Q: What is “bad credit”?

A: “Bad credit” refers to a poor credit record, indicated by delays in paying bills or record of financial judgments, liens, bankruptcy filings or collection agency accounts.

Q: How can I research my credit record?

A: To get a copy of your file, call one of the three national computerized credit reporting agencies.

Q: What types of things show up on a credit report?

A: In addition to the “bad credit” items listed above, the payment history of every account you have will be reported to the credit reporting agencies.

This includes credit cards, department store charge cards, auto and home loans, and accounts with utility providers.

Q: How long does information stay on the credit report?

A: Adverse information remains on your credit record for seven years from the last transaction date. Bankruptcy filings, however, will stay on the record for 10 years.

Q: How will a mortgage lender perceive problems in my credit record? Are some types of credit problems worse than others?

A: Policies on how to evaluate a credit report will vary among lenders. Generally, a lender will look for any present delinquent accounts, then look for accounts paid off but very slowly. It is more damaging if the slow-pay closed accounts were recent. The older the delinquent information, the less damaging it is.

Bankruptcy is probably the worst derogatory item that could appear, in that it reflects character. It would in almost all cases cause a lender to deny a loan. A delinquency of 90 days in a payment, particularly if it occurred some years, ago, might be forgiven by a lender.

Lenders will likely question the record of an applicant with loans for bad credit and credit accounts beyond what the lender considers normal, say, six or more bank card accounts that are either current or inactive.

Q: How can I remedy problems in my credit record? When will a lender consider me a good credit risk?

A: More recent up-to-date accounts will mitigate some of the damage of older delinquent information.

If it’s difficult to get a credit card because of derogatory information on file or a weak employment record, it’s possible to get a “secured” bank card, which, if paid promptly for a period of time, will improve the credit file. The fact the card is secured by a deposit is not reported, therefore it will show on your record as a bank card (Visa or Mastercard) that is paid promptly. Most secured-card companies will return the deposit after a reasonable good-pay record is established and will continue the account as a normal unsecured account. The deposit earns interest, which is eventually returned to the depositor.

It is not recommended that you deal with a secured-card company that requires you to buy exclusively its merchandise.

A lender will consider you a good credit risk once recent accounts have been paid on a current basis for around a year, your employment record is stable and income capacity is ample to handle financial obligations.

Q: What can I do if the credit report is inaccurate?

A: The history of how you paid your accounts cannot be changed. The only exceptions are errors made by the creditor reporting the item or if the credit reporting agency places items on the wrong person’s file.

If you believe there is an error, write to the credit reporting agency asking for a correction. The agency then will request the creditor to verify the facts and if it is found to be an error, will ask that it be removed. This process should be resolved in 30 days. If there is a dispute (for example, the consumer says he returned the item but didn’t get credit and the creditor has no record of the return), the applicant can submit a short statement to the credit reporting agency, fewer than 100 words, setting forth his side of the dispute. Any future credit reports obtained by a prospective creditor will contain that statement. However, the prospective creditor will use judgment on the veracity of the consumer’s statement.

Q: Should I consider a visit to a “credit doctor”? Where can I go for reliable credit counseling?

A: Paying money to a so-called “credit doctor” to eliminate a derogatory item is throwing money away. If there is truly an error, the consumer can correct it as described above, without any cost. If it’s not an error, it will not be removed.

A bankrutpcy, a record of slow bill payment or a problem with unpaid debts make it difficult to get a lending institution, business or retailer to grant you more credit. Turning to a credit repair agency is one route people with such negative information on their credit reports are taking to get those reports cleaned up.
If you have failed for bankruptcy, you may be the target of a new credit repair scheme, often called file segregation. In this rmcn scheme, you are promised a chance to hide unfavorable credit information by establishing a new credit identity. That may sound perfect, especially if you fear that you will not be given any credit as long as bankruptcy appears on your credit record. You can file rmcn complaint.
Access to credit records is strictly controlled by law and the automated files are set up such that everyone who accesses a file is identified. Companies may ask for a person’s credit report if the consumer has applied for credit, or for information to help with debt collection, tenancy agreements, employment or insurance purposes. Repairmycreditnow.com provides help and advice to anyone who goes to file rmcn complaints.

While it’s nice to know that your bank or thrift account is federally insured, many people don’t want to be in the position of having to fall back on that safety net.

