Basic Services

All credit repair companies provide the basics in repairing credit. The four main steps that credit repair companies provide in the credit repair process are:

1. A line-by-line review and analysis of your credit reports.

2. Determining issues that could be harming your credit score, identifying practices that could improve your credit score and developing a strategy for your particular case.

3. Sending dispute letters to the credit reporting agencies challenging incorrect information in your credit reports. The number of dispute letters a credit repair service sends per day or month varies by company, so be sure to inquire about their dispute letter limits.

4. Follow up on dispute letter responses to ensure errors and inaccurate information has been removed and, if necessary, increase intensity of efforts depending on responses received.

Other Credit Repair Services

Some credit repair firms provide additional services, either as part of their basic service fee or as a higher service level plan. For example, some credit repair services provide credit score counseling, help with rebuilding your credit and assistance in meeting creditor or lender requirements. Credit repair services typically recommend additional services on a case-by-case basis depending on an individual’s situation and the extent of issues found in the credit reports.

Your Responsibilities in the Process

When you work with a credit repair service, although much of the work is done for you, there are some things that you are responsible for providing. The following list includes items you must do in order for the credit repair company to fulfill its services:

• Obtain copies of your credit reports from the three major credit reporting agencies – Experian, Equifax and TransUnion – and provide them to the credit repair service.

• Provide personal identification information to the credit repair service. This is a requirement of the credit reporting agencies before the dispute process can begin.

• After the credit repair service sends out dispute letters on your behalf, the responses will come back to you. You are responsible for forwarding these dispute letter responses to the credit report service so they can properly manage your account.

By working in partnership with the credit repair service of your choosing, you are more likely to experience a smooth and problem-free process that results in error-free credit reports. With accurate credit reports, your credit score may improve and lenders will be more inclined to provide you with credit or loans.

Consumers with financial problems are often contacted by debt negotiation companies that claim they can drastically reduce a consumer’s debts.  A debt negotiation program differs from credit counseling or a debt management plan, and it can be a minefield to work through without causing damage to a credit score.  If a consumer is thinking of signing on with a debt negotiating firm, the consumer needs to educate himself or herself on what a debt negotiating program involves, and then do a thorough investigation of the company. Consumers need to be aware of the many pitfalls associated with this industry as many illegal and questionable activities have surrounded it. To protect the consumer, many states have enacted laws to regulate the companies.

Beware of false claims

Debt negotiation companies are adept at appealing to the financially strapped consumer. They often claim that they are nonprofit organizations, and many consumers have been bilked by firms who made such untrue assertions. There biggest enticement to consumers are claims to negotiate drastic reductions of the consumers’ debt with their creditors. They may claim the ability to reduce a consumer’s unsecured debt—credit card debt, student loans, medical bills—from 10 to 50 percent of the amount owed. For instance, a debt negotiation company may advertise that they can reduce a debt of $20,000 to $10,000.

Debt negotiation companies frequently frame their advertisements as an alternative to filing for bankruptcy. They also can make claims that negative information can be removed from the consumer’s credit report when they have completed the program. Consumers who sign up are usually told to stop making payments to their creditors and send their payments to the debt negotiation company, where the money is kept in a special account and the company makes the payments.  Furthermore, these companies say there will be little or no affect on the consumer’s ability to secure credit in the future.

Proceed with care

All claims made by a debt negotiation company should be checked for accuracy as many consumers have been duped by such firms. These companies cannot guarantee creditors will reduce the amounts that they are owed, yet they do make these claims. And as consumers are advised to stop paying on their accounts, late charges and interest charges will further increase the debt. These amounts can quickly double or triple in a short time if payments are not made.

By law, creditors are not obligated to negotiate debts with consumers or companies representing them. However, they have an obligation to provide correct information to the three credit reporting bureaus. If the consumer stops making payments on credit accounts, this information will be entered on the consumer’s credit report. In addition, the creditors have a right to sue the consumer to recover the amount owed them, and in successful lawsuits, they can put a lien on the consumer’s house or garnish wages. Also, if the debt negotiating company reduces any amount owed, the Internal Revenue Service may consider this to be taxable income.

