One in Three Americans with Credit File Has Debt in Collections – Nevada Tops the List

If you’re hiding a dirty little credit secret—a debt in collections—you have plenty of company. You won’t be the only person at those Debtors Anonymous meetings you’ve been thinking about attending. A recent Urban Institute study finds that 35% of adults who have a credit file have an overdue account that has ended up in the not-so-loving arms of a debt collector.

The Urban Institute partnered with Encore Capital Group’s Consumer Credit Research Institute  to conduct the study. The results showed that the 77 million Americans who have a debt in collections owed an average of $5,200 last September.

Nevada is at the top of the list of states with major debt troubles. About 47% of Nevadans with a credit file have a debt in collections. Residents also have the highest average collections debt— $7,198.

Know that having a debt in collections is a negative mark on your credit report and it could stay remain for seven years. I say could because most people think that they are stuck for seven years and that just isn’t true. There are laws that have been in place for over 30 years that protect you. I will post a separate post about those laws.Credit-Cards2

Your payment history accounts for 35% of your FICO score, so a past due account will mean this score will take quite a hit. The number of points lost due to collections will vary depending on your overall credit history. Generally, the more accounts you have in collections, and the more recent each of those collections, the lower your score.

The best advice is to never rely on credit cards as a way of life. They should be used as tools and used properly.

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Here are 4 ways to build Credit without Credit Cards!

So you want to avoid credit cards, eh?  

Honestly, when you realize that a credit card is just a little plastic card with your name on it and an imprint of a banking institution you take away its power.  Credit cards are not evil in and of themselves and really don’t have to be avoid like the plague if you can utilize discipline in your interaction with them.

Nonetheless, there are several ways you can build credit if you wish to stay clear of credit cards all together, but keep in mind that the best credit scores are comprised by successfully utilizing a mix of different credit types, including both revolving and installment accounts. The only way to build credit is to ensure that no matter what method you choose, the credit line is being reported to the three major credit bureaus. If not, you won’t be building credit; you’ll just be wasting time and possibly money.

 

Below are a few tips for building credit without conventional credit cards.

1. Get an installment loan.

Applying for a small installment loan from your local credit union or bank may be an ideal way to begin your credit profile. Keep the length of the loan short — no more than 24 months and make sure you are using the money to purchase something worthwhile. This method should help you build credit while limiting the amount of interest you pay.  It also begins you with a small monthly payment you can consistently budget for.

2.Apply for a secured credit card.

Applying for a secured version of a credit card simply means you make a deposit to the issuing bank or credit union, and you get a card with a credit limit of that amount, similar to a prepaid card. Be careful with this method, however, because there can be many outrageous application and annual fees which eat away at the money you deposit. If you bank with one, your credit union would be a good place to look for a secured card. Try to obtain a card that has no application fee and a very low annual fee.  You also want one that can convert to a regular, unsecured credit card after 12 to 18 months of on-time payments.

3. Become an authorized user.

If someone you trust already has a credit card or loan in good standing, you can ask to be added as an authorized userso that your credit will be linked with theirs. But only do this if you’re confident the person will pay the loan off diligently; any irresponsibility on their part will negatively affect your credit score for the life of the loan.

4. Build your own payment history.

Payment Reporting Builds Credit is an alternative credit bureau that gathers data on rent and recurring payments for cable, cell phone, insurance, utility and other bills.  This may be beneficial when applying for some limited forms of credit, but it is not necessarily recognized by all lending institutions.

Contributed by Patrice Washington

Patrice C. Washington, The Wisdom & Wealth Money Maven, is founder of the Mindset & Money Master Class®, the proven step-by-step program that shows you exactly how to create the mindset and skillset necessary to achieve financial success.Credit Cards

Debt collection complaints rise

Debt collection complaints rise

WASHINGTON, Aug. 20 (UPI) — The U.S. Federal Trade Commission said complaints about aggressive debt collectors had jumped 73 percent since 2008, a symptom of a sluggish economy.

“We’ve seen a high level of complaints, and I think some of it is collectors realizing in hard times they may have to press that much harder to get someone to pay,” the agency’s chief debt collection lawyer Tom Pahl said.

“And a lot of them are pressing,” he said.

The agency handled 180,928 complaints about debt collection agencies in 2011, making it the No. 1 industry it terms of complaints filed, the Los Angeles Times reported Monday.

Roughly half of the complaints concern abusive phone calls. But complaints also involve legal tactics undertaken by debt collectors.

Many of those complains involve debt collection agencies not checking facts on cases they pursue.

“These folks are very aggressive,” said California state Sen. Jose Luis Correa, D-Santa Ana, who found his wages garnisheed over a debt of $4,329 allegedly owed to Sears.

Correa contends that the debt collection agency had targeted the wrong man. Furthermore, he says he was never served court papers concerning any lawsuit filed against him. The court, however, ruled in favor of the debt collection company out of default, which it is allowed to do if a defendant does not show up for the trial.

