it does not matter. If she keeps the car, she needs to get her own loan and your brother needs to get the car out of his name.

I recently bought a house, and the seller is also the lender. I have tried to "up" my score over the last few months and brought it from 535 to 612. I used a credit card once last month and it dropped my score to 597 and I couldn't get home owners insurance. I found some, but at a higher rate. In three years, I have to refinance with a bank or lose the house. What can I do to get to an acceptable score? – Tim Williams, Rocky Mount

Are you paying all accounts on time each month? If you have late payments, it kills your score. Get all credit lines under 30 percent of maximum.

I have a credit card that I just paid off last month and they just sent me a bill for a monthly member fee of $4.00 and payment protection of $.05 plus interest of $1.90. What can I do about this to keep from closing out the account, since closing out the account will hurt my credit? – Theresa, Warsaw

Call the company – you can stop the payment protection by just telling them firmly that you want it gone. Ask that they give you a no-fee card. If you are a good customer, they should comply in order to keep you.

I have a low credit score due to me making some dumb decisions when I was younger, but my question is how to bring the score up and what do you think about unsecure credit cards? Vannadi Lewis, Henderson

The age of the negative accounts has a lot to do with a low score. How old are the accounts? Pay all open accounts on time. Waiting for bad accounts to age may be the only thing that will improve your score.

Is there any way our past debt credit, if over 10 years, can be eliminated on credit reports? Lillian Moore, Cumberland

In general, negative items stay on seven years. Some things stay up to 10. Check the date of last activity on the credit report and count seven years from that date.

I had a legal name change that changed my entire name. Now, my credit report is blank with no credit score. Why is this, and how do I fix it? My bank gave me a small loan and said I have no credit whatsoever. – Crystal Phillips, Spring Lake

Your old report and Social Security number have not been matched to your new report. You may be able to send documents to the three reporting agencies to fix the issue. Your new loan should report correctly and help build your report.

If I owe medical bills and they have been sent to collection agencies, can I send a minimum amount and they have to accept it, or can they return payment and inform me of repayment options? – Lillian Moore

In general, collection agencies will post payments when you send them. It may not make them happy if it isn’t as much as they want, and they will still try to collect more by calling and sending letters.

How do I get my credit report free from all three reporting services? How do I get all inquires from car dealerships off my reports? – Vernon Sweat, Roanoke Rapids

Annual Credit Report is the Web site for free reports. Be prepared to answer a few security questions. Also, they will give you a chance to ‘buy’ services, so read everything down to the bottom of the page. All inquiries stay on your report for two years, then drop.

I have some credit debt. Would you suggest taking money from a stock account to pay off these debts and take the hit on income taxes or just keep making monthly payments? – Monika Marcinko, Oxford

Now may not be the best time to sell stock. You may want to talk to a financial planner before you do. Compare the interest you are paying to the amount you will pay in taxes. Go with the least-expensive if you decide to sell.

I lease a car and returned it two months early. Now I am beign harassed by a collection agency billing me for the full amount of the car, saying that this will ruin my credit. What should I do when I know I don’t owe this money? I don’t want this to damage my credit score. This was over eight years ago and I never received any bill from the lease company. I kept the car for two years and 10 months and the lease was for three years. – Cassandra Ross, Fayetteville

If this happened eight years ago, there is nothing the collection agency can do to force you to pay. Negative information can only be placed on the report for seven years after the last activity. We call this type of thing "zombie" debt. It you have an address, you can put in writing that you want them to stop communication with you. They have to stop calling. Keep good records of the letter – send it by certified mail.

I am trying to sell a house in Durham, and we have a contract. The buyers are having a hard time qualifying for a mortgage. I am told that their credit is good. Are there mortgages available? – Norma Dollar, Durham

Mortgages are available, but until Congress passes some “rescue” legislation, hopefully in the next few days, credit is very tight. Consider whether you are hearing the entire story. Perhaps the mortgages your buyers are able to get now are simply not at the terms they had hoped.

Last year, I had to declare bankruptcy, and I'm trying to get my credit score back up (currently 637). I have no credit cards, have been using debit cards, and am paying my mortgage automatically. I'm now in a much better position financially since I have more income due to retirement, Social Security and a part-time job. Can you suggest anything specific that I can do to help raise my rating? I need to buy another car this year if possible (with a substantial deposit) and would like to buy another home in the future. – Carolyn Furkey, Cary

Under our credit system, you must use credit to get credit. Credit reports typically contain errors, and bankruptcy information is not always reported correctly. To build your credit score, you have to work in two areas: (1) correcting your credit report and (2) building positive trade lines on your credit report.

