Housing Cool Down a 'BUST'?

Friday, August 25, 2006
Housing Gets Ugly
By PAUL KRUGMAN

August 25, 2006
Op-Ed Columnist NEW YORK TIMES

Bubble, bubble, Toll’s in trouble. This week, Toll Brothers, the nation’s premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already- purchased options on land for future development.

Toll’s announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders’ confidence is at a 15-year low.

A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: “We’ve got the supply, and the market has got the demand. So it’s a match made in heaven.” In a New York Times profile of his company published last October, he dismissed worries about a possible bust. “Why can’t real estate just have a boom like every other industry?” he asked. “Why do we have to have a bubble and then a pop?”

The current downturn, Mr. Toll now says, is unlike anything he’s seen: sales are slumping despite the absence of any “macroeconomic nasty condition” taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop!Now what? Until recently most business economists were predicting a “soft landing” for housing. Even now, the majority opinion seems to be that we’re looking at a cooling market, not a bust. But this complacency looks increasingly like denial, as hard data — which tend, for technical reasons, to lag what’s actually going on in the market — start to confirm anecdotal evidence that it is, indeed, a bust.

Why the sudden crackup? When prices were rising rapidly, some people bought houses purely as investments, betting that prices would keep going up. Other people rushed to buy houses, or stretched themselves to buy houses they couldn’t really afford, because they feared that prices would rise out of reach if they waited. And all this speculative demand pushed prices even higher. In other words, there was a market bubble.

But eventually prices reached a level beyond what even optimistic potential buyers were willing to pay, especially after interest rates rose a bit. (They’re still low by historical standards.) As demand fell short of supply, double-digit price increases declined into the low single digits, then went negative everywhere except in the South.

And with prices falling in many areas, the speculative demand for houses has gone into reverse, as people try to get out with a profit while they still can. There’s now a rapidly growing glut of unsold houses. This is a recipe for a major bust, not a soft landing.

Moreover, it could be both a deep and a prolonged bust. Since 2000, much of the nation has experienced a rise in home prices comparable to the boom in Southern California during the late 1980’s. After that bubble popped, Los Angeles house prices began a slow, grinding deflation, eventually falling 20 percent (34 percent after adjusting for inflation). Prices didn’t begin a sustained recovery until 1996, more than six years after the downturn began.

Now imagine the same thing happening across a large part of the United States. It’s an ugly picture, and not just for people and companies in the construction business. Many homeowners — especially those who bought their houses with interest-only loans or with minimal down payments — will find themselves in financial distress. And the economy as a whole will take a hit.

As far as I know, Nouriel Roubini of Roubini Global Economics is the only well-known economist flatly predicting a housing-led recession in the coming year. Most forecasters consider his call alarmist, and many Federal Reserve officials remain optimistic. Last week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, dismissed “Eeyores in the analytical community” who worry about a possible recession.

Call me Eeyore. While I don’t share Mr. Roubini’s certainty, I see his point: housing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.

The Heights of Hypocrisy

Headline: The moral burden of bankruptcy
Byline: G. Jeffrey MacDonald Correspondent of The Christian Science
Date: 07/03/2006

Jump Law Group Comment: The moral dilemma of the Christian Right is borne from the idea that debt is a moral responsibility from a type of society that has not existed in decades. It used to be that credit card companies didn't exist. Interest in excess of 12% was considered unlawful!

Your credit was extended from Bob the Butcher down the street. You knew that he wasn't trying to gouge you with interest and fees and you knew that his extension of credit was because he was interested in doing business with you and making sure you had food on the table. You also knew that if you didn't pay Bob back, Bob would be personally affected. He also had to put food on the table for his family. So the responsibility and moral burden of debt was very different in that society and rightly so.

In today's society, companies like Capital One and Mastercard are not Bob the Butcher. These companies and the christian right are trying to impose the moral values of a decades old society. It is doubtful that Bob the Butcher even needs to extend credit anymore as Capital One has made credit so easy for everyone to obtain, we can all use our credit cards when we are at Bobs. But for that matter, it is likely Bob the Butcher doesn't even exist anymore because now Safeway, Albertson's, and Fred Meyer rule the grocery world. The concept of the corner store and local merchant have gone. Now we are buried under a corporate homogeny known as Target and Walmart.

