The new credit card rules have been enforced with the aim to relieve consumers from the stress of dealing with sudden rise in interest rates, penalty charges and unscrupulous billing practices of credit card issuers. The reformed rules will help the consumers to manage their credit card bills comfortably and avoid going into default on their accounts. Some of them have already come into effect and close to providing desired results.

Credit card rules that have been implemented

The Federal Reserve Board, the National Credit Union Administration and the Office of Thrift Supervision have voted on the Credit Reform Bill. President Obama has signed the Bill transforming it into Credit Card Act and some of its provisions have already come into effect since 20th of August. There are various reformative measures incorporated in the Credit Card Act which will take effect at different times in 2009. Portions of the Credit Card Act, which was slated for a February 2010 implementation, might get implemented in December, 2009. The Members of the House of Financial Services Committee proposed these to be implemented faster since the major credit card companies are increasing the APR.

• Arbitrary increase in interest rate is stopped

From now on credit card companies have to follow certain restrictions on arbitrary increase in interest rates on the existing balances of the card holders. The banks have to wait for 60 days from the date of last payment before they can charge any kind of late penalty, in case the debtor is unable to pay the debt on time. The late penalty in the form of increased rate of interest could only be charged after the completion of 60 days. Hence, this increases the time period for the debtors to arrange for the minimum payment to be made on a credit card debt.

• 45 days notice before changing contract terms

The credit card (cc) companies have to give the card holders a notice 45 days ahead of making any kind of changes to the existing contract. The cc companies must also mail the bills 21 days prior to the due date of payment. Previously, the creditors were required to send a notice of alteration to the debtors 30 days ahead of making the changes and mail the bills 14 days prior to the due date. But after the implementation of the new law, this time period has increased making it beneficial to the card holders.

• Consumers have the right to accept or reject changes

The consumers will have the right to accept or reject the changes in the contract made by the creditor. However, if they reject it, they must pay the debt amount with the same rate of interest within 5 years and the minimum payment might increase. So, on one hand the debtors have the right to take decisions on how to repay the debt, while on the other hand this might end up in increasing the minimum payment for them. Moreover, the new rule states that the minimum balance cannot be increased more than 50%. Now if the time frame is not sufficient for the debtor to repay the amount, then it will depend on the creditor to increase the time frame. Hence, before canceling any changes you should keep in mind this condition associated to the rule.

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Have you got flooded with unwanted credit cards? Have you found listings in your credit report about which you are not aware of? Are you finding your bank accounts being accessed by someone else other than you? Then it is high time you must realize that, there is a thief around stealing your identity and using it to his benefits. The term ‘identity theft’ actually refers to fraud. It means that a person is assuming someone else’s identity to derive monetary and other benefits. It is considered a criminal offence all around the world.

How do you know that your id has been stolen?

There are different instances which indicate towards id theft. They are:

• Listing debts which you do not owe - You have pulled out a credit report and you find that there are debt listings made against your name. The listings are of those debts, which you have never owed. This is a typical instance of identity theft.

• Receive bills for purchases not made- You may receive bills for purchases you have never made. In such an event you know that your identity has been stolen.

• New accounts in your name- It has been found many times that the identity thief has opened a new account using your personal information.

• Loan denied or call received from CA- You may also be denied a loan, or you might receive a call from a collection agency asking to repay the debt. Whenever you find such things happening with you, you know that you are a victim of identity theft.

It is not difficult to take out loans, open new bank accounts, access existing bank accounts, purchase cars, get insurance and perform many other activities with your social security number, date of birth and your name. Hence, you must be extremely careful while handling things which might contain all these personal information. Your creditworthiness depends on your credit report and score, which get badly affected by such instances. So be aware of each and every activity related to your finance.

What to do after you become a victim of identity theft?

Whenever you find out that you have become a victim of identity theft, you must take certain measures as soon as possible. The measures are:

Put a fraud alert

The first thing you need to do after you realize your identity has been stolen, is to place a fraud alert on your credit report. Placing a fraud alert on your credit report will stop further activities on the part of the thief. You need to call any one of the credit reporting agencies on their toll free fraud number (TransUnion: 1-800-680-7289) and ask them to put a fraud alert.

After putting a fraud alert on your report, you are entitled to get free credit reports from the bureaus. Check all the information in it to find out any kind of inaccurate details. As soon as you find any discrepancy report it to the bureau. You must remember to use an identity theft report along with a letter explaining the reason of dispute.
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Do you have a number of delinquent debt accounts? Are you bothered by the phone calls of the collections agencies day-in and day-out? Then debt consolidation is the just the remedy to all your problems. Consolidation can save you from being trapped into debt cycle (relative pronoun). Debt consolidation can help you to be debt free faster than any other means.

