Sunday, August 12, 2012

Can Debt Collectors Seize and Garnish a Paypal Account?

If you're worried about a collection agency garnishing your Paypal account, then I probably don't need to explain the lawsuit and garnishment process to you in detail. In a nutshell, if a debt collector sues you and gets a judgment against you, the company can then go after your assets, seizing them in lieu of payment. Paypal isn't a bank, but that doesn't mean your Paypal money is safe from a collection agency's judgment.

Lawsuits and Garnishment

If you could pay, you would have done so
Collection agencies don't sue you with the hope that the summons will make you throw your hands up into the air and say, "Okay, okay. You win. I'll pay you now." If you were able to pay, you probably would have done so long before the case went to court. No, a collection agency sues you with the intention of seizing your assets. If its lucky, the collector will walk away with far more in interest, fees and court costs than it would have gotten if you paid the original debt to begin with.

You also probably know that collection agencies can garnish your wages, levy your bank accounts and put liens on your property – but just because these are the most well-known ways that collectors force you to pay off a judgment, that doesn't mean they are the only ways.

Garnishing Paypal

Just because you don't hear about collection agencies garnishing debtors' Paypal accounts very often, that doesn't mean it can't happen. Paypal funds are monetary assets, plain and simple, and if a judgment creditor knows about those assets, you can bet the ranch that it will pursue them to the full extent of the law.

The reason you never hear about collection agencies garnishing Paypal accounts is that, more often than not, the collection agency has no idea that the Paypal account even exists. The same principle exists here that exists with prepaid debit cards – if the debt collector doesn't know about it, it doesn't try to seize it.

How Debt Collectors Find Your Paypal Account 

After winning a judgment against you, the collection agency may request that the judge force you to return to court for something known as a "post-judgment interrogatory." During the post-judgment interrogatory, the collection agency's attorney asks you questions about your assets. If you don't show up for the post-judgment interrogatory, refuse to answer the attorney's questions or lie about your assets, you can be held in contempt of court. Not fun.

Where are the assets?
The collection agency's goal here is to find out where you've socked away all your assets so that it can seize them. The collector's attorney can force you to disclose bank account and employment information and information about any property you own. But the attorney can't force you to volunteer information. Your best bet in a post-judgment interrogatory is to answer the questions you are asked in the simplest way possible while still satisfying the requirements. In other words, don't volunteer that you have a Paypal account if the collection agency's attorney doesn't ask you about it.

Why Collection Attorneys May Not Ask About Your Paypal

My theory as to why collectors rarely find out about judgment debtors' Paypal accounts is that collection agencies are cheaper than Mr. Krabs. Because of this, they have a tendency to hire cheap attorneys fresh out of law school that didn't do well enough in the program to be offered a better job somewhere else when they graduated. If a collection agency is working with an inexperienced (and perhaps not too bright) attorney, it may not even occur to the attorney to ask the right questions.

Some collection agencies that have older, more experienced attorneys on staff to oversee the fresh meat. But old habits are hard to break, and if a lawyer has attended hundreds of post-judgment interrogatories and asked the same questions at each one, its a fair bet that he's going to continue to ask the same questions. If he didn't think to ask about Paypal 10 years ago, odds are he won't now either.

Lying to Collectors About Your Paypal Account

Just because lying at a post-judgment interrogatory could result in a debtor being held in contempt of court, that doesn't mean that there aren't debtors out there who do just that. I'm not advocating illegal behavior, but I should warn you that lying about the existence of your Paypal account doesn't guarantee that you can protect it.

If a judgment creditor requests bank statements from your bank, your bank can do one of two things: hand over the statements without question simply because the creditor has a judgment (and is probably already levying your account) or refuse to comply until the debt collector comes back with a court order. Odds are the collection agency isn't going to bother to go get a court order just to check your bank statements, but if your bank hands over those statements and you lied about your Paypal account, you could find yourself in legal  hot water.

