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.

If you are highly immersed in debt and are not able to repay it back, you can go for a debt settlement program which allows you to repay only a portion of your outstanding debt to the creditors. Under debt settlement plans, you can negotiate with your creditors to bring down your debt to 40 to 60% of your outstanding amount and the creditor agrees to forgive you the remaining part of the debt. The most common debt that is generally settled under debt settlement program is the credit card debt. You can also settle auto loans, medical bills and personal loans under the settlement program. However, certain types of loans such as alimony and child support obligations, mortgages, car loans and federal tax debts cannot be settled under debt settlement plans.

It usually takes 2 to 4 years to pay off the debts using the debt settlement program. There are debt settlement companies who negotiate with the creditors or the collection agencies on your behalf and settle the debt for much less that you actually owe. The companies normally charge an upfront fee for their service. Debt settlement has the following benefits:

1. Debt settlement can help you to avoid bankruptcy, because under such program, you not only save money by paying only a small portion of the debt, but also repay it back in monthly installments. So there is a very little chance that you cannot continue making your payments and file bankruptcy.

2. Under debt settlement program you make only a single payment to the debt settlement company for all your debts you would like to settle. The debt settlement company accumulates this money in a trust and after accruing a good amount they negotiate with your creditors and pay them off.

3. Registering for debt settlement program will help you to avoid the unfair collection practices adopted by most creditors and collection agencies. Moreover, the debt settlement company also negotiates on your behalf and helps you to eliminate the late payment fees and other finance charges associated with the debts.

4. You may also avoid judgment which can be brought against you by the creditor or the collection agency in order to recover the debt. This may save you from getting your wage garnished or placing your property on lien.

Most of us face financial crisis at the end of the month from which we cannot recover without the help urgent credit. Payday loans come in handy during these times, because these loans help us to take care of these unexpected expenses till the time we receive our next paycheck. In spite of the fact that these loans have high interest rates, most Americans usually resort to these types of loans because of it easy accessibility. Moreover, people who do not have a credit history or people with a very low credit score can avail these types of loans because the creditors do not pull out the credit report and check the creditworthiness of the borrowers while offering payday loans.

The term for which the payday loans are offered may differ from state to state and may vary form 6 days to 120 days. This means that the loans which are offered for more than 120 days cannot be considered a payday loan. These loans can be obtained even online by providing certain information like your social security number, email id, contact information and your bank account details. They sometimes even take your authorization to debit money from your bank account in case you fail to repay the debt. Some lenders even offer fax less payday day loans which do not require any paperwork to be faxed to the lender, before you can get the loan. The lenders deposit the money in your bank account, whose details you have provided in the loan application form.

Now, the state laws have also fixed the ceiling above which payday loans cannot be offered. While for most states it has been fixed at $350, for the state of Washington it is $700.Moreover, there are certain states like Washington D.C, Maryland, Massachusetts, Connecticut, Vermont and New Jersey, where payday loan are prohibited by law.

Because of the high interest rate and other finance charges, these loans may put borrowers in vicious circle of debts and may push them to debt trap. Now, once the debtors fall in debt trap and default on their payments, the creditors report it to the credit bureaus and the outstanding debt gets reflected in the credit report as delinquent and affects the credit score for seven years. So one should always try and avoid taking such types of loans.

Steps that need to follow in order to avoid payday loans:

1. You should always budget your expenditures and keep a very small portion of every paycheck, say $20, in your saving account with your bank and try to build up a contingency fund of $400 to $500, which you can use while you are in need of urgent cash either at the end of the month or during emergencies.

2. You can ask your employer, friends or any of your family members for money against a written agreement or apply for a small loan from a credit union where you hold an account. You may also think of using your credit cards to take cash advance instead of going for payday loans.

3. Try and get rid of existing payday loans. Instead of taking another payday loan to repay back an existing loan, you can work out a repayment plan with your lender and pay it off in installments.

When we apply for a new line of credit, the creditor asks for a cosigner to act as a guarantor to the loan. Mostly, the creditors need a cosigner with a good credit score to sign the loan agreement if the borrower does not have a good score to qualify for the loan. The Federal law requires the creditor to give a notice to the cosigner to inform him about his obligations towards the debt if he cosigns the loan agreement. Cosigning an agreement means that you are just letting the primary borrower use your credit history and by doing so you’re acting as a guarantor to the loan.

Just like the primary borrower, the cosigner is also fully responsible for the debt. Now if the primary borrower somehow fails to repay the debt on time, either due to loss of job or otherwise, the cosigner will be required to pay back the entire debt to the creditor. Even if the primary borrower dies, the cosigner remains responsible for the debt. Another important thing is that, this loan account will appear on the credit report of both the primary borrower and the cosigner. If the creditor does not get the money back from the primary borrower, he will notify the cosigner and will ask him to make the payment.

