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CNN Live Saturday
"Dollar Signs": How To Reduce Your Credit Debt
Aired January 10, 2004 - 16:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDERICKA WHITFIELD, CNN ANCHOR: Welcome to DOLLAR $IGNS.
With the holidays over many Americans are now starting to get their bills back from those credit card companies and it doesn't look so good. Statistics reveal that consumer debt more than doubled in the past 10 years to a record of nearly $2 trillion in 2003. And when all the numbers are in, experts say last year could surpass the record number of consumer bankruptcies filed in 2002.
So we thought now might be a good time to talk about protecting, or maybe even improving, your credit report, and finding out and understanding what your credit score is. Here's CNN's Ali Velshi.
(BEGIN VIDEOTAPE)
ALI VELSHI, CNN FINANCIAL CORRESPONDENT (voice over): Looking to take advantage of low interest offers on a new car? Worried about mortgage rates going up and you think it's time for a new house? Well, before you make any big-ticket purchases, getting a copy of your credit report could save you time and money.
What exactly is a credit report? Well it's how lenders see you.
ROBIN HOLLAND, EQUIFAX: A credit report is a reflection of a consumer's accounts payable history. So people with retail cards, gas cards, mortgages, all of that information is reported to the credit reporting agencies on a monthly basis, and it will compile your credit report.
VELSHI: The report also considers your income, where you live, how much debt you already have, and if you've ever been sued or declared personal bankruptcy. This information remains on the report for seven years.
If you need access to credit, especially if you plan on making a large purchase, you should know what your credit report looks like, and make sure it's error free. Obtaining your personal credit report is easy. For about $10 each, you can get your report from the three major credit reporting agencies, Equifax, Experian and Trans Union. You can get your report by mail, by phone, or online.
You should check with all three bureaus when checking your score. A mistake on any one of them could hurt you. The agencies are regulated by the Federal Trade Commission and the Fair Credit Reporting Act. A poor report may not stop you from getting credit, but it could make your interest rates on your credit card, car loan or mortgage more expensive. HOLLAND: Not only does it determine if they're going to lend you credit it's also going to determine what that rate is. Because we all know that when you purchase a car, or you're refinancing your home there are various rates that the lender's going to offer.
VELSHI: But your credit report is only half the picture. The credit score is equally important. This score is a mathematical calculation of your current credit worthiness, a more recent financial snapshot, usually encompassing the last two years. Your credit score ranges from 300 to 850. Anything from 700 to 850 is considered good; from 500 to 700 is average; and under 500 means you may run into problems.
HOLLAND: Someone with 500, that would probably be considered a score that would not be very favorable and might make it a little bit more difficult to obtain a very competitive interest rate. In some cases you definitely will be declined if that score is too low.
VELSHI: There are steps you can take to improve your personal score. Pay your bills and pay them on time and be mindful of your current debt level. That way you can get credit where credit is due. For DOLLAR $IGNS, I'm Ali Velshi, CNN Financial News, New York.
(END VIDEOTAPE)
WHITFIELD: Now we're going to look at other ways you can improve your credit report and your credit score. Todd Mark and Deborah McNaughton are going to help us. Todd is with the Consumer Credit Counseling Service in Atlanta and Deborah is a credit consultant in Los Angeles.
Good to see both of you. All right let's try and make some sense of this. Americans just seem to not be able to get out of debt.
Deborah, the average credit card debt is over $8,000. And that was just in 2002, and that's double what it was 10 years prior. Why is it that so many of us just keep seems to pile on the numbers?
DEBORAH MCNAUGHTON, CREDIT CONSULTANT: You know, there could be several reasons. One could be that you're just addicted to credit cards. And you have to have instant gratification. But a lot of people, with the economy how it's been, are using credit cards to live off of.
WHITFIELD: Hmm. And that's certainly a big mistake, because if you can't pay it all off when you get that bill, then you probably shouldn't be putting that amount of money on your credit card anyway.
MCNAUGHTON: Exactly. What happens, they will, many times, rob Peter to pay Paul. In other words they'll take cash advances from one credit card to pay another credit card. And that's when reckoning day is going to come. And you can really get into some major problems.
WHITFIELD: Wow!
And Todd, isn't part of the problem that it's just so easy now for just about anybody to get credit? We're seeing that kids before they even graduate from college are strapped with credit card debt these days.
TODD MARK, CONSUMER CREDIT COUNSELING SERVICE: Yes, I don't remember the stat right off the top of my head. I think it's 70 percent of all freshmen have a credit card before the end of their freshman year in college.