What is debt consolidation?

A debt consolidation program or a bill consolidation program can help you when you have several debt accounts. It allows you to consolidate your debts into a single one so that you can make a single monthly payment realizing your dream of leading a debt free life quickly. With the help of debt consolidation programs you can not only reduce your interest rates, but also eliminate any extra charges or late fees pertaining to your credit account.

What happens in a consolidation program?

When you opt for bill consolidation, you will have to undergo debt counseling. A debt counselor will evaluate your financial situation and guide you through the entire process. He will calculate your expenditure and income and prepare a repayment plan for you. Once, you enroll in a debt consolidation program, the counselor will negotiate with your creditors on your behalf. After the consultant strikes a deal with the creditors, you will have to pay a fixed amount to the company every month. The company will communicate with all the creditors and you do not have to worry about dealing with them. In the meantime, if there are any changes in your financial situation, you have to inform it to the consultant so that he can inform it to the creditor and work out a convenient payment plan for you. For instance, has increased, the monthly payment amount will be calculated based on that new figure. In such a case your monthly payments will increase helping you to pay off your debts faster.
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Statute of Limitation, also known as SOL is the time frame within which the creditor must start the process of debt collection in order to recover the debt. If the Statute of Limitation on the debt expires, the creditor cannot recover the debt legally and the debtor no longer remains liable to repay the debt. Normally, the SOL starts after 180 days from the date you became delinquent and continues for 3 to 10 years depending upon the state you live in. However, the creditor may take into account the state where the agreement was signed while determining the SOL, before he sue you for the debt.

The debt agreements are classified into 4 categories – oral contracts, written contracts, promissory notes and open ended accounts.

Oral contract: It is a verbal agreement between the creditor and the debtor by which the debtor agrees to repay the money borrowed. It is a legal contract, although it may be difficult to prove in the court.

Written contract: Under this type of contract, you need to sign a loan application form accepting the terms and conditions under which the loan is offered to you. Personal loans and auto loan agreements can be included under written contract.

Promissory notes: It is just like a written contract, but with payments scheduled on the agreement. Home loans fall under promissory notes.

Open ended accounts: They include open ended accounts like credit card debts.

Statute of limitation is a powerful weapon for debtors to protect themselves from paying back an old debt. It may be noted that although it is true that the debtors are not liable to pay off the debt after the SOL expiry, the negative listing may not be removed from the credit report and may stay there for seven years and 180 days from the date of delinquency. You should always take note of the fact that before you pay off the debt, you should check the SOL status of your debt. If it has expired, you should not make even a single payment towards it, because even a single small payment may restart the SOL and the creditor may sue you to recover the entire debt. But if you do not make a payment after the SOL expiry, the creditor can never recover it.

If you want to build up your credit or repair your old credit, departmental store credit cards comes in handy. This is because these cards easily get approved even with a bad or with no credit. However, you should use these cards exclusively for the purpose of building up credit profile. Some of the leading departmental stores like Macy’s and Wall Mart now offer their own credit cards which may prove to be a very useful instrument for building up your credit profile. If you want to go for a store card, you need to visit the departmental store and fill up an application form.

After your credit card application gets approved and you get a new credit card, you should make limited purchases with your card so that you can manage to repay it within the interest free due date, as these cards carry high interest charges. Moreover, paying off the debt within the due date will help you to maintain a good credit history. Not only that, since the “amounts owed” factor plays a vital role in your FICO scores, you should not spend more than 30% of your credit limit on your cards. The biggest drawback of these cards is that, these cards come with a low credit limit and you can use these cards only within the chain of the departmental store. However, quite recently, these departmental stores have tied up with banks like Citibank and American Express and started offering VISA or MasterCard co-branded cards, which will allow you to use these cards even outside these departmental stores. In addition to this, you can even take cash advances on these co-branded credit cards just like normal credit cards. You can also enjoy lower interest charges with these co-branded cards as compared to the ordinary departmental store cards.

These cards provide you with host of other facilities as well. You may earn reward points on your purchases with these cards. However, you should not engage yourself only in earning reward points, because you may end up with debts you are not able to repay. If you cannot repay your debts on time, it may get reflected in your report as delinquent account and may badly affect your score. You should only use these departmental store or co-branded cards for the purpose of building credit. Once you build up a good credit score, you may go for general credit cards.

The credit score is a three-digit number, which is the measure of your credit worthiness. The credit score is calculated by using a mathematical model. Fair Isaac Corporation (FICO) scoring model is accepted as the standard method of calculation by most creditors and financial institutions.

5 factors affecting credit score

There are 5 factors on which the FICO score depends. By monitoring all the 5 factors, you can secure a good credit score. Check out the factors that affect the credit score, and know how you can keep them under your control.

