In April of this year (2021), Debt Reduction Services conducted a survey among 517 U.S. residents to gain insight into how individuals handled the financial burden of the pandemic.

Key Survey Statistics:

• 84% of respondents said their credit card debt decreased or stayed the same in 2020.

• Nearly 60% of respondents who received a stimulus payment used it to add to their personal savings.

• 32% of respondents who received a stimulus payment used it to pay down credit card debt.

Financial repercussions of COVID-19 are nearly impossible to fully quantify. As vaccination efforts ramp up across the United States, many Americans may be glimpsing a light at the end of the tunnel for the first time in a long, socially isolated year. When COVID-19 first appeared on the radar in the U.S., predictions about the longevity of the virus were incredibly diverse. Some expected the pandemic to be under control in only a few months, while others expect that we will see the virus and its variants for years to come.

Regardless of how long we may be contending with the virus itself, the financial repercussions of COVID-19 will resonate within many American families for years to come. The Bureau of Labor Statistics (BLS) reports that April of 2020 produced the highest rate of unemployment throughout the first year of the pandemic. In that month, unemployment soared to an astonishing high of 14.7%. In other words, 18.1 million Americans found themselves unemployed just one month into the pandemic.

The last time the unemployment rate lifted above 10% was during the tumultuous end of 1982 and the beginning of 1983, when a recession triggered by anti-inflation efforts hit America’s economy hard.

Fortunately, the unemployment rate dropped substantially in the final months of 2020, and the BLS reported an unemployment rate of 6.3% in January of 2021, or 10.1 million unemployed. While these numbers are much improved compared to the figures of April 2020, they indicate that the financial statuses of many Americans are still highly uncertain. As a new normal appears to emerge, as of yet it is unclear how the pandemic financially impacted Americans, particularly those with incomes that were heavily strained by unemployment, reduced hours, and/or illness.

How did credit card debt factor into this unusual financial burden?

In times of financial hardships, high unemployment, and unpredictability, one might expect credit card debt in the United States to rise significantly. Considering that total household debt rose by $414 billion between the end of 2019 and the end of 2020, it may come as a surprise to find that credit card debt actually declined in 2020. The New York Fed reports that total credit card debt declined by $108 billion in 2020, breaking a 7-year trend of rising credit card debt in the U.S.

(Data Source: Federal Reserve Bank of New York)

Additionally, even with the staggering unemployment rate, the U.S Bureau of Economic Analysis found that the personal saving rate of Americans increased exponentially in 2020. For reference, from July of 2015 through Jan of 2020, the personal saving rate fluctuated between 6.4 and 9.1, typically staying around 7.1 to 7.9. In April of 2020, the personal saving rate spiked from 12.9 (an already high rate) to an incredible 33.7. After, it began a gradual decline, ending in December at 13.4. It is highly likely that the initial stimulus payments impacted the personal saving rate, although the sequential rates remained high through December of 2020.

(Data Source: Federal Reserve Bank of St. Louis)

These seemingly counterintuitive figures raise significant questions about the spending habits of Americans in times of crisis and uncertainty. Following the aforementioned recession and high unemployment rate of 1981, the personal saving rate also had a spike to 13.2, the highest it had been in over 6 years. It remained above 12.0 for the duration of the recession.

This speaks to a larger pattern of saving and spending among Americans. As in 1981, the recent pandemic may have forced Americans to tighten their belts and fundamentally alter the way they spend and, consequently, use their credit cards. The results of our survey highlight this trend.

What did you primarily use your credit card(s) for?

As would be expected, there was a major shift in spending away from travel and entertainment.

• 42.1% of respondents used their credit cards for travel pre-pandemic, while only 13.3% used their cards for travel expenses during the pandemic.
• 54.9% of participants used their credit cards for entertainment prior to April of 2020. This number dropped by more than half post-April of 2020. Only 23.4% used their cards for entertainment from April to December of 2020.
• Payments towards groceries and bills increased slightly, but not significantly.

The shift away from travel can partially be attributed to travel restrictions in the early days of the pandemic. That said, 50.6 million people traveled for Thanksgiving in 2020, compared to the 55.3 million who traveled in 2019. The 2020 Thanksgiving travelers even surpassed the holiday passengers in 2016 (49.3 million).

When the economic uncertainty of 2020 hit, leisure travel reduced dramatically, with the exception of holidays. This suggests that many Americans were still willing to spend money and use their credit cards for holiday travel, but not necessarily for other recreational travel. These figures, combined with the survey’s massive shift in spending away from travel, indicate a nuanced difference between holiday travel and leisure travel. While holiday travel typically falls into the category of recreational spending, it appears that in 2020 many people may have considered it to be essential spending.