Don't lie about your Paypal

In order to be verified, Paypal accounts must be linked to a bank account or credit card. If your Paypal account is linked to a bank account and you regularly transfer funds from your Paypal to your bank, those transfers are going to show up on your bank statements and the collection agency is going to want to know where these transfers are coming from. If the bank is willing to pony up that information or if the statements themselves show that the transfers are Paypal transfers (some do, some don't), you're busted.

Protecting Your Paypal From Collectors

You are strictly prohibited from transferring assets to another person to keep them out of your creditors' hands. But Paypal gives you the option to request a check for the amount present in your account. Transferring the money to your bank account and then trying to withdraw it is risky. If you have a levy on your account or if the collection agency places a levy on your account after you initiate the Paypal transfer but before the money arrives, your Paypal funds are gone, gone, gone.

This isn't to say that if the collection agency finds out that you cleaned out your Paypal account before it could get there that it won't claim you were trying to hide assets. The odds of the debt collector going back to court to throw a fit about this in front of a judge is small, since that would require time, effort and money on behalf of the collection agency and the collector would have to prove that you intended to hide the money. Regardless, be aware of the risks of anything before you do it.

Paypal Could Freeze Your Account

One last thing to be aware of: Paypal could freeze your account. I read a quote somewhere that resonated so much with me that I'd like to mention it:

Paypal can put your  money on lockdown
"Paypal works great until it doesn't."

Those of you who have lost money and struggled mercilessly with Paypal after an account freeze know exactly what I'm talking about. Paypal can place a hold on your funds anytime for any reason. There is no guarantee that Paypal wouldn't be willing to do just that if the collection agency contacted it and requested that it do so pending a garnishment.

What it all boils down to is that I hate to see people lose everything to a garnishment, but I also don't want to see any of you guys end up in legal trouble just trying to protect money that's rightfully yours. You can't know what a collection agency is planning and lawsuit threats are often just that – empty threats – but to avoid potential legal problems down the road its always best to do what you have to do before the collection agency files its lawsuit and tries to garnish your Paypal account.

Related Posts:

Can Collectors Garnish a Prepaid Visa Debit Card?

Funds Exempt From Bank Account Garnishment

How to Respond to a Bill Collector's Lawsuit

Thursday, August 9, 2012

After Bankruptcy Beware Those Easy to Get, Unsecured Credit Cards

Bankruptcy tanks your credit score
One of the most common questions I used to receive from clients was "How do I fix my credit after this bankruptcy is over?" I answered that question so many times I seriously considered typing up and printing leaflets and just pushing them across the desk every time I heard that one. While I'm not going to go too deeply into fixing your credit after your bankruptcy, I will tell you this: Beware the credit card offers you get immediately following your bankruptcy's discharge.

Unsecured Credit Cards After Bankruptcy

Just about anywhere you look on the internet you'll see piles full of drivel about how consumers who received a recent bankruptcy discharge don't have the credit to qualify for traditional, unsecured credit cards and should aim for a secured card if they want a jump start on rebuilding credit. The reason this misconception is sung from the mountaintops is because, in a logical world, that's how business would work. Even if your bankruptcy was the result of circumstances outside of your control, that doesn't change the fact that a bankruptcy within your credit history practically screams "I can't manage debt! If you lend to me I will default on payments, file bankruptcy again and you won't get a penny of your money back! I AM A BIG RISK!"

But, as you probably know by now, credit card companies are anything but logical.

Why Credit Card Companies Target You After a Bankruptcy

Believe it or not, credit card companies don't make much profit from "good" customers. Customers who pay their bills on time, qualify for a low interest rate and carry low balances – in otherwords, those that play the game right – are little more than an irritation for the credit card company.

After bankruptcy, you're the perfect target
Credit card companies make the most profit off those who are struggling. If you accrue late fees, run up high balances and have a hellacious interest rate, you can rest assured that your credit card company loves you. It's milking you dry and you can barely keep your head above water. Score!

