Cleveland Bankruptcy Lawyer Blog

You live in Ohio, perhaps Cleveland or Akron. On a random Tuesday you get a credit card offer in the mail, probably one of dozens you get regularly. The card promises a great rate on balance transfers so you decide to apply online for a "sixty second decision." You wait anxiously for what seems like far more than sixty seconds while staring off into space and thinking about what you will use your new card for. Sadly, when you look back at the screen you see a notification saying "I'm sorry, you could not be approved at this time."

Time to check your credit score and find out why. For information on where to get your credit report, check out this earlier blog entry Ohio Credit Concerns. Next, when you get your report, you will need to know what is bringing down your all important credit score.

The most widely used credit score is a "FICO score," named after the Fair Isaac Corporation that created it. The FICO score is a three digit number (ranging from 300 to 850) intended to gauge a person's creditworthiness when they apply for credit.

The FICO score, according to Fair Isaac Corporation, is composed of several different factors that are weighted as follows:

• 35% is based upon timely payment to a lender that reports to one of the three
major consumer credit bureaus.
• 30% is based upon the amount you owe or the amount of available credit you
have vs. the balances you carry (i.e., if your credit cards are all “maxed-out” this
part of your score will be low).
• 15% simply reflects the length of your credit history, with a longer history being
preferable because it shows lenders your track record.
• 10% represents the type of credit used, such as student loans, credit cards, car
loan, mortgage, etc.
• 10% represents new credit, how many accounts you've applied for and/or
opened recently.

If you are denied credit, you will be mailed a written statement citing the reasons you were declined. The notice will also state that you can obtain a free credit report and you should take advantage of the opportunity to review your credit report. When you do, use the information above to see what you can do to improve your score. You should also check for any inaccurate information such as accounts that are more than seven years old that should be removed, closed accounts that are still being reported as opened, or information that does not pertain to you. In general, it is a good idea to review your credit report at least once a year so you are not unpleasantly surprised when you need credit. You can obtain a free credit report once a year at AnnualCreditReport.com.

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Posted In: Consumer Credit & Credit Reporting

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Ohio, like most of the nation, is likely to see an continuing rise in the number of mortgages in default in 2009. The Wall Street Journal reported that nationwide, the number of defaults is expected to rise from 4.67% in 2008 to as high as 7.17% in the fourth quarter of 2009. Adjustable rate mortgages are mostly to blame. Many of the notorious "teaser" rates that lured homeowners and new buyers in are expiring, causing the loan to adjust to a higher interest rate and a new higher payment that the homeowner can no longer afford. The Journal reported that there are a lot more loans that will reset in 2009 through 2011, so the level of defaults is likely to continue to climb for several years. Unfortunately, even when the economy rebounds it will take some time for consumers to respond. This is because even if business improves or an unemployed consumer finds a job, it will still take time to build up the funds to start repaying.

If you are in an adjustable rate mortgage and are no longer able to make your payment there are options available. If you decide you are simply unable to afford the mortgage and your situation is not likely to improve, you can use a Chapter 7 bankruptcy to cancel the mortgage, return the house to the lender and end your responsibility for payments on the first mortgage as well as a second mortgage or home equity line of credit. If you have significant equity in your house and would like to keep it, but need a way to catch up on payments that have fallen behind and prevent foreclosure, a Chapter 13 bankruptcy will help. If you are behind on your mortgage or your mortgage has adjusted and you are no longer able to meet your payment you should contact an experienced bankruptcy attorney right away to discuss your options.

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Posted In: Consumer Credit & Credit Reporting , Foreclosure

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In July of 2010, Ohio credit card holders will see some changes that may help them bring their credit card debt under control. On December 18, 2008, the Federal Reserve Board approved rules designed to help protect credit card holders from the unfair acts and practices employed by many credit card companies. The changes are also aimed at making credit card statements and billing practices more straight-forward and easier for customers to understand. The changes were adopted under the Federal Trade Commission Act. Along with other changes, the rules will:

• Forbid banks from imposing interest charges using the confusing “two-cycle” billing method (a method of calculating a customer’s average daily balance by using two billing cycles instead of one. This typically causes finance charges to be higher and eliminates grace periods for customers that carry a balance. In this method, if the bill is not paid in full at the time of the first billing, interest becomes retroactive all the way back to the first purchase date).

• To stop creditors from imposing unexpected interest charges or increasing the interest rate during the first year the account is open or increasing the interest rate charged on pre-existing credit card balances.

• To require creditors to provide customers with a “reasonable” amount of time to make their payments.

• To prevent creative payment allocation methods that maximize interest charges to the detriment of customers.

• To combat predatory subprime credit card practices by limiting the fees that can be charged to reduce the available credit.

The Federal Reserve Board has indicated that these reforms, the "most comprehensive and sweeping reforms ever adopted by the Board for credit card accounts" according to Federal Reserve Chairman Ben Bernanke, are intended to increase transparency, fairness, competitiveness and to help consumers better manage their credit accounts and avoid unnecessary costs. These changes take effect July 1, 2010. For more information you can visit the Board of Governor's of the Federal Reserve System. If you are struggling with credit card debt, making only the minimum payments and carrying high balances you should contact a consumer bankruptcy attorney to learn your options and find out how you can eliminate credit card debt and get a fresh start.

Posted by Justin M. Smith | Permalink | Email This Post | Comments (0)

Posted In: Consumer Credit & Credit Reporting

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