Think about that. These are kids that have not been educated on the dos and don'ts of credit. They don't understand what interest rates are, what grace periods. And the fact that they've got to pay these things or interest is going to accrue, and if it's late it's going to damage their credit, they don't understand. So, that's a big problem.
WHITFIELD: Let's talk about some of the ways that you can now tackle it. You acknowledge and you realize that you've got just too much in credit card debt in which to tackle. What might be the first approach? You need to, number one, assess what you've got before you, and prioritize? Todd?
MARK: Well, absolutely. The first thing is open up your bills. So many people come to CCCS and they have unopened bills. And they say please look at it. I can't handle it anymore. So know what you owe.
And then you know, you've got to say, what do I owe on? Do I owe just on credit cards? Am I behind on a mortgage or a car? So you've obviously got to prioritize.
Secure debts first. Always do your mortgage, number one. Your car, number two. And then you can worry about some of your unsecured debts.
At that point, look at what's the highest interest rate card. You don't want to be paying a lot of money on small interest rate cards and have the big interest rate growing and growing and accumulate more interest.
WHITFIELD: Deborah, just as Todd was saying, sometimes people aren't opening up their bills. They don't really know what they owe. So they try to organize now how to start paying on some of these bills. How to prioritize? What's your best suggestion on how to get started?
MCNAUGHTON: Well, open your bills. That's the first thing.
(LAUGHTER)
MCNAUGHTON: Open the mail. Too many people feel more comfortable going into denial mode. And that is the worst thing that you can do. You need to be aware of what you owe. And that's where, if I was to say to our audience, from memory go ahead and total up everything that you think that you owe. Figure out what that balances are, figure out how much your payments are and then I would say go back now and get a reality check. Pull out the statements, compare what you think you owe, and most people have heart attacks. Because they don't believe that they owe as much as they really do.
WHITFIELD: They just don't know how in the world it just got so out of hand. Todd and Deborah, hold on a second. We're going to take some calls and e-mails in a moment, right after this break. You can still send some of your questions to dollarsigns@cnn.com. Or start to dial now, 1-8000807-2620.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS.
Do you know the difference between your credit report and your credit score? Todd Mark of Consumer Credit Counseling Service and Credit Consultant Deborah McNaughton are both giving us some tips on how to figure out the difference between the two.
First, Deborah and Todd, we've got a call from Dean in Florida on the line.
Dean, what's your question?
CALLER: Yes, good afternoon, folks.
My question regarding bankruptcies, which seems to be getting so easy these days I expect a drive-thru window at any moment.
My question is regarding the reports and credit counseling. My girlfriend right now is considering the bankruptcy route but I'm trying to convince her to go through a credit counselor. What advice would you have for people who are trying to find the right credit counselor to get their credit in order?
MARK: Dean, let me tell you, credit counseling and CCCS, in general, we're kind of like a last stop before you go to a bankruptcy attorney. People come to us because they want to pay their bills. They don't want to run away from them, as many people do in bankruptcy.
And you know, some people that come to us, we honestly tell them, you know, you're trying to do the right thing, but bankruptcy would be better for you. Probably about 6 to 10 percent of the people that come to us, we give them the truth that maybe bankruptcy is right for them.
But, if your friend or girlfriend is interested in trying to pay her bills, tell her to come to a CCCS agency for a free budget counseling session, and we'll give her some objective advice.
WHITFIELD: All right. Now before we get to our first e-mail question from Anna, which asks about credit score, let me just ask you, Deborah, if you can just help us understand when we request our credit report, how we calculate or how do we look for the credit card score, the credit score?
MCNAUGHTON: The first thing you need to do is get your credit report from all three of the major reporting agencies. There's Trans Union, Equifax and Experian. You can order them online at their websites, tuc.com, equifax.com and experian.com. And be sure and request your FICO score to go with it.
WHITFIELD: If you don't request that you're not going to get it automatically?
MCNAUGHTON: Exactly. And it will cost a few dollars more. But, boy it is well worth it. Because when you get the score, it's also going to show you different areas where you are weak. And how they have ranked you.
WHITFIELD: OK.
MCNAUGHTON: So it should be on the front, the very top, if you've requested it, or it may be on the bottom of the report.
WHITFIELD: That gives us a perfect segue into our first e-mail question from Anna, from Sparks, Nevada. And she says: "If I pay off some of my past delinquent accounts will it improve my credit score?" Knowing how important it is now, about the credit score, Todd?
MARK: Absolutely, Anna. It's always important to be paying off the debts you have in the past.
And there's five basic categories that affect your credit score. Number one and the biggest one is your payment history. Have you paid your bills? So if you've got bills that are delinquent or you've got 30, 60, 90-day lates or even charge-offs, those are the ones that are going to be the most damaging to your credit score.