So now that we've established the type of customers credit card companies aim to attract, lets discuss why these creditors target people with a recent bankruptcy discharge.

You're Not a Bankruptcy Risk 

Once of the major factors credit card companies examine before approving your application is your "bankruptcy risk score." A variety of factors contribute to this score but the score itself is self-explanatory. The company wants to know exactly how likely you are to file for bankruptcy. Unsecured debt, such as credit card debts, are the last in line for payment in a bankruptcy, and credit card companies hate to lose money.

No matter who you are or how stable your financial situation is, you carry a bankruptcy risk – regardless of how remote that possibility may feel. The only people who are not a bankruptcy risk are those who cannot file for bankruptcy. Who can't file for bankruptcy? Why, those that just received a bankruptcy discharge, of course!

That's not entirely accurate. You can file for bankruptcy any time you wish, no matter how recently your previous bankruptcy was discharged, but that doesn't put your current creditors in danger becuuse while you can file bankruptcy, you cannot have your debt discharged. 

The Post-Bankruptcy Credit Card Trap

If you are not eligible for a bankruptcy discharge because of a recent discharge, you are the most attractive person in the world to unsecured creditors. You have a history of incurring too much debt and you have absolutely no way (for two to eight years, anyway, depending on what type of bankruptcy discharge you received) to escape that debt. The credit card company is banking on the fact that you'll incur too much debt, miss payments, incur higher interest rates and fees and take on the roll of cash cow for the company. Sure, you can get rid of the debt after the waiting period for re-filing bankruptcy passes, but in the meantime the credit card company can milk you dry.

And the Unsecured Credit Card Offers Arrive...

Do you really think the credit card companies are going to let a sweet deal like a person who can't manage money and can't get a bankruptcy discharge slip through their fingers? Not a chance. So don't be surprised when you start getting unsolicited credit card offers in the mail. Secured, unsecured, doesn't matter – they'll be there.

You've got mail

If you're positive that you're in a stable financial state that will allow you to apply for and manage a new credit card account, go for it. Keep in mind that the interest rates on these cards are often astronomical. Rather than use them as your everyday purchases card, its better to make very small purchases and pay them off in full each month. This way you don't incur scary interest charges and you're rebuilding your credit at the same time.

If the unsolicited credit card offers are too tempting or just an annoyance, you can stop them from arriving by visiting the website of Opt-Out Prescreen, a joint effort on behalf of the credit bureaus and the Federal Trade Commission. Opt-Out Prescreen lets you stop unsolicited credit in its tracks and rebuild your post-bankruptcy life on your own terms.

Wednesday, August 8, 2012

Re-aging Delinquent Lowe's Credit Card Account

Reader Question:


I recently moved to a new area. I have a credit account with Lowe's. I called Lowe's and gave them my new address. I know they had the proper address because I got a credit card statement from them a couple weeks after I moved in. That statement in May was the last one I ever got. After that I got nothing from them, no bills, no statements, nothing. I am not signed up for automatic bill pay, so I should have been getting bills but the bills never came! 

It took me a while to realize that I should have been getting bills and wasn't. I know its my responsibility to pay whether I get a bill in the mail or not, but the bill itself is what reminds me to pay. Anyway, as soon as I realized I hadn't been getting bills I called Lowe's and asked about it. As it turns out my account was over 60 days late and had racked up tons of late fees and interest fees. 

The customer service rep for Lowe's said that they had been sending mail to my new house but that most of the mail had been returned. That makes no sense since I received the first bill with no issues. The rep waived the interest charges and late fees on the account and brought it current. When I asked how this would affect my credit score, she said that a 30 day late takes 90 days and that she had re-aged the account anyway so it didn't matter. 

I felt good about it when I got off the phone but now I'm getting nervous. I'm not sure if I believe that a 30 day late takes 90 days, and isn't re-aging accounts a bad thing that would hurt my credit rather than help it? 



