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The Pros and Cons of a Reverse Mortgage

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With a reverse mortgage, a senior homeowner can withdraw a large chunk of the equity in their home for cash, spend it how they wish and wait to pay it back.

Reverse mortgages are special types of home loans that are available to homeowners aged 62 and older. Unlike home equity loans, with a reverse mortgage you can wait to repay it until after you leave your home. Leaving your home could simply mean no longer using the house as your principal residence, selling or relocating to a new home, or moving to a senior living facility, or upon the homeowner’s death.

Many seniors may turn to reverse mortgages for an infusion of much-needed cash, strengthening their monthly budgets and giving them a greater sense of financial security from month to month. You may use the money from a reverse mortgage to bolster your Social Security benefits, which may not be enough each month.

You may turn to a reverse mortgage for help in dealing with the diagnosis of a long-term illness for yourself, or a loved one, which may require money beyond their current income or for help in dealing with the costly aftermath of a lengthy hospital stay and its subsequent recovery.

For example, you may need to pay for additional people to help you at home, in-home aides, someone to help with laundry, meals and housekeeping. And your health insurance may not cover the full extent of your on-going medical costs and expenses.

Other people may decide to take out reverse mortgage to simply pay for home repairs or home improvements. The money could be available in a lump sum in a single disbursement, through a line of credit or monthly cash advances or a combination of a line of credit and monthly payments.

With a reverse mortgage, you keep the title of your home and you are still responsible for paying property taxes, homeowner’s insurance and maintaining your home, so it’s not as if your homeowner costs vanish, as convenient as the cash may seem.

In general, with reverse mortgages, the older you are and the greater the equity that you have in your home, the more money you can receive. How much you can borrow with this type of mortgage depends on a homeowner’s age, the type of reverse mortgage you choose, the appraised value of your home, available interest rates and a financial assessment of your ability to continue to pay property taxes and homeowner’s insurance.

The amount you owe with a reverse mortgage comes due when the homeowner dies, sells the home, or no longer lives there as a principal residence. Most of this loan type have a “non-recourse” clause, which means you or your estate if you should you die while living there, would owe no more than the value of your home.

A reverse mortgage may be a good option for people who own their own home and  have few if any other savings to tap or for those simply looking to get some additional cash for expenses. But it is important to consider your individual situation carefully and to understand the pros and cons of a reverse mortgage.  Seniors with other assets may wish to tap those instead and leave their home and its full equity as an inheritance for their heirs.

Here is a look at the pros and cons of getting a reverse mortgage as a senior homeowner.

Advantages of reverse mortgages

Tapping home’s equity for cash. Converting some of the equity in your home to cash through a reverse mortgage is a key advantage and selling point for these types of home loans.  You’ve got equity in your home but you’re short of cash. A reverse mortgage is one way to convert that equity into cash. 

Tax-free money. Believe it or not, the money you receive through a reverse mortgage is tax-free, an advantage for people with limited incomes.  Rather than income earned, a reverse mortgage is considered a loan advance so the money you receive through a reverse mortgage isn’t subject to taxes.

No impact on federal benefits. Getting a reverse mortgage will not affect your eligibility for Social Security or Medicare so you can tap into the equity in your home and bolster your monthly budget and not impact those important federal programs.

Disadvantages of reverse mortgages

Fees. With a reverse mortgage, you will pay an origination fee as well as closing costs and continuing servicing fees. So there are plenty of costs to consider when tapping your home’s equity through a reverse mortgage.

Interest adds up. As you receive money through a reverse mortgage, interest gets added to the balance you owe so the amount you owe through a reverse mortgage increases over time. Some reverse mortgages have fixed rates and other come with variable rates.  With a variable rate reverse mortgage, an increase in interest rates will increase the interest you pay on your reverse mortgage, bumping up your overall balance.

Fewer assets. A reverse mortgage could use up much of the equity in your home, leaving fewer assets for you and your heirs.  So you and your descendants will have less outright value in your home after signing on for a reverse mortgage.

Shop smart for a reverse mortgage

If you think a reverse mortgage may be right for you and your family. It is important to shop around.  Consider offers between lenders carefully.  You’ll also want to learn more about the different types of reverse mortgages.

Single purpose. Single-purpose reverse mortgages are available from some state and local government agencies and non-profit organizations.  These types of reverse mortgages may only be used for specific purposes such as home repairs and home improvements.

Proprietary. Proprietary reverse mortgages are private loans back by companies that develop them.  Homeowners with high value homes may qualify for more cash through a proprietary reverse mortgage.

Home Equity Conversion Mortgage (HECM). These federally insured reverse mortgages are backed by the U.S. Department of Housing and Urban Development. Before applying for this type of reverse mortgage, you must meet with a counselor from a government-approved housing counseling agency.

6 Ways To Prepare When Your Applying For A Mortgage

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Looking to buy a home in the next year or more?  You’ll want to clean up your credit, pay down debt and build up your savings.

Here are six ways to get ready to apply for a mortgage.

Review your credit reports. Buying a home is the biggest purchase you are likely to make and it’s important to get your credit in tip-top shape before you apply.

So get a copy of your credit report and make sure there are no errors, and resolve any unpaid accounts.  Even an outstanding bill of less than $100 can hurt your credit, so pay off any forgotten accounts that you may find.

You’ll also want to clean up any errors and correct any mistakes on your credit report prior to applying for a mortgage.  You don’t want a mix-up on a credit report to slow you down when you are getting ready to buy a home and apply for a mortgage.  And these days, identity theft is a worry as well.  So check for accounts that someone else posing as you could have opened in your name.  You want your credit reports clean and reflective of your credit record over the past several years and no one else’s.

You can request a free copy of your credit report from each of the three major credit-reporting agencies by visiting annualcreditreport.com. You are entitled to a free copy of your credit report from each credit reporting agency each and every year so be sure to take advantage of this, especially in the ramp up to buying your own home.

You can order copies of your credit report one at a time or order all three at once.

Errors on credit reports take a bit of time to correct so be sure not to put this off until the last minute.  And because of the possibility of identity theft it is good idea to get in the habit of checking your credit reports at least once a year, anyway.

Pay off small bills.  Got credit card balances of a few hundred dollars or less?  Now is the time to pay off those bills. You want to lower your outstanding debt as you prepare to borrow for a mortgage.  So take care of any lingering balances you may have on store cards from say last Christmas.

Ease off on big purchases.  Put those credit cards away for a while.  Other than small purchases you can pay in full each month, such as cell phone bills, you’ll want to ease off those little plastic cards.  And you’ll want to put off other big purchases such as new furniture, another computer, a new car and stick with what you have until that mortgage gets approved.

Mortgage lenders evaluate your debt-to-income ratio when reviewing your mortgage application and you want your debt levels as low as you can get them prior to applying for a home loan.

Mortgage lenders want proof of income.

Be steady with your income.  As you hold off purchases, you will want to fortify your income. Got a good job? Stay there. Prior to applying for a mortgage is not the time to switch jobs or start a new business.  Lenders are looking for stability and will like that you’ve been at a steady job for a while. And they will be reviewing your employment record for the previous two years so you will need to explain any changes in employment.  Hopping around to multiple jobs does not look good. They want to be assured that you can make a mortgage payment each month, and demonstrating you have steady, reliable income each month will help to assuage those concerns.

If you are low on savings, you may even want to take on a second job for a while on the weekends to boost your income, because you will need money for the down payment for your home and for routine maintenance and repairs once you move in.

 Save. Save. Save.  Most lenders require down payments of 5 to 20 percent when you purchase a home. (Although, there are some lending programs available that require no money down.)

Saving money for a down payment means trimming your budget of extras for many months and boosting your income however you can.

