Q:       I’m currently unemployed and unmarried. Do these facts impact my credit scores?

A:        No. Neither of these facts affects your scores. Also, your scores are not affected by the number of dependents you have, retirement, debt-to-income ratio, number of years on the job, income, a spouse’s credit, checking and overdraft account activity, savings account balances, net worth, service accounts (e.g., utility bills), rent payment history, or participation in a credit counseling or debt management program. Also, you must be more than 30 days beyond the account due date before your credit scores are impacted.

Q:       Will opening a new credit account affect my scores? 
A:        Yes. The computer model used for scoring initially penalizes you for seeking new credit. After several months, however, your having opened a new account should no longer be factored into your scores.

Q:       Can closing credit accounts affect my credit scores? 
A:        Yes. Your credit scores are affected by the ratio between the reported dollar limits on your accounts and the reported balances. Closed accounts are not factored into this ratio, so closing accounts may negatively affect the overall ratio and, therefore, your credit scores.

Q:       I’ve had one credit card for a long time, but never use it. Should I close that account?

A:        Using a credit card for a long time reflects a long credit history, which may improve your credit scores if you pay your bills on time. It may be wise to keep your account open and use it periodically. If you have not used a credit card for six months or more, you take a risk that the creditor may close your account and it will no longer be factored into your scores.

Q:       Would combining all my credit card balances onto one credit card improve my credit scores?

A:        Not necessarily. It is better to have small balances spread over several credit cards to improve your credit utilization ratio (which usually improves your credit scores).

Q:       I regularly run up high credit card balances, but pay my bills in full each month. How does this affect my credit scores?

A:        Even though you pay your accounts in full every month, running up high balances can damage your scores because the chances are slim that your balance will be “zero” on the particular day a creditor asks for your credit scores. You can avoid this by making payments multiple times during the month.

Q:       What will happen to my credit scores if I close a credit account that still has a balance?

A:        Closing accounts with a balance can cause a creditor to reduce the credit limit to the current balance. This creates a 100 percent utilization ratio, which hurts your credit scores. It is wise to pay the account in full before you close an account.

Q:       How can I boost my credit scores?

A:        Aside from establishing a long credit history and paying your bills on time, here are some additional tips:

·       Check your credit report periodically. Be on the lookout for creditors that lower your credit limits, which can lower your scores. If that happens, you will need to keep lower balances.

·       Apply for credit when you don’t need it. It may be easier to qualify, you may get better rates and you’ll have credit available if you need it. Although you may take a small hit on your score in the short term, in the longer term it can benefit your scores, assuming you manage your account responsibly.

·       Be careful about store promotions that offer discounts on the day you make purchases if you open a credit card. These offers typically give you a low credit limit. This means your credit utilization percentage can start out high, which can lowers your scores. Similarly, lowering your credit card limits to reduce your exposure may raise your utilization percentage, which may lower your scores. Try to raise your credit limits when possible, but keep your balances low (a utilization rate of 25 percent or lower is good.)

·       The type of credit accounts you have impacts your credit scores. The harder it is to qualify for credit, the more positive the impact on your scores.  For example, it is generally harder to qualify for a Visa© or MC© credit card than for a gasoline or retail store credit card.

·       “Good” credit can stay on your report forever. Most “bad” credit falls off after seven years, but YOU must monitor your reports to see that it has been removed.

·       If you need to rebuild your credit, obtain secured credit cards or small personal bank loans.

·       If you have an excellent score, protect it. Late payments hurt those with excellent scores more than those with “good” or “poor” scores.

Remember…an important consumer responsibility is knowing, managing and monitoring your credit reports and scores. 

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Richard Korn, a credit counselor at the Westerville Area Resource Ministry (WARM). Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       What’s the difference between a credit report and a credit score?
A:        A credit report contains information that creditors provide to a credit bureau; it details how you have handled your past and current financial obligations. A credit bureau collects data from creditors 24/7, but does not check the accuracy of the information provided by those creditors. There is a cost for creditors to subscribe to a credit bureau service. It is a voluntary system, and creditors are not required to provide this data to a credit bureau. Some creditors report information monthly, some periodically, and some do not report at all. There are three main credit bureaus that provide credit reports: Experian, Transunion and Equifax.