For these people to suggest a moral dilemma in filing bankruptcy is hypocrisy at its highest. Deuteronomy 15:1-11, mandates that all debts shall be forgiven every seven years. It seems that the same people who want to make you feel guilty for utilizing your right as a citizen, are speaking with a forked toungue. But I digress. Read on and judge for yourself. It is the opinion of this attorney that no guilt should be involved in choosing to file bankruptcy. It is a financial decision, pure and simple. Do you think United Airlines had feelings of guilt when they filed for Chapter 11? How about Donald Trump when he filed his casino into Chapter 11? How much personal responsibility and burden do you think they imposed on themselves?


Consumers daunted by mountains of debt face another uphill climb as they sort through mixed messages on the moral implications of filing for bankruptcy.On one side, Christian conservatives who applauded last year'stightening of bankruptcy laws are now appealing to higher authority to tweak the consciences of would-be defaulters. On the other side, voices irked by double-digit interest rates and questionable marketing tactics of credit-card issuers say debtors are often morally justified in seeking relief. The morality debate is heating up amid signs of trouble for people living on the margins:
*Even though tougher filing laws took effect Oct. 17, the number of monthly bankruptcy filings grew by more than 300 percent between November and March, from 13,758 to 49,977, according to a June report from the Administrative Office of the US Courts.
*Foreclosures on home mortgages were up 38 percent nationally in the first quarter of 2006, according to property tracker RealtyTrac Inc.
*The average American household owes more than $9,300 on credit cards, up from $2,966 in 1990, according to Cardweb.com.
Against this backdrop, advocates for and against the use of bankruptcy disagree about where to lay the blame when someone gets buried in debt. Christian personal finance guru Mary Hunt has a stern message for anyone considering bankruptcy: "It's absolutely legal, but it is not moral."

"I would say, 'You accepted these credit cards. You had the obligationto know what you were getting into,' " says Ms. Hunt, author of "Living Your Life for Half the Price." " 'You spent the money, and sure you had a big medical bill, but it probably would not have put you over the edge had you not already been deeply in debt.' " Studies show this isn't true.