I can't explain why some of the Lowe's credit card bills and statements are arriving in your mailbox and some are being sent back to Lowe's headquarters, but I can explain about the late payment notations and the account re-aging.

30-day lates are notoriously misleading. For companies that send reports to the credit bureaus every 30 days, a 30 day late appears on the credit report of any cardholder whose account was 1-30 days late when the credit card company sent in its report. The kicker here is that not all companies file reports with the credit bureaus every 30 days. From what the Lowe's credit card rep is telling you, it sounds like Lowe's only  makes credit bureau reports every 90 days. If this is the case, however, your credit report would reflect a 30 day late, a 60 day late and, if you passed the 90 day mark, a 90 day late. You definitely don't want that to happen. Each late payment notation builds on the one before it. By the time you reach a 90 day late, your credit has been decimated.

As far as your account being re-aged is concerned, there is a big difference between collection agency re-aging and credit card company re-aging. When a collection agency re-ages an account, it alters the original dates on the account to make the account appear more recent. Not only does this mean the debt knocks out a bigger chunk of your credit score (since recent items carry a greater weight in the credit scoring formula) but it also tricks the credit bureaus into leaving the bad debt on your credit report for longer than the 7-year reporting period. Collection agency re-aging is a nasty business, and very illegal.

Credit card company re-aging, however, is beneficial. When a credit card company re-ages your account, it brings the account out of delinquency and erases the delinquent history. Depending on how the Lowe's credit card company's computer reporting system is set up, this can eliminate any late payments that have already been reported to the credit bureaus.

Keep in mind that customer representatives at credit card companies often know little to nothing about credit scores and reporting practices. They will often say whatever they need to say to get you off the phone – especially if you're asking questions they don't have the answers to. I'm not saying this was necessarily what happened in your case, only that its possible.

If Lowe's actually did clean up the mess, then good for them. It's not often that customer service representatives are willing to help a customer out without that customer taking drastic action or demanding to speak with a supervisor. If I were in your situation, I would go pull a copy of my credit report from each of the three credit bureaus and review it, just to be safe. If you find late payments, its time to call Lowe's credit card services again, but skip the customer service representative and ask to be immediately transferred to a supervisor. It's awesome that they re-aged your credit card account, but if they didn't erase the late payments as well then they still have work to do.

Best of luck,

*Do you have a question for Lee? Send an email containing your question to and your question may be the subject of an upcoming post. 

Tuesday, August 7, 2012

Tolling Debt and the Statute of Limitations

Around the world, thousands upon thousands of U.S. citizens sit around waiting on pins and needles for the statute of limitations to expire on their debts. When the statute of limitations expires, a collection agency loses the right to sue you (be careful, some do anyway) and use a judgment to take such drastic action as garnishing your paycheck, putting liens on your property and seizing your bank accounts. Unfortunately, by leaving your home state or the country, you're giving debt collectors the right to "toll" your debt. This disrupts the statute of limitations – giving the collection agency much longer to file a lawsuit against you.

How Collection Agency Tolling Works

Tolling protects collection agencies from losing their rights to sue a debtor simply because the debtor is unavailable. Lets look at the following example:

Bobby owes $2000 to Collection Agency X. The statute of limitations for open accounts in his state is four years. It's been two years since Bobby defaulted on his payments. Bobby is deathly afraid of being sued by Collection Agency X. Bobby knows that it will be nearly impossible (and almost certainly too much trouble) for Collection Agency X to sue him if he is in another country. Because he has family in Russia, Bobby decides to wait out the remaining two years on his debt's statute of limitations there rather than at home, where he feels like a sitting duck. 

Bobby's situation can have one of three potential outcomes after he returns home: 

1. Collection Agency X never sues Bobby.

2. Collection Agency X sues Bobby. Bobby responds to the court summons using an expired statute of limitations as his defense. Because Collection Agency X was not aware that Bobby ever left the country, it is forced to drop its lawsuit. 

