By now we all know that the economy is to the brink of failure.  What we may not know is the far reaching effects that this collapse is causing for us, the average consumer.  Credit card companies are tightening their belts making it more difficult to offer credit.  Other consequences of new credit card policies are staggering interest rate increases and lowered credit limits.  Many of us don’t even know about these changes until we look at our statement.

You may think that if you pay your bills on time consistently that you are safe from these changes.  However, the economy is hitting everyone, even those who are responsible and pay their debts on time. 

One of the reasons for this tightening is that banks are also finding it hard to get credit which in turn decreases the amount of money they have to loan.  With the economy flailing, risk for credit card companies increases which means they need to charge us more to keep their profits stable.

All these years of easy credit are now coming to haunt the entire country from wealthy corporations to the consumer on Main street.  The consequences are far reaching and include lower credit scores because if your credit limit is reduced you debt income ratio increases, which makes it even harder to buy a new home or car.  To obtain student loans and to curtail family vacations.  All these things perpetuate the downward spiral.  Consumer spending will be down, new home sales will continue to drop, and auto companies will sell fewer cars.

What will we do as a society if we can’t have our precious credit cards?  Maybe it will make us a more responsible generation.

The question on many people’s minds is how do we turn around this dangerous trend.  Will the government bailout reverse the drop?  Nobody really knows yet, even so called financial experts have conflicting opinions about whether the bailout is the answer.

The news however is not all doom and gloom.  In the financial history of the United States we always bounce back.  The markets have consistently corrected and prospered given enough time.  As the economy recovers credit will again be able to live our lives on credit.  The credit card companies will prosper despite the quagmire that they are largely responsible for creating.

The markets will recover and we will again achieve the prosperity that we have come to expect but how will this expect our parents and grandparents. 

While this is comforting news for young and middle aged Americans the news is much more dire for those about to retire.  These people who have spent their entire working lives saving for retirement are now finding it impossible to maintain their lifestyles or to even retire at all.  The market may not recover in time to ever get back their precious nest eggs.

The elderly who have worked to achieve a better life for their children and grandchildren are now footing the bill for our financial irresponsibility.  We should be ashamed of the plight we have created for our elderly.

Have you ever looked at your credit score and wondered how they come up with late simple little number?  Well, that number is anything but simple.  It is so complicated that there are only a few privileged few who know how that number is come up with; the number that can impact every aspect of your life.  It’s what determines whether you have good credit or bad credit.  Credit card companies use it to determine what interest you pay and whether you get the card at all.

Why the mystery?  The company that developed the system says that if they disclosed to formula they would lose business.  Money does, after all, make the world go round.

This one little number that is such a mystery controls most aspect of our lives.  Some groups have tried to unravel the mystery without much luck.  Even the credit card companies and other lenders don’t know the secret formula.  There are, of course, many common sense factors.  For example, pay your debts on time.  You would think that would be enough, but its not.  Some of the things they take into consideration are if you own a home, how long you have owned that home, what your job is and how long you have had it.  There are more points awarded for those in a “professional career.”  Doctors, lawyers, and CEO’s are given better consideration than blue collar workers and just about any other group of workers.  So, if you decide to choose a career other than a professional one, your credit suffers.  For some reason, lawyers are better than factory workers.

Your age also plays a large part in what goes into your score, those over 50 benefits from their years.  Those without an extensive credit history are penalized for their lack of use whether they pay their bills or not.

There are many myths about how to improve your credit score.  Some believe that if you pay off your credit cards and close your accounts your credit score will go up.  In actuality, open lines of credit with low balances are better than none at all.  Credit repair companies tell us that they have inside knowledge about how the system works and can repair you bad credit instantly and easily.  For a fee, of course.

Is it fair to be penalized for being a plumber instead of a doctor?  Should you be penalized for being a 40 year old who pays your bills on time?  Should you be penalized for wanting to live in an apartment instead of a house?  Most of us can see the unfairness of some of these factors.

Even though there are these factors that can’t be changed you can still change your bad credit to good credit, and these are all common sense.  If you pay your bills on time consistently your score will improve substantially over the years.  Use your credit cards wisely.  Don’t fall into the trap that you need something when really you only want it.  There is a definite difference.

With the increasing prevalence of people who are finding themselves with bad credit, there are many companies out there who are ready to take advantage of good people who find themselves in bad circumstances.  One of these industries is the credit repair industry.  They advertise everywhere the promise of fixing your bad credit for a small fee.  Some of them advertise themselves as non-profit organizations.  They come across as benevolent resources that only have your best interests at heart.

When considering this course of action remember the old adage, “If it seems too good to be true, it probably is.”  Many of these operations promise an easy fix to all your financial problems.  While their service may be able to help you over time there is no such thing as an easy fix or a quick solution to repairing your bad credit.  It takes years of sacrifice and diligence undo the damage you can cause in just months.

Beware of any company that promises you unrealistic results.  Many of these will promise you great prosperity if you would just take the time to pick up the phone or click on their website.  They are a non-profit organization they say.  While in many cases this may be true, however some of these “non-profits” use their company as a vehicle to pay themselves and their partner’s exorbitant salaries and company perks.  Not to mention the steep fees they charge to use their service.  Unfortunately, in our society of crime, there are still “legal crooks” hiding behind every corner.

