5 ways to destroy your credit

Posted by CNN Money 7-10-06

Snapping up department store credit cards or skipping out on that parking ticket could send your credit score tumbling.

By David Ellis, CNNMoney.com staff writer

July 10 2006: 3:24 PM EDT

NEW YORK (CNNMoney.com) -- Taking a wrecking ball to your credit rating is probably best likened to striking a match and burning all of the cash in your wallet.

The concept is simple: a bad credit rating means higher interest rates and ultimately less savings for you.

Poor credit can cost you As shown below, a lower credit score could leave you with a higher mortgage rate. FICO Score 30-year fixed mortgage rate 720-850 6.78% 700-719 6.91% 675-699 7.44% 620-674 8.59% 560-619 8.53% 500-599 9.29% Source: MYFICO.COM AS OF 7/10/06

Getting a credit report Consumers have the right to obtain a free copy of their credit report every year from each major credit agency by visiting www.annualcreditreport.com or by calling 877-322-8228. But you will still have to pay a fee to get your scores.

Your credit score, or your FICO score, ranges from the worst possible score of a 300 to a perfect 850, and is determined by such factors as paying your bills on-time, the amount of money you owe as well as the length of your credit history, according to the company Fair Isaac, which runs the scoring system.

But even if you are one of those individuals who is diligent about maintaining your good credit standing, it is still possible that with a few simple missteps you could send your credit score into a tailspin faster than you can say delinquency.

So while closing out those credit card accounts you don't use or rolling over all your outstanding debt to one card may seem like sensible moves, you might actually be killing your credit rating.

Late payments

The easiest way to lower your credit score is through delinquent payments or by skipping out on a bill altogether.

Since your payment history makes up 35 percent of your credit score, failing to make the minimum payment within 30 days of the due date could send your score plummeting, says Craig Watts, a spokesperson for Fair Isaac.

Say for example you've never missed a payment and have a credit score in the high 700s or low 800s. If you were to miss the 30-day grace period, your score could drop by 100 points or more.

"That first delinquency puts you in a different class of consumers," says Watts. "You can make up that 100 points but it will take a lot longer than it took for that score to fall."

High card balances, low FICO score

Maxing out your credit cards or pushing your account to its limit is another surefire way to bring down that FICO score, says Watts.

Experts say that consumers should aim to keep the balance on their credit card accounts no higher than 35 percent of their credit line. That means if you have $1000 credit limit on your card, try to keep the balance no higher than $350.

"The lower your debt compared to your credit limit, statistics show you are a better credit risk and that you have more self-control," says Watts.

That also means you might want to reconsider consolidating all of your credit card debt onto one account, especially if that means the new balance is close to your credit limit.

Closing credit cards

Ok, ok, we know what you're thinking: 'I've got an unhealthy number of credit cards in my wallet, I think I'll start closing those out to help my credit score.' Not so fast, warns Steven Katz, a spokesperson for TransUnion, one of the country's three major credit reporting agencies.

Since part of your score is based on the length of time certain lines of credit have been open, closing out that 10-year old credit card could take a bite out of your credit score.

"It's negative because it's taking away a reference to a positive credit history," says Katz.

And if you are trying to trim down your debt by hopping from one low-interest rate offer to the next, closing cards along the way, Katz warns that kind of behavior could send a message to future potential lenders that you might be a credit risk.

Too many in-store cards

It's always a temptation at the checkout line, but signing up for a Home Depot, Macy's or any in-store credit card just to get a 10 percent or 15 percent discount may work against your FICO score.

Even if you vow to promptly pay them off, opening up several of these accounts in succession could spell trouble for your score because opening multiple lines of credit in short period of time is considered abnormal behavior by credit agencies, according to Fair Isaac, and it suggests that you might be more of a credit risk.

Fines that add up

A $30 library fine or a $75 parking ticket. Who cares, right? Well, that could be changing, says Watts.

