Do You Have Credit Problems?

Are you worried about your credit history? Just about everyone has something in their past credit that is less than perfect. The most important thing is to learn what is on your report, determine what impact that information has on your credit rating, and work on repairing and restoring any damage that may have been done.

Mortgage loan options are rated by credit, labeled like school grades - "A" credit is the best, then down to A-, B, C, etc. Even if you do not have an A credit rating, we can let you know what your options are if you fall into an A- or lower category. The rates are generally going to be higher, and may require a down payment. If you determine that you are not satisfied with this type of financing, then together we can map out what you need to do with your credit and finances for the next six to twelve months in order to qualify for an A credit loan.

To get started with your loan, please call me at 1-888-EZ2Apply (1-888-392-2775); or Click here to e-mail your request.

REPAIRING YOUR CREDIT NOW

DISCLAIMER: Although the author/publisher has made every effort to ensure the accuracy and completeness of the information herein, neither shall be liable for errors, omissions, inaccuracies or inconsistencies. Nor is it the intent to act as legal counsel. Results may vary according to the amount of effort and time utilized.

The following is a step-by-step method to erase bad credit. Later you will learn how to replace bad credit (or no credit) with AAA credit in as little as 90 days. That will be followed by a discussion on how to protect your credit, and use credit wisely and profitably.

This is the same method used by attorneys and credit consultants with three exceptions:

1. It isn't going to cost you hundreds of dollars;

2. It covers more options; and

3. By doing it yourself you will learn a lot of valuable things.

To begin, you will need a current copy of your (3) credit reports. It is important to note that there is more than one credit reporting agency, so make sure you get a copy from each. Some creditors may report to one agency but not another. Just because something doesn't show up on a credit report from one bureau doesn't mean it isn't on report at another.

There are three ways to get copies of your credit report. One way is to pay the fee required by the reporting agency. The second is to apply for credit and get turned down. Within 30 days of being turned down for credit you are entitled to a free copy of your credit report. However, applying for credit and getting turned down shows up on your report as an inquiry that did not result in credit. It is a small black mark that stays on your report for one year. To avoid this, it may be better to pay the fee. The credit agency will require ALL of the following information: FULL NAME, ADDRESS, SOCIAL SECURITY NUMBER, DATE OF BIRTH, SEX and OCCUPATION/EMPLOYER. The third way to get your credit report, including all three of your FICO scores is to order it from www.myfico.com

The three major credit bureaus are:

Equifax
Order Credit Report: 800-685-1111
Report Fraud: 800-525-6285
http://www.equifax.com/

P.O. Box 105518

Atlanta, GA 30348

Experian
Order Credit Report: 888-397-3742
Report Fraud: 888-397-3742
http://www.experian.com/

P.O. Box 2002

Allen, TX 75013

Trans Union
Order Credit Report: 800-888-4213
Report Fraud: 800-680-7289
http://www.tuc.com/

2 Baldwin Place

P.O. Box 2000

Chester, PA 19022

Once you have copies of your credit profile, check all the personal information (name, address, etc.) to make sure it is accurate. Note any changes that need to be made. Understand that recent address changes or changes in employer may result in being turned down for credit, so every item on your credit report is important.

Before going further you may need to learn how to "read" a credit report. Credit bureaus use codes, and the following is a sample of these codes and what they mean:

Who is Responsible for the Account

J = Joint Account
I = Individual
T = Terminated
M = Maker(signer)
C = Co-Maker
U = Undesignated
A = Authorized User
B = On behalf of another
S = Shared

Type of Account

O = Open account (30 or 90 days)
R = Revolving or option account (open-end)
I = Installment Account (fixed number of payments)

Current Method of Payment

O = Approved, but too new to rate
1 = Pays account as agreed
2 = Pays (or paid) after 30 days of due date but before 60 days, not more than one payment due at any given time.
3 = Pays in more than 60 days, but less than 90, or two payments past due.
4 = Pays in more than 90 days, less than 120, three payments past due
5 = Pays in more than 120 days.
7 = Making payments under wage-earner plan or similar arrangement.
8 = Repossession
9 = Bad debt, placed for collection; written off