The data demonstrates that in times of economic confidence, people are more willing to use their credit cards on non-essential items, such as leisure travel and recreation. When they become skeptical or uncertain about their own financial statuses, discretionary spending plummets and, consequently, credit card spending notably drops.

Did your overall credit card debt increase or decrease in 2020?

• Only 16% of respondents said their credit card debt increased in 2020.
• 84% of respondents said their credit card debt decreased or stayed the same.

Were you granted forbearance on your credit cards?

• Only 4.84% of respondents received forbearance on their credit cards.
• 95.16% of participants did not receive forbearance on their credit cards.

Did you experience a loss of employment in 2020 due to COVID-19?

The survey results support the data from the BLS, showing high rates of unemployment, particularly among those aged 18-29. The high unemployment rate among the participants further underpins the fear and financial uncertainty felt by many during the initial year of the COVID-19 pandemic.

• Almost 40% of respondents aged 18-29 experienced temporary or permanent unemployment due to COVID-19.

Did you use any of your stimulus money to pay down credit card debt?

• 32.1% of respondents who received a stimulus payment used it to pay down credit card debt.
• 67.9% of respondents who received a stimulus payment did not use it to pay down credit card debt.

Did you use any of your stimulus money to add to your personal savings?

• Of the respondents who received a stimulus payment, 57.1% of them used it to add to their personal savings.
• Of the respondents who received a stimulus payment, 42.9% did not use it to add to their personal savings.

In Conclusion

The results of our survey support the data coming from multiple Federal Reserve sources. Major shifts in spending away from leisure travel and/or recreational purchases seem to have freed up disposable income, transferring those funds into savings accounts instead.

Although the events of 2020 were certainly unprecedented, the spending habits exhibited by individuals seem to have followed a historical and cyclical pattern. In times of economic health, consumers are far more likely to spend on non-essential items, leaving personal savings lower on their list of priorities. When a recession or any type of economic uncertainty strikes, consumers begin to manage their finances on the basis of fear rather than confidence. In doing so, recreational spending drastically decreases while personal savings once again becomes a top priority. This was evident in the almost 60% of respondents who chose to put their stimulus payments towards their personal savings rather than spend it entirely on non-essential expenses.

In other words, consumers dramatically changed their spending habits based largely on their emotions.

This unique aspect of human spending is highlighted by the sharp decline in travel spending and the relatively large number of holiday travelers in 2020. The data suggests that holiday travel should have been extremely limited, given the extreme decline in travel spending. Instead, it was just about on par with previous years. In spite of, or perhaps because of, the high anxiety and crisis of 2020, consumers relied on habitual comforts such as a simple holiday among family rather than recreation or leisure spending.

Although COVID-19 was unpredictable and left many without stability, consumers protected their finances by shifting their disposable income into their personal savings and cutting down on non-essential spending. Nevertheless, even in times of fear and uncertainty, there are certain things on which we as humans are unwilling to compromise, further suggesting that spending is a highly emotional aspect of human behavior.

Survey Methodology: This survey was conducted on April 1st, 2021 among 517 adult, US residents aged 18-65. Data was weighted for age, gender, and geography using the Census Bureau’s American Community Survey to reflect the basic demographic composition of the United States.

How Did a Debt Collector Get My Information?

You may have received a letter in the mail from a company you don’t recognize or a phone call from an unknown number. If a company you’ve never heard of is contacting you to pay a debt, you might not think it’s yours. But you should consider that the company that’s contacting you isn’t necessarily the company you had an original debt with. They could’ve gotten your address or phone number from a few different places, like your credit report, an internet search, or the original creditor.

Once a debt is charged off, or even before it has gotten that far, the original creditor you had the debt with may use a third-party collection agency to recover payments from you or the debt may be sold to a collection agency which will now own the debt and be responsible for collecting. This new company is likely one you aren’t familiar with. If a debt collector got your information from the original creditor, they’ll have your personal information, like your address, the amount owed and the company you originally owed.

Knowing Your Rights

Debt collectors are legally bound to follow certain rules when it comes to collecting debt, so understanding your rights is crucial if they contact you and it can make the situation a little less painful. Most of these rights come from laws established under the Fair Debt Collection Practices Act and state laws, which Debt collectors must adhere to.

