Questions, Questions, Questions
Posted by Gail | Filed under Credit Wise
People have a b’zillion questions about credit and how it works. And just when I think I’ve covered everything, I get another great question that makes me realize why people are so buggered up about credit: It’s really complicated man! Jeez! So here are some recent questions and answers from which you may learn and thing or two.
Kerrie wrote:
I recently noticed that the credit limit on one of my credit cards had been increased by a lot – far more than I would ever need or want to put on a credit card. I always pay the balance on this and my other cards in full. I plan to call the company to have this limit lowered to something more reasonable. I wanted to check first though – does lowering my credit limit have any negative impact on my credit score? Common sense tells me it should improve my credit score, but I wanted to check with you.
Kerrie, lowering your credit limit won’t affect your credit score if you pay off the balance on your credit card every month. The only time a lower credit limit has an impact on your score is if you’re carrying a balance and you get close to the limit. Some people say you shouldn’t use more than 60% of your limit to stay on the good side of the credit score system. Since you always pay your balance – smart girl – you should lower your limit for two reasons:
- You’ll feel more comfortable, and
- You’ll reduce your “available credit,” which is something lenders take into account when they decide whether or not to give you a loan.
J wrote:
I have very good credit (I know that because I just double checked my credit score). However my daughter – who isn’t quite 20 yet – has needed to get a consolidation loan which I had to co-sign. So far she’s made all the payments but how much am I at risk for my credit being damaged? The bank wasn’t all that straight forward on this one.
J: You’re on the hook for the whole amount outstanding, but your credit history won’t come into the picture unless your daughter defaults and they come to you for payment. If you pay off the debt in full, your credit won’t take the hit. If you can’t and payments are missed then your credit score will go down. You should also keep in mind that lenders consider the co-signed loan as part of your debt obligation so it could affect your ability to borrow for your own purposes.
Y wrote:
Hi Gail! As a couple with jobs in middle management, making a respectable earning (household gross income of $130k), I am hoping you can help us. We are well aware of the mistakes we have made, student loans, consolidation loans, bad car leases and high consumer debt. Lessons learned, and we want to move forward with our best foot, but is it possible that it is just too late!? Despite our difficulties with money, we have gone ahead and bought a house (our mortgage is always paid), and continued with “life” in that we have 2 children (neither involved saving before my maternity leave which does not include any kind of company top up). I am currently on maternity leave and will be returning to work asap to avoid digging a deeper hole. In the meantime, the bills continue and there doesn’t seem to be any reprieve. At what point is filing for bankruptcy the better answer, and can 1 person out of a married couple file for bankruptcy without a detrimental affect on their partner?
Y, one partner can file for bankruptcy without affecting the other as long as the other is not also signed on the loan documentation. So if your husband has a card in his name, and you are in no way signed on that card, if he declares bankruptcy it will not affect you at all. As for it being too late, it is never too late. You may not like living through the next few years because you’re going to be living on a shoe-string. But you can make your life better with grit and determination. Go and read this blog about becoming debt free. If when you figure out your monthly repayment amount it is in no way do-able because you just can’t find the money anywhere, then bankruptcy may be the next option.
V wrote:
I recently got my [Life Planner] in the mail and have been getting all the info. I need to complete the budget worksheets. I’m going to get the jars started this month. Our debt has been causing me sleep loss. My husband and I have accumulated over $84,0000 in debt. It has grown to that from over spending, student loans, poor financial decisions and never living on a budget. Our debt is all consolidated into the Scotialine Visa (current interest rate of 3.5%). It’s humbling every month to open the Visa statement and see that number…$84,000 (Wow!). Our mortgage is up for renewal in 2010. We bought our house 5 yrs ago and our mortgage is currently around $250,000 (4.5% interest). I would like to roll some, if not all of our debt into the mortgage when we renew. Is this advisable?
V, how did you ever qualify to have $84,000 on a credit card? That’s just ludicrous. You don’t say how much equity you have in your home, but if it’s just five years old (with the recent downturn in the market) you may not have enough to cover the debt. And since your credit card interest rate is lower than your mortgage rate, that means you’ll be paying more in interest. AND once it is rolled to your mortgage, it can’t be discharged through a bankruptcy in the same way it can as a cc. So my answer would be to do more homework, visit a bankruptcy trustee to see what alternatives you may have, and cut up the fricken’ card!