More often nowadays, municipal governments are turning outstanding fines over to collection agencies, who have the ability to trash your credit rating if you don't pay up. Watts says that if a collection agency reports you were not able to pay that overdue library fees or parking ticket, that could drop your credit rating by 100 points or more.

"That will hammer your score," says Watts. "Make good on that bill because you don't know who is or who is not reporting to collection agencies."

And while you may think you can't be bothered with those petty fines now, just imagine how much more they'll end up costing you if the collection agency mangles your credit score and you end up with a higher interest rate on that 30-year mortgage.

Oil hits $75.78 - no relief in sight and the Chinese join us as energy hogs

CNN Money reports that oil hit $75.78 /barrel last Friday. So what will we do about it?

Hey, It's not just us any more - tkae a gander at Chinese consumption.

Chinese consumption is growing at about 500,000 barrels a day each year versus growth of about 200,000 in the United States, according to Tertzakian.

By 2030, EIA estimates China will use 15 million barrels a day.

That's no doubt helped by China's new-found love for the automobile. Just Monday a news report said car sales in the country surged nearly 50 percent in the first half of 2006.

But there's more. Growing demand in other developing countries, notably India, the lack of big new oilfield discoveries, and the soaring cost of getting oil out of the ground are a recipe for sustained high prices.

Tertzakian said most people just won't make the necessary sacrifices to significantly cut energy use. Prices would have to rise to a level that would trigger a global economic recession, which itself would reduce demand.

Instead, he said, barring a drop in prices from a recession, people will simply deal with paying more, hobbling along until a new energy source or sources begin to replace oil, a transition process that he said was just starting and could last for decades.

Who wants to bet on recession?

Credit Guide

Mobile Wallet

This just in from CNN MOney.
A growing group of startups and established players like PayPal, MasterCard (Charts), and Cingular are betting that the cell phone is about to become king of small, on-the-go, cashless transactions. Total worldwide mobile payments will reach $24 billion this year and $55 billion by 2008, according to technology analysts at Celent.

Credit Guide

Bankruptcy Document Review


Chapter 7 and chapter 13 require even more paperwork since the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005. Failure to file the correct documents can result in your case being dismissed, so make sure to have an attorney at least review your documents.

The information to take when consulting your bankruptcy attorney is the same as that for bankruptcy chapter 7 Most of the documents required are also the same:
Bankruptcy petition
List of creditors
Schedule of your assets and liabilities
Schedule of your current income and expenses
Statement of your financial affairs
Certificate from your attorney or bankruptcy petition preparer (if there is one) stating you have received a notice describing the bankruptcy chapters and services available from the required credit counseling agency as well as a statement specifying that anyone who knowingly or fraudulently conceals assets or lies under oath is subject to fine, imprisonment, or both. If no one helped you prepare your petition, you must file a certificate that you received such notice from the bankruptcy court and read it.
Copies of all pay stubs you received with the 60 days before filing
An itemized statement of your monthly net income showing how it is calculated
A statement listing any reasonably anticipated increases in your income or expenses for the next 12 months
If you have property that secures a debt (usually a home and/or car), a statement of your intention with regard to the treatment of the property in bankruptcy
A certificate from an approved credit counseling agency that describes the services provided and a copy of your debt repayment plan (if any) developed by that agency
A record of any interest you have in an individual retirement account
Income tax returns for the past four years
An analysis of the means test
In addition to these documents, you will need to submit a plan that shows how much you will pay your creditors and over what length of time. The plan must show that you will pay creditors at least what they would receive under chapter 7 bankruptcy. This basically means your creditors must receive payment equal to the value of your non-exempt assets. This value is what the asset is worth at the time you file bankruptcy.
Your repayment plan must also show that you contribute all of your disposable income to debt repayment. It's usually income left over after your provide for support for you and your family, but it many cases, that amount is determined by a means test. The means test involves income averaging for the past six months and then deducting allowed expenses. It is complicated, so you might wnat to leave it to your bankruptcy attorney.

Read more about the new requirements at the bad credit resource site http://www.badcreditovercome.com

Credit Guide