If you make a down payment of less than 20 percent of a home’s purchase price, a lender may require that you purchase private mortgage insurance, which will increase your monthly payment each month.  Once you pay off 20 percent of the home’s purchase value through your monthly payments, you will no longer be required to pay PMI and you can cancel it.

Remember the more money you save on a down payment for a home, the lower your monthly mortgage payment is likely to be. And if you can put down 20 percent or more, it can save you from paying PMI altogether.

Also keep in mind, when you own the place the repairs and home maintenance are on you. There’s no landlord to call for help if something goes awry. So you also want to build up a savings fund for managing your home and taking care of repairs.

Get into the savings habit. Save for your down payment and open a separate savings account just for your down payment, and continue to use this account for home savings after you move in to your home.  Automate your savings by having a set amount of each paycheck moved to this account. Keep it separate from your other savings so you won’t dip into it.

Prep your documents.  When you apply for a mortgage, a lender is going to ask for quite a few documents. Gather them up in advance so you’ll be ready.

A mortgage lender may ask for:

  • Checking, savings, investment account statements
  • Pay stubs
  • Your employment history for two years
  • Information on your outstanding debts, including student loans, auto loans and credit cards
  • One to two years of tax returns, including W-2 forms and I-9 forms 

 

Discover a Higher FICO Score: Secured Credit Cards

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I wrote a previous post on how to rebuild your credit score, mentioning the fact that I had signed up for a Discover secured card to get the ball rolling. In this post, I will walk you through what a secured credit card is, the pros and cons of
getting one, and how to best use your newfound secured credit to boost your FICO score.

What is a secured credit card?

A secured card is a credit card that is backed with cash as collateral. In other words, if you want a $500 secured card, then you’ll have to send the bank $500 in cash to “secure” a $500 credit line. Many banks are fully secured by the deposit, but some may allow a partial deposit, meaning that your credit limit may be higher than your initial cash deposit. An example is if you sent the bank a $200 deposit, but were allowed a $500 credit line.

Benefits:

  • It’s easy to get a secured credit card when you’re unable to qualify for an unsecured credit card due to poor credit worthiness.
  • A secured card can act as a tool to help build or rebuild credit over a period of time, if used properly, as most banks report your payments to the major credit bureaus.
  • If you default, the cash deposit you provided will be used to pay what you owe. This is also a drawback, see below.
  • You could earn a few bucks through cash back bonuses on your spending, depending on what bank you choose.
  • You may learn better spending habits. Keep purchases small and pay off your balance monthly.
  • Deposit is refundable if you close the account or graduate to an unsecured card (some banks do this automatically), assuming you paid your bills on time.

Drawbacks:

  • You have to provide a cash deposit to secure the card, which could be difficult for some people, however some banks offer secured cards with credit lines as low as $200.
  • There may be application fees, ATM fees or annual fees, so be vigilant in your research, and choose a card that won’t eat up your money before you have a chance to use it.
  • You can still end up in debt. If you don’t pay, the interest will pile up quickly. If you started with a $500 credit line (secured), and default, you could end up owing much more once you add in monthly interest, penalty APRs and late fees.
  • Be sure your bank reports to at least one of the three major credit bureaus, otherwise it will be impossible to meet your credit building goals. And, inquire as to whether they report the card as secured or unsecured, because that can definitely make a difference on your credit report.

I Used Discover to Raise My Credit Score

I chose the Discover It Secured Credit Card to meet my particular credit goals, which was a small secured credit card ($300-$500) to help rebuild my credit and FICO score, but I could have easily gone with Capital One. It was close, but Discover won me over with the bonuses and a review at around the 6-month mark for graduation to an unsecured card.

I have had my DiscoverCard since May of 2016. I chose to deposit $500, so that was my credit limit. I’ve used it semi-monthly to pay for a nice dinner out with my husband, which usually runs about $50, give or take a few dollars, which is equivalent to about 10% of my credit limit. This is a little low, but I paid it off each month, on time for six months, and it was sufficient enough to boost my FICO score by more than 125 points!

Raising Your Credit Score

At about the 6-month mark, Discover automatically reviewed my account and then automatically graduated my account to an unsecured credit card, unbeknownst to me, and sent me my $500 deposit back in the mail. I have to tell you, it was a fantastic surprise, being a few weeks from Christmas! That same week, Discover also sent a letter to inform me that my credit limit had been increased to $1250. Trust me, folks, this works, so let’s find you the perfect card!

You should first know what your credit needs and/or goals are before you decide which secured card to choose for yourself, but let’s compare some of the more popular ones, in no particular order.

*These are quick “snapshot” overviews. Please see the links provided (unaffiliated) for complete details on card security, features, current offers, APRs, and fees.

CREDIT UNIONS

I’m bringing up credit unions, in general, because if you’re already a member of a credit union, it might be in your best interest to inquire about a secured credit card program with them first. Many will offer much lower APR’s and little to no annual fees.

DISCOVER IT SECURED CARD – 23.24% APR

  • The Good: Deposits are from $200-$2,500. Periodic account review to transition you to an unsecured card (deposit refund), no annual fee, 1% cash back on purchases (2% on gas and restaurants), free access to FICO score (TransUnion), reports to all three credit bureaus, and there’s no penalty APR. You should not be late on any payments, but the first time you are, you will not be charged a late fee. And, they have a cash back match for the first year (new customers only).
  • The Bad: Late fee of up to $37, but this or the APR won’t matter if you pay off your balance monthly, on time. Discover.

CAPONE SECURED MASTERCARD – 24.99% APR

  • The Good: Deposits are $49, $99, or $200 for initial credit line of $200 based on credit worthiness. Reports to all three credit bureaus, no annual fee, no penalty APR, unlimited access to credit score (CreditWise), and after 5 months of on-time payments, you can get a higher credit limit without paying an additional deposit.
  • The Bad: Late fee of $35, but this or the APR won’t matter if you pay off your balance monthly, on time. At this time, CapOne does not graduate accounts to unsecured cards, but you may receive a limit increase. Capital One.

OPEN SKY SECURED CREDIT CARD -17.64% APR

  • The Good: Deposits are $200-$3,000. This one tends to be more for those with really bad credit. That’s why there’s no credit check and no checking account required to make the initial deposit or qualify. They report to all three credit bureaus.
  • The Bad: Annual fee of $35, and look out for “inactive late fees” after the 12-month mark. Late fee of up to $27 and penalty APR of 21.75%, but this won’t matter if you pay off your balance monthly and on time. You can’t graduate to an unsecured card because they do not offer one. Open Sky.

BANKAMERICARD SECURED VISA – 20.24% APR

  • The Good: Deposits are $300-$4,900. You may be able to qualify for a higher credit limit than you deposit (partially-secured card). Free access to your FICO score, a 12-month review that may allow you to graduate to an unsecured card, and reports to the major credit bureaus.
  • The Bad: Annual fee of $39. Penalty APR of up to 29.99% and late fee of up to $37, but neither will matter if you pay off your balance monthly, on time. Bank of America.

U.S. BANK SECURED VISA CARD – 19.24% APR

  • The Good: Deposits are from $300-$5,000. No penalty APR, reports to all three major credit bureaus, earns interest in a savings account (minimal), and you may be able to graduate to an unsecured card after a year, but you may have to call and request it.
  • The Bad: Annual fee of $29. Late payment of up to $37, but this or the APR won’t matter as long as you pay your balance off monthly, and on time. US Bank.

WELLS FARGO SECURED CARD – 19.24% APR

  • The Good: Deposits are $300-$10,000. Periodic reviews for account upgrades (if upgraded, your deposit will be refunded), and reports to the major credit bureaus.
  • The Bad: $25 annual fee. Late payment up to $37, but this and the APR will not effect you if you pay off your balance each month and pay on time. Wells Fargo.