H wrote:
Hi Gail! I read your section about student debt and it was really helpful. In 2010, at the end of my 5 years at school, I expect to be about $26000 in debt. The National Student Loan Service Centre has a really helpful loan calculator to determine monthly payments, and my question is – should I go with a floating or fixed interest rate? And, if I choose one over the other, is there any way to ’switch’? The calculator estimates that the floating interest rate will result in lower interest payments, but I know it carries more risk. Also, the Ontario student loan has an eight month grace period until payments begin; I usually have leftover OSAP at the end of the school year and want to use that, plus as much as I earn in the 8 months after, to ‘throw’ on to my principle in lump sums before I start making payments – is that a good idea? Thanks!
H, you ask great questions. When you choose a variable rate, you pay a far lower interest rate, but it means you have to keep your eye on interest rates because if they rise, more of your money will go to interest. I believe the spread right now between fixed and variable n student loans is about 5 points, which means rates would have to rise SIGNIFICANTLY to make the fixed-rate loan more attractive. If you’re planning to get that debt paid of PDQ, I’d go variable. I don’t know if you can switch. I expect you can go from variable to fixed, but as variable rises, so would fixed. You would be wise to use your left-over OSAP and anything you earn to knock a whack off your debt. It is soooo gooood to hear from a sensible girl.
Sandi wrote:
I recently received an offer from a credit card company for a balance transfer, with a much lower interest rate than I am currently paying on my credit card. I called Visa and asked them to lower my rate to match the rate of the new card and I was told that it culdn’t be done, that the interest rate I have on my card is a “standard interest rate” and cannot be lowered. She also told me I couldn’t speak to a suprevisor because it wouldn’t do me any good. Where do I go from here?
Sandi, why would you want to deal with a company that is so uncooperative. You can’t speak with a supervisor? Really? First, I would call the company back and ask to speak with the vice-president of the department since you think (s)he should know how employees are representing the company to clients. You are, after all, a CLIENT. Let’s see if that gets you anywhere. If not, then I’d accept the offer from the other credit card company to do the balance transfer, assuming there are no hidden fees or “tricks” up their sleeves. So read the paperwork carefully. Do not cancel the old card. Just stop using it. You want that credit history to remain intact until you’ve built up a history on the new card. I would tell the credit card company who has not treated you well that you will be telling everyone you know the story. Finally, get that debt paid off. You should be doing everything you can to pay off all your consumer debt as fast as possible. Times they are a’changing, and being debt-free will be your ace in the hole.
On a final note and from personal experience, when you cancel a credit card, that does not mean that all the charges to that card automatically stop. Much to my surprise, I cancelled my HBC card, which I only used for online transactions and like to change periodically for security reasons, only to find that the transaction for my daughter’s facial product went through on the cancelled card. Hmmm. Good thing I hadn’t set up the auto-ship plan on the new card just yet! If you want a card to actually be cancelled, it appears you must report that card lost or stolen to ensure no further charges go through.
February 24, 2009 at 7:28 am
One thing H should keep in mind:
The grace period is actually 6 months with OSAP, and interest begins accumulating April 30, even though payments don’t have to start yet.
As for switching interest rates from floating to fixed, you are able to change from the floating to fixed once during the loan repayment. However, my loan documentation they sent said no change from fixed to floating.
Also, the loan documents you receive in August automatically assign you floating interest rate. As a reminder, the floating interest for Canada student loans is prime +2.5% and Ontario loans is prime +1%. The fixed interest rate for Canada loans is prime +5%. I’m not sure if the Ontario one changes. I know I’m glad I didn’t go with fixed, given the prime rate started dropping this past year.
February 24, 2009 at 9:11 am
Hi everyone
We had a similar customer service issue with a credit card company which offered us horrible service and refused to even look at a request to increast the limit because the computer would decide when we were due an increase. (we pay our card in full every month without fail but my husband was using the card for business trips and the month he had to buy 4 sets of plane tickets put us at the limit so we wanted to prepare for any future high months) We stopped using the card and applied for one with another institution, they refused to lower the limit immediately but promised that it could be adjusted after 6 months of good history with them – if they keep their promise I am fine with that.
