Handling Debt and Credit Problems the Smart Way

April 2009

The news headlines have been telling the bad news for months: financial crisis, job losses, recession, record foreclosures. Millions of people have been affected financially by the current economic conditions. If you are facing debt or credit difficulties, how you handle matters to resolve the issues can make a big difference. This month's report provides some tips to help.

If you are facing difficulties, take prompt action.

At the first sign of financial difficulties, you should take immediate steps to get on the path to financial recovery. The earlier you start, the more options you have.

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Building and Protecting Your Credit

Used wisely, credit is a great financial tool. Good credit enables you to enjoy a higher standard of living, for example, by making it possible to purchase a car, pay for an education, or buy a home without saving up the total cost of such big-ticket items. As a safety net, good credit helps consumers meet emergency expenses. As a convenience, good credit helps wise consumers manage cash flow and purchase goods without carrying around a lot of cash.

Used unwisely, however, credit can pave the road to financial ruin. Unfortunately today, many young adults are discovering that harsh reality. Rather than stepping up to a brighter future, they find themselves stepping down to bankruptcy court. Not only was the overall number of consumer bankruptcies up by 5.7% in 2002 according to the Federal Reserve, but a growing number of people filing for bankruptcy were age 25 or younger and college educated.

Building credit is a bigger job than getting credit

For adults who came of age in the nineties, getting credit was no problem. Credit card companies stuffed the mailbox daily with attractive offers—soon the wallet held a dozen. Auto dealerships were fighting to offer first-time buyers a "hot deal." Buy that house full of furniture, the latest computer, a high-tech home entertainment center? No problem, just sign the line for instant credit and no payments till the next century.

Managing that credit well is another story. It's so easy to fall into the "buy now, pay someday later" mentality, isn't it? Pretty soon, you may notice the following the danger signs.

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Tips for Improving Your Credit Score

April 2007

Whether your credit is already good or could use some improvement, managing your personal finances in ways that enhance your creditworthiness is always smart. Adopting sound practices that enhance your credit score is a good place to start.

The topic of credit scores has been in the personal finance news since credit reporting agencies began to make such scores available to consumers several years ago. This event has opened the door to a number of Web-based companies that offer to provide your score — along with outrageous fees — for what may be inaccurate information. You can get all this information yourself for much less. The RealityCheck Report, What is a Credit Score, and How Can it Affect Your Credit? explains credit scoring and tells you how to get accurate info about your score for a reasonable fee.

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Bankruptcy — A Fact Sheet

October 2006

Consumer debt, not including mortgages, in the U.S. has climbed to over $2 trillion and continues rising. Part of this surge represents growing credit card debt. Meanwhile, the Federal Reserve's campaign to keep inflation in check has forced interest rates higher. Rising interest rates in turn make credit card debt more expensive to pay off. To add pressure, the housing boom also appears to be cooling and in some areas growth in housing values has not just slowed, but declined. Higher interest rates and lower housing values make home equity loans harder to get and less attractive. In real life, all these economic "trends" mean that many consumers are getting deeper in debt and may be finding it harder to make ends meet. Some of these consumers may be considering bankruptcy.

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How to Review Your Credit Report

. . . and correct it when necessary

October 2005

Because your credit history can affect so many aspects of your life—from your ability to get a mortgage or auto loan to the rates you're charged for insurance or whether an employer will hire you or landlord will rent you an apartment—wise consumers keep a close watch on the accuracy of their credit reports. Regular review of your credit report is also one of the best ways to spot certain attempts at identity theft.

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Do You Need a Credit Monitoring Service?

September 2005

A look a potential benefits, limitations and your options for monitoring your credit report

An increase in Identity Theft, coupled with an explosion of online "phishing" scams targeting personal information, has many consumers eager to take steps to protect their personal information and credit. Although you can learn how to recognize and avoid phishing scams and take other steps to guard your personal information, reviewing your credit report regularly for errors and unauthorized or suspicious activity is one of the best ways to detect ID thieves if they strike you in spite of your efforts.

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What Is a “Credit Score”? And How Can It Affect Your Credit?

May 2005

Credit Scoring is a system of statistically analyzing credit reports that provides a simple three-digit score that compares an individual’s past and current credit performance to that of similar consumers. Your credit score provides lenders, or other potential creditors such as insurance companies or landlords, a quick, fairly objective way to assess your creditworthiness—or likely ability to pay back a loan or mortgage or pay the rent. Knowing your credit score (along with regularly checking your credit report) is a smart thing to do.

A “credit score” is often also called a “FICO score,” after the Fair Isaac Corporation, which developed the most widely used analytical system and software. It may also be called a “credit rating.” Although individual credit bureaus or credit reporting agencies (CRAs) adapt, add to or modify Fair Isaac models to suit their needs and provide their own credit score, most use the FICO score or system as a foundation.

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