The only way to repair bad credit is to pay your bills on time over a period of years while avoiding credit at the same time.  Destroy, or don’t use your credit cards or drive your car a little bit longer than you normally would.  Make a budget and stick to it.  These are all common sense strategies to repair your credit and it didn’t cost you a dime.

All of the things these companies can do for you, you can do for yourselves for free.  You can negotiate with credit card companies and other creditors.  In most cases these companies will try to help you out if you just ask them.  Many will lower their interest rates or waive penalties if they know you are working to pay off your debt and can make a deal and stick by what you say you will.  They would much rather get their money from you than have to hound you or turn your debt over to collection agencies. 

Communication is key.  Don’t ignore your creditors and you can benefit from them.  The repair companies will have you believe that they can negotiate a better deal for you because they deal with creditors all the time.  This is untrue, honesty and communication you can do for yourself.

It is a sad reality of life today that there are companies everywhere who are ready to take advantage of anyone who is looking for a way out of debt.  What they don’t realize, or care about is that they are making the situation worse.

For anyone who has ever had to handle a debt collector you know that it can be a disrupting and frustrating experience.  Lenders have a right to collect the money that is due; however, the extent to which they go is sometimes reprehensible.  Borrowers are hounded by phone calls at all times of the day and night, threatening letters, and calls at work which jeopardize their employment.

There are laws regulating the debt collecting industry.  But, most companies ignore these rules hoping the consumer will not be aware of the law or are too embarrassed about their situation to do anything about the harassment.  The practice of threatening consumers takes place with credit card companies, auto lenders, and mortgage companies.

Many of these companies have no direct control of debt collecting practices after they sell the debt to the collectors.  They have no responsibility or stake in how their customers are treated.  Once the debt is sold they are satisfied and wash their hands of the consumer.

The real threats that they make terrify the average consumer.  While they do have a right to call you at home, they are supposed to only make calls between 9am and 9pm, but they don’t always follow that rule.  If they cannot reach you they will call at any time.  You are also allowed to tell them not to call you at work.  Again, however, these rules don’t stop them.  Supervisors and bosses get very angry if they continually have to field these calls.  For those with bad credit these attempts to collect a debt invade their entire day as well as making their credit worse than it ever was before.

Credit card companies and other lenders are now making it a common practice to start hounding customers with a few days of the due date.  This is particularly annoying to the customer who pays their bills on time who may have already mailed their payment.  Lenders no longer buy the excuse that “the check is in the mail”, with good reason.  They have heard this too many times before and they treat everyone who is even a little late like sub humans.

Insults and threats are a common tactic in the collection industry.  Some of these threats are sometimes very extreme.  They would have you believe that you are a low life debt dodger and that you are in danger of losing everything you own.  The threat of a bad credit rating is unthinkable to most people.  However, those who already have bad credit seem to take this harassment with a grain of salt.  They know that their credit is bad and this rude and obnoxious person on the phone can’t possibly make it any worse.  These consumers find themselves in an impossible situation and what they may need is a collector that will help them instead or threaten or verbally abuse them.

We need better enforcement and oversight of the collection industry so that they will be forced to collect their debt in an acceptable manner.

Be warned, if your credit score is dropping it may be very difficult to stop that boulder from rolling down a very steep hill.  Once you starting getting behind on your credit card payments or your mortgage you are likely to spiral into a deep pit of trouble.  Every aspect of your life will be affected and it may be at the very least difficult to turn around.  It will probably take years and many sacrifices to bring your bad credit back to good standing.  Debt has taken such control over our lives that it seems we are controlled at the whims of the credit card industry and other lending institutions.

It may start out simply.  First, you are running short of money one month and you put off a payment.  You tell yourself that you will make it up next month.  Next month comes and you only have enough money to catch up on the bill you put off last month.  So, now you pick another bill that you have to delay.  In the following months you find yourself constantly catching up instead of getting ahead.  So, you get another credit card to help you catch up.  You are now falling fast and have to get more debt to pay the debt you already have.

In addition your monthly income is dropping because your cardholders have raised their interest rates and you are paying exorbitant fees.  Now, your mortgage is in danger of having to wait.  By now your credit rating is falling fast and thankfully you are unable to get more credit cards.  Your car loans are more expensive as well as your insurance.  You get denied a promotion because you have bad credit and your competitor has good credit.

You are now trying to live on the same income while falling deeper into debt.  You now can’t pay any of your bills on time and you get the first foreclosure notice.  Maybe you get luck and are able to sell your home first.  Now you go out looking for an apartment only to find that most landlords are doing credit checks to find good tenants.

Finally, you find a landlord willing to take a chance on you, but you will have to pay a higher rent.  You call the utility companies to have your services connected and you find out that you have to pay hundreds of dollars in security deposits because of your bad credit.

Next your paycheck is garnished to pay off your debt and you have even less than ever.
If this scenario sounds terrifying you are right.  However, it is also not as rare as you might think.  In just a few short years you could find yourself in this predicament and before you know it you can be devastated financially.

The answer of course, is simple, pay your bills when they are do and don’t fall into the trap of getting into more debt to pay the debt you already have.  It is a recipe for disaster.