Restore Your Credit For Free

Lately it is not uncommon for folks to have a few problems getting the bills paid on time, considering the loss of job and reduction in pay. Now that you are finally back on your feet you are wondering what you can do to repair the damage that your credit suffered.

You have got plenty of company. There are more than 30 million people in the United States with credit blemishes severe enough (and credit scores under 620) to make obtaining loans and credit cards with reasonable terms difficult.

Or maybe your credit is OK, but you would like to make it better. After all, the better your credit, the lower the interest rates on your on mortgages, car loans and credit cards.

Understanding Your Credit Score

In order to improve your credit score, it's important to know where you stand currently. Despite all the media attention given to free credit reports, you still have to pay to find out your credit score, the three-digit number ranging from 300 to 850 that is the key to your borrowing costs. You can obtain your FICO credit scores, the ones lenders use, from MyFico.com. Or you can get Experian's "consumer education" version here. Once you know what your score is, let the restoration begin.

Now you are ready to take the steps to speedy credit repair:

1) Pay your credit cards down. Paying off your installment loans (mortgage, auto, student, etc.) can help your score, but typically not as dramatically as paying down -- or paying off -- revolving accounts like credit cards.

The credit-scoring formulas like to see a nice, big gap between the amount of credit you are using and your available credit limits. Getting your balances below 30% - 40% of the credit limit on each card can really help.

While most debt counselors recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.

2) Use your cards lightly. Hefty balances can hurt your score, regardless of whether you pay your bill in full each month.

You typically can increase your score by limiting your charges to 30% or less of a card's limit. If you are having trouble keeping track, consider using a check register to track your spending, logging into your account.

3) Know your limits. Your score might be artificially depressed if your lender is showing a lower limit than you have actually got. Most credit-card issuers will quickly update this information if you ask.

If your issuer makes it a policy not to report consumers' limits, however -- as is the usual case with American Express cards and those issued by Capital One -- the bureaus typically use your highest balance as a proxy for your credit limit.

You could go on a wild spending spree to raise the limit, but a more sober solution would simply be to pay your balance down or off before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer's Web site about a week in advance of closing and pay off what you owe. It won't raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your score.

4) Do not close out an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac & Co., one of the leading credit scorers.

Begin to take small steps and watch you credit score increase rapidly

How to Restore Your Credit

Believe it or not, there are millions of people with bad credit worldwide. But just because there are millions of others who have bad credit does not mean you shouldn't do anything to improve your credit rating. If anything, improving your credit rating can help you improve the quality of your life. Having bad credit can take its toll on you financially and emotionally. Having collectors hound you and not having the opportunity to acquire loans for various purposes can be tough. The good news is, there are ways for you to improve your credit and you do not need to hire the services of a credit repair company to clear your debt. With dedication and patience you can clear yourself from the red and gain financial strength.

So do not wallow in desperation, take comfort in the fact that you are not alone and you don't have to be in that situation for life. One of the most important things you need to do to restore your credit is to continue making payments on your debt. Make sure that your payments are sufficient and prompt. This can be difficult when you are strapped for cash but it is the best way to improve your credit rating. To be able to do this, you must stick to a budget and even live below your means. You must monitor every single expense you make and cut down on the things you can clearly live without. This may mean cutting down on dining out and even coffee-to-go.

Cutting down on unnecessary expenses can mean a lot when you have debts to pay. In the beginning it can be very difficult but once you get the hang of it, sticking to a budget will come easy to you. Another important thing you must do is to review your credit rating even when you are not applying for a loan. You should request for a copy of your credit report annually. This will ensure that you are able to file disputes when there are inaccurate information in your credit report. This will also help prevent your identity from being stolen or used by other individuals.