To correct your credit report, pull all three of your reports from Annual Credit Report or by calling 1-800-FACT-ACT. (Getting your own credit report does not count as an “inquiry” about your credit). Unless your lawyer advised you otherwise, every account that you had when you filed for bankruptcy should show a zero balance and the notation “included in bankruptcy.” If this is not so, or if you have other errors, correct them by sending certified mail (return receipt requested) to the credit bureau in question. Include a copy of your credit report with the errors noted, an explanation of what is wrong, and any supporting documentation (such as your bankruptcy papers showing the creditor was listed and that you received a discharge). There is more help available on the Federal Trade Commission's Web site under consumer protection/consumer information.

To build positive trade lines, it is best to get a bank loan or bank credit cards. Store credit cards are not considered as good a form of credit. If you are not already a member of a credit union, consider joining one and getting to know the people at your local CU branch. They may agree to give you a small loan to rebuild your credit. Credit cards are a good way to build your credit, but only if you trust yourself not to charge anything you don’t already have the money to pay for – in other words, you want to be sure to pay any credit card balances in full each month to avoid getting back into debt. To build your credit score with credit cards, be sure you make all payments on time. Making payments on time and as agreed is the single most important factor in your credit score. For more information about credit scores, see My FICO but avoid signing up for the expensive and unnecessary services they attempt to sell.

A final option is to look at building an alternative credit rating with a service such as PRBC. This company allows you to build a credit report and score without getting into debt – by using utility payments and other on-time payments.

I was recently denied credit and was cited a reason of 'too many past-due accounts.' I checked my report. I had two delinquencies – one in 2003 and another in early 2004. Another reason is my cited credit score. I recently refinanced my home, and apparently that lowered my score as the loan is only a few months old and it is considered an inquiry. My score is now at 726. I was rather surprised to be denied credit, but I guess given the tough market, it is to be expected. What can I do to raise my score? The delinquencies are five years old. Can these be removed? How long do 'inquiries' remain listed? – Toni Williams, Clayton

There are three main credit reporting agencies (CRAs), and you can pull all three of your reports from Annual Credit Report. It is always wise to see it yourself. Negative information can be removed (if it is not automatically removed) seven years from the date of the delinquency. Most inquiries stay on your report for two years, but there are exceptions if you are shopping for a mortgage and get a number of quotes within a period of time. Your own checking on your credit does not count as an inquiry. For more information on inquiries and how they are handled, see the Federal Trade Commission's Web site, and the Web sites of the three CRAs. You can limit inquiries by opting out.

What do you do when you have items on your credit report that are not yours but cause you significant financial roadblocks? How do you remove these items permanently? Ex: I found eight collections and one bankruptcy on my credit report that are not mine. Please help! – Kim Hicks, Fuquay Varina

Unfortunately, this is actually a very common problem! The reason is the computer programs that the Credit Reporting Agencies (CRAs) use; they very commonly pick up other individual’s information and report it on someone else’s report. It can be something as simple as you having the same last four digits in your Social Security number as the other person or having a similarity in your address. To fix this very frustrating problem, you will need to do the following:

• Get a copy of the report that is wrong and mark those items.
• Write a letter to the CRA in question stating what is wrong and giving any supporting information you may have.
• Make copies of the above items. (Never send your only copy!)
• Send your letter and copy of the erroneous report to the CRA, certified mail, return receipt requested (this is very important). Be sure to keep the green card you will get back in the mail proving that the CRA received your letter.

For more information about your rights, see the Federal Trade Commission's Web site, select “consumer protection/Consumer Information” and then credit & loans.

I have two items that were reported to the credit agencies while waiting for a workers compensation decision. After the decision, both of these bills were paid in full. I have tried numerous times to contact credit bureaus by computer and phone. My attorney sent numerous letters to both the agencies and their collection companies informing them that it was illegal to report to the credit bureau until the case was decided. One of the bureaus that I actually talked to said that they would take it off immediately, and that was two years ago. What can I do to correct my credit? – David Williams, Durham

In order to activate many of your rights, you must put your demands in writing. You mention that you did contact them via computer, but to put this to rest once and for all, I suggest that you do the following:

• Get a copy of any credit report with the items in question.
• Write a letter stating why this information should be removed and attaching supporting information, such as a letter from your lawyer explaining the situation.
• Make copies of the above items. (Never send your only copies!)
• Send all of the above to the credit reporting agency in question AND to the creditor, and send these letters by certified mail, return receipt requested (this is very important). Be sure to keep the green cards you will get back in the mail proving the receipt of your letters.

