Credit
I have heard you mention credit counseling through the NFCC. There is an agency in my hometown. Can you tell me what kind of help they can give my husband and me? We have a large amount of credit card debt as well as equity line debt. We are paying our bills on time but can only pay minimums. Do they negotiate with the credit card companies on our behalf?
-Lisa, Alabama
Every year the NFCC assists over 3.2 million people who are struggling with their finances. For over 50 years, NFCC member agencies have offered free or low cost services (whether or not you’ll be charged for the help they provide depends on the member agency and the laws in your state) to those wanting to take control of their debt. The NFCC offers confidential help via phone (through their national toll-free hotline), online or in person.
Through credit counseling, the NFCC can help you to work towards paying more than the minimum amount on your bills. During a session, your counselor will address your credit issues and help you find ways to work towards solutions. “Adjusting the budget, decreasing spending and increasing income would be ways to find extra money to pay more than the minimum and get out of deep incredibly sooner,” says the NFCC’s Vice President of Communications Gail Cunningham.
If you’d like the NFCC to negotiate with creditors on your behalf, they can do that through a Debt Management Plan, or it’s commonly known, a DMP. A DMP is essentially a plan to help More…
A couple months ago I answered a question from Nancy in Texas who wondered what effects canceling a credit card would have on her credit score. In response, Jacque in Colorado asked the following:
“Is there an amount to overpay on a credit card that helps your credit score? For example is paying double the minimum due best or does any amount help?”
Answer: In short, no, overpaying on a credit card will not directly affect your credit score. “Paying the minimum or more than the minimum doesn’t have a direct impact on your scores because that level of detail is not reported to the credit bureaus,” says Credit.com’s John Ulzheimer.
What’s the best way to improve your credit score? Paying down your debt. “You can improve your scores by paying your debt down, which generally requires more than a minimum payment,” says Ulzheimer.
Aside from paying down your debt, there are other things you can do to pump up your score. Here are a few steps you can take to give it a boost:
Cut, don’t cancel. If you have a card that you rarely use, don’t cancel it. The longer your relationship with your lender the more beneficial it is to your score. If having the card in your possession is too much of a temptation, cut it up, don’t cancel it.
Be punctual. 35% of your credit score is based on our payment history and even one late payment can ding your credit score. One of the best ways to More…
I have a 17-year-old daughter that will be 18 in January 2010. What type of credit card should I get her to start building credit for her?
-Christine, New York
When teens and credit cards mix, the outcome can sometimes be disastrous. But, if handled correctly, credit cards can be a great tool for teaching your college-age kid the basics of financial management.
After your daughter turns 18 in January, she may want to hussle to get that first card. Otherwise, she will need a cosigner. When another piece of the new credit card legislation takes effect on February 22nd, any person under the age of 21 will be required to have a parent to co-sign on their credit card. “Mom needs to be sure she is comfortable with co-signing, which could affect her credit score if her daughter misses a payment,” says Karen Blumenthal, author of “The Wall Street Journal Guide to Starting Your Financial Life.” If your daughter can prove that she’s making enough money to handle having her own credit card, she may be able to side-step the need for a cosigner.
When you start shopping around for a credit card, let your daughter do the work. “It’s good practice for the student to research the options–the interest rate on charges, the interest rate on any cash advances, and the fees you’ll pay if you pay late or go over your credit limit. That way, the card holder knows exactly what the terms will be,” says Blumenthal.
As you probably know, the options for credit cards can be overwhelming. To make it easy on your daughter keep things simple. “I recommend a young person apply for a plain More…
I am curious about consumer credit counseling. Can you tell me how it affects your credit? Is it as bad as filing bankruptcy?
-Kelly, Oldsmar Florida
You’re right-using consumer credit counseling to manage your debts can potentially affect your credit score. What may surprise you, however, is the fact that when your score is calculated using the FICO scoring model, whether or not you’ve received counseling won’t affect your score. “Any notation on a consumer credit report indicating that the consumer is or has been involved in credit counseling is ignored by the FICO scoring model,” says CardRatings.com’s Curtis Arnold.
However, what you do with the advice you get from your consumer credit counselor is another matter. For example, if a counselor advises you to manage your debt or credit cards a certain way, and you follow through with that advice, it could potentially have a negative impact on your score.
One thing is for certain though; getting credit counseling will have much less of a negative impact on your credit than bankruptcy will. “The negative impact of credit counseling is fairly minimal, whereas a bankruptcy has HUGE negative implications. For example, according to Credit Counseling of Arkansas, your score can drop as much as 100 points if you file bankruptcy,” adds Arnold.
If you decide to move forward with credit counseling, a good way to start looking for help is through the National Foundation for Credit Counseling. The NFCC is a national, nonprofit network of counselors whose mission is to help you get out of debt. Through the NFCC, counseling is available by phone, online or More…
Hi Jean—I caught the end of your segment on the Today show a few weeks ago where you were talking about credit cards. You said that one should never CANCEL a credit card, as it negatively affects your credit score. Instead, you said cut up the card and don’t use it. HOWEVER, what do you do in a case where the credit card company charges an annual fee? If you cancel, your credit score suffers; if you don’t, you’re stuck paying the annual fee. How do you handle that situation?
-Pat Bosha, Schnecksville, IL
You’re right-if you cancel your card; your credit score will take a hit. If you don’t, your creditor will force you to pay the annual fee for being a cardholder… and that’s something creditors are doing more frequently to mitigate the effects of the Credit Card Reform Act, whose first wave of reform took effect today. According to Synovate, a company that tracks direct mail, credit card issuers are sending fewer credit card offers to households, yet a higher number of those offers now have fees attached to them.
So which is worse, paying the annual fee or having a credit score that’s a bit lower? According to Credit.com’s John Ulzheimer, over the years, it may actually cost you more money if you keep paying the annual fee, versus cancelling the card and potentially paying a higher rate on an auto loan or a mortgage.
If you’re absolutely sure you want to cancel the card and avoid the annual fee, Ulzheimer suggests that before you close the account, replace your soon-to-be lost line of credit with another card (that doesn’t have an annual fee). Doing so will protect your More…