Statute of limitations – This is a type of law that sets deadlines. In debt collection, it limits the amount of time someone has to sue you for debt. State laws vary, but the range of time to sue is usually 4-10 years after the last payment was made. This usually starts when the first payment is missed, but additional payments or actions can end up creating a new starting point so be careful not to accidentally reset the clock on your debt. Your debt might be past the statute of limitations, and if so, the collector cannot successfully sue you. It’s up to you to be aware of your own debts and double check how old they are. You can talk to an attorney to verify if your debt is too old or if the FDCPA was violated.

Contact times – Under the FDCPA, debt collectors can’t call you before 8:00 a.m. or after 9:00 p.m. and they’re not allowed to call you at your job if your employer doesn’t allow you to talk with them while at work and request is made. Also, if they know a certain time is inconvenient for you, they are not allowed to call you then. You can also request a callback number for them, which they must provide.

Right to dispute – Also under the FDCPA, debt collectors must inform you that you can dispute the debt. When collectors reach out to you for collection, they’re required to tell you the name of the creditor, the amount of money owed, and inform you that you can request the information on the original creditor. If you feel the account in question doesn’t belong to you, you can dispute all or part of the debt within 30 days. It must be in writing to the original creditor stated.

Harassment – By law, collection agencies cannot harass you, your family, or your neighbors. They can still serve you with legal papers, and still report your debt to credit reporting agencies. If a debt collector is harassing you, lies to you, threatens you, uses obscene language, or abuses you physically or verbally, there are legal actions you can take. If they don’t follow the rules in the FDCPA, you can sue them or report the violation to your state’s Attorney General through your State Consumer Protection Office.

If Debt Collectors are Contacting You Constantly, How Do You Deal with Them?

First remember, they will continue to contact you until a debt is paid so don’t ignore them.  Ignoring a debt collector when a debt is yours can cause further damage to your credit score and report. On the other hand, paying the collection account may stop the creditor or collector from suing you. That lets you avoid a judgment on your credit report that could hurt your credit score even more.

Ask as many questions as you can. Find out who the original creditor was, as well as the original amount. This can help you make sure that the debt is yours in case you need to dispute it. Also ask how old the debt is. The statute of limitations may have expired, and they may not have right to collect any longer. Make sure to get all this info in writing. Legitimate debt collectors are required to send you a letter in the mail detailing your outstanding debt.

Don’t give personal details over the phone. Regardless of if you can pay the debt or not, avoid excessive talking. Don’t share anything over the phone, including if you can pay and how you plan to. Instead, request a letter with the original debt information.

The collection agents want to get your money while they’re on the phone with you. They may offer you a settlement option on the debt. A settlement negotiation allows you to make a partial lump sum payment on your debt and have the rest forgiven. Your credit report will show that your debt wasn’t paid in full, which won’t be good for your credit score and it could have negative tax repercussions.

When an agent says that a settlement offer is a one-time deal or won’t be available after a certain amount of time, that’s usually not true. The older a debt is, the less likely someone is to collect it. Meaning older debts might be easier to negotiate. That doesn’t mean you should avoid paying if you can, but it does mean you don’t have to jump just because the collector says to.

Also, the nature of their job entails that debt collectors are under pressure to collect. That means you might have more bargaining power at the end of the month. For example, if you owe $4,000 and can only pay $2,000, the collector probably won’t accept that lesser amount. But at the end of the month, if the collector needs $1800 for their monthly quota, they might be more open to settle on your $2,000 payment.

Write down each time a debt collector contacts you and what they say. To stop a collector from contacting you, tell the agent on the phone that they are not allowed to contact you at work or home and that it is inconvenient. Next, send a

letter to the debt collector. You may be able to report them to the Consumer Financial Protect Bureau if they aren’t following the Fair Debt Collection Practices Act.

What are Your Options When Faced with Debt Collectors?

So, what do you do next? There are options to help relieve the stress of these calls and avoid possible legal action against you by collection agencies.

Debt Management Plan through a Non-Profit Credit Counseling

A debt management plan (DMP) lets you combine all your monthly payments into one monthly payment. They provide lower interest rates, forgive fees, and change deadlines so that monthly payments are affordable. You’d first speak to a credit counselor at a nonprofit credit counseling agency like Debt Reduction Services, for free. If you then decide to enter a debt management plan, the agency will accept your monthly payment and pay the creditors per a payment agreement. When the full amount of your debt is paid, your credit report will show the debt paid in full, making rebuilding your credit a little easier, and ending your time dealing with debt collectors.