3. Collection Agency X is aware that Bobby left the country for a period of two years. It files suit against Bobby. Bobby responds by claiming an expired statute of limitations as his defense. Collection Agency X does not drop its lawsuit. Instead, it submits documentation to the court demonstrating that Bobby left the country for two years. Because collection accounts are "tolled" when an individual leaves the U.S., there are still two years left on the debt's statute of limitations. 

You can't always run and hide from collectors.
In the third scenario, leaving the country to wait out the statute of limitations didn't do Bobby a lick of good. The debt was tolled and when Bobby came back to the states, he was right back where he started with two years left on his debt's statute of limitations. I know that seems brutally unfair, but as hard as it is to get our heads that far up our butts, lets look at the collection agency's point of view. The collector is out to collect a debt. Collecting debts is how the company makes a profit and remains in business. Bobby was trying to cheat the system (not that debt collectors don't try to cheat the system too, just in different ways).

You could argue that leaving the country to escape debt collectors isn't technically "cheating" since the collection agency could go through the time and effort of pursuing the debt internationally if it really wanted to, but the collection agency would argue that the same rules should apply to everyone and debtors shouldn't be rewarded for running away from their debts. Thus, the company tolls your debt.

Not All Accounts Get "Tolled" When the Debtor Leaves the Country

Now, let me say straight up that I am not giving anyone instructions on how to hide from their creditors. That being said, a creditor can only use tolling as a defense to an out-of-statute lawsuit if the creditor knows that you left the country.

One of the primary ways creditors find out that you are living abroad is by your forwarding address. Keep in mind that these companies want to track you down, and if you've given your friends, family, current creditors and the post office your new international address, its a fair bet that the collection agency will have it before long. Remember, debt collectors can call your family members in an effort to locate you. Although collection agents aren't supposed to lie to your loved ones, it happens all the time and your brother/sister/cousin might be more than happy to give your long-lost "friend" your new contact information.

Your debt may still be there when you return.
Another way debt collectors find out that you're no longer in the U.S. is by pulling your credit report. Because debt collectors define themselves as legitimate business associates, they have the right to pull and review your credit report any time they like without obtaining your permission first. If your current creditors have your new address, they will update your file and the updated address will appear on your credit report. As soon as the collection agency discovers that you are no longer in the U.S., its a fair bet that it will toll your debt.

Running Away From Debt

Lots of consumers who are really and truly desperate opt for a new life abroad rather than staying in America and facing their creditors. Keep in mind, however, that because of a collection agency's right to toll your debt, even leaving the country isn't a guarantee that one day you'll be able to return home to a peaceful, debt-free existence. Thus, you should think long and hard before packing your bags and catching the next plane to Timbuktu. Your debts may not follow you, but a tolled debt never truly dies.

Related Posts:

How Debt Collectors Find You

Lawsuit Statute of Limitations

How to Respond to a Bill Collector's Lawsuit

Will Bad Credit Follow Me to Canada?

Reader Question:


I am getting married next month and moving to Canada. I have horrible credit and was thrilled at the idea of getting a fresh start in a new country. But then I found out that the credit reporting agencies are the same in Canada as they are in the U.S. Does this mean my bad credit is going to follow me to Canada? I don't want to mess up my fiance's good credit because of my past mistakes. Help!

Miranda B. 


You're right about the fact that both Transunion and Equifax provide credit reports in Canada as well as the U.S. (Experian no longer maintains a Canadian reporting branch) but you can rest easy, the Canadian and U.S. branches of Equifax and Transunion don't swap information and you will get your fresh start. Let me explain...

American credit reports are primarily tracked using Social Security numbers. Canadians don't have Social Security numbers, they have Social Insurance Numbers. Merchants cannot use a Social Security number to pull a Canadian credit report or use a Social Insurance number to pull an American credit report.