Using Your Secured Card to Rebuild Credit

It’s important to remember WHY you’re doing this – for better credit. This goal can only be achieved by “playing the game”. The game is a small set of credit rules that insure a positive outcome. The bank gets what they want (money) and you get what you want – a better credit rating.

Rule #1 – Pay on time, every time (set reminders).
Rule #2 – Pay your balance in full every month (auto-pay may be an option).
Rule #3 – Keep credit utilization low, ideally 15-30% of your total secured credit line.
Rule #4 – Use the card frequently, but for small purchases only.
Rule #5 – DO NOT CARRY A BALANCE – EVER (to avoid interest and late fees).

If you’ve had any experience with any of the above-mentioned cards, have questions or tips to help others on their quest to improve their credit, please share below in the comment section.

How to Choose a Health Care Plan

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Choosing the best health plan for you and your family takes time and a little bit of work. But before getting lost in the details of each plan, sit down and take a close look at your family’s medical needs and expenses.

What medical services will you and your family need in the next year? Not sure? Take a look back at your health expenses in the previous year and use it as a guideline.

Did you visit the doctor often? Or just for standard check-ups? Does someone you love have asthma or another condition or disease that requires routine attention and care? Did you spend a lot on prescription drugs or hospital visits?

Tally up all of your medical expenses over the past year and look at the costs. Take the time to go through each month thoroughly. You want to have a firm grasp of your actual health care expenses before choosing a plan. Once you know just how much you spent on health care in the past year, it will give you a good estimate of what you are likely to spend on health care in the upcoming year.

healthcare costs

And, if there is an additional health care cost on the horizon, a possible operation, or medical procedure that may be needed, factor that into your future medical costs as well.

Once you know your medical costs and expenses and what you spent your money on, it’s time to look at health plans.

Finding the Right Plan

Some health plans offer greater choice of medical providers and tend to cost more. These more traditional health plans are called indemnity plans.

Indemnity plans tend to have higher out-of-pocket expenses and higher deductibles. After paying an annual deductible, most indemnity plans cover a percentage of a patient’s medical costs, often 80 percent. Most indemnity plans come with a cap of how much you would pay as the patient in an upcoming year.

With other health plans, you have fewer health provider choices. And you’ll need to select physicians within a specific network of care providers but the costs also tend to be lower.

These types of plans are called managed care plans, and include preferred provider organizations, (PPOs) or health maintenance organizations (HMOs). With a managed care plan, your choice of doctors and hospitals are more limited but you also tend to have lower out-of-pocket costs and lower premiums.

Of course, if you can find a doctor that you like within an affordable network of physicians, it can be the best of both worlds.

Managed care plans are available in many employer health plans and through HealthCare.gov.

Think About Your Savings

Looking at your own personal savings is another important aspect of choosing a health plan.

Higher deductible plans mean you’ll pay more money out of your own pocket before the benefits and coverage of your health plan kicks in, but you’ll also pay a lower premium or payment amount each month.

Weigh the pros and cons of paying a little more each month out of your own pocket, with a lower deductible plan, but paying less if a serious medical condition or expense should occur. Would a higher deductible or lower deductible plan work best for your family?

An Uncertain Future

For people with health plans through the Health Insurance Marketplace, the future is not clear.

The new President-elect pledged to repeal Obamacare, but an all-out repeal will be difficult, without having 60 votes in the U.S. Senate. And Republicans have 51 seats, with a seat representing Louisiana to be decided in a run off election in December.

Sections of the Affordable Care Act that will be difficult to repeal or change are the reforms made to the Medicare program, the provision that allows young adults to be on their parents policies until the age of 26, and the provision that requires insurers to sell policies to everyone, including people with pre-existing health conditions.

Under the Affordable Care Act, those under the age of 26 may be added or stay on a parent’s health insurance policy even if the young person gets married, does not live with a parent, is not financially dependent on a parent, is attending college, or is eligible for an employer plan. And this may be a good option for families if other areas of the law are repealed.

There are portions of the Affordable Care Act that can be changed or eliminated through a process called reconciliation, and if Republicans vote along party lines in 2017 they have enough votes to make those changes.

These include ending the expansion of Medicaid coverage, eliminating the federal subsidies that make it more affordable to buy health care through the Marketplace and doing away with tax penalties for not buying health insurance. They also could eliminate a number of taxes that were created to pay for the Affordable Care Act under the Obama administration.

These were all provisions of a bill passed by Republicans in 2015 in the House and Senate and vetoed by President Obama.

When and if those changes take place is unclear. One bill proposed by Republicans in 2015, called for the end of the federal subsidies assisting people buying insurance through the Health Insurance Marketplace at the end of 2017. The deadline for enrolling in 2017 health plans in the Health Insurance Marketplace is Thursday, December 15.

Laws typically take a long time to change and implement, so it is possible there may be a year or more before changes to the Affordable Care Act take effect. But nothing is certain other than the new President’s plan to take apart Obamacare and replace it with something else.

Trump released an outline of his health care plans on Nov. 11. He has a very different plan for health care coverage in America, including a return to high-risk insurance pools and more Health Savings Accounts.

According to Greatagain.gov, “A Trump Administration will work with Congress to repeal the (Affordable Care Act) and replace it with a solution that includes Health Savings Accounts (HSAs) and return the historic role in regulating health insurance to the States. The Administration’s goal will be to create a patient-centered healthcare system that promotes choice, quality and affordability with health insurance and healthcare and take any needed action to alleviate the burdens imposed on American families and businesses by the law.”

The outline also calls for allowing people to purchase insurance across state lines and re-establish high risk insurance pools “for individuals who have significant medical expenses and who have not maintained continuous coverage.”

What to Do if You’re a Victim of Identity Theft

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Has an identity theft struck one of your accounts?  Try not to panic!  But it is important to act fast to minimize the damage. Here’s what you need to do to get your credit and your finances back on track.

Place a fraud alert on each of your credit reports.  Phone one of the three, national credit reporting companies, Equifax (1-888-766-0008), Experian (1-888-397-3742), or TransUnion (1-800-680-7289), let them know that you’ve been a victim of identity theft, and request that a fraud alert be placed on your credit report.

The company that you contact will reach out to the other national credit reporting companies so one phone call is all you need to place a fraud alert on all three of your credit reports.

Prefer to email your fraud complaints? You also can place a fraud alert online through any of the credit reporting companies’ websites. A fraud alert is free and stays on your credit report for at least 90 days. And you can renew a fraud alert after 90 days if you need more time to straighten things out and clean up your credit after a thief’s tampering.

Let’s hope things are straightened out in a matter of months. But if not, an extended fraud alert is available. With an extended fraud alert, you receive two free credit reports within 12 months from each national credit reporting company. An extended fraud alert lasts for seven years.

Look for more signs of fraud and ID theft.

Once you place a fraud alert on your credit report, this allows you to order one free copy of your credit report from each national credit reporting company.  Review each credit report for bogus accounts.  How much damage did an identity thief do? Is there one account you don’t recognize, or two or three?  Study each copy of your credit report carefully so you don’t miss anything that shouldn’t be there and could potentially impact your credit. You can file credit report disputes online.

Contact the fraud department of affected financial institutions.  If a scammer has tampered with one of your bank or credit accounts, you’ll also need to contact the fraud department of the bank or credit card company directly. And you’ll need to follow up that phone call with a letter that you’ll want to send certified mail, asking for a return receipt so you’ll know when a financial institution received it.  Be sure to close any account that you suspect an identity thief has tampered with.

File an identity theft complaint with the FTC. Create an identity theft affidavit and file a complaint with the Federal Trade Commission.  An identity theft victim’s affidavit is a voluntary form that you’ll be able to use when communicating with credit reporting agencies, creditors and others about an identity thief’s actions. It helps to prove that you are a victim of a crime. This can come in handy later on if there are residual affects from the ID theft that lead to illegitimate debt collection activity.

identity theft

Report the crime to your local police department. Take your FTC identity theft affidavit with you when filing a report with your local police about the identity theft.  Request a copy of the police report or the report number to keep for your records.