Finally, consumers need to be aware that debt negotiation companies often charge costly fees for their assistance. The fees can include charges for the account established by the debt negotiator, monthly service fees, and percentage fees of the amount that consumers are saved by the services.

Sales pitches to avoid

If the consumer is considering hiring a debt negotiation company, they need to avoid those that use the following practices:

• Claim negative information can be removed from the consumer’s credit report. In reality, all accurate information must stay on a report for seven years and bankruptcies are listed for ten years.
• Make assertions unsecured debts can be drastically reduced for pennies on the dollar. In reality, creditors are not required by law to make any negotiations on legitimate debts, and they can sue the consumer to recover what is owed them.
• Say their fees are inconsequential and are not explained. Debt negotiation companies are known for their  substantial monthly service fees and for taking a percentage of the amount that they say was saved by the consumer for using their services.
• Advise the consumer to stop making payments and cease communicating with their creditors. In reality, if payments are not made, late charges and interest will be added to the accounts, raising the prospect of the consumer exceeding his or her credit limit where more fees are added. Also, credit report scores will drop since this information will be sent to the credit reporting bureaus.
• Report that creditors never sue consumers for their unsecured debts. In reality, creditors have the right to sue and recover legitimate debts.

Even if the debt negotiation company seems to have passed all the above conditions, the consumer still needs to do a background check on them with the Better Business Bureau, the state’s attorney general’s office, and the local consumer protection agency.

References:

1. Federal Trade Commission, Debt Relief Services, http://www.ftc.gov/bcp/edu/microsites/moneymatters/dealing-with-debt-relief-services.shtml

2. Federal Trade Commission, Facts for Consumers, December 2005, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm

Consumers can turn to credit counseling organizations when they are overwhelmed with financial problems. If they have done their homework and found a good credit counseling service, part of the counseling session will be options for paying down debts. One choice is enrolling in a debt management plan (DMP) if their debts are large, and they have a limited ability to repay them. These plans exist separate from the counseling services, and they are not suitable for everyone. DMPs should only be enrolled in after a reputable credit counselor has reviewed the consumer’s financial situation and given detailed advice on managing and budgeting the consumer’s finances.

Debt Management Plans

In a debt management plan, consumers deposit their money with a credit counseling agency. With the deposits, the agency pays the consumer’s unsecured debts—medical bills, credit card bills, student loans, etc—according to a payment schedule worked out between the consumer, the counselor, and the creditors. In the revamped payment plan, creditors may consent to a lower interest rate and cancel certain fees on the debt. Yet the consumer needs to be pro-active and check with the creditors to establish if they have agreed with the new terms, as credit counseling agencies sometimes do not carry through in contacting the creditors. DMPs can require 48 months or longer to pay off the debts, and the consumer should ask about the time frame involved. Usually, the consumer agrees not apply for new credit or use credit during this period.

Getting Answers to Important Questions

Asking the right questions will help the consumer understand how  a debt management plan works and the role the consumer plays in its implementation. These questions should aid the consumer’s understanding of DMPs:

• What options does the credit counseling agency offer to help the consumer pay back debt? If the response is only a DMP, this is a red flag and the consumer should look elsewhere for credit counseling. Credit counselors should always offer guidance in money management skills and create a workable budget for that specific individual.
• What determines the amount of the payment deposited each month with the credit counseling agency for bills? If the amount is more than the consumer can afford, of course, the individual should not sign up for a DMP.
• Are all the debts included in the DMP or are some bills still left to the consumer to pay?
• Will creditors be contacted to lower interest and finance charges or waive late charges? The consumer needs to follow up on the counselor’s assertions to make sure that they are carried out with the creditors.
• Do the creditors require the consumer to make any payments to the credit counseling service before becoming involved with the DMP? If the credit counselor tells the consumer a payment must be made, it needs to be verified with the creditor(s) before a payment is sent in.
• Will creditors be paid on appropriate due dates and in the proper billing cycle? The best DMP is one that will make payments before a bill’s due date.
• Will the creditors “re-age” the consumer’s accounts? If debts are re-aged, they are made current. However, negative information will still stay on a credit report.
• Will the consumer receive detailed status reports from the credit counseling agency on a timely basis? Can the account be accessed online or by phone? The consumer has a right to be kept abreast of his or her account to see the progress being made.  

