Too Deeply in Debt?
With U.S. personal savings rates at a low and spending at a high, it’s no wonder that many Americans, including BAC members, are feeling severe financial pressures. The combination of rent or mortgage payments, car payments, insurance, personal loans and credit card debt have many individuals only a couple of paychecks away from serious financial problems.
It’s important to recognize when your debt load is getting out of control. Common warning signs include:
- paying bills late
- routinely paying the minimum payment required
- never keeping cash on hand
- taking a long time to pay off creditors
- borrowing from one creditor to pay another
- frequently applying for new credit cards.
The good news is that no matter how poor your credit rating or how high your debt load, there are steps you can take to help you achieve financial peace of mind.
One of the first steps to managing credit is to understand the credit report process and your personal credit score. The bulk of your credit report, also known as a credit file or credit rating, contains detailed information about credit card accounts for which you have applied, including when each account was opened, the credit or loan limit, current balance, payment terms, and history. Inactive or closed accounts continue to be listed for as long as seven to 10 years, regardless of whether the account has been paid.
The credit report also lists information generally available as a matter of public record, including bankruptcies, overdue child support, and liens. Credit reports typically do not include checking or savings account information, debts referred to collection that are more than 10 years old, or certain personal information such as gender, ethnicity, religion, or medical or criminal records.
Credit reports are generated by one of three national credit reporting agencies: Trans Union (www.transunion.com/ 800-888-4213); Experian (www.experian.com/ 888-397-3742); or Equifax (www.equifax.com / 888-873-5392).
These credit bureaus collect information from lenders about how you’ve managed your credit, and compile a credit history and report. Your credit score is generated by your credit history contained within the report. While your credit report may not include your actual credit score, it provides lenders with information about how good a credit risk you might be as a potential customer.
Although a variety of individuals and agencies use credit reports to determine their lending policies, they generally do not access credit reports without the person’s permission. Landlords, insurance companies, and creditors, for example, typically ask customers for permission to verify credit as part of their application process.
If you’re concerned about your credit or would like to obtain a copy of your credit report, you can contact your credit union or one of the three credit agencies, either online or by phone. Some financial experts recommend ordering and comparing credit reports from all three major credit bureaus. Nowadays, this can usually be done at minimal expense.
In looking over your credit report:
- Don’t assume your personal information is correct. Credit reporting agencies can be highly inaccurate in “getting it right.” You should challenge any incorrect or out-of-date information.
- Accounts should not appear twice even in different sections.
- Pay attention for credit entries that you do not recognize. If such entries appear on your report, contact the credit reporting agency immediately. You may be a victim of identity theft.
- Check for missing information that would be beneficial to your credit history.
- Close old accounts and make sure the inactivity is noted on your next credit report.
- Start paring down debt.
Be wary of for-profit organizations that advertise and offer to fix your credit rating. BAC offers a credit counseling program for members and their families [see inset]. The Union Plus Credit Counseling Program, in conjunction with Money Management International, offers free, confidential, one-on-one service to support you before, during, and after financial duress. It also can help you with budgeting and financial planning skills. For more information, and a free brochure about BAC’s credit counseling program and ways to improve your credit score, call 1-888-880-8222.
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