Selfserv Credit: Credit Improvement Guide

Copyright © 1997, 2005, 2007 by True Profile Credit, LLC

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews.

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This publication is designed to provide accurate authoritative information in regard to the subject matter covered only. It is sold with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional service. If legal service, advice or other information outside this subject is needed, the services of a competent professional should be sought. From a declaration of principles and a committee of publishers.

Information contained in this publication has been carefully compiled from sources believed to be reliable, including The Consumer Credit Protection Laws, but the accuracy of the information is not guaranteed.

The Author specifically disclaims any personal liability, loss or risk incurred as a consequence of the use, either directly or indirectly, of any information or advice given in this guide. The pronouns He, Him, and His are generic and refer to either male or female.

SELFSERV-CREDIT.COM CREDIT IMPROVEMENT GUIDE

Copyright 1997-2005 True Profile Credit, LLC

Table of Contents

INTRODUCTION

ABOUT THE AUTHOR

PART ONE CREDIT REPORT SCORING/FICO SCORES

CREDIT REPORT SCORING (FICO Score Guidelines)

CREDIT REPORT CODES

TYPES OF MORTGAGE CREDIT

CREDIT CARDS

MANAGE YOUR CREDIT CARDS

SOME IDEAS TO CONSIDER

WARNING! Minimum Payments A Snare!

FINANCE CHARGE CACULATIONS USED BY CREDIT CARDS ISSUERS

THE DIFFERENT TYPES OF CREDIT CARDS

CONTACTLESS CREDIT CARDS

CHOOSING AND USING CREDIT CARDS WISELY

**YOUNG PEOPLE AND CREDIT CARDS**

BANKS OFFERING GOOD RATES ON CREDIT CARDS

SECURITY WATCH FROM CREDIT BUREAUS

CREDIT CARD FRAUD

CREDIT BIILING ERRORS

CREDIT CARD BLOCKING

THE FAIR CREDIT & CHARGE CARD DISCLOSURE ACT

THE FAIR CREDIT BILLING ACT

DEBIT CARD PROTECTION

PART TWO ESTABLISHING CREDIT

ESTABLISHING CREDIT

STEPS TO ESTABLISHING CREDIT

LOAN APPLICATIONS, WHAT BANKS DON’T LIKE TO SEE ON THEM

OTHER THINGS YOU SHOULD KNOW

SECURE CREDIT CARD REQUEST

COVER LETTER FOR LOAN REQUSET

COSIGNING A LOAN? FACTS YOU SHOULD KNOW FIRST

DEBT FREE! IS IT POSSIBLE?

NEGOTIATE YOUR DEBTS—STEPS TO REMEMBER

HOW DOES PAYING OFF DEBT AFFECT MY CREDIT STANDING?

WORKING WITH COLLECTION AGENCIES & CREDITORS

BANKRUPTCY CHAPTER 7, 11 & 13

BANKRUPTCIES DON’T DO IT!!!

THINK! BEFORE FILING FOR CHAPTER 7, 11 or 13

NET WORTH WORKSHEET

DEBT TO INCOME RATIO WORKSHEET

COMPLAINT LETTER AGAINST COLLECTION AGENCIES & CREDITORS

SETTLEMENT LETTER (NO COURT)

ENDORSEMENT PROVISION LETTER

THE CREDIT PRACTICES RULE

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

THE FAIR DEBT COLLECTION PRACTICES ACT

PART THREE

WHO INPUTS INFORMATION ON MY CREDIT FILE?

CONTENTS OF A CREDIT REPORT

ADDITONAL INFORMATION ON YOUR CREDIT FILE

MAJOR CREDIT BUREAUS

CREDIT FILE REQUEST

CREDIT PROFILE REQUEST FORM

ADDING CREDIT INFORMATION

CONFIRMATION LETTER

CREDIT IMPROVEMENT

CREDIT IMPROVEMENT STEPS (Consumer)

IMPROVING YOUR CREDIT FILE—SUPPLEMENT INFORMATION

DISPUTE LETTERS

CONSUMER STATEMENT

FREE CREDIT REPORT?