If you still cannot get relief, you are entitled to have a consumer statement of 100 words or less posted next to the items in question for as long as the dispute remains unresolved.

If you have charge-offs over seven years ago and they get sold to another company, can it be reposted to your credit report as new? Or if it is sold before seven years and it is reposted as new? – Katrina, Raleigh

Excellent question! Unfortunately, this happens all the time, and it is not right. Follow the steps noted in the answers above to correct credit report errors and explain that this is the same debt, was purchased by the other company and is over seven years from the default and therefore must be removed!

We received a Chapter 7 discharge two months ago. How long will it be before we will be able to obtain credit to begin rebuilding our credit score? – Jane Smith, Raleigh

Take action immediately to fix credit report errors and rebuild. Credit reports typically contain errors, and bankruptcy information is not always reported correctly. To build your credit score, you should (1) correct your credit report and (2) build positive trade lines on your credit report.

To correct your credit report, pull all three of your reports from Annual Credit Report or by calling 1-800-FACT-ACT. (Getting your own credit report does not count as an “inquiry” about your credit). Unless your lawyer advised you otherwise, every account that you had when you filed for bankruptcy should show a zero balance and the notation “included in bankruptcy.” If this is not so, or if you have other errors, correct them by sending certified mail (return receipt requested) to the credit bureau in question. Include a copy of your credit report with the errors noted, an explanation of what is wrong, and any supporting documentation (such as your bankruptcy papers showing the creditor was listed and that you received a discharge). There is more help available on the Federal Trade Commission's Web site under consumer protection/consumer information.

To build positive trade lines, it is best to get a bank loan or bank credit cards. Store credit cards are not considered as good a form of credit. If you are not already a member of a credit union, consider joining one and getting to know the people at your local CU branch. They may agree to give you a small loan to rebuild your credit. Credit cards are a good way to build your credit, but only if you trust yourself not to charge anything you don’t already have the money to pay for – in other words, you want to be sure to pay any credit card balances in full each month to avoid getting back into debt. To build your credit score with credit cards, be sure you make all payments on time. Making payments on time and as agreed is the single most important factor in your credit score. For more information about credit scores, see My FICO but avoid signing up for the expensive and unnecessary services they attempt to sell.

A final option is to look at building an alternative credit rating with a service such as PRBC. This company allows you to build a credit report and score without getting debt—by using utility payments and other on-time payments.

I have credit card debt on more than one card. How do you decide which one to pay off first? - Brenda, Zebulon

It is best to pay off the highest-interest card first. To build a schedule for paying off credit card debt, use the “Power Pay” tool available free at Hummingbird. Click on the Learning Center, then click on Tools and Power Pay. Your information is not saved and is completely confidential.

How would I go about getting a lot of old credit info off of my credit report? I claimed Chapter 7 over 10 years ago and would like to know how I can remove all of these credit listings on my report? This bankruptcy was discharged in April of 1998. – Lisa Eliassen, Raleigh

See the steps above for how to correct credit report errors. You have the absolute right to have these items removed from your credit reports, but you should do so in writing, return receipt requested!

I am trying to clean up my credit and would like to know how do I go about doing it? Is there any company that would help me in cleaning up my credit that is not expensive? – Towanna Brinkley, Raleigh

You do not need to pay anyone to do this for you. You care more than a stranger would, and you will do the best job for yourself for free. See the answers to the questions above for the steps.

I have $150,000 in credit card limits. I have worked the past five years to pay them all off and now have zero credit card debt. Some of the card companies are now saying that they are canceling my card because of inactivity. Will this hurt my credit score and what should I do? – Steve Scroggs, Chapel Hill

Steve, what you report is new and is a sign of the times. Credit card companies have traditionally had billions in pure profit based on interest and fees. Now credit is tighter and they don’t want to keep the customers who don’t pay these fees. You can get new accounts, but your credit score will likely drop due to account closings and newer (rather than older) credit. But this should not be a major drop or last long. And $150,000 is a huge amount. You may find that having less available credit actually raises your score!