For some consumers, a DMP works well to help them climb out of debt since it involves negotiated payments to creditors with lower interest rates and fee waivers. However, it is up to consumers after receiving credit counseling to decide if a debt management plan will work for their situation.

Reference:

1. Federal Trade Commission, For People on Debt Management Plans: A Must-Do List, December 2005, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre38.shtm

When a consumer’s financial life is infringing on all aspects of his or her life, it may be time for credit counseling. Worry, lack of sleep, and debt collection calls can overwhelm anyone, making life miserable. Credit counseling is one option to dealing with such a crisis, and many consumers are thankful for such services which have led them out of financial quagmires. Reputable credit counselors are certified or trained in consumer finance issues by accredited institutions. The skilled credit counselor will know how to develop workable budgets and rein in spending for individuals, while advising on plans for long-term goals, such as retirement.

Choosing a credit counselor

Consumers can find a credit counselor through a variety of means, such as the telephone book, the Internet, word-of-mouth referrals, credit unions, local consumer protection agencies,  etc. Many nonprofit organizations offer credit counseling through military bases, housing authorities, and universities. The U.S. Cooperative Extension Service offers nonprofit credit counseling through some branches, and the U.S. Trustee Program has a list of credit counseling agencies which are approved to provide pre-bankruptcy counseling. Meeting with a credit counselor face to face is the most desirable circumstance to establish the rapport needed. But be aware that just because a credit counseling organization builds itself as nonprofit does not mean that it is necessarily free. Above all, the consumer needs to exercise caution because the field also contains dubious credit counselors, waiting to take advantage of stressed-out individuals.

The consumer should develop a list of potential counseling agencies to be considered. Once the consumer has contacted a credit counseling agency, the agency should send out free information on their services without requesting any details from the consumer about his or her financial situation. It is a red flag if any information is requested by an agency and that agency should be crossed off the list. At a counseling session, the consumer can expect to be advised on managing their finances and debts, and on developing a budget, with most sessions lasting an hour. Offerings of free educational materials and workshops are usually included.

The list of potential counseling agencies should be given a background check with the state’s Attorney General, the Better Business Bureau, and the local consumer protection agency. But be aware even though a counseling agency may not have any complaints filed against it, this is still not a guarantee that they are legitimate. The next step for the consumer after eliminating those that fail the background check is to interview the credit counseling agency or counselor in order to make a final selection.

Interviewing a credit counselor

Interviewing a credit counselor will help the consumer find the right one for his or her situation.  To weed out those who appear incompetent or inappropriate, the consumer needs to go to the interview prepared with questions, such as the following:

• What are the counselor’s qualifications for credit counseling, and what is their educational background? Is the counselor certified or accredited? If they were trained and not certified or accredited, was it by a non-affiliated party outside the counseling agency?
• Does the counselor have a state license?
• Does the client sign a contract? If there is a contract, ask to have a copy of it. Be sure all verbal promises are written down.
• What are the fees? Do they have a monthly plan?
• What services do they provide? The consumer should find a credit counseling organization which offers a range of services.
• Does the counseling agency offer free educational materials?
• Do they offer workshops in managing different aspects of personal finance?
• Do the counselors develop a budget for the client? A long-term budget for retirement?
• Is the client’s information kept confidential?
• How are the counselors paid? If they paid depending on what services the client has signed up for, the consumer should avoid that counseling agency. Also, the consumer should avoid agencies that require upfront fees or contributions.

Finding the right credit counselor will take some work and investigation on the part of the consumer, but the rewards of taking steps to solve financial problems are well worth it.