            A credit score is different from a credit report. Although the three major credit bureaus do provide credit scores based on the credit information they have for you, the credit score is not part of the credit report.  90 of the top 100 largest financial institutions use your FICO score to determine your credit risk and to decide whether or not to give you a loan or to extend credit. This credit score is actually a calculation developed by the Fair Isaac Company (named for its founders, Mr. Isaac and Mr. Fair), so it is called the “FICO” score. The FICO score predicts future credit risk. It does not reflect your credit history.  The FICO score range is 300 to 850.  If your FICO score is very high, you are considered a good credit risk, and a lender is more likely to loan you money or extend credit at more favorable rates and terms.

           

Q:       Many services and credit bureaus offer free credit scores. Are these always FICO scores?
A:        No. Although all scores are generated from data collected by the three major credit bureaus, many scores are generated using different scoring models and not FICO’s. Also, the other scoring models may have different ranges. For example, some score ranges start at 330, while other ranges may end at 840.  

Q:       Why are my FICO scores different?

A:        Though all three credit bureaus base their scores on the data they have on file, “FICO” scores may vary because: 1) creditors don’t always report to all three bureaus, 2) data collection methods and reporting can differ and 3) credit bureaus may install the latest versions of FICO software at different times.

Q:       What is an “excellent” FICO score?
A:        Before the 2007-2008 U.S. financial crisis, a FICO score in the range of 700 to 720 was considered to be excellent. Because of the large number of defaults during the crisis, creditors and lenders have become more cautious and currently (August 2013) look for scores in the 740 to 760 range.

Q:       How can I get my FICO score with my credit report, and do I need to get my scores from all three credit bureaus?
A:        You can get all your FICO scores by visiting MyFICO.com. You should request FICO scores from all three credit bureaus. Financial institutions may choose one of the three scores to make their credit decision. Some may choose two and others may choose all three scores.

Q:       Is there any other way I get my credit report and FICO score?

A:        When you apply for a loan or mortgage, the financial institution will pay to get your credit report and FICO score. They may share the information with you, if you ask.

Q:       Where can I get more information?

A:        Because information about credit reports and credit scores are constantly changing, a good source for updated information is myFICO.com.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Richard Korn, a credit counselor at the Westerville Area Resource Ministry (WARM). Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       What are prepaid debit cards?

A:        Most consumers are familiar with gift cards, which are actually prepaid debit cards. A merchant loads money onto the gift card, and the gift card recipient uses the card to make purchases from that merchant until the card’s balance reaches zero.  A new, general purpose, reloadable prepaid card (called a GPR prepaid card) has some characteristics of a gift card and some characteristics of a debit card that might be issued by a bank and tied to a bank account. As with a gift card, a definite amount of money is loaded on to the GPR card, but GPR cards are intended for long term use, unlike gift cards. Consumers can reuse the GPR card and reload money as needed. Many GPR prepaid cards are branded with major credit and debit card networks and can be used at any location that accepts regular debit or credit cards.

Q:       What are the advantages of using prepaid debit cards?

A:        GPR prepaid cards provide an alternative to traditional banking. These cards provide the same flexibility as traditional bank cards without being tied to a bank account. For people with tarnished credit who may not be able to qualify for a traditional credit card, for those with limited access to banking, or for those who simply prefer not to do business with banks or credit unions, these cards can be a good tool for managing money. Unless the card you choose offers overdraft protection or short term emergency loans, you cannot spend more money than has been loaded on the card.

Q:       What are the disadvantages of using prepaid debit cards?

A:        GPR prepaid cards are not subject to the regulations that apply to traditional credit or debit cards, so fees and card features vary widely. Because card issuers do not earn interest on the cards’ account balances, they make money through fees for use and services. Consumers would be wise to shop and compare features and fee structures before choosing a card. This information may not be easy to find because disclosures are not uniform. Customer service on GPRs also varies, so consumers should read all card disclosures before deciding which card best fits their needs and budget. 