These symbols are often combined, such as R2, which means it is a revolving account and has been at least one payment late less than 30 days. Often each payment is recorded, showing if it was late, how late, by how much. Your objective, then, is to get all R1's or I1's. Understand that credit bureaus are not responsible for what is on your report. Their only function is to provide the information to creditors that is provided to them. It is your responsibility to see that your report is accurate. Check it at least annually and make any necessary corrections. It has been estimated that at least 25% of all credit reports contain inaccurate information that can cause credit problems. It is not unusual for accounts to appear that you never had. So check your credit report thoroughly and often. If you do not, you will have no one to blame but yourself.

Now that you know what is on your report, the next step is to list the names and account numbers of every derogatory item on your report, even if it is valid and true. Write a letter using these guidelines: State that you have reviewed your profile and found certain items you believe to be in error. List all bad items by name and account number. Request they investigate these items as they are highly injurious to you. (Use the words HIGHLY INJURIOUS.) List discrepancies in the personal information first, and provide the correct information, then list the accounts. At the end of the letter state that these items do not agree with your records and you wish to have them removed immediately if not substantiated. Also state you want an up-dated copy of your report issued to you showing any changes made.

Note: at the beginning of the letter be sure to include all the personal information you provided when you requested your credit report.

Also, if possible, choose a busy season to send your letters. Many businesses will be too busy to respond to the credit bureau during busy holiday seasons.

When you mail the letter be sure to send it registered mail. Always register any mail to any credit bureau or creditor, and always keep a copy of your correspondence to them for your own records.

Once the bureau receives your request they are required by law to contact the creditor who listed each contested item and ask for substantiation. If the information is not true, the creditor will not be able to substantiate. The real beauty of this, however, is that many creditors will not bother to respond. Either they no longer have the record handy, or they are busy, or the letter got lost in some pile, or maybe they really just don't care. Whatever their reasons, if they do not provide documentation to the bureau within a reasonable time (usually 30 days) the credit bureau is required by law to remove the item from your report.

If you do not receive an up-dated copy of your record within 45 days, send a registered letter requesting the up-date, stating the date you had disputed some items. Again be sure to include all personal information, as this is how they locate your report. When you have the up-date check it against the original and note the differences. You should find that many, if not all derogatory items have been removed.

If any remain, do not despair - you have just begun. To remove any items that are still plaguing you, your next step should be a repeat of the prior one. Send another dispute letter stating you still believe these items are in error and to please investigate again. This time when the bureau contacts the creditor, the creditor may not respond this second time. Why not? Perhaps he thinks it is a duplicate request sent by mistake. Or perhaps he will just say to heck with it - he responded once and simply will not waste any more of his time. Or maybe the letter gets lost in the Incoming pile, or he is busy, or...

Whatever the reason, he may not send documentation a second time. If not, the item is removed from your report.

Again request an up-dated copy showing any changes. When it arrives, check it thoroughly. If any bad items still remain, you have other options at your disposal, including:

Offer the creditor a cash settlement provided he removes the item from your report, or has it marked "settled". Your first cash offer should be 50-60% of the amount claimed. Even if you settle at 80% you are still ahead of the game, and the creditor at least gets most of his money. All he loses, really, is the profit margin on the item you bought on credit.

Offer to pay the amount in full, in monthly payments you can afford. The written agreement should include that, after 3 on-time payments, the creditor will re-write your account and mark the old account "settled" on your report. Then, when you make the payments on time it shows up on your report as a GOOD reference.

If necessary, and if you can afford it, offer to pay the debt in full, provided the creditor immediately notifies the reporting agency that the account has been paid in full.

If you cannot get the creditor to work with you, you still have a powerful weapon left. This is where keeping copies of registered letters will pay off. You have a legal right to enter a 100 word statement showing proof that you made attempts to settle this account but the creditor refused. If the debt truly is not owed by you, the statement can be used to prove you do not owe this account. The statement is attached to your report and issued to every creditor who checks your credit. You may also request that a copy be sent to every creditor your report was sent to in the last 90 days. Often, your honest account, accompanied by documentation, will convince creditors that you are a good risk.