Reference:

1. Federal Trade Commission, Fiscal Fitness: Choosing a Credit Counselor, December 2005, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm

Credit monitoring services scrutinize a consumer’s credit report at one or all three credit bureaus for a monthly fee, alerting the consumer to late payment items, identity thefts, inquiries from potential creditors and employers, and any other credit report changes. The pros and cons of this service are fiercely debated. But there is much to be said for the advantages of employing a credit monitoring service. The consumer’s credit score is a number that extends into all aspects of an individual’s financial life; guarding that number and improving it can amount to large savings over a lifetime. And with finances being a rather complicated affair for most people, negative items and mistakes can appear on credit reports that can go under the radar of the less than attentive, and credit monitoring is an astute defense against identity theft. Furthermore, a credit monitoring service can be instrumental to the consumer in reaching the highest category of creditworthiness where the best financial terms are offered.

Necessary or unnecessary service

Critics of credit monitoring usually state that it is an unnecessary service since consumers can keep track of their own credit reports. They point out that a consumer can receive a free credit report staggered over the year from each of the three credit reporting bureaus—Experian, Equifax, and TransUnion—and become aware of any mistakes or problems which develop.

Following that track leaves many loopholes in credit monitoring where all sorts of problems can arise. As credit reports are known to be error prone,   negative items such as late payments and account mistakes can sabotage job prospects for employment seekers. Large charges to credit cards can lower credit scores at the most inopportune times, causing rate changes on new loan applications. Identity theft may be occurring with fraudulent new accounts opened up under the consumer’s name, when immediate notification to the consumer is the most urgent. Looking at each report only once a year leaves these gaps which can be costly to the consumer.

Credit monitoring is a superb educational tool to gaining greater insight to one’s financial affairs and as a result leads to greater abilities to manage those affairs. Monitoring one’s credit through a service will allow for immediate feedback to the consumer of results for car loans, mortgage loans, and credit card applications. The credit score numbers will fluctuate in response to additions and deletions in the report, educating consumers in ways to better manage their finances. Also, credit monitoring services offer many online resources to help the consumer expand their financial know how.

Saving money with credit monitoring

Most credit monitoring services will cost the consumer between $10 and $20 a month, adding up to $120 to $240 for the year. It might seem like a high cost, but when consumers consider the benefits of a service, it can actually save them money. The consumer is given the tools to improve his or her credit score, and the savings can be in the hundreds and thousands of dollars. With a credit score of 760 or better, the consumer will receive the best available interest rates. In the case of a mortgage over a period of 30 years, this can amount to tens of thousands of dollars. Also, car and life insurance rates are partially dependent on a consumer’s credit scores, where the impact will again be reflected in substantial savings if the credit score can be boosted into the excellent category. When all these benefits are considered over the financial lifetime of a consumer, credit monitoring returns excellent value for a minuscule cost.

Credit monitoring and identity theft

With the rise of identity theft crimes every year and the proliferation of new ways to steal it, everyone agrees vigilance is definitely needed to protect against the illegal use of credit information. Critics of these services say credit monitoring does not stop identity theft, and they are right, since nothing can guarantee 100% protection against identity theft. What credit monitoring services offer is immediate alerts that something is amiss when new credit accounts or address changes have appeared. With this knowledge, the consumer can immediately put a fraud alert or a freeze on an account. So many ID thefts go on for weeks or even months because the consumer is unaware until he or she receives billing statements or other indications of wrongdoing long after they have occurred. ID thieves often change the victim’s address, so incriminating billing statements are redirected to another location. If the consumer becomes the victim of identity theft, most credit monitoring services provide insurance protection and legal services to help the consumer. All in all, credit monitoring is a top defense to guard the consumer’s interests against the illegal activities of criminals.

Compare credit monitoring providers.

A good credit report number, often called a FICO score, makes life a lot easier for consumers. Establishing a high score on a credit report is the key to receiving lower interest rates on loans, to being approved for insurance policies, to securing employment, to finding rental property, etc. Scores will range from a low of 300 to a high of 850, with scores above 750 deemed the most desirable. Scores below 650 are the dividing line between prime and subprime rates.  All consumers with credit history will have information in the report on where they live, how timely they are in paying bills, plus information on whether they have been sued or arrested, or filed for bankruptcy. After gathering the data, credit reporting companies sell the information to interested parties who have a valid need for it.