Stay organized.

You’ll need to keep lots of paper records so get a folder or two and stay organized until your credit and good name is clear. Keep copies of your identity theft affidavit, your police report and each and every correspondence with a credit card issuer, bank or credit reporting agency.

To protect your good name and keep it protected, you’ll want a paper trail.  And you’ll want to keep good track of your phone calls as well, keep a written log of the people you spoke to, the date and time of the call and what was said.

Not sure what to write in a letter? You can find sample letters at IdentityTheft.gov.  It is also a good idea to send all your letters certified mail.

Get to work cleaning up your credit file. You’ll need to prove to banks and other financial institutions that you are an identity theft victim and you are not responsible for the thief’s actions and their impact on your credit and bank accounts.

Use the identity theft affidavit you filed with the FTC and the police report that filed with local law enforcement when requesting fraudulent information be removed from your credit reports.  These also are good resources to have if a disputed account has fallen to collection and debt collectors are contacting you for payment.

How to minimize your chances of becoming a victim of identity theft.

We cannot prevent every method a thief may take to steal our identity, but fortune favors the prepared. Take these steps to lower your risks.

  • Each month, review all your credit and other accounts regularly to check for fraud. The sooner you can spot a thief in one of your accounts the quicker you can stop the damage.
  • Buy a cross-shred shredder and shred all financial documents before discarding. A Social Security number, or a bank or credit card number and your mailing address is all a thief needs to get started.
  • Go paperless with banking and credit card statements. But be diligent online as well.  Change your financial passwords.  Protect your email, by updating those passwords as well.  Don’t forget to keep your virus and spyware software up-to-date.
  • Don’t fall for scams. A legitimate bank or credit card company that you do business with will not contact you and request your private financial information.  They already have it. But the scammer you are communicating with doesn’t. Ignore requests for private account data and forward the emails to the fraud departments at the financial institution the crooks say they are representing.  You also can report fraud to your state attorney general’s office and the FTC.
  • Review your credit report to look for bogus accounts under your name. Visit annualcreditreport.com, and get a free copy of your credit report from each of three major credit reporting agencies, Experian, Equifax and TransUnion each year.  You can even stagger your requests so you’ll check one copy of your report every four months, lowering your chances that a thief will open an account without you knowing it.

If you have concerns about your identity having been stolen, or questions about prevention, post in the comments below for feedback.

Debt Collection: Something Different This Way Comes

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By some estimates, more than a third of the adult population in the US is going to come in contact with a debt collector at some point. If you have never had to deal with debt collector before, your only exposure to the industry could be from the media, and perhaps by way of this hilarious anecdote about debt buying from John Oliver. Or, you may have tuned in to random soundbites on the nightly news promoting wariness about debt collection scams that flare up.

Count yourself lucky if you have missed out on financial setbacks and have not had to contend with collection issues. Count yourself luckier still if your contact with the legitimate collection side of the debt and credit industry was only in the last couple years.

You are the luckiest if you first come in contact with a debt collector in the near future, say 12 or more months from now. I say this with confidence because the wild west days of debt collection are over. Some people just have yet to catch up with this fact.

Whats different about debt collectors today.

I’ve discussed much needed changes in the debt collection marketplace in the past, but you may be surprised (I still am somewhat) that we are fast entering a time where debt collection is highly civilized (said with a lilt in my voice from Old Spice commercials).

Because of rules and law changes at the state level, and also due to CFPB investigation and enforcement actions against banks and debt collectors, there is much that has changed over the last few years in the debt collections landscape. I want to touch on some of the most dramatic developments that have already influenced collections first, then wade into what debt collections may look like as soon as next year.

Debt collectors made changes in some of the following ways:

  • Starting with the recession, and record credit card default rates, debt collectors at banks and at the larger third party agencies took on a “we are here to help the customer” tone. This stood in stark contrast to the more normal stern sounding, stress the customer out – your full balance is do right now – debt collection tone that existed prior. Record default rates are no longer, but the change in tone of debt collectors largely stuck.
  • Legitimate debt collectors are far more compliant with existing rules and laws than ever before. Things like not calling before 8 am or after 9 pm, or the frequent calls to family and neighbors under the auspices of “locating the consumer” (when they already confirmed your address and talked to you on your phone 3 days ago) happen only seldom, and when they do, it is likelier today you are dealing with a blatant collection scam (I have another article coming next week about the rash of scams I am seeing of late).
  • Banks are putting collections agencies they work with under much higher scrutiny and auditing them stringently. You really have to have your ducks in a row as an agency to get accounts from anyone other than small local creditors and service providers. This has cleansed some of the questionable actors from dialing for dollars all by itself.
  • Banks have to follow new OCC guidance about who they may sell accounts to (transferring the legal rights to unpaid debts is quite normal since the 1990’s). This guidance from a primary regulator like the OCC has been compounded by federal regulatory action by the CFPB against major banks, debt collectors, and debt buyers. The affect of this has been less debt for sale, though that market may be thawing. More on this development below. But suffice to say that the John Oliver video I linked to above would have been much more applicable, say 6 years ago, than today. While I laughed throughout the video, most of the concerns it raised are already managed by state and federal regulators in just the last few years, and will be even more so in the months ahead. While buying a portfolio of really old, out of statute to sue in court medical bills is unfortunately still possible, you would not be able to buy fresh default credit card debt how Oliver did.

Debt collectors and new realities.

There are only a few states with what I would consider excellent consumer protections from certain debt collector practices. California recently enacted the Fair Debt Buying Practices Act, and New York is getting serious about how collectors interact with its residents. There are several states considering legislation to further protect people from questionable collection practices. Regulators have already made meaningful impacts by issuing new guidance to banks, and through existing and pending enforcement actions.

Regulatory actions from the CFPB against the largest credit card issuers, debt buyers, and a large collection law firm, set beside new bank guidance by the OCC regarding how banks sell or place debt for collection, have combined to give somewhat clearer visibility of more formal changes to come that bring a national impact with them.

Fair collection practices for collectors.

Some existing actions prevent the sale of debts that cannot be properly documented to the standard a court may set, or that have been part of a bankruptcy filing. Other actions prevent how or when someone will be sued by a debt collector.

Last week the CFPB announced an upcoming July 28th field hearing about a required small business impact study regarding proposed debt collection rules. We should get to see more details about those proposed rules for the first time in nearly 2 years.

Here is a wish list of a sort that I hope to see changed nationally, and with all players, when it comes to debt collection.

Debt documentation.

Similar to the provision of the FDBPA in California I mentioned above, we need every flavor of debt collector (whether banks collecting post charge off, a collection agency, collection attorney, or debt buyer) to provide every consumer making payments an accurate accounting of how those payments are being applied.

It is ridiculous the trouble people express to me about making payments to a law firm or collection agency, and sometimes for years, without any invoicing and billing system to reflect the amount remaining owed. They try in vain to get some kind of accountability and get nowhere, and that is because it is often not required. It is shameful we have gone as long as we have without this fundamental math being readily provided.

I believe legitimate collections over payment installments would actually increase the more the consumer could see what is left owing. And the debt collection industry as a whole would gain a huge bump in credibility if accurate payment invoicing were the norm.

And while we are on the subject of debt documentation, it should be required that all debt collectors (banks too) are required to send consumers an outline of what they are agreeing to accept as payments, or settlement in full, prior to the consumer remitting the first monthly payment, or full settlement amount, on charged off debts. This practice became widely adapted by the entire industry during the recession, but there are still notable exceptions. Synchrony, a huge branded credit card issuer, still messes with consumer confidence by delaying documentation,  and Portfolio Recovery Associates, the second largest debt buyer in the nation, appears to think its okay too.

