It’s important to develop and maintain good financial habits, but figuring out where to start can be a daunting task.  Our Credit Management Center is designed to help you manage your finances by empowering you through education.  We hope these articles and links will show you the importance of good credit and provide ways for you to evaluate, and if necessary, improve your personal situation.  The information also provides ways to maintain your excellent credit status if you’re already there or when you reach your goal.

Our Credit Management Center contains information on the following.

•         Important Links

•         Understanding Credit

•         The 4 “C’s” Of Credit

•         What’s On A Credit Report?

•         What’s In Your Credit Report?  (Free Credit Report Information)

•         Basics On How To Read Your Credit Report

•         Common Credit Report Mistakes

•         What If I Find Errors On My Credit Report?  How To Correct Mistakes

•         What Is A Credit Score and Why Is It Important?

•         How Is Your Credit (FICO®) Score Determined?

•         Want To Improve Your Credit Score And Keep It High?

•         Warning:  Your Credit Is Over-Extended

•         Credit Counseling

•         Bankruptcy

Important Links

When you leave Welcome Federal Credit Union’s (WFCU) website and enter a website hosted by another party, the products and services accessed through the site are not provided or guaranteed by Welcome Federal Credit Union.  WFCU does not represent either the third-party website or you, if you enter into an agreement or transaction.  The links are provided for the convenience of informational purposes only.

Please be advised that you will no longer be subject to, or under the protection of, the privacy and security policies of our website.  We encourage you to read and evaluate the privacy and security policies of the site which you are entering, which may be different than ours.

•           Anytime Adviser – Credit Management Coach

  http://anytime.cuna.org/35774/index.php

•           Anytime Adviser – Couples & Money Coach

  http://anytime.cuna.org/35774/index.php

  •         Building A Better Credit Report

         http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.pdf

•         Credit Repair: How to help yourself; Disputing credit report mistakes

         http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm

   •         Credit Counseling and Debt Management Plans

   http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre38.pdf

   •         Knee Deep in Debt

   http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm

  •         National Foundation for Credit Counseling

         http://www.nfcc.org/ 

  •         Before You File for Personal Bankruptcy:
   Information About Credit Counseling and Debtor Education

   http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre41.pdf

Understanding Credit

Credit is an unavoidable part of society, affecting every major buying decision in our lives.  Many factors are considered when loan officers are reviewing loan applications.  They have the responsibility of making sound judgments in granting all types of loans.  Two important factors in granting a loan are establishing both an individual's intent to pay, and their capacity to repay.

The Four “C’s” Of Credit

When Welcome Federal Credit Union reviews a loan application for credit worthiness, there are four primary considerations that affect the decision to grant credit.  Every loan application is carefully appraised.  After all … our loan officers have the responsibility of loaning our members’ money to other members.

The Four “C’s” Of Credit:

 •        Capacity – What is your ability to repay the loan?  Do you have a job or another income source? 

        What length of time have you held your job?  What are your other debts?

 •        Character – Will you repay the loan?  Have you used credit before?  Do you pay your bills on time?

        What’s your credit score?  What’s on your credit report?  Do you have collections, judgments, or liens?

        Have you ever declared bankruptcy?

 •        Collateral – What item can you offer as security for the loan?  (Examples:  car, truck, camper, home, etc.) 

        What is the value of the item to be secured?

 •        Capital (accumulation) – What are you worth?  Do you have assets with value such as:  savings accounts,

        vehicles, properties, IRAs or share certificates?  Do you own, or are you buying, your home?

What Is A Credit Report?

Your credit report contains information about your borrowing habits and money-management skills.  Lenders, employers, landlords, and other service providers buy your credit information in the form of a credit report to help them decide whether to approve your application for a loan, credit card, job, housing, or to offer you a product or service at a particular rate.  The companies that gather and sell this information are called Consumer Reporting Agencies (CRAs) or credit bureaus.  There are three large national credit bureaus:  Equifax, Experian, and TransUnion.

If you've ever applied for a credit card or loan, there's a credit file about you. This file contains information on where you work and live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy.  Most of the transactions you have that involve credit are reported monthly to CRAs by your creditors and/or merchants.

What’s On A Credit Report?

Although each credit reporting agency formats and reports this information differently, all credit reports contain basically the same categories of information.

 •           Identifying Information – Your name, address, Social Security number, date of birth, and employment 

         information are used to identify you.  These factors are not used in credit scoring.  Updates to this

         information come from information you supply to lenders.

 •           Trade Lines and Credit History – The bulk of your credit report consists of details about credit accounts

         that were opened in your name or that list you as an authorized user (such as a spouse's credit card).  