If you can help it, avoid having too many credit cards account open at the same time. This may mean you are carrying on debt from multiple creditors that you are unable to pay. It is best to have limited credit cards with available credit in them. Having maxed-out credit cards can negatively affect your credit score. If you have credit cards, do not use them if you can avoid it. You may have trouble keeping your finances afloat when you have too much credit card debts that are earning interest. It may be wise to avail of free credit counseling so that you can work out a payment scheme that will help you get out of debt. Creditors are also more understanding of individuals who have a program worked out in paying debts. This shows the individual is committed to paying debt. Many creditors are even willing to work out a realistic payment scheme with the borrower if the borrower is clear about his intentions of paying and understands his financial position.

Should You Save for College or Retirement?

A senior financial advisor at Ameriprise says you should fund retirement accounts first

Choosing how much of your savings to spend on a child's education while also planning your own financial future is a challenge every parent faces. Evelyn Dinkins, a senior financial advisor for Ameriprise Financial, has a daughter in college, but is also saving for her own retirement. Dinkins recently spoke with U.S. News about why you should fund retirement accounts before paying the bursar. Excerpts:

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How should you prioritize saving for your children's college education and funding your own retirement?

The prioritization is a very personal thing. Typically retirement comes first and education is a close second. There is only one way to save for retirement and that's for you to do it. There aren't many pensions left out there. Never leave 401(k) matching money on the table. That's free money. Fully save for retirement and if there is money left over, then save for education. There are a lot of ways to pay for education. There are loans. There are scholarships. There are grants. There are also so many ways students can keep costs down. Students can go in state and live at home. Too often we see people who haven't saved for education and use their retirement accounts. If you do that you may end up having to delay your retirement.

Are many parents able to completely fund their children's education while still keeping retirement plans on track?

A lot of times they can't fund the whole college experience and pay for retirement. They can only fund some amount of the college education. A lot of times their own experience has helped them decide how much college they want to fund. Sometimes parents come in with a very definite idea like, "I had to pay for college or my parents paid for me." We always start planning with the end in mind. Tell me what retirement is going to look like. Tell me what you want your child's college experience to be like.

Should you level with your child about the family's finances?

Have a discussion with the student when they are about 16 or 17. They should start looking at various schools and get a feel for all these costs. You don't want the student to have unrealistic expectations. At the age of 16 or 17 they are capable of understanding what it's going to cost and where it's going to come from and what the family's finances are. Even if you could afford to pay for everything, it's important for the student to understand how much college costs. My daughter looked at one particular school and I just had to say that can't be on your list unless you want to come out with a massive student loan. Unless the kid can get a scholarship, they often don't go to the expensive schools. Expensive schools do have large endowments and the average student doesn't even pay the full amount because they have so much money to give. You need to check with the school. Typically you can find out on their website what the average student is actually paying.

How does saving for college and retirement affect how much financial aid a student is eligible for?

Money that is set aside in retirement accounts is not considered money that is even available to go to a college education. 100 percent of that money is going towards your retirement. Don't put all of your savings into a 529 plan. The 529 plan is all for college and it can skew your financial aid. If you're counting on financial aid it may not be the best route.

How much do you need to save to finance four years of college and retirement?

You need to be saving probably 20 percent of your income for retirement if you are going to be saving well for retirement. Most people are saving 5 or 6 percent for retirement. College always costs more than you think it's going to cost. If it says the university costs $10,000 a year, assume it costs more than that because you are going to be spending more money. You're going to need to have auto insurance, additional food, and what if they don't want to live in the dorm? It's going to end up costing more. You can find out what it costs and then I think you should add another 10 to 20 percent over what you think it is going to cost.

Now this helps main st

Credit card bill closer to Obama's desk

Congress on Wednesday sent to President Obama a bill that makes it tougher for credit card issuers to raise fees and interest rates.

The move caps a years-long crusade by consumer groups and Democrats to rein in what they say are abusive practices that prey on consumers. The approval came despite strong objections by banking industry advocates, who say it could result in tightened credit to Americans.

The House voted 361-64 in favor and also approved by 279-147 an unrelated measure allowing people to carry guns into national parks.

The Senate passed the credit card bill, along with the unrelated gun measure, by a 90-5 vote on Tuesday.

