Welcome to Ask Karen Gibbs ...
The first joint venture between Get in Charge and the Gibbs Perspective! Veteran business correspondent Karen Gibbs answers your questions about personal finance in this new bi-weekly advice column. Karen is the financial expert in YOUR corner--no question is too basic or too small. Every two weeks, weíll feature Karenís solutions to one of your money problems. Send your money questions and your comments to AskKaren@mpt.org.

"These are difficult times, but you are not alone. You have a wealth of resources available to you. In keeping with MPT's mission to engage, enlighten and entertain, I want to start the financial fitness conversation. If I donít have the answer to your question, Iíll find the expert who does and share it with you.

I hope that you will ask questions of general interest regarding personal finance, saving and investing. It doesnít matter if youíre just starting your career or youíre enjoying a well-deserved retirement, we can all use some help. It is our effort to educate and empower you to create a financially fit life." ĖKaren Gibbs
Repairing Your Credit History
Credit is the ability to obtain goods and services without full payment, based on trust that the obligation will be paid in full in the future. It is the oil that greases your financial gears.

Having good credit is critical if you’re thinking of buying a car, home or in some cases, even applying for a job. Fortunately, in the wake of the financial meltdown of 2008, Maryland passed legislation in 2011 that restricts employers from using credit reports to deny a job to an applicant, terminate an employee or set conditions of employment.
However, bad credit can adversely affect other aspects of your life.  In this column, I’ll address ways you can repair your credit history and lift your credit score – the snapshot of your financial life.

Your credit score is calculated by the Fair Isaac Corporation - hence the term FICO – and can be anywhere between 300 and 850.  Most scores fall between 600 and 800, with excellent credit scoring 740 and higher.  The good credit reading falls between 700 and 739, a fair credit rating is between 660 and 699, while anything between 620 and 659 is considered uncertain.  If your credit score falls under 620, you are considered “sub-prime”, a poor credit risk and will be penalized with higher interest rates or not given credit at all.

When calculating your credit score, payment history is the most important variable.  Creditors want to see a history of on-time payments.   If you are late on payments, it hurts your score.  If you are more than 180 days late on payments, this debt will be considered a “charge-off” and may be referred to a collection agency.  This will stay on your credit history for seven years.  Don’t let it get to this point.  Get rid of all past-due accounts of 180 days or less.

The second most important factor in calculating your credit score is your debt to credit ratio.  The higher the credit balance, the lower your credit score.  The lesson here is not to “max out” your cards.  Use only 30% of your available credit line.  The ideal amount would be 10% of available credit. 

Don’t leave this score to chance!  Get your credit report and see what’s in it and what might hurt your chances of buying a car or a home.  You are entitled to one free credit report a year from each of the three credit reporting agencies; Equifax, TransUnion and Experian.  You can create your own free credit monitoring service by ordering one report now, then four months from now order another report from a second credit reporting agency, then in another four months, order your third free report.  You can now see what’s hurting your score, take steps to repair it and see your progress on a regular basis. 

Look for incorrect information.  Are there accounts listed that aren’t yours?  Are there payments that have been reported as late when they weren’t?  You can dispute the erroneous information online, by phone or by mail.  In this information age, disputing online is faster.  If you challenge the information by phone, make sure you get the name of the person you’re talking to.  Take detailed notes of the conversation, including date and time of your call, and if possible, get a transaction or case number.  If you choose to dispute by mail, make sure you use certified mail and be prepared to wait 30-45 days for a response.

Next, look for ways to lift your score.  The best way to start is by paying your bills on time.  Mark your calendar, set up e-mail alerts or arrange for automatic bank payments.

Next, tackle your outstanding balances.  The emotional satisfaction of reducing debt cannot be overstated.  Are you worried about high interest rates?  Start paying off the debt that has the highest annual percentage rate. Do you worry over the highest balance?  Then tackle the credit with the largest outstanding balance.  Or would you like to see quick progress and reduce the number of credit accounts?  Then pay off the lowest balance first.  There is no “one-size-fits-all” strategy.  Use whatever strategy feels best for you and a plan you can stick with over time.  

If you need to re-establish your credit, apply for one of the major credit cards such as Visa or MasterCard, and pay off the entire balance monthly.  If you can’t get a Visa or MasterCard, consider a credit card from a retail store.  They carry a higher interest rate, but will help you build your credit history if you pay monthly balances in full.   A secured credit card that requires a cash deposit as your credit line may be another option.  In this instance, you put up the money and draw on it, adding more money when needed, but do your homework.  Look for a card that doesn't charge an application fee. Every secured card charges an annual fee, so look for the lowest.  Read the fine print. Some cards charge fees than can eat up the entire deposit before the card is ever used.

If you still find yourself overwhelmed, consider talking with a credit counseling service.  The Consumer Credit Counseling Service of Maryland and Delaware (CCCS) is a non-profit organization dedicated to helping solve financial problems via confidential budget counseling, debt management and educational seminars. Beware of credit repair services that offer promises they can’t keep.  Maryland regulates these services and has strict guidelines such as they must be licensed, can’t charge upfront fees and must offer written contract and disclosure documents.  If you do sign a contract with them, you have the right to cancel the contract anytime prior to midnight of the third business day after the date of transaction. 

Bankruptcy should be your last resort as it carries long-term implications.  It stays on your credit record for a minimum of seven years, it is part of the public record and you must pay filing and possibly attorney fees.

Clean up your credit and get your future back!  Take one step at a time, and you'll get there.  The important thing is to START NOW.  Here's some helpful links to get you started. 

Cheers,
Karen
Posted on 02 Mar 2012


Karen Gibbs Bio

Veteran Business Television Anchor and Correspondent, Karen Gibbs is President and Founder of The Gibbs Perspective, a company concerned with and dedicated to financial literacy and investor education. A noted speaker and moderator, Gibbs is now a host for The MoneyShow.com Video Network. Most recently Gibbs was a contributor to Retirement Living Televisionís The Prudent Advisor and Daily Cafe. Before that, Gibbs was co-anchor of the weekly PBS business program, Wall $treet Week with FORTUNE from 2002 to 2005.

Prior to joining Wall $treet Week with FORTUNE, Gibbs spent five years as a senior business correspondent for FOX News Channel, contributing to and serving as substitute anchor on Your World with Neil Cavuto and Cavuto on Business where she was also a regular panelist. From 1992 to 1997, she was an anchor at CNBC, where she specialized in the credit and futures markets, and hosted such programs as Money Wheel and Minding Your Business.

Prior to joining CNBC, Gibbs spent nearly ten years at Dean Witter Reynolds, Inc., where she was a Vice President and Senior Futures Strategist. She began her career at the Chicago Board of Trade as a board marker and left as a member of the Office of Investigations and Audits. She received an MBA in finance and marketing from the University of Chicago.

Gibbs currently resides in Maryland.

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