Now, since the cosigner credit account appears on your credit report and forms a part of your credit history, your FICO score gets affected if the account becomes delinquent. Moreover, due to non payment of the cosigned account, both your debt to income ratio and the balance to limit ratio will rise and your application for a new line of credit may get rejected.

You should therefore cosign a loan agreement only if you can afford to repay it back. Moreover, before cosigning an agreement, you should first understand the purpose of the loan and go through the terms and conditions to check whether you can afford to abide by the conditions. However, there are certain instances where cosigning the loan agreement becomes necessary. For example, you may need to cosign an education loan for your son or daughter. But even in such cases you should try to limit your obligation towards the loan only to the principle amount, by negotiating with the creditor.

Bankruptcy is a legal process which helps you to manage your debts effectively under the cover of the bankruptcy court and helps you to make a fresh start on your finances. Once you file bankruptcy, all foreclosures, repossession and garnishment orders cease to operate temporarily. Generally, there are two types of bankruptcies which are filed by individuals. They are Chapter 7 bankruptcy and Chapter 13 bankruptcy. However, if you have a discharged Chapter 7 bankruptcy within the last 8 years or a discharged Chapter 13 bankruptcy within the last 6 years you cannot file bankruptcy. Moreover, you cannot file bankruptcy if your bankruptcy petition has been dismissed within the last 180 days.

Under the new bankruptcy law of 2005, you need to go through a credit counseling program if you want to file bankruptcy and submit a certificate to the bankruptcy court in this regard within a period of 15 days of filing bankruptcy. The bankruptcy court may dismiss your bankruptcy petition if it is proved that you have illegally transferred your property to your friends and relatives and have tried to conceal your assets to qualify yourself for Chapter 7 bankruptcy. Moreover, if before filing bankruptcy if make excessive spending on your credit cards with the hope that these credit card debts will be included under Chapter 7 and you need not pay them off, then your bankruptcy petition may be dismissed.

Chapter 7 bankruptcy, also known as “straight” or “liquidation” bankruptcy is preferred by most debtors because under this bankruptcy, the Bankruptcy court discharges all the debts. A portion of your property may be sold off by the Bankruptcy Court under Chapter 7 to pay off some of your outstanding debts. Some of the properties which can be sold under Chapter 7 include expensive musical instruments, cash and other investments, a second car or home, and collection of stamps and other valuable items. Hence a debtor can file Chapter 7 bankruptcy if he has nothing to lose to the bankruptcy court. The debtor can also eliminate some of his secured debts by filing bankruptcy under Chapter 7.

Under Chapter 13 bankruptcy, you need to pay back the outstanding debts to the creditors under the cover of the bankruptcy court through a repayment plan and so Chapter 13 bankruptcy is also known as “debt adjustment” bankruptcy. Instead of handing over the assets as in the case of Chapter 7, you need to pay off the debt within 3 to 5 years.

Credit repair scams have almost become a regular feature. Everyday we find that credit repair companies claim that they will clear up your credit report and remove all negative items including bankruptcies and judgments for a fee, but they cannot deliver the desired results and end up taking huge fees. This is because nobody can remove negative information from your credit report if it is correct and so even after you pay hundreds of dollars to the credit repair companies, your credit report remains as it was before you have signed up for credit repair. It is not at all difficult to identify whether a credit repair agency is a scam or not. If you find that a company demands fees to repair your credit even before they provide any service then you should not go for that repair agency because as per the Credit Repair Organization Act, you are not required to pay any fees to the credit repair agency until and unless you get the result as promised. Moreover, the credit repair company must inform you of your rights under the Fair Credit Reporting Act and that they should also inform you can also repair your own credit if you want.

Federal Trade Commission also recommends you to repair your own credit. Doing this not only helps you save money, but also help you learn the basics of credit industry and the ways to maintain a good credit profile. Repairing your own credit is not at all a difficult task and you need to have patience to do so. You can follow the below mentioned steps if you want to repair your own credit:

1. Pull out your credit report and find out the negative items there. Negative items such as judgment, charge off accounts and bankruptcies can never be removed from your credit report before the seven year period. However, there are certain other listings such as hard inquiry and outstanding delinquent accounts which can be removed if you pay them off.
2. Hard inquiries can stay in your credit report only if it has been authorized by you and it can remain there for two years. However, if you have not authorized the hard inquiry, you should send a letter to the inquirer asking him either to verify your authorization or to remove it from your credit report. You may even threaten them that you may file a complaint with the State Banking Commission if they fail to remove it from your report. In most cases, the inquirer removes the hard inquiry from your report if they cannot verify your authorization.
3. Now, if there is an outstanding debt listing in your credit report and the debt has been send to collections, you should always send a debt validation letter to the collection agency by certified mail to check whether you owe the debt or not. If the collection agency properly validates the debt, you should try to pay it off by coming to a repayment agreement. However, before coming to a repayment plan, you should always try to negotiate with the creditor for a pay for deletion agreement so that as soon as you pay off the debt, the negative items gets removed from your credit report and your credit score improves. However, even if the creditor does not agree to the pay for deletion agreement, you should try and pay off the debt to avoid judgment, which the creditor might bring at a later date. If the creditor does not agree to pay for deletion agreement and you pay off the debt in full, the debt will be listed in your report as “paid in full”. Although this “paid in full” listing is also negative, it is always better than an unpaid debt. If the collection agency cannot validate the debt, you should dispute the listing with the credit bureaus. The credit bureaus will get it verified and remove the item from your report.

