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CNN LIVE SATURDAY
Dollar Signs: Establishing Good Credit
Aired September 6, 2003 - 16:29 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WHITFIELD, CNN ANCHOR: Well welcome to "Dollar Signs" where we help you make the most of your money. But today we're talking about your credit. How you can establish good credit and how you can clean up any problems that you may have.
Our Ali Velshi says, the first thing yo need to do is get a credit report.
(BEGIN VIDEOTAPE)
ALI VELSHI, CNN FINANCIAL CORRESPONDENT: Looking to take advantage of low interest offers on a new car? Worried about mortgage rates going up and you think it's time for a new house? Well before you make any big ticket purchases, getting a copy of your credit report could save you time and money. What exactly is a credit report? Well, it's house lenders see you.
ROBIN HOLLAND, EQUIFAX: A credit report is a reflection of a consumer's accounts payable history so people with retail cards, gas cards, mortgages, all of that information is reported to the credit reporting agencies on a monthly basis and it will compile your credit report.
VELSHI: The report also considers your income, where you live, how much debt you already have and if you've ever been sued or declared personal bankruptcy. This information remains on the report for seven years.
If you need access to credit, especially if you plan on making a large purchase, you should know what your credit report looks like and make sure it's error free. Obtaining your personal credit report is easy.
For about $10 each you can get your report from the three major credit reporting agencies, Equifax, Experian, and TransUnion. You can get your report by mail, by phone or online. You should check with all three bureaus when checking your score. A mistake on any one of them could hurt you.
The agencies are regulated by the Federal Trade Commission and the Fair Credit Reporting Act. A poor report may not stop you from getting credit but it could make your interest rates on your credit card, car loan or mortgage more expensive.
HOLLAND: Not only does it determine if they're going to lend you credit, it's also going to determine what that rate is because we all know that when you purchase a car or you're refinancing your home there are various rates that the lender is going to offer.
VELSHI: But your credit report is only half the picture. The credit score is equally important. This score is a mathematical calculation of your current credit worthiness, a more recent financial snapshot usually encompassing the last two years.
Your credit score ranges from 300 to 850. Anything from 700 to 850 is considered good. From 500 to 700 is average. Under 500 means you may run into problems.
HOLLAND: Someone with 500 that would probably be considered a score that would not be very favorable. It might make it a little bit more difficult to obtain very competitive interest rates. In some cases, you definitely will be declined if that score is too low.
VELSHI: There are steps you can take to improve your personal score. Pay your bills and pay them on time and be mindful of your current debt level. That way you can get credit where credit is due.
(END VIDEOTAPE)
VELSHI: Fredericka, you know, one of the things that you should think about when considering credit is not just whether you need to buy something but checking your credit report is one of the best ways to find out whether you've been a victim of identity theft.
Because it has addresses and the accounts that you hold, if you get this thing once or twice a year and you look at it and say I've never opened a Sears card or I've never lived at this address, it could be an indication that someone has stolen your information. Credit theft, as you know, identity theft, Fredericka, is much more common than most of us ever thought it was - Fredericka.
WHITFIELD: And it's a drag and it's tough to clean up.
VELSHI: Yes.
WHITFIELD: You know your identity too when someone has kind of stolen it. Let's talk a little bit more about this credit score though. So when lenders are considering you as a candidate, whether it's to get another credit card or to buy a home, et cetera, they really are looking at your credit score aren't they?
VELSHI: Yes. In most cases your credit score should tell a similar picture to your credit history. If your credit history is rough, though, you had a rough time a few years ago or you have declared bankruptcy your credit score compresses it into the last two years and if your recent payment history has been better your credit score will actually help you with lenders where your credit history in your credit report may have had an adverse effect.
FREDERICKA: So, if they are looking at the last two years, how long might it take you to kind of clean up the act if there are some things or some glaring I guess grievances on your credit report?
VELSHI: Your credit report - your credit score can start to see improvements within a few months. If you accelerate or make sure that all your payments are made on time for six months or more you start to see an up tick in your credit score so you can fix your credit score in six months to two years whereas your credit report stuff drops of on an ongoing basis after seven years.