Now if you pay them off, that's great, and that will reflect. But keep in mind that the damage that if you've got the 30 or 90-day lates, that will stay on your credit report. And therefore be impacting your score. And those will stay on for about seven years.
MCNAUGHTON: So, Deborah, once you pay some of those delinquent bills that you can handle right away, how soon after, you know, should you be checking to see how it may have impacted your credit score?
MCNAUGHTON: Once you've actually paid the things off, you would probably want to check within probably a six-week period to see if the creditor has reported it accurately on the report.
There are so many times, probably 80 percent of our credit reports that we see have errors on there. And you may have paid it off, if it went into collection or a charge-off, and you know you paid it off, but the creditor may not even be showing this.
Even bankruptcies, you'll see a bankruptcy account, and probably 90 percent of the items that are on the credit report that were part of the bankruptcy are still showing as if they were owed.
WHITFIELD: Wow.
MCNAUGHTON: So people need to get copies of that credit report. Otherwise they're not going to know what's going on.
WHITFIELD: On the phone with us, Chase in Oregon. Chase?
CALLER: Yes. Good afternoon. I have some fraud on my credit files, and two of the agencies have cleared them. There is one agency who has not cleared it, and I've tried and tried and tried. They're now telling me I needed to have a police report for every inquiry and negative thing that is on my credit report from before I was even 16 years of age.
MARK: Wow, Chase, you already have a police report for the original identity theft?
CALLER: No.
MARK: OK. I'm going to tell you now, you need to file a police report in the city or the county that you live. And if you haven't done the other steps for identity theft, go over to ftc.gov, the Federal Trade Commission and you can file an I.D. fraud affidavit, that says you've been the victim of identity theft, please call off the dogs.
This is kind of your get out of jail card. Between that and your police report so that you're not pulled over and a police officer thinks you're somebody that's writing bad checks. You could be carted away. So you need to have that fraud affidavit.
And then you need to be working with all three credit bureaus. Why two would be working with you and one is not, that's a little sketchy. Maybe you've got to work your way up the chain at that third credit bureau.
WHITFIELD: Deborah, you have any thoughts?
MCNAUGHTON: Also, I don't know how you're actually disputing it. If you're going through the creditor to have them take it off, which would be your first choice. But if not, dispute it with the credit reporting agency directly. They will, in turn, investigate it with the creditor.
And if the information is unverifiable, or they don't respond within a certain time period, it's automatically going to come off. They cannot keep it on if it's unverifiable. So I would try two different approaches.
WHITFIELD: OK, Anthony in Houston asks in an e-mail: "How many points does being late on your mortgage drop you FICO? Once you are current again, how many points will the score increase?"
MCNAUGHTON: You know what? It's top secret.
(LAUGHTER)
MCNAUGHTON: They will not tell you how many points each entry is, because it can change daily. And I read several years ago when they created the FICO, the originator said if I tell you, I'll have to shoot you. So you can check your credit report before you make it, you know pay it current on the mortgage, and then check it again after it. And then you will be able to see a variation. But will it be a true fit? I don't know.
WHITFIELD: Todd, Jackie in Oklahoma is on the phone. This one is for you.
CALLER: Hi. I filed Chapter 13 in '96, and so after the seven years it came off my credit report last year. But as we made our weekly payments to the bankruptcy court, and the bankruptcy court just made lump sum payments to the mortgage company, the mortgage company has us down as late on our credit report, even though we really weren't. And I don't know if they -- can they do that? What can I do about it?
MARK: That's so odd. So, you were making all your payments on time to the bankruptcy trustee and they were doing them in lump and they were going in late? And do you have receipt proof that you've sent them in on time to the bankruptcy court?
CALLER: Yeah, well we have the - yes, I mean they were taken directly from my check.
MARK: Wow, how about that. After this bankruptcy you're trying to rebuild your credit and paying all this on time and it sounds like your credit is actually getting harmed. That's the worst thing possible. I'm so sorry, Jackie. You need to go face-to-face, go in person to the court that you're working with, and bring your paperwork, show what's going on.
What were you going to say?
CALLER: I mean, we've been out of bankruptcy now for several years. But, the bankruptcy itself came off of the credit report, but because it takes, you know, three years for the Chapter 13, for you to finish that. Then the late payments, so we're not actually still working with the court, because that's been like four or five years ago.
MARK: But still, Jackie, if you've got the paperwork and receipts that show that you made payments on time to the court, you've got to go back to them. Because if you originated with them, this is a Chapter 13 which is a seven-year mark on your credit report. Yes, it should have just come off just in this past year.