Using a GPR prepaid card will not help you build or improve your credit score because credit bureaus do not track prepaid card activities. Also, because these cards are intended for long-term use, you will be sharing personal identifying information with the card issuer. If you load money onto a GPR from your bank account, you will be sharing account and routing numbers, and if your employer deposits your paycheck directly onto your card, you will also be sharing employment information.

Q:       What happens if my prepaid card is lost or stolen, or the card issuer goes out of business?

A:        Because GPR prepaid cards are not subject to the same federal regulations as credit cards, theft protection varies from card to card. You must read the card terms to find out your rights, and chose a card with theft protection. Many, but not all, prepaid debit cards are covered by FDIC deposit insurance, so make sure the card you choose is covered by FDIC deposit insurance.

Q:       Aren’t some government benefits issued on prepaid debit cards? How are these cards different?

A:        Low income Ohioans receive “Direction” cards for SNAP (Supplemental Nutrition Assistance Program) benefits, “Eppicards” for OWF (Ohio Works First) benefits, and “ReliaCards” for unemployment compensation. All of these are reloadable prepaid cards. Unlike GPR prepaid cards, only the issuing state agency can deposit money onto these “benefit” cards.   Those found eligible for these programs get information about the features and uses of these cards when they begin receiving benefits.

             By March 1, 2013, federal government benefit recipients were required to switch to electronic receipt of their benefits, because the U.S. Treasury has completely phased out paper check payments. All recipients of federal benefits must now get their money electronically. If recipients do not have a bank account for direct deposit, then the U.S. Treasury will issue benefits on a Direct Express prepaid card. Only the U.S. Treasury will be able to deposit money onto the Direct Express card.  The Treasury website, http://godirect.org/, has information explaining the features of Direct Express cards.      

This “Law You Can Use” column was provided by the Ohio State Bar Association (OSBA). It was prepared by Linda Cook, senior staff attorney for the Ohio Poverty Law Center in Columbus. Articles appearing in this column are intended to provide broad, general information about the law. For information about a variety of legal topics, visit the OSBA website at www.ohiobar.org. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       I am overwhelmed by credit card and medical debt. Will my wages be garnished unless I file for bankruptcy?

A:        Wage garnishment is a possibility. If you are employed and earn more than minimum wage, a creditor who has obtained a judgment against you can file a wage garnishment. This will take up to 25 percent of your take-home pay, which will be paid to your creditor rather than to you until the judgment is satisfied. It may be possible, however, to avoid both garnishment and bankruptcy.

Q:       How can I avoid a wage garnishment?

A:        There are two options that may give you some breathing room in your budget while avoiding wage garnishment.

            The first option is to enter into trusteeship in the municipal court where the creditor has obtained the judgment against you. The trusteeship requires you to pay to the court the amount that would have been taken by a wage garnishment. This sum would be divided among all of your listed creditors (not including your mortgage and/or car payment), rather than being paid to only the one creditor threatening garnishment.

            The second option is to enter into a debt scheduling agreement with a nonprofit consumer credit counseling agency. In Ohio, Apprisen (www.apprisen.com) is one such nonprofit organization with a number of offices across the state. If you choose this option, a credit counselor would contact your creditors to arrange monthly payments and may be able to convince your creditors to keep interest from accumulating. Creditors are not required to participate in this program, but many of the larger creditors such as banks, hospitals and utilities do participate. Nonprofit credit counseling services provide free initial comprehensive and confidential financial counseling sessions and charge modest fees if a consumer enters into a debt repayment program.

Q:       I am retired and my only income comes from Social Security and PERS from my years as a public employee. If I do not pay my creditors, will I be forced to file a bankruptcy?
A:        No. Your creditors cannot take these funds because they are considered exempt from attachment. (An “attachment” is a court order instructing your bank to pay money from your account to the court.) If your only sources of income are Social Security and PERS (or SERS), you may be considered “uncollectible” or “judgment proof.” If an attachment of your bank account is filed, however, you must request a hearing to show the court the source of your income and that it is exempt from attachment. If you fail to do this, the creditor may be able to keep the money that is attached.