Debt Settlement

With a debt settlement company, you can structure a payment plan to pay off debt and have someone else negotiate. The company will set up an escrow account while you’re making monthly payments toward a settlement. If you decide to work with a debt settlement company, it’s best to talk to an accredited credit counselor first. Credit counseling is free, but there will be fees with a debt settlement company. Be aware, that there are a lot of debt-settlement companies that don’t have the best interest of their customers in mind. They will require the accounts fall further behind until a settlement can be reached with the creditor. During this time, the creditor could still pursue judgement against you which could result in wage garnishment. There will also be a minimum debt requirement, as these companies are commission based.

Bankruptcy

The final option is bankruptcy, which includes Chapter 7 and Chapter 13. Chapter 7 will wipe clear all eligible debts while Chapter 13 is a repayment bankruptcy. A Chapter 7 bankruptcy will be on your report for ten years, longer than a Chapter 13 bankruptcy which stays only seven years. Your credit score will take a major hit when you file bankruptcy and is only recommended as a last resort if circumstances such as total loss of income occur.

Step 1.

Talk to one of our certified debt relief counselors.

Step 2.

Our preset terms with creditors can get you lower interest rates and payments.

Step 3.

Make just one simple monthly payment to us and we’ll distribute it to your creditors for you.

Unique Challenges

• Childcare Costs: The most obvious financial challenge to single parents is finding affordable childcare. When grandparents or other family members are not available to care for the children while the single parent is at work, these costs can skyrocket. According to the Economic Policy Institute, the cost of child care can vary by state from as little as $399 a month (Mississippi) to over $1,550 a month (DC and Massachusetts). However, as a percentage of income, DC (29%), Oregon (23%) and Massachusetts (23%) win the unwelcomed prize. In 18 states, the typical cost of childcare for one four-year old is equal to or greater than the average household’s rent.
• Mealtime: Another financial challenge faced by single parents, and one that households with one spouse who care for the children may not deal with to the same extent, has to do with meals and the single parent’s time and energy. Single parents usually have less time to prepare meals and more demands on their time by their children, which leads to a tendency to eat out, order carry out, or order food to be delivered at dinnertime. Obviously, such options hit the household budget pretty hard.
• Child Support: Most single parents who are entitled to child support already know that barely half of child support payments are actually made regularly. This alone is enough to send even die-hard budget lovers into a conniption fit. The question is a valid one: how can you plan your monthly spending if the arrival of the money (child support) is unreliable?
• Added Expenses: Finally, because single parents spend less time during the day and evening with their child(ren), they might try to compensate for this purchasing the children gifts and toys or by taking expensive vacations.

Debt Reduction Services Solutions

If you or someone you love and care about is a single parent, here are some resources and steps to consider using:

1. When it comes to childcare, take advantage of as many resources as possible. State assistance varies widely but is a major source of help to many single parents. At tax time, make sure you are maximizing your child tax credit. Use the IRS locator tool to find a free Volunteer Income Tax Assistance program near you. At work, ask your employer about a Flex savings plan (pre-tax dollars you can use for dependent care) and to see if they offer child care benefits (subsidies). You can even ask your child care provider if they offer sliding fee scale rates based upon your income. Local nonprofits such as the YMCA or an area church may offer affordable care as well.
2. Debt Reduction Services Inc has counselors available throughout the day to help you put together a budget that works with your income. If you are dealing with debt, they also have a fee-based program that will minimize that amount of time required of you to pay bills each month.
3. Plan your meals a week at a time to minimize the likelihood of eating out or ordering carry out. A menu planner will save you time at the store, energy in the kitchen and money in the wallet.

Take advantage of our free webinars to brush up on or polish off your financial skills and knowledge. Topics include savings, household budgeting, establishing a financial vision, shopping and spending strategies, spending personalities, as well as relationships and money.

Links/Resources

Articles

1. Care.com: 7 Sources to Help Pay for Child Care
2. The Balance: Money Management 101 for Single Parents Going It Alone
3. Bankrate.com: 7 Strategies for Single Parents
4. Forbes.com: Save on Child Care with these Six Tips
5. Fox Business: Financial Tips for Single Parents
6. Mint.com: Budgeting Tips for Single Parents
7. Parents.com: 15 Time-Management Tips
8. US News & World Report: The Best Budgeting Strategies for Single Parents

References

Child Trends Databank. (2019). Children in poverty. Available at: https://www.childtrends.org/?indicators=children-in-poverty

The Cost of Child Care (2016, Apr). Economic Policy Institute. Retrieved from http://www.epi.org/child-care-costs-in-the-united-states.