And there should be no other damage incurred on you, whether they make payments weekly or monthly. I hate that that's happening for you.
CALLER: So they will take care of it with the bank? I mean with the mortgage company?
MARK: Yes, you need to work with the bankruptcy trustee that was working your case and they will work with you.
WHITFIELD: Deborah and Todd, hold on a minute. We're going to take some more e-mails and calls right after a break. But we have to take a short break.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS. Todd Mark and Deborah McNaughton are answering your questions so that you can clear away any kind of errors in your financial history and improve your credit score.
We've got an e-mail from Richard, out of Westwood, New Jersey. And he asks: "What credit score is needed to get credit? And what are the penalties and interest rates for borrowing at lower scores?"
I guess, meaning if the score is pretty unsavory and maybe below that 500 mark. Deborah?
MCNAUGHTON: Well, I know that I help people with mortgages, and different areas of credit. And to get a decent credit interest rate for a mortgage, we're looking at least 620 points or higher. Anything that is below 620 will put you into an alternate type of a loan, which would create higher interest.
WHITFIELD: Hmm.
MCNAUGHTON: So, you know, you need to be aware. Anything below 500 points, most of the time nobody can help you with getting a mortgage or automobile. It's just too risky for the lender.
WHITFIELD: Todd, you have any thoughts on that?
MARK: That's true, 500 is the cutoff point. We've got to remember, we've talked about this being for big purchases like cars, for homes, and of course affecting your credit cards.
But let's not forget that credit scores also affect whether you get employed for a job. And also whether you're getting approved for insurance, both car and home insurance, are looking at your credit scores. Because the more risky you are with credit and the more debt you have, the more likely you are to make a claim. So there's a lot more things to worry about than just those big purchases.
WHITFIELD: All right, Juni (ph) in Texas is on the line with us.
What's your question?
CALLER: Yes, my question is, I once had a tax lien on my credit, which I never owed. I had the tax lien cleared. And what I wanted to know is, how can I clear this tax lien off my credit, which still shows up -- which shows up now as me owing nothing?
MARK: All right. When is the lien dated on your credit report?
CALLER: '96.
MARK: 1996. That's interesting. Because most marks on your credit report last just for seven years, but if that's still listing, and your credit reports list all bankruptcies, foreclosures, liens judgments, so you need to put it in dispute with the three bureaus, as Deborah said earlier.
You can go online to all three websites and actually do the dispute in e-mail. And again they have 30 days to resolve that. If they can't prove it, you know it's wiped off. But I hate that you're doing this eight years later when if you'd only been checking your credit report once a year you might have been able to take care of this back in 1996.
MCNAUGHTON: Another thing, if you have the document that shows that it was paid or that you never owed it, send the document with your dispute to the three bureaus and that should take care of it, too. But definitely check your credit and make sure that it's happening.
WHITFIELD: Arthur in Tampa e-mails us with this question: "What effect does settlements have on your credit score and records? If they are to remain, what information is allowed on your report?"
Deborah?
MCNAUGHTON: A settlement is not a good item. And the reason being, the creditor that is reviewing your credit report sees that you did not pay this in full. So usually what I tell people to do --
WHITFIELD: Can you get rid of that?
MCNAUGHTON: What I tell people to do when they're negotiating with their creditors, see if they will move the item off the credit report, after they've been paid, they get it in writing first.
What happens, so many people that are negotiating with creditors, just take their word for it and don't get it in writing. They pay it and they have a short memory, and so let's say they owe $2,000, they settled for $1,000. Well, if it's not in writing, that creditor can come back and still try to pull, you know, get the rest of the money. So you have to have everything in writing.
And also when you're negotiating like I said, ask them to take it off the credit report once they receive the payment.
WHITFIELD: Wow.
MCNAUGHTON: And they can do it if they want to do it.
WHITFIELD: Rose in Texas has been waiting very patient only on the phone. What's your question?
CALLER: Yes, I want to know about credit that should roll off after seven years, and they sell it right before it's time to roll off? And it just keeps it going on and on for years after seven years. I don't know what to do.
WHITFIELD: All right, Todd? MARK: Well, and that's really unfortunate. And generally the debt, once seven years has expired, it's off. Now, if the debt has just been moved to an internal collection agency, sometimes if it's still within the person that you owe the money to, they can renew the debt.
Generally that doesn't happen. If it's just sold off, that should be rolling off after seven years and you've got to say hey, this is dated past seven years, it needs to be removed.
WHITFIELD: All right. Thanks very much Deborah McNaughton and Todd Mark. We're out of time. But thank you very much for being able to answer a whole lot of questions out there. Everybody wanting to straighten out their credit situation.
