Credit Crunch

Have you ever opened your mailbox and found an offer for a preapproved credit card? Have you ever wondered, “How did they get my information? And why are they offering this to me?”

Have you ever applied for a credit card, a loan or an apartment, and been declined because of your credit? You are not alone.

Galen Brown is a senior credit consultant who specializes in credit education, credit repair and debt management. He offered some explanations of common credit dilemmas and tips on how to improve your credit.

Brown calls credit a “necessary insurance policy on your car, you need good credit.

Take me, for example. About a year ago, I bought a car. I had not yet established my credit, so I have a 17 percent interest rate. A few months later, I received a preapproved credit card application.

I got the card — and its $300 limit and 17.5 percent APR (annual percentage rate). I maxed it out in no time. Now, I pay a little more than the minimum monthly payment every month, but I’m far from having it paid off.

Brown estimates that if you are my age, 20 years old, and pay only the minimum payment each month, you will be about 40 years old before that card is paid off.

“Unlike a car or house loan, which are secured by something the bank can take away, a credit card is an unsecured debt, which is a higher risk for the lender,” said Jim White, faculty/coordinator, management & business at NLC.

Credit card agencies target college students, especially juniors and seniors who are close to their graduation, because the assumption is their income bracket will soon increase.

Credit card companies buy information from one of three credit reporting agencies (Equifax, Experian and Trans Union). Credit reporting agencies are privately owned. They are in business for the sole purpose of selling your information.

For example, Capital One may call Equifax and ask for information specifically on college students who are in their final year in college.

Capital One will pay Equifax a fee for each piece of information they provide. That is how the credit card companies get your information to send you a pre-approved credit card application.

Of the 280 million people in the credit reporting agencies' databases, 83 percent have bad credit, says Brown.

Have you ever seen your credit report? Everyone should look at their credit report. It is more common than you think for errors to appear on your credit report, said White. “I check mine every quarter,” said White.

Does he find errors?

“There's wrong stuff every time,” he said. If there is something on your credit that is incorrect, it can be removed. Do not let anyone tell you it can't!

Has your car payment ever been due on a certain date and you couldn't pay it until a couple days later? According to the Fair Credit Reporting Act, a payment must be 30 days late to be placed on your credit report.

For information on the Fair Credit Reporting Act visit http://www.ftc.gov/os/statutes/fcra.htm.

Brown's final advice is, “If you can't pay for it, then save for it.”