I received a question from one of my readers to this blog and I thought it was relevant enough for all of my readers to see and learn from.

Dear Mark,

I have four major credit card accounts in my name. I use one of them for my work expenses, one for household expenses, a Cabela’s card which I like for the points, and another one that I don’t use much.  It has a zero balance. Does this hurt my FICO scores by having a zero activity  and zero balance? Will it hurt my credit score more if I close the account?

Sherry M. Austin, TX

Hello Sherry,

Thanks for writing in. I have a short answer for you to your question….if your main goal is to keep your current high scores, you should leave the account open, but you must start USING the card! Keep the activity small so that you don’t boost up your credit utilization.

You don’t want the bank to cancel the card because you are not using it. Remember, the banks are in business to make money, if they have given you a product and they aren’t making any money, then they may make a decision to close it. As you know this will hurt your scores because your available credit ratios will change.

Regardless of who closes the account, your credit score may fall due to a change in a key credit scoring ratio. “Closing an account causes you to lose the available credit limit associated with it. Your utilization rate, also called your balance-to-limit ratio, will increase as a result of closing the account. That may cause a temporary decline in your credit scores.

To get an idea of how your utilization ratio could be impacted by closing an account, let’s say each of your four cards has a credit limit of $1,000, for a combined total of $4,000 in available credit. Let’s also say that across those four accounts, you’ve got a total debt burden of $2,000. Then your unused card gets closed, taking your available credit down to just $3,000. Now, instead of using 50 percent of your credit lines, you’re suddenly using about 66 percent of your total available credit. That higher proportion makes you appear to be a riskier borrower, since you’re that much closer to maxing out your available credit.

Your credit score should reflect that change, although the actual scoring damage will vary from borrower to borrower. The FICO score assesses all the information on your credit report.  So the score impact from any one action, such as closing an account, will depend on what other information is present on the credit report.

Stay tuned,

Your Credit Repair Expert

Mark

Great article straight from the FTC  Website.

Remember folks…there is nothing a credit repair firm can do you for you that you can’t do for yourself…often quicker and cheaper!

Click Here For Full Story:

A credit repair company that falsely claimed it would help boost consumers’ credit ratings will settle Federal Trade Commission charges filed last year as part of “Operation Clean Sweep,” a federal-state crackdown on credit repair scams.

The FTC charged the Chicago-based defendants with falsely promising to remove negative information from consumers’ credit reports, even if it was accurate and current, in violation of the FTC Act and the Credit Repair Organizations Act. They also allegedly violated federal law by requiring payment before any service was provided to consumers. According to the FTC’s complaint, the defendants’ advertising stated, “We would never charge a large fee up front, or make you wait a long period of time to refund your money if we do not get results. You WILL see results in 60 days, or your money will be refunded in full . . . .” They charged $495 per person and $665 for a couple and required $219 or $269, respectively, in advance.

The settlement order bars the defendants from further violations and from misrepresenting:

• They can improve consumers’ credit reports by permanently removing negative information, even when it’s accurate and current;
• They can otherwise improve a consumer’s credit report or ability to obtain credit;
• The full cost of their services and any restrictions on consumers’ use of those services;
• Their refund or cancellation policy; or
• The benefits of using their goods or services.

The order imposes a $226,793.90 judgment that will be suspended once they pay $20,000. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition. The order prohibits the defendants from collecting any payments from consumers who purchased their services before October 23, 2008, when the court halted their business practices and froze their assets. The order further bars them from
disclosing or benefitting from customer information, and failing to properly dispose of customer
information.

The defendants are Advantage Credit Repair LLC and Mark D. Solomon. The Commission vote to authorize staff to file the stipulated final order was 4-0. The proposed order was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

The Commission appreciates the assistance of the Better Business Bureau of Chicago & Northern Illinois in this case.