To make this case, bankruptcy's critics often cite Psalm 37:21: "The wicked borrow and do not repay, but the righteous give generously." From sources such as Crown Financial Ministries and Dave Ramsey's nationally syndicated radio show, advice seekers hear they have a duty in most cases to keep their payback promises even when life throws them a curve ball. But another school of thought sees a more complex picture in which lenders also face admonitions to forgive debts. For instance, JonathanAlper, a bankruptcy attorney in Orlando, Fla., reminds distraughtclients that the American legal tradition of allowing for bankruptcystems from Deuteronomy 15:1-11, which calls for debt forgiveness everyseven years. Others agree with Mr. Alper that those who are able shouldrepay, but those unable to do so should not feel guilty.In Psalm 37, "the psalmist is talking about [cases where] borrowingmoney and not repaying it becomes a business strategy," says GaryMoore, a Christian investment adviser in Sarasota, Fla. By contrast, hesays, single women should not worry about declaring bankruptcy, forinstance, after using credit cards to feed their children."Those people ought to go to bed every night knowing that God hasgranted them debt relief," Moore says. "And they're not, because theyhear this garbage [from antidebt Christians]. That's what Jesus calledplacing heavy burdens on his flock.""May," a Virginian who requested anonymity to protect her reputation,knows the moral struggle well.For 14 years, she paid the minimum balance due until she maxed out hercredit card on routine purchases such as shoes, clothes, haircuts,gifts, and equipment for her dog-grooming business. Charges initiallyworth $5,000 resulted in a balance of $10,000, even after she increasedher payments to $150 per month. Every day, she hid the mail before herhusband could see her predicament, and she remembers wishing "I couldgo to sleep and not wake up." Yet she kept paying back her debts atclose to 20 percent interest."I did think, 'I signed up for the credit card. I used it. I have amoral obligation to pay this,' " May says. "If I didn't feel some moralobligation, I would have told these debt collectors to take a hike."But after a creditor told her she was incurring debt faster than shecould pay it down, she spoke to a lawyer, divulged her secret to herhusband, and sought protection under Chapter 7."I must have paid [creditors] way over $20,000 for a $5,000 debt," Maysays. "Knowing in my heart that I paid everybody that I owed theoriginal amount plus a reasonable amount of interest, I don't feel anyguilt about having filed bankruptcy. I wish I had done it a lot sooner."In Hunt's view, what matters in resolving the moral quandary is whetherthe borrower lived up to his or her original promise. But Alper begs todiffer because, he says, the circumstances surrounding the originalloan are sometimes suspect to a degree that they nullify a borrower'smoral duty to repay."The people [whom creditors] often solicit are high-risk customers"with considerable vulnerabilities, Alper says. "By contract, they owethe money. But what's the validity of offering a lollipop to adiabetic? Or offering a cigarette to someone who's addicted tonicotine? You're not on an equal footing," and therefore the contractisn't moral in the first place, in his view.Others might bear some blame as well, according to David Jones,president of the 177-member Association of Independent Consumer CreditCounseling Agencies. He sees bankruptcy as morally justified insituations stemming from uncontrollable events, such as a job loss ormedical emergency. But he also blames teachers and schooladministrators for failing to make credit education a part of mostcurricula."Society has failed many people because [it] hasn't provided the kindof education and help and background that they need," Mr. Jones says."I suppose you could say [some profligate spenders] are somewhat offthe hook, but I'm a little bit concerned about that because there is aresponsibility to be a good financial steward."In Hunt's view, individuals benefit far more in the long run frombelt-tightening disciplines, such as those she employed to paynonmortgage debts in excess of $100,000, than they do by filing forbankruptcy."There's a good feeling we get when we're paying back debt," Hunt says."Bankruptcy is the opposite of that."But if restoring good credit is the goal, Jones has some bad news for Hunt's theory of thrifty virtue. Creditors like to see a recent history of bankruptcy, he says, because it usually means an applicant has poor spending habits, has no debts, and is ineligible for bankruptcy for another five to seven years. In short, this applicant stands to be a near-term cash cow for the creditor. May's experience suggests he might be right. She received three credit-card offers - including one from a previous creditor - during one week in June."Somebody that has a lot of debt and is paying their debt and straining every month to do so is not nearly as good a credit risk as someone who has just walked out of bankruptcy," Jones says."I would hate to invite people into bankruptcy with that scenario, but that happens to be the fact," he concludes.

(c) Copyright 2006 The Christian Science Monitor. All rights reserved.

Myths of Bankruptcy

Ortiz: New bankruptcy law - 6 months later
By Nicholas F. OrtizThursday, May 11, 2006

As most people know by now, last year Congress enacted amendments to the bankruptcy laws. On Oct. 17, 2005, the president signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and, in so doing, modified the bankruptcy laws in the most significant way since 1978. About six months have passed since then, perhaps warranting a renewed look at the law after some dust has settled.

Something everyone can agree on is that the new bankruptcy law is complex. This may account for why there is so much misinformation out there. As a bankruptcy and consumer protection lawyer, I regularly talk to people who are overwhelmed by debt. This is my list of the top five myths about the new bankruptcy law:

Myth: Bankruptcy is no longer possible.

This is an easy one. BAPCPA amended the bankruptcy laws; it did not eliminate them. BAPCPA did make bankruptcy more difficult by creating new documentation and accuracy standards; however, the bottom line remains the same: people who cannot afford to pay their debts can get a fresh start free of most or all debts. Some of the misinformation on this point may be calculated. Some debt collectors, for example, have been telling people that bankruptcy no longer exists just to ratchet up the pressure to collect a debt.

Myth: People making more than the median income cannot file for bankruptcy anymore.