         Account details, which are supplied by creditors where you have an account, including the following:

•           Date the account was opened

•           Type of account (credit card, auto loan, mortgage, etc.)

•           Amount of the original debt or credit limit

•           Payment terms

•           Balance

•           Whether payments were made late during the reporting period

•           History that shows whether or not you've paid the account on time

 •           Credit Inquiries – When you apply for a loan, you authorize your lender to ask for a copy of your credit 

         report.  This shows as an “inquiry” on your credit report.  The inquiries section contains a list of everyone

         who accessed your credit report within the last two years.

 •           Public Record and Collection Items – Credit reporting agencies also collect public record information

         from state and county courts, plus information on overdue debt from collection agencies.  Public record

         information includes bankruptcies, foreclosures, suits, wage attachments, liens, judgments, and overdue

         child support.  Most public record information stays on your credit report for 7 years.  A bankruptcy can

         stay on a credit record for up to 10 years.

What’s In Your Credit Report?

There are several reasons for you to review your credit report at least annually.

  •           The information it contains affects whether you get a loan or insurance – and how much you will have to

           pay for it.

  •           Verification that the information is accurate, complete, and up-to-date.

  •           To help you guard against identity theft.

You are legally entitled to one free credit report each year from each of the three credit reporting agencies.  It’s important for the health of your financial future to know what’s in your credit report.  You need to watch for errors, signs of identity theft, and correct any mistakes.  Make sure you access the right web site – imposter web sites abound.

The Federal Fair Credit Reporting Act requires each of the major nationwide consumer reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months.  To keep a watch on your financials, it’s recommended that you obtain a free credit report from one of the companies every four (4) months (ex. Experian-April; Equifax-August; TransUnion-December).  Use one of the following three methods to order your free annual report from one or all the national consumer reporting companies:

Phone:  1-877-322-8228

www.annualcreditreport.com or Take me to the authorized source

Complete the Annual Credit Report Request Form.  Print the form from

https://www.annualcreditreport.com/cra/order?mail and mail it to:

Annual Credit Report Request Service

P.O. Box 105281

Atlanta, GA 30348-5281.

Do not contact the three nationwide consumer reporting companies individually, the free annual credit reports are only provided through one of the methods above.

THIS NOTICE IS REQUIRED BY LAW.  Read more at www.ftc.gov.  You have the right to a free credit report from www.AnnualCreditReport.com or 877-322-8228, the ONLY authorized source under federal law.

Basics On How To Read Your Credit Report

When you receive your free credit report, if you have questions about specific information, contact one of our branches.  Our staff can assist you in reading and understanding the data.

  •           Check to make sure that all accounts listed are accounts you’ve opened and that all the balances are

          approximately what you expected them to be.

  •           Look for anything suspicious in the “Inquiries” section.  Some identity thieves disguise themselves as

          landlords or employers to obtain your precious information.

  •           Make sure that all the inquiries are for your applications, loans, or leases.

  •           Check for addresses where you have never lived.

  •           Check for typos in your Social Security number.

If there is any incorrect information in the records, contact the credit bureau, creditor, employer, or government agency immediately.  Follow up with a letter describing the actions that were taken.  For your protection, report the problem quickly and in writing.

Common Credit Report Mistakes

Credit reports can contain errors that can cause you problems when you apply for credit.  Lenders use credit reports to ascertain your creditworthiness and to determine the interest rates you pay on loans.  The more creditworthy you appear on paper, the lower the rate you pay.  Some insurance companies use credit reports to determine the premium you pay for auto and homeowners insurance.  They have found that people with poor credit histories tend to file more claims.

Here’s what to look for when you review your credit report:  misspelled name, wrong Social Security number, inaccurate birth date, inaccurate information about a spouse, out-of-date address or employer, “closed” accounts listed as “open”, the same mortgage or loan listed twice, and the absence of major accounts that demonstrate creditworthiness.

Most mistakes can be pinned on creditors who provide inaccurate information to credit bureaus.  Some errors are the result of thieves stealing your personal information and establishing fraudulent accounts in your name.  See the next section for information on correcting errors on your credit report.

What If I Find Errors On My Credit Report?  How To Correct Mistakes

What should you do if you find an error?  Visit the web sites below.  These reports include the steps you should take to correct the error(s) including sample dispute letters.

  •         Credit Repair: How to help yourself; Disputing credit report mistakes

         http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm 

  •         Building A Better Credit Report

         http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.pdf

More information and steps you can take:

Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.