Now, I dare you to walk into any bank in your area, ask for the bank manager and ask if they can pull a Canadian credit report. The bank manager is going to tell you yes. Why? Because he's thinking along the same lines as you – the credit bureaus are the same, so its got to be possible. But it isn't. Every bank manager, and I do mean every bank manager (and loan officer, and mortgage lender...yada yada) will argue until they are blue in the face that it can be done. And every one of them would be wrong.

Back in 2009 I participated in an nationwide survey of 17 major banks on just this subject. Every individual I spoke with said they could pull a Canadian credit report by plugging the applicant's Social Insurance number into the system. It failed every time. Here's why: The American and Canadian credit bureaus are set up differently. The data that appears on your credit report in the U.S. won't show up on your credit report in Canada. The credit bureaus are the same, but the computer systems are different enough to prevent information from being exchanged back and forth.

Bad credit in the U.S. doesn't transfer to Canada

This may seem illogical, but it benefits the credit bureaus. Can you imagine what a mess it would be if information were interchangeable? Can you say international lawsuits galore? It's in the credit bureaus' best interest to keep everything separate.

After you get married and obtain permanent residency in Canada, you will be assigned a Social Insurance number. Then, and only then, can you begin building a credit report with our neighbors to the north. Keep in mind that if your current creditors are aware of the fact that you are no longer in the country, the information on your credit report will be "tolled" (i.e. "frozen") and won't age off your credit report. Should you ever return to the U.S. to live, the bad credit you left behind will be there waiting for you.

Oh, and one more thing – even if you were to get married  here and remain in the U.S., your fiance wouldn't "inherit" your bad credit just by marrying you. Neither American nor Canadian credit reports merge when you marry. The only accounts of yours that would appear on your fiance's credit report after you marry would be joint accounts that the two of you share, like a mortgage or joint credit card.

So to make a long story short, no, your bad credit won't follow you when you move to Canada. You'll get to start from scratch and build a brand new Canadian credit history. And congratulations on your upcoming marriage.

Best of luck,

*Do you have a question for Lee? Send an email containing your question to and your question may be the subject of an upcoming post. 

Is It Legal for a Credit Card Company to Lower My Spending Limit?

In the wake of the Credit Card Accountability, Responsibility and Disclosure Act, consumers suddenly found themselves the proud bearers of more rights than they'd ever possessed before. But the CARD Act isn't Jesus, my friends, and when it comes to lower credit card spending limits, we're still at the mercy of our creditors. 

Your Bank Can Cut Your Spending Limit

You've been a good customer to your credit card company for years. You make purchases, you always pay on time, you have excellent credit, a stable job, yada yada. You watch the financial freefall going on around you but are certain that you're safe from the debt plague that's sweeping the nation. That is, of course, until you recieve a notice in the mail that your credit card company is slashing your spending limit. 

Your bank can lower your credit limit at any time.
Think it can't happen to you? Think again. Credit card companies can cut your credit limit anytime and for any reason. If you happened to keep the infinitesimal ant-print that is your credit card agreement, you'll notice that your credit card company reserves the right to alter the terms and conditions of your card if the company's policies change or if a "threatening economic climate" forces your credit card provider to tighten its corporate belt. You don't have to miss a single payment to lose your lofty spending privileges. 

Credit Card Companies Must Notify You in Writing

One big change the CARD Act brought about was that credit card companies could no longer make arbitrary decisions – like lowering your credit card's spending limit – and put them into practice almost immediately. If your credit card provider wants to change the terms of your original contract, it must provide you with written notice of the impending change a minimum of 45 days before the change goes into effect. This gives you the opportunity to cancel the card if you don't agree. 

Should I Cancel My Credit Card?

You'd be surprised at how many people, angry with their credit card companies for imposing changes they don't feel they deserve, call up the company and cancel their accounts. They have five years to pay down the balance, so no harm done, right? Wrong. 