Obtain a credit report

If individuals want to improve their scores, they must first find out what is on their reports. Consumers have the right to the information in their credit report under the Fair Credit Reporting Act, but they must request it. A free report can be received yearly from each of the three reporting agencies—TransUnion, Equifax, and Experian.  Charges apply for additional reports . The reporting agency must disclose everything in the report from the last year or the last two years if the request is related to employment. Credit reports can be ordered at the website annualcreditreport.com, or by calling 1-877-322-8228, or by sending requests to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Reduce balances on credit cards

Paying down the balances on credit cards can help a credit score more than paying off installment loans, such as car, mortgage, or student loans. Creditors look for large gaps between the amount of credit a consumer is using and his or her available credit limits. If the balance is below 30%  of the credit limit on all charge cards, this can help raise the credit score. Many financial advisors  recommend paying off the highest-rate cards first, but if the goal is to raise the credit score, paying down the cards that are near their limits may be a better option.

Check the card limits

Credit card limits can lower scores if the issuer is showing a lower limit than the actual stated one. Limits are often increased, and sometimes the information is not updated on the report. If asked, credit card issuers are usually very responsive to updating the account information. However, American Express does not report their card limits, and reporting companies will usually use the highest balance as an alternative for the limit.

Ease up on charges

Hefty charges to credit cards can lower credit scores. Because credit balances are added into the credit score each month, the fact that they can be paid off each billing period is the not the important issue. Although, paying off the balances each month is still a wise way to handle one’s finances. Credit scores can be increased by limiting charges to 30% or under of a credit card’s  limit. Personal finance software and creditors’ websites for accounts can help consumers keep track of their spending to stay within these limits.

Dispute old items

The consumer needs to have old negative items taken off of the credit report. If old account information in regards to collection agencies is appearing on the credit report, the consumer can dispute the information with the credit reporting bureaus. The older and smaller the amount claimed, the more likely the collection agency will not bother to verify it when the credit reporting agency investigates.

If a creditor has merged or undergone major changes, often their records will not reflect old account information. This can be beneficial to consumers who want to raise their credit scores. In addition, any information that is older than seven years should not be appearing on the report, and the consumer can request that it be deleted if it is there.

Contact creditors

Consumers can contact creditors to erase late payment information from their accounts. If the consumer has been a good customer and has re-established promptness in paying on accounts, creditors may as a courtesy remove old negative information. In some cases, if the consumer has made 12 on-time payments, creditors will erase previous delinquencies. Often the consumer needs to write to the creditor to ask for their goodwill, but some lenders can be cooperative over the phone.

Do not close credit accounts

It may seem counterintuitive, but consumer credit scores are not helped by closing accounts, and it usually hurts credit scores. If an account is closed, it does not matter who closed it whether it was the consumer or the creditor—negative items on the account will still be in the file.

Reference:

1. Federal Trade Commission, Building a Better Credit Report, March 2008, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.shtm

2. Top 5 Credit Monitoring Services – Best Credit Monitoring, Credit Monitoring Services

Credit CARD Act (2009)

This law to end unfair rate hikes and hidden fees was signed by President Obama because credit card contracts and practices were considered deceptively and unfairly complicated. The law bans unfair rate increases and prevents the use of unfair fee traps. It further states credit card companies are to use plain language in describing their offers and terms. Also, credit card issuers and regulators will both be held accountable for preventing unfair practices and enforcing protections. Issuers will be required to have their credit card contracts available on the Internet in a usable format, where regulators and consumer advocates can evaluate forms and the changes made to them. Regulators of credit cards will be required to report to Congress annually on their findings and on the enforcement of the laws. With this law, penalties for violations of the consumer protection laws have been raised significantly.

Fair Credit and Charge Card Disclosure Act (1988)

The law requires that a credit card issuer must tell the consumer about certain terms in the contract. The issuer must explain and disclose the annual percentage rate (APR), annual fees, and any interest-free (grace) period.