But finding a safe haven for your deposits is not an easy task. First, don’t assume that the largest bank is always the safest bank. Known as the “too big to fail” doctrine, this theory dictates that if you stick to very large banks you don’t have to worry about their financial condition because the government won’t let them collapse.

Before you even start looking at an institution’s financial statement, look in the business pages and watch television.

Once you have the institution’s financial statements in hand, don’t panic over all those numbers. To get a good idea of a bank’s health, you only need concern yourself with three factors: whether the bank is making a profit, how much it is weighed down by problem loans and how much capital it has. You need to evaluate those three factors: profit, problem loans and capital.

Banks need to offer more information to investors and bank financial reports provide a better picture of a bank’s true health

Balance sheet and income data from thrift financial reports give you all information to insure your profitability.

A call report is a 30-page or more accounting summary, that requires knowledge of virtually your entire bank. Preparing the report is a difficult and time-consuming task. Staying up-to-date keeps your call report data complete and reliable.

The global cards industry is heading for domination by a few super-players. European banks are set to lose out unless they act soon with revolving cards.

The credit cards industry today is at what Intel president Andrew Grove calls a “strategic inflection point” - a point at which the fundamentals are changing. The world is headed for a US-dominated credit cards business as the industry becomes concentrated in the hands of a few super-players.

This was the key prediction emerging from Lafferty Group’s 11th International Cards Conference in Amsterdam earlier this month.

“The US credit cards industry is clearly the dominant force,” said Michael Lafferty, chairman and chief executive of Lafferty Group, unveiling a global research survey carried out by the Lafferty Group. “There is little doubt we will see concentration of the business among a few super-players based on current trend.”

Craig Stine, managing director of New York-based investment bankers Salomon Smith Barney agreed, adding: “I think that you could make an argument that there would be ten global players. I think that the wild card, at least in the US, is the consolidation of the banking business. That could take out a couple of the end-game players that may be merged. But clearly it will be the US model that will be the roadmap in terms of what will be the global marketplace in five to ten years.”

Last year witnessed a spate of acquisitions within the US credit cards industry with Citibank buying over the AT&T Universal cards portfolio; Banc One buying over First USA; Chase Manhattan buying the Bank of New York cards portfolio; and Fleet Financial buying over troubled Advanta’s portfolio. Following these acquisitions, the top five issuers now account for over half of total US credit cards outstandings.

The US accounted for 53 percent of the worldwide general purpose payments cards market in 2006, a year when the volume of business reached $1,890 billion through 970 million cards in issue. By contrast, Europe took only 17 percent of the world cards market. Of that only some 5 percent were actually revolving cards via the Visa/MasterCard acceptance marques. Of US cards, up to 86 percent were credit, with the remaining being immediate debit or deferred debit.

The US accounts for 77 percent of pure stand-alone credit cards with a revolving line of credit attached. “It is a most extraordinary dominance of the credit cards market worldwide by one country,” commented Lafferty.

As a result the leading global issuers of general purpose cards are now all American. Top issuer in 1996 was Citibank, whose outstandings were an estimated $68.5 billion, adjusted for the inclusion of the recently-acquired AT&T portfolio.

Next was MBNA with $35.3 billion, Banc One with $35 billion and Novus, now building its own global acceptance network, with $32.6 billion. Only one non-US bank issuer, Barclaycard of the UK, featured in the top 20 issuers, with 17.1 billion ($28 billion) in outstandings.

“Most of the big US players are using the UK as the litmus test. They’re trying to get it right,” said Salomon Smith Barney’s Stine.

“They have moved cautiously and I certainly have not witnessed any mis-steps in that regard. Going back to the Advanta example [US issuer which went down market and suffered losses], I think most players have learned from that particular issue and understand the risks they take. I think they will be cautious but aggressive.”

While conceding that tougher data protection requirements in Europe will present challenges to US issuers more accustomed to the widespread availability of detailed consumer data for marketing and credit scoring purposes, Stine does not feel it will stop US cards players from entering European markets.

“These companies have gotten very comfortable with the ability to access and manipulate information in the US and to be challenged in that regard really changes the whole chessboard outside of the US. I think that’s why they have moved cautiously. I do not think it will put the brakes on [expansion into Europe]. I think the pace of how they would grow would probably be slower,” he said.

The magnitude of the potential threat posed by US cards players is borne out by the poll at the Lafferty conference which showed that 57 percent of delegates agreed or strongly agreed that US-based cards super-players or US-led alliances will dominate globally, including in Europe.