There you have it - credit repair made easy. Now on to restoration - improving your credit report.

UPGRADING YOUR CREDIT TO "AAA" IN 90 DAYS

You may have noticed that some credit accounts you have had in the last few years did not show up on your report, even though you paid them off on time. This is because some creditors do not bother to report, especially smaller businesses, because they have to be a member of the bureau and/or pay a filing fee. If you can document such accounts and the payment history you can have the credit bureau add them to your profile, giving you "better credit".

Now to create a small miracle - getting three banks to state that your credit is "AAA" and place this on your credit report. Make sure you choose three banks that have PASSBOOK accounts. Go to bank 1 and ask for the smallest personal loan they allow - usually $1000. Tell the loan officer you do not want the money - you are simply trying to establish credit. You would like the money placed in a passbook account in their bank. They hold the passbook so the account is collateral for the loan. Your loan is 100% secured so there should be no problem. Do the same thing at bank 2 and 3. You now have three loans and three passbook accounts. Just make sure you try to get all three loans on about the same day so that your loan applications can honestly say you do not have any other loan obligations.

In three weeks, make the first payment on each loan. Three weeks later make the second payment on each. At this time your payments have freed up a proportionate amount of your passbook accounts which you can now withdraw. In three weeks use this money to pay the third payment on each. Withdraw the amount freed up and in three more weeks make payment 4. Continue doing this until the loans are paid in full. In about 90 days from the origination date of your loans you will have made four payments on all loans, all payments made early and you are even one payment ahead on each. Ask your banks to post your payment history on your credit report if they have not already done so. You will then have three banks listed on your report, all showing perfect credit with them. These references alone should be enough to get you nearly any credit card you want.

You now have excellent credit. Use it wisely, and guard it with your life, using the following information...

The importance of good credit cannot be over-emphasized. In today's society credit is no longer a luxury. It is essential for growth and prosperity.

Understand this very important fact - only 5% of the entire wealth of the world is ever printed as currency. The remaining 95% exists only on computer chips, in the form of credit. So, if your credit is not good you do not have access to 95% of the world's wealth. This limits your plans for financial security drastically.

America is rapidly becoming a two-class society in which persons without good credit (nearly 60% of the population) are treated as second-class citizens. You need not suffer as a second-class citizen, however. By following the strategies in this manual you can erase bad credit and (re)establish AAA credit, quickly and easily.

Understand, however, that this is only the beginning. Once you have good credit the real work begins. You will have to act responsibly and with self-discipline to maintain good credit. It can be a formidable battle unless you know more about what credit is, how to use it properly and how to avoid credit traps. For this reason we will first discuss these important topics before delving into the actual methods of restoring or establishing credit.

AVOID IMPROPER USE OF CREDIT

When I was a boy my parents did not believe in using credit - everything was "cash on the barrelhead." Needless to say our family did not have access to many of those nice little pleasures that make living more enjoyable. When I left home, I was determined to "have it all", and enjoy all those things I had missed out on. This, of course, required good credit, but because of my early home life I knew little about credit. In a very short time I owed everyone except you. I had dug myself in so deeply that bankruptcy looked like the only way out. But I still yearned for the "good life" and was smart enough to know that a bankruptcy could short circuit my attempts to attain that lifestyle I so desired. That is when I decided to take more positive action. I set out to learn all that I could about credit, finance, laws that protect the consumer and all the little "secrets" of finance. And much of what I learned was surprising - most of what the average person "knows" about finance is absolutely misleading. I soon discovered that the reason only 4% of the population ever achieves financial security is because 96% of the population have false conceptions about finance.

Once I had learned as much as I could, I had myself out of trouble in a few short weeks, then spent the rest of my life learning even more. Later, in teaching others to do what I had done I soon learned it was a waste of time to teach someone how to get out of financial trouble without also showing them how to stay out. On that note, let us proceed to learn a few basics.