This myth involved the "means test," which is a creature of the new law. The purpose of the means test is to make people who are able to pay part of their debts. Although this has been presented as new, the truth is that people with consumer debts who could repay a reasonable amount were required for years to do so before the coming of the new law. The means test is just more technical. The means test applies to people who make more than the state median income. In Massachusetts, the median income for a single person is $47,176 and goes up by family size. (Exact numbers can be found at http://www.bkmass.com.) The means test is fairly complicated, but essentially asks whether a person should be in Chapter 13 (where you pay back part of your debts) or Chapter 7 (where you don't). If you can afford to pay some, you do. If you can't, you don't.

Myth: There is a difficult new credit counseling requirement under the new bankruptcy law.

The truth is that the new credit counseling requirement requires only nominal additional expense and time. My clients have spent, on average, about a half-hour over the phone fulfilling the prefiling credit counseling process. The bankruptcy system does not require people to deal with the type of credit counselors that have been in the news recently that have scammed people out of money. The U.S. Trustee has approved the credit counselors who can be used in the bankruptcy system.

Myth: I will lose all my property if I file for bankruptcy.

The reality is that although there have been some changes to the bankruptcy exemption scheme (based on residency and a few other things), the substantive exemptions still exist. What this means is that almost everyone will be able to keep all their property when they file for bankruptcy just as they did before the bankruptcy amendments.

Myth: Bankruptcy won't stop creditor harassment or lawsuits.

Bankruptcy still provides an automatic stay that stops the lawsuits, phone calls and other devices creditors and debt collectors use to collect debts. The automatic stay is central to bankruptcy and gives people the breathing room to go through the bankruptcy process without being hounded or harassed. BAPCPA makes some changes to the automatic stay with respect to notice requirements and repeat bankruptcy filers, but these changes will not impact most people and can be dealt with by experienced bankruptcy attorneys.

This article is not meant to minimize the changes under BAPCPA, but bankruptcy still exists and in most cases will provide the exact same relief it did before the change in the law. Bankruptcy often is the only reasonable way for people to deal with a situation in which they cannot pay their debts. Dealing with debt collectors and creditors after defaulting on debt remains worse than bankruptcy. It is more important than ever to retain an attorney who specializes in bankruptcy law who can steer you safely through the changes in the law.

Jay S. Jump quoted in Seattle Times

It now costs you more money to prove that you're broke

By Melissa Allison
Seattle Times business reporter

In October, when a new federal law made it more difficult to file for personal bankruptcy, it also made filing more expensive.

Since then, the cost to file for Chapter 7 bankruptcy in the Western District of Washington has jumped from $209 to $274, and filers now have to pay $40 to $50 for credit counseling before they can file.

On top of that, some bankruptcy lawyers have doubled their fees because of the additional deadlines and paperwork required by the new law.

"It takes more time, more money and more effort on the debtor's part," said Michelle Branigan, a bankruptcy and real-estate lawyer in Seattle. Her fees went up by a couple of hundred dollars.
Jay Jump, a bankruptcy lawyer in Kent, raised his Chapter 7 fee from $600 or $700 to $1,250.
Jump runs background checks on his clients now to verify certain facts because the new law holds attorneys liable for false information. In the past, only the dishonest client was held liable, Jump said.

In eight years and about 4,000 bankruptcy cases, Jump has had two clients lie to him about their financial situations.

Lawyers also have to crunch more numbers to prove that their clients qualify for Chapter 7 bankruptcy, which is the kind that wipes away many debts. Chapter 13 calls for repayment over time.

He and other attorneys said they expect bankruptcy filings to bounce back after a recent lull.
The number of Chapter 7 filings in Western Washington jumped from around 2,000 a month to 9,912 last October, then dropped to 133 in November and 172 in December.

Richard Granvold, a bankruptcy attorney in Federal Way, filed 260 bankruptcy cases in the 15 days before the law changed in October and has filed only three since then. But that pace will change.

"It will pick up," Granvold said. "A lot of people filed before the law changed, so it dropped off. It'll take until August to be back where it was."

That doesn't surprise the American Bankers Association, whose members lobbied for the new law. It was not intended to slash the number of bankruptcies significantly, spokeswoman Laura Fisher said.