MARK: Thank you.
END
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired January 10, 2004 - 16:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDERICKA WHITFIELD, CNN ANCHOR: Welcome to DOLLAR $IGNS.
With the holidays over many Americans are now starting to get their bills back from those credit card companies and it doesn't look so good. Statistics reveal that consumer debt more than doubled in the past 10 years to a record of nearly $2 trillion in 2003. And when all the numbers are in, experts say last year could surpass the record number of consumer bankruptcies filed in 2002.
So we thought now might be a good time to talk about protecting, or maybe even improving, your credit report, and finding out and understanding what your credit score is. Here's CNN's Ali Velshi.
(BEGIN VIDEOTAPE)
ALI VELSHI, CNN FINANCIAL CORRESPONDENT (voice over): Looking to take advantage of low interest offers on a new car? Worried about mortgage rates going up and you think it's time for a new house? Well, before you make any big-ticket purchases, getting a copy of your credit report could save you time and money.
What exactly is a credit report? Well it's how lenders see you.
ROBIN HOLLAND, EQUIFAX: A credit report is a reflection of a consumer's accounts payable history. So people with retail cards, gas cards, mortgages, all of that information is reported to the credit reporting agencies on a monthly basis, and it will compile your credit report.
VELSHI: The report also considers your income, where you live, how much debt you already have, and if you've ever been sued or declared personal bankruptcy. This information remains on the report for seven years.
If you need access to credit, especially if you plan on making a large purchase, you should know what your credit report looks like, and make sure it's error free. Obtaining your personal credit report is easy. For about $10 each, you can get your report from the three major credit reporting agencies, Equifax, Experian and Trans Union. You can get your report by mail, by phone, or online.
You should check with all three bureaus when checking your score. A mistake on any one of them could hurt you. The agencies are regulated by the Federal Trade Commission and the Fair Credit Reporting Act. A poor report may not stop you from getting credit, but it could make your interest rates on your credit card, car loan or mortgage more expensive. HOLLAND: Not only does it determine if they're going to lend you credit it's also going to determine what that rate is. Because we all know that when you purchase a car, or you're refinancing your home there are various rates that the lender's going to offer.
VELSHI: But your credit report is only half the picture. The credit score is equally important. This score is a mathematical calculation of your current credit worthiness, a more recent financial snapshot, usually encompassing the last two years. Your credit score ranges from 300 to 850. Anything from 700 to 850 is considered good; from 500 to 700 is average; and under 500 means you may run into problems.
HOLLAND: Someone with 500, that would probably be considered a score that would not be very favorable and might make it a little bit more difficult to obtain a very competitive interest rate. In some cases you definitely will be declined if that score is too low.
VELSHI: There are steps you can take to improve your personal score. Pay your bills and pay them on time and be mindful of your current debt level. That way you can get credit where credit is due. For DOLLAR $IGNS, I'm Ali Velshi, CNN Financial News, New York.
(END VIDEOTAPE)
WHITFIELD: Now we're going to look at other ways you can improve your credit report and your credit score. Todd Mark and Deborah McNaughton are going to help us. Todd is with the Consumer Credit Counseling Service in Atlanta and Deborah is a credit consultant in Los Angeles.
Good to see both of you. All right let's try and make some sense of this. Americans just seem to not be able to get out of debt.
Deborah, the average credit card debt is over $8,000. And that was just in 2002, and that's double what it was 10 years prior. Why is it that so many of us just keep seems to pile on the numbers?
DEBORAH MCNAUGHTON, CREDIT CONSULTANT: You know, there could be several reasons. One could be that you're just addicted to credit cards. And you have to have instant gratification. But a lot of people, with the economy how it's been, are using credit cards to live off of.
WHITFIELD: Hmm. And that's certainly a big mistake, because if you can't pay it all off when you get that bill, then you probably shouldn't be putting that amount of money on your credit card anyway.
MCNAUGHTON: Exactly. What happens, they will, many times, rob Peter to pay Paul. In other words they'll take cash advances from one credit card to pay another credit card. And that's when reckoning day is going to come. And you can really get into some major problems.
WHITFIELD: Wow!
And Todd, isn't part of the problem that it's just so easy now for just about anybody to get credit? We're seeing that kids before they even graduate from college are strapped with credit card debt these days.
TODD MARK, CONSUMER CREDIT COUNSELING SERVICE: Yes, I don't remember the stat right off the top of my head. I think it's 70 percent of all freshmen have a credit card before the end of their freshman year in college.
Think about that. These are kids that have not been educated on the dos and don'ts of credit. They don't understand what interest rates are, what grace periods. And the fact that they've got to pay these things or interest is going to accrue, and if it's late it's going to damage their credit, they don't understand. So, that's a big problem.