Fair Debt Collection Practices Act (1977)

In collecting a debt, the Fair Debt Collection Practices Act outlines the rules a debt collector must follow. Debt collector are forbidden to use abusive practices, such as calling before 8:00 a.m. and after 9:00 p.m. local time. They also cannot contact someone at work after they have been told that it is unacceptable or prohibited by the employer.

Fair Credit Billing Act (1974)

The Fair Credit Billing Act compels credit card companies to promptly credit payments and correct mistakes on consumers’ bills without damaging credit scores kept by the three consumer reporting agencies. The consumer is also allowed the right to dispute billing errors on their accounts and to withhold payments for damaged goods.

Equal Credit Opportunity Act (1974)

Discrimination in credit transactions on the basis of national origin, race, color, religion, marital status, sex, age, or other personal characteristic is prohibited. Also, consumers cannot be discriminated against for receiving public assistance or for exercising their rights under the Consumer Credit Protection Act.

Fair Credit Reporting Act (1970)

With this law, the consumer is protected against inaccurate or misleading information maintained in credit files by the three credit reporting agencies. Consumers are to be given access to their credit report upon request, and they have the right to dispute errors and have corrections made on their credit reports.

Consumer Credit Protection Act (1969)

The CCPA is a compendium of federal statutes to protect consumers, which includes the Fair Credit Billing Act, the Truth in Linding Act, the Fair Credit Reporting Act, and the Equal Credit Opportunity Act. Congress has amended the CCPA several times by adding subchapters which each focusing on specific consumer concerns. The primary objective was to ensure the disclosure of credit terms to consumers with uniform terminology, location, and meaning in the contract, regardless of where the contract was signed.

Truth in Lending Act (1968)

The Truth in Lending Act requires that credit card issuers use uniform methods for calculating the cost of credit and for disclosing credit terms, so the consumer will know the cost for borrowing money. The TILA also limits consumers’ liability to $50 if their credit cards are lost, stolen, or used without authorization. In addition, the law states that the unsolicited issuance of credit cards is prohibited. The Fair Credit Billing Act and the Fair Credit and Charge Card Disclosures Act were added later to the TILA, along with many parts of the Credit CARD Act.

Reference:

1. Board of Governors of the Federal Reserve System, Credit Protection Laws, June 15, 2010, http://www.federalreserve.gov/creditcard/regs.html

Most people have an oversupply of credit card offers in their mail, and many choose a new credit card enticed by a clever pitch from a mailing. However, it pays to do some research and comparison shop the differences between credit cards. Interest rates, late fees, annual charges, and rewards can vary greatly from card to card. Finding the right card for an individual’s lifestyle will enable him or her to place confidence in their credit card transactions and to find the best terms for the way each one lives.

Credit card terminology

All credit card offers must disclose terms to the prospective customer as required by the Truth in Lending Act of 1968. Becoming familiar with these terms will help consumers make their selection for a new credit card.

• Annual percentage rate (APR) measures the cost of receiving credit at a yearly rate. The APR must be disclosed to the prospective customer before an account can be activated, and the rate must appear on account statements. If the consumer has signed up for a “variable rate” program, credit card issuers let the APR change when interest rates or other economic indexes fluctuate. These rate changes can raise or lower the finance charges considerably. The issuer must disclose that a card has a variable rate—how the rate may change, any limits applied to it, and how it is determined before the consumer signs up for the card.
• Periodic rates are the rates the issuer applies to the outstanding balance to establish the finance charge in each billing period.
• Fees may be applied to customers’ accounts under various categories, such as charges for membership, activation, participation, acceptance, and monthly maintenance. They can be billed each month, periodically, yearly, or as a one-time charge.
• Transaction fees are applied for receiving cash advances, making late payments, or exceeding credit limits.
• Grace periods are a certain number of days where finance charges are not charged if the balance is paid by the bill’s due date. Most credit cards allow the consumer a grace period, but there are some cards which begin to immediately apply finance charges.
• Balance transfer offers with incentives come from issuers to move debt accumulated on other credit cards to their credit cards. Usually the incentive is a low intrroductory rate, and there is usually a fee for the transfer of the balance to their card. For example, if the debt amount to be transferred is $3,000, the fee could be 3% of the amount which would be $90 in this transaction. Penalties would be assessed for paying late or missing payments. New purchases accumulate at a higher finance charge.