If I am the OCC I would want to know why Synchrony values this practice. And if I was thinking about selling debt to a debt buyer like PRA, I would think twice until they got this ridiculous “no soup for you” policy in line with what they partly already have to do for newly purchased debt in California.

Post charge off interest.

Just because you can does not mean you should. Banks charging default interest when accounts go bad is part of the carrot/stick principle of lending. It is also part of the “what the crap… how is making an un-payable debt more un-payable going to help you collect” question I have had for years.

If the IRS is not going to treat an amount as income if cancelled or forgiven, than why have post charge off interest at all? Someone with a huge data set please run the numbers and show me the meaningful benefit when you measure balance accretion on the 1/5 of the accounts that go more than 90 days late (that will ever be collected on), against the safety and soundness principles of our banking system, and the confidence of consumers and the public dealing with collections.

Is that return a benefit to lending practices as a whole? Is there more to be gained by eliminating post charge off interest from accruing? My guess is NO to the former, and YES to the latter.

Bank and creditor notifications.

Some early indications from recent regulatory action is that large credit card issuers are sending what many call a “Goodbye Letter”. This is the bank notifying a former customer – that could not keep up required minimum payments – that their account has been assigned or sold, and who to.

These types of consumer notices will help a percentage of people – who are still trying to actively manage their financial setbacks – to know who is legitimately collecting, and to be prepared for future communication and resolution efforts.

I imagine better lettering to consumers will help everyone in the collection life cycle. I hope this becomes a required practice.

Attorney fair collection rules carve out.

Please… for all that is good and gracious… do not carve out attorneys from new rules designed to protect consumers. Attorney collection abuses are no different than any other debt collector. In many cases it can be worse, as judgments lend credibility to bad practices and the impression that bad acts and practices are court sanctioned.

I have participated in regulatory changes at the federal level. Attorneys were provided some limited carve outs from consumer protection in debt relief. That door left ajar created 100’s of millions of dollars of consumer abuse (that we know about so far).

According to Jared Strauss, a former debt collector for attorney and non attorney agencies “If attorney’s are carved out – regular collection agencies could largely cease to exist”. Jared has keen insights into debt collector behavior, such as how debt collectors look at your credit, and why debt validation letters can cause trouble. I share his concerns.

The abuse we have seen in legal collections is not limited to the court procedural stuff, such as running collection mills with attorneys supposedly supervising thousands of cases a month, affidavit and notary chicanery, or the foundation lacking to prove a claim once it is brought.

Employees that man the phones for debt collection attorneys are some of the most egregious offenders when speaking to consumers.

Beware the unintended consequences.

Fair collection rules for banks.

I have called out some of the best banks out there for how much of an improved debt collection environment they created for their card members and customers for unsecured accounts. Much of those changes came as a result of the recession. And like I mentioned above, the changes have largely stuck. But as can be seen from consent orders between the CFPB and banks, there is reason to extend fair debt collection rules to credit issuers.

If credit card originators were subject to debt collection rules it may lead to some banks assessing the benefits to internal collections. They may opt to outsource all collections after 90 day defaults. Some banks who are not selling debt, like American Express and Discover, may start to look at the benefits of that type of recovery. Maybe Wells Fargo will sell debts instead. If collectors there blatantly lie to me, what can the consumer expect?

Compliance and legal costs at originators, set beside expectations on recovery from post charge off collections, may create a more robust collection space. And that space may soon be filled with nothing but meaningfully regulated entities, rather than years past where we are left to point to the cleanest dirty shirt.

The changes I know would benefit consumers and the collection industry alike are not limited to those above. There are many nuanced things to come that I will cover in greater detail here and on the Debtbytes video channel.

Rebuilding Credit: The Basics

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Since I’m in the process of rebuilding my credit, I thought I’d walk you through some of the steps I’m taking to meet my new credit goals.

Please understand that there is no “quick fix” for your credit. Your credit report is created based on your use of money, whether responsibly or irresponsibly. You can, however, put in extra effort by disputing incorrect or out-of-date items on your report, paying off debts, and acquiring 1-3 new trade lines where you may be lacking. To the rest, I’ll say, “Time heals all wounds.”

Your Credit History

Historically, I’ve had dismal credit, but I was able to build it back up to excellent credit with a credit score of over 750. Realistically, I see myself doing that again, because I know it just takes a little time and organization, and I’m not starting from the bottom. My scores range from poor to fair, so I have a bit of a head start.

In the last 5 years or so, I’ve had some seriously derogatory marks added to my reports. I’ve also not had any credit cards, BUT I also have no debts (which is good and bad). This is a big reason my credit is lacking, because this affects my “credit history”, which is a major factor in deciding my credit score, but there are other deciding factors. According to FICO, these are the top 5 to consider, in order of importance:

  • (35%) Payment History – Paying your accounts on time (collections, late payments, etc.).
  • (30%) Amount Owed – Combines debt, credit utilization, and number of accounts.
  • (15%) Credit History – Age of accounts and how often you use them.
  • (10%) Credit Mix – Types of accounts (installment, revolving, mortgage, etc)
  • (10%) New Credit – Don’t open too many accounts in a short amount of time.

These topics cover many more details that you can find on the Fico website, but essentially, they will be the most important to you. I would like to add that too many hard inquiries may have a mild negative impact, and public records may have a significant negative affect on your credit score. Public records include liens, judgment, and bankruptcies.

Where to Start When Rebuilding

The first thing you’ll want to do is get your hands on all three of your credit reports and scores, if you don’t already have current copies. You can get all three reports (no scores) through annualcreditreport.com for free, every 12 months, or you can order them directly through the credit bureaus’ websites. Experian offers all three reports with scores for $39.95.

DEBTS: If you have unpaid balances, charge-offs, and/or are in collections, this will continue to be a derogatory mark on your credit report. This is absolutely step #1 in improving credit. ALL DEBTS MUST BE PAID. If they’re not, stop here, and get a plan together today. You’re in the perfect place to do so – use the search box on this site!

Once you have your reports, look over them for inaccuracies. If you find that you may need to dispute inaccuracies or out-dated information, please see my post on “How to Dispute”. This is the first thing you want to do – clean it up and make sure everything is accurate and updated. The information reported will vary from one credit report to the next, so be thorough.

How to Improve Your Credit
Next, you’ll want to set some credit goals, and to do that, you need to locate the part of your report that talks about why your score is low. It will usually be titled something like “understanding your score” or “factors affecting your score”. This will let you know what is hurting your credit and what you can do to improve it. Some things will not be able to change. For example, one of mine is “insufficient information on a mortgage account”, which I can’t do anything about since it’s an old (and closed) account. A different bureau has no items to display for me to improve on, which sounds great, but leaves me feeling lost with a mediocre score. What this tells me is there is nothing hurting my score, but I definitely need to still build up my credit responsibly. <— my new goal!

New Revolving Credit Tradelines

Once any disputes are completed to your satisfaction and you have your goals in mind, it’s time to take action. For me, since having no revolving credit was hurting me, I decided to get a secured card through Discover for $500 and only use it at a 10-15% debt-to-credit ratio, meaning I never charge more than $50-$75 on it each month, and pay it off completely and on time. After six months, I can be reevaluated for a larger credit line. After one year, I may qualify for an unsecured card with them based on my payment history. This is a great way to be smart about revolving credit while giving your credit score a lift!

And, I did a lot of research before choosing Discover to help build my credit. Not only are there the above-mentioned features, but I also earn 1% cash back and view my FICO score for free through their partnership with TransUnion. It’s a win-win for all involved.

Whatever you do, don’t apply for multiple revolving accounts in a short period of time, as this appears as though you need credit. I only applied for one secured card and will wait 6 months before considering any other revolving accounts. Generally speaking, new accounts may temporarily show negatively on your credit report until around 90 days of on-time payments.

