Credit in a North Carolina Bankruptcy Chapter 7, 13 (919)342-6509

SAN FRANCISCO (CBS.MW) -- If you're a consumer who likes to spend to prop up the economy, it's a good idea to first prop up your credit score so you get better rates and terms on purchases.

Some simple actions can help hike your FICO score, the most common credit measure, within a couple of months. And an improved score can mean lower interest rates and better deals on everything from credit cards to a new car, insurance or a home.

"In today's climate, lenders use credit scoring to determine if people get approved for credit, how quickly they get approved for credit, what kind of terms they get approved for, what kind of credit limits they get," said Stephen Snyder, an expert on credit scoring and author of "Credit After Bankruptcy." "It affects everything."

Despite the importance of FICO scores, few people pay attention: 75 percent of Americans don't know their credit score, and nearly 20 percent have never seen their credit report, according to a recent survey of 1,000 adults conducted for Household International, a financial services company.

Of course, the time it takes for an action you take to register as an improved score is not entirely under your control. "Let's say you pay down a maxxed-out card," said Craig Watts, consumer affairs manager with Fair Isaac Corp., which created the FICO score system and operates MyFico.com.

"You mail off your check tomorrow, the creditor gets it, posts it, it gets into your account right away, then (a few days later) the creditor reports your information to the three credit bureaus. You could easily see that being posted to your credit report in a month," he said.

But, "the worst-case scenario is double that or triple it if you catch each part of the cycle" at the wrong point, he said.

Here are nine tips experts say can give a power boost to your FICO score:

1. Check your score the right way to avoid a credit ding

Be wary of taking advantage of Web sites offering free or easy credit reports. Sometimes, requesting your credit report from these companies leads to what's called a "hard inquiry" into your credit -- essentially the FICO system thinks you've asked to borrow money and a creditor is checking your credit. That can lower your score.

"The only place we know that's not happening are the three national credit bureaus and the MyFico Web site," Watts said.

2. Refrain from consolidating credit cards and transferring balances

Consumers who consolidate all cards into one are "effectively killing their credit history from other cards," said Steve Rhode, president of MyVesta.org, a nonprofit consumer-credit counselor. "If you're trying to improve your credit report, your credit history is one of the biggest factors."

Others agreed. "It's better to pay off the revolving debt or pay it down to increase your scores," Snyder said.

3. Keep old accounts

Instead of closing out old accounts, leave them be.

"We don't look at the amount of credit available to you in isolation. That's something of a myth," Watts said.

Instead, the FICO calculator looks at the ratio between your credit limit and the amount of credit-card balance on your cards, or your credit utilization. That's "the amount of debt you owe today for revolving credit cards divided by the credit available to you on those accounts," Watts said. "That should be a fraction less than 1. If it reaches 1, you've maxxed out your credit cards."

Closing an unused credit-card account reduces the amount of credit available to you without paying down the amount of debt you have. "That makes it appear you're a little closer to maxxing out your credit cards. That can hurt your FICO score," he said.

4. Resist the in-store temptation

Each time you apply for a retailer's credit card, your report will get dinged. Such applications "can reduce your credit score as much as 20 points in just one day," Rhode said. "As long as you can fog a mirror, you can get one of those cards. They're not great evidence of creditworthiness."

Plus, those new accounts lower the age of your credit history, not good when it comes to FICO scores. "The relative age of your credit history will change because you now have a new (account), and we take an average of your credit accounts," Watts said.

5. If you must close an account, close a newer card

Consumers, understandably enough, often seek to close out high-interest-rate cards. They're "looking at their credit from a smart consumer point of view not a credit point of view," Rhode said. However, "you might be better off to close the newer cards even if they have lower interest rates, and keep the older cards with the history."

6. Take charge of your credit applications

When you fill out a credit application, the car dealer or other vendor may send it out to numerous banks or other financing firms that then check your credit.

While credit checks requested by a bank, credit union or dedicated auto-financing company within a 14-day window will total just one credit ding, other types of companies won't fall into that category. That means a general finance company checking your credit would add a separate credit check to your report, Snyder said.

