Credit

Most important purchases in our lives involve credit. The ability to buy a house or a car, to pay for higher education—even to find a job depends on your ability to prove that you are a good credit risk. Potential creditors and employers use credit reports and credit scores to determine your credit rating. Every lender wants to know how much risk they are taking on when they lend you their money.

The Big Picture

Who can see your credit report and what can they use it for?

How long does information stay on your credit report?

Ordering a copy of your credit report and know what you are looking at, including your credit score.

Making corrections to your credit report.

Adding accounts to your credit report.

Staying out of credit trouble.

What are Credit Reports Used For?

A credit report helps a credit grantor decide whether to grant you credit based on your credit payment history. The Fair Credit Reporting Act allows credit bureaus to sell your report only for certain uses.

If a lender finds what it considers excessive inquiries, it may reject your credit application. Lenders are free to determine their own guidelines for what constitutes excessive inquiries. Don't give out your credit information unless you are ready to apply for credit. If you have too many inquiries and not resulting credit, it's considered a bad sign by creditors.

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Signing Up for the Program

Whether you walk in, call or enroll online, most agencies will begin to determine if you qualify for their debt-management program by asking you questions to get a snapshot of your financial situation today. They will ask you about more than just the amount you owe on your credit cards. You should be prepared to give them the following types of information.

Do You Qualify?
After the counselor has your personal information and has collected your financial data, you will be told whether you qualify for the program. You will be told one of three things:

  1. You have enough monthly personal income that you should probably work with your creditors to make payments on your own. Call the creditors and show them that you have good intentions and ask for their help. You may also benefit from some basic financial education about budgeting and other areas.

  2. You have so little monthly income that even with the benefits of credit counseling, you will still not be able to make your payments. You are probably a candidate for bankruptcy. You may want to read the "Bankruptcy Basics" section of this module or contact your local bar association or legal aid service for referral to an attorney.

  3. You are a candidate for credit counseling because with the benefits of the program, you will finally be able to manage your monthly payments.

Read the Agreement
You are usually sent or faxed an agreement to enroll in the debt-management program (DMP) and asked to sign and return it. Read the agreement carefully. When you called the agency and spoke to the counselor, you received a lot of information about the program. Make sure that what is in the contract matches what you were told. If there is something you don't understand or don't agree with, don't sign the form. Call the agency and insist that they explain the issues to your satisfaction.

You may also be asked to attach a voided check if you are choosing direct withdrawals from your bank account. Be sure your account number and bank routing number are clear and visible.

Who will Know You Are in Credit Counseling?
Once you've enrolled and returned the completed contract, the agency will contact your creditors. They will notify your creditors that you have enrolled in the debt-management program, they will confirm your balance (it's often different from the one you gave from your last statement because you've accrued interest), and they will notify each creditor that the account will be closed. Some creditors will notify the credit reporting agencies that you are in credit counseling. If you are in credit counseling you're behind in your payments, and that is already on your record.

In most cases, the creditor will accept the terms of the DMP you've set up with the agency. There are some, however, that will ask the agency to make adjustments because of the higher balance. There are other creditors that determine program benefits on a client-by-client basis.

If There Are Changes in Charges
The agency will work with the creditors to complete your debt-management plan. You will be notified if there are changes to the estimated debt-management plan if it becomes different from your enrollment plan. Some companies notify you only if the change is going to be greater than $10; others notify you for any change.

The First Payment
Mark your calendar for your first payment date. If you are mailing your payment, be sure you leave enough time for the mail delivery. Most credit-counseling agencies receive payments at a bank lockbox for security—this is often a post office box, so FedEx does not deliver. If your account is going to be debited directly, be sure you have adequate funds in the account at least one day before your debit date.

If you have a payment due before your first debit date with the agency, go ahead and send your payment directly to the creditors to avoid further fees.

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