First, you should learn what money really is. Frankly, it is only a tool; a convenient medium of exchange. Of itself, it has no value - the value is perceived by those who covet it, and its value constantly changes. Money is forever moving, never staying in one place. Even when you put it in the bank it continues to move, being used to supply loans and feed investments. Therefore, the trick to amassing wealth is not to see how many dollars you can get and keep. Rather, you must learn where the money is going, and position yourself to be there to let it pass through you on its way around the world. The better you position yourself, the more money flows through you. A wealthy person is simply a conduit for money - a lot comes to him, and a lot goes from him. In the process, large amounts are constantly in his possession.

If you can understand that concept it is time to learn the "Guns & Butter" theory. Years ago, before the advent of commercial credit life was much simpler. With a little luck you earned a living, then made purchases with those earnings, according to your needs. As is still true today, about 96% of the people would spend most or all of their earnings to get the things they needed, and the rest on little luxuries. (The big difference today is that now we spend it before we earn it.)

These expenditures on the little "extras" would serve to keep these people living on a day-to-day basis, with little saved for the future. Since these "extras" were used to add a little flavor to life they were referred to as "butter" items. Unfortunately, butter gets used up and needs to be replenished regularly, which keeps draining the persons' resources. One day, when these people grew old, they would have nothing - nothing was saved to make up for income lost through old age or poor health, and the "butter" items had been used up. The other 4% of the people were a little different. They did not spend their "extra" cash on butter. Instead, they went without these little pleasures and bought guns and powder. They believed that, if worst came to worst, they could always hunt for food. The guns gave them power and security.

Now I ask you: if you buy butter, can that butter sustain you for the rest of your life? However, if you have enough guns you can get all the butter you want.

The point is: the only difference between the "haves" and the "have-nots" is that the "haves" use their cash sparingly, using their extra cash to invest in their future security. Before long, with steady investing, the "haves" can earn a comfortable living just from their investment income, and no longer worry about financial matters, thanks to the magic of compounding interest. Now, these people not only can get all the butter they want, they can get all the butter that ordinary folks could never have. They know that if a person is willing to do for a few years what most people are unwilling to do, they can spend the rest of their lives enjoying the things others never can. In short, they give up the weekly pizza. Instead, they invest the money until, eventually, they can afford to own the pizza parlor and get all the pizza they want, whenever they want.

Now that you have a better understanding of the basics involved, it is time to discover how credit fits in. First understand that you cannot provide for tomorrow's security by spending tomorrow's income today, unless that income is invested, rather than spent. In short, a wise person uses credit only when there is a profit to be made in using it. After all, if you are going to pay 18% interest on the money, you really should be making more than 18% from it. If not, you are losing money - your money, your future income, your future security. When you use credit you are selling your future income at a discount (because you pay interest for having the money now.) This is no way to generate wealth for yourself.

Credit is the most valuable tool in the world today. Cash doesn't even come in a close second - but knowledge does. With credit you can obtain just about anything, including investments that will create even greater wealth. Knowledge allows you to make the right choices. For example, for just a few thousand dollars down you can take advantage of the appreciation and tax advantages of owning a house. You control $100,000 worth of real estate (and profit from the entire $100,000) while only investing a few thousand.

Without the right knowledge, however, you can never hope to make the financial system work for you. When 96% of the population fails to achieve financial security it is not due to a lack of money - again, money is only a tool. Rather, they suffer from a shortage of knowledge that could have helped them to amass wealth. Understand this important concept:
Achieving wealth has nothing to do with collecting dollars, nor is it connected to how much you earn. All that matters is how you use what you have.

I know people who earn over $100,000 a year and still live from paycheck to paycheck. I also know people who earn less than $12,000 a year who are regularly investing in their future and will someday have financial security. So do not use the excuse that you just don't make enough money. Fortunes can be built on very little seed money, and if you really have what it takes to achieve wealth, you will find a way.

RULES OF WISE CREDIT USE

In using credit, a few simple guidelines will give you a definite edge. These rules are not cast in stone, but staying close to them will increase your ability to prosper from credit rather than being eaten alive by it.