Step One

Tell the consumer reporting company, in writing, what information you think is inaccurate.  Include copies (not originals) of documents that support your position.  Send your letter by certified mail, “return receipt requested,” so you can document when the consumer reporting company receives it.  Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question, usually within 30 days, unless they consider your dispute frivolous.  They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information.  After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company.  If the information provider finds that the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change.  This free report does not count as your annual free report.  If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete.  The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you ask, the consumer reporting company must send notices of any corrections to anyone who received your report in the past six months.  You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports.  You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past.  You can expect to pay a fee for this service.

Step Two

Tell the creditor or other information provider, in writing, that you dispute an item.  Be sure to include copies (not originals) of documents that support your position.  Many providers specify an address for disputes.  If the provider reports the item to a consumer reporting company, it must include a notice of your dispute.  And if you are correct, that is, if the information is found to be inaccurate, the information provider may not report it again.

What Is A Credit Score and Why Is It Important?

Your credit score is calculated by a credit reporting agency (CRA) also known as a credit bureau.  Credit scoring is a point system based on your credit history and is designed to help predict how likely you are to repay a loan or make payments on time.  Information about you and your credit experiences, like your bill paying history, the number and type of accounts you have, outstanding debt, the age of your accounts, late payments, and collection actions, is collected from your credit report.

Your credit score is used by lenders to help determine whether or not you qualify for a particular credit card, loan, or service. The credit reporting agencies apply an in-depth mathematical model (called an "algorithm") to the information in your credit file to yield your credit score.  The credit scoring system awards points for each factor.

Everyone with a credit record has a credit score.  Credit scores range from 300 to 850.  Different credit reporting agencies can receive credit information from different sources, so your score may vary from one agency to another.

Typically, your credit score is most influenced by two factors:  how timely you pay your debts and how much debt you owe.  Late payments on loans, a past bankruptcy, debt collections or a court judgment ordering you to pay money as a result of a lawsuit, and many open credit cards or credit cards at or near their limits will negatively affect your credit score.

A good credit score can mean buying a bigger house at a lower price.  It can influence your ability to enter into an apartment lease agreement, purchase insurance at the lowest rates, or get a job.  In general, the higher your credit score, the less risk you represent to a lender and the better your chances are of getting a loan with an attractive interest rate.

How Is Your Credit (FICO®) Score Determined?

Credit scores are calculated from a lot of different credit data in your credit report.  This data can be grouped into five categories as outlined below.  The percentages in the chart reflect how important each of the categories is in determining your FICO score.

Please note that:

  •         A FICO score takes into consideration all these categories of information, not just one or two.  No

         one piece of information or factor alone will determine your score.

  •        The importance of any factor depends on the overall information in your credit report.  For some  

         people, a given factor may be more important than for someone else with a different credit history.  In

         addition, as the information in your credit report changes, so does the importance of any factor in

         determining your FICO score.  Thus, it's impossible to say exactly how important any single factor is in

         determining your score – even the levels of importance shown here are for the general population, and will

         be different for different credit profiles.  What's important is the mix of information, which varies from person

         to person, and for any one person over time.

  •        Your FICO score only looks at information in your credit report.  However, lenders look at many things

         when making a credit decision including your income, how long you have worked at your present job, and

         the kind of credit you are requesting.

  •        Your score considers both positive and negative information in your credit report.  Late payments

         will lower your score, but establishing or re-establishing a good track record by making payments on time

         will raise your FICO credit score.

Want To Improve Your Credit Score And Keep It High?

Think of credit as a privilege to be used sparingly!

Your credit score … that three-digit number is tied inseparably to your financial life.  Give it the attention it deserves – make building a stellar score a priority!  If you don’t take your credit seriously, a bad score will cost you.

All it takes is one black mark for you to feel the financial pain.  It doesn’t matter whether the black mark is from absentmindedness or from financial irresponsibility – it has serious ramifications on your financial bottom line.  Regardless of the dollar amount, any negative information on your credit file can cost you hundreds or thousands of dollars in interest charges over your lifetime.

Re-establish your credit history if you’ve had problems.  Opening new accounts, using them responsibly, and paying them off on time will raise your credit score in the long term.  It’s important to note that raising your credit score is a bit like losing weight:  it takes time and there is no quick fix.  In fact, quick-fix efforts can backfire.  Once you wipe the slate clean, keep it clean by managing your credit responsibly over time.

Below are some tips on how to improve your credit score.

   •         Don't apply for lots of credit cards.  A credit inquiry can deduct five points from your credit score.