WHITFIELD: All right, Ali Velshi thanks very much. We're going to check back with you in a moment.
But right now, Todd Mark is a spokesman for the Consumer Credit Counseling Service. He's here to talk about what you can do if you've had financial problems that have affected your credit history, good to see you.
TODD MARK, CCCS: Thanks so much for having me today, Fredericka.
WHITFIELD: All right, so let's talk about ways in which to kind of clean up your act so to speak. An awful lot of folks have an awful lot of credit cards out there.
MARK: Sure.
WHITFIELD: Some they've max'd out, some they just have handy. Why is it important to kind of minimize how many credit cards you have?
MARK: Well, when you're looking at your credit score, the credit score is figured out on five key figures. The most important thing is your payment history but second is amount owed and amount owed also includes the total balance available to you.
So, if you've got a huge number of cards with balances it's going to add up. They're going to say gee this person already has a lot of credit available. Why does he need more? So, they're going to drop you on your risk score.
WHITFIELD: So, what happens if you've got one credit card, maybe two, that are max'd out or close to being max'd out but you have a couple other credit cards that are zero balance and maybe just holding onto them just to kind of help your credit report look good or your credit score look good?
MARK: Well, here's the trick. They're going to look at the couple of cards that you've got max'd out and they're going to say gee they're using a lot of their available balance. I wonder why.
Then they're also going to look at those other cards and say, hum, they're not using them at all. I wonder why they have them? Now, on the upside that could be good because that means you might only be using 50 percent of the credit available to you so that is a good thing in your favor.
WHITFIELD: But the bottom line do you think that you should be canceling or getting rid of some of those unused credit cards?
MARK: OK, now there's a catch-22 with this.
WHITFIELD: And what is that?
MARK: Here's how it goes. One of the other things that factoring into your credit score is your credit history as far as your - the length of your history. So, if you cancel a card that you've had for 15 or 20 years suddenly your length of history is going to go down. So, if you want to cancel anything you might want to cancel the one you just applied for.
WHITFIELD: Oh, that's a good point. All right, let's talk about maybe the credit cards that you've got for a store versus more universally applied credit cards if it comes down to trying to cancel one of those which one would you recommend?
MARK: Well, gee.
WHITFIELD: If they're both the same amount of time?
MARK: Well, I would obviously think that one of your general purpose cards that you can use anywhere, you can use anywhere, so why limit yourself with one of the cards from the malls or one of your favorite department stores?
WHITFIELD: OK. When we talk about folks who charge, people who use their charge cards generally because they don't have the cash on hand...
MARK: Ah.
WHITFIELD: ...and so it means when they get their first bill they probably still don't have the cash on hand so what's your recommendation on how to pay that off quickly?
MARK: Well, remember, the best way to use credit cards is to think of it as a substitute for cash. Only charge what you can afford to pay at the end of the month. Then you're not going to have to worry about your credit scores. If you're paying your credit card on time and in full every month I guarantee you you're probably going to be 700 or above and looking good.
WHITFIELD: All right. When you decide to cancel some of these credit cards you need to tell somebody don't you, some of these credit bureaus so that perhaps it is reflecting - your latest action is being reflected on your report?
MARK: It's good to let the bureaus know but believe it or not even once you cancel a card and close it, it's still going to be reflected because they're going to look at your history.
WHITFIELD: For how long?
MARK: For at least a couple of years, as Ali was talking about. So, any action on that credit card will be on your credit report for seven years. So, even if you close it, closing cards to increase your score really doesn't work in the short term.
WHITFIELD: All right, we're going to take a short break right now. We're going to come back and we're going to continue our conversation about this. We'll also be fueled a little bit by some of the e-mails and calls that are coming in. Folks want to know just how to keep their rating good and your credit score up. We'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS. We're talking about protecting your credit. Todd Mark with the Consumer Credit Counseling Service is with me here in the studio and our Financial Correspondent Ali Velshi is back with us from New York.
All right, we've got an e-mail we want to tackle first and this is coming from Roslyn in Atlanta and she says: "I have heard that credit bureaus offer credit monitoring services. Are these a good idea?" Todd?