1. Credit should never be used for purchasing perishables such as gas, food, airline tickets or meals out unless you are certain you will pay it off with your first statement, to avoid interest charges. A good idea is to deduct the money from your checking account at the time of purchase, as though you had already spent the money, because you have! Then, when the statement comes due you should already have the cash in your account to pay it. There are few things worse than having to pay for something you do not still have, so avoid using credit for perishables.

2. Credit should be used sparingly for depreciables such as cars, boats, furniture, etc. Always make the largest down payment possible and finance the balance for the shortest period of time that you can to reduce excessive interest and a long-term drain on finances. Realize that you are banking on future income - income that is never guaranteed, because no one can predict the future.

3. Credit should be used as often as possible for the purchase of appreciables that increase in value, provided the investment is a wise one. Real estate, discounted mortgages, silver or gold coin are examples. This is called "constructive debt". For example, borrow $2000 for one year at 12% interest and use the money to invest in a tax-deferred IRA. If you are in the 28% tax bracket you immediately save a few hundred dollars on taxes - $560 to be exact. Invest your IRA in a no-load mutual fund that earns about 15% and you make an additional 3% for the term of your loan. Your interest from your fund pays the interest on your loan, with cash to spare. The $560 tax savings gets you an IRA worth $2000 for just $1440. Each additional year you hold the IRA you make the 15% interest, tax-deferred. This creates wealth, particularly if you do it every year.

4. Credit card debt is the most expensive kind of debt due to high interest rates and annual fees. It is also the easiest to be victimized by. Use great caution, pay the bill in full when you receive the statement and use cards that have the lowest interest rate.

5. At no time should your consumer debt (excluding mortgage) exceed 20% of your income. If it does, you are in trouble, financially. If you cannot get or keep your consumer debt to within 20% of your income, get a copy of the Winfonet manual "REDUCE DEBT PAYMENTS IN 21 DAYS". This manual, among other things will show you how to get your debt payments down within 20%, painlessly.

To help you keep your perspective on credit, consider: $10,000 cash can leverage $100,000 worth of investment, such as a house. If the investment earns 15%, that is $15,000 a year. But only $1,500 of that is being earned by your $10,000 cash (10%). The rest, $13,500 is being earned by your $90,000 worth of credit - money that wasn't even yours!

It may help you to refer to consumer debt as "DIG" debt. DIG stands for "Debt for Instant Gratification". It means you want to collect now on income to be earned later (or so you expect). This means that you can be caught short by anything that may cut future income - lay-offs, disability, illness, etc. DIG debt, true to its name will dig a hole for you from which there is no escape unless you are careful, and use it wisely.

One more thing: credit can be used to save money, too. Let's say you plan to buy a $400 stereo with next month's income tax refund. However, Bob's T.V. shop has that same stereo on sale, this week only, for just $320. Buy it on credit and save $80, provided you keep your promise to yourself to pay it off in full with your tax check, to avoid interest charges. The $80 you save could then be invested at 15%, building even greater wealth for your future. Remember - all large fortunes began as small fortunes, and every small fortune begins with pennies. Save your pennies, invest them wisely and wealth will grow, slowly, at first, but surely.

REDUCE CONSUMER DEBT PAYMENTS IN 21 DAYS

The single greatest financial problem that many people face today is not so much a lack of sufficient income as it is an overload of debt payments.

Remember this cardinal rule of finance:

IT IS NOT HOW MUCH YOU EARN -
IT'S HOW MUCH YOU CAN KEEP!

Answer this question: If your monthly consumer debt payments (loans, credit card debt, past due accounts) were only 20% of your take home pay, would you be on solid ground? If the answer is "yes", then you are earning enough to live on. If the answer is "no", then you need to earn more, or make cuts elsewhere in your budget (you DO have a budget, don't you? Most people do not, and that is part of their problem. Most budgets can be trimmed by about 20% without much cramping of one's lifestyle. You'd be surprised how much we all spend, carelessly, nickel and dime-ing ourselves to death.)

Assuming your debt payments are in excess of 20% of your take-home pay, let's start from the top and begin bringing these payments into line. Bear in mind that a healthy budget is based on the 10-20-30-40 rule:

• 10% of income should be paid to you, as savings and investment

• 20% of income should be cover consumer debt (loans, etc.)