The FTC offers consumer information, “Credit Repair: How to Help Yourself,” athttp://ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm, and advises that only time, a conscious effort, and a personal debt repayment plan can improve a credit report. The first step is to learn what information is in the credit report. If there are errors or mistakes, federal law provides the right to have them corrected – free of charge. Federal law requires that the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – provide consumers with a free copy of their credit report once every 12 months, if requested. To order your free report, consumers can visit annualcreditreport.com, call 1-877-322-8228, or complete and mail the Annual Credit Report Request Form.

Happy New Year!

Well we made it through 2009 and even though things were a ‘bit shaky, the upcoming new year is going to be great!

There are some interesting events coming down the pipe with regards to improve your credit score in 2010.

If you have had issues with negative credit scores in the past then you may want to look into DIY methods to clean bad credit. By improving your credit score in 2010 you can save yourself a significant amount of money. The better your credit score the less you are going to pay in interest over the course of your lifetime. With this being the case it should be your goal to make sure your credit score is as high as it can be.

There are many companies that currently offer credit repair help but it is important to make sure they are government approved. If they are not government approved then it might be a situation where a business wants to make some quick money and run. Many credit repair companies or counselors claim that they can fix your credit instant or they can eliminate your debt. If you see these claims then you will want to look to another credit repair company.

By doing some Google searches you are likely to find many companies that can assist you that are government approved. It also might be a good idea to do some research on improving your credit score without assistance. Something that these credit repair companies have prefected is the inaccuracies on credit reports. If you have purchased a credit report and you notice that there are many mistakes then you will want ot seek a credit repair company.

WIth any major financial decision in your life it is important to weigh your options when it comes to money. If the credit repair company is trying to charge you hundreds of dollars then you might want to pick another company or do reseach on fixing your credit independently. It may take a little more time and effort but it could save you a significant amount in the long run.

I look forward to sharing more with you in 2010!

Mark

Of  all the  questions I receive from my readers,  fast credit repair seems to come up most often. Especially during the current financial crisis we have in this country, folks are realizing more than ever how important credit scores are to your life.

The Web is full of credit repair companies, credit repair attorneys, and credit counselors promising to fix your bad credit quickly. Most, if not all of these companies promise that they can raise your credit score fast by erasing negative information. It all sounds very tempting, and you may toy with using these quick-fix schemes to boost your score. And why wouldn’t you? Bad credit can negatively impact your ability to rent an apartment, buy a home, or even get a job.

However, don’t allow yourself to be lured in. There are no easy fixes. Remember that most of these companies make their money by charging your a monthly fee to repair credit report.

Some of the more unscrupulous credit counselors may recommend that you not speak to the credit bureaus directly, create a new credit identity, or require payment upfront before they provide a service that will never take place. Don’t follow this advice. In fact, if you attempt to craft a new identity you could be on the hook for fraud.

Unfortunately, many consumers were casualties of this types of tactics from credit repair companies. At least 2.1 million consumers fell victim to credit repair scams, according a Federal Trade Commission (FTC) statistical fraud survey.

A reputable credit repair organization gives you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. You should also receive a written contract that spells out your rights and obligations. The FTC recommends that you read these documents before you sign anything.

Before signing any type of contract , know that a credit repair company can’t do the following:

Before you sign a contract, be sure it specifies:

• The payment terms for services, including the total cost.
• A detailed description of the services the company will perform.
• How long it will take to achieve the result.
• Any guarantees the company offer.
• The company’s name and business address.

If you suspect that you’ve been duped by fake credit counseling the FTC recommends you contact your state law enforcement officials. Contact your local consumer affairs office or your state attorney general (AG). Many AGs have toll-free consumer hotlines — visit  www.naag.org for a list of state attorneys general.

What’s more, you must begin the process of repairing your credit immediately. If you haven’t done so already, obtain a copy of your current credit report and credit scores. If you see that there is inaccurate information on your report, dispute it in writing..

Credit scores are an important part of your financial life and it’s not impossible to improve credit score. However, it won’t be done over night. Don’t fall for scam artists false promises of fixing bad credit fast. Repairing credit takes financial discipline and patience.