President Obama will sign the bill on Friday, a White House spokeswoman told CNN.

The credit card rules would take effect in February. The bill is moderately tougher on banks and card issuers than are new Federal Reserve rules set to take effect July 2010.

The legislation make it harder for people under age 21 to get credit cards. It would also ban rate hikes unless a consumer is more than 60 days late - and then restore the previous rate after six months if minimum payments are made.

"Over the past three years as I have labored on this bill, the need to stop credit card abuses has become ever more apparent with every passing billing cycle," said the bill's House sponsor, Rep. Carolyn Maloney, D-N.Y., on Tuesday.

The bill marks a major loss for the banking industry.

Financial services representatives have decried the bill, saying it would exacerbate the credit crisis and force banks to drop some risky credit card holders. The American Bankers Association said the legislation would prompt banks to reinstate annual fees and higher interest rates for all card holders, an outcome that would penalize those with good credit who pay their bills on time.

Some House members voiced those concerns Wednesday.

"At a time when Americans are struggling to pay their mortgages, groceries and health care costs, why would we want to make credit more expensive and less available?" said Rep. Jeb Hensarling, R-Texas.

The credit card legislation has been a long work in progress. The House passed a bill in 2008 and again earlier this year. The legislation, which stalled in past years, was propelled by public outrage and pressure by President Obama.

Maloney added that she thought it was "unfortunate" that the measure to allow concealed weapons in national parks remained as part of the credit card measure. She and several other Democrats voted against the gun measure.

In recent months, credit card companies have been raising fees and interest rates. From November 2008 to February 2009, rates increased from an average to 13.08% from 12.02%, according to a Federal Reserve Board report.

At the same time, more people are not able to make their credit cards payments and are walking away from debt, according to a Federal Reserve report.

However, Treasury Secretary Tim Geithner said Monday he was not concerned about a consumer debt "bubble."

"Americans are going to be reducing how much they borrow, improving their balance sheets, saving more," he said. "Banks are still going to have losses they're going to have to adjust to. And that's what's going to make the process of repair here longer .... But that's a necessary, healthy process of adjustment for us to go through.

Credit Cards That may not be too bad

Are you mad as hell at your credit-card issuer? Take a number.

Recently we've gotten e-mails from Kiplinger readers complaining of dramatic interest-rate hikes (in one case from 9.9% to 17.9%), fixed interest rates being converted to variable rates, sudden account closures and other changes in terms. Most of the letter writers are mystified -- they say they pay their bills on time and send more than the minimum monthly payment.

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A survey released in March by Credit.com found more than one-third of cardholders surveyed were somehow penalized by their credit-card companies. Fifteen percent reported higher interest rates, 11% said issuers had raised their minimum payments, 9% said due dates were changed, and 8% said their credit limits were lowered or their rewards program cut back. Seven percent of cardholders had their account closed.

Times are tough, say credit-card companies, and a rising tide of delinquencies and defaults leaves little choice but to toughen up on consumers. But fueled by populist anger, lawmakers on Capitol Hill are determined to pass legislation that gives consumers more rights, and President Obama has outlined his support for reform.

The House passed a Credit Cardholder's Bill of Rights on April 30, and the Senate has its own reform bill pending. Despite the powerful banking lobby, legislation could well be signed into law as early as this summer, although implementation of many provisions may be delayed until next year. At a minimum, a new law will likely incorporate Federal Reserve regulations scheduled to take effect in July 2010. It's a good bet you'll see an end to arbitrary rate hikes on existing balances, for instance, and issuers will likely need your permission for approving charges that exceed your credit limit, triggering fees.

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Consumer-Friendly Cards

Some lawmakers are calling for a freeze in rate hikes until new legislation protecting consumers is enacted or new regulations kick in next year. But for now, credit-card issuers are free to arbitrarily raise rates and cut benefits. Still, smart credit users with good credit can assemble a hard-working portfolio of cards -- especially by applying for cards from community banks and credit unions, which often have lower rates than money-center banks.