"You have to take control and limit" how many credit checks are run through your account, he said. When buying a new car a few days ago, he told the finance department his scores "are between 760 and 800, and she said with those scores I can take you to Huntington Bank. I said great, I give you permission to shop Huntington Bank," Snyder said.

7. Pay down debt

Keeping individual card balances to under 30 percent of the card limits will help improve your score, said Deborah McNaughton, president of Professional Credit Counselors, a consumer-credit counseling firm.

8. Don't assume timely payments are the only score driver

People often pay bills by credit card to stay current, Rhode said.

"It's like putting your debt into turbo," he said. "If you've got several cards and they're maxxed out, that's definitely a sign that bigger issues are brewing. It's not uncommon for someone to have all their bills paid on time but their credit score is like 580 because they're maxxed out on so many cards."

9. Put a rush on fixes

Check your report for errors, and once you've fixed any problems, ask the credit agencies to update your report quickly.

"If you are trying to purchase something right away like a home or auto, contact the bureaus directly and ask them to put a rush on updating your report," McNaughton said, and be ready to provide proof of any errors.

One final word of caution: The calculation used to figure a FICO score is complex, with a number of variables.

"There are a lot of factors that go in," Watts said. "Making one change can have multiple impacts on your score, and not always have the impact you intended. http://www.Check out MyFico.com for more information.

How Can I Get a Copy of My Credit Report for a North Carolina Bankruptcy?

We recommend that we download your complete credit report from all three reporting agencies directly into your NC bankruptcy petition. We charge $40.00 per person for all 3 reports (this is our cost - we make no profit on it), but with this process, we analyze your report, weed out all closed or zero balance accounts, and compare with your completed NC bankruptcy worksheet.

If you choose, you can handle this process by yourself. It will take much longer, and due to their formatting, there is more chance of error. You can contact each reporting agency by mail and request a copy of your report for around $8.00 fee each and they will mail the reports to you. This will be a total cost to you of around $24.00.

You can get a free credit report if you have been denied credit, are unemployed, are a victim of fraud, or are on welfare (or if you live in Colorado, Georgia, Massachusetts, Maryland, New Jersey or Vermont). To get one free (if you qualify) or for a small fee (if you don't) without going through a "middle man" just contact any of the 3 major reporting services below. They will charge you between $3.00 and $8.50 depending on your state of residence. You can contact the agencies at the following addresses (please note these addresses do change fairly regularly and while we try to keep up with them, this information may be old):

Experian (TRW)

1 888 EXPERIAN (1 888 397 3742) allows you to charge your credit report to your Visa or MasterCard over the phone.

Trans Union

1-800-888-4213

write to:

Trans Union Corporation Consumer Disclosure Center

P.O. Box 390 , Springfield , PA 19064-0390

Equifax

1-800-685-1111

write to:

Equifax Information Service Center

P.O. Box 740241 Atlanta , GA 30374-0241 .

For $8, you can get an immediate report online from Equifax at: http://equifax.com/resources/fcra_info_rights.html

If you decide to write to any of these services, be sure to include your: name, address, phone number, previous addresses for the past two years, social security number, birth date, employer, signature-and be sure to include your payment. (You'll have to call to get the payment amount.) Proof of identity such as a photo copy of your driver's license will also be required.

Credit Scores

There are three major factors that are taken into consideration when granting credit: Your income, credit history, and character. Filing a Chapter 7 bankruptcy will normally improve your ability to repay and, eventually, will repair your credit-especially if you continue some of your secured debts and pay those debts on time. If you show an improved history of timely repayment after filing, bankruptcy can help you improve your chances of getting credit. In essence, it is better to have a past bankruptcy and a clean slate than it is to forever have Creditors that you still owe.

Your FICO Score

Your FICO credit score uses 5 factors and a 1000 score is possible. Although with some credit reports only 900 or 950 is possible still they all use about the same 5 factors. Filing bankruptcy will only drop a 500 score about 20 points at first. By paying on time after bankruptcy your FICO score may increase 100 or more points within 2 years. There are 5 factors that account for the 1000 points and the FICO score is also often used to deny a person employment or increase your insurance rates. Here are how the 5 factors add up to 1000 points.