Unique Challenges

A 2016 survey by Prudential Financial, Inc. found similar financial concerns among the LGBTQ community and the general population, including the potential for job loss and the impact of inflation. However, issues having to do with LGBTQ rights, such as:

• Employment protections.
• Lack of job opportunities.
• Lingering concern over the lack of survivor benefits from Social Security and pensions.

These challenges create apprehension for LGBTQ individuals and couples. Consumer debt is also a greater source of worry for the LGBTQ community when compared to the US population in general by a full 6%, more than any other commonly held financial concern.

According to AARP, poverty rates are higher among elder lesbian and gay couples. In fact, the rate for lesbian couples is twice that of the general American population. Continuing legal barriers and employment discrimination, as well as past obstacles regarding Social Security and Medicare, are among the leading causes.

For transgender individuals, there is an undeniable financial aspect to their decision to transition or not. Surgery, therapy, medications and even the legal costs of changing one’s gender identity all combine to make such choices financially taxing for individuals, regardless of their income level.

Another financially charged issue related to sexual orientation discrimination involves housing, homeownership, and senior living arrangements. Surveys and field tests clearly show that housing, rent incentives, and amenities are less available for LGBTQ applicants while pricing and fees are more. Additionally, while HUD has had protections in place since 2012 for LGBTQ individuals in federally subsidized housing, there are still some hurdles to be removed from the process of purchasing a home as a same-sex couple.

Debt Reduction Services Solutions

Debt Reduction Services, Inc. does not presume to solve all these unique challenges. However, we do provide our counseling and education services to all populations in need.

1. To address concerns over consumer debt, we offer free credit counseling along with debt consolidation programs, effectively lowering interest rates with your creditors and setting up reasonable repayment terms to have you living debt free in five years or less. Debt Reduction Services also has programs to set up affordable monthly payments with medical debts, collection accounts, old utilities and phone bills, and more!
2. While advocates and others work to eliminate employment barriers around the country, it is critical for the LGBTQ community to build healthy savings habits in case of emergencies or job loss. As a nation, only 40% of Americans save regularly. We must do better than that! Anyone facing job insecurity needs to prioritize monthly savings of 10% to 15% or more of after-tax income. Save first, pay bills second, purchase groceries last. Check out our webinar on Simplified Savings Strategies, its corresponding handouts and even a quiz to submit for a certificate of achievement.
3. Understanding your Social Security benefits should be a priority for all Americans. Given the major changes in marriage law in the past few years, it is particularly critical for same sex spouses to know what to expect from Social Security at they approach retirement age.

Take advantage of our free webinars to brush up on or polish off your financial skills and knowledge. Topics include savings, household budgeting, establishing a financial vision, shopping and spending strategies, spending personalities, as well as relationships and money.

Links/Resources

Articles

1. Human Rights Campaign: Housing for LGBTQ People: What You Need to Know about Property Ownership and Discrimination
2. NerdWallet.com: LGBTQ Housing Discrimination: How to Spot It and What to Do
3. Reuters: Same-sex couples face the music: First comes love, then taxes
4. SAGE Blog: Financial Literacy: Tip and Tricks for LGBTQ Elders

References

1. Talk before You Walk: Considerations for LGBTQ Older Couples before Getting Married (2016). Services & Advocacy for GLBT Elders (SAGE). Retrieved from https://issuu.com/lgbtagingcenter/docs/talk_before_you_walk_sage_finance_t?e=2766558/35077938

What is a credit report and how is it used?

How are we, the average Joe or Jane on the street, supposed to build (or rebuild) our credit when no one teaches what’s on our credit report to begin with? Well, here’s the answer:

• Contact information (no impact on credit score): It simply includes the names, addresses, employers, and, sometimes, marital statuses under which you have applied for credit in the past.
• Credit & Trade Lines: Details on the various lines of credit the consumer has had in the past 7-10 years, including balances, terms and their history of on-time payments.
• Public Records: List of court actions, including bankruptcies, judgments, tax liens and possibly evictions over the past 7-10 years
• Inquiries: List of creditors and businesses that have looked at your credit in the past 2 years. Those you authorize as part of an application for credit may impact your score (slightly), while others do not.
• Personal Statement (no impact on credit score): Up to 99 words the consumer may add to their own report. We generally suggest this only be used to clarify report errors.

