When I got divorced, I never really thought about my credit scores. To that point, I had a perfect payment record, a mortgage, two car payments, a home improvement loan, and a couple of credit cards. Add in 3 kids and a dog, and it was kind of the all-American family. My credit scores were in the high 700’s the last time I had checked them for a mortgage re-finance, so all was in order. I was living the dream.
Then, like a ton of bricks, the bottom fell out. Those 4 little words, ‘I want a divorce’, changed it all. When that happened to me, I stopped really considering the financial aspects of my life, and started thinking about the interpersonal and relationship areas. I went to classes, learned basic communications, and basically got things in order. But still, I just didn’t pay much attention to my credit.
Over time, that oversight caught up with me. When I first moved into my own place while separated, I went out and bought a TV and stereo on credit. Then I decided a couch would be a good thing, and a few pots and pans. Did I pay with cash? Of course not, I used credit.
That first few months, during the initial separation, were fine. My ex and I agreed on money, and I had enough to live. Then she actually filed for divorce. When that happened, the judge, in his infinite wisdom, gave us some ‘temporary orders’ which gave me $1,137.00 per month to live on. That was roughly a sixth of my take home at the time (Remember the dot-com days? Ah, the pay rates! The Perks! The worthless stock!) I did some math. I paid $450.00 for my car each month, plus insurance. $140.00 for the stereo and TV. $60.00 for the household items. $60.00 for the couch. Add in a 60 mile commute each way from the only place I could find that was cheap enough to live, and my bills ran up to about $1970.00 per month if I didn’t eat. This, by the way, is NOT a good weight loss plan. So, I had an $800.00 deficit in cash flow. That is a fancy term which means I lived on credit. It grew over the next year to about $12,000.00 in credit debt.
Then, the divorce happened. No more temporary orders! I GOT HALF OF MY TAKE HOME!!!
Talk about living well. I could afford Ramen noodles, and twice a week I would splurge and buy some soft drinks. I was living well! OK, actually it wasn’t that bad. I managed my money well, still hadn’t missed a payment, and was paying down my debt.
Then, wonder of wonders, I lost my job. The company closed in 2003, and the market was horrible. I went under.
Now, I can’t blame that on the divorce, but my credit got trashed trying to recover from the living expenses I charged. I ended up not being able to pay the cards or department store charges, and got 5 negatives on my credit report. More damage was done, but the divorce, and the subsequent payment problems, left me in real credit problems.
I still haven’t told you how this can affect your credit yet. Let’s take a look at that now.
The credit cards I used while on temporary orders were joint with my ex. So when I stopped making payments, it affected HER credit. The car was in both names as well, so that was a hit to her. And she decided paying for her car should be my responsibility without letting me know that, so the payments slipped there as well. That hit both of us with late payments on our credit reports.
Eventually I filed bankruptcy, and was able to clear my bad items off of her report by claiming them as part of the divorce. My credit, however, was trashed. This was clearly my fault, but it did happen.
I can give you another example. A friend of mine, Sherry, got divorced 8 years ago. Her ex had just gotten a workman’s comp settlement, and they had enough money to pay off all their expenses as they parted ways. It should have been an easy thing to take care of, but her ex was dishonest. Instead of mailing all the payments, he cleaned out their account and disappeared. Since Sherry had made out all the checks, she assumed the debt was gone. After a couple of months, her phone started ringing, and she discovered that she was over $50,000.00 in debt. Her ex was nowhere to be found, and had even stopped making child support payments. If she had handled the payments herself, and gotten certified funds to cover payments, he could not have caused this damage to her credit and lifestyle. She ended up having to take care of all the debt by getting on payment schedules, and she is still paying part of it off.
As you well know if you are reading this, emotions run high during a divorce. There is a lot of blame, many ill feelings, and you probably don’t care much about finances outside of basic survival. However, the impact of a bad decision regarding credit is at least 7 years of a negative item on your credit report, and the possibility of collections, court appearances, and even bankruptcy.
