Can a Collection Agency Sue Me For a Debt Owed?

Question: Can a collection agency sue you for the unpaid debts you owe?

Yes, they can. The word "sue" simply means that one party is filing a lawsuit against another party. Anybody can bring a lawsuit against somebody they feel has wronged them.

But in the case of third-party debt collectors suing debtors, it just doesn't happen very often. That's because the outside collection agency is not the victim in a case of unpaid debt -- the original creditor is the victim. So the creditor would normally be the one bringing the lawsuit, if there was one.

In those occasions when a collection agency actually does sue a debtor, it's usually because the debtor agreed in writing to some kind of repayment plan, but then reneged on that agreement.

Here's what happens in a lot of these cases. You fall behind on your payments, so the original creditor sends the account to a collection agency for further action. The agency calls you and urges you to make your payments. They explain how you are damaging your credit score (this part is true), and that you could end up getting sued for your debt (this part is a blatant threat, and is therefore illegal).

Does this scenario sound familiar? If it does, you're not alone. Though it's hard to find current statistics in this area, I would venture a guess that around 5% of Americans are behind on their bill payments. And with the current economic troubles we are having, this number will only increase. For example, according to the Bureau of Labor Statistics, the debt collection industry could experience 23% growth between now and 2016. Business is booming for those folks!

Many consumers confronted by debt collectors complain that the agencies threaten them in various ways, harass them, insult them, etc. In 2007, the Federal Trade Commission (FTC) received nearly 71,000 consumer complaints about collection agencies -- far more than any other industry. One of the common complaints is that the agency will threaten to sue the debtor for the debt they owe. And this brings us to one of the most commonly asked questions on this subject:

Can the Agency Sue Me?

• Yes, from a purely legal perspective, a third-party collection agency can bring a lawsuit against you.
• But in most cases, it's the original creditor who would sue you over the debt you owed.
• While a collection agency could file a suit against you, they are not allowed to use it as a threat. Federal law forbids them from threatening you with a lawsuit, wage garnishing, etc.

When I mention federal laws in this article, I'm referring to the Fair Debt Collection Practices Act (FDCPA). Among other things, this law regulates the actions of collection agencies, and it's enforced by the FTC. Specifically, this law states that a "debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person."

And while we are speaking of the government, here is what various government sources have to say about this subject:

• "A collection agency can sue you in Superior Court. A collection agency may not sue in Small Claims Court." Source: Website of the California Attorney General
• "You could still be sued by the debt collector or your original creditor [after sending a letter requesting that they stop contacting you]." Source: FTC website
• "The debt collector can send negative information to the credit-reporting agencies, sue you in court, and garnish your wages or file a lien against your property once a judgment is issued by the court." Source: Consumer Affairs website for the Governor of Georgia
• "The collection agency must comply with your request but may sue you if it believes the debt is valid. If you are sued, you have the right to appear and defend yourself in court." Source: Colorado Attorney General's website
  

Unfortunately, there are a lot of ill-informed web publishers and bloggers who claim that a collection agency cannot sue you in court. This is what causes so much confusion on the subject. The citations given above should answer this question once and for all. And this brings us to another common question among consumers:

Can I Sue the Debt Collector?

Yes. If you feel the actions of a collection agency are overly harassing and (more importantly) in direct violation of the FDCPA, then you can sue them in state or federal court. Here is some information on how to go about filing a complain or a lawsuit against a debt collector.

Related articles:

• Can a credit card company sue me?
• What happens if I do not pay my card balances?
• Dealing with debt collectors the right way
  

I hope this article clears things up for you. We have a lot of similar articles here on the site, and the best way to find them is by using the search box at the top of this page.

What Happens If You Do Not Pay the Credit Card Debts You Owe?

Reader Question: I am faced with some financial choices right now, and one of them involves ignoring my credit card balances. What happens if I do not pay the credit card debts I owe? I guess I should ask, what's the worst that could happen to me?

It depends on what your credit card company decides to do. All I can do is tell you what usually happens when you do not pay your unsecured debt. And I can sum up the usual scenario with the following statements:

1. You would damage your credit score. This much is certain.
   
2. Your overdue account would probably be sent to a collection agency for further action.
3. You might even be sued by the credit card company in state court, though this is less common.
   

This is generally what happens if you do not pay the credit debts that you owe. Now let's talk about how each of these things might transpire, in the event that you paying your bills.

Let's say that the current balance on my credit card is $6,000. As I was building up this balance over the years, I never had any trouble making the minimum payment. But then I lose my job and run into some unexpected medical costs. Because of these and other unfortunate events, I find that I can no longer pay toward my credit card debt. I can barely make my mortgage payment, but I'm hanging in there with that.

This is a common scenario a lot of folks are facing right now. Most experts within the personal finance industry will tell you to hang on to your house at all costs, even if it means you can't make your credit card payments for a while. I usually agree with that advice. For most people, their home is their best investment. So you should protect that investment at all costs.

So let's continue our hypothetical scenario. After much deliberation, I decide not to pay my credit card debt so that I can continue making my mortgage payment. Money is tight, and I can't afford to pay everything right now. So I choose to protect the best investment I have -- my home.

So what happens to me if I do not pay my credit card debt?

At first, I will start to receive late notices from my card company. They will probably add on some penalty fees as well, so I now owe them even more money. This is where things often tend to snowball out of control. If I continue not to pay my credit card debt, I will accumulate more fees. They might even increase my interest rate, which jacks up my balance even more.

At some point during all of this, they will report my late payments to the three credit reporting agencies (Experian, TransUnion and Equifax). This will damage my credit score, and it could drop it significantly. Why? Because under the FICO scoring model, my history of payments influences my credit score more than any other factor.

After a few weeks of not receiving payment, the credit card company will turn my account over to a debt collection agency. They will contact me and try to persuade me to pay the debt that I owe, and they might even offer to set up some kind of payment plan to help me pay it off. The collection agency may bring up the word "settlement," which means agreeing to pay off less than what is owed.

What happens next depends on (A) the amount of money I owe and (B) the internal policies of the credit card company. They will either leave the account in the collection agency's hands, or they will take me to court.

Yes, I said court. If I do not pay the debt the debt I owe, the credit card company is well within their legal rights to bring a lawsuit against me. After all, I signed a contract with them when I obtained my credit card, and my failure to pay what I owe is a breach of that contract. The suit would be tried in state court -- unless I brought a counter-suit against card issuer for some violation of the Fair Debt Collection Practices Act, in which case the trial would go to federal court.

If a judge sides with the credit card company, then I will receive a negative judgment against me. This will also show up on my credit report (in the "Public Records" section), and it will lower my score even more. The judge would decide how to compensate the card issuer for the amount owed. They might garnish my wages, or they might put a lien on my house. It's important to note, however, that a credit card company cannot go after my wages or my other assets unless it's ordered by a court of law. So keep this in mind when the collection agencies start threatening you, which is a common tactic.

It's not a pretty set of circumstances, I know. But it's the truth. This is what could happen if you do not pay your credit card debt.

Related Q&A sessions:

• Settling Debt When You Cannot Pay Your Bills
• Can a Credit Card Company Take My House?
• Can the Company Sue Me in Court?
  

You might also want to read through the Fair Debt Collection Practices Act (FDCPA) that I mentioned earlier. It explains the rights and protections you have when bill collectors start contacting you. You can find a summary of your rights under this act in this section of the FTC's website.

Can I Be Sued for Credit Card Debts I Owe?

Reader Question: Can you be sued for credit card debts that are overdue?

Sure you can. You can be sued for just about anything these days -- especially in the United States, where we are such a highly litigious society. When you signed up for your credit card, you signed a contract with the company issuing that card. Failure to pay your bills is, in essence, a breach of that contract. So you can be sued for the unpaid debt.

With that being said, it's not very common for a credit card company to sue a customer over their debt, because it's just too expensive and time-consuming for them. Dealing with customers who stop paying their bills is just part of the business model for these folks. Sure, they do what they can to minimize their losses. And you can be fairly certain they will send your overdue account to a collection agency. But it is rare to be sued for credit card debts that are overdue.

Notice the difference between the words "rare" and "never" though. I would say it happens enough for you to be concerned. In most cases, the card-issuing companies will charge off the bad debt and then sell or transfer the account to a collection agency. In a minority of cases, however, they will initiate a lawsuit. You can find plenty of these real-life scenarios online by doing a Google search for "I am being sued for credit card debt" ... without the quotes.

It's also worth mentioning that there are laws protecting you in such cases. In particular, I'm referring to this one:

Fair Debt Collection Practices Act
http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm

If you get sued for a credit card debt you owe, the lawyers who are driving the lawsuit are bound by the stipulations of this act. So is the original creditor, the debt collection agency, or anyone else who tries to collect from you.

So what happens if the company succeeds in their lawsuit? Well, if a court judgment sides with the credit card company, the company will be presented with some form of remuneration at your expense. There might be a court-ordered payment to contend with, or they might even garnish your wages for the amount owed. I can't speculate this far into the process, so I'll leave it at that.

Keep in mind that if you get a legal judgment against you in such matters, you'll have one more negative entry on your credit report, thus lowering your score even more. You'll have the initial late payments on your report, possibly an entry from a collection agency, and the legal judgment on top of it all. Each of things will damage your credit score. So it's wise to avoid being sued over your debt, if at all possible.

How can you avoid all of this? Well, you can work with the credit card company to come up a payment plan of some kind, or even some form of settlement where you pay less than the full amount owed. They would rather get something than nothing, after all. If you choose to communicate with the card issuer on such matters, be sure to document everything for future reference.