THE FAIR CREDIT REPORTING ACT

PART FOUR HOME BUYER GUIDE/RENT VS. OWN

HOME BUYER’S GUIDE

STEP BY STEP HOME BUYING

REAL ESTATE BROKER

WHAT TO LOOK FOR IN A REALTOR

ACCEPTED OFFER

APPRAISAL

HOME INSPECTION

TITLE SEARCH

TITLE INSURANCE

ESCROW

REAL ESTATE SETTLEMENT PROCEDURE ACT (Supplement)

WHAT DOES THE SELLER PAY AND WHAT DO YOU PAY?

HOMEOWNER’S WARRANTY

MOVING CHECKLIST

PART FIVE MORTGAGE

HOW SHOULD YOU CHOOSE A MORTGAGE CONSULTANT/LENDER?

WHAT TO LOOK FOR IN A MORTGAGE CONSULTANT

THE LOAN PROCESS BASICS

TOP 10 NOT TO DO’s DURING YOUR LOAN PROCESS

LOAN CHECK LIST

LOAN PROGRAMS

HOME EQUITY LINES OF CREDIT

LOAN TO VALUE

UNDERWRITING STANDARDS

UNSATISFACTORY CREDIT HISTORY

RAPID RE-SCORING OF A CREDIT REPORT

THINKING ABOUT ADDING TAXES and INSURANCE TO YOUR PAYMENT?

SPECIAL NOTE ON: CITY, COUNTY OR STATE LOANS

Understanding Foreclosures and Notice of Defaults; What to do if you are faced with it

NOTICE of DEFAULT and FORECLOSURE SCAMS

THE TRUTH IN LENDING ACT

EQUAL CREDIT OPPORTUNITY ACT

FACTA, the Fair and Accurate Credit Transactions Act

PART SIX FEDERAL AGENCIES

THE FEDERAL TRADE COMMISSION

THE FEDERAL TRADE COMMISSION Addresses & Phone Numbers

FEDERAL AGENCIES

COMPLAINT FILING PROCESS

COMPLAINT LETTER

MYTHS ABOUT CREDIT

MISCELLANEOUS INFORMATION

A NEW CREDIT REPAIR SCAM

IDENITY THEFT—ARE YOU SAFE?

HAVE YOU BEEN VICTIMIZED?

CONSUMER DISPUTES

SUMMARY

RESOURCES

GLOSSARY

CREDIT REPAIR JOURNAL

INTRODUCTION

The purpose of this guide is to inform and help consumers with credit management, avoiding credit blunders, re-establishing credit, avoiding identity theft scams, an overall credit education, how to avoid the countless credit scams out there and what to look for in order to protect yourself and your family. In today’s world that’s consumed by credit debt, credit and or the lack of it, credit knowledge is a must have. It is absolutely essential to have a good credit rating. No matter what happens in the credit industry, your GOOD credit will always be a plus for you.

Credit allows you to purchase items that you normally could not afford. Most people just don’t have the cash up front to pay for these items, so that’s where credit comes in. If you ever tried to buy a home, rent a car, book a hotel room or anything else that requires you to use credit, you have probably noticed how important it is. Your credit rating will have a direct effect on your ability to purchase the things you desire. If your purpose is to buy your dream home, invest in real estate or refinance your current home, good credit plays a huge role. In the always changing real estate and lending industry, lenders are changing loan programs and qualifying procedures constantly. Having good credit scores are always a plus to qualifying for a home loan. No matter what’s going on in this industry of real estate, having good credit puts you one ahead of all the rest.

Our society and economy is quickly heading in the direction of a cashless one. As you can see from television ad campaigns for; home loans, second mortgages, credit cards, bank loans and car loans, these companies are pushing the idea of credit. Several car dealerships advertise this way good credit or bad credit it don’t matter, we can finance you, good or bad, credit is still involved. Newspapers and magazine ads as well try to sell by invitation of credit and credit cards. Soon the word MONEY will be a thing of the past, being replaced by the word CREDIT.