Credit unions by law must cap interest rates on any type of lending at 18%, but most credit-card deals are much better. One of our favorites: Pentagon Federal Credit Union's Visa Platinum Rewards card. There is no annual fee, and you get a 5% rebate on gas, 2% on groceries and 1.25% on everything else. The card, with an interest rate of 13.99%, is usually best for holders who pay off the balance each month. But it also has a balance-transfer offer with a 2.99% rate good for the life of the balance, with a maximum transfer fee of $100.

Another balance-transfer offer worth considering is a Visa Classic card from Pulaski Bank & Trust (soon to be known as Iberia Bank), in Little Rock, Ark. The 0% balance-transfer offer is good for six billing cycles, and there is no transfer fee.

These days, especially, it's nice to get a little something back from your credit card. The BP Visa gas card earns a 5% rebate on gas, 2% on travel and dining, and 1% on everything else. Plus, you get double rebates for the first 60 days. We also like the Simmons First Visa Platinum Travel Reward card. You earn one point for each dollar spent; it takes 22,000 points for a plane ticket anywhere in the 48 contiguous states.

Despite a $35 annual fee, for a low rate it's tough to beat Iberia's Visa Classic cards, with a purchase rate fixed at 6.5%, compared with a national average of about 13%. Farm Bureau Bank's no-fee Platinum MasterCard currently carries a low, 5.24% variable rate. We like Pentagon Federal's card among those that give you cash back, as well as the American Express Blue Cash card. With the latter, you'll earn a 1% rebate on grocery, drugstore and gasoline purchases, and 0.5% on all other purchases until you spend $6,500. After that, you'll earn 5% on groceries, gas and drugstore items and 1.25% on the rest.

A flock of new cards is tapping into our new, frugal zeitgeist by helping you pay off your mortgage, rebuild your retirement fund or save for college. For each $2,500 you charge on your Wells Fargo Home Rebate card, the bank applies 1% of that amount to the principal of your Wells Fargo mortgage. Fidelity Retirement Rewards American Express card gives Fidelity account holders a 2% rebate that can be deposited in any Fidelity-managed individual retirement account. The Schwab Bank Invest First Visa card sweeps a 2% rebate into your Schwab IRA or brokerage account.

The new Upromise World MasterCard deposits a 1% rebate on all purchases in your Upromise college-savings account, then adds another 10% rebate on spendng at drugstores and groceries. Depending on the card, you can add to your Upromise account from rebates on gas purchases or dining. Fidelity's 529 College Rewards American Express card earns a 2% rebate that can go into any Fidelity-managed 529 account.

Evaluate the Cards You Have

"Frankly, we're in extraordinary times," says Adam Levin, former director of the New Jersey Division of Consumer Affairs and founder of Credit.com. Such times call for a thorough evaluation of every single card in your wallet -- and the cards stuck away in your drawer, too.

Start by regularly monitoring your accounts online. Pay attention to credit limits and annual percentage rates, and, above all, read any notices that come in the mail. If you spot a change in terms for the worse -- especially if you can't remember a likely trigger, such as making a late payment or exceeding your credit limit -- get on the phone and work your way up the supervisory chain. A computer may have swept your account into a portfolio review. But humans have the capability to override automatic changes.

Recognize that you have the right to reject new terms, but think twice before you do so. If you opt out, your account may be frozen while you pay off your balance under the old terms, and then closed. Closing the account can have repercussions, especially if it is one you've had for a long time. Longevity of your credit history accounts for 15% of your credit score.

Be aware that balance transfers aren't what they used to be. Credit standards are stricter for 0% offers. Whereas a score of 720 used to suffice, 750 now seems to be the cutoff, says Ben Woolsey, of CreditCards.com. Terms that used to last 12 months have been cut to six.

Balance-transfer fees are rarely capped these days, and some companies -- including Bank of America, effective June 1 -- will jack fees from 3% to 4% of the transferred balance.