I recommend you read this Q&A session on the subject of debt settlement. It explains the consequences of such actions, and also gives a list of different options, ranked from best-case scenario to worse.

Summary and Going Forward

As you can see, you've got some homework to do. This is a serious matter that will affect your credit (and your ability to get future financing) for a long time to come. So you need to educate yourself beyond this blog.

Yes, you can be sued for credit card debts you owe. It doesn't happen often, but it happens enough for you to be worried about it. There are ways to resolve your debt before it reaches the point of a lawsuit. Typically, a credit card company will only threaten to sue if the cardholder has completely ignored them and made no attempt to resolve the issue.

So your homework at this point is to:

1. Research this topic further.
2. Do a Google search for "I am being sued for credit card debt."
3. Follow the link provided above for the Fair Debt Collections Practices Act.
4. Read through the FDCPA so you can understand your rights and protections.
5. Read the Q&A session on debt settlement that I've provided above.

Another common question we receive on this subject is this:
Can a credit card company take my house?

What Does My Credit Score Mean Anyway?

Reader Question: I know my credit score is important for getting a mortgage loan, because I hear that all the time. But what does my credit score mean and where does it come from?

We recently posted a response that explains where your score comes from, so that's a good place to start. It answers the second part of your question. So in this post, I'd like to focus on the first part of your question.

What Your Credit Score Means

If you ask 15 different financial experts this questions, you'll probably get 15 slightly different answers. And to a certain extent, they might all be correct. The reason for this variation is that credit scores mean different things to different people. So instead launching into an essay on the subject, let me tell you what your score means to you as a consumer:

What does my credit score mean to me? For one thing, it's a direct reflection of your financial and history responsibility, whether you agree with it or not. Lenders will use your credit score when considering you for a loan, and if it's good you'll have an easier time getting approved. If it's bad, on the other hand, you'll have a much harder time getting approved for a loan. You'll also pay a higher interest rate than somebody with good credit.

Have you ever seen a commercial from a car dealer or mortgage lender where they offer an enticingly low interest rate? The next time you see one, look for an asterisk mark after the advertised interest rate. Somewhere on the ad, or at some point during the commercial, they will use the phrase "for well-qualified borrowers." Your credit score is one of the things that will determine whether or not you fall into the "well-qualified" category. So in this scenario, your credit score could mean that you qualify for that great rate ... or that you don't qualify for it.

If you can afford to pay cash for all of the major purchases in your life, then your score means a lot less to you. Only when you apply for some kind of financing does it become an issue. But few people can afford to pay cash for cars, homes and other major purchases. So they have to rely on their ability to get loans. Here's what it boils down to. If, like many Americans, you require financial assistance when making major purchases, then your credit score means a lot to you -- or at least it should.

Related Q&A Sessions:

• Is a credit rating the same thing as a score?
• What is a good FICO credit score in this economy?

Hope that helps.

Credit Score of 680 - Can I Get a Personal Loan?

Reader Question: Can I qualify for a personal loan with a credit score of 680 points?

I cannot answer that question with any level of certainty, because I'm not a mortgage lender. Only a lender can tell you whether or not you qualify for a personal loan with a credit score in the 680 range. So the only way to find out for sure is to apply for a loan.

With that being said, I can tell you that you probably won't qualify for the best interest rates with a 680 credit score. In the current economy, most lenders are limiting their best offers to borrowers with excellent credit -- which, by most definitions, means a 750 or above. So the real question you should be asking is, "Can I get a personal loan with a reasonable interest rate when my credit score is 680 points?"

Now for some good news. The Internet makes it really easy to get offers from lenders. You can apply for a personal loan online and get offers with one business day.

When writing this response, I looked at the criteria listed on some of the lender websites. It seems that most of them prefer a credit score in the upper 700s, but that might just be for the best interest rates. It's possible that you could get a loan with a score of 680 or above, but you won't get the lowest rates.

Lastly, I would like to point out that lenders look at other factors beyond your credit score. For example, they will also review your debt-to-income ratio to determine how much debt you currently have (relative to your gross monthly incomes). The DTI ratio is another important consideration, so keep that in mind when you apply for personal loans online.

Hope that helps. Good luck.

Types of Credit Card Debt Relief - For Free

Reader Question: I have a lot of credit card debt I want to work on paying off. I plan to buy a home later this year, and I know that paying things off is a necessary first step in my case. Is there any place where I can get credit card debt relief for free?

I would recommend one of three options. You could either (A) take the do-it-yourself approach, (B) work with a non-profit credit counseling agency, or (C) use the initial / free debt counseling services of a company like Credit.com. Let's talk about each one of these options in turn.

Option 'A' for credit card debt relief is free because you would do it yourself. In this scenario, you would work out a payment plan to pay more than minimum balance do on your credit cards, with the ultimate goal of paying down the debt associated with each card. Make no mistake about it -- the whole "minimum payment" thing is designed to keep you paying the credit card company forever. When you factor in the interest, you can never pay off the balance by making the minimum payment alone.

To take the do-it-yourself approach to credit card debt relief, you would first need to create a budget for yourself. That way, you'll know how much money you have to work with each month, and how much you can afford to put toward your credit card balances. Make sure you have enough to cover your most important monthly expenses, such as housing, food and insurance. Then look at how much you have left over. You will use a portion of this remainder for your credit card debt relief plan.

Start small by paying about 1 1/2 times the minimum balance. For example, if your minimum payment due is $50, see how you can manage a $75 payment each month. If you can handle that, you might even try to double your payments each month. Aside from paying off the credit card balances in one lump sum (as you would with a debt consolidation loan), this is the fastest way to reduce your card balances -- by doubling up on your monthly payments.

Option 'B' offers another form of credit card debt relief that is either free or very affordable. With this option, you would work with a non-profit agency like the National Foundation for Credit Counseling. I have never worked with the NFCC, but I've heard many good things about them and nothing negative. So their website might be a good place to start. Because they are non-profit, their debt relief counseling is free in some cases and very affordable in others. Just be sure to ask about the cost before signing up for this or any other type of credit card debt relief program.

Option 'C' gives you yet another form of free advice on managing debt. Credit.com offers a service where you can sign up for a consultation with a debt counselor. The initial phone consultation is free, and after that you can decide if you want to continue with it or not. There is no obligation with the first call, so you have nothing to lose by looking into it.

Other Debt Relief Options

The three options listed above represent the purest form of credit card debt relief, which is finding a way to pay down the balances. But there are other options you should research as well. For example, a consolidation loan is one way to replace multiple credit card balances with a single loan balance, and often at a much lower interest rate. This could certainly simplify things, and it might even save you money in the long run by reducing the amount of interest you pay on the debt.

In closing, let me offer you a word of caution. Use debt settlement programs as a last resort. Any time you hear the word "settle" or "settlement" used in conjunction with debt relief, it means you are paying less than the full amount owed. When this happens, the creditor will charge off the rest of the debt, and it will show up on your credit report as such. Thus, it will also hurt your credit score.

I hope this article helps you understand your options for free credit card debt relief, as well as the many low-cost options worth considering. Try to work out a budget that allows you to pay down the debt you currently owe. If you can't handle it by yourself, consider a non-profit credit counseling agency, or a free initial consultation through a service like Credit.com. And try to avoid settlement if at all possible. It's better to pay your credit card debt in full, rather than settling.

Related Q&A sessions:

• Where can I find debt consolidation help?
• I want to pay off my credit card debt. Where do I start?
• How does debt settlement affect my credit score?

I hope this information has helped you. Good luck.

How Do I Obtain a Free FICO Score Online?

Reader Question: I want to obtain my free FICO score online, but every website that offers it asks me to sign up for some kind of monthly service (which is not free). Is there any way to obtain a free credit score online ... without having to sign up for something?

You've hit upon something that confuses a lot of people, judging by the numerous emails we receive. This short answer, unfortunately, is that I have not yet found a source where you can obtain your FICO credit score for free.

Sure, there are plenty of websites that offer "free credit scores" from all three reporting agencies. But below such an offer, you will usually find an asterisk with a disclaimer that says something like this: "When you sign up for Credit Watch Supreme." (I made up that product name by the way, lest I infringe upon somebody's trademark.)

I research these companies, services and websites on a regular basis, but I have never found a website where you could obtain a free FICO score with no strings attached. In most cases, you either have to (A) sign up for some kind of credit monitoring service or (B) pay a small fee for the score.

Different Rules for Credit Reports and Scores

It's also important to understand the difference between your three credit reports and the scores associated with those reports. They are two separate things, and the rules that cover them are also different. For example, you are entitled by law to obtain one free credit report from all three of the reporting agencies that maintain them. You can do this through the AnnualCreditReport.com, which is the only website of its kind that's regulated by the FTC.

However, this free entitlement does not include your actual scores -- just the reports. Regarding your credit scores, the Fair Credit Reporting Act says the following: An agency "may charge a fair and reasonable fee, as determined by the Commission, for providing the information required under this subsection."

Where to Obtain Your FICO Score

So now you know how the "free" side of things really works, what next? Where is the best place to go to obtain a free FICO score online? Well, one of the best places to is the MyFICO.com website. As I mentioned earlier, this is the site owned by the company that created this FICO scoring model. At the time of this article, they were offering all three scores (Experian, TransUnion and Equifax) for a one-time purchase price of $47.⁸⁵. They also offered individual scores (from just one of the agencies) for $15.⁹⁵. Again, these prices were sampled at the time this article was published (January 2009), so they are obviously subject to change.