Do you see the picture here? There’s a serious need to have a good credit rating. Yes, almost anyone can get credit but at what cost or interest rate? How consumers manage credit is a different story because once it’s damaged, there is no quick fix. Here are some additional reasons for having a good credit standing. Your family; maybe there are some experiences you have already encountered because of lack of a good credit rating such as: college, a student loan for yourself or your son or daughter; maybe the refrigerator needs to be replaced. What about the car? It could need repairing at anytime, no warranty, guess what? Cash or Credit please! The list could go on and on. Think! This is a serious matter for all who cannot buy things for lack of available funds as well as those who rely on their credit rating for just about everything they do. Stop thinking about obtaining the latest gadgetry out there through the easy pay plan of credit and credit cards; think about getting and keeping a good credit history, with history being the key word here!

All we’re trying to do here is help as many people as we can understand credit and how it works, how to manage it, how to establish it, how to reestablish it, and how to repair it. Let me give you a little tip …

YOU DO NOT NEED TO SPEND TWO, THREE, FOUR HUNDRED DOLLARS OR MORE TO ANYONE TO HELP YOU DO WHAT YOU CAN DO YOURSELF! I have taken countless hours to prepare this information at a very low cost for credit consumers and those looking to get credit for the first time, those looking to buy a home or refinance their existing home. There are many aspects of credit covered in this guide, all of which are in harmony with the State and Federal laws, which are governed by the (FTC) Federal Trade Commission.

Please take a little time out of your busy schedule to learn some ideas that can help you and your family in the future! Managing your own credit (do it yourself) will help you appreciate it much more than paying someone else to manage or credit repair it for you.

ACKNOWLEDGMENTS

First of all let me thank God for allowing me writing ability, it is truly a great blessing. I wish to acknowledge my family and friends for their support and input through the years and for their help in publishing this material. To Sheila, Lugenia, Marion, Rachel and Bonita for their support throughout the years. To Mario Diaz of Enfuse Creative Design for helping with the cover of this book. To Dewonda for her editing work and input. To Tonya, Leslie, and Ebony for their ideas for marketing and content. I want to thank all those who have purchased earlier copies of this book and hope it has been beneficial and satisfactory to your financial health.

Thank you.

ABOUT THE AUTHOR

Lester Bennett is a Certified Credit Consultant with more than eight years experience in credit consulting. He is also a mortgage broker with many years of experience in real estate and mortgage loans. He is a proud member of the California Association of Mortgage Brokers, the National Association of Mortgage Brokers, the California Association of Realtors and the National Association of Realtors. He has helped hundreds of people improve their credit and debt issues and has giving many training classes to mortgage professionals on how to analyze mortgage credit. Lester has assisted many first time buyers with their credit which helped them to buy the home of their dreams. He is also the CEO of GAIN Financial Services and President of Merchant Realty Group, Inc.

PART ONE

CREDIT REPORT SCORING/FICO SCORES

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CREDIT REPORT CODES/TYPES OF MORTGAGE CREDIT

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VANTAGE SCORE

*

Credit cards

*

Manage your credit cards

*

Minimum payments and finance charges

*

Types of credit cards

*

Choosing and using credit cards

*

Young people and credit cards

*

Good rate credit cards

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Security Watch

*

Credit card fraud

*

Credit card billing errors

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Credit card blocking

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THE FAIR CREDIT & CHARGE CARD DISCLOSURE ACT

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THE FAIR CREDIT BILLING ACT

*

DEBIT CARD TRANSACTIONS—ELECTRONIC FUNDS TRANSFER ACT (SUMMARY)

CREDIT REPORT SCORING

(FICO Score Guidelines)

By looking at the credit scores below you can see what we are trying to accomplish by publishing this book. Our goal is to help consumers reach the creditworthiness they deserve and all it takes is just a little time and effort. If your credit history is less than perfect then we are trying to improve your credit and or scores to the first three levels below depending on where you are at the time. If your credit and or scores are above average (Top 2 levels) then we are trying to help you keep it that way. This credit improvement guide will be a good reference for all who read it.

