Take charge of your credit

YAKIMA, Wash. -- The Yakima Valley’s economy fares well when compared to other parts of the country, but that’s little solace when you as an individual are cash-strapped or in over your head with debt.

There is comfort, though, in knowing you are not alone.

Local credit counselors say they’ve noticed over the past few years an increase in residents who need help reducing their credit-card debt.

Last year, about 3,500 people sought help from Consumer Credit Counseling Services of Yakima. About a third of those people struggled with making mortgage payments on time.

Today, Dave Gilbreath, chief executive officer of CCCS in Yakima, helps kick off Your Money with advice on improving bad credit.

And just in time for this section’s debut, here’s some good news for borrowers: President Barack Obama recently signed into law a credit-reform bill to make it harder for credit-card issuers to suddenly raise interest rates or penalize risky borrowers.

Starting next February, credit-card companies also will be prohibited from issuing cards to people younger than 21, unless they have a parent or guardian co-sign, or can prove they have the means to pay the debt.

What should consumers know about this new legislation?

Until fully enacted in February 2010, some card holders may be in for a bumpy ride. Consumers should watch for and resist attempts to raise their interest rates and/or lower their credit limits (which could negatively impact their credit scores). Card holders should resist the temptation to close accounts after receiving a rate hike; this too can ding one’s credit score. Finally, if you carry a balance, figure a way to pay it off; balance-transfer options will decline significantly and you don’t want to be stuck with a balance on a high-interest credit card.

How can you negotiate a better deal on credit card interest rates?

Card holders may be able to reduce their interest rates by asking their bank, especially if their payment history is good. They should call the bank card company and ask them to lower their interest rate. It may take several calls, so be persistent. If you get someone that says, ‘No, we can’t help you,’ ask to speak with the supervisor. Be very polite. Call again later. Call during the daytime hours. Call in the morning, call another time, late in the day, in the afternoon.

If you’re polite and respectful and reasonable, then there’s a very good chance they will lower the rate.

Does it make sense to transfer the high-interest balance of an existing credit card to a new, low-interest credit card? 

It might make sense to do this if your interest rate is high and you can pay off the balance on the new card before the “teaser rate” expires. However, don’t expect to transfer again and again. You may think applying for a new balance transfer card when your teaser rate expires is the perfect solution to avoid ever paying interest on your credit card debt. Moves like that can damage your overall credit score.

When you continue to open new, low-interest accounts, but maintain high debt levels, lenders may see you as a risk, which will make it hard for you to borrow money for big-ticket items like a home or car.

Should I borrow against my home equity to pay off credit-card debt?  

It is rarely a good decision to use home equity to pay for credit-card debt. Why? Most people that do this don’t change their spending habits and end up losing equity in their home and eventually max out their credit cards again. Borrowing against home equity might make sense if that’s the only way to pay off a substantial high-interest credit-card debt (30+ percent interest rate) and the consumer is able to stop excessive credit-card use.

What’s the quickest way to improve my credit score?

For someone in debt, the only way to improve a credit score quickly is to pay down the amount of debt owed. The score will immediately go up.

Why are credit scores so important?

 Credit scores generally determine the interest rate one pays for anything they buy on credit, including furniture, tires, cars, houses, everything. Therefore, the higher your credit score, the lower your payments will be because of lower interest rates. A low credit score can add hundreds of dollars per month on car and house payments.

What happens if I don’t use my credit card?

 Use your card or lose it. Banks across the country are trying to reduce risk. Many are now canceling credit cards for cardholders who haven’t used their credit cards in the last year or so.

Do you have any final advice for credit-card holders?

Don’t be afraid to use credit cards. They are convenient and help you build/retain good credit scores. However, always make payments on time and always strive to pay off the balance in full each month.

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