The widespread perception is that many mainland European banks will turn to alliances and joint ventures to enter the revolving credit cards market. But unless continental European banks embrace revolving credit cards, most believe they will have missed the boat.

The number of small and medium-sized business owners who turn to credit cards for help in financing their businesses is growing, says a small-business advocacy group.

In fact, credit cards have become the most used financing method for small and medium-sized businesses, surpassing bank loans, according to an annual survey conducted by Arthur Andersen’s Enterprise Group and National Small Business United.

The survey, released in November, showed about 47 percent of small and mid-sized business owners said they used credit cards to finance their businesses in the last 12 months, up from 34 percent.

Credit card financing by businesses has nearly tripled during the past six years, up from 17.3 percent in 2003, the study said. Forty-three percent of business owners said they expect to use credit cards in the next 12 months.

Todd McCracken, president of National Small Business United, said it doesn’t appear credit cards are replacing bank loans. They simply have become part of a financing mix.

“On balance, it’s probably good news, because it means that small businesses now have increased flexibility with how they handle their cash flow,” he said.

Credit cards are especially important to smaller businesses with fewer than 20 employees, the survey showed; 49 percent of those business owners said they use credit cards often, compared with 27 percent of larger businesses.

A few years ago, company credit cards were not available to small businesses, but now credit card companies are marketing directly to them, McCracken said.

While increased credit availability can be good, there’s also reason for concern, because fewer businesses are paying off balances monthly.

The dangers of credit cards are the same for small businesses as for anyone else, McCracken said. “Using more and more of your credit card while your business continues to lose money is not smart.”

The survey showed that only 38 percent paid off their balances every month in 2008, compared with 59 percent in 2007.

Also, the number of business owners who use credit cards only occasionally to make ends meet has dropped by more than half, from 24 percent in 2007 down to 10 percent in 2008.

With high credit limits, people can quickly accumulate a large amount of debt, said Steve Carter, director of the Iowa Small Business Development Center in Ames. If the credit cards carry interest rates of 18 percent to 20 percent and the business already has narrow margins, “that eats away on your profits and can further erode your cash flow.”

Some business owners use low-interest-rate credit cards for travel and short-term needs, and that seems to be a wise use, he said.

Credit cards are like any other debt tool and need to be used judiciously, Carter said. “It’s like any other debt. If businesses are trying to borrow themselves into success, they generally are never going to get there.”

The next time you pull out your credit card to pay for a purchase, think again about the responsibilities you assume under the power of plastic. For many college students, obtaining a credit card is an effective way to build good credit and learn the value of budgeting. However, with credit cards being so easy to acquire and seemingly a cinch to use, many students tend to lose themselves in the conveniences of credit.

Credit-card companies strategically set up tables on college campuses, luring students with free goodies ranging from Frisbees to candy.

Many campus groups sponsor the tables to raise money for their organizations. Students also may find applications stashed in their campus bookstore shopping bags, as well as on the Internet.

Although most students do not have an established credit history, credit-card companies are attracted to the students’ profit potential. According to Mendi Smith, manager of media relations for Associates National Bank, students are likely to be credit-card customers for life. Associates National Bank is a leading issuer of credit cards to students. “We estimate that 60 percent of college students pay off their balances every month,” said Smith.

However, credit overwhelms many students.

Wyshona Lawson, a Virginia Tech graduate student, said all of her troubles began when she filled out a credit-card application on campus, thinking that she would not be approved. Lawson was approved, for five credit cards. “Since three out of my five credit cards are maxed out, I rarely use them anymore,” said Lawson. “When I first got them, I felt like I could rule the world, and then $500 and $1,000 added up real quick and I got smart.”

“I decided to keep my cards on hand for emergencies only,” explained Jonathan Duty, a Virginia Tech senior, “but around Christmas I started spending and it became addictive.” Duty managed to amass $2,000 in credit card debt, and had to result to consumer credit counseling to help him out of trouble.

Credit cards can prove valuable for many students, and most are able to manage their credit spending. Kelly Driscoll, a Virginia Tech senior said that he uses his credit card for convenience. “I use my card at least two or three times a week and I don’t use it to buy things that I can’t afford,” said Driscoll.

Ruth Lytton, associate professor at Virginia Tech, teaches Family Financial Management, a course designed to provide what she calls a “financial survival kit for life.” Students may enroll in this course to learn more about financial planning tools for their future.