“I always pay my bills on time. Then to have somebody garnish my wages, I thought was pretty astounding,” said Correa, who had the garnishment stopped and also found the debt belonged to a different Luis Correa.

In another incident, Katie Brown of Piqua, Ohio, got a phone call from a man who said he was from a legal aid service she had called to get help regarding harassing phone calls.

But after freely divulging personal information, the man said, “‘Now let me tell you who I am,’” she said. He then revealed that he was the debt collector holding her debt.

She is suing the International Asset Group Inc. of Amherst, N.Y., accusing them of false representation and debt collection harassment.

Credit Bureaus To Get More Federal Oversight!

America’s credit bureaus are about to get some new scrutiny. The Consumer Financial Protection Bureau adopted a rule on Monday that will allow it to keep an eye on the nation’s credit reporting industry.

Starting September 30th, the agency will monitor the country’s big credit bureaus and conduct on-site examinations to see if these companies are complying with the law. It’s similar to what the CFPB already does with the nation’s big banks.

This is the first time the federal government will take an active role in trying to clean up an industry that has a reputation for sloppiness and arrogance, consumer advocates say. Until now, no single federal government agency could access all the information necessary to generate a complete picture of what’s happening inside these companies. The CFPB will enforce the laws already on the books and write new rules as needed.

“Supervising this market will help ensure that it works properly for consumers, lenders, and the wider economy,” CFPB director Richard Cordray says in a prepared statement. “There is much at stake in making sure it is both fair and effective.”

Consumer groups, which have urged better federal oversight for years, are extremely pleased with today’s announcement.

“It’s important because credit report mistakes are all too common,” says Pamela Banks at Consumers Union, the advocacy arm of Consumer Reports. “We hear from people that when they find a mistake on their credit report, they contact the credit bureau and the bureau does little to investigate, or refuses to remove the mistake – even after the consumer has made a case that the information is wrong or inaccurate.”

Credit bureaus are required by federal law (the Fair Credit Reporting Act) to remove or correct inaccurate, incomplete or unverifiable information, generally within 30 days of being notified about the problem.

How errors can hurt you
Credit bureaus collect information on your transactions. They know if you pay on time, late or not at all. They know how much credit you have from various lenders, the balances on your credit cards and if you’ve paid off your mortgage. They also collect information from public records about court judgments, liens and bankruptcies.

Almost every adult in this country has a credit file. Each of the three largest credit reporting companies (Equifax, Experian and TransUnion) maintain files on more than 200 million Americans. The amount of information collected and distributed is mind-boggling. According to the CFPB, the industry sells more than 3 billion reports a year to lenders, utilities, landlords, insurance companies and prospective employers.

A bad credit history can be devastating. You could be denied a car loan or mortgage, pay more for insurance, have higher interest rates on your credit cards, be unable to rent an apartment or even lose a job. And those negative consequences are the same whether the report is accurate or based on erroneous information.

John Ulzheimer, president of Consumer Education at SmartCredit.com, worked at one of the big three credit reporting agencies. He supports any effort that encourages the industry to do a better job of maintaining accurate records.

“People are sick and tired of having inaccurate credit information that impedes their ability to get jobs, get competitive financing or get competitive premiums on insurance policies,” he says. “Quite frankly, they’re fed up.”

How many mistakes?
No one knows for sure how many mistakes the credit reporting agencies makes. Estimates are all over the map. The most recent information comes from The Columbus Dispatch which reported the results of a yearlong investigation in May.

For its series, Credit Scars, the paper collected and analyzed tens of thousands of consumer complaints filed against Equifax, Experian and TransUnion. The findings are eye-opening:

Nearly a quarter of the complaints filed with the Federal Trade Commission involved mistakes about credit cards, mortgages and car loans.
More than 5 percent of the complaints dealt with basic personal information – such as birth dates, addresses or Social Security numbers – listed incorrectly.
More than 5 percent of those who complained to the FTC said their reports listed an account that was not theirs.
And nearly 200 people said their credit reports listed them as dead, which made it impossible for them to get credit.The Dispatch reports that Stuart Pratt, president of the Consumer Data Industry Association, questioned the validity of the results. He told the paper that about a fifth of the complaints are filed by people who are trying to have negative but accurate information removed from their file.
“The consumer reporting industry looks forward to working with the CFPB in its regulatory oversight activities,” the CDIA said in an emailed statement to NBCNews.com. “As for consumer complaints regarding their credit reports, the most comprehensive study ever done on the issue last year found that only one-half of one percent of credit reports had a credit score change that improved the individual’s credit rating after filing a consumer dispute. Even more to the point, 95 percent of consumers were satisfied with the consumer dispute process,” the statement added.

The Consumer Financial Protection Bureau has been looking at this issue and plans to publish its findings this fall.

My two cents
This new federal oversight is long overdue and much welcomed. The industry may say it’s doing a good job, but by all indications it is not. Even one mistake can be devastating if it’s your credit at risk.