Qualifying for any financing greatly depends on credit scoring. Your FICO score or middle score will be used to qualify you for a particular credit line or loan program and interest rate. There are lenders that will use the highest FICO score or one score if it’s a consumer purchase, for example; if I were to go and apply for a credit card at a department store, they would run my credit profile with my permission to do so. In this case, only one credit bureau will get that inquiring unless the store reports to all three bureaus, which in most cases they do not. So the store would base its decision from only one bureaus information, using the one score. Mortgage credit, which we will discuss later in the book, is a little different. Banks use the middle of three scores for home loans.

These three scores are taken from the three major credit bureaus, Experian, Equifax and Trans Union. Depending on the type of financing you are seeking; whether it is a new car, appliances, applying for a credit card or a home purchase, your scores plays a big part in the decision making. In the mortgage industry, loan programs change constantly so keeping up with your credit and managing it well will almost guarantee you a great program for home refinancing or purchase. Credit scores are a tool for measuring the creditworthiness of a borrower. Here are some examples of how it works;

35% of scores is Payment History: Key items include frequency, severity and most recent occurrences

30% of scores is Credit Utilization: Key items include balance of credit accounts in relation to maximum credit available with revolving being the most significant.

15% of scores is Credit History: Key items include number of years for established credit, the longer the better; one tradeline for 5 years will score better than 2 trades for 6 months.

10% of scores is Type of Credit: Key items include mix of revolving credit inquiries, not credit with any finance rating; zero balance for 6 months.

10% of scores is Inquiries: Key items include frequency of credit inquiries, not including mortgage inquiries within a 30 day period, and mortgage inquiries after a 30 day period which can affect the score adversely.

FICO Scores

There are three different FICO Scores developed by Fair Isaac. One score from each of the three major credit bureaus, Experian, Equifax & Equifax Canada and TransUnion & TransUnion Canada. These are:

Experian has; Experian/Fair Isaac Risk Model

Equifax has; Beacon

TransUnion has; Empirica

Other types of Scores …

• Application Risk Score —A lender will use a scoring system that includes FICO score but also considers information from the credit application.

• Customer Risk Score— A lender use these scores to make credit decisions on it’s current customers, also called behavior scores, these score use FICO scores and also using information on your payment history with that lender.

FICO score range is from about 300-850

720 Score and above

• The risk of default is very low

• More exceptions approved if needed to get the loan

• The debt ratio can be exceed to higher limit

• The high score can favorably compensate for underwriting weaknesses

• No need to explain derogatory credit

• Can qualify for basically any program credit wise

660-719 Scores and above

• The risk of default is low

• Your credit history is acceptable

• Strength of the credit scores would not require explanation of credit inquiries or derogatory credit

• Can qualify for any program credit wise (May need Full Documentation for home purchase)

620-659 Scores and above

• Represents a high degree of risk

• Can get 100% financing and other varieties of loan program with conditions. Although, market changes may require a 640 to 660 for First time home buyers and full documentation to qualify

• The underwriter will consider this applicant as long as the following is not layered Such as;

• Recently self employed

• High loan to value ratios

• Low cash reserves

• Exceeding debt to income ratio

• Multiple dwelling unit properties

Scores below 620

• Default risk is very high

• Strong compensating factors need for underwriter to consider approving a loan to offset credit risk

• The underwriter can consider an applicant with no previous delinquency and the first score factor code is one for a lack of sufficient credit

• Can do 95-100% financing with some lenders (Pending Real Estate Industry changes)

Scores of585-619

• The underwriter may consider a loan approval depending on credit issues

• The underwriter may consider an applicant as long as high risk factors are not layered

• Dependingonthelendersloanprograms,youcanget90-100%financing (Providing Full Documentation and Pending Real Estate Mortgage Industry changes)

Scores of 500-584

• Debt to income ratio must be with guidelines

• The underwriter may consider applicant acceptable as long as high risk factors are not layered

• The loan to value will be less than 90% below 575 depending on the lender

• Some debt will probably have to be paid off

• Some collection may have to be paid off and charge offs if within 24 months recent

• Letters of explanations may be require for credit history

Scores Below 500

In this situation there may be some serious issues beyond the consumer’s control that may have caused financial setbacks. On the other hand, some individuals can care less about what happens to their credit, let alone paying their bills. In this case, we can call this Bad Credit. It is not the end of the world though; there is still hope for this individual.