Until next time,

Mark

Glad you asked! 

I was attending Eben Pagan’s Guru Mastermind recently when talking with other real estate investors and the topic of conversation came up surrounding the current $700 Billion bail out plan that is being proposed right now.

I of course have VERY strong opinions on ultimately what lead to this meltdown, but I equally have thoughts on how to fix this situation.

What I’m about to say is all “chalk talk” because – when it comes to the bailout plan – “Bernanke, Paulson & Co.” has already made up its mind.

I believe Paulson actually missed a historic opportunity to remove the U.S. taxpayer from further financial troubles rather than lump more debt on them, just as I believe Fed Chairman Ben Bernanke missed opportunities earlier in the year to keep us taxpayers from once again footing the bill for a housing crisis! (Remember the S&L debacle a few years ago?)

By appointing the Federal Housing Finance Authority (FHFA) as a conservator, U.S. Treasury Secretary Paulson has essentially assigned the FHFA to be the legal guardian of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). And that’s good, since conservatorships are typically established when a company can’t take care of itself and is considered incapable of handling its own affairs.

In this instance, both Fannie and Freddie qualify as not only being incapable, but perhaps even criminal as well, after hemorrhaging capital over the past 12 months. And this situation was even more complicated than it initially appeared, since there were global implications. As make no mistake about it…there was pressure from foreign bondholders that finally forced the U.S. government’s hand.

Unfortunately, conservators can rarely do anything more than keep the lights on. As the term implies, they’re intended to “conserve” assets and property, until they can return the entity to solvency.

So, despite Paulson’s fancy plans and the $200 billion capital infusion he’s lined up, he may have handed hollow authority to an agency that cannot, for all intents and purposes, assign, strip, liquidate or materially alter how either Fannie or Freddie operates. Nor can conservators typically take possession of assets, which is a critically important distinction in this instance.

On the other hand, receivers are typically entrusted by the courts, or secured creditors, specifically to take possession of troubled assets and to dispose of them in a timely manner, and in such a way that they maximize returns to the secured creditors. And in the case of a public company, that duty theoretically extends to the company’s shareholders, as well.

In that sense, rather than placing an emphasis on continued operations as a conservatorship, a receivership emphasizes a return on capital and the cessation of operations.

In my opinion, that’s what’s really needed here.

It if was up to me, I would have assigned the FHFA (or brought in some true bailout specialists) to act more as receivers than as conservators. With that accomplished, I would have taken three key steps:

• First, instead of making a $200 billion down payment on the mother of all mortgages, I would have charged the receiver with immediately separating “good” debt from “bad” debt.
• Second, I would have ordered the receiver to weed out and repudiate flawed contracts.
• And, third, I would have searched for a way to sell Fannie and Freddie common and preferred shares in such a way that it would minimize taxpayer losses, rather than make them potentially unlimited as Paulson’s done.

Apparently, FHFA Director James B. Lockhart III does have the discretion to place Fannie and Freddie into receivership if he determines that’s the move that’s required, but the eventual dissolution could only take place by Congressional Act. That makes such an outcome highly unlikely, to say the least, given how much “pork barreling” has historically been linked to the two companies and to the financial industry in general. Despite the fact that liquidation – rather than keeping the lights on – is exactly what’s needed in my opinion.

I find it terribly sad that Paulson is going to throw $200 billion, or more, of taxpayer money into a black hole that’s already consumed billions. Especially when he’s publicly admitted that regulators don’t know enough about the complex financial derivatives and off-balance-sheet investment vehicles that have forced the bailouts of some of the world’s largest banks, forcing the U.S. Federal Reserve and U.S. Treasury Department to travel deep into uncharted waters.

It would seem that cutting our losses short is a far more productive option, especially when it minimizes potential taxpayer losses from the “unknown.”

It would also appear that Paulson has opted for the easy way out by socializing losses and allowing gains to remain private. Some will say that’s the way it’s always worked and that I’m naive for thinking that it could somehow be different this time. Perhaps that’s the case. But I also believe this country’s financial situation cannot be stabilized by stopgap measures and half-baked bailout plans.