• 30% of income should cover shelter expense

• 40% of income covers medical, clothing, and other expenses

If shelter is more than 30%, the excess should come from the 40% for other expenses. It should NEVER come from the 10% you pay yourself.

Therefore, we will try to help you bring consumer debt to 20% of your income. The savings, shelter and other expenses are up to the individual.

In no case should consumer debt - loans, credit card balances, car payments, past due accounts - exceed 20% of your take home pay. So the first step is simple - figure out what 20% of your take home pay is. Multiply your WEEKLY take-home pay by 4.3 (the actual number of weeks in a month), then multiply that figure by .20. For example, if your weekly take home is $300, your monthly take home is $1,290. Multiplied by .20 and the amount available for consumer debt payments is $258 per month. This is ALL that you should be paying in consumer debt with this income level. (We will use this income example throughout this manual.)

Before proceeding, it is important to understand your creditors and their needs. Most are more than willing to work with you, provided you communicate with them. Talk to them - tell them what you are doing, why, how and that you are trying to remain solvent for everyone's benefit (if you go bankrupt, they lose, too.) Keep them up to date of any changes in your financial status. NEVER leave them to "wonder", because they will assume the worst.

Now...

If you suffer from major credit card debt, you must reduce it. Credit card debt is the most expensive and most destructive type of debt. It is also the most difficult to reduce. Here are some suggestions:

Call your credit card company and ask to have the interest rate reduced. About 1/2 of those who ask, actually get the rate reduced by up to one-third

I

f you own a home, consider an equity loan to pay off your credit cards and other debts. The interest rate will be lower, and the payments spread out over years, reducing the payments considerably.

If you do not own a home, consider a bank loan for debt consolidation.

If these fail, try to locate a low-interest credit card. Apply for it and transfer all other credit card debts to it. This will consolidate your debts, and reduce the cost of interest, which is the real problem.

The last known way is hard to do, but if all else fails, you MUST do it, no matter how much it hurts. It is a two-step plan:

1) Put away all credit cards. Do not use them again until you have your debt under control.

2) Pay $25-$100 per month OVER the minimum balances, every month. This is the ONLY way to reduce credit card debt and avoid the high interest charges. If you have to go without a few things, or alter your lifestyle for now, then do so. If you need a temporary second job to do it, then do it. Whatever it takes, it MUST be done. This is the HARDEST part of reducing your debt. After this, the rest is easy.

The first thing to note is that you must come up with a viable, fair plan for paying off all creditors in an equal manner. Otherwise, they will refuse to cooperate. With a solid plan, they will see that you are being financially responsible. Your plan will be nearly identical to that which a Chapter 13 bankruptcy court would order, without the stigma of a bankruptcy on your record.

Get out pencil and paper - you'll be doing some math. Ready?
 

Now, list all your consumer debts, including any PAST DUE amounts, on utilities, etc. Although utility bills are not consumer debt, they BECOME consumer debt when the balance is PAST DUE.

Your list should include (a) the creditor's name, (b) the monthly payment,(c) the number of payments remaining, and (d) the TOTAL amount owed on each debt.

At the top of the page, write down the TOTAL of all monthly payments. (If you have PAST DUE accounts, the total due on each one should be divided by6 to determine the monthly payment on that balance, as all past due's should be paid up within 6 months. The total of these payments should be included in the TOTAL of all monthly payments.)

Now, write down the amount you have available for consumer debt (20% of monthly take home pay). DO NOT INCLUDE INCOME YOU CANNOT COUNT ON, such as alimony, overtime etc.

Now, subtract the TOTAL OF MONTHLY PAYMENTS from the TOTAL OF MONTHLY INCOME available for these payments. If you have enough to pay the payments, then the consumer debt part of your budget is in order. Your financial difficulties must be coming from elsewhere. If, however, the answer is in the negative, then the payments must be reduced, and here is how we will do that.