Let’s take a look at some of the things you can do to protect your credit when a divorce happens:
1) Get your own credit cards. If each of you wants to keep cards from the current vendors, do so, but make sure they are in one name only. Joint cards need to be cancelled, and new cards issued. Most credit card companies will allow you to get a new card with the same balance as the old, but in only one name, unless the credit line requires both of your incomes.
2) Put it in writing. Make sure that the debts you have are all accounted for, and that each of you acknowledges in writing what his or her responsibilities are. If one of you defaults, this can be used by the other to protect their credit report and standing to some extent.
3) Get your own bank account. You have every right to do this. You don’t have to share an account. I got an account at the same bank at which I had a joint account with my ex, and I used the old joint account to transfer alimony and child support to her. She doesn’t need to see how I spend my money, and I don’t need to see her spending habits.
4) Build a budget. Things have changed, and you probably don’t have as much disposable income as you once did. Don’t make the mistake of continuing to spend the way you used to. Remember, you are responsible for your own actions, and if you overextend, you will still owe the money. Programs like Quicken or Microsoft Money are great for helping with this, but a piece of paper and pencil will work just fine.
5) Get educated. If you have been relying on the financial knowledge of your spouse, you need to figure things out for yourself.
6) Protect yourself. If you are making payments for your debt, make sure the payment can be tracked. If you don’t trust your ex to make payments, you take responsibility for making the payment yourself, and get the money from your ex to make the payment. Remember, a joint account is the responsibility of both of you to pay, so make sure it gets paid on time.
Nothing about divorce is pleasant, but with a little planning and forethought you can protect your financial standing. Of course, if while married you have ended up with bad credit, a divorce can be a great way to re-start. No matter where you stand, make sure you look after your own best interests. After your divorce is final, you won’t have that particular partner, but you will still have your credit scores and standing, and working toward protecting it now can do you a world of good later.
One final note: When I was going through my divorce, far and away the best thing I did was to go through the Rebuilding Seminars. To get more information, or for other resources, you should go to http://www.divorceseminarcenter.com/ and look for yourself. Many of my best friends were made in these seminars, and the opportunity to be with people who are going through the same thing is priceless.
Showing posts with label default. Show all posts
Showing posts with label default. Show all posts
Sunday, March 9, 2008
Friday, March 7, 2008
Does My Credit Score Affect My Insurance Rates?
You’ve been driving for years. You haven’t had an accident, or a ticket, or even been caught driving drunk. And now, suddenly, your rates go up.
Why? How can they do that?
Great question, but you won’t like the answer. The insurance industry adopted a policy of using insurance scores, which are derived from your credit reports, to determine how likely you are to file a claim. Apparently, a person with a good credit history is less likely to file a claim than is a person with a poor credit history. Insurance companies make their money by collecting your premiums, and never having to pay for anything. If they have to pay you, they make less money, so they look for ways to make sure that they don’t have to pay money out, or at least for ways to offset those payouts.
Because of this, you may be considered a ‘high-risk’ policy holder if your scores go down. You aren’t necessarily high-risk to yourself, or to other people. You are just a risk to the insurance company.
What, then, is the magic formula used to assess your insurability? That is really, really secret. They don’t want you to know what the magic formula is. You see, if you saw the formula, you might actually know their secret, so they aren’t going to tell you. I know, it makes no sense to me either.
You can, however, see your scores. You can get them from True Credit (http://www.truecredit.com/), which is a TransUnion service, from MyFICO.com (http://www.myfico.com/) or at ChoiceTrust (http://www.choicetrust.com/) who is a leader in insurance scoring. These scores aren’t free, as they aren’t regulated in the same way as credit scores, but they are available at a fairly low cost.
How can improve your scores? Well, pay your bills on time, don’t file bankruptcy, and generally follow the Rules Of Great Credit Scores. Remember, though, that other services will have information about you, such as medical services used, accidents you have had, and even your insurers own database. So while the scores you can buy can be used as a guide, remember that your insurance company may also decide to produce their own scores, and while they may rely on those scores, you will never see them.