1. Payment Records - This is the most important factor and amounts to almost 35% of the credit score. It determines how regular you have been with your payments. It is always best to make timely payments. Paying before the due date could sometimes help to raise the credit score by few points.

   If you have some delinquent or “charged-off” accounts that are adversely affecting your credit score, the best option would be to pay them off. The negative remarks may remain on the credit report even after you have paid them off. But, more than often creditors are more interested in the fact that you have tried to repair your credit by paying off old debts.

2. Outstanding Debt – This factor constitutes 30% of the credit score. This is a ratio of the amounts you owe to the creditor to your credit limit. It is always best to keep the credit utilization rate between 35-50%, even if you make timely payments. The lower your credit utilization rate, the better will be your credit score.
3. Length of Credit History - It amounts to 15% of the credit score. A longer credit history has a good impact on the credit score. So, if you have multiple credit cards, you can choose to close the newer ones. You can ask a relative or family member to add you as an authorized user to any of their old credit accounts. This will give a boost to your credit score.
4. Type of Credit Account – About 10% of the credit score depends on the type of the credit accounts you have. Unsecured credit card accounts are not enough to build a good credit history. You should have a good credit mix. If you have a student loan or an auto loan that you pay off in installments, along with the revolving credit card accounts, you will have a better credit score.
5. New Credit Accounts - You should apply for a new credit card only when you need it. Each time you apply for a new line of credit, there is a hard inquiry from the creditor on your credit report. One hard inquiry lowers your score by almost 2 to 50 points, and stays on your credit report for about 2 years. Thus, applying for many new credit card accounts within a short period of time lowers your score by several points.

The credit score is the measure of how you have handled credit in the past. Your credit score would determine whether you would qualify for a loan or a new line of credit. A credit score of 700 and above is considered as a good score. You can expect to qualify for loans at the best possible interest rate with a score ranging from 700 to 750. Keeping in mind the economic slowdown, maintaining a good credit score has become compulsory.

Credit is important in our day to day life and we cannot move without it. The better is our credit; the better is the terms on which loans are offered. So we try our best to maintain a good credit score. Letters of credit are intended to help you to repair bad credit. Now, credit score depends on our credit report and so we try our best to remove negative items from our report as these items adversely affect our score. However, as per the Fair Credit Reporting Act and the FTC, we cannot remove accurate and timely information from our report. We can only remove the incorrect entries. Letters of credit helps us to remove these incorrect entries.

The most common types of letters include the pay for delete letter, dispute letters to the bureaus, debt validation letter, and the letter to remove hard inquiries. Each of these letters of credit helps us in different ways to repair our bad credit. Here we try to describe how these letters help us to repair our credit.

Pay for delete letter: This letter is generally sent to the creditor in order to remove a delinquent account from your report. However, it may be noted that certain negative accounts like charged off and judgments can never be removed even through pay for deletion agreement. In other cases, if a creditor agrees to the pay for deletion agreement, the negative delinquent account gets removed from your credit report once you pay off the debt in full to the creditor and your credit score improves. However, you should always get the pay for deletion agreement in writing before you start making payment towards the debt. Since the creditor is not bound to remove the negative account from your report as per the FCRA, he may not agree to PFD. In such cases you may ask the creditor to report it as “paid in full”. Although “paid in full” is also treated as a negative in your report, it is far better than the debt being delinquent, as it saves you from judgment.

Dispute letters: Dispute letters can be sent to the credit bureaus to dispute any incorrect listings in your report. As per the Fair Credit Reporting Act, both the creditors and the credit bureaus are required to correct any incorrect item in your report. Once you dispute the debt, the bureaus need to investigate it within 30 days with the creditor and send you updates along with a free copy of your report if any changes have been made.

Debt validation letter: If you receive a collection letter from a creditor or a collection agency, or if you find a creditor / CA listing in your credit report against a particular debt, Section 809 of the Fair debt Collection Practices Act gives you the right to ask for debt validation to be sure whether you actually owe the debt to the creditor or not. The creditor has to stop the process of debt collection till the time they validate the debt. If the creditor is not able to provide you with debt validation, he must remove the item from your credit report; else you may file a complaint against the creditor with the Federal Trade Commission.

Letter to remove hard inquiries: Hard inquiries are made whenever you apply for a new line of credit. Whenever you apply for a new credit, you automatically authorize the creditor to pull out a credit report and make a hard inquiry. Each hard inquiry reduces your credit score. More and more hard inquiry implies that you are credit hungry which may prove negative for your score. However, only authorized inquiries can stay in your credit report. So if you find any unauthorized inquiry in your report, you may send a letter to the creditor asking them either to remove the hard inquiry or to verify your authorization. In most cases the creditors get the hard inquiry removed from your report if they cannot verify your authorization.