According to information on Lytton’s Web site, an estimated 60 percent of the 8 million U.S. college students have credit cards in their own names.

The average undergraduate student carried a credit balance of $2,226 in 1996, while 14 percent reported balances between $3,000 and $7,000.

“One student in my class left Virginia Tech with an excess of $30,000 charged on credit cards. Although this is an extreme case, dependence on credit and the associated interest charges can spell a nightmare for your future and the process of repayment to get completely out of debt,” said Lytton.

“On the positive side, students should establish credit and use it responsibly while in college. A credit card will be easier to get as opposed to waiting until you are employed and out on your own,” commented Lytton. She also said the key to responsibly owning a credit card is devising an effective financial plan “to balance spending with income.”

Lytton emphasized maintaining good credit. “Your credit history follows you … you cannot move away from it, as many students seem to think. Be aware that late payments or failure to pay will become a part of your credit history for seven years,” stressed Lytton.

Many employers check potential employees’ credit histories. Good credit also is necessary when purchasing a home or car.

Lytton notes some important credit card management facts on her Web site.

One tip is to shop around for a credit card that it right for you. Credit card fees and features vary considerably. Never commit more than 15 percent of your take-home pay to credit payments. This is where most students are hurt because many do not even have a job while in school, and still are financially dependent on their parents.

In extreme credit card debt cases, such as Duty’s, consult a consumer credit counseling service to help manage and pay off debts. “My situation got out of hand, but it’s reassuring to know that I can and will get back on track,” he said.

First Union has joined several of the nation’s large banks in opposing a rollback of Community Reinvestment Act mandates contained in a version of financial modernization legislation passed by the Senate Banking Committee last month.

The bank’s letter, sent to all members of the Senate Banking Committee (and different from the one mentioned in the previous story), undermines the position of Sen. Phil Gramm, R-Texas, chairman of the committee. Gramm included several CRA rollback provisions in financial modernization legislation reported out of his committee March 11. These provisions include a one-year safe harbor from additional scrutiny of a bank’s CRA compliance record when applying for approval of a merger or acquisition if the institution has a satisfactory or outstanding CRA rating. The bill also exempts institutions with assets of less than $100 million from CRA compliance.

“It is the position of First Union National Bank that a strong bank cannot exist in a weak community,” said Jane N. Henderson, a First Union corporate official based in Charlotte, in a letter to all members of the Senate Banking Committee. A similar letter was written several weeks ago by officials of Bank of America. “Moreover, the bank realizes that lending to low and moderate-income customers can be profitable.”

It adds that, “First Union also has a core corporate principle that it must be a leader in the communities in which it serves. Such leadership is manifest through creative and innovative lending, investing, services, contributions and volunteerism.”

First Union, the nation’s sixth-largest bank, is voicing deep concerns about the current versions of financial modernization legislation, including provisions that the industry fears could greatly increase the cost of and unreasonably delay mergers and acquisitions.

In its comments to the American Bankers Association, First Union specifically referred to the House version of the bill, which contains a provision giving the Federal Reserve Board the authority to hold hearings in all communities affected by a potential merger. This will “expand the processing time for applications and give opposition groups unprecedented opportunities to inappropriately impede bank transactions,” a bank official said.

While some difficult language was watered down during committee consideration, First Union remains convinced that the legislation’s effect will be to mandate expensive, time consuming hearings in virtually every merger transaction.

The letter, signed by Marion A. Cowell Jr., executive vice president, general counsel and secretary of First Union, also voiced concerns about certain powers issues, especially as they deal with sales of insurance and other products and services. It also sought to prod the industry’s Washington lobbyists to back off from support of the bill.

The upshot of the letter is that banks might be better off with their current lot, relying on federal pre-emption power and the National Bank Act, instead of depending on the functional regulation proposed in the bills. It also says that while the legislation as currently written may benefit certain mega-banks, “First Union believes that any comprehensive review of the legislation will find very little in the way of new banking powers and instead reveals the imposition of significant, as well as unnecessary new restrictions on banks and bank holding companies.” Industry lobbyists said the banks First Union is talking about include institutions such as BankAmerica, Citigroup, Bank One and J.P. Morgan.