Why? How can they do that?
Great question, but you won’t like the answer. The insurance industry adopted a policy of using insurance scores, which are derived from your credit reports, to determine how likely you are to file a claim. Apparently, a person with a good credit history is less likely to file a claim than is a person with a poor credit history. Insurance companies make their money by collecting your premiums, and never having to pay for anything. If they have to pay you, they make less money, so they look for ways to make sure that they don’t have to pay money out, or at least for ways to offset those payouts.
Because of this, you may be considered a ‘high-risk’ policy holder if your scores go down. You aren’t necessarily high-risk to yourself, or to other people. You are just a risk to the insurance company.
What, then, is the magic formula used to assess your insurability? That is really, really secret. They don’t want you to know what the magic formula is. You see, if you saw the formula, you might actually know their secret, so they aren’t going to tell you. I know, it makes no sense to me either.
You can, however, see your scores. You can get them from True Credit (http://www.truecredit.com/), which is a TransUnion service, from MyFICO.com (http://www.myfico.com/) or at ChoiceTrust (http://www.choicetrust.com/) who is a leader in insurance scoring. These scores aren’t free, as they aren’t regulated in the same way as credit scores, but they are available at a fairly low cost.
How can improve your scores? Well, pay your bills on time, don’t file bankruptcy, and generally follow the Rules Of Great Credit Scores. Remember, though, that other services will have information about you, such as medical services used, accidents you have had, and even your insurers own database. So while the scores you can buy can be used as a guide, remember that your insurance company may also decide to produce their own scores, and while they may rely on those scores, you will never see them.
Tuesday, March 4, 2008
How Long Can Debt Collectors Come After Me?
When you default on a debt, your creditor has several options. They can try to get you to pay, they can sell the debt to a collection firm, or they can just write it off. Of course, they also have the option of suing you for the defaulted amount plus additional fees. But, how long can they, or the collection agency who collects on your debt, go after you for the money?
Collection agencies like new debt. If they can get debt that was defaulted on within the last 180 days, they will have a very high probability of contacting you for payment. When they buy the debt, they get the most recent phone numbers, address, your social security number, and any other information the lender feels is important. They may even get original signatures or paperwork showing that you agreed to the terms of service and are legally liable for the debt.
When the collector gets a hold of your file, they start pursuing it immediately. You will get letters, phone calls, and a nagging suspicion that every time your phone rings, it will be someone wanting the contents of your wallet. The fresher the debt, the harder they work, because they know where to find you.
After a period of time, generally 9 months to a year, the debt starts to be come known as ‘stale’. This debt is much harder to collect on. Someone who has defaulted on a loan or credit card probably has defaulted on others, and may have faced eviction or has moved to try to find work. Their phone numbers probably don’t work, the address is invalid, and the debt collector has to work harder to find them (see CC2: How Debt Collectors Find You). This debt, when purchased, has a much lower return than does fresh debt. Because of that, it is substantially less expensive than fresh debt for a collection agency to buy.
Older still is out-of-statute debt. From a legal standpoint, each state has rules about how long a person can be sued by a collection agency to try to collect debt. When the debt passes a certain number of months or years after the initial default, the collector can no longer sue you for it. That is why they often sue in the few months before debt goes out-of-statute. Once the suit is filed, it won’t matter how long you wait. There is no time limit after filing. Before filing, however, they have limited time.
Out-of-statute debt is very hard to collect on. However, since it is so cheap, it takes very few collected dollars for a collection agency to make a profit. They may, depending on your initial contract, also be able to try to collect on interest at the default rate. So it takes very few payments to make these folks feel wealthy. Since the time period varies for this debt, you should be familiar with your state’s laws regarding collections. Texas is among the most favorable to the debtor at 2 years, and Ohio is one of the strictest at 15 years.
The bottom line, however, is that there is no time limit for them to try to collect. There is a time limit for suing you, but they can call you forever.
