Importance of Being Credit Worthy in the United States
In our society today, credit scores can often be critical. Besides determining a borrower’s risk, they may be used to set insurance rates, obtain rental property, and even to sort out job candidates. There has even cropped up a number of different industry advice groups who make a good living telling the average consumer how to handle credit and stay out of debt, and when you do go into debt, how to raise your credit scores back up, so you can go into debt again.
Over the past two years, the IRS has been auditing 63 credit counseling agencies, representing more than half of the revenue in the industry. To date, the audits of 41 organizations, representing more than 40 percent of the revenue in the industry, have been completed. All of the completed audits have resulted in revocation, proposed revocation or other termination of tax-exempt status. [Source: IRS.gov] For these reasons, you may want to be very careful in who you listen to regarding your credit counseling. Today’s importance of being credit worthy is significant if you plan to own a house, rent a place to live, have insurance or find a job, but you are going to need to be careful in picking what you learn and who you learn from about credit.
One basic thing you need to know about credit is that in In 1980, the federal government passed a special law which allowed national banks to ignore state usury limits and peg the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers have their own rules. Congress made some changes to the laws in 2010 but did not significantly change the usury problem of the old law. Instead, it now requires the banks to give you a 45 day notice when they change your interest rate. That still means that the laws in most states do not have enough teeth to regulate credit card debt. As a result in many cases, about the only way a person can relieve exorbitant debt from various banking institutions is through filing bankruptcy.
A good example of the small change in the law would be if you owed $30,000 in credit card debt before the new law went into effect this past summer, and your card company raised your APR above 24%, the maximum allowed by the old laws. This phenomenon happened to many Americans. If you had been making the minimum payments, normally around 2%, the interest would have caused the principal to grow very rapidly at those usury rates. Under the new law, before they can change the interest on any of the new cards you obtain, they have to give you a 45 day notice. Maxing out your credit cards is also hard on your credit report and drastically lowers your score. When you pay the minimum under those circumstances, you can pay the $600 a month for the rest of your life and the principal on the card loans will only grow.
Being credit worthy is important but credit card abuse is one of the worse causes for bankruptcy, so it might be wise to learn to balance out the worth of credit against the amount you owe. Maybe like so many other Americans, you have felt you have had to use your credit in order to make ends meet and until times get better. Maybe you are paying only the minimum payments in the form of interest on those cards. If this is case, you might be in financial trouble to the point of being bankrupt. As a general rule of thumb, you are legally financially bankrupt if your current sustainable income will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years. If you are bankrupt, common sense indicates you will need a bankruptcy lawyer in order to properly understand how complex bankruptcy laws may apply in your situation. If you determine you are in need of relief from the stress associated with debt, contact us today. We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.