WHITFIELD: Let's talk about some of the ways that you can now tackle it. You acknowledge and you realize that you've got just too much in credit card debt in which to tackle. What might be the first approach? You need to, number one, assess what you've got before you, and prioritize? Todd?
MARK: Well, absolutely. The first thing is open up your bills. So many people come to CCCS and they have unopened bills. And they say please look at it. I can't handle it anymore. So know what you owe.
And then you know, you've got to say, what do I owe on? Do I owe just on credit cards? Am I behind on a mortgage or a car? So you've obviously got to prioritize.
Secure debts first. Always do your mortgage, number one. Your car, number two. And then you can worry about some of your unsecured debts.
At that point, look at what's the highest interest rate card. You don't want to be paying a lot of money on small interest rate cards and have the big interest rate growing and growing and accumulate more interest.
WHITFIELD: Deborah, just as Todd was saying, sometimes people aren't opening up their bills. They don't really know what they owe. So they try to organize now how to start paying on some of these bills. How to prioritize? What's your best suggestion on how to get started?
MCNAUGHTON: Well, open your bills. That's the first thing.
(LAUGHTER)
MCNAUGHTON: Open the mail. Too many people feel more comfortable going into denial mode. And that is the worst thing that you can do. You need to be aware of what you owe. And that's where, if I was to say to our audience, from memory go ahead and total up everything that you think that you owe. Figure out what that balances are, figure out how much your payments are and then I would say go back now and get a reality check. Pull out the statements, compare what you think you owe, and most people have heart attacks. Because they don't believe that they owe as much as they really do.
WHITFIELD: They just don't know how in the world it just got so out of hand. Todd and Deborah, hold on a second. We're going to take some calls and e-mails in a moment, right after this break. You can still send some of your questions to dollarsigns@cnn.com. Or start to dial now, 1-8000807-2620.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS.
Do you know the difference between your credit report and your credit score? Todd Mark of Consumer Credit Counseling Service and Credit Consultant Deborah McNaughton are both giving us some tips on how to figure out the difference between the two.
First, Deborah and Todd, we've got a call from Dean in Florida on the line.
Dean, what's your question?
CALLER: Yes, good afternoon, folks.
My question regarding bankruptcies, which seems to be getting so easy these days I expect a drive-thru window at any moment.
My question is regarding the reports and credit counseling. My girlfriend right now is considering the bankruptcy route but I'm trying to convince her to go through a credit counselor. What advice would you have for people who are trying to find the right credit counselor to get their credit in order?
MARK: Dean, let me tell you, credit counseling and CCCS, in general, we're kind of like a last stop before you go to a bankruptcy attorney. People come to us because they want to pay their bills. They don't want to run away from them, as many people do in bankruptcy.
And you know, some people that come to us, we honestly tell them, you know, you're trying to do the right thing, but bankruptcy would be better for you. Probably about 6 to 10 percent of the people that come to us, we give them the truth that maybe bankruptcy is right for them.
But, if your friend or girlfriend is interested in trying to pay her bills, tell her to come to a CCCS agency for a free budget counseling session, and we'll give her some objective advice.
WHITFIELD: All right. Now before we get to our first e-mail question from Anna, which asks about credit score, let me just ask you, Deborah, if you can just help us understand when we request our credit report, how we calculate or how do we look for the credit card score, the credit score?
MCNAUGHTON: The first thing you need to do is get your credit report from all three of the major reporting agencies. There's Trans Union, Equifax and Experian. You can order them online at their websites, tuc.com, equifax.com and experian.com. And be sure and request your FICO score to go with it.
WHITFIELD: If you don't request that you're not going to get it automatically?
MCNAUGHTON: Exactly. And it will cost a few dollars more. But, boy it is well worth it. Because when you get the score, it's also going to show you different areas where you are weak. And how they have ranked you.
WHITFIELD: OK.
MCNAUGHTON: So it should be on the front, the very top, if you've requested it, or it may be on the bottom of the report.
WHITFIELD: That gives us a perfect segue into our first e-mail question from Anna, from Sparks, Nevada. And she says: "If I pay off some of my past delinquent accounts will it improve my credit score?" Knowing how important it is now, about the credit score, Todd?
MARK: Absolutely, Anna. It's always important to be paying off the debts you have in the past.
And there's five basic categories that affect your credit score. Number one and the biggest one is your payment history. Have you paid your bills? So if you've got bills that are delinquent or you've got 30, 60, 90-day lates or even charge-offs, those are the ones that are going to be the most damaging to your credit score.
