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Posts Tagged ‘credit rating’

Dealing with Debt Collectors

credit cardsTips and tricks to dispute the accuracy of the items of the credit report with the debt collecting agencies.

You must be aware of the fact that your credit score may drop with erroneous entries on the credit report. You can dispute with the creditors or debt collectors if you find any inaccurate negative information on the credit report. Well, you need to know that inaccurate and positive information on your credit report can’t be removed from it. So, if you’ve erroneous entries on your credit report, you can manage to dispute the erroneous items with the debt collectors directly. If you’re unaware of the tricks to dispute erroneous entries on the credit report then you need to correspond with the debt collector to remove the incorrect entries.

Here are some of the important points that you need to consider when you plan to dispute the inaccurate information from the credit report:

1. Know your rights: Make sure you’re aware of your rights to remove the erroneous entries from your credit report with the debt collectors who reported the information. So, you need to send a dispute letter to the company that provided the information to the consumer reporting