Calculations for the finance charge

The balance computation method used by the issuer can make a big difference in the amount the consumer will pay back in finance charges. This is especially applicable to consumers who do not have a grace period or who will be paying off the debt over a long period of time. The following is a list of balance computation methods used by issuers:

• Adjusted balance calculations are the most favorable to the consumer. The balance is determined by subtracting payments or credits received during the current billing period from the balance of the previous billing period. By not including recent charges, the consumer has additional time before payments begin.
• Average daily balance calculations are the most frequently used methods for issuers. The account is credited from the day the issuer receives the payment. The balance is computed by totaling the beginning balance for each day in the billing cycle, and typically, subtracting any credits made to the account that day. Although new charges may or may not be added, cash advances are usually included. The sum of the daily balances are added to the billing cycle, which is then divided by the number of days in the cycle to arrive at the average daily balance.
• Previous balance methods calculate the amount owed at the end of the preceding billing cycle. The current billing period does not include payments, purchases, and credits made during the latest billing cycle. Unpaid finance charges may also be excluded.
• Double-cycle or two-cycle balances are based on using the last two months’ account activity for arriving at the balance. The grace period is eliminated in this calculation if the consumer goes from paying the full balance each month to paying only a portion of it. For instance, if the consumer fails to pay the entire balance of new charges by the due date, the issuer will calculate the interest on the original balance, which had been formerly included in a grace period.

If consumers do not understand how their finance charges are computed, they have the right to ask their credit card company for an explanation. As required by law, issuers must offer an explanation, and billing statements must also explain the computation method.

Reference:

1. Federal Trade Commission, Choosing A Credit Card: The Deal is in the Disclosures, June 2008, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre05.shtm

Credit repair scams bilk thousands of people out of their hard earned money each year. The scam victims tend to be people who are already in the deepest financial straits, and they usually have little experience in financial and credit matters. An air of desperation causes people to believe these scams will give them fast and easy solutions to their credit problems. In 1996, a law known as the Credit Repair Organization Act was enacted to protect the consumer from fraudulent credit repair companies. The law states consumers who buy the services of credit repair companies must be given enough information to be able to make informed decisions before purchasing. The law also states that consumers will be protected from “unfair or deceptive advertising and business practices by credit repair organizations.”

The red flags of a scam

Consumers need to be aware of credit scam artists and how they operate when they read ads, such as “Create a new credit identity—legally” or “We can erase your bad credit, bankruptcies, and liens—100% guaranteed.” A red flag should appear in the consumer’s mind when they encounter any of the following tactics of fraudulent credit repair companies:

• The consumer is not given a copy of the “Consumer Credit File Rights Under State and Federal Law” which details the individual’s right to receive a credit report and to dispute inaccurate credit report information.
• The consumer is not given time to look over a contract and ask questions concerning it. The contract is only presented to sign quickly, and it does not list a charge for the services or detail what the services will be. In addition, the time frame for completing the services is not stated in the contract.
• The business’s name and address will be missing from the contract.
• The individual is not informed or given a statement that he or she has the right to cancel the contract within three days.
• Payment is requested upfront.
• Promises are made that any negative information on the credit report can be removed.
• The company tells the individual that he or she can start afresh with a new credit report, created with a different social security number or federal employer identification number (EIN).
• The consumer is asked to sign a form to wave their rights under the Credit Repair Organization Act.

Negative information on a credit report

If negative information on a credit report is accurate, it remains there for a certain length of time, depending on the classification. It will not be removed for any reason. Credit account information will remain on a credit report for seven years, while bankruptcy information will remain there for ten years. Judgments against the consumer will be listed for seven years or until the statute of limitations expires, whichever is longer.

If the information on the credit report is inaccurate, then the consumer has the right to dispute it and have it removed. By sending a registered letter to the three consumer reporting companies with documented copies of the error(s), the consumer requires the credit reporting companies to investigate within 30 days. After the investigation is completed, a letter of the findings must be sent to the consumer along with the updated credit report if changes are made to it.