The trade group for the credit reporting industry says mistakes happen less than 1 percent of the time. Even if that figure is correct – and I find that had to believe – a 1 percent error rate means about 2 million files contain inaccurate information. That’s simply unacceptable.

We live in a world where an error in a credit report can have serious negative consequences. We can’t opt-out of the system, so it must work properly. Hopefully, the Consumer Financial Protection Agency can make that happen. You shouldn’t be forced to take a credit bureau to court to get a mistake in your file corrected.

Finally, you need to do your part. Federal law gives you the right to get a free copy of your credit report every 12 months from each of the credit reporting agencies. Right now, about 96 percent of these reports are not claimed. That’s terrible. The only way to spot a mistake before it hurts you is to look for it. That’s your responsibility.

Get those free reports at AnnualCreditReport.com

By Herb Weisbaum, The ConsumerMan

Information on Collection Agencies and Statutes of Limitations

A collection agent is either a creditor or is a representative of the original creditor. Both collection agents and creditors are bound by federal and state laws concerning the collection of debt. Specifically, the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act(FCRA) are key laws regarding these issues.

For more information about statutes of limitations, see the following Bills.com resources:

Assignment of Debt

Most consumer debt contracts give the original and subsequent creditors the right to assign the debt. A collection agent buying a debt will do so for 5 to 50 cents on the dollar. The collection agent has the right to collect the entire balance due plus interest (state laws set the rules in this area), but does not necessarily expect to collect the full amount.

A third party purchasing a collection account must abide by previous contracts between the parties. If a debtor creates a settlement agreement with a creditor, all subsequent assignees of the collection account take the account subject to its terms.

Therefore, if a debtor has a legal contract with a previous debt collection agency, then any current party attempting to collect the debt is bound by the terms and conditions of the contract. Assuming that a contract stipulated no interest to accumulate or other fees, then the current agent may ask for immediate payment in full plus additional fees, but the debtor has no obligation to agree to the new terms.

Collection agents can buy a fully documented account, which includes all of the invoices and records of the original creditor’s collection efforts. Or, the collection agent can buy a bare account with little documentation. A fully documented account is worth a lot more than a bare account. More on bare and fully documented collection accounts in a moment.

 

More Tomorrow…..

Top 10 Reasons Startups Should Be Business Credit Building in 2012

Will your startup ambitions become a reality in 2012? business credit building

In a recent study 70% of Americans indicated they want to start their own business but many never take the leap because of lack of knowledge and direction.

Let’s face it, starting a business can be intimidating and risk of the unknown is one major hurdle that few are willing to deal with.

With a job there tends to be this perception of security and certainty. You show up for work, do your job, and get a paycheck.

But in today’s economy, job security is nonexistent, and more and more people are embracing the idea of owning their own businesses. Business ownership and being in control of one’s income is the assurance that people are looking for.

Unfortunately, for the people who do make the leap and start a business, a large majority fail within five years according to data from the U.S. Small Business Administration.

I bring this up because one of the major causes is lack of funding. While bootstrapping is common among startups it can only take you so far and if the business fails, you may face a lot of personal debt and liability.

Here are my top ten reasons to start building business credit in your company’s name:

1. Protect your personal credit ratings – With corporate credit your business debts and financial obligations would report only on your company’s credit reports.

2. Protect the corporate veil – By separating personal and business credit, you eliminate the risk of piercing of the corporate veil.

3. Limit personal liability – By building a creditworthy company, creditors and lenders will be less likely to require a personal guarantee to secure financing.

4. Conserve cash flow – Many suppliers, businesses, and vendors will extend credit to your business with net 30 to 60 day terms. This allows you to conserve cash while obtaining the products and services your business needs.

5. Limit accumulating personal debt – You can obtain financing for your company without supplying a personal guarantee. Funding programs like accounts receivable financing, trade credit, and merchant cards protect you from facing a lot of personal debt.

6. Maximize financing opportunities – Many lenders, creditors, and suppliers will only extend credit to businesses that meet their corporate compliance guidelines. This includes a business credit listing and ratings with the major agencies.

7. Build a business asset – A business with established credit history and available credit is attractive to potential buyers and investors. It improves the appearance of your businesses’ funding capacity and stability.

8. Limit inquiries – With business credit you stop relying on your personal credit to obtain financing, which limits the amount of credit report inquiries being pulled on you personally.

9. Receive larger credit limits – You can obtain 10 to 100 times greater credit limits from lenders as an established creditworthy business then you can as an individual.

10. SAVE MONEY! Businesses obtain more favorable rates on lines of credit compared to an individual. For example, you may pay up to 13% interest on a $100,000 line of credit whereas a business could qualify for an interest rate of 7%. That would save you almost $40,000 in interest alone.

As a startup you will eventually need an influx of cash to cover an unforeseen expense so start business credit building today.

Quit jeopardizing your personal credit and run the risk of closing your doors due to a lack of funding.

Make 2012 your year for establishing a creditworthy business!