Previous Credit History 350 points 35% Your Credit History is the largest factor in calculating your FICO credit score. By paying on time and not having any slow payments or charge off accounts you will increase your score as old accounts drop off your record and are replaced by good payment history. (After Bankruptcy as old unpaid accounts drop off and you make payments on time your score improves.)

High levels of Debt to Income 300 points 30% If you have a 40% income to debt ratio where 40% of your income is going to car and credit card payments there is no income left for new credit. Simply not having any debts and debts owed automatically increases this ratio and your score. The best thing is to only have necessary credit and just the basic car and mortgage payment. (After Bankruptcy your debt to income is drastically reduced increasing your score)

Limited Credit History 150 points 15% If you have a limited history your credit may suffer up to 150 points

New Credit Applications 100 points 10% Every time you make a credit application it costs you more than 100 dollars. That's right 100 dollars. Why? Because it reduces your credit score automatically every time you apply for credit. The little 2 dollar tee shirt Sears gave you for that credit application means that you lost 98 dollars. Dumb wasn't it. Reducing your credit scores means that when you do get credit that you pay higher interest rates. Applying for credit deducts from your score every time you do it so only apply if you desperately need the item such as a car or home loan.

Limited Types of Credit 10% If you only have car loans and you have no other type of credit your score will be deducted from. You should have at least 3 forms of credit to have the maximum score: a home mortgage, a car loan, and a small credit card with a history of on time payments small balances and few applications.

Prime, Sub-Prime, and Damaged Credit

Prime If your credit score is above 600, you are considered a "prime borrower" and you have no problem getting mortgages, cars, or credit cards.

Sub-prime Credit scores below 650-600 are "sub prime". You may have higher interest rates but there are lenders. This extends down to about 500 the lower your credit score the higher your rates and harder it is to get credit.

Damaged Credit becomes too expensive to use. You buy on cash. Below 500 is the Damaged Credit Zone. You may get a credit card but at such high fees and uselessly low credit limits that credit is too expensive. Your interest is double the normal rates for prime borrowers. You pay more for insurance and may be barred from some jobs. Bankruptcy is often your only way to repair damaged credit. Old unpaid debts drop off and as you repay on time, credit is repaired.

How Much Does a Damaged Credit Score Cost You?

Credit Cards The few credit cards that are available for people with damaged credit have very low credit limits, high fees. These lenders do not report your good credit activity making it impossible to repair your credit with them.

Automobile Financing

If you have damaged credit the increased interest you pay for auto financing costs even more.

$20,000 car paid over 5 years:

STATUS Prime Sub Prime Damaged

RATE 10% 14% 20%

PAY $424.94 $465.37 $529.88

COST OF DAMAGED CREDIT

$0.00 $4,722.54 $8,593.30

Home Mortgage

The cost of a home can more than double if you buy a home from a sub prime lender at higher rates. Even a very small home will cost between $100,000 and $180,000 MORE IN INTEREST if you are buying a home with damaged credit.

We used mortgage rates for 2003 and 2004 to show your costs below.

$100,000 home paid over 30 years:

STATUS Prime Sub Prime Damaged

RATE 5% 9% 12%

PAY $450.30 $804.62 $1,028.61

COST OF DAMAGED CREDIT

$0.00 $100,310.48 $180,996.87

Repair Your Credit Score!

Now that you know how your credit score is calculated and the costs, you can begin to repair your credit score. Here are the 4 things that will help after bankruptcy.

35% of your score. After Bankruptcy pay your bills on time and your score will improve over time.

30% Bankruptcy will dramatically lower your Debt to income ratio. Keep your balances low on credit cards and on all of your debts.

10% Rarely apply for credit. Applying for credit often lowers scores.

Make sure the information in your credit report is correct. Removing negative items on your credit report has the largest impact on your FICO score.

Imagine being so poor that you can't repay your bills or ever owning a home. Keeping debt that can't be repaid, and constantly being overdue on your bills, will only keep your credit poor until you do file a bankruptcy. Filing a bankruptcy allows a person a fresh start and the ability to restructure your budget. It is not the end of getting credit, and people can easily buy homes after they have filed. A bankruptcy should be considered, when the bills are never going to be paid with the income that is available, and when your family is going to suffer unless that debt is cleared up.