“We do not believe that this represents “modernization” for the banking industry and hope that the ABA shares our view,” the letter says. First Union added that “it remains disappointed” in the ABA’s “continuing support or non-opposition” to the insurance safe harbors contained in both the House and Senate versions of financial modernization legislation. The safe harbors would allow certain states to treat banks differently than other distributors in sales of insurance. “We have already seen these safe harbors that allow for discrimination against banks can cause problems in certain states and we believe that the ABA’s acquiescence to these provisions has been extremely counter-productive to the industry.”

The letter also says that First Union “continues to believe that the removal of the Office of the Comptroller’s agency deference will be a significant problem for the industry. The banking industry would not be able to offer the products and services that are offered today without the strong support of the OCC and the agency’s litigation success,” it says.

An ABA staff official said last week the trade group is taking no position on the bill–the same day, the ABA joined a group of securities, mutual funds and insurance industry trade groups in sending letters to the Senate leadership seeking prompt action on a version of the bill passed by the Senate Banking Committee March 11

Bank One Corp. became the second major bank to make electronic bills available to its on-line customer base April 14, through a third party provider Checkfree Corp. It followed First Union Corp. by about six months.

On the same day, BankAmerica Corp. officially introduced its own system that it called “comprehensive electronic bill presentment and payment solutions” that could reach all 32 million of its business and consumer customers (see previous story).

Through Checkfree, Bank One’s 310,000 on-line customers can elect to receive bills over the Internet from some of the corporations signed up to send Checkfree’s e-bills.

Bank One is hoping that on-line presentments will encourage more of its customers to pay that way. Currently, 20% to 25% of its on-line banking customers use the bill payment offering.

Bank One’s financial arrangement with Checkfree remained unchanged with the addition of presentment services, said Bruce A. Luecke, president of interactive delivery services in Bank One’s retail group. Bank One is not charging its customers beyond the $4.95 they already pay for bill payment. Basic on-line banking is free.

The Chicago-based banking company is the first to use the Checkfree service through the Integrion Financial Network.

Bank One does not plan to work exclusively with Checkfree, Luecke emphasized. “We want to be able to present as many bills as we can.”

Forty-three corporations have signed contracts to have Checkfree deliver their electronic bills. So far, only a handful, including MCI Worldcom and BellSouth, are sending such bills, a spokeswoman said.

Fifteen of the 43 have agreed to deliver their bills to Bank One. Seven are listed on its Web site, including American Electric Power, BellSouth, Consumers Energy, HomeSide Lending, and MCI WorldCom.

“I don’t believe by working with a single presentment provider that any bank will be as successful as it can be,” Luecke said. “You have to be as open as possible.”

He said he would like to see more providers enter the market. Bank One has completed the first phase of a pilot with Transpoint, the other main presentment service provider, but a second phase has not been scheduled, Luecke said. — Chris Costanzo, American Banker

BankAmerica made a big splash in the e-commerce world last week when it won the race to be the first bank to introduce its own bill payment and presentment service in pilot mode. Experts said, however, that it remains to be seen if it can execute the service. Chase and Citibank have programs a step behind.

“They’ve proved it can be up and running which is a major accomplishment,” said Avivah Litan, director of research for the GartnerGroup. Litan, an expert in bill payment and presentment, said the development is “a big deal” not only because BankAmerica controls 10% of the consumer deposits in the U.S., but because it means competition for industry leader Checkfree and up-and-comer Transpoint, a joint venture of Citibank and Microsoft. BankAmerica wants to be seen as “a comprehensive alternative to the limited number of other bill presentment options” on the market, said BankAmerica senior vice president Jane Wallace.

“If they’re successful with this service, they could control where consumers go to pay their bills. They don’t want to lose their franchise consumers to other bill presentment providers. They can retain them and attract new ones,” Litan said. She added that the big question is whether or not BankAmerica can execute. “Will consumers go to them? Will the billers want to use them?” She said the final, and perhaps most important, question, is what this means to the relationship BankAmerica has with the Integrion Financial Network (see next story.)

That consortium, which recently streamlined its ownership structure, is now controlled by BankAmerica, Bank One, and Washington Mutual Inc., with several other institutions participating. Checkfree is Integrion’s “preferred provider” of electronic bill payment and presentment. Litan said it would be interesting to see which pill payment provider gets used–whether the group sticks with Checkfree, or starts using BankAmerica. “They’ll probably use both until they see which one is more successful,” she said.

BankAmerica’s system was developed internally and has been tested with employees since late March. Competing against other vendors, BankAmerica wants to be seen as “a comprehensive alternative to the limited number of other bill presentment options” on the market, Wallace said