However the card we cancelled was another story. We had paid the card in full at the end of the month, waited another month to take care of any charges that hadn’t gone through and then once they were paid cancelled the card. However this coincided with the launch of the new chip technology card that we were automatically issued. We called and were told to simply not activate them and destroy them and there would be no issues. The next month we received a statement with a charge for something that couldn’t be identified. I called the number that showed up with the charge and the man there told me to call my bank, he wouldn’t even tell me who I had called, I missed the name of the company when the phone was answered. When I called the bank it turned out that it was some sort of credit card protection that went on the card automatically and was charged automatically. I suppose if I had read all of the documentation for the new card I would have seen that I needed to cancel something, however I thought that if the card had not been activated nothing could be charged to it!
Always read your mail! Luckily we were able to get the charges reversed without too much trouble.
Ironically about two weeks later a customer service rep called to see if we were happy with our service with this insitution – were was she three months earlier !
February 24, 2009 at 9:16 am
Great info, Gail. Thank you!
I was also curious about this whole mention of “credit score”. I looked at my credit report about 10 days ago and it has my creditors/payment history listed, but no # like they have in the US. Do we have FICO scores in Canada? I know there is the R1 etc, but I couldn’t find any number between 300 and 900 that represented my FICO.
February 24, 2009 at 10:15 am
Christy,
You have to pay for your actual credit score, they don’t give it to you on the free credit reports.
February 24, 2009 at 10:35 am
Jackie is right, you have to go the credit institutions webiste (example equifax) and pay (with a credit card, how ironic!) to see your credit score. I would advise checking with both major reporting agency (equifax and.. the other fails me right now) – mine was different with both places.
February 24, 2009 at 11:56 am
Michelle – it’s scary, isn’t it, to see what charges sneak up on you without your knowing or permission. They are very sneaky companies. I hate that kind of dishonesty.
By the way, it’s good to see your credit history to know what companies are listed on there. I was sent a credit card eons ago (perhaps about 8 years ago) and never activated it. I wondered why I was having problems when I was trying to confirm my identity when ordering a new card, and one of the reasons was because I had forgotten about that card (obviously) but the people on the other end of the phone were looking for me to name that company as a credit card I once owned.
February 24, 2009 at 11:58 am
The other credit institution in Canada is TransUnion.
February 24, 2009 at 12:00 pm
I didn’t know that about cancelling a credit card, if I have to cancel at any time, I will report it lost, and ask them not to issue a new one.
My longest standing CC raised my limit quite a bit, and it was a simple phone call to get it reversed. Then while I as being mndful of the whole thing, I called my other CC to get them to significantly lower that limit and for good measure sign me up for points (making sure it stayed as a “no fee” card). Though I loathe debt, the CCs are good tools that I am happy to use and pay off every month.
Thanks for the tips Gail!
February 24, 2009 at 4:19 pm
I’m with Emma on this one, my boyfriend chose going with fixed on his OSAP and I think he was kicking himself a bit when the rates dropped so much, and he was still paying such a high interest rate. I hope H doesn’t wait the grace period to start paying though, I wouldn’t wait unless I was unemployed since you accrue interest immediately. My boyfriend waited and was hit with the extra money on top when he could have started right away. Though, we just amalgamated our money and paid off his loan with some of my loan to avoid continuing interest (luckily his balance was only $5000), since I’m still in school for 2 more years.
Another thing to keep in mind with OSAP is, if you’re planning to go into a part-time grad program, you will have to pay off your OSAP even though you are technically still a student. My boyfriend is a CGA student so he was having to make OSAP payments as well as pay for his CGA tuition. Luckily their program encourages full-time work with school!
February 24, 2009 at 7:44 pm
I work for FI in credit.
Simply reporting your CC lost/stolen will not close the account or necessarily prevent future transactions.
When you report the card lost/stolen that card “plastics” (the last 3 numbers) is cancelled and new one is created for you. If you don’t want a new card issued, that’s okay, but it doesn’t close the account.
As for the facial product still presenting as a charge, when you make a purchase for X amount of monthly pymts, like a gym membership, the merchant has an original authorization number that they use each month to get the money owed to them. So even if the card is cancelled, the change can still come thru under the original authorization because you authorized the said amount of charges. If that is incorrect, then a dispute must be created and the FI has to follow the proper channels to ensure it’s disputed properly. The merchant has 31 days to provide proof of the draft (original request) to the FI, so it can take a few months to resolve everything.