Think of your credit report as your own personal file that holds information about your where you reside, what type of debt you owe on and what your payment history is with your lenders. Your credit report file will also include whether or not you’ve filed bankruptcy and if you’ve been sued to collect on a debt you owe. If you have mortgage or automobile payments those will show on your credit report as well.

Creditors, lenders, employers, insurance companies or property management firms may purchase a copy of your credit report in order to determine your creditworthiness. They will look for positive items such as an established credit history, high balance to available credit ratios (do you have access to credit but keep the balances down?), on time bill payment, what types of credit do you use and have you recently applied for new credit?

Importance of Credit Scores

What is credit?  It is the ability to borrow based on the promise of repayment.  Lately, everything seems to be based on a person’s credit score.  Here are a few ways credit scores affect the price you pay for the following items:

• Personal Life Insurance: Having a bad credit score can drop you to the lower tiers causing you to pay a higher premium, though your health is still the most influential factor.
• Auto and Home Insurance: Poor credit can mean you are denied insurance completely or you will pay more.  Before obtaining insurance from a company, ask them, “What percent of the premium will my credit score account for?”
• Employment: The trend is growing for companies to pull a credit report along with a background check.  They want a stable employee.  They are not allowed to ask you why you have a bad score, but you are allowed to tell them.  Be prepared to discuss it.  Employers can pull credit to promote or transfer an employee as well.  Be open and willing to explain what happened. If you’re currently a first responder, we have specialized debt relief programs tailored to your industry.
• Housing: Property management companies will likely pull your credit report to determine approval or denial, though many do not take into account any medical collections.  The larger the company the stricter they typically are.  Small locally owned companies tend to get to know the individual.
• Loans: The higher the score, the better the interest rates you pay for standard bank loans (auto, home, signature).  If your score is too low (mid to low 500s), you may be denied a loan completely or receive an interest rate in the high teens to twenties.

Check your credit report every year to check for fraud or misreporting that may be affecting your credit score.  While 8 in 10 credit reports contain some sort of error, one in four contains such an error significant to cause you to be denied credit in spite of any other positive information.

As you can see, building and maintaining a good credit score can positively affect a major part of your life.

Have You Pulled Your Credit Report Lately?

Information found on credit reports and that three-digit number called a credit score have become such integral decision factors in our lives.  Do you feel as though you are now judged by your credit report and credit score more than ever?

We have the opportunity—and the right—to see our credit reports and ensure that they are accurate, which is especially important before you apply for a loan. Here are some steps to taking advantage of the FACT Act to monitor your own credit:

• Pull your credit regularly at www.AnnualCreditReport.com.  We are entitled to one credit report from each of the three bureaus every 12 months.  That translates into three credit reports per year for FREE!  If you really want to stay on top of your credit monitoring, pull one report every four months rather than pulling all three at once.
• Keep in mind that we are able to dispute inaccurate information.  If you see something that just doesn’t look right, dispute it with the credit bureaus by going directly to their websites or by writing to them.  If the item is negative, but it is indeed accurate, it will have to stay on the credit report until it is due to come off (generally 7 years for negative information).
• Anything a credit repair company can do legally, you can do for yourself.  Just as you can pay someone to cook your meals, clean your house, and mow your lawn, you can also pay somebody to “clean up” your credit.  Save yourself some (or a lot of) money by writing your own dispute letters.
• Keep a paper trail.  One advantage of sending a dispute by mail is that you can include copies of supporting documentation and send them by certified mail.  Always write down who you talk to when you talked to them, and any other pertinent information each time you speak with a creditor.  It’s easy to get lost in large organizations with multiple international call centers.

Steps You Can Take to Build a Better Personal Credit Report

First things first, get a copy of your credit report and study it. Look at the same information that others are looking at when determining your creditworthiness.

If something looks out of place make a note of it and begin fact-checking. You may find a discrepancy on your report and will want to take the appropriate steps to resolve the issue.

Follow the tips in the next section for success.

How to Dispute Discrepancies on Your Credit Report

There are a couple ways to go about filing a dispute with a consumer reporting agency. The recommended way is to contact the credit bureaus that have the error using the dispute option on their website:

• Experian.com
• Transunion.com
• Equifax.com

Disputing the error online is the quickest and easiest way. See the pages linked above for more information.

You can also choose to place a phone call or write a letter disputing the information on your report with the appropriate credit bureau. You will want to specifically identify each issue you’ve found and include copies of supporting documents. Do not send the originals. Also, make sure you keep a copy of your dispute letter as well.