Reporting credit scams

The victims of credit scams need to take action and expose fraudulent credit repair companies for the criminals that they are. In many states, state law enforcement officials can help victims if they have lost money to scammers. In all cases, victims should report that their rights have been violated to their state’s attorney general. At the National Association of Attorneys General’s website, www.naag.org, information to contact each state’s attorney general can be found, and many have toll free numbers. Also, complaints should be filed with the Federal Trade Commission and the Better Business Bureau.

References:

1. Federal Trade Commission, Credit Repair: How to Help Yourself, October 2008 http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm

2. About.com, 7 Ways to Stop a Credit Repair Scam, LaToya Irby, 2010, http://credit.about.com/od/creditrepair/qt/avoidrepairscam.htm

3. Credit Repair Companies, Credit Repair Resource for Consumers

As the incidences of identity theft and fraud rise on the Internet, investigations into cyber crime has pinpointed the four ways criminals gain access to sensitive information to carry out their malicious acts:

• Using a system’s network infrastructure
• Targeting digital end-user devices
• Exploiting vulnerabilities in software
• Capitalizing on human errors and social engineering

Exploiting network system infrastructure

With the continuing refinement of the information age, society is in a transitional stage of moving from legacy mainframe computer systems to digital networked systems, and as a result, increasing the ways cyber maliciousness can occur. Unfortunately, the layer of security provided through the older closed analog systems is not available in digital systems. As more and more sensitive information is transmitted wirelessly, the digital system is creating a greater degree of vulnerability to theft, corruption, and unauthorized access. Through viruses, worms, and denial-of-service attacks, hackers can enter a computer system to obtain information, to destroy files, or to manipulate data. When viruses take over a computer by attaching themselves to transport vehicles such as emails, they are almost impossible to stop without professional help. Worms, the acronym for Write Once Read Many, differ from viruses in that they can self-replicate when once written into a system. Denial-of-service attacks take place when cyber criminals send malicious codes through emails or software to overwhelm and shut down computer systems.

Manipulating digital devices

While the transmission of information through digital devices offers a quick and inexpensive way for consumers to transact business on the Internet, it uses the vulnerable open airwaves of the wireless networks where it can be intercepted. Cyber criminals using rogue computers can position themselves as a man in the middle, intercepting messages and altering them as the messages are transmitted between cellular towers and digital devices. In taking a closer look at the technology of transmission, it should be noted that wireless networks consist of three basic formats: the high-powered microwave systems of telephone companies, the CDMA/TDMA/GSM, cellular and PCS networks for phones and PDAs; and the wireless LANs which use the 802.11b protocol. All the formats use radio frequency technology to send information, and consequently, sensitive information is more exposed to cyber criminals than with analog systems.

Software applications are entry points

Software applications are available to download at many websites, and usually their purpose is to help the consumer be more efficient at conducting business. But they create doorways for cyber criminals to enter in and obtain unauthorized system access. Instant messaging, Microsoft Office software, Internet browsers, file-sharing applications, and voice over Internet protocol (VoIP) are all vulnerable to having sensitive information pilfered or the system manipulated because of their open network environment. As a defense, computer users need to have updates automatically installed to patch any of the software vulnerabilities as they develop in the system. Also, computers users should only download software from trusted and verifiable sources.

Human error and social engineering

Openings to a system for malicious intentions can also be created by human error or social engineering. The latter is the act of manipulating people into divulging confidential information or carrying out certain actions rather than using technical means to access information. In some cases by pretending to be a systems administrator, cyber criminals can obtain enough information from a phone call to access a system. Phishing scams have taken in the personal information of countless victims and robbed them of their identities and money. In the impersonal environment of large and small companies, large amounts of data can be accessed by insiders through flash drives and other recordable devices, and then easily carried outside of physical walls to be turned over to cyber criminals.

Reference:

1. Federal Trade Commission, Electronic Safety and Soundness, Thomas C. Glaessner, Tom Kellermann, Valerie McNevin, 2004, http://www.ftc.gov/bcp/workshops/proofpositive/e-safety-and-soundness.pdf