Determine what percentage of your total consumer debt is represented by each payment. For example, if your total monthly consumer payments is now $300 and the debt payment to ACME Finance is $75/month, that payment represents 25% of your monthly debt ($75 divided by $300 = .25) Use this formula to determine the percentage that each payment represents of the total. Write each percentage next to the name of the creditor on your worksheet.

Now, multiply each percentage by the actual amount available for consumer debt (the 20% of take home pay) to determine the amount you SHOULD be paying on each debt every month. For example, using the income example shown earlier that allows $258/month for consumer debt, the amount you SHOULD be paying ACME Finance is $64.50/month (25% of $258) Write the adjusted amounts beside the name of each creditor. In the event that a payment is already smaller than they should be, that's great! Just leave it as it is. This will leave you extra money in your pocket every payday.

You should now have a list of your creditors, how much you are paying them, what percentage their payment represents of the total, what you have available for debt and how much each payment SHOULD be for you to become financially sound. Believe me, your creditors want you to be on solid financial ground as much as you do. That is the only way they can get paid AND perhaps get more business from you in the future.

Add all the amounts you SHOULD be paying. The total should not exceed the 20% you have available. Now, we have to get your creditors to accept these payments. Remember, they want you to be on solid ground. They want to get paid. They want to know that they are being treated fairly with all other creditors - no favoritism. That's why you will neatly type up the schedule that you now have, showing each creditor your plan to repay everything, treating each creditor equally. Most, if nor all creditors will accept your plan, as it shows responsibility and a willingness to communicate with them. For those who do not accept it, there are ways to deal with them.

Contact each creditor whose payment must get smaller. See them in person, by appointment, and go over the schedule. Let them know you are sincere, and that you will make each payment in a timely manner each month, AND KEEP YOUR WORD! If your plan is solid, workable and fair, you should have no problem, and your debt payments will be reduced to the 20% level almost immediately.

If you run into a hard-nosed creditor that won't budge, remind him that if this plan cannot be followed, you will have no choice but to file bankruptcy and he will get little or nothing. They will also lose a future customer forever. If this doesn't soften them up, don't worry. There are still ways to deal with them. Simply send them a letter similar to the one that follows, send via Certified Mail, Return Receipt Requested (remember to keep a copy for your records in case you have to prove you made reasonable efforts to work with the creditor. It is rare for a court to find fault with a well-planned schedule of repayment that is equitable for all creditors):

(SAMPLE LETTER OF INTENT)

ACME Finance Company
13 Lost Buck Lane
Wastemoney NY 11111

Re: proposal offered on 10/09/04 (copy enclosed) Acct. # 34567-A

Dear Mr. Buckgrabber:

Due to economic stress in my finances, I requested your cooperation in adjusting my payments to you to be more in line with my income, as indicated in the enclosed copy of the schedule. Without full cooperation of all creditors I will become insolvent, and all my creditors will lose.

The plan I submitted to you is fair and equitable to all parties concerned. Still, you have refused to cooperate in this matter.

Although I understand your position, I must take whatever steps are necessary to protect the interests of both my family and my other creditors that have agreed to accept the new payment schedule. I cannot permit one creditor to place me into insolvency so that all others are jeopardized, nor would it be fair to pay each of them less than a fair share simply because you insist on preferential treatment and exception to the plan. Therefore, I have decided to implement the plan in its entirety, as written. You will receive $______each month for ____ months until my entire indebtedness to you is paid in full in accordance to the plan. At that time, all my business with your company will cease and not be renewed at any future time.

I realize that you may take legal action in this matter, but my records and copies of all correspondence with you in this matter will prove to the courts that I am acting responsibly, and with justice.

Sincerely,

(name and address)

This should take care of your consumer debt difficulties.

Four Credit-Scoring Myths

Looking to buy a house? Make sure you know what will truly hurt and help your case.

If anyone gives you any of the following advice, don’t believe them.

Closing accounts can help your credit score
No, no, no. For the umpteenth time: Closing accounts can never help your credit score, and may hurt it.