"We weren't expecting a huge drop in filings, just that the system be more fair," Fisher said.
To creditors, that meant weeding out the 5 to 10 percent of Chapter 7 filers with high incomes who used bankruptcy as "a financial planning tool," Fisher said. Those people "got into debt, declared Chapter 7 and erased all their debts, leaving the rest of us with the tab."

To go bankrupt now, they will have to file Chapter 13, which forces them to repay more of their debts.

Fisher figures the higher cost of filing is worth it for debtors.

"If you think about the amount of relief people are getting, sometimes in the tens of thousands of dollars, it's significant," she said.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

A perfect storm

Weathering stormy sea of rising debt
By Patricia Hasson

Several years ago, Warner Brothers released The Perfect Storm, an epicfilm about the impact of a cataclysmic storm formed by the confluence ofseveral severe weather systems in the North Atlantic. As the filmdramatized the storm's tragic impact on the crew and families of a shipknown as the Andrea Gail, the audience witnessed the bravery as well asthe folly of the crew in the face of doom they could not see but couldhave easily avoided.

A perfect financial storm may be brewing for many families in theeight-county Philadelphia region. A debt and savings survey of 833people completed late last year by Consumer Credit Counseling Service ofDelaware Valley revealed that debt loads were rising across the board,but particularly among people with low to middle incomes.

An alarming 33 percent of people with incomes of between $41,000 and$50,000 reported that their debt had grown last year. With many familiesstill feeling the effects of last year's holiday spending, it is likelythat debt will continue to go up. In fact, among the agency's 9,000customers who had one-on-one counseling sessions last year, the averagedebt was a little more than $14,000.

The reasons for our escalating consumer debt are diverse, but themost-cited reasons were the costs of housing, fuel, health care and"unexpected" expenses. And when we look ahead, there are several trendsconspiring to make it more difficult than ever to manage that debt.

Last year, the average cost of a barrel of oil, which governs the priceof heating oil, gasoline and a multitude of products used by industryand consumers, rose by 40 percent to nearly $55 per barrel. During 2005,the Federal Reserve raised the nation's discount rate by about 60percent to 5.25 percent. The discount rate is a benchmark thatinfluences the interest rate charged on such debts as mortgages, homeimprovement loans, and outstanding credit-card balances.

Now, federal banking regulators are trying to save consumers fromthemselves by issuing guidelines to credit-card companies and banksstating that monthly minimums should cover interest, any fees and extracharges, and at least 1 percent of the principal. Many observers expectthe immediate impact of the new guidelines will be to cause credit-cardminimum payments to double, creating pain for consumers as they get usedto a new playing field.

These dramatic increases are taking place in an environment where thepersonal income per capita among Pennsylvanians has been rising at nomore than 3 percent in recent years.

While the storm clouds are gathering, the situation for most of usprobably is not yet out of control. We can take steps to avoid or rideout the storm in a safe harbor. Recognizing potential financialdifficulties and what they may mean for us is the first step in avoidinglong-lasting debt and cash-flow distress, loss of property and a reducedstandard of living.

Since the interest charged on credit-card debt is often exorbitant - ashigh as 17 to 22 percent - the most important step you can take is toreduce your credit-card balance by eliminating it altogether, setting upa payment plan, or increasing your monthly payment well above theminimum, accelerating the payback of that debt. (Making only minimumpayments can increase the cost of goods purchased two or more times.)

Consolidating your debt and reducing the interest rate you pay are also viable solutions. Consolidating debt doesn't reduce it, but it is astart in the right direction. Also, be careful of loans that requireinterest-only payments for a period of time, since the payment of theloan is only being deferred.

Take steps now to avoid The Perfect (Credit) Storm.

New Post

The Jump Law Group has created a blog with some great articles for your review!

Click on the link below to go to the blog.

Jay S. Jump
Jump Law Group

What is Credit Scoring?

Credit Scoring

Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans. Here’s how credit scoring works in helping decide who gets credit — and why.

What is credit scoring?

Credit scoring is a system creditors use to help determine whether to give you credit.

Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you submit a credit application. An amendment to the federal Fair Credit Reporting Act (FCRA) requires each of the major nationwide consumer reporting companies to provide you with a free copy of your credit reports, at your request, once every 12 months.

Free reports have been phased in during a nine-month period, starting with the states in the West and ending with states in the East. Beginning September 1, 2005, free reports will be accessible to all Americans, regardless of where they live.

To order your free annual report from one or all national consumer reporting companies, visit www.annualcreditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281. The form is at the back of this brochure; or you can print it from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They provide free annual credit reports only through 877-322-8228, www.annualcreditreport.com, and Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281.

If you’re not yet eligible for a free annual credit report, a consumer reporting company may charge you up to $9.50 for each copy. To buy a copy of your report, contact:

· Equifax: 800-685-1111; www.equifax.com

· Experian: 888-EXPERIAN (888-397-3742); www.transunion.com

For more information, see Your Access to Free Credit Reports at ftc.gov/credit.

Why is credit scoring used?

Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.

How is a credit scoring model developed?

To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

Under the Equal Credit Opportunity Act (ECOA), a credit scoring system may not use certain characteristics -- like race, sex, marital status, national origin, or religion — as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants.

What can I do to improve my score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:


· Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.

· What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.

· How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.

· Have you applied for new credit recently?
Many scoring models consider whether you have applied for credit recently by looking at “inquiries” on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not counted.

· How many and what types of credit accounts do you have?
Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It’s likely to take some time to improve your score significantly

How reliable is the credit scoring system?

Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit scoring systems must be based on a big enough sample. Remember that these systems generally vary from creditor to creditor.

Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.

What happens if I am denied credit or don’t get the terms I want?

If you are denied credit, the ECOA requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: “Your income was low” or “You haven’t been employed long enough.” Unacceptable reasons include: “You didn’t meet our minimum standards” or “You didn’t receive enough points on our credit scoring system.”

If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.

Sometimes you can be denied credit because of information from a credit report. If so, the FCRA requires the creditor to give you the name, address and phone number of the consumer reporting company that supplied the information. You should contact that company to find out what your report said. This information is free if you request it within 60 days of being turned down for credit. The consumer reporting company can tell you what’s in your report, but only the creditor can tell you why your application was denied.

If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.

Where can I get more information or file a complaint?

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

General Tips

The Federal Trade Commission (FTC) is the nation's consumer protection agency. Here are some tips from the FTC to help you be a more savvy consumer.
Know who you're dealing with. Do business only with companies that clearly provide their name, street address, and phone number.

Protect your personal information. Share credit card or other personal information only when buying from a company you know and trust.

Take your time. Resist the urge to "act now." Most any offer that's good today will be good tomorrow, too.

Rate the risks. Every potentially high-profit investment is a high-risk investment. That means you could lose your investment - all of it.

Read the small print. Get all promises in writing and read all paperwork before making any payments or signing any contracts. Pay special attention to the small print.

"Free" means free. Throw out any offer that says you have to pay to get a gift or a "free" gift. If something is free or a gift, you don’t have to pay for it. Period. Report fraud. If you think you've been a victim of fraud, report it. It's one way to get even with a scam artist who cheated you. By reporting your complaint to 1-877-FTC-HELP or ftc.gov, you are providing important information to help law enforcement officials track down scam artists and stop them!

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

It would be nice if Congress could practice what they preach

In the Saturday Wall Street Journal I read an interesting article on page A26 - Tax Talk Goes Orwellian.

It seems that when Congress passed bankruptcy reform, they weren't thinking about the example they themselves have set.

Our National Debt is presently at $8,184,000,000,000.00. Yes, there are that many zeros. (You thought your $10,000.00 credit card debt was high!).

But rather than behaving in such a way to reduce their debtload, which is what Congress told you and I to do, they instead are poised to raise the United States Debt Limit to $9,000,000,000,000.00. Congress is not publicizing this upcoming vote because they don't want you to know they can't pay their debts. If the government doesn't raise the debt limit, then they will default.

Rather than tightening their belt, Congress simply votes to raise their own credit limit.

Jay S. Jump
Jump Law Group