MARK: Well, Roslyn, I guess it - Roslyn, I'm talking to you. It just depends on how nervous she is about her credit especially when it comes to identity theft, as Ali was talking about earlier.
If you're worried about people opening up accounts in your name and you want to have a flag or warning that something's been opened up that's probably a good use for one of these monitoring services.
Other than that, I think it's fine if you just check your credit reports and get your score once a year. That's probably enough monitoring you can do on your own.
WHITFIELD: All right, Ali, you agree with that just once a year?
VELSHI: Yes. I wanted to say one other thing about protecting your own credit from identity theft, which is the main reason for using one of these things. Anecdotally I know a ton of people who use shredders to get rid of their bills and things like that.
I used to laugh at that until a day about three months ago I looked out of my front window and there's a guy going through my garbage, so you know for $30 or $40 there are a lot of people who recommend to shred your documents that are sensitive because much of identity theft, though it's done on the computer, a lot of it actually comes from the fact that your bills are lying around in your trash outside your house.
WHITFIELD: That's right, and even the problem of your mailbox, a lot of folks are stealing information from your mailbox.
VELSHI: Yes, absolutely.
WHITFIELD: All right, Joseph from Florida is on the telephone with a questions - Joseph.
JOSEPH: Yes, thank you. I had a charge that was disputed on my account by one of the lending agencies. The charge was only like $133 but what they did, this company sold the account to another company. That company tried to charge for the same $133 again but they raised it for interest fees and interest fees and late payments and it went up to $500 and then that company sold it to another company. So I've got three negative blemishes showing on my account. It's actually from one account but it started back with $133. How can I clear that up?
VELSHI: Hey, Fredericka, I think Todd's probably going to have some good stuff on this but I want to add to that. We get a lot of calls from people who say that it's tough enough to dispute a difficult charge, one that you don't think you incurred especially once that's been reported to the credit agencies because now you have to dispute it with the lender and the agencies.
Once they start selling that to collection agencies, I got to tell you the chips are stacked against the consumer at that point and I think we should turn it over to Todd to get some advice. This is a tough one.
MARK: Well, Ali, you've got it absolutely correct. He's got this catch-22 where he's already disputed with the credit bureaus. Then he's going to the lender and saying this isn't me. This isn't me. Call off the dogs and if he's already been sold off to a collection agency then there's a third listing. So, Joseph, the question if you're still on the air are the charges actually yours?
JOSEPH: No, the charge is not mine.
MARK: And how far back was this?
JOSEPH: This was about three years ago.
MARK: Wow, Joseph.
WHITFIELD: Oh, boy.
MARK: Well, if you've been doing everything you possibly can to get it removed and are the lenders saying no this is definitely you?
JOSEPH: They're saying, yes. They're saying that it's definitely my account.
MARK: Do you have any proof? Do you have any paper proof that can back up your side of the case?
JOSEPH: I have facts, my balance statements to them. I have written them letters but you talk to different people with these companies. You get a different person every time you call or you try and write to them.
MARK: Gee, Joseph, you know it really sounds like you need to escalate this maybe even to a presidential level because there are laws that say if you're harmed and you're not qualifying for credit due to an erroneous report well you can actually sue the credit bureaus or your lender for posting that information. So, I think you need to escalate and stop talking to customer no service and getting a different person every time you're on the phone. Go up to a top level person and say, listen, I've got the proof. This isn't me. I need this off my report immediately.
JOSEPH: OK, thank you.
MARK: Best of luck to you, sir.
WHITFIELD: Wow that is amazing. Is that common where this debt, whether it's yours or not would be sold off to various companies and it will just follow you and you've got a reflection of all of that on your credit report such in the case of Joseph?
MARK: Depending on the creditor what they're going to do once you're 30 days later, 60 days late, 90 days late. Once you're at 120, you're at a charge off level and that's, of course, very bad for your credit score in itself.
WHITFIELD: Yes.
MARK: But then they might not want to pursue it anymore so they sell it off to a collection agency and the credit card company is not going to worry about it anymore and the collectors are hounding you and then you get that second listing on your credit report as well.