Small Installment Loans

I was already in the market for a “new” used car for my oldest daughter, and it occurred to me that this may be an opportunity to help build my credit by financing. At first, I was concerned that my credit may not allow the financing, but I soon learned that “fair” scores are considered borderline “good” at a car dealership.

I got a 7.24% interest rate, which isn’t awful, but that’s not really the point. The point is the bank will make a little money off of me, and in return, I will use them to build up my credit. Another win-win!

I didn’t want to be in debt with this purchase or pay massive interest, so I saved up the money in advance and put it in a separate savings account. I put a nice  down payment on it (banks like to know you have cash to put down), and was able to finance the rest over 48 months. Of course, I’ll be paying it off in less than a year without penalty, but don’t tell the financing company!

The Bottom Line

I don’t believe credit is essential to life, but it’s definitely essential to qualifying for a mortgage. Most other things you can reasonably save up for, even a used car. Only buy what you can truly afford, even if you finance it, and pay on time, every time.

Everyone makes mistakes, even with credit, or especially with credit, but it can be remedied over time with a little patience and forethought.

I will post my credit scores and any changes in them over the next several months. I’ve already seen a 41 point increase in my Equifax score in the last month, but I think that’s only the beginning. If you are beginning to, or in the middle of, improving your credit, post more about your story and goals in the comments below. You can help others and get expert feedback on many related issues you may have.

How to Dispute: DIY Credit Repair

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Disputing inaccurate tradelines on a credit report is affectionately known as “credit repair”, and although I’m no expert, I still feel more qualified to do it than most credit repair companies. I’m doing the disputes myself because it’s fairly simple, cheaper, and I consider credit a very personal thing, so I don’t believe anyone else’s hands should be in it but my own.

I have previously written about how I haven’t used a credit card in many years, and feel that credit is not essential to life. I still strongly believe that, but in the face of a possible home purchase in the somewhat near future, I can see that it’s in my best interest to repair and “bulk up” my credit now. This doesn’t mean I’m going to run hog wild with credit cards. Instead, I recently funded a $500 prepaid card through Discover, and I’m using it wisely  at a 10-15% debt-to-income ratio while paying it off each month. My main focus today, however, is to dispute inaccurate and out-dated information on my credit report, which will, in turn, raise my credit score with little to no effort on my part.

The Fair Credit Reporting Act is what gives the right to privacy and accuracy from the credit bureaus in charge of reporting your credit information (Equifax, TransUnion, Experian). The FCRA also allows you the opportunity to dispute entries on your credit report that are erroneous or out-of-date.

Why Should I Dispute at All?

There’s nobody saying you need to dispute anything, however, you should know that certain types of inaccuracies can have a seriously negative impact on your credit score. These can vary greatly, so it’s in your best interest to monitor your credit report to be sure it’s up-to-date and accurate.

Disputing something on your credit report.

The information reported on your credit report is used to create your credit score, which is used to assess whether you are credit worthy. This is a huge deciding factor in whether you qualify for any credit at all (including a home mortgage), but it also plays a huge role in how much interest you pay on your loans and credit cards. If these things are important to you, then your credit should be a top priority.

What is a dispute?

A dispute is, essentially, a disagreement. When it comes to credit reports, you will generally be disputing an item that falls into one of the following categories (most common):

Incomplete or inaccurate Information – Examples:

  • an account that’s been paid but is still reporting a balance
  • personally identifiable information being reported incorrectly
  • accounts closed by you but show as closed by “grantor”

Possible Mistaken Identity – Examples:

  • any account listed that doesn’t belong to you
  • unfamiliar “hard pull” inquiries when you haven’t applied for credit
  • previous addresses or phone numbers listed that have never been yours

Out-of-date Information – Examples:

  • paid tax liens reporting as unpaid. An unpaid tax lien will remain on you report for 10 years, but a paid one will only stay for 7 years from the date paid.
  • a negative account reporting past the statute of limitations, which is 7.5 years from when payments stopped. Positive accounts can potentially remain on your credit report forever.
  • any account that is still being reported after it was discharged through a bankruptcy. The bankruptcy itself will remain on your credit report for 10 years.

*** DO NOT TRY TO DISPUTE LEGITIMATE DEBTS THAT YOU KNOW YOU OWE. ***

Getting Your Credit Reports

The first step to dispute is pulling your most current credit reports. You can pull all three for free using annualcreditreport.com, but only once every 12 months. Unfortunately, I found the website to be less than user-friendly. I tried to get all three of mine, but only ended up being able to view my TransUnion report. I had to pay for the other two through their company websites (equifax.com and experian.com). You may have more patience than me (I could have written in to get my free ones from the two I could not access immediately online).

Once you have your credit reports, print them out. You may notice an inconsistency between them, but this is mostly due to the imperfections of the system itself. Some lenders report to one bureau and not the others, or maybe you had one account while you were married, then opened a new one after your divorce. Not to mention the timing of the updates can all vary and show up at different times on your report. The system is the system… for now.

Focus on one report at a time and study it. You need to become familiar with your credit reports and know what’s on them, who you owe and who you don’t. This may sound pretty basic, but for people with debt, this may prove to be a challenge. If you have unpaid balances, chances are those debts have been sold off to a debt buyer or debt collection attorney, and will not show up under the original creditor’s name, making it difficult to identify. Or, it may be missing from your credit report altogether if those buyers got their hands on your account recently and haven’t done anything with it yet.

How can you find your debt? Usually, you can call your original creditor directly, and they can tell you who they sold it to, but if it’s been a few years, it could have been sold more than once and, in that case, you’ll have to follow the breadcrumbs to find it. Michael Bovee talks more about this here:

Where to Look in Your Report

The next step is to identify which entries are valid and which are not. Most potential disputes are going to be found under the “Negative Accounts” area within the credit report, so start there. In my case, though, significant errors were found under public records, so be sure you cover the entire report from each credit bureau.

A special note on personal information. Please make sure your name, addresses, phone numbers, and employment are all correct. This is just as important as the accounts themselves, because if you’re listed at a previous address or have a phone number reporting that’s never been yours, it may signify a possible mix-up in identity, which is vital to correct immediately. I found an out-of-state phone number on mine I will also be disputing.

Note: When filing disputes, do so all at once, as another one cannot be filed until your first dispute request is complete, which can take up to 30 days.

The Best Way to Dispute will Vary

Submitting your dispute is relatively easy, in most cases. The majority of people will submit theirs online through each credit bureau’s website, like I did. You’ll have the option to upload any supporting documentation and you can check the status of your dispute during the 30-day investigation.

You can also call or write the credit bureaus. Most credit experts will recommend writing the bureaus directly, so you can tell your side of the story and provide documented evidence, especially if you have a unique issue or complicated case to plead. This option also leaves a “paper trail”, in case things don’t go your way and you decide to sue for damages at a later time.

Notes: You can’t sue for credit damage unless you dispute it first. And, don’t send in any original documentation that you aren’t willing to part with permanently.

I submitted my disputes online because it was quick and easy. If you also prefer to file online, make sure and read the fine print, as you may be agreeing to arbitration down the road – in lieu of a trial – if you ever did want to pursue an action against a credit bureau (such as an FCRA violation).

Call Experian-1-888-397-3742
Online Dispute – https://www.experian.com/disputes/main.html
Mail – https://www.experian.com/disputes/experian-mailing-address.html

Call TransUnion – 1-800-916-8800
Online Dispute – https://www.transunion.com/credit-disputes/dispute-your-credit
Mail – https://www.transunion.com/resources/docs/rev/personal/InvestigationRequest.pdf

Call Equifax-1-800-685-1111
Online Dispute – https://www.equifax.com/personal/credit-report-services/credit-dispute/

Mail – https://www.equifax.com/cp/MailInDislcosureRequest.pdf

Getting Results

If disputing items on your credit report that are legitimately wrong or out-dated, and the documentation to support it is provided, there shouldn’t be a problem getting the bureaus to update it accordingly.