Under the Fair Credit Reporting Act, “Debt Validation” refers to the debtor’s right to ask the creditor to validate the debt which the creditor or the debt collector claims they own. It is one of the most effective weapons against the creditors who illegally claim any debt from the debtor either by sending a collection letter or by reporting the debt to the credit bureaus. Under Section 809 of the Fair debt Collection Practices Act, if a creditor or a collection agency claims that you them money, you can send them a debt validation letter by certified mail and the creditor must stop the process of debt collection till the time they properly validate the debt.

Original creditors either hire a debt collector to recover the outstanding debt or sell it off to a collection agency, because most of them do not have the time or manpower to recover the same. If the original creditor transfers the right to collect the debt to the debt collector, then after the debt is successfully recovered, the collector gets a percentage of the debt collected as their fees. However, in most cases, the original creditor sells off the debt to junk buyers and these junk buyers collect the debt as collection agency, but not as original creditor.

There are two ways by which the creditors can collect the debt. They may either send you a collection notice or report the debt in your credit report. If they send a collection notice, you must send a debt validation letter by certified mail within 30 days from the date of receipt of the notice, else it will be accepted that you agree with the debt. If you find the name of the creditor or the collection agency listed in your credit report, you can also send a debt validation letter. Debt Validation letter should always be send by certified mail with return receipt as a proof that you have asked for debt validation, in case the creditor later disagree that you have asked for validation of the debt.

Once the creditor receives the debt validation letter, they must validate the debt else they have to stop the process of collecting the debt further. Although it is not clearly defined in the Act of what should be a proper debt validation, a proper debt validation should include the following:

1. Proof that the collection agency has been given the right to collect the debt by the original creditor or the original creditor has sold off the debt to the collection agency.
2. Bills showing the outstanding debts along with interest and other charges.
3. Copy of the original signed loan agreement.

If the creditor or the debt collector validates the debt, you can negotiate with the creditor for pay for deletion. If the creditor agrees to pay for deletion agreement, the negative listing will get removed from your credit report after the debt is paid in full. However, if the creditor does not agree to PFD, you can ask the creditor to change the status as “paid in full”, after you pay it off. If you get proper debt validation, you should always pay off the debt to avoid judgment against you. However, you can also negotiate with the creditor for a discount on the outstanding debt if you cannot afford to pay it off in full. Under such circumstances the creditor generally does not agree to pay for deletion agreement. They only change the status of the listing to “settled for less” in your credit report.

If the creditor cannot validate the debt within 30 days from the date of receipt of the debt validation letter, then as per the FDCP Act, you are in no way responsible to them for the debt. You can send them a second letter along with a copy of the receipt, which you have received while you asked for debt validation, telling them that they have violated the provisions under the Fair Debt Collection Practices Act and so they should remove the negative listing from the credit report or you may file a suit against them for violating the Act. At the same time you can send a dispute letter to the bureaus telling them that you do not agree with the debt. The credit bureaus will verify the debt with the creditors or the collection agency who claims to own the debt, and will remove it from the credit report if the claim is not well founded.

What is identity theft?

Identity theft occurs when your personal information like your social security number, credit card number or your date of birth is stolen in order to take financial advantage from them. It is one of the increasing crimes in US, where unauthorized credit accounts are opened in your name without your permission. As per the Federal Trade Commission estimates, over 9 million identities are stolen every year. The thief first uses your social security number and your date of birth to obtain a driving license in your name, but with changed address and photograph, by stating that he has changed his place of communication. The identity thief then uses this license to obtain a new loan in your name, open an account with the utility bill companies or to rent an apartment. Identity theft can result in damaging your good name and credit report. The damage in credit report will lower your credit score and you may end up paying higher interest rates on new lines of credit or losing an opportunity in getting a better job.

Ways by which the thieves steal your identity.

There are various ways by which your identity can be stolen. The thieves may steal your credit card information while you are making payments with these cards at a merchant establishment, by using a special device. They also steal mails from your mailbox or obtain old credit card bills from the trash, to get your information. They may even get information from your wallet or purse by stealing them.