Nor do I think that running up even more debt in the face of the unknown is the direction to travel. I need only point out that the initial Office of Management and Budget estimates for the Iraqi war were a mere $50 billion.

I believe that Paulson could have been a hero by engineering a true workout that maximizes any remaining shareholder value. Instead, he’s structured $200 billion, or more, in preferred stock, and warrants that may never be paid back and that are effectively worthless unless Fannie and Freddie return to profitability.

And with the broad-based bailout he proposed a week ago – and that Congress is now sculpting into another shape – he’s effectively added another $700 billion to the U.S. bailout tab. In short, we’re talking about a flawed “fix-it” plan that’s going to cost you and I nearly $1 trillion.

Adding insult to injury, the relatively few individuals who engineered this whole mess with implicit government support are apparently going to be allowed to ride into the sunset with their saddlebags packed full of taxpayer money. Or at least with the millions of dollars they reap from their “golden parachute” corporate-severance packages. Either way, they’re not going to suffer like the U.S. taxpayer will. And that suffering will last for a long, long time.

There are many strategies, tips, and techniques available on the Internet on how to repair your bad credit. Unfortunately most of them are old, outdated and ineffective!

Having great credit scores is THE most effective way to improve your finances and financial independence. When you build and maintain excellent credit, you control your future.

Discover how to repair bad credit and improve credit scores.

Sign-Up right now for Mark Garcia’s FREE online newsletter to find out how to do exactly that

Go here:  http://www.CrushingTheCreditBureaus.com

Unless you have been living under a rock lately, most of us now realize that the few major banks that are left after this “Financial Meltdown” will be tightening their purse strings, making it harder than ever to qualify for loans.

Only those with the BEST credit scores (680-750) will get approved for the most attractive rates. Since you are a subscriber to Crushing The Credit bureaus, you know the steps you must take to boost your credit scores and repair your bad credit.

Some of my clients and students have asked me about the various credit repair companies that exist in the market place. I discuss these companies at great length in my book Crushing The Credit Bureaus, but I wanted to offer up a few words of advice here on the blog to avoid being scammed by these companies.

Complaints against credit repair companies have risen for three straight years, increasing more than 38% since 2004 according to the Better Business Bureau.

You’ve probably heard of these services before. Ads are common on the radio, in television, in newspapers and in direct mail advertising. The Internet is filled with all sorts of these companies. Some good, some not so good!

Most of the sleazier operations work like this; customers pay these companies large fees up front – we’re talking about more than $1500 in some cases. In return these companies promise to erase any blemishes on credit records, get new Social Security numbers for clients, or allow consumers to piggyback on someone else’s credit record. YIKES!

First of all, no one can remove accurate and timely negative information from your credit report. Secondly, it’s almost impossible to get a new social security number. Finally, piggybacking is a thing of the past. This is a practice where you basically borrow someone else’s credit score to boost your own credit standing.

The bottom line here is that anything a credit repair company can do legally, you can do for yourself cheaper, quicker, and more efficiently…sometimes even for free!

If you respond to a credit repair offer, by law you should be provided a copy of your consumer rights. This is a one-page document that tells you what your rights are if you dispute inaccurate information with credit repair companies.

You have the right to cancel a contract with any credit repair organization for any reason within three business days from the date the contract was signed, according to the Better Business Bureau.

If the credit repair company doesn’t tell you what your legal rights are or doesn’t tell you what actions you can take yourself, that’s a big red flag. Don’t trust a credit repair company that advises you not to contact a credit bureau directly.

Make sure you don’t pay for any services upfront. Read that line again!!!

Don’t do business with any company that encourages you to create an employer ID number instead of a social security number. And don’t believe offers that will let you piggyback on someone else’s good credit.

Before you do business with any credit repair company, check them out at the Better Business Bureau at www.welcome.bbb.org.