If the credit bureaus don’t see your side of things and the result is negative, then it may be advisable to contact the furnisher of the information. If you decide to make a second go of it, I would strongly encourage you to do so in writing and include all the details, reasoning, and evidence to support your case. If this also fails, you do have the option of filing a complaint with the Consumer Financial Protection Bureau (CFPB).

In any online dispute, providing supporting documentation obviously helps the bureaus to make quick work of a file and get it resolved quickly. In doing this, Equifax had my changes updated and resolved in two days! It was pretty straightforward, and I provided everything they needed to make the correction, so things moved along quickly without issue.

I don’t imagine the rest will come through as quickly, as I have two more disputes pending with TransUnion, but surprisingly, none with Experian (<—most accurate for me). I will be checking the status of these disputes in the coming weeks, and update you with the final results. 

Now I wait impatiently.

UPDATE 6/27/16: TransUnion completed my two disputes; a tax lien showing as unpaid even though it had been paid, and another tax lien I did not recognize and could not find in the secretary of state database, so I disputed it as an error. The former was updated to show as “released” and “paid”, and the latter was proven to be mine, but as “released” and “paid”. TransUnion provided me with an updated credit report to review these changes, which was nice. I didn’t receive that through Equifax. Through my Discover account, I was able to see a 41 point “bump” in my credit score (I have access to my TransUnion credit score for free)! This could be due, in part, to my new secured Discover credit card I mentioned earlier in this post. I just recently made my first payment, in full, and that first month is showing in my credit reports.

Anyone with questions, concerns, or feedback about the information provided on your credit reports or the submission of  disputes is welcome to post in the comments below for expert feedback.

First Progress Secured Credit Card from Synovus

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Earlier in the week I engaged in a string of comment replies with a reader who had paid some old collection accounts and is working on rebuilding his credit and improving his FICO score. We exchanged some comments about getting approved for a First Progress secured credit card as a tool to start rebuilding his credit. I asked him to submit his experiences (as he was so thorough in his comments) so we can start a new page.

You can read the original comment exchange about paid collections now on his credit reports. What follows are Jason’s own words about his experience researching the First Progress secured card, and what lead him to choose that card over others.

Here’s the whole story!

Declined for an unsecured credit card.

Michael, thanks for the suggestion! I did try Cap One and they declined and provided me with my credit score on the low end mentioned above (521). I went online and researched the Better Business Bureau and found a secured card by First Progress (Synovus Bank) Rated A+.by BBB. I carefully read all reviews, complaints and resolutions and got a good grasp of not only how they operate but how they respond to complaints.

I learned a lot about the ins and outs of working with them. A lot of the complaints [about the First Progress card] revolved around insufficient knowledge of methods of payment, times to process payment , length of time it takes to process an application, etc. I’ll leave it to the reader to research on their own via the BBB website.

I did go ahead and apply and fund the First Progress card. The $200 security deposit is quite a lot to me, but might be worth more than many times the investment over the long term. They do report to the three major credit bureaus unlike some outfits such as Fingerhut. They do caution that this also means NEGATIVE behavior is also reported.

I called customer service and even though I was not yet a customer, I was able to ask pointed, directed questions regarding the application, approval and monthly payment process. The Synovus rep was very helpful and courteous and confirmed what I had read in the BBB reviews as to their company practice. If I am not approved, they will return the $200 via ACH (mine was $200 but amounts can vary from under $100 to as much as $300); generally according to the rep, unless you have open fraud on your record or open bankruptcy most are approved. We will see.

credit card

The bottom line is you have to do research and I am planning for the day when I get better to be able to have a more positive credit rating so I can get back on track again. This entire experience has been a lesson and your pages have been invaluable.

Review of First Progress secured credit card.

I checked and read through most of the comments, complaints and resolutions about the First Progress secured card. An A+ by the BBB rates highly in my book and I don’t mean to seem like an advert! The First Progress website is available online and I am not here to advertise.

My initial read through of the home page was rather straightforward. It explained how the process works and that they do report to the three credit bureaus and who the underlying bank issuer is.

The “About the Program” section goes a bit deeper into the weeds and requires careful reading. This could stand to be cleaned up a little. How to apply explains the three classes of cards credit cards they offer with a lower annual fee and a higher APR to a higher annual fee and lower APR; it does state if approved for one, you are approved for any. As always, read the important disclosures.

The FAQ page is generally helpful, the one thing lacking is a well defined and easy to define customer service number as they gear heavily toward written or online customer service. Fortunately, the BBB web page customer service number is valid and is listed as (866) 706-5543.

Upon calling, I had to navigate the ever popular IVR and enter 0# repeatedly when it prompted for a card # to get routed to a rep. Once I reached a rep, I stated I was not yet a customer but had applied and both times I called, I was treated well, respectfully, courteously and the rep went in to check the status of the application. Using the questions and points garnered from the BBB complaints/resolutions I asked the same questions and received consistent answers.

One important fact (discovered from reading BBB issues) is they rely on mailed in payments or payments over the phone for which there is a $10 charge (for phone). They heavily promote bill pay transactions instituted from your bank (for which there is no charge and no hold period). There is a 10 day hold period on crediting mailed in payments which has resulted in some unexpected late charges, so folks want to MAKE SURE THEY ACCOUNT for that. ***you may want to verify this as I am digesting A LOT of information*** I am certain this probably was instituted because the company was burned by NSF check charge backs; so they wait for the check or payment to post and clear. In terms of complaints received by BBB regarding this they seem to willingly reverse late charges/negative credit impacts, despite these being spelled out in the terms/agreements somewhere.

Credit rebuilding takes time.

Another issue revolves around the application process time. This was brought up in the BBB complaint section. I think a lot of folks apply when they really need some money and don’t realize that the process takes time.

Two different reps indicated that the credit department mails in requests to the bureaus and waits for responses, and there is a big difference between “No credit history required” as stated on the page where the choice of cards is offered and the fact that while that is true, they most certainly do run your credit report, and if there is additional information required that may also add to the time. Federal laws come into play here which the banking industry is bound by. Obviously providing correct contact information is critical and since this updates credit bureau files with new tel# and addresses, some folks may be leery of this, fearing a barrage of new collection activity. Some get tired or impatient and wind up complaining to the BBB this is a “scam” but most if not all of the responses from this organization resulted in a cancellation of the application and an initiation of an electronic refund.

I would recommend you also thoroughly review the BBB complaint/resolution section for a complete grasp of the issues.

Nonetheless an A+ rating carries a lot of weight and a lot of issues are from folks not understanding the terms and conditions. They do seem to work favorably for the customer once aware of the situation.

Debt collection and financial setbacks happen.

As for my story, its one of ignorance basically. I was in a good job and with a hostile takeover in 2002 was laid off. Going from $50,000 a year to unemployment resulted in a mess, culminating in Chapter 7 in 2005. I got a new much lower paying job and had services established prior to filing Chapter 7 and all debts were discharged.

Well, my credit is trashed I thought. I didn’t check it. My spouse and I had joint accounts for water, insurance, power, utilities, the works. In 2011, I took a new job in another state. I left three months earlier to get established, find a place to rent, my spouse was to finish packing, close out the accounts and join me in the new state. I was able to get services there immediately as nothing in the old state was in delinquency. I set up house, opened a new bank account there and my spouse would close the old one. What I did not know was:

  • -My spouse over drafted the old state checking account at the credit union by $25.27 and did not tell me; although the CU rep called 5x and wrote 5X to my spouse. It would have been easy to fix in 2011. It went into charge off for $280 (rounded). Since I had opened a new account prior to this, there was no issue, but later, when relocating to IL in 2016 (after the marriage ended and after suffering a debilitating illness) my SSN was blocked due the charge off. I couldn’t open a bank account. I called the former state’s CU and spoke to the rep who had handled the case herself in 2011. Federal law, penalties and interest. No way to settle for less she said.