The second step would be to tell the creditor or entity that has reported information incorrectly within your file. Similar to step one, only send copies of supporting documents and make a copy of the letter and documents for you to keep.

If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you.

Correcting Credit Report Errors from Defunct Creditors

Having taught nearly 500 personal finance classes since 2004 to over 8,000 individuals, it’s not often that I get a question about course topics that I haven’t heard before. I love it when I do, though, and that’s exactly what happened last week at a local housing authority. Here is the question:

What can I do if the title loan company to which I once owed money but have paid off in full has gone out of business but is still listed on my credit report with money owing? At first, it sounded completely new, but in the end, much of the method for dealing with this situation goes back to the typical process of correcting one’s credit report. Here are the suggestions that we, as a class, came up with:

• First, dispute the credit report error online through each of the three national credit bureaus.
• If that doesn’t work, call the company using the phone number listed on the credit report. Attempt to correct the problem directly with the title loan company’s representative.
• If these attempts fail, try looking up the company on the state’s Secretary of State’s business entity search website. The business listing should include, even if the company has gone out of business, an owner or board member to contact (likely a mailing address). Make contact with a request for information on how to address accounting errors.

These same suggestions apply to similar situations involving other defunct creditors listed on one’s credit report, including, for example, debt collectors, banks and credit unions.

If you run into any issues along the way or just need advice on where to begin or what to do next you are more than welcome to contact Debt Reduction Services at 1-866-688-3328 and speak to a Certified Consumer Credit Counselor. They can help you with your budget as well as help you identify areas that you can potentially save money. Be wary of credit repair or debt settlement as you don’t want to find your situation become worse by working with the wrong company.

For more information on how to improve your credit report visit consumer.ftc.gov for an abundance of resources that are aimed at protecting you, the consumer, as well as improving your overall financial picture.

Once you’ve ensured that the information is correct on your report you will want to review the primary factors that are used in determining your creditworthiness.

• Do you have collection debt that needs to be resolved?
• Do you pay your bills on time?
• Do you owe a high percentage of your credit limit on your accounts?

Those items all have a fairly heavy impact on your credit profile.

Begin setting goals and prepare a plan that allows you to resolve any issues identified. Perhaps you’ve found an old collection debt that you can make a priority to repay or maybe you’ve seen your balances maxing out. Regardless of the specific issue, set goals to remedy them as soon as possible. This is also a good opportunity to create a household budget and set immediate, short and long-term goals.

10 Tips for Strengthening Your Credit Score

The Guiding Principle behind each of the following tips is to manage and use your credit wisely: pay your debts according to the terms you have signed and avoid excessive debt. Read through the following tips for ideas on how you can personally increase your score and better your credit standing.

Tip #1: Pay all of your bills on time and in full every month. If you have secure access to the internet, consider paying your bills online to avoid mail delivery delays.

Tip #2: Get current on your credit accounts. If you’ve missed or been late on payments, find a way to get caught up. It will take six months of on-time payments, but negative effects of late or missed payments decrease over time.

Tip #3: Pay down the total balances owed on your credit accounts. Don’t just transfer money from one card to another. Make it a goal to avoid purchasing anything on a credit card you won’t pay off with the next credit card statement.

Tip #4: Don’t close accounts in good standing as a “quick fix.” Information from any account, whether closed or open, remains on your credit report for 7 years.

Tip #5: Don’t be afraid of Credit Counseling. In 1998, FICO dropped credit counseling as a factor influencing the credit scoring model, in part because we’ve learned that individuals actually become less of a credit risk when they receive credit counseling. (Michael Staten. Georgetown University. March 2002).

Tip #6: Avoid applying for a lot of new credit accounts within a short period, particularly if you have little or no credit history. See next tip.

Tip #7: Stay in contact with your creditor when troubles arise with an account. Work in good faith to pay as agreed, or consider arranging a modified payment plan. Accounts in collections or charged off will negatively affect your score for at least 7 years. When you struggle to make even the minimum payments, contact a reputable credit counseling organization such as Debt Reduction Services.

Tip #8: Know your credit limit and stay away from it. “Maxing out” your credit cards can hurt your credit score.

Tip #9: Live within an established budget and replace poor spending habits with disciplined spending. Balance your checkbook regularly to avoid bouncing checks.

Tip #10: Check your credit report at least annually for mistakes and inaccuracies. Go to www.AnnualCreditReport.com to print and download your free report for each of the three national credit reporting agencies. If you want your credit score as well, you will be required to pay for it. Though, you may have access to it through your bank’s online tools. Checking your own credit report in this way will not harm your credit.