Do the FICO Scores change often?

If your credit report changes, your FICO Scores may change as well. The scores do not change from one month to the next at random unless there has been a late recorded, change in balances, a new debt recorded, or something else that may be damaging such as several inquiries. While a late, collection, judgment, foreclosure or bankruptcy can be damaging and lower your score quickly, it may take time to increase your scores. Get in the habit of checking your credit profile every 3 to 6 months.

How does FICO Scoring work in the first place?

Your credit report must contain at least one tradeline (Creditor, open account) for a period of 6 month for a FICO Score to be generated. Your report must have one trade that has been updated in the last 6 months also. This insures that there is enough information and enough recent information to calculate a score.

For more information on FICO Scores, please visit www.myfico.com

This is where I started with my credit after turning 21. Who cared about credit, I didn’t even know what credit was. I was too busy trying to get a date, with no money and no job. No job, no money and no credit. Obviously this meant no date. I had to do something and fast! What did I do? I got a job, went to school, made some money, got some credit and finally got a date.

When you hear the word credit what is the first thing you think about? Credit cards, right? I don’t have any credit or, oh! Boy, right? Well, what are credit cards, how do I manage them and what are they good for? Then you may ask yourself; what type of credit card is good for me? And, what’s really going on with credit cards anyway?

CREDIT REPORT CODES

Current Status Codes

Late Date Codes

Account Type Codes

ECOA (Equal Opportunity Act) Code Key

TYPES OF MORTGAGE CREDIT

VANTAGESCORE

The credit reporting agencies—Experian, Equifax and Transunion have introduced a new scoring module to banks, mortgage lenders and credit card companies in recent months. As you know, credit scores are used to evaluate the creditworthiness of borrowers. The scores reflect how well a borrower pays back his or her debt, as well as an overall review of a borrower’s credit history. The new scoring module was developed to be more consistent and easier to understand than the traditional scoring models. In development of VantageScore, 15 million anonymous consumer credit reports were pulled, 5 million from each credit bureau, which included public record information, credit account data, and inquiries.

The benefits of VantageScore are simple:

• Accessed from all three credit bureaus

• Has up to four score factors and a fifth FACTA reason code

• 24 month performance period

• Score range from 501-990

• Can predict the likelihood of future delinquencies (90 day late or greater) on any type of account

• Because some credit models have a difficult time trying to score a borrower who has insufficient credit information. VantageScore returns more predictive scores on consumers with limited credit histories.

VantageScore limits the variability across credit reporting companies. Score are much more accurate from the three credit bureaus when consumer credit is run. With the traditional score model, there was a great difference in scores from the three bureaus. Now because all three bureaus have come together on VantageScore, that problem will be limited.

Cautions:

• Stronger separation of good and bad accounts into the worst scoring ranges

As mentioned earlier, VantageScore score rating range from 501-990, much higher than the traditional scoring model used for so long.

Example of VantageScore scoring:

• A—901-990 B—801-900 C—701-800 D—601-700 F—501-600

Now, I don’t know about you but if VantageScore was to be the only scoring model in the industry, many of us would be pretty sad right now. We thought a 700 score was A paper, excellent or great scores to have. Oh my goodness! Now we have to do something in order to get that A score don’t we? Just like in school, we wanted that A not only for our sake but also for the sake of our parents. Our parents wanted the best for us when growing up but some of us took it for granted. This is your future, your family’s future and perhaps your child future. Its time to get the credit you deserve, no more games!