Q:       How can I decide whether I need to file a bankruptcy?
A:        Consult with a bankruptcy attorney or nonprofit consumer credit counseling agency. An attorney or credit counselor will review your specific situation and help you decide the best course of action.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Akron attorney Terry D. Zimmerman of Kaffen & Zimmerman Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       Is using credit cards for holiday spending a good or bad idea?
A:        Using credit cards for holiday spending is neither good nor bad. If you do not pay off your monthly balance in full, then it is no different from borrowing money at any other time of year. The danger is that it is very easy to overextend yourself and incur more debt than you can afford to repay.

Q:       Why do credit card companies seem so willing to extend me credit?
A:        Extending credit is profitable. Each time you use a credit card, you are getting a loan from the credit card issuer. Credit card issuers earn interest on the money they loan you when you do not pay off the entire balance of your credit cards each month.  The rate of interest charged by credit card issuers varies, but it is usually higher than the standard “market” rate.  Credit card issuers earn the most interest when you make only the minimum payment shown on your bills.

Q:       What are the advantages of using credit cards for my holiday purchases?
A:        The first and most obvious advantage of using a credit card is that it allows you to purchase goods and services without having to pay for them immediately.  Most credit cards allow a grace period within which you may pay for goods and services purchased on a card without paying any interest charges. This feature allows you to defer payment for your purchases, keep your funds in your savings account for an additional 30 days, and thereby earn interest on money that otherwise would have gone to purchase goods and services. In this way, purchases in December can be paid in January without costing any interest.

Q:       Are there any disadvantages in using credit cards for holiday purchases?
A:        Yes. If you do not pay off your credit card balance in full within the grace period, you are charged interest from the purchase date until the day you pay off your balance. Also, the interest rate on credit cards is greater than the market rate, so if you make only the minimum payment on your outstanding balances, you pay the maximum in interest while not greatly reducing the principal amount of your debt. If you make only minimum payments, you could still be paying for this year’s holiday when the next holiday season rolls around.

Q:       What happens if I can’t make the minimum monthly payment or pay off my credit cards?
A:        If you have charged beyond your ability to pay, the credit card issuer will take action to collect the debt. The action may be limited to reporting the debt to credit bureaus, increasing your interest rate to an even higher penalty rate, or it may involve taking legal action. If you have incurred debt, you must realize that you cannot simply ignore the problem.
            Most credit card issuers offer an option to make a “minimum monthly payment” on credit card purchases.  As long as you make the minimum monthly payment on time, and you have not exceeded your credit limit, the issuer cannot take legal action to collect the amount due.
            If, however, you cannot make the minimum monthly payment on a given credit card, or you have made late payments or have exceeded your credit limit, your options are limited. A good first step is to contact creditors directly to try to work out a payment plan. Another alternative if you have multiple credit cards is to seek help from a credit counseling service. A credit counseling service will try to help you devise a plan to pay off the debt and to budget your resources, typically for a small fee.
            If consumer credit counseling cannot solve the problem, then it may be time to consult an attorney to determine whether or not bankruptcy is an appropriate solution. You should not take this option lightly. Many attorneys will conduct an initial consultation with you to determine for no charge whether or not you are a candidate for bankruptcy.

Q:  If I charge something on a store credit card and don’t pay the bill, can the store take back what I bought?
A:  This can happen. A creditor (such as a department store, jewelry store, hardware store or electronics store) can enforce a security interest on credit card purchases. For example, if you charge goods with a store credit card but fail to pay for them, the creditor (department store, jewelry store, hardware store or electronics store) may be able to take back the goods.

Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was originally prepared by Canton attorney Anthony J. DeGirolamo and Robert M. Stefancin, a principal in the Cleveland office of Ice Miller LLP. It was updated by Anthony J. DeGirolamo. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.