Impact of identity theft on your credit score:

Once the thief has access to your personal information, they may use it in the following ways:

1) Open a new credit card account in your name and use these cards to make payments. Now, they do not pay back the credit card debts and become delinquent. This delinquency gets reflected in your credit report and lowers your credit score.
2) They may use your name to open a new utility account like electricity or telephone and then default on the payments, which again gets reflected in your credit report and lower your score.
3) They may also use your personal information like the social security number to get a job or get medical assistance.

How to prevent identity theft?

The most important instrument to fight identity theft is awareness and the knowledge of how to take action once you find your identity is stolen. The following measures can be taken to avoid being a victim of identity theft.
1) You should never throw away credit card or bank statement to the trash without cutting them into pieces.
2) You should never disclose any personal information like your social security number, credit card number or your bank account number to anybody. Identity thieves sometimes use a method known as phishing, where they ask for sensitive personal information like your username and passwords through emails. You should never reply to these emails.

Mostly a person learn that he has been a victim of identity theft after the damage has been done in his credit and the creditor calls him up for the debt which he has not incurred. However, to avoid being a victim of identity theft, it is always better to check your credit report at regular intervals and report any discrepancies to the credit bureaus immediately.

What to do if you realize that your identity is stolen?

If you feel your identity is stolen, you should immediately place a fraud alert service with the bureaus. This service if offered free of any cost. All you need to do is to call any of the three credit bureaus and place a fraud alert service. If you place fraud alert service with any of the bureaus, it will automatically be set with the other two bureaus. The initial fraud alert service remains active for a period of 90 days. Once fraud alert service gets activated, the creditors will need to call you up whenever there is a new credit application in your name and verify it before opening a new line of credit.

What to do if you find your identity is actually stolen and the thief has taken financial advantage from it?

If your identity has already been stolen and the thief has taken financial advantage from it, you should immediately file a complaint with the Federal Trade Commission through their online complaint form by visiting their website. On filling up the online complaint form, you will become a registered victim of identity theft. Now, you should call up the FTC at their hotline number 1-877-438-4338 and update the complaint. Next, you should visit the local police station with an identity proof, photograph and a copy of identity theft complaint form and file a complaint there. Finally, notify the creditor that you have been a victim of identity theft.

Credit score is actually a numeric three digit number which proves your creditworthiness to the lenders. It is a statement showing your credit transactions in the past seven to ten years and includes all open and closed lines of credit in your name. The credit report is mostly dependant on your repayment history i.e, your consciousness in repayment of the loans. This credit score is also called the FICO score as it was developed by Fair Isaac Corporation and is offered by the three major credit reporting agencies (also known as credit bureaus) of US – Experian, Transunion and Equifax. The scores offered by each of the credit bureaus may sometimes differ by a few points because the creditors may not report information to all the bureaus at the same time.

The items in your credit report generally fall under the following heads. They include your personal information, potentially negative items, accounts that are in good standing, and hard inquiries conducted in your credit report. Your personal information includes your name, a few digits of your social security number (for security reasons) and your date of birth. Negative information may include the public records such as judgments and bankruptcies, and outstanding debts with the creditors and finally hard inquiries in your report may include the names of the creditors who have pulled out your credit report in the last two years to check your credit history to judge your credit worthiness.

The FICO scoring model has been developed in the 1950’s by the Fair Isaac Corporation to determine the eligibility of the borrower in opening a new line of credit. The score has a range from 350 to 850 points, with higher score increasing your potentiality as a borrower. The higher is your credit score, the lower is the interest rate on your loans. So it is always essential that you improve your score. The score can be increased by keeping in mind the factors that determine it. The FICO score is based on five parameters which include the following:

- Credit history: It has a significant role to play in improving your score since it contributes 35% in your FICO score. So in order to improve your score you need to build up a good credit history. For this all you need to do is to make purchases with your credit card and repay them back within the due date. You should not make defaults on your other loans, or make any missed payments, if you want to improve your score.

- Length of the credit history: It has a contribution of 15% in your FICO score. So you should always try to increase the length of the credit history in order to improve your score. For this, you should not close any existing credit cards which have a good credit history. If you are unable to maintain your cards and you want to close some of them, it is better that you close the newer ones.

- Amounts owed: This is also a major factor in determining your credit score as it contributes 30% in your score. So to make this factor contributes positively in your score, you should always make sure that you do not exhaust more than 30% of your credit limit on your cards.

- New credit: It includes number of new lines of credit and hard inquiries in your credit report. When you apply for a new line of credit, be it for credit cards or other loan application, the creditor pulls out your report. This is called a hard inquiry. A hard inquiry may lower your FICO score by 5 to 10 points. Hard inquiry reflects your hunger for credit and so it lowers your score. So you should limit your credit application as far as possible in order to improve your credit score.

- Types of credit used: 10% of your credit score is contributed by this factor and includes the different types of credit you have already taken.