Whenever a creditor considers a debt as a bad debt and deems it to be uncollectible, they charge off the debt. Mostly a debt is charged off by a creditor if you have not made any payment towards the debt for a continuous period of six months. However, some creditors also charges off an account if it is past due for a period of 90 days. “Charge off”, also known as “write off”, may prove costly to your credit score. Whenever, an account is charged off by a creditor, it gets reflected in your credit report and may lower your credit score by as much as 100 points.

“Charge off” is considered a black mark on your credit report and cannot be generally removed before seven years. This negative listing may not only lowers your score, but also affect you in various ways. You may be denied a new line of credit, or may not qualify for re-aging your account if you have a charge off in your report. Most creditors usually sell off the account to collection agencies after charging it off. If you have a charge-off listed on your credit report, it does not mean that you are no longer required to pay off the debt. In fact, if the debt is within the Statute of Limitation period, the creditor can sue you to the court and bring judgment against you to recover the debt either by garnishing your bank account or your wage.

Charge off can be removed from your credit file only by the original creditor in exchange of partial or full payment of the outstanding debt. If the creditor agrees to remove the charge off listing from your credit report, you should get the agreement in writing. Now, if the debt has been sold to a collection agency, it cannot be removed from your report before seven years even if you pay it off in full. However, even if the creditor does not agree to remove the charge off from your report, you should try to settle the debt for less and pay it off in order to avoid judgment which the creditor might bring to recover the debt.

Since it is difficult to remove charge off from your report, you should try to prevent is as far as possible. For this you should contact your creditor whenever you fall behind your payments, explain him of your financial situation and try to negotiate for a repayment plan and pay off the debt. Mostly the creditors will agree to work with you. However, if you are not successful in negotiating with your creditor, you may appoint a credit counselor who may help you out.

Vacating a judgment means that the party (plaintiff or defendant) against whom a judgment has been passed can reopen the case with a view to turn the judgment in their favor. A motion to vacate a judgment must be filed within 30 days from the date you received the judgment notice from the court. However, if you did not receive the judgment notice from the court, the court allows you to file the motion within 180 days from the date you realized that a judgment has been passed against you.

For filing the motion to vacate the judgment, you need to fill up the form after paying the prescribed fees with the clerk’s office in the court from where the judgment was passed. Mostly a motion to vacate a judgment is filed in case of default judgment and so you may need to mention the reason for not being present on the day the judgment was passed. Once you file the motion, the court will fix up a formal hearing date, the details of which will be notified to both parties. The judge may ask you the reason for not being present in the court the first time, if it was a default judgment. Now it depends on the court to decide whether your motion will be granted or not. If your motion is granted the judge may take a hearing right there and so you should always be prepared to present your case. If your case is not heard on that date, you will receive a new date, and both the parties will be informed about the new date.

Now, if the judgment is passed in your favor, you will be receiving a document from the court mentioning that your case has been dismissed and you may send a copy of the court document to the credit bureaus and ask them to remove the judgment from your report.

Summon is generally a legal notice which the plaintiff sends when the borrower defaults on his payments and become delinquent. When the creditor sues the debtor and files a case, the defendant receives a summon which informs him the reason of being sued by the creditor. Once the defendant receives the summon, he has only 30 days to respond to it. Now, if the defendant is not able to respond within 30 days, the case goes to default and the defendant has another 15 days grace period within which he may reopen the default and file an answer after paying court fees, but he not allowed filing an answer beyond this 15 day grace period. However, if the last date of filing the answer to the summon falls on a holiday or a week end then the defendant is allowed to file an answer on the next working day.

Once the defendant files a response to the summon, both parties to the case receive a notice from the clerks office informing them of a trial date or a court date. The defendant can bring any witness who has direct knowledge and may help the court to announce judgment in the right direction. Witness to the case (if any) must be present physically and no letters from witnesses are permitted. While filing the case, the plaintiff needs to pay all the court costs, but the defendant needs to reimburse it if the plaintiff wins the case. However, if the defendant does not file a response to the summon, the creditor or the plaintiff can bring a default judgment against the debtor and may either garnish his wage or his bank account to recover the debt.

After both the parties have presented their claims, the judge decides the case and announces judgment either in favor of the plaintiff or the defendant. Both the parties will receive copies of the judgment which will specify the money judgment that is awarded. Now, if the borrower satisfies the judgment amount, the plaintiff should file “satisfaction of judgment” with the court, so that it gets reflected on the debtor’s credit report as “judgment satisfied”. If the plaintiff fails to file “satisfaction of the judgment”, after the debtor pays off the judgment amount, then he may become liable for the damages which the debtor might face due wrong entry in the credit report.