If you have less than stellar credit or even bad credit, it can be tempting to give up, because it feels like it will take forever to improve it. Don’t throw in the towel! Not only can you improve your credit, but you can also keep it from getting worse.
Since high outstanding debt can lower your score, make sure you keep your credit card balances below 50 percent of their limits, if at all possible.
Pay off your debt, instead of “robbing Peter to pay Paul.”
Do not close accounts that you are not using. Believe it or not, this lowers your score because it alters your ratio of credit card debt to available credit. At the same time, don’t open new cards for the sole purpose of increasing your available credit. Opening several new cards at once can also lower your score.
Contact your creditors in advance when you know your payment will be late. Briefly explain your situation and propose a solution that works for you. Be specific, and don’t overpromise. Many companies have hardship programs that can be taken advantage of if you only ask.
Cut back if necessary – make a budget, and cut out all unnecessary items.
Don’t live paycheck to paycheck.
Handling Collections
Collections agencies get a bad rap, and it’s not all undeserved. The Fair Debt Collection Practices Act (FDCPA) was established to protect consumers from abusive practices by debt collectors. While many collections agents see themselves as specialized customer service agents, others see themselves more as intimidating bouncers. The FDCPA set up guidelines for collections agencies to follow.
They are allowed to contact you between 8 a.m. and 9 p.m. unless you give them permission to do so outside of those hours.They can contact you directly unless you provide them with your attorney’s information and direct them there. You do have the right to simply state that you don’t want them to contact you directly anymore. In that case, your file will be referred to a collection attorney.
They can call you at work unless you tell them it’s prohibited. They can contact others to get personal information like where you live and work.
When doing this, they cannot mention the debt, unless they reach your mother and she asks who they are. In this case, they can disclose their name and their employer’s name. They can repossess purchases made, and they can take you to court.
As you can see, there is a lot of debt collectors can do, so it’s easy to see how they can sometimes get out of bounds. When dealing with debt collectors, keep in mind that they are not allowed to:
- Use threats of any kind. In addition, they cannot make idle threats. Although they can take you to court, if they have no intention of doing so, they cannot threaten to do so.
- Harass you. Excessive or repetitive phone calls are prohibited.
- Deceive you. They are not allowed to pretend to be someone else in order to get you on the phone. They must identify themselves truthfully.
- Lie about consequences. You cannot be imprisoned for failing to pay bills, so if you are told you’ll face criminal charges, it’s false.
When collectors call, you don’t have to answer the phone. Rest assured, however, that they will find another way to reach you. If you do answer the phone, make sure that you get the name of you who are speaking with, who they work for, the supervisor’s name, and the mailing address.
Ask for proof of the debt. Even if you’re sure you owe them money, mistakes can be made, so double check to be sure. Once you’re sure the debt is valid, explain your situation, make an offer that you can handle, and don’t make promises you can’t keep.
Once an agreement is made, get it in writing. Be careful not to get sucked into an argument, and follow the same rules to which the creditor is bound: don’t make idle threats. If you are not planning to file bankruptcy or get a lawyer, don’t say you will.
If you find yourself in a situation in which you and the collector cannot agree, ask to speak to the manager. If that fails, you may still have the option to speak to your creditor.
They just want their money, and they know that if the collector is unsuccessful, they won’t get it. If you still can’t come to a resolution, remember that you may still seek a credit counselor or even a debt lawyer.
Wage Garnishments
In some cases, when a debt is not paid, your wages can be garnished. This means that a certain percentage of your take-home salary is deducted in order to repay a creditor. This cannot be done without your knowledge. A judgment from a court is needed, and you will receive a summons to appear in court for it.
If you do not pay what you owe at this time, the creditor can execute the existing judgment and have your wages garnished. If you show up in court as directed and are honest and make a reasonable offer with the judge, you may be surprised. Judges are not usually happy taking cases that could have been resolved outside of the courtroom.
There are limits to what can actually be garnished.The Consumer Credit Protection Act (CCPA) states that if your earnings are $206 or more after taxes, they can garnish about 25 percent of your weekly income. A formula is used to calculate deductions if you make $154.50 to $205.99. If you make less than $154.50 per week, no wages can be garnished.
Please note that these amounts are subject to change as minimum wage increases, and state laws vary and are not always the same as the federal maximum. The Department of Labor website provides more information on these rates.
CCPA protection does not apply to wage garnishment for child support payments. If you are supporting another spouse or child, up to 50% of your wages can be garnished to pay for your child support debt. If you are not supporting anyone else, up to 60% can be garnished.