Now if you pay them off, that's great, and that will reflect. But keep in mind that the damage that if you've got the 30 or 90-day lates, that will stay on your credit report. And therefore be impacting your score. And those will stay on for about seven years.
MCNAUGHTON: So, Deborah, once you pay some of those delinquent bills that you can handle right away, how soon after, you know, should you be checking to see how it may have impacted your credit score?
MCNAUGHTON: Once you've actually paid the things off, you would probably want to check within probably a six-week period to see if the creditor has reported it accurately on the report.
There are so many times, probably 80 percent of our credit reports that we see have errors on there. And you may have paid it off, if it went into collection or a charge-off, and you know you paid it off, but the creditor may not even be showing this.
Even bankruptcies, you'll see a bankruptcy account, and probably 90 percent of the items that are on the credit report that were part of the bankruptcy are still showing as if they were owed.
WHITFIELD: Wow.
MCNAUGHTON: So people need to get copies of that credit report. Otherwise they're not going to know what's going on.
WHITFIELD: On the phone with us, Chase in Oregon. Chase?
CALLER: Yes. Good afternoon. I have some fraud on my credit files, and two of the agencies have cleared them. There is one agency who has not cleared it, and I've tried and tried and tried. They're now telling me I needed to have a police report for every inquiry and negative thing that is on my credit report from before I was even 16 years of age.
MARK: Wow, Chase, you already have a police report for the original identity theft?
CALLER: No.
MARK: OK. I'm going to tell you now, you need to file a police report in the city or the county that you live. And if you haven't done the other steps for identity theft, go over to ftc.gov, the Federal Trade Commission and you can file an I.D. fraud affidavit, that says you've been the victim of identity theft, please call off the dogs.
This is kind of your get out of jail card. Between that and your police report so that you're not pulled over and a police officer thinks you're somebody that's writing bad checks. You could be carted away. So you need to have that fraud affidavit.
And then you need to be working with all three credit bureaus. Why two would be working with you and one is not, that's a little sketchy. Maybe you've got to work your way up the chain at that third credit bureau.
WHITFIELD: Deborah, you have any thoughts?
MCNAUGHTON: Also, I don't know how you're actually disputing it. If you're going through the creditor to have them take it off, which would be your first choice. But if not, dispute it with the credit reporting agency directly. They will, in turn, investigate it with the creditor.
And if the information is unverifiable, or they don't respond within a certain time period, it's automatically going to come off. They cannot keep it on if it's unverifiable. So I would try two different approaches.
WHITFIELD: OK, Anthony in Houston asks in an e-mail: "How many points does being late on your mortgage drop you FICO? Once you are current again, how many points will the score increase?"
MCNAUGHTON: You know what? It's top secret.
(LAUGHTER)
MCNAUGHTON: They will not tell you how many points each entry is, because it can change daily. And I read several years ago when they created the FICO, the originator said if I tell you, I'll have to shoot you. So you can check your credit report before you make it, you know pay it current on the mortgage, and then check it again after it. And then you will be able to see a variation. But will it be a true fit? I don't know.
WHITFIELD: Todd, Jackie in Oklahoma is on the phone. This one is for you.
CALLER: Hi. I filed Chapter 13 in '96, and so after the seven years it came off my credit report last year. But as we made our weekly payments to the bankruptcy court, and the bankruptcy court just made lump sum payments to the mortgage company, the mortgage company has us down as late on our credit report, even though we really weren't. And I don't know if they -- can they do that? What can I do about it?
MARK: That's so odd. So, you were making all your payments on time to the bankruptcy trustee and they were doing them in lump and they were going in late? And do you have receipt proof that you've sent them in on time to the bankruptcy court?
CALLER: Yeah, well we have the - yes, I mean they were taken directly from my check.
MARK: Wow, how about that. After this bankruptcy you're trying to rebuild your credit and paying all this on time and it sounds like your credit is actually getting harmed. That's the worst thing possible. I'm so sorry, Jackie. You need to go face-to-face, go in person to the court that you're working with, and bring your paperwork, show what's going on.
What were you going to say?
CALLER: I mean, we've been out of bankruptcy now for several years. But, the bankruptcy itself came off of the credit report, but because it takes, you know, three years for the Chapter 13, for you to finish that. Then the late payments, so we're not actually still working with the court, because that's been like four or five years ago.
MARK: But still, Jackie, if you've got the paperwork and receipts that show that you made payments on time to the court, you've got to go back to them. Because if you originated with them, this is a Chapter 13 which is a seven-year mark on your credit report. Yes, it should have just come off just in this past year.
And there should be no other damage incurred on you, whether they make payments weekly or monthly. I hate that that's happening for you.