The damage that's done when a credit card company lowers your credit limit (I'm referring to the fact that this skews your credit utilization ratio and, if you carry a balance, can hurt your credit score) is only exacerbated if you lose your temper and cancel the card. You won't just lose a portion of your unused balance, you lose all of it. Even if you don't carry a balance on the card, the loss of available credit will cause your credit score to suffer. The solution? Pay down your balance within the 45 days before the change takes place or transfer the balance to a new credit card. In the meantime, you can always wrestle with your original credit card company to restore your higher credit limit – something you cannot do if you cancel the account. 

Related Articles:

Sunday, August 5, 2012

What To Do If Bill Collectors Come to Your House

If you owe delinquent debts, odds are that your communication with debt collectors has gone no further than threatening letters and a whole mess of  nasty telephone calls. If you're like some unfortunate Americans, however, a debt collector has shown up at your door. Few debtors expect bill collectors to come to their houses to collect payment. If you find a debt collector at your door, however, there are ways to protect yourself and make sure that the incident never repeats itself.

Don't Disclose Your Identity

Are collectors ringing your doorbell?
It's good 'ole common sense that you should ascertain the identity of any strangers who show up at your door. Although its unlikely that an axe murderer is prowling around in your neighborhood posing as a debt collector, its always a good idea to find out who your visitor is before answering any of his or her questions – that includes whether you are or are not the individual the bill collector is looking for. Debt collectors are prohibited from sharing any personal information about your debt with a third party, so if you suspect that the stranger at your door is from a collection agency and he won't disclose his identity or who he works for – neither should you. Close the door and go on about your day. If he won't leave, call the police. That's what they're for.

Prevent Debt Collection House Calls

The Fair Debt Collection Practices Act notes that collection agency employees cannot contact you using methods that you have made clear are inconvenient to you. While this generally refers to making phone calls to your place of employment, showing up at your door easily falls into this category. If the last thing you want is to find yet another bill collector at your door, write the collection agency in question a cease and desist letter. Note in your letter that under no circumstances are any company representatives to come to your home to conduct collection activity. Send your letter via certified mail return receipt requested. Should another bill collector pay you a physical visit, you can then file a police report as proof of the incident and sue the company for violating federal law. Regardless of the outcome, its almost a given that the collection agent in question will find himself unemployed.

Debt Collectors on Your Property

There is one situation under which a collector has every right to come onto your property and that is to repossess secured debt. While credit card company representatives and unsecured collection agents are highly unlikely to come knocking on your door, a bank won't hesitate to send a crew over to your house to repossess your car if you don't make the payments. In this case, however, the bill collector isn't likely to knock on your door and ask you for the keys unless the car is locked away in a garage. If the debt you owe is unsecured by property, however, you have the law on your side to ensure that collection agencies can't simply show up at your door and, if they do, that history will never repeat itself.

Related Articles:

Send a Cease and Desist Letter to Debt Collectors

Can Bill Collectors Call Your Family?

How Debt Collectors Find You

Friday, August 3, 2012

Do Apartment Credit Checks Hurt Your Credit Score?


I've been apartment hunting, but every apartment manager I've talked to wants to run a credit check before letting me sign a lease. This is making me nervous. I know that your credit score drops when someone checks your credit report and I want a new place but I don't want to hurt my credit. What do I do? Is this normal or some new thing because of the recession? 


Dear Maribeth,

This is perfectly normal. Apartment complexes want to make sure that they're choosing tenants who can be trusted to pay their rent. If you have a credit history that reflects numerous unpaid bills and defaulted accounts, you're probably too high a risk for most apartments. Some smaller apartment complexes only pull your scores while others could care less about your scores or your history with your creditors as long as no previous evictions show up on your credit report.