WHITFIELD: What a nightmare. All right, this e-mail coming from Debbie. "I have numerous open accounts with and without balances all are always paid on time. However, I have a low credit score (505). Can you explain why?
MARK: Wow, well Debbie I'm reading your e-mail and you say you have numerous open accounts. Hum, maybe that's your problem. You know it's so funny all the kids are going to college now getting cards for the first time and we always get this as a myth at CCCS. Students say, you know, I'm trying to establish a great credit history so I'm opening up all these credit cards.
WHITFIELD: Right.
MARK: And my credit is going down, down, down. What is wrong with this? Remember, especially for you college student, get one credit card, two max. Use it for emergencies but if you want to establish a good credit history pay it on time and in full every month. Just use it as cash and then you're not going to have to worry.
Please don't be opening up ten or 20 cards because, Debbie, if you do have that many cards you probably have a huge balance that's available to you and they look at that, Fredericka, and they say gee she's a huge credit risk. What if she goes on a spending spree and max's out all of her cards at once? Whoa, that's a big disaster.
WHITFIELD: Real quick, when you request your credit report where in the world on that report do you find that credit score? MARK: Well, actually one of the three bureaus provides it for free but the other two you're going to have to pay additionally, so you usually can get your credit report from Experian, Equifax, and TransUnion $8 or $9 but you actually can pay additionally to get the credit score or go to the originator.
Fair Isaac (ph) is the company that does the scoring for all three of the credit bureaus. Go to myfico.com, M-Y F-I-C-O.com. You can order your official credit score. I think it's $12.95 and what they can also do is say this is your score and this is what you can do to improve it.
WHITFIELD: OK, we're going to take a short break. We've got more calls and e-mails coming your way. We'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Well, welcome back to DOLLAR SIGNS. Todd Mark with Consumer Credit Counseling Service is here answering your credit questions, along with your Ali Velshi of CNNFN in New York.
All right, Ali, this call is for you. It's from Laura who has a question about credit insurance - Laura.
LAURA: Yes, hello. I have two credit cards. They are completely max'd out even though I make the minimum payment every month but I just lost my job so I want to know if I can use my insurance to pay for the payments without affecting my credit report.
VELSHI: This is - Laura, this is specific insurance that was sold to you as credit insurance or are you talking about separate insurance?
LAURA: No, credit shield that I pay every month with the credit card, yes.
VELSHI: Right. There are a couple of different types of insurance that the credit card lenders will offer you. One of them is if you lose your job or become disabled. Another one is if your credit is used by someone other than yourself.
In the second case, I'm less sure about it because I'm not certain that we all need - should be insuring ourselves against identity theft. We should all be protecting ourselves against identity theft by checking our credit reports and taking those necessary steps. There's a premium to be paid for the credit card insurance if you lose your job or you become disabled. Have you already bought that?
LAURA: Well, I've been paying for it for the past five years.
VELSHI: Yes, then my understanding is subject to the specific terms of the insurance that your lender sold you, and you may want to read the book that they got you, that should qualify. One of the things that they insure you against is the loss of your job. Todd, is that your understanding as well? MARK: Well, Laura, it's going to depend on what you signed up for and, you know, a lot of the insurance policies that the credit card companies offer really not good, something you probably shouldn't be participating in.
As a matter of fact, I bet if you go through the listings of what you signed up for, chances are you're probably eligible for some benefits and it's probably going to pay the minimum balance on your credit card.
VELSHI: Yes.
MARK: So, think about it. I don't know what your premium is, whether it's a couple hundred dollars, but it's not worth getting minimum balance paid while you're without a job because, you know, you fall into that minimum payment syndrome and you're going to be paying your balances for 20 years on your credit cards. You're paying your minimum so it's not even a worthwhile product to be involved with, Ali you agree?
VELSHI: I absolutely agree and what I would advise Laura to do, however, is one of the things that Todd you can tell our viewers that one of the things in the world of fixing your credit you really as a consumer have to hold the lenders' feet to the fire.
Often they try to get you to agree to something. You need to go back and Laura says this is what I thought I was sold. What can you do for me?