As for “V”’s situation, I’m wondering if she has already utilized the available equity in her home with that Scotialine Visa. Normally 75K is the most one borrower is extended unsecured. The interest rate would make sense assuming she wrote to Gail before prime dropped to 3%.
February 24, 2009 at 8:16 pm
Dumb Question…..
I decided (because Gail said so) to check our credit score with TransUnion. I know there is a fee. However, I couldn’t find a link on their site that it was paid for and accessed the one time. Everything was $14.95 per month for frequent access. Where do I go to do this once?
Thanks!
February 25, 2009 at 2:23 am
Catherine,
If go to their home page, click on Personal near the top left, then on Credit Report just underneath Personal, it will give you two options–one of them is an online report for a one-time fee of 14.95, the second is a free detailed report that is mailed to you.
February 25, 2009 at 9:42 am
Wow! That last comment is amazing – charges going onto a cancelled card?!
I found a similar thing happen to me, but in a different country. I found charges on an expired bank account card (they are renewed every 2 – 3 years in this country) that was 5 years expired! Needless to say, I filed a fraud claim with the bank and they agreed to pay back those costs since a company had used that information to bill me without my permission. But it was shocking that they could use the info in the first place!
February 25, 2009 at 1:47 pm
Thanks for helping Marlene! I so much appreciate it! I thought I got to the right place, and started to put in the info. and then on reading the reams of ‘rules’ it says about charging our credit card annually, etc., and all I want is to just check our credit one time! So frustrating. I’m not a computer guru. Guess I’ll have to ask our bank if they can get our information for us?
Do they do that?
February 25, 2009 at 4:38 pm
To H with the student loan,
Seems like you’re off to a great start by putting your leftover OSAP money back on your loan.
When I graduated school with a 30,000 debt I started by paying the minimum monthly fees and happily accepted the 8 month grace period (How kind of them, I thought) Until I realized how much more money they made on the interest I was paying.
I know it is hard when you first graduate to put extra money to your student loan but whenever you can, I fully recommend it.
It feels absolutely amazing when you pay off your student loan. It took me 5 years but also helped me learn how to budget (I saved enough last year to buy my first house!)
Make sure you save a little extra to buy yourself a bottle of champagne when that loan is at zero!
March 2, 2009 at 7:08 pm
As a mortgage specialist for a major bank, I see many clients make the same mistakes that end up needlessly hitting their credit score:
1. Bill is due Thursday, payday is Friday. They decide to wait until Friday and then pay the whole thing off. Problem? That payment will be recorded at the credit bureau as being one month late. Far better to pay the minimum payment ($10, $25, whatever) ON TIME, and then pay off the balance on payday. You’ll pay the same amount in interest, but you’ll protect your credit score.
2. Not making payments when the bill is in dispute. Cell phones are the biggie here. While it may make you feel better emotionally not to pay the “unfair” charges, you are damaging your credit score. Pay the bill, keep the records, and then fight for fair play and reimbursement later.
3. Not realizing that “buy-now pay-later) plans, and other in-store financing (Future Shop, Home Depot, Pier One etc) is actually provided by outside, small financial companies, and the “charge account” is set up and registered a the credit bureau as a line of credit. Even after you’ve paid off the bill for the television or the new couch, the line of credit remains open. If you have 5 or 6 of these (and that is common to see) that could easily add up to $30,000 in credit lines that are chipping away at your ability to qualify for a mortgage, AND making you more vulnerable in the event of identity theft.
4. A savings tip I pass on to my clients: If you are saving for a down payment, consider this: pretend you already own the house. If you think you can “afford” the house a year from now, you should be able to “afford” that payment now. Find out what the future mortgage payment, taxes, strata fees etc would total. Subtract the amount you are currently paying in rent – and save the difference (in a TFSA.) A year or so down the road, you will have the down payment, and be comfortable with the realities of home ownership. Or, you might decide that home ownership is more than you want to take on – in which case, you have a lovely chunk of change for your RSP, a new car, or a pre-paid dream vacation!
June 14, 2009 at 7:49 pm
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