CALLER: So they will take care of it with the bank? I mean with the mortgage company?
MARK: Yes, you need to work with the bankruptcy trustee that was working your case and they will work with you.
WHITFIELD: Deborah and Todd, hold on a minute. We're going to take some more e-mails and calls right after a break. But we have to take a short break.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS. Todd Mark and Deborah McNaughton are answering your questions so that you can clear away any kind of errors in your financial history and improve your credit score.
We've got an e-mail from Richard, out of Westwood, New Jersey. And he asks: "What credit score is needed to get credit? And what are the penalties and interest rates for borrowing at lower scores?"
I guess, meaning if the score is pretty unsavory and maybe below that 500 mark. Deborah?
MCNAUGHTON: Well, I know that I help people with mortgages, and different areas of credit. And to get a decent credit interest rate for a mortgage, we're looking at least 620 points or higher. Anything that is below 620 will put you into an alternate type of a loan, which would create higher interest.
WHITFIELD: Hmm.
MCNAUGHTON: So, you know, you need to be aware. Anything below 500 points, most of the time nobody can help you with getting a mortgage or automobile. It's just too risky for the lender.
WHITFIELD: Todd, you have any thoughts on that?
MARK: That's true, 500 is the cutoff point. We've got to remember, we've talked about this being for big purchases like cars, for homes, and of course affecting your credit cards.
But let's not forget that credit scores also affect whether you get employed for a job. And also whether you're getting approved for insurance, both car and home insurance, are looking at your credit scores. Because the more risky you are with credit and the more debt you have, the more likely you are to make a claim. So there's a lot more things to worry about than just those big purchases.
WHITFIELD: All right, Juni (ph) in Texas is on the line with us.
What's your question?
CALLER: Yes, my question is, I once had a tax lien on my credit, which I never owed. I had the tax lien cleared. And what I wanted to know is, how can I clear this tax lien off my credit, which still shows up -- which shows up now as me owing nothing?
MARK: All right. When is the lien dated on your credit report?
CALLER: '96.
MARK: 1996. That's interesting. Because most marks on your credit report last just for seven years, but if that's still listing, and your credit reports list all bankruptcies, foreclosures, liens judgments, so you need to put it in dispute with the three bureaus, as Deborah said earlier.
You can go online to all three websites and actually do the dispute in e-mail. And again they have 30 days to resolve that. If they can't prove it, you know it's wiped off. But I hate that you're doing this eight years later when if you'd only been checking your credit report once a year you might have been able to take care of this back in 1996.
MCNAUGHTON: Another thing, if you have the document that shows that it was paid or that you never owed it, send the document with your dispute to the three bureaus and that should take care of it, too. But definitely check your credit and make sure that it's happening.
WHITFIELD: Arthur in Tampa e-mails us with this question: "What effect does settlements have on your credit score and records? If they are to remain, what information is allowed on your report?"
Deborah?
MCNAUGHTON: A settlement is not a good item. And the reason being, the creditor that is reviewing your credit report sees that you did not pay this in full. So usually what I tell people to do --
WHITFIELD: Can you get rid of that?
MCNAUGHTON: What I tell people to do when they're negotiating with their creditors, see if they will move the item off the credit report, after they've been paid, they get it in writing first.
What happens, so many people that are negotiating with creditors, just take their word for it and don't get it in writing. They pay it and they have a short memory, and so let's say they owe $2,000, they settled for $1,000. Well, if it's not in writing, that creditor can come back and still try to pull, you know, get the rest of the money. So you have to have everything in writing.
And also when you're negotiating like I said, ask them to take it off the credit report once they receive the payment.
WHITFIELD: Wow.
MCNAUGHTON: And they can do it if they want to do it.
WHITFIELD: Rose in Texas has been waiting very patient only on the phone. What's your question?
CALLER: Yes, I want to know about credit that should roll off after seven years, and they sell it right before it's time to roll off? And it just keeps it going on and on for years after seven years. I don't know what to do.
WHITFIELD: All right, Todd? MARK: Well, and that's really unfortunate. And generally the debt, once seven years has expired, it's off. Now, if the debt has just been moved to an internal collection agency, sometimes if it's still within the person that you owe the money to, they can renew the debt.
Generally that doesn't happen. If it's just sold off, that should be rolling off after seven years and you've got to say hey, this is dated past seven years, it needs to be removed.
WHITFIELD: All right. Thanks very much Deborah McNaughton and Todd Mark. We're out of time. But thank you very much for being able to answer a whole lot of questions out there. Everybody wanting to straighten out their credit situation.
MARK: Thank you.
END
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