The good news is that not all landlords conduct a hard pull when reviewing your credit. As long as your landlord conducts a soft pull, the inquiry will show up on your credit history but won't hurt your credit score. Before you allow an apartment complex to pull your credit report, ask if the inquiry will be a hard pull or soft pull. If the apartment complex only performs hard pulls, ask your landlord if you can provide the report. You can pull your credit report free once each year. So pull your report, print it out and bring it with you. This prevents your landlord from conducting a hard pull and helps you get the apartment you want.

If your landlord doesn't go for this idea and you really want the apartment, you may have to just bite the bullet and allow a hard pull. In the end, you'll only lose about five points and your credit score will recover completely in a few short months. Congrats on your new digs.


Will Making a Credit Card Payment a Few Days Late Hurt My Credit Score?

Paying late can bring your score down
Even if you're normally on the ball about sending in your credit card payments on time, an illness, financial difficulty or even trusting your scatterbrained partner to pay the bills could result in your credit card payment being a few days late. You already know that leaving your credit card balance unpaid for a month could leave you facing a 30-day late on your credit report. Unfortunately, sending in a late payment to your credit card company can put you at risk of credit damage regardless of how late your credit card payment actually is.

Credit Card Company Reporting Programs

Credit card companies maintain automated programs to report your payment history to the credit bureaus. These programs keep a log of your credit card balance, when you make payments and how much you pay each month. The credit card company doesn't automatically send new information to the credit bureaus every time you make a purchase or payment. The automated system uploads data at very specific times. The state of your account at the time of the update dictates the information that ultimately appears on your credit report.

Keep track of payment due dates
So lets say that your credit card company's automated reporting program updates its data to the credit bureaus on the 15th of each month, and your credit card payment is due on the 10th. If you pay the payment on the 12th, you're in the clear. If you wait until the 16th to make your payment, your account was technically "late" when the credit card company made its report, thus you end up with a 30-day late on your credit report.

For the sake of argument, lets say your roommate Joe's credit card payment is due at the first of the month and his credit card company also updates its data with the credit bureaus on the 15th. Joe pays his bill on the 14th (paying on the day the system updates is too big a gamble). Although Joe's payment was two weeks late and yours was only five days late, he's in the clear while you end up with a glaring black mark on your credit report and a tarnished credit score. It all depends on when the system updates.

Late Payments and Interest Rate Increases

Watch out for higher interest rates
Your credit score isn't the only thing you have to worry about when you send in a late payment to your credit card company. The CARD Act prevents credit card issuers from increasing the interest rate on your existing balance simply because you were a few days late with a payment (unless you were 60 days late, then all bets are off) but that doesn't mean that the credit card company can't increase your interest rate on new purchases while billing your existing balance under the original rate. Let me say that again: The CARD Act does not prevent credit card issuers from increasing interest rates on new purchases. Many consumers have the mistaken idea that the prohibition on interest rate hikes applies to all purchases. Wrong. Your credit card company can, and probably will, raise your interest rate when you're a few days late paying your credit card bill – but they have to give you 45 days' notice before doing so.

The good news here is that The CARD Act requires credit card companies to review any accounts that have incurred an interest rate hike after six months. If you're paid all of your payments on time and been an all-around exemplary customer, they have to restore your original interest rate within 45 days of the review.

Credit Card Late Payment Fees

If you pay your credit card bill late – even a single day late – you can expect your credit card company to slap you with a fee. The federal government caps these fees at no more than $25 ($35 if you've had a previous late payment in the past six months). If you carry a low balance and your minimum payment is lowers than $25, your credit card company cannot charge you a late fee that exceeds your minimum payment. In case you're wondering, this is why so many credit card issuers are raising consumers' minimum payments to $25 regardless of how low their balances are.

Ultimately, paying your credit card bill even a few days late is playing a game of Russian roulette with your credit. I don't normally advocate giving credit card companies access to your bank accounts, but if you can't seem to remember to pay your credit card payment on time, setting up an automated draft with your bank can help protect you from fees, interest rate increases and, most importantly, the credit damage you could potentially incur by paying your credit card bill several days late.