Eight Additional Steps to Rebuild Your Credit Score

How to Rebuild Your Credit Rating

While on our Debt Consolidation Program, some may feel that building or repairing their credit without a major credit card is an insurmountable challenge. Others may not have any credit established or very poor credit and are looking where to begin to improve their situation.

The following are some simple steps that can contribute to better credit ratings. * The list is not exhaustive nor are the suggestions guaranteed to help you (state and federal regulators require that disclosure).

Watch our Director of Education, Todd Christensen, explain how you may begin building or rebuilding your credit score in this video:

Free and Easy Steps Can Help a Little

1. Ask a family member with good credit to add you as an authorized user to their current credit card account(s). You do not even have to use the card (or even ever see it). It has no impact on the family member’s rating, and their good account activity can help your own standing before creditors. Keep in mind though, that the family member is responsible for any charges made on the authorized user’s card.

2. Some states allow utility companies to report your history of payments to the credit bureaus. You do have to ask, though, and the utility companies are not necessarily required to report, so ask nicely… with sugar and a cherry on top. Also, be sure the utility account is in your name.

3. Maintain checking and savings accounts: While not the case before 2004, banking practices (like bouncing checks) can now affect an individual’s credit score.

4. Consider having a parent or family member co-sign with you for unavoidable loans, such as a car. Be careful, though, not to compromise their finances. If you don’t pay, they will be held responsible.

Simple and No-cost or Low-cost Steps

5. Generally, I suggest that you do not apply for more than one or two new accounts each year, but to start, you might consider a tire/brake store that has its own finance department. Gas station cards are other possible places to start. They tend to be a little more liberal in their application approvals, but they compensate for this risk by charging higher interest rates. If you need to purchase tires for your vehicle anyway, save up the cash, apply for the loan at the tire store, and then pay off the loan almost immediately. Some well-meaning so-called experts will tell you that you should not pay off the loan because you need to establish a history of on-time payments. To maximize your credit rating, this may be true, but you do not need to maximize your rating; you just need to build it. If maximizing is your chosen way, it means you’ll end up paying interest, so to minimize interest payments try this. Once your account is approved, register with the lender for an online account, link it to your bank account, pay off all but $50 or so, and then make $15 or so payments until the account is at $0. This will give you 6 or more months of payment history while also minimizing the interest you are charged.

6. Retail store cards are also generally easier to qualify for. Just do not make purchases for the sake of building your credit. Make purchases that you would have made anyway. Let’s say you were going to make a $50 purchase there and that you already had the money saved in your checking account or in cash in your purse or wallet. When applying for an account, they might give you a discount on your first purchase. Don’t go crazy. Keep the purchase the same as what you would have purchased without the discount. Then, after being approved, do not even leave the line. Inform the cashier that you would like to pay off your account balance right then and there. This way, you leave the store with a new open account in good standing with no balance and a payment history. If you waited to pay until the bill came in the mail, chances are you would have spent that money elsewhere and would then be in trouble trying to come up with the minimum amount due.

More Expensive but Effective Steps

7. Finding a secured credit card (not a regular debit card) through a bank or credit union can help, although they usually come with high annual fees (sometimes even monthly fees). One benefit of a secured card is that you begin developing disciplined credit habits. Just make sure that you get it in writing that the card company will report your credit usage history to all three consumer reporting agencies.

8. Some banks and credit unions offer credit-building loans of $500 to $2,000. They typically require proof of employment. After approving your application, they place all or part of the loan into a secured savings account that you cannot access until you have paid the entire balance due. While the secured savings account earns interest ( a pittance), you are likely paying 8% to 15% or even more on the loan. Still, that’s better than the corner finance store that will charge 20% to 30% or more and makes it as difficult as possible to pay off the loan.

Don’t Forget the Basics

Regardless of the above steps, the fundamentals of building (or rebuilding) credit remain in place:

• Make at least your minimum payments on time
• Pay down (or even better, off) your balance every month
• Don’t apply for too many accounts within a short period of time (1 to 2 a year is reasonable)
• Get current on accounts that are late
• Do not close accounts that are in good standing

These do not account for all possible ways to build or rebuild credit, but they provide a generally good strategy. If you have some ways of your own, please feel free to share.

Disclaimer: Score and modeling may vary from lender to lender. Because of the complicated nature of the statistical models and abundance of information on credit reports, these tips cannot be considered guarantees to improving your credit score.