One final note about this subject: If you respond to a collection agency by making a payment or by writing a letter, the clock starts ticking again for out-of-statute collections. At that point, they can sue you again, as long as the original time period for out-of-statute has not elapsed. And if you want the calls to stop, you need to learn your rights under the Fair Debt Collections Practices Act (FDCPA).
Collection agencies like new debt. If they can get debt that was defaulted on within the last 180 days, they will have a very high probability of contacting you for payment. When they buy the debt, they get the most recent phone numbers, address, your social security number, and any other information the lender feels is important. They may even get original signatures or paperwork showing that you agreed to the terms of service and are legally liable for the debt.
When the collector gets a hold of your file, they start pursuing it immediately. You will get letters, phone calls, and a nagging suspicion that every time your phone rings, it will be someone wanting the contents of your wallet. The fresher the debt, the harder they work, because they know where to find you.
After a period of time, generally 9 months to a year, the debt starts to be come known as ‘stale’. This debt is much harder to collect on. Someone who has defaulted on a loan or credit card probably has defaulted on others, and may have faced eviction or has moved to try to find work. Their phone numbers probably don’t work, the address is invalid, and the debt collector has to work harder to find them (see CC2: How Debt Collectors Find You). This debt, when purchased, has a much lower return than does fresh debt. Because of that, it is substantially less expensive than fresh debt for a collection agency to buy.
Older still is out-of-statute debt. From a legal standpoint, each state has rules about how long a person can be sued by a collection agency to try to collect debt. When the debt passes a certain number of months or years after the initial default, the collector can no longer sue you for it. That is why they often sue in the few months before debt goes out-of-statute. Once the suit is filed, it won’t matter how long you wait. There is no time limit after filing. Before filing, however, they have limited time.
Out-of-statute debt is very hard to collect on. However, since it is so cheap, it takes very few collected dollars for a collection agency to make a profit. They may, depending on your initial contract, also be able to try to collect on interest at the default rate. So it takes very few payments to make these folks feel wealthy. Since the time period varies for this debt, you should be familiar with your state’s laws regarding collections. Texas is among the most favorable to the debtor at 2 years, and Ohio is one of the strictest at 15 years.
The bottom line, however, is that there is no time limit for them to try to collect. There is a time limit for suing you, but they can call you forever.
One final note about this subject: If you respond to a collection agency by making a payment or by writing a letter, the clock starts ticking again for out-of-statute collections. At that point, they can sue you again, as long as the original time period for out-of-statute has not elapsed. And if you want the calls to stop, you need to learn your rights under the Fair Debt Collections Practices Act (FDCPA).
Sunday, March 2, 2008
How Does A Debt Collector Find Me?
Debt collectors are a smart group of people. They know if they want to find you so they can collect from you, they are going to need to get creative.
You see, the average debtor is a fairly mobile person. They open an account, and when they move they never send a new address to their creditor. So, the creditor has an old address, phone number, and other information.
Trust me, this doesn’t even slow a collector down! They will be hot on the trail of a debtor just as soon as they buy the debt. And they have a bunch of tools at their disposal. Unlike a few years ago when the collector only had information from the original creditor and perhaps a credit report, they now have a huge amount of information at their fingertips through the modern marvel, the Internet.
While a collection agency has many ways to track you down, here are a few that work really well for them:
1) Public records – It’s true, they can see what you do. If you buy a house, or file taxes, or open a business, they will know of it quickly. A typical collections agency will do a monthly sweep of all accounts through a computer process, and will see what data is available during that sweep. If, as an example, you buy a new house, they will see that and have your new address. Bingo, they got you! Interestingly, even 1099 information for a business is online, so that can be checked to see if you own a business. There are many other pieces of information they can check, but this is a great starting point for them.
2) Lexis / Nexis – Lexis, and other firms, provide information about pretty much everyone to you if you can pay for it. They have current and previous addresses, phones, job information, family information, and probably even your blood type. A few years from now they will probably keep a piece of your DNA! Collectors pay less than $30.00 per month for unlimited service, and they do take advantage of the service whenever they can. A lot of information comes back in a very short amount of time, and they can find you quickly.