  •         Keep a healthy mix.  Your credit score depends on the types of credit you’re using.  Make sure to have

         a mix of credit including things like a mortgage, a car loan, and a credit card or two.

  •         Avoid applying for credit cards from companies that don't set a spending limit or won't report your limit

         to the credit bureaus.

  •         Don't cancel multiple credit cards – doing so can suddenly lower your available credit and can hurt your

         credit score.  Keep old accounts open to ensure a long credit history.

  •         Limit the percentage of available credit you use to no more than 30% – 35%, even if you pay off your

         balance each month.  Your credit report will show the amount you owed, even if you subsequently

         paid-in-full, and excessive spending will ding your score.

  •         If you’ve only been managing credit for a short time, don't open a lot of new accounts too rapidly. 

         New accounts will lower your average account age, which will have a larger effect on your score

         if you don't have a lot of other credit information.  Also, rapid account buildup can look risky if you

         are a new credit user.

It pays to pay on time!

The Number 1 way to raise your credit score?  Be punctual and pay all of your obligations on time.  Your payment history constitutes 35% of your credit score.

  •         This includes library fines and parking tickets.  Municipalities are being more aggressive about turning

         over delinquent accounts to collection agencies, which will drag down your score.

  •         One late payment reported to a credit bureau can drop your score by 100 points, particularly if you had
    a high score.

  •         Late payments can remain on your credit report for seven years.  Bankruptcies appear for 10 years.

What won’t hurt your credit score?

  •        Note that it's okay to request and check your own credit report.  This won't affect your score, as long as

         you order your credit report directly from a credit reporting agency.

  •         Requests made by credit card companies that offer pre-approved cards and requests by prospective

         employers.

  •         Multiple credit checks within a short period of time made when you're shopping for a mortgage will

         count as only one.

  •         Consulting a credit counseling service to manage excessive debt will not damage your credit score.

Warning:  Your Credit Is Over-extended

Make it a point to review your finances regularly and watch for these signs of over-extended credit:

   •         Paying only the minimum payment

  •         Being out of cash constantly

  •         Being late on important payments

  •         Taking longer to pay off balances

  •         Borrowing from one lender to pay another

If you find yourself in an over-extended situation, phone or stop by one of our branches.  We have several ways that we may be able to help you.  We will review your finances and explore solutions with you.  We’ll give you a copy of the book “Out of Hock & Out of Debt” by Harry Dahlstrom.  This book offers fixable (and “doable”) solutions to credit problems that you can do yourself without getting further in debt or declaring bankruptcy.

Credit Counseling

If you are having trouble making ends meet, contact your creditors to negotiate a repayment plan.  This won't improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

If you're not disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling organization.  Many credit counseling organizations are nonprofit and work with you to solve your financial problems.  But be aware that just because an organization says it's "nonprofit," there's no guarantee that its services are free, affordable, or even legitimate.  In fact, some credit counseling organizations charge high fees, which may be hidden, or they may pressure you to make a large "voluntary" contribution that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone.  If possible, find an organization that offers in-person counseling.  Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs.  Your financial institution, local consumer protection agency, friends, and family may also be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops.  Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting.  Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems.  An initial counseling session typically lasts at least an hour, with an offer of follow-up sessions.

Should problems arise managing your credit, seek credit counseling as soon as financial problems start showing up.  To locate a low-cost or free credit counseling service near you, call 800-388-2227 or visit www.nfcc.org.

There are several links and much more information on credit counselors and debt management systems under the Important Links section of this Credit Management Center.

Bankruptcy

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching.  A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job.  Still, it is a legal procedure that offers a fresh start for people who can't satisfy their debts.  People who follow the bankruptcy rules receive a discharge – a court order that says they don't have to repay certain debts.

The consequences of bankruptcy are significant and require careful consideration.  Effective October 2005, Congress made sweeping changes to the bankruptcy laws.  The net effect of these changes was to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7.  Chapter 13 allows you, if you have a steady income, to keep property, such as a mortgaged house or car, that you might otherwise lose.  In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property.  After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7, known as straight bankruptcy, involves the sale of all assets that are not exempt.  Exempt property may include cars, work-related tools, and basic household furnishings.  Some of your property may be sold by a court-appointed official,

a trustee, or turned over to your creditors.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities.  Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary by state.  Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations.  Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.

The bankruptcy law involves certain hurdles that you must clear before filing for bankruptcy.  You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.  Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.”  This test requires you to confirm that your income does not exceed a certain amount.  The amount varies by state and is publicized by the U.S. Trustee Program at www.usdoj.gov/ust.