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Credit Counseling: Managing Credit Scores

Created: On August 23, 2009 @ 7:37 am In

Some parts of recent legislation concerning consumer credit cards went into effect August 20:

  •  Instead of mailing bills at least 14 days before their due date, credit card issuers are now required to mail bills a minimum of 21 days before their due date.
  • Credit card issuers must provide consumers an option for declining interest rate increases. If the new interest rate is declined, consumers have five years to pay off their credit card balance. No new charges may be made after opting out of the new interest rate.
  • Credit card issuers are allowed to adjust minimum payments to ensure repayment of the balance owed by opt-out customers within five years. If you opt out of a higher interest rate, this could significantly raise your minimum payment amount.

In other news concerning credit cards, a study by FICO, the company that provides the most commonly used system of credit scoring, indicates that credit card issuers reducing consumer credit lines has varying effects on credit scores. FICO reports that between October 2008 and April, 2009, approximately 33 million consumer credit lines were reduced by credit card issuers, including 24 million customers with no obvious “triggers” for reducing credit. About 3.5 million customers experienced little impact on their credit scores, while about 8.5 million reported a drop in their credit scores after credit limits were reduced. Surprisingly, 12 million credit card customers saw their credit scores increase after their credit lines were cut. Mixed results may occur from variations in individual circumstances.

High Credit Card Debt = Lower Credit Scores

Credit experts usually recommend that you keep about 70 percent of each credit line available. Running up cards to their limits can put you at a high risk of missing credit card payments if you lose your job or become ill. If you’re carrying too much debt and need help, using a credit counseling service may help with reducing credit card debt. Here’s how credit counseling can help:

  • You’ll review your financial documentation including income, obligations, and your credit history with your credit counselor.
  • Your credit counselor will help you establish a cash based budget, and will contact your creditors to negotiate affordable repayment terms based on your ability to pay.
  • You’ll sign an agreement or contract with the credit counseling agency that details the terms of your repayment plan, specifies payment amounts and due dates, and other terms and conditions of your credit card debt reduction plan.
  • As with debt consolidation, you’ll enjoy the benefit of making one monthly payment instead of juggling bills and incurring charges for late payments.

When considering credit counseling companies, avoid paying “up front” for services, and don’t fall for promises of “instant” credit repair; it’s easier getting into credit card debt than resolving it.

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