Note: This is information only and to be used as such. VantageScore may or may not be the scoring model of the future. The industry is changing all the time, so for more information on VantageScore visit the Websites below …

www.vantagescore.experian.com

www.transunion.com/vantagescore

http://equifax.com/vantagescore/

CREDIT CARDS

Credit cards are just a form of identification that allows you to purchase almost anything you want. Credit cards produce sales, but should only be used for convenience not for financing. If properly used, credit cards provide a cushion against life’s unexpected emergencies. They can also enable you to monitor and track your spending habits. How? By you keeping track of your statements and reconciling them monthly.

The interest rates on credit cards are extremely high; this of course depends on your credit rating at the time you acquire the card, payment history, which is shown in your credit report payment history. Creditors are stricter about their policies and are taken a closer look at consumer’s credit files to see if the borrower remains credit worthy. This means at anytime time your creditors can take a look at or pull a credit report on you to see if you are still credit worthy. People, who are over-indebted, even if they pay their bills on time, are sometimes given higher interest rates or lower credit limits. Credit card interest rates will fluctuate up and down in the days to come. Think about something before we proceed; what do you think about being charged 14 to 26% interest rate or more on a credit card but only making 1 to 5% on your savings account or CD with the same bank possibly? What about 7 to 20% on bank loans?

Beware of financial institutions that offer a trap. What do I mean by this? Well, some financial institutions keep the limits low and seek out their most vulnerable customers and offer them additional credit cards instead of helping them get out of debt on their current low limit card. You have one card with this institution with a small limit but they keep offering you more cards. If you take their offer and you are not one to manage your cards responsibly, you could end up with late fees adding up every month. The financial institution is racking up on fee income because the odds are greater that you will go over the limit on a card with lower limits than larger limits. Now you have over the limit fees and late fees. So not only does the financial institution make money on the interest they charge you but now late fees and over the limit fees.

MANAGE YOUR CREDIT CARDS

If you have too many credit cards this could be harmful to your financial well being. Too many open lines of credit can get in the way of your getting the best interest rates and cause you to be a high-risk account, which could cause issuers to give you high interest rates. The reason for this is; at anytime those cards could be charge on which of course will make your debt risk higher. Avoid owing more than 20% of your gross income on credit cards, try to pay your balance in full each month, then interest rates won’t mean anything to you. Select the card that’s best for you and how you spend, always reconcile your accounts (keep track of all purchases). Credit cards make money for the issuing companies. Besides, on the 8 to 26% interest rates they charge you, they receive another 1 to 6% in account service fees from merchants who buys a credit card franchise. This could be up to 25% off you alone. So, it’s pointless to have a collection of credit cards: American express-Green Card, Platinum, Gold, Blue and Optima. Diners Club, Carte Blanche, even Discover. Visa & MasterCard does just about the same thing and are taken in just as many places around the world. American Express is taken everywhere Diners Club and Carte Blanche are.

SOME IDEAS TO CONSIDER

1. Before you take the first card offered to you, shop around to find the best interest rate possible. If you have a bank, check with them first, or the credit unions you belong to because the rates are usually lower.

2. MasterCard and Visa card are all the same. The annual fee is not the same. Some banks charge between $30 and $40 and even up to $70 or more, depending on your credit rating. The annual percentage rates (APR) are usually from 7% to 24% and even up to 28%. The higher rates (APR) are often charged by major bankcard advertisers; this is what you pay for.

3. Try to live with just three cards, a bankcard, Travel & Entertainment, one major department store card or a gas card. You can mix this up any way you like, as long as you end up with just three to four cards.

4. Charge only what you can afford to pay off at the end of month to escape the interest charge.

5. Chose between your cards carefully, look at your statements compare the interest rates and throw away the ones with the highest interest rates (pay them off first) only keep the ones good for your spending habits. Select cards with rebates on something you really use.

6. Limit your spending categories and avoid the so-called status symbol so you don’t be come a high risk. This is important, because if you want to buy a home, a car or apply for a large loan, having to many credit cards could hinder your chances or make it very difficult to achieve, especially if your cards are maxed out.

7. Try to consolidate two or more credit cards by transferring them to a card with a lower interest rate. Pay the same amount on the combined card as before but be careful of a transfer balance fee from the creditor, they may look at it as cash advance and charge you for it.

8. After you pay off one card use the extra cash to pay on another

9. Take out a home equity line of credit which has a low interest rate and is tax deductible. Pay off all you credit cards through the line of credit.

10. Refinance your mortgage if possible to pay off all credit card debt Remember! Manage your cards; don’t let them manage you.

WARNING! Minimum Payments A Snare!

When spending on your credit cards you’re not worry about the payment, no, you can just pay a small amount or the "minimum payment" and everything will be all right, right? Wrong. It may seem that the smaller payment is saving you money every month, but what’s really happening is, the interest rate is adding up more and more. This will be a big head ache before you realize the problem. Here’s an example; lets say you have a credit line of $1500 and your balance is $600 at the beginning of the month and your minimum payment is $35. During the month, you charge $100 on the card. The interest rate on this account is 18%, which is computed as 1.5% of the unpaid balance. (Most likely the interest charges are adding after you make your payment. This is a practice used by most credit card issuing companies today, the average daily balance method.)

Your minimum payment only reduced your balance to $565. Adding the interest rate brings it to $573.48, and the new purchase brings it to $673.48 and if you make another minimum payment next month, the interest charge will be calculated on $638.48. Next month’s interest rate will be $9.58 a fourth of the minimum payment. As you can see, interest will be added to interest. So as you continue to spend more than you pay off, interest will continue to accumulate and so will the charges. This is why paying off credit card debt is so hard for most consumers. Some advice, try hard not to charge more than you can afford to pay off at the end of the month. Pay off 30% to 50%, if not all of the balance. (Pay off the balance at the end of the month and there will be no interest to worry about.) Keep in mind that credit cards apply payments toward the lowest-rate balance you carry. So if you charge new purchases that carry the card’s regular APR (often 15% or more), your payments will go toward the low-rate balance, while the high interest on new purchases will pile up. Watch out for low-rate transfers.

FINANCE CHARGE CACULATIONS USED BY CREDIT CARDS ISSUERS

1. PREVIOUS BALANCE SYSTEM—in this system the balance is simply the amount that you owed at the end of the previous billing period. Payments, credits, or new purchases made during the current billing period are not taken into account. Some creditors also exclude unpaid finance charges in computing this balance. (This info. must appear on billing statements, applications and pre-approved solicitations card issuers may send you)

2. AVERAGE DAILY BALANCE SYSTEM—This system gives you credit for your payment from the day the card issuer receives it. In computing the balance due, the issuer totals the beginning balance for each day in the billing period and deducts any payments credited to your account that day. New purchases may or may not be added to the balance, depending on the plan. The resulting daily balances are added up for the billing cycle and the total is then divided by the number of days in the billing period to arrive at the average daily balance.

3. ADJUSTED BALANCE SYSTEM—This system is computed by subtracting the payments you made and any credits you received during the present billing period from the balance you owed at the end of the previous billing period. New purchases made during the billing period are not considered. You have until the end of the billing cycle to pay part of your balance, thus, avoiding the interest charge on that portion. Some creditors exclude prior, unpaid finance charges from the previous balance. (This system is very advantageous for card users)

THE DIFFERENT TYPES OF CREDIT CARDS

1. BANKCARDS—MasterCard and Visa also offered by Savings and loan companies and credit unions. These creditors establish their own credit granting criteria (billing policies, interest rates, annual fees and credit limits.)

2. TRAVEL & ENTERTAINMENT CARDS—American express, Diners Club and Carte Blanche. American express is accepted in more places than the other two. Depending on which American Express card you get (green card, gold, optima or platinum) the annual fees could range from $50 to $350. Some American Express cards are offered with no annual fees.

Card cash limits range from $500 to $20,000 and even no limit depending