Every time I write this, I get more e-mail from people who say their mortgage lenders told them exactly the opposite. It’s true that having too many open accounts can hurt your score. But once you’ve opened the accounts, you’ve done the damage. You can’t repair it by shutting the account, and you may actually make things worse.

The credit score looks at the difference between your available credit and what you’re using. Shut down accounts, and your total available credit shrinks, making your balances loom larger, which typically hurts your score.

The score also tracks the length of your credit history. Shutting older accounts can also make your credit history look younger than it actually is, which can hurt your score.

Of course, credit scores aren't the only thing lenders look at when making decisions. They typically consider other factors, such as your income, assets, employment history and credit limits. Mortgage lenders in particular might look at your total available credit and ask you to close a few accounts as a condition for getting a loan.

But if your goal is to improve your credit score, you generally shouldn't close accounts in advance of such a request. Instead, pay down your credit card debt. That's something that actually can improve your score.

Checking your FICO score can hurt your credit
Unfortunately, I heard this one from a mortgage broker who is otherwise pretty smart. He was confused about which type of inquiries hurt your score and which don’t.

Applying for new credit is generally what hurts your score. Ordering a copy of your own credit report or credit score doesn’t count. Those mass inquiries made by credit card lenders, who are trying to decide whether to send you an offer for a pre-approved card, also aren’t going to hurt you, either -- unless you actually take them up on their offers.

If you want to minimize the damage from credit inquiries, make sure that when you shop for a mortgage you do so in a fairly short period of time. The FICO score treats multiple inquiries in a 14-day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed.

For most people, one inquiry will generally knock no more than 5 points off a score (and scores typically run from 300 to 850, so that’s not a big percentage).

Credit counseling will hurt your score as much as a bankruptcy
The current FICO formula ignores any reference to credit counseling that may be in your file. That’s been true for the last three years, after researchers at Fair, Isaac, the company that created the FICO scoring system, noticed that people getting credit counseling didn’t default on their debts any more often than anyone else.

Your ability to get a loan could still be hurt by credit counseling, however. Your current lenders may report you as late, because you’re not paying what you originally owed or because your credit counselor isn’t sending your payments in on time. Late payments do hurt your credit score.

Lenders consider other factors besides credit scores in making their decisions, as well. The factors they look at can vary widely. Most want to know your income, for example. Some want to know how much savings you have or whether you’re a homeowner. Some will find credit counseling disturbing, while others see it as a good sign.

The mortgage lenders who don’t like credit counseling generally treat its enrollees the same as if they had filed for Chapter 13 bankruptcy. Chapter 13 is the kind of bankruptcy that requires a repayment plan and is looked at somewhat more favorably than Chapter 7, which allows you to erase many of your debts. You might still be able to qualify for a loan from one of these lenders, although your interest rates will almost certainly be higher than if you had perfect credit.

If you plan to get a mortgage soon, and you’re not already behind on your debts, it’s probably smart to steer clear of credit counseling. If you’re already in trouble, however, a good credit counseling agency might be able to help you get back on track.

Your FICO isn’t the only score you need to check
This came from lenders who thought the FICO score is offered by only one of the three credit bureaus: Equifax.

In reality, all three of the bureaus offer FICO credit scores using the formula developed by Fair, Isaac, but they each give the scores a different name. At Equifax, the FICO is known as the Beacon credit score. At TransUnion, it’s called Empirica. At Experian, it goes by the unwieldy title of “Experian/Fair, Isaac Risk Model.”

Complicating matters further is that you’ll probably have three different scores from the three different bureaus, largely because the bureaus don’t all share the same data. One bureau may list more accounts for you than another, for example, and the differences (in types of accounts, payment histories, credit limits and balances) will be reflected in the score that bureau computes for you.

Because of those differences, it does make sense to pull and examine your credit reports from all three bureaus before you apply for a big loan like a mortgage. Many mortgage lenders take the middle score from the three bureaus when making their decisions, so fixing errors in all three reports before you shop for a loan is smart.

You can get all three of your FICO scores from myFico.com.

But the ways you improve your credit score are the same in any case: Correct errors. Pay your bills on time. Pay down your debt. And apply for credit sparingly.