3) Skip Tracing – This refers to hiring an outside vendor to find information about a debtor. A skip tracer will do all the leg work for you, and come back with a summary report telling you where a debtor is. If the first skip tracing firm is unsuccessful, they may use another to search again. This is highly cost effective, and highly automated.
4) Calling people you know – This is vicious, but it really works. Lexis, and other vendors, have a list that they call “nearby’s”. Let’s say you had a house at 123 Elm. They know who lives in 122 Elm, 124 Elm, and other surrounding houses. They have the names and phone numbers for each of those homes. So, the collector will call, and try to get a forwarding address, or a new phone number, or any other information they can get. They will also call relatives, friends, and anyone else that is shown to be an associate of the debtor.
5)) TransUnion – A fairly new TransUnion service will allow you set a watch on a credit file, and if a new entry comes in, say from a new credit card company with whom the debtor has opened the account, TransUnion will determine the address for the account and send it to the collectors. This is a great way to track people down, but may have some legal privacy flaws before everything works out.
This is just a few of the ways collectors can find you. They have a bunch of additional tricks up their sleeves, and more than likely they WILL find you. So, how do you hide? You can’t, unless you can find a way to hide your personal information from every source on the Internet. Instead, you just have to be prepared for the worst, and make sure you can deal with the collectors if they finally do call.
You see, the average debtor is a fairly mobile person. They open an account, and when they move they never send a new address to their creditor. So, the creditor has an old address, phone number, and other information.
Trust me, this doesn’t even slow a collector down! They will be hot on the trail of a debtor just as soon as they buy the debt. And they have a bunch of tools at their disposal. Unlike a few years ago when the collector only had information from the original creditor and perhaps a credit report, they now have a huge amount of information at their fingertips through the modern marvel, the Internet.
While a collection agency has many ways to track you down, here are a few that work really well for them:
1) Public records – It’s true, they can see what you do. If you buy a house, or file taxes, or open a business, they will know of it quickly. A typical collections agency will do a monthly sweep of all accounts through a computer process, and will see what data is available during that sweep. If, as an example, you buy a new house, they will see that and have your new address. Bingo, they got you! Interestingly, even 1099 information for a business is online, so that can be checked to see if you own a business. There are many other pieces of information they can check, but this is a great starting point for them.
2) Lexis / Nexis – Lexis, and other firms, provide information about pretty much everyone to you if you can pay for it. They have current and previous addresses, phones, job information, family information, and probably even your blood type. A few years from now they will probably keep a piece of your DNA! Collectors pay less than $30.00 per month for unlimited service, and they do take advantage of the service whenever they can. A lot of information comes back in a very short amount of time, and they can find you quickly.
3) Skip Tracing – This refers to hiring an outside vendor to find information about a debtor. A skip tracer will do all the leg work for you, and come back with a summary report telling you where a debtor is. If the first skip tracing firm is unsuccessful, they may use another to search again. This is highly cost effective, and highly automated.
4) Calling people you know – This is vicious, but it really works. Lexis, and other vendors, have a list that they call “nearby’s”. Let’s say you had a house at 123 Elm. They know who lives in 122 Elm, 124 Elm, and other surrounding houses. They have the names and phone numbers for each of those homes. So, the collector will call, and try to get a forwarding address, or a new phone number, or any other information they can get. They will also call relatives, friends, and anyone else that is shown to be an associate of the debtor.
5)) TransUnion – A fairly new TransUnion service will allow you set a watch on a credit file, and if a new entry comes in, say from a new credit card company with whom the debtor has opened the account, TransUnion will determine the address for the account and send it to the collectors. This is a great way to track people down, but may have some legal privacy flaws before everything works out.
This is just a few of the ways collectors can find you. They have a bunch of additional tricks up their sleeves, and more than likely they WILL find you. So, how do you hide? You can’t, unless you can find a way to hide your personal information from every source on the Internet. Instead, you just have to be prepared for the worst, and make sure you can deal with the collectors if they finally do call.
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