If you are more than 12 weeks behind in payments, an additional 5 percent may be garnished.
Other debts have different amounts that may be garnished. The Department of Labor provides a phone number specifically for garnishment information: 866-487-9243.
Keep in mind this does not apply to child support, which can cause garnishments of up to 60 percent of your weekly income.
For your state’s debt-collection laws, check your state’s consumer-protection office.
Stopping Identity Theft
Identity theft can wreak havoc on your peace of mind. Not only does it hurt your credit – at least until it’s discovered – it puts the burden of proof on you. You now have to prove to the credit companies that you did not run up the charges. In this case, prevention is the best medicine.
Anything sensitive that you need to keep should be locked away. Important documents with account information are often sent through the mail. If at all possible, use a computer to pay bills and send emails, and make sure your information is password protected. If you are a victim of identity theft, call the affected creditors and close the accounts. Make sure you also include your ATM or debit cards. Place a fraud alert on your credit report and if possible, freeze it as well. Then call the police and make a report.
The importance of making a police report should not be forgotten; in fact, the FACTA requires it. This is intended to prevent false claims by those who wish to improve their credit reports illegally. The reporting process is not complicated.
Simply report your suspicions to the police, make sure you get the police report number, and note the date, time, and person taking the report. Keep this information on hand in the event you need to provide it to your lenders. Keep the formal police report to submit to credit bureaus, so you can clear your report.
Another benefit to filing a police report is to protect yourself in the event someone uses your identity in the case of an arrest.
Below is a list of additional things you can do to prevent identity theft.
- 1. Pay your bills online. This decreases the chance that paper bills or statements end up where others can easily find them.
- 2. Look over all your statements carefully.
- 3. Create secure passwords and guard them well.
- 4. Protect your social security number.
- 5. Check through all mail – even mail that seems like junk mail. It could be from an account opened by someone else.
- 6. Decrease the amount of unsolicited credit card offers that come in the mail by visiting www.optoutprescreen.com and contacting the Direct Marketing Association to remove your name from mailing lists. Shred the solicitations you do receive before throwing them out.
- 7. If possible, use a post office box, and do not put bill payments and checks in an unlocked mailbox.
- 8. Have someone you trust to pick up your mail when you are away.
- 9. Do not give out your credit card number.
- 10. Shred important documents containing your personal information.
If you are unfortunate enough to be a victim of identity theft, here are some ways to deal with the aftermath:
- 1. Cancel any accounts that you think have been compromised. This includes checking accounts.
- 2. Notify the credit reporting bureaus. You only have to contact one, and they will contact the rest.
- 3. Make a report to the police.
- 4. Notify the post office.
- 5. Contact the Federal Trade Commission.
- 6. Contact the Social Security Administration.
- 7. Make sure all of your accounts have passwords.
- 8. Place an alert on your credit report – an extended one is best, as it lasts for 7 years.
- 9. Keep good records.
Dealing with Medical Debt
The Medical Information Bureau specializes in medical records. The information in the MIB database is used by insurance companies to check your history before establishing rates for insurance for you. When you request insurance from a company, they ask numerous questions, and at times, have to take health tests.
When noteworthy information turns up, that information is reported to the MIB. If you are denied insurance based on the information contained in the MIB database, you are entitled to a free report, just as with credit reports. You are also entitled to a free copy once a year.
If a claim is rejected, you should ask the reason, and request that the bill be resubmitted. Make sure you are familiar with your coverage limits by reading your insurance contracts.In addition to knowing your covered benefits and the schedule of benefits, be sure to make note of any exclusions, limitations, and claims procedures.
Keeping track of your insurance information on this level can be a daunting task. If it becomes too much, you should consider using a Daily Money Manager. This person can help you keep track of insurance forms and bills.
Most of the time, hospitals don’t report your payment history to credit bureaus due to the fees they would incur. As long as they do not (double-check with them to make sure), you have some room to work with them if necessary.
Keep in mind, however, that once you hit an outside collection agency, it probably will reach your credit report, so do your best to resolve the debt before then.
Be sure to stay in contact with the billing department if you are disputing a claim. This way, they will be aware that you don’t consider it settled and they will be better able to help you by resubmitting the claim.
If you end up complaining to the insurance company, start with the claims adjuster. If you are not satisfied, ask for the supervisor, followed by the unit manager, then the assistant manager, the claims manager, the regional claims vice president, and finally, the senior vice president.
If after all of this, you still cannot resolve the matter, a letter to your state insurance regulatory agency.
If you are without insurance, let your doctor know so you can find out about discounts and payment plans.