That’s when I pulled my credit report. Dish network was left unpaid, the old state power bill was left unpaid (it was a budget bill and totaled nearly $700) , the Banfield account was left unpaid, TWC Internet was left unpaid. These were all accounts where I was the primary SSN and account holder.

My responsibility for credit cleanup.

Fortunately, we still had a joint bank account and I made it clear, I would be paying these debts out of that account and would reimburse 40% to my former spouse because I had done the work in contacting and settling and was not told these accounts were left unpaid. I was responsible though as my SSN was listed as primary and I could have taken advantage of the free annual credit report in the intervening years.

Despite my current situation; it would have been overkill to file a new Chapter 7; opening another 10 year window, when the total debt owed was minor overall.

I researched your website among others, read form letters requiring “debt verification” on some sites and how debt validation works, but also learned it can sometimes do nothing but rearm the creditor for a lawsuit since they are now in possession of the facts needed to file one and indicate an active interest in credit repair making them less apt to negotiate.

I considered the reporting age off, and how these accounts would remain on file to almost the end of the decade and by that point, I would hopefully be better off, and will be needing a car, a place of my own and a job. Weighing those options, vs the debt amounts, for me the choice was clear. Clean up the negative. Otherwise if I was well within a year, I would likely find it difficult to find a job (if they pulled credit), find an apartment (if they pulled credit), find a car-even used- or even private party sale used and get a good insurance rate.

I also knew that simply cleaning up the negative credit was just a part of the problem. I had to establish a record of good credit. Despite a stellar payment history to all Missouri utilities and not one NSF in 4 years; these are not reported to the credit bureaus.

Even having settled, unsecured credit card companies wouldn’t touch me yet. I had:

  • “Too soon since negative item payoff”
  • “Serious delinquency record of collection action filed”
  • “Time since derogatory record or collection is too short” – all variations on a theme.

I researched. I could do Fingerhut Webbank, but they don’t report positive info. I then looked into “secure credit cards”. That led to a wide variety of selections, some with very poor records; (BBB), some with misleading terms, some who did not report positive info.

What I needed to do was find a secured card where I could afford a lump sum security deposit (as painful as that was) to where I could charge a small amount, co-pays, meds, a cell bill, etc. I also learned not to charge and pay right away as that does not establish a payment history. Rather, charge and pay the minimum amount due+ for several months, then pay it off, charge anew and repeat. Over time, this builds a positive history and as the negative info recedes and falls off; your score will improve. Don’t blow this chance though, don’t be late, or don’t fail to pay. You’ll be back to negative credit which will eventually morph into no credit-which is just as bad–and this time the secure credit card companies might just not give you that next chance.

Thanks Jason! That is a great contribution to the site. Hopefully you will subscribe to the comments and offer more of your feedback, and let people know how you progress on your credit rebuilding journey. If anyone has questions or concerns about using the First Progress unsecured credit card, or other accounts designed to improve your credit after collections, and other set backs, post in the comments below for feedback.

Is your relationship an obstacle to saving money?

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I only ask because my husband is, and really always has been one of our many obstacles to saving money. He is my little spendthrift. Not that I’m blaming anyone for our lack of savings, but it does make saving a bit more difficult. How can it not? Honestly, though, I think it comes down to a difference of opinion in the way life should be lived.

Could your significant other be an obstacle to retirement?

Somewhere Between Thrifty and Practical

By no means do I consider myself a frugal person. In fact, if we were rich, I would definitely want to be spoiled. Frugality is a state of mind that my brain can’t quite wrap itself around. It borderlines on penny-pinching, and I just can’t bring myself to do it. In other words, I don’t want to trip on pennies to get to retirement, but I’ll get fired up to fight for those dollars.

I don’t clip coupons, but I thrift shop or buy off the clearance racks. I buy whole and nutritious foods and cook at home. I trim the fat in our household bills, and I don’t think we’ll ever buy a new car again, but that doesn’t mean that I don’t want to experience life. It means that I also want to think ahead to an adventurous and relaxing future… and that takes A LOT of money.

It’s estimated that to enjoy retirement, you need like 2 million dollars in the bank. 2 million.

My Dad was a very generous man. When my eyes would bulge at the bill for a fancy dinner or when he surprised us with a big vacation, he would always smile, shrug and say “You can’t take it with you.”, and he was right. You can’t take it with you. You can save it, retire on it, vacation with it, or leave it to your loved ones, though. You know how they say you’re going to marry someone just like your Dad? “They” were right. I did.

A Heart of Gold with a Taste for It

Does your spouse spend more money than they should?Fortunately, and unfortunately, my husband is a millionaire in a middle-class man’s life. What I mean is that he works like a slave to make sure our needs are always met because he loves us to the moon and back. He even wants to lavish us in the things we want, whether we can afford them or not. He believes in true love, living in the moment, working hard, sharing experiences, good food (he considers this an experience all on it’s own), and shopping to your heart’s content. Sorry, ladies, he’s taken. 😉

He wants the best in life for all of us, bless his sweet heart, BUT so do I, and not just in the moment, but in a million moments we haven’t reached yet. What he refuses to accept is that I don’t need a new car, a big house, or fancy meals to make me happy.

I just want to secure our future, which will, in turn, allow a little “seed money” for our kids when we’re long gone. This is my dream… not jewelry or vacations.

Get Your Spendthrift to Be Thrifty-er

Thrifty is just not in their nature. It’s not about changing who they are, but working together to meet a goal that you set together. This will require many conversations about money to share what’s important to each of you. There will be many compromises, but I promise it will be worth it in the long-run. Here are some ideas on how you can work together to save money for your future, whether that’s an emergency or rainy day fund, college savings, or for your retirement:

  • Compromise on the big things. If he/she wants to spend money on a big vacation, find a nice bed and breakfast in a town that’s within a day’s drive instead, and downgrade it to a weekend trip instead of a week-long trip. If it’s for the whole family, do the same, but with outdoor activities in mind.
  • Thinking of a new car? Cater to his/her practical side with discussion on how less debt, low miles, and regular maintenance might be better for your financial outlook.
  • Entice your spouse to stay home for dinner with a good home-cooked meal. There are thousands of recipes online that will cure that itch for going out, which is usually initiated by boredom or lack of food in the fridge.
  • Bigger isn’t always better. A bigger house usually means more space to clean, more repairs, lawn maintenance, more space to heat and cool, and a lot more debt. Whether you’re renting or buying, talk about your family’s true needs in regards to housing before you jump in with both feet.
  • Take your spouse shopping with you and show them how easy it is to find something they like on a sale rack or in the thrift shop. It’s always better to show and share than it is to tell.
  • Cut the credit cards. Okay, maybe you don’t need to cut them just yet, but discuss some rules or boundaries that you both should stick to when, or if, you use them. And, make sure you know when one of you is charging something, so you can prepare to pay it off.
  • Come up with a small saving plan that you both commit to on the spot. Talk about the pros and cons, then how you can be consistent and the amount per month works well with your finances. Then, agree to reassess your savings goals again in 6 months.

Talking about money doesn’t have to be difficult. I guarantee that your husband or wife is not opposed to saving money, although it may feel that way at times. Perhaps he/she just want to enjoy life and be in the here and now, and in most cases, that’s a good thing. Brainstorm and figure out how you can do both. Marriage requires a lot of things, especially compromise, so it’s important to talk about money concerns. That’s the only way you can both get in the same book, and on the same page.