A bankruptcy stays on your record with credit reporting companies for 10 years after filing. Other kinds of "bad credit", like "slow pay" or "no pay" or repossessions, stay on your record until 7 years after the last collection activity-which means it can actually be on your credit much longer than a bankruptcy. For instance, your car may be repossessed 4 years after the loan is taken out, and you may be sued 7 years later when they find you have a job. In that case, the record of non-payment would be on your credit record for at least 18 years (4+7+7), but a bankruptcy would have been on there for only 10 years. Slow payment will give you the same kind of credit problems that a bankruptcy filing will give you, even if you pay all the money back. Normally, credit or loan officers do not consider credit history that is more than two or three years old. It will take you about 6 months to 2 years of repaying your debts on time to overcome most of the negative effects of a bankruptcy.

Buying Good Credit

Besides pay your bills on time, financing a car or a home there are other things you can do to help your credit. We recommend you take $500 - $1,000 and get a secured loan for the same amount from a bank. A secured loan is where they get to hold something of value incase you default on the loan. In this case it is the $500-$1,000. You give them the money, they give you the same amount in return. You have them take payments out of the security. You pay them a low interest (because it is secured) and they make regular reports to the credit bureaus that you are making timely payments. The only thing this cost you is the interest payments! Take the money they loaned you and repeat it with another bank, then repeat it one or two more times and you will have three or four banks making positive reports on your credit reports! Just make sure you pay the interest and close the accounts a month before you attempt to take out a real loan.

Charge Offs

In accrual accounting, initially a bill is treated as income to the creditor. Later, upon nonpayment, a decision is made that a debt won't be paid, so a loss deduction is taken off of income.

IMPORTANT: Just because a debt is being written off it is still owed and collectable - and that's often overlooked!

Why Should We Pull Your Credit Reports?

Many times in a NC Bankruptcy, clients forget creditors, especially on old debts where there has been no recent attempt to collect. With a full report we can add these debts into your bankruptcy petition. Please understand that just because a debt is not listed on your credit report does not mean you don't owe that particular creditor money. Many companies do not report to the credit bureaus, or they only report to one instead of all three. This is because it costs them time and money to do so. CREDIT BUREAUS ARE NOT GOVERNMENT AGENCIES AND HAVE NO LEGAL STANDING WHEN IT COMES TO WHAT YOU OWE. THEY SIMPLY KEEP TRACK OF WHAT COMPANIES WHO REPORT TO THEM SAY YOU OWE. After 7 years of non-payment the debt is removed from your credit report -BUT YOU STILL OWE IT.

Often clients have old or otherwise wrong addresses for creditors. The credit report will generally have the correct address. A wrong address can cause problems with your NC Bankruptcy. If you pull your own credit report, it probably won't have the addresses of the creditors.

Surprisingly, many times credit reports contain wrong information. It is easier to just include these incorrect debts in your North Carolina bankruptcy than to dispute them. Judgments can stay on your credit report for 10 years and be renewed, so essentially they can be reported forever.

If you mistakenly put down a wrong address or other information that needs to be changed after we file your petition for North Carolina (NC) Bankruptcy, there will be AT LEAST a $76 charge for the amendment (court cost + attorney fees). It pays to get your credit reports!

Accuracy of Your Credit Report Post-Bankruptcy

In order to make sure that credit reporting agencies accurately report your credit situation, you should send them a letter AFTER you receive your discharge to insure that they have the correct information. Below you will find the addresses for the three major credit reporting agencies. You should use the following paragraph to create a letter to mail to each agency:

"I recently filed Chapter 7 bankruptcy. I have enclosed all pertinent information regarding my bankruptcy. Please update my credit report to reflect my Discharge date and all bankruptcy information for the scheduled creditors."

Mail each agency:

1) a copy of your letter, including the above paragraph

2) a copy of Schedules D, E, and F of your bankruptcy petition

3) a copy of your Discharge sheet

In response you should receive a free copy of your credit report from each agency. If the credit report still appears to be inaccurate, we can handle the situation for you for an additional fee.

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