WHITFIELD: All right.
VELSHI: You really need to put some pressure on them.
WHITFIELD: Ali and Todd we're getting a lot of good questions coming in, e-mail and on the telephone. We got another one from e- mail that we want to share with us - share with you actually from Michael.
"Does using a bank debit card hurt your credit? Is it considered in the same way as using other credit cards?" Todd?
MARK: Ooh, Michael, a debit card is very different from a credit card and it's important that you understand. Think of a debit card as a convenience of writing a check instead of writing a check.
WHITFIELD: Right but perhaps what throws people off is on your debit card it may say Visa on it.
MARK: Oh, and you know there's been a lot of debate about the value of a debit card with a Visa logo on it versus a real Visa, you know there's protections that you have with a credit card, a real credit card. You've got charge back rights where you can put things into dispute.
If a service isn't rendered or you've got a problem with a lender or a retailer you can go back to the creditor and say the credit card company say I'm going to put this into dispute. You don't have those same rights with a debit card.
Now on the bright side, Michael, you're using your debit card. It's just like using your cash and paying for things in cash, Fredericka, is always a good way to ensure you don't overspend yourself.
Now something funny that Michael should know is one of the things that's figured into your credit score is your use of credit cards and, you know, the old adage my grandfather, my Grandpa Mort (ph) in Chicago would always say pay everything in cash, pay everything in cash.
Well guess what, when it comes to credit scores - when it comes to credit scores if you're just paying things in cash and you have no credit cards, believe it or not that's actually going to hurt you. They'd rather see somebody with one or two credit cards that are paying them on time and in full every month. You're going to be much better off.
WHITFIELD: OK. Ali, Mary Ann is on the phone with a question.
MARY ANN: Hi, my question is when you have sort of a good credit history and the credit card companies up your available spending against it is that detrimental just as having multiple credit cards with no balances on it that you are allowed to spend again?
MARK: Ali, you want to...
VELSHI: In one way it's advantageous because you're earning better credit. You're earning more available use of credit because you've been good at what you do so it indicates that your credit worthiness is building. The credit, the lenders think that you're a good credit risk.
On the other side, I think Todd will agree with this, yes it's the same thing as opening up other accounts. It's not as detrimental as opening a different account but, sure, if you're not going to use the credit you're welcome to tell the company thanks very much for the offer.
I don't think I'm going to use this right now. I'll get back to you if I actually want it. You can have your credit limit lowered just as well as you can have it raised.
WHITFIELD: All right, well you know a lot of people when they're offered this, you know, extension on their existing credit card. They're thinking perhaps, you know, this might be something that I could use in an emergency but you're saying also, you know, Todd the temptation is there. Maybe you don't want to take them up on it, you know, adding another $4,000 or something.
MARK: Well, the bigger your credit line the bigger the potential for you getting into trouble. You know it's always funny that when somebody buys a house the first thing they see in the mailbox is 100 preapproved credit card lines.
VELSHI: Yes.
MARK: And if somebody jumps at five or ten of those and they're in a home for the first time you know, Fredricka, you're getting a house. You want to furnish it. You want to landscape and believe it or not there's taxes, there's insurance.
WHITFIELD: Right.
MARK: All these other things to pay for and it's so easy to say well I've got those credit lines that are open. Let's go there. And, it's so easy to see somebody who is newly into a home a year later heavy in credit card debt.
WHITFIELD: The temptations are there but you've got to really try to assess the risk factor. All right, Todd Mark of the Consumer Credit Counseling Service and Ali Velshi out of New York with CNNFN thanks to both of you for joining us for once again a very wonderfully educational discussion on how we can all manage our money better and credit as well, get rid of it.
All right, well coming up this afternoon on CNN, Canadian songbirds Shania Twain and Celine Dion are profiled next on "PEOPLE IN THE NEWS."
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And what's next just part of "CNN LIVE SATURDAY" at 6:00 Eastern time, 3:00 Pacific.
And 7:00 Eastern mix it up with the "CAPITAL GANG" for tough talk on all of today's hot issues, and I'll be back after a quick break with today's top stories.
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