But that's not the only place you can get your scores. If you would like to obtain a free FICO score in conjunction with identity theft protection, credit monitoring or a related service, I would recommend using a website like Credit.com. Check out the credit tools page for more information on these and other products.

Summary and Conclusion

I know we've covered a lot in this lesson. So let's review some of the most important points we have discussed so far:

• By law, you are entitled to one free credit report per year, from all three of the reporting agencies who maintain.
• Despite the previous point mentioned above, there is no law that entitles you to a free FICO credit score.
• Some websites offer the free credit scores to entice you into signing up for some kind of monthly monitoring service. So there are "strings" attached in these scenarios.
• If you purchase your FICO score separately (without signing up for a special offer that includes a monthly service), you can expect to pay anywhere from $15 to $50.
• You can find some of the package deals mentioned in this article on the tools page of our blog.

I hope this answers your question and eliminates any confusion you had. If you have any other questions on how to obtain consumer information online, just let us know.

Is a FICO Credit Score of 750 Considered Good?

Reader Question: I recently ordered my FICO credit scores and found out that my highest one (Experian) is 750 points. Is a credit score of 750 considered good or excellent? Will it help my get qualified for a mortgage loan?

This is one of the most common questions we receive. But it's hard to answer with any level of certainty, because the standards often change. For example, back in 2007, a credit score of 650 or higher would have qualified you for the best rates a mortgage lender had to offer. But now, in the troubled economy we find ourselves in, you would probably need a FICO score of 750 or higher to get those same rates.

So that answers one of your questions: Is a credit score of 750 considered good? Yes, that is still a good score in the current economy. You also asked if it was considered an excellent score. It really depends on how you define these words.

• If you define the word "good" as meaning you'll be able to qualify for a mortgage loan, then a 750 meets that definition in this economy.
• And if you define an "excellent" score as one that qualifies you for the best interest rates a mortgage lender has to offer, then I would say you're right on the line. Some lenders will offer you their best rates with a FICO credit score of 750 while others may not.

Here's a video I put together in response to this common question:

What FICO Says About It

On the MyFICO.com website, you can download a booklet in PDF format that gives a pretty good overview of what FICO scores are and how they work. The document was created by the same company that created the actual FICO scoring model (Fair Isaac Corporation). Who better to listen to on this subject? Here is what they had to say in a section labeled as "What is a Good FICO Score?":

Since there's no one score cutoff used by all lenders, it's hard to say what a good FICO score is ... one lender may offer lower interest rates to people with scores above 680, while another lender may use 720, and so on.

This quote only underscores what I've already explained. A score of 750 will probably be considered good by most lenders today. So you probably won't have any trouble getting qualified for a mortgage loan with that score, as long as the loan is within your budget. But whether or not those same lenders will consider a FICO credit score of 750 "excellent" -- and whether they are prepared to offer you their best rates -- is something else entirely.

Here's the good news. Most lenders will tell you what their general criteria are, in terms of credit scores. They will tell you, for example, what their cut-off score is for getting the best rate on a loan. You can also find out where you stand by applying for a quote with a lender. So there's really no reason to listen to speculation and opinions on this subject -- just go out and get the real scoop from a mortgage lender. You've got nothing to lose.

Credit Score Is One Factor of Many

Of course, they'll look at other things beyond your FICO score. A lender will also want to know how much money you make, in order to judge the affordability of the loan you want. To do this, they will also consider your total amount of debt in relation to your gross monthly income. This is known as the debt-to-income ratio, and it's another key factor in mortgage approval.

So while a FICO score of 750 may be considered excellent by some lenders, it's not the only factor in their decision-making process. They also want to know where you stand in terms of debt, income, employment, down payment, etc. Something to keep in mind.

My Credit Card Company Raised My Minimum Payment

Reader Question: My Chase account just raised my minimum payment from 2% to 5% to get their money back faster. Is that right? To more than double the minimum payment without notice?

If you mean to ask if it's legal, then the answer is yes. Credit card companies can get away with a lot, and lately (because of the economy) they've been showing just how ruthless and manipulative they are. Whether you realize it or not, they probably gave you "notice" in the form of some fine print buried three paragraphs deep in a credit card statement. That's usually how they "notify" customers of pending changes.

Most credit card companies are in a financial panic right now, and for obvious reasons. Because of the recession, rising foreclosures rates bankruptcies, and other factors, they've been losing a lot of money in the form of defaults. Many people are turning their backs on their credit card debts in order to save their homes. So the card companies are doing whatever they can to minimize losses.

In addition to raising minimum payments, which you've experienced firsthand, they are also raising interest rates on their customers -- even for their best customers, who've never missed a single payment. Another common trick is to change the payment due date, but to bury this in the fine print on the credit card statement. That way, when somebody misses the new due date, the credit card company can pile on late fees.

• Is is ethical? Clearly not.
• Is it legal? Unfortunately, in most cases, their actions are within the law.

But many of these practices won't be legal for much longer, because the laws are changing. The government has finally -- long overdue -- passed some legislation to curb the abusive practices of these companies. The C

Lastly, most card issuers have been lowering credit limits for their customers, also to minimize losses. This one I can actually understand. But most of their other tactics are just plain dirty.

Too Much Debt When Buying a House - Can It Hurt Me?

Reader Question: Can too much open debt hurt me when buying a house for the first time? My credit score is in the 800 range, but I have a lot of debt.

With a credit score in the 800s, you should have no trouble qualifying for a mortgage loan to buy a house. In fact, with a score that high, you should also qualify for the best interest rates the lender has to offer. This means a smaller mortgage payment each month.

The lender will consider your overall debt relative to your gross monthly income. This is aptly referred to as your debt-to-income ratio, and it's one of several factors a mortgage lender will consider when you apply for a loan. Basically, they are trying to find out if you're carrying so much debt (relative to your income) that you might have trouble making mortgage payments.

Without knowing what your income is, I can't say what your debt-to-income ratio is. But you can find out by using a DTI calculator like this one at USnews.com. If you run the numbers and find that your monthly debt payments are less than 30% of your gross monthly income, then you're probably in good shape. If your DTI ratio is higher than 35%, I would suggest reducing your debt before applying for a mortgage loan.

Your credit score is in great shape, and it should help you qualify for the best rates a lender has to offer. But they'll also consider the total amount of debt you have in order to determine the risk level of lending you money. So do some homework to find out what your DTI ratio is, and whether or not it's a factor.

Hope that helps. Good luck with your home buying process.

My Credit Card Was Closed for Late Payments - Should I Reopen It?

Reader Question: My credit card was closed because of late payment. Will reopening this card help my credit rating?

Because the card issuer went so far as canceling the card, I'm assuming there was a history of late payments (as opposed to one isolated incident). If this is the case, they have probably already reported the late payments to the credit reporting agencies. If that's the case, it's already on your credit report as a negative entry, so reopening the card probably won't help you much.

I always tell people to make such decisions based on their overall financial needs, as opposed to their credit scores. So if you need to open a new credit card for financial reasons, then go ahead and do it. If you don't need one right now, then don't open a new card. If you decide to reopen the card in question, or an entirely new one, just be sure to make all of the future payments on time. That's the best thing you can do for your score.

Also, if you have outstanding debts to the company that closed the account, it's a good idea to pay that off. Credit card companies will typically transfer overdue accounts to a collection agency, and that agency will also make a negative entry on your credit report (in addition to calling you and sending you letters in the mail). Something to consider.

Using Only 10% of Credit Card - How Does It Affect My Score?

Reader Question: Does using only 10% of my credit card negatively affect my credit score?

I can't see why it would, unless you were missing payments. Having a low balance on your credit card and making all payments on time will actually help your credit score.

On the other hand, using too much of your credit limit can certainly lower your score. Once you start using more than 30% of your credit limit, you could be sending a red flag.

The lingo for this is "credit utilization ratio," which measures the percentage of your available credit limit currently being used. You can see it in the chart below as "Amounts Owed," and you can see that it's a major factor in your overall credit score.



At 10%, your utilization ratio is good, so it's probably helping your credit score. People who routinely max out their credit cards (100% utilization ratio) do a lot of damage to their scores. Keep your balance in the same range where it is now, and continue making your payments on time, and you should be in great shape.

Hope that helps.

How Do We Build Up Credit Again After Bankruptcy?

Reader Question: My wife and I file for bankruptcy but were able to keep our house. We have remained current however it is our only source of credit. How should we build it up again ... another credit card?

I generally don't advise people to open credit card accounts they don't need, just to build or rebuild a good credit score. Do you have a card already? If so, your best option would probably be to pay down the balance on the card you have. If you reduce the balance and continue to make your payments on time (for the credit card as well as the mortgage loan), your score will generally improve.

The bankruptcy filing will stay on your credit report for seven to ten years. Ten years is the legal limit, but depending on the type of bankruptcy you filed (Chapter 7 or 13), it could come off your reports after seven years. With that being said, the bankruptcy will have less of an impact on your credit score as time goes on. So even while bankruptcies follow you for several years after filing, it's not the end of your credit world.

I have a friend who filed bankruptcy years ago, and he is a real-life example of this. He gradually improved his credit score over time, and then when the bankruptcy finally came off his credit report the score went up even more.

If you don't currently have a credit card, and you decide to open one, I would urge you to keep the balance low. Use it for small purchases a few times a year, and pay the balance off each month. By making regular payments and keeping the balance low, you can gradually improve your score. But keep in mind the statement I began this response with -- I don't recommend opening a new credit card unless you need one. If you already have a card, pay the balance down to about 10% or 15% of the available limit (or even lower, if you can), and continue to make all your payments on time.

Related articles:

• Improving Your FICO Score Fast in 2009
• How to Repair Credit After a Bankruptcy Filing

Hope that helps you out some. Good luck in 2009. I hope things work out for you.

Can a Creditor Change Your Name on an Account and Request Payment?

Reader Question: Can a creditor change your name on an existing account without your permission and request payment? I have never used the name assigned as a signature on any of my initial application paperwork, nor have I changed my name legally.

I'm not sure why they would change your name on paperwork without your permission -- or without a reason to do it. Is the account truly yours? Is it legitimate, other than whatever name issues are taking place? If so, you will have to make the payments one way or another (though you'll want to straighten out the legal name issues).

Generally speaking, clerical errors do not relieve you of your duty to pay back your debts. So if you're looking for a loophole to avoid having to pay a legitimate debt, I don't have any good news to offer you.

Collection Agency Trying to Collect Debt That's Been Settled

Reader Question: I settled a debt with the original creditors after being sent to collections. Recently I have been contacted by a collection agency for payment on the already settled debt. I have looked through all of my paperwork and can not find the settlement letter. What steps can I take?

That's a good question. If your settlement involved an actual payment to the original creditor, maybe you could track down a record of the payment. Can you work through your bank to get a copy of a canceled check that shows the payment? Does the payment show up in your online banking records? If you can find a record of the money you paid to the original creditor (and any other documentation), you can use that to dispute the debt.

Also, if you haven't done so already, I would contact the original creditor and ask why they've turned your account over to a collection agency again. Tell them when and how you settled it, and they might be able to verify it on their end.

Also, keep in mind the burden of proof is one (A) the credit reporting agencies and (B) the person who is reporting information to them, in case the collection agency. But the burden of proof only arises after you dispute an item on your credit report. Paying and/or settling an overdue account will not remove it from your credit report, but it will update the status of that account. If you truly settled the debt, but the collection agency is reporting it is an active account being collected, then you can dispute it.

When you dispute something on your report through Experian, TransUnion or Equifax (or all three), they are required by law to verify the item in question. If their findings support your dispute -- or if they are unable to verify the item one way or the other -- they must update your credit report accordingly.

Check out the FTC's web page about the dispute process:
http://ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm

Related Q&A sessions:

• I Settled Debt But Collection Agency Says I Owe
• I Paid My Debt But They Are Still Contacting Me

I hope this helps you out some. If you

Does Paying a Debt That's Already on Credit Report - Does It Help?

Reader Question: "If you have had great credit for years and then you get a collection on your credit report for $50 dollars, which drops your score down to an average score, how much does it affect you if you don't pay it back and just let it stay on showing unpaid? I had a bill that was charged to me after the fact and don't want to pay, especially now that they put it on my credit history. I have nothing else negative on my history but previously where my score was in the high 700s it's now 660 because of this unpaid debt. Does paying a debt help your score that much since it's already on your report?"

Response:

I posted a response earlier today on a very similar subject. So I would start with this Q&A session. Paying off a collection item will not remove it from your report. Once the collection agency reports the account to the reporting agencies, it will stay on your report for up to seven years -- unless the item was filed in error and you can improve it.

However, when you pay the item off, the line item on your credit report will (or should) be updated to say "Paid Collection." So while the item will remain, it will at least show that you paid off the debt. This may help your credit score in the long run, and it may help you

The real question is, do you want bill collectors bothering you (possibly for years) over a $50 outstanding debt. Credit scores aside, if I were in your shoes I'd find a way to resolve the debt by disputing it successfully or paying it off. But that's just me.

Credit Score After Bankruptcy Drops Off

Reader Question: I have a bankruptcy that should drop off this month. It was discharged 7 years ago before the new ten year rule. I'm curious how it will affect my credit score after it drops off my record.

Your score should go up, but nobody can say how much. Only time will tell. A bankruptcy tends to have less of an impact on your credit score over time. So while it always hurts your score when it's on your credit report, the damage will usually lessen over time ... up until the bankruptcy drops off your credit report entirely.

I would wait a month or so after the seven-year mark to check your credit score again. An increase in your score as a result of the bankruptcy dropping off probably won't be instantaneous.

As for the ten-year rule for bankruptcies, some of them still come off after seven years. It varies based on the type of filing. Here's a quote from Maxine Sweet, one of the VPs at the Experian credit reporting company:

"Bankruptcy can be reported for up to 10 years from the filing date ... Experian reports Chapter 13 bankruptcy for seven years because it includes partial debt repayment. Chapter 7 bankruptcy remains for 10 years from the filing date because none of the debt is repaid."

Related Q&A sessions:

How to Repair Credit After Bankruptcy
This person wanted to know how to improve her credit a year after filing for bankruptcy, while it was still on her report. The response explains that the actions you take after filing will affect how quickly your score recovers, up to and after the bankruptcy drops off the credit report.

Hope that helps. Good luck in 2009.

Paying Off Collection Accounts Before Refinancing

Reader Question: I want to finance a house and have three collections on my account. If I paid them off will this help my chances of financing?

If I were you, I would apply for the refinance loan first to see what happens. Scratch that. The absolute first thing I would do is check my credit score. That way, you would know where your credit stands going into the mortgage application process. If you get approved and it all works out well (in spite of the collection items) ... great!

If you get declined for the refinance loan on the basis of your credit score, then you obviously have some work to do. Paying off an old collection account does not always improve your credit score. In fact, it can sometimes have the opposite effect. The FICO scoring model, which is the one used by most lenders, is a quirky thing. By paying off an old collection account, you are also making that account more recent. And many experts claim that this can lower your score.

Of course, there are just as many "experts" who claim that paying off an old collection item will not change your score much at all. So there's that.

Here's what the folks at MyFICO (creators of the FICO scoring model) have to say about this subject: "At myFICO we always recommend paying off your legitimate debts, and paying off old collections won't hurt your FICO score." -And if they're not experts on their own scoring system, I don't know who is!

There are many variables to be considered on a case-by-case basis. So I can't offer you any predictions. I'm just saying there's a possibility you could hurt your score (if only slightly) by paying off a collection account.

Like I said, if I were in your situation I would check my credit score first. If it was good, I would go ahead and apply for the refinance loan. When a lender declines you for a loan, they usually tell you the exact reasons why. So even if you get declined, you'll get something out of it.

Related Q&A sessions:

• Should I pay off my loans or collection items first?
• Will paying off my bills raise my credit score?

Hope that helps. Good luck.

Credit Scores for Married Couples - Does Anything Change?

Reader Question: If my credit is great and I marry a person with very bad credit, how will that effect our credit as a couple?

For richer or poorer, in sickness and in health, and with good credit or bad. :-)

When you marry somebody, your credit scores are still separate. They do not merge in any way, shape or form. You share everything else in marriage -- just not your credit score.

Of course, if you apply for some kind of financing as a couple (like a mortgage loan), the lender will review both of your credit scores. But they'll also look at your combined income, if applicable, so it often becomes a tradeoff.

I know a lot of married couples in a similar situation. One person will have excellent credit and the other spouse will have bad credit. But they want to use their combined incomes in order to qualify for a certain loan amount. But if both names will be on the mortgage loan (and both incomes will be considered), then you can bet that both credit scores will be reviewed as well.

Here's a related Q&A session you might want to peruse:

Spouse Has Bad Credit - Can We Get a Mortgage?
This is an expansion of the point I made above, regarding mortgage applications. This person took your question a step farther by asking how the credit score "mismatch" will affect them when applying for a mortgage loan.

Hope that helps. Good luck to you in 2009.

Paid Medical Bill Sent to Collection Agency - Impact on Score?

Reader Question: If a medical bill that has been paid gets turned over to a collection agency anyway, how does it affect the credit score?

If the bill was paid then the hospital or doctor should not send it to a collection agency. But if they do it anyway, and it gets reported to the credit reporting agencies as an unpaid medical bill, then it would show up on your credit reports and have a negative impact on your score. You would then have to dispute the medical bill through the reporting agencies to have it removed from your reports.

This brings up one of my biggest gripes with the whole reporting system. There is no front-end validation on the part of the credit bureaus. They take what people report to them as gospel, without any form of verification. The only time they actually verify a negative item is on the back end, when it gets disputed by the consumer.

So is it possible to have a paid bill reported as unpaid? Yes. And could that item then show up on your credit report? Yes. Would it have a negative impact on your overall score? It sure would.

This is why it's so important to request copies of your free yearly credit report every year, so you can check them over for errors. I've seen studies that suggested the majority of credit reports have at least one error on them. That's pretty disturbing, and it only underscores the two points I've made here: (1) the system is broken, and (2) it's important to review your information for accuracy about once a year.

Related Q&A sessions:

• Medical Bill Sent to Collections - Credit Score Impact
• Where Does My Credit Score Come From?

Hope that helps.

Getting a Mortgage After Clearing Up Credit - How Long to Wait

Reader Question: How long should you wait after you clear up your bad credit to get a mortgage loan?

That depends on what you mean by clearing up your bad credit. Here's what I mean:

• If you mean that you've fixed some problems that were hurting your credit score, but you're score hasn't yet improved dramatically ... then you might want to wait until you see an increase in the score.
• If you mean that you've already seen an improvement in your credit score, then it might be a good time to apply for a mortgage. Or you could wait a while to see if your score goes up even more.

It all comes down to this. The better your credit score, the easier time you'll have getting approved for a loan. A higher score will also qualify you for a better interest rate on the loan. And that means a smaller mortgage payment each month!

You could probably qualify for a home loan in this economy with a score in the 650+ range. But to get the best interest rate a mortgage lender has to offer, you'll probably need something north of 720. Getting qualified for a loan is your first hurdle. Once you clear that, it comes down to the interest rate the lender is willing to offer, and whether or not that makes the loan affordable for you.

Mortgage Qualification - Beyond Credit Scores

It's also worth mentioning that a mortgage lender will look at other things, beyond your credit score. You also need a favorable debt-to-income ratio in order to qualify. And most lenders today are requiring a down payment, the closer to 20% the better.

Hope that helps. Good luck to you in 2009.

Notice of Cancellation - But Debt Still Shows On Credit Report

Reader Question: "A few years ago a debt collector tried to collect a debt. I requested verification and it was not provided. I received a Notice of Cancellation stating the account was being returned to the original lender. Now, several years later, the account is being reported as derogatory and the collection / charge-off appears on my credit report. Can they do this since the debt was never verified and I received a Notice of Cancellation. I would like this item taken off my credit report. What can I do?"

The notice of cancellation does not mean that the debt was forgiven. It's just the debt collector's way of saying, "We don't own this account anymore. We are giving it back to the original creditor." So it's legal for the negative entry to stay on your credit report, even though you received a notice of cancellation from the collection agency.

Now if the debt is entirely illegitimate, then you can dispute it through the credit reporting agencies who produce your reports. But you won't have much luck disputing it just because of the notice you got from the debt collector.

If you believe the negative entry is erroneous, then I would dispute it. When you initiate a dispute through Experian, TransUnion or Experian (whoever produced the report in question), they are obligated by law to verify the negative entry. If they find that it's an error -- or if they are unable to verify it one way or the other -- they have to remove the item from your credit report.

Hope that helps.

Canceled Credit Card - How Will It Affect My Credit Score?

Reader Question: How will it affect your credit score if a bank cancels your card due to lack of use and you have two other cards from the same bank?

It depends on the balances of the other two cards. More specifically, it depends on how much of your total credit limit you are losing ... after the third card is canceled.

The key concept at work here is referred to as credit utilization ratio. This is the percentage of your available credit that you are using. In the chart below, this ratio shows up as the red section (amounts owed). You can see that it's a sizable chunk of the overall FICO scoring model.



So the question is, will your credit utilization ratio be better or worse after the one card is canceled for inactivity? This will likely determine whether your score goes up, down, or stays roughly the same. To answer this question, you need to consider the balances of the three cards.
For example, consider this scenario:

• Limit on card #1 -- $5,000
• Limit on card #2 -- $6,000
• Limit on card #3 -- $4,000

In this scenario, the total available credit limit for all three cards is $15,000. Now let's assume that these cards have the following balances on them:

• Balance #1 -- $4,500
• Balance #2 -- $5,500
• Balance #3 -- $200

When you add it all up, this person is using $10,000 of their $15,000 credit limit (across all three cards). So their utilization ratio is about 68 percent. That's not so good. Now let's say that the bank cancels one of the three cards, for whatever reason. It could have a positive or negative impact on their credit utilization ratio, depending on which card gets canceled.

If card #3 gets canceled, then their available credit limit shrinks to $11,000 (the limit on cards #1 and #2, combined). Now this person is using a much higher percentage of their overall limit ... so their credit utilization ratio goes up ... and their credit score will probably take a hit as a result.

Hopefully that doesn't confuse the heck out of you. But this is how it works, more or less.

Credit Score History - Where Your Score Comes From

Reader Question: Where does my credit score history come from and how is it calculated?

I'm glad you asked, because this is a topic that confuses a lot of people. In fact, many people don't even realize there's a difference between a credit report and score. Hopefully, the following credit score history explanation and diagram will clear some things up.

In the left side of the image below, you can see that your credit history begins with your financial activity. In most cases, this early activity will come in the form of (A) the first credit card you use, (B) the first unsecured loan you obtain, or (B) a combination of these things. From that point forward, you have a credit score history that will follow you.



So let's say you turn 18 and you apply for your first credit card. You begin using that card for minor purchases. Certain aspects of this financial activity will be reported to the three credit reporting companies shown in the diagram above -- Equifax, Experian and TransUnion.

The information reported will often include the number of credit accounts you have, the available limit, current balances, and any history of late payments you might have. This information is used to establish your credit score history, and you continue to build on it for the rest of your life.

The three credit reporting agencies will then use a scoring model such as FICO to convert this raw data into a numerical score. The FICO score is the one most commonly used by lenders when you apply for new credit. It's a number between 300 and 850 (higher is better).

Now let's say you're applying for a car loan, or maybe even a mortgage loan. The lender you approach will want to know your credit score history, because it says a lot about how you've managed your finances in the past. A low score will make the lender nervous, and they will view you as a high risk. A high score, on the other hand, will portray you as a low risk -- and this makes the lender happy.

Another important point on the subject of credit score history is the rule of three. As illustrated above, there are three different companies who maintain financial data on U.S. consumers. Because the information they is proprietary (and because they all use the credit score model in different ways), you actually have three different credit scores. Not only that, but you may find that all of your scores are different. Lenders will typically look at the middle score, or maybe an average of two out of the three.

So to sum up our explanation:

Your credit score history is based on your financial activity, and it typically starts when you begin applying for credit cards, loans, etc. This information is maintained by three different companies, and these companies will run the data through a scoring model to produce a credit score for you. Lenders will review these scores (among other things) when considering you for a loan.

Related Q&A sessions:

• How do I start building a credit history?
• What does three credit reporting mean?

I hope this explanation makes things a little clearer for you.

Does Garnishment of Wages Show Up On Credit Report

Reader Question: Does garnishment of wages show up on your credit report?

Yes, it will appear in the "Public Records" section of your credit report. In most cases, garnishing of wages has to be approved by a court. So it's a form of legal action against you, and thus it is also part of the public record. So a legal judgment associated with a wage garnishment can show up on your credit report, and it can also do damage to your credit score.

So yes, it's legally possible for garnishing to appear on your file. Whether or not it actually does show up is another question entirely. That depends on whether or not it gets reported to the credit reporting agencies (Experian, TransUnion and Equifax).

When it does appear on your report, it will include the following information: the court where the case was tried, the case number, the amount of debt that is owed, the current status of the case, the plaintiff and defendant, and other relevant data.

Like most negative information, a wage garnishment can stay on your report for a period of up to seven years. After that, it has to be removed. This is in accordance with the Fair Credit Reporting Act.

Definition: For readers who aren't familiar with the term, garnishment is the process through which a creditor collects part of your wages to settle your unpaid debts. It's usually a last resort among creditors, and it must be approved through a court.

Denied Credit for Derogatory Public Record on Credit Report

Reader Concern: I have recently been denied credit. I responded to a pre-approved credit offer and was denied due to these things: 1) Derogatory public record or collection filed. 2) Length of time accounts have been established. 3) Recent derogatory public record or collection 4) Lack of recent information on installment accounts.

This is the second time in two months I have been denied credit, by two different creditors. I've not been any of these things as far as I'm concerned, and the free credit report that I've acquired seems to support that. Why have I been denied credit, when all accounts in my report are in good standing?

Response:

The "public record" information they are referring to has to do with legal judgments such as IRS tax liens, bankruptcies, foreclosures, and other legal matters. This is separate from your account history, and it shows up in a different section in your credit reports. It's possible to have credit accounts in good standing at the same time you have derogatory public records in your credit report. I don't know if this is the case for you or not -- I'm just saying it's possible.

From what you've described, the creditor is finding something negative in the Public Records section of your credit reports. If they are telling you this, there are several possible reasons:

• There is, in fact, some kind of negative information in this part of your credit report.
• There is some kind of data mix-up that leads them to believe you have derogatory items in your public record (when you really don't).
• The creditor is giving you a bogus reason for why they've denied you credit. Perhaps they are sending you a form letter used for everyone who is denied.
  

The first possibility is the easiest to rule out, and it sounds like you may have done this already. You would simply check the "Public Records" section of all three credit reports (from Experian, TransUnion and Equifax) for some kind of legal judgment against you. This can include a variety of tax liens and other judgments. If you've ruled this out with 100% certainty, then your answer lies within one of the other bullet points listed above.

Have you had your wages garnished in the past? Have you had problems with the IRS that led to some form of tax lien? Have you ever declared bankruptcy, or had a house foreclosed upon? Any other type of legal action(s) against you? If you answer "yes" to any of these questions, then you've identified the problem. If you answered with a resounding "no" across the board, then there's something else wrong.

How Do I Find the Errors On My Credit File?

Reader Question: How do I find the errors on my credit file? And can you have things removed from your file through loopholes in the way the company reported it?

For starters, you need to request your credit file / report from all three of the credit reporting companies. Then you need to read through each section with an eye out for inaccurate information.

In the personal data section, you're just making sure it has the right name, Social Security Number, etc. In the "Public Records" section, you want to make sure there aren't any legal judgments showing up that aren't yours. This includes bankruptcy filings, liens, foreclosures, etc. In the "Account History" section, you're looking for (A) credit accounts that aren't yours and (B) any late payments or debt collections that have been reported incorrectly. You also want to ensure there aren't any negative entries that are more than seven years old (or ten years for bankruptcy filings).

If you want a section-by-section guide to credit reports, with more detail than this blog post, check out this guide to reading your reports.

As for your second question, there really aren't any "loopholes" you should be concerned with. Despite the data errors and other mistakes that can occur, the credit reporting process is fairly straightforward. It's also regulated by the FTC, through the Fair Credit Reporting Act. If you find a negative entry on your credit file that's there for legitimate reasons (i.e., you truly neglected your debts, filed bankruptcy, or whatever), then there's nothing you can do to remove it. You just have to wait until the item "expires" at the 7- or 10-year mark.

However, if you find something on your credit file that should not be there (an obvious mistake), there's plenty you can do about it. You can dispute such items through the website of the company who produced the report -- TransUnion, Experian or Equifax. No need to look for loopholes.

Negotiating Debt With American Express - How Will It Impact My Credit?

Reader Question: How will negotiating with American Express for anything less than the full balance impact my credit score?

It will probably hurt your score. Anytime you agree to some kind of settlement with a creditor, in which you pay less than the full amount owed, the creditor will write off the difference and report it to the credit reporting agencies. It would show up on your credit report as a closed account, with a note to the effect of "settled for less than amount owed." At least, that's what happens in most cases.

It won't hurt your credit score as much as walking away from the debt entirely, but it will certainly have a negative impact to some degree.

I did a search and found a similar question that was asked back in November of 2008. Like you, this person was considering a settlement of some kind with the credit card company. Here's the response I posted:

Credit Card Debt Settlement - How It Affects Your Score

In the Q&A session above, I explained that the best-case scenario is to pay the full balance in some way, shape or form. The second-best scenario is debt settlement, which will do damage to your credit score. The worst option would be to ignore the problem and have it sent to a collection agency.

If you are learning toward a credit card debt settlement, you need to do some more research into the subject (beyond this blog). Read everything you can find about settling debt in this fashion, so that you can make an educated decision.

Hope that helps.

Foreclosure Was Dismissed - Does It Still Hurt My Credit Score?

Reader Question: A couple of years ago I had a foreclosure action filed against me. I was able to pay the bank and the action dismissed. Does this still count as a foreclosure on my credit score?

If you haven't done so already, you should get copies of your credit reports and review them. When you have any type of legal judgment filed against you (a foreclosure in this case), it will show up in the "Public Records" section of your credit report.

When a bank forecloses on a homeowner, they will initiate the process through the courts. But that's not when it goes on your credit report. The legal filing has nothing to do with the credit reporting companies (TransUnion, Equifax and Experian). The bank must report the foreclosure to these three companies. How and when they do it will vary from one lender to another.

So the first thing you need to determine is whether or not the foreclosure was reported to the credit reporting companies. If it was, it will probably still show up under the "Public Records" section of your credit reports. If you find that it's still listed there, you can dispute it with the credit bureaus. Use whatever supporting documentation you have to prove that you paid the bank back, and that they dismissed the foreclosure action.

Your credit score is based entirely on the information contained within your credit report. So if the foreclosure is showing up, it's also hurting your scores. Get copies of all three reports and make sure they are accurate. If they're not, dispute the inaccuracies through the reporting agency that produced the erroneous report (this might mean one of them, two of them, or even all three bureaus).

Activating My Credit Card - How Does It Affect My FICO Score?

Reader Question: My husband and I have one joint credit card. It's our only credit card, and it has a zero balance. We pay a yearly fee to have it, even though we haven't carried a balance on it in several years. We haven't activated the newly issued card and was wondering if that will affect our FICO score.

Activating the credit card shouldn't have a major impact on your FICO score one way or the other (up or down). If you start making small purchases with the new credit card, and you promptly pay them off each month to keep your balance low, then you may even see your score go up.

I never advocate using a credit card solely for the purposes of establishing a credit history ... but if you are going to use it, just try to keep that balance low. "Low" in this context means less than 20 percent of the available limit. As far as your FICO score is concerned, the best way to use a card is to make small purchases and pay them off every month.

But I'm wandering off track here. Activating your credit card should not make a big difference with your score. It's how you use it that makes the biggest difference.

Disclaimer: Everything I just told you is based on past experience. I cannot guarantee what effect the card activation will have (obviously). So please don't take this as gospel. :-)

Hope that helps. Good luck!

Medical Bills Sent to Collections - It's Affecting My Refinance Rate

A Reader's Concern:

I have had great credit and went to refinance and saw that I had a collection on my credit score. I called the collection agency and they said it was a medical collection for $60. I then called the doctor, and the office manger said the doctor had charged me extra after the visit for what was already paid and they couldn't get a hold, so they sent it to collections. I never knew about this and thought the $105 dollars I had paid for the visit was all that was needed since the doctor never mentioned anything else or that it would be extra pay.

I told the office manger and asked her if I could give her the money and have this taken off since I knew nothing about it. She said there was nothing she could do because it was out of her hands, and I needed to take it up with the collection agency. A judgment went on my credit report in December 2008. My credit score then was a 760, but now it's a 660.

Now the bank doesn't want to give me the same rate on my refinance loan because of my lower score. Is there anything I can do to get this off my record? Will paying the $60 to the collection agency change my score?

Our Response:

This is one of the most common questions we receive from consumers. Unfortunately, medical billing departments sometimes make a half-hearted attempt to reach former patients before sending accounts to the collection agencies. There is a lot of information on the blog that speaks to this issue. So the best thing I can do is provide you with links to previous Q&A sessions on this topic.

Previous posts related to overdue medical bills:

• How it affects your credit score
• How to dispute them
• Removing them from your credit report

If I were you, I would pay the $60 that is due. It won't remove the item from your credit report entirely, but it will update the status of the account to show that you paid it. This might boost your score slightly -- but don't expect a huge leap in points.

FHA Home Loans - How Will Our Debt Affect Us?

Reader Question: My husband has $70,000 worth of student loans that we will begin repaying this month. Our combined yearly income is $80,000 with fair credit. How will this affect us for loans under the FHA program?

For one thing, your debt-to-income ratio is less than favorable. This may hurt your chances for qualifying for a mortgage loan of any type, including the FHA home loan. If your total debt is nearly equal to a full year's worth of income, it's going to raise some red flags with most mortgage lenders.

Keep in mind that when you apply for an FHA home loan, you still have to go through a private lender. You may already know this, but I wanted to clarify it for other readers. Many people think that the FHA loan program is a way to bypass regular mortgage lenders, but it's not. Even though you're applying for an FHA home mortgage, you still have to submit the application through a lending company. And that company will review your debt-to-income ratio, your credit score, and other factors.

Of course, the whole point of the FHA program is that the federal government insures the loans made by the private lenders. This is key to the whole process, because it means that a person who might not otherwise qualify for a mortgage could get one through the FHA home loan program.

Here's the bottom line. The only way to know if you can qualify for one of these loans is to apply for one. You've really got nothing to lose by submitting an application. They can tell you no, but at least you'll know what you need to work on (most lenders will tell you exactly why they can't approve you).

Related articles:

• FHA Home Loans in 2009 - Updated Info
  
• FHA Requirements and Applications

I hope that helps you out some. Good luck.

How Long Does a Foreclosure Stay on Your Credit Report?

Reader Question: How long does a foreclosure remain on your credit report?

By law, a home foreclosure can stay on your credit report for a period of up to seven years. It will show up under the "Public Information" section of your report, which lists any legal judgments that have been made against you (to include a court-approved foreclosure).

The next logical question that most people have is, "How will a foreclosure impact my credit score?" So I'll go ahead and address that one too. Having your home foreclosed upon by a lender will do serious damage to your credit score. As far as your credit history goes, it's one of the worst things that can happen. So if at all possible, you should try to avoid foreclosure altogether.

Now, a foreclosure won't destroy your credit forever. I started this response by explaining it can only stay on your credit report for up to seven years. And even during that seven-year period, it's possible to improve your score (after the initial damage has been done). That's because the foreclosure will have less of an impact on your overall score as time goes on.

People often write us and ask, "How many points will my credit score drop after the foreclosure process?" It's impossible to make an exact prediction, but your score will certainly take a hit -- and a big one at that. So avoid it, if at all possible. And if you can't avoid it, then create a plan to start rebuilding your credit after the foreclosure hits your report.

Related Q&A sessions:

• How long does negative information stay on your report?
• How do I read the information in my credit report?

Account Sold to Three Different Debt Collectors - Can They Do That?

Reader Question: In 1999 I got a cell phone. Some miscommunication happened from their end, and I refused to pay the bill. It seems that this has been sold to three different debt collectors. Is that legit? Can they keep selling it over and over again?

Yes, the original creditor can sell the account to one collection agency. That company can then sell it to another, and so on. But what they cannot do is report it more than once on your credit report. For example, if two or three collection agencies are reporting the same account to the credit reporting agencies, then you should dispute it. Of course, the only way you can know this is by reviewing your credit reports once or twice a year.

Of course, if it's been 10 years since this item was first sent to collection (since 1999), then it probably won't even show up on your credit report anymore. Negative items such as missed payments can only stay on your reports for up to seven years. Check out the Fair Credit Reporting Act if you want to learn more about these restrictions.

Here are some related Q&A sessions I recommend reading:

Collection Agencies Reporting the Same Account Twice
This person wrote in to ask a similar question -- whether it was legal for multiple debt-collection companies to report the same account to the bureaus.

Duplicate Entries Can Hurt Your Credit Score
This posting gives a good overview of what a duplicate entry is, and what you can do if you find them on your reports. It also dispels some common misconceptions people about this topic.

I hope that answers your question. Take care.

I Cannot Get My Credit Score Over 600

Reader Question: I went through an ugly divorce in 2004. I paid off all the debt in 2005, some of which were late payments. I have had credit cards, a home, car etc. since then with no late payments. But I cannot get my credit score over 600. I keep all of the credit cards below 20% of the limits. Any suggestions?

On the surface, it seems like you're doing everything you need to do to rebuild your credit score. I do have some suggestions and considerations for you though.

The first thing you should do -- if you haven't already -- is request copies of all three of your credit reports and read through them for accuracy. You are looking for several things here. First of all, you want to make sure there are no accounts showing up that aren't yours. Secondly, you want to make sure that your credit reports reflect the fact that you've paid your debts in full.

Here's the important thing about late payments and credit reports. Once it gets reported to the three reporting agencies, a late payment / default can stay on your credit report for up to seven years -- even if you eventually pay them off. So when reviewing your reports, it's the status of the account you want to look at. Even if the account is on there, the status should reflect your payment in full. If it still says "active" or "in collection" (or something similar), then you need to dispute it through the company that produced that report -- either TransUnion, Equifax or Experian.

You can also contact whomever you sent your final payment to (original creditor, collection agency, etc.) and tell them they need to update the status with the credit reporting bureau. Fortunately, the law is on your side in all of this. If you can prove that you've paid a debt, then the credit reporting bureaus are obligated to show this on your reports.

You seem to be doing well in the credit utilization department. This is the "Amount Owed" portion of the chart below, and it accounts for about 30% of your overall score. It wouldn't hurt to pay the balances down a bit more (every little bit helps), but being below 20% of the credit limit is pretty good. I don't see why that would be limiting your score.



While we're talking about this pie chart, it's worth noting that your payment history influences your credit score more than any other single item. So, even though you've paid those previously missed payments, they're still going to "ride" on your credit score until the seven-year point. And they're going to have an effect on your score. But again, you want to check your credit reports (all three of them) to make sure the status has been updated for those particular accounts. You want it to reflect the fact that you're all paid up.

There are a lot of variables here, many of which I don't know. So it's hard for me to offer any advice other than what I've written above. I hope this helps you, at least a little. Check out the related questions below for more information.

Related Q&A sessions:

• Will paying off bills raise my credit score?
• How do I increase my score as quickly as possible?

Should I Pay Off My Loans or My Collection Accounts First?

Reader Question: I have several outstanding accounts that are in collections somewhere. I don't even know which company owns them anymore. I have enough money to pay off at least two loans. Which should I do first, pay off accounts in collections or the loans?

We cannot offer that kind of specific advice. But I'd be happy to help you reason things out.

It really depends on what your immediate goals are. If you're simply trying to improve your credit score, then paying your old collection debts might be a good place to start. Of course, a negative entry from a collection agency can only stay on your credit report for up to seven years. They can try to collect on it forever, if they want to, but it can only remain on your report for seven years maximum.

Here's what the folks at MyFICO (creators of the FICO scoring model) have to say about this subject: "At myFICO we always recommend paying off your legitimate debts, and paying off old collections won't hurt your FICO score." -And if they're not experts on their own scoring system, I don't know who is!

Also, keep in mind that paying an old collection item doesn't necessarily mean it will be scrubbed from your credit report entirely. The status of those accounts will be updated to reflect the payment, but the items themselves may remain on your report until the seven-year point. However (and this is a big "however"), settling an old debt can go a long way in the eyes of a mortgage lender. Walking away from your old debts, on the other hand, sends a very bad signal. So consider this if you're planning to apply for a mortgage in the near future.

Your other loans will either have a positive or negative impact on your credit score. If you make your payments on time, the effect will be positive. If you routinely miss your payments (and those defaults are reported to the credit bureaus), it will have a negative impact on your score. So if you're currently keeping up with the payments on the other loans, there's really no reason to pay them off right away -- unless you really want to. It will certainly help your debt-to-income ratio by paying the loans off. But in terms of your credit score, it's the payment history that matters most.

This is more than just a credit question. This is a general budget question, and also a quality-of-life issue. But hopefully I've at least given you some food for thought. Good luck.

Related Q&A sessions:

• Will paying off my bills raise my credit score?
• Should I pay off my unsecured loan to improve my score?

Credit Score Needed to Buy a House in the 2009 Market

Reader Question: "How high should my credit score be to buy a house in this market?"

This is a fairly common question that we receive. In fact, it's such a frequently asked question that I decided to publish a new video on the subject. In the video below, I'll give you an overview of the FICO credit scale, and what's considered a good credit score in today's economy:



This is also the kind of question where you'll get a dozen different answers from a dozen different "experts." There are actually two parts to this question, whether you intended it or not:

• Part 1 - What kind of credit score do I need to qualify for a mortgage loan in 2009?
• Part 2 - What score do I need to get the best interest rates on a loan?

Back in October, somebody asked if 700 was a good score in this economy. So that blog post might be worth a read. But things have changed since then. So let's take a more recent sampling of what the experts are saying on this subject. The most recent quotes are listed at the top:

What the Experts Are Saying

"To qualify for a loan, first time home buyers need a credit score of at least 660 unless they try for an FHA loan."
(Source: ThinkGllink.com, January 2009)

"About two years ago, you could have had a score of about 620 or so to get a lender's best rate on something. Now, lenders are really looking at a rate of 760 at the least, said Kelli Grant with SmartMoney.com."
(Source: komonews.com, January 2009)

"The top notch credit score needed for the best rate in today's world is 740, Wickert said. It's possible for borrowers with weaker scores to get the good rates, but they pay a risk premium that can be financed into the new loan. For instance, Wickert said, someone with a credit score between 680 and 699 could get the same rate as the person with a 740 score by paying 1.3% of the loan balance up front."
(Source: JSonline.com, December 2008)

"Borrowers need a credit score of at least 750 to get the best deals. Keeping credit-card balances below 35 percent of their credit line is very important, but 20 percent is the maximum allowed for a top score."
(Source: RealtyTimes.com, November 2008)

"In the latest example, Mortgage Guaranty Insurance recently boosted the minimum credit score needed for someone to buy a house in a restricted market. In August, the minimum score was 680. As of October, the minimum score is 700."
(Source: MoneyCentral.MSN.com, October 2008)

"To qualify for the best interest rates on a mortgage loan, you'll need a credit score of at least 760; a score below 620 places you in subprime territory."
(Source: Kiplinger.com, October 2008)

* These quotes refer to the FICO score in particular, which is the one used by most lenders.

What to take away from all this:

• Opinions vary on how high your score needs to be in order to get a home loan in this market.
• There's a big difference between qualifying for a mortgage and getting the best interest rate on that mortgage. In order to get the best rate, you need an even higher score than you would need just to qualify for the loan.
• Your credit score is just one of the things a lender will look at when considering your for a home loan. They'll also consider your debt-to-income ratio, the size of the loan in relation to your income, and other financial factors.
• If you feel you have a decent score, and you want to know if you can get a loan, there's only one way to find out for sure. You have to apply and see what happens. You don't have anything to lose by applying for a mortgage loan (except a bit of time and energy).

Hope that helps you out. If you'd like more information on this subject, check out the library of credit score articles below:
http://www.cornettcommunications.com/credit-score.php

I Want a 700 Credit Score to Purchase a Home - Any Advice?

Reader Question: "I have very late student loan payments on my credit report. I paid them all off last year in lump sums, but now I have the late payment histories (120+ days late) on my record for at least three more years. I've already increased my score from 585 to 637 in one year, and have a new credit card to create a recent payment history since I paid off my car last year (six 30+ late payments there too). I would like to raise my score to 700 to qualify for a newer car and purchase a home in the next two years. What advice can you offer me?"

My best advice is to keep doing what you're doing. Negative entries on your credit report (such as those late payments) will have less of an impact on your credit score over time. So even though they might be on your credit report for another three years, until the seven-year point, you can still improve your overall score.



Of course, how much you can improve it, or how quickly, is not something I can answer. Though the credit reporting companies won't admit it, I have my theory that there's a certain "cap" as to how far a credit score can improve while negative items remain. But even if this were true, it shouldn't deter you from following the straight path.

If you continue to make your payments on time, and you keep your credit card balances low (like below 25% of the available limit), you should see your score continue to rise.

Also, keep in mind that mortgage lenders will look at other factors beyond your FICO credit score. Sure, it's important, but it's not the only consideration. They will also review your debt-to-income ratio, as well as the general affordability of the loan (i.e., can you afford to pay it back with your income). Most lenders today are also requiring a down payment of 20% on mortgage loans. The days of "no money down" home loans are a thing of the past -- at least for now.

Hope that helps. Good luck.

Related Q&A Sessions:

• How to Raise Your Credit Score in 2009
• Can I Increase My Score to 750 Points?
  

Do They Add All Three Credit Score Points Together?

Reader Question: Do they add all three credit score points together, or is there just one score for all three? How long does it take to raise your credit score points?

Good question about a somewhat confusing topic. While it's true you have three different credit scores produced by three different reporting agencies (Experian, TransUnion and Equifax), your scores do not get added together.

When considering you for a loan, lenders will typically review two out of the three scores to get a composite / average score. Or they'll just take the middle number and leave it at that.

When you hear the term "FICO score" used, it refers to any credit score produced through the FICO scoring model. It's short for Fair Isaac Corporation by the way -- that's the company who developed the scoring model. To make matters even more confusing, the three different credit bureaus give their own names to the FICO credit scores they produce (Equifax refers to theirs as the Beacon score, for example).

Here's what it all boils down too:

• Three are three credit reporting agencies in the U.S., and each of the produces some version of the FICO score.
• So you have three different scores, and they won't always match.
• Your scores do not get added up. Instead, most lenders take the middle score, or an average of all three.
• The FICO score is the one most commonly used by mortgage lenders in the U.S. So it's important to know where you stand with this score.

How long does it take to raise your credit score points?

The second part of your question is not as easy for me to answer, because it depends on many variables. For example, how long is your credit history? How much of the information on your credit report is positive, and how much is negative? How active are you about raising your credit score points? The articles below will give you a better idea of how it all works, and what you can do to raise your score quickly.

Related Q&A sessions:

• How Raise Your Credit Score Fast in 2009
• How Long Does It Take to Improve a Score?
• What Does Three Credit Reporting Mean?

Hope that helps you out.

Disputing Unauthorized Use of Credit Card

Reader Question: "I have always had an excellent credit history except for a time in 2004 when my nephew used my information and used my credit card. I disputed this with the credit card company and they worked with me for awhile, but I did not file a police report in the city where it occurred and they finally just told wrote it off as bad debt. Problem is it still appears on my credit report and the amount keeps increasing. What are my options?"

When you say that "the amount keeps increasing," I'm not sure what you mean. If the credit card company charged off the account, then they should not be adding penalty fees to the balance at this point. If the amount due is increasing, then you need to ask the credit card company about it. It sounds like they're piling out late fees.

In most cases, the card company will turn the account over to a debt collection agency. This usually happens after a few weeks of missed payments. This is typically when the card issuer will "charge off" the debt, meaning they are taking it as a loss. So the first thing you need to do is find out the current status of your account. Has it been sold to a collection agency? Why is the amount due increasing? Etc.

As far as the negative item being on your credit report, there's probably not much you can do about that. If you can somehow prove that the balance is the result of credit fraud, then you can also dispute the negative entry with the credit reporting companies. Aside from that, it's probably on there to stay.

Keep in mind that negative entries such as this can only stay on your credit report for a period of seven years. After that, it has to come off your report. It's a federal law.

Related Q&A sessions:

• Disputing a Collection Item on Your Credit Report
• How to Clear Up a Bad Credit History

I hope that helps you some. Good luck!

Consolidating Credit Cards - How Will It Affect My Credit Rating?

Reader Question: I'm wanting to consolidate some of my credit cards. How will that impact my credit rating?

In some cases, it won't have much of an impact at all. In other cases, it could lower or raise your credit score by varying degrees. It depends on the method you use to consolidate your debt, your overall financial picture, and other factors.

I've gathered some previous Q&A sessions below to help you understand the connection between debt consolidation, credit cards, and your credit score:

How Does Debt Consolidation Affect My Credit Score?
This is nearly the exact same question you have asked, so it's worth a read. It explains some of the pros and cons of consolidating credit card balances, and other things you should think about before making a decision.

Will Debt Consolidation Help Me Get a Mortgage?
Yes, consolidating your credit card debt can be an effective financial move in general, and it can also help you qualify for a mortgage loan down the road. Most importantly, it can help you improve your life by (A) reducing the excessive accumulation of interest and (B) giving you a path to a debt-free life.

The FICO Scoring Chart
While you're at it, you might want to give this article a quick perusal as well. This will help you understand the key factors that determine your FICO credit score (the one most commonly used by lenders). It will also help you understand the other Q&A sessions I've provided above.

Here's the bottom line. If you consolidate your balances in a way that pays off 100% of what you owe (and if you continue to make your bill payments on time), it should have little to no impact on your credit rating.

Will a Bank Consider Giving Me a Loan After Foreclosure?

Reader Question: How long does it take for a foreclosure to be removed from your credit history? My financial situation has improved but will a bank even consider to loan me money with this foreclosure?

A foreclosure will show up in the "public records" section of your credit report, because it's a form of legal judgment. In most cases, it stays on their for seven years. It must come off your credit report after that, in accordance with the Fair Credit Reporting Act.

I don't know if a bank will consider making you another loan right now or not. That will depend on many factors, such as your current credit score, the amount of time that has passed since foreclosure, your debt-to-income ratio, etc. In other words, it will depend on how well you qualify in other areas, and how long it has been since the foreclosure.

Here's something else to keep in mind. There were record-breaking numbers of home foreclosures over the last couple of years, and this trend looks like it will continue through 2009. In many cases, the homeowners were only partially at fault, while in other cases the homeowners basically brought it on themselves.

I think that once the economy recovers a bit more, mortgage lenders will have to consider people with foreclosures in their past ... simply because there are so many people in that situation. So a lender will look at the circumstances surrounding the foreclosure, what the person has done since then, and the other qualifying factors mentioned above.

In other words, don't give up hope. It could just be a matter of time and "good behavior."

How Long Will It Take to Raise My Credit Score to 700 or Above?

Reader Question: I have two credit cards and a car note, which I have had since 2006. The accounts are in good standing. My question is: How long will it take for me to raise my credit score to 700 and above. I asked this question because I would like to buy a home by the middle of 2009.

Unfortunately, I couldn't even offer an educated guess without knowing what your credit score is now. If you have been making all of your payments on time for the last two years, and you don't have any negative entries on your credit reports, you could theoretically have a score of 700 already. When was the last time you checked it?

If you are managing your credit cards properly (paying the bills, keeping the balances low, etc.), then you're doing exactly what you should be doing to achieve a good credit score. Same goes for the payments on your car loan.

Here are some related Q&A sessions you might want to peruse:

How Raise Your Credit Score Fast in 2009
This is one of the most popular articles on the site, judging by the number of times it gets viewed. It's a combination article + video tutorial, and it explains what you should be doing if you want to raise your score as fast as possible.

Is 700 a Good Score in This Economy?
A couple of years ago, you could qualify for the best interest rate a mortgage had to offer with a score of 700 or above. But that bar has been lifted slightly, in the wake of the U.S. economic crisis. Today, you might need a score of 720 or above to get the lowest possible rate on your home loan.

For starters, check your score if you haven't already done so. It may be higher than you think. Also, review your credit reports for errors if it has been more than a year since you've seen them. This is an important first step, because your score is derived from the information found within your reports. Once all of that's done, follow the advice provided in the first article hyperlinked above.

Hope that helps. Good luck with your quest.

Applying With Multiple Lenders - Will It Lower My Score?

Reader Question: By applying for mortgage refinancing with multiple lenders, will this lower my credit score?

It should have little impact on your score, if any. The people who develop the credit scoring systems (such as Fair Isaac's FICO system) know that people will comparison shop for mortgage loans. And they know that this will lead to a number of inquiries within a short period of time. So they typically do not lower a score for somebody who is clearly just rate shopping. You might see a difference of a few points, if anything.

Speaking of the FICO scoring model, here's what their website had to say about it: "So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping." -Source: www.myfico.com

I also recommend reading the Q&A session below, which is relevant to your question:

How Inquiries Affect Your Credit Score
This is a fairly in-depth look at the inquiry process. It explains the difference between voluntary and involuntary inquiries, how they impact your credit score, and more.

When researching this question, I did a Google search that produced a lot of helpful articles from trustworthy sources (such as the quote from the FICO website above). If you'd like to research this topic further do a Google search for the following phrase:
Do multiple credit inquiries from mortgage lenders hurt my credit score?

Does that answer your question? If not, just post a follow-up question the same way you did the first. Good luck in the new year!

Should I Close Credit Card Accounts Before Filing Bankruptcy?

Reader Question: I'm filing bankruptcy in Missouri. Should I close my credit card accounts before filing, leave them alone, or does it even matter?

That's the kind of decision you'll have to make for yourself. I wouldn't feel comfortable offering advice on way or the other, without knowing the details of the situation. But here are some things to think about.

Do you have balances on the credit cards right now? If you're filing for bankruptcy, I would assume you still owe money to the card companies. When you close accounts that still have balances on them, the credit scoring models treat like a maxed out credit card. The available limit goes to zero when you close the account, but the fact that a balance remains makes it seem like you maxed out your cards. This will do even more damage to your credit score, in addition to what the bankruptcy filing does.

If I were you, I'd leave the balances alone for right now. After you have filed bankruptcy, you need to come up with a budget plan that makes the best use of your money ... in addition to putting you on the road to financial recovery. After the bankruptcy filing, you might want to speak with a financial advisor or credit counselor.

Or, if the balances on those cards are pretty small, you might even consider paying them off first and then closing the accounts (prior to filing bankruptcy). The more accounts included in the bankruptcy filing, the more it lowers your credit score. So it becomes a balance between what you can afford to do now, and what you're prepared to deal with later in terms of credit score damage.

Another consideration is the type of bankruptcy you are filing. If you are declaring Chapter 7, then you're basically walking away from your debts. If you're filing Chapter 13, then you will probably need to come up with a payment plan to pay off your debt (that's usually how a Chapter 13 filing works).

Like I said, I can't tell you what to do in this situation. But I hope I've at least given you some things to consider.

Let me end with a positive note. Filing for bankruptcy does not mean that you are forever "doomed." Sure, it will hurt your FICO score at first, and the filing will stay on your credit report for 7 - 10 years. But it's possible to rebuild your credit after a bankruptcy. In fact, I have a friend who has done just that, and I get plenty of emails from people who have recovered from it as well.

Hope that helps. Good luck.

Related Q&A sessions:

• How to Improve Credit After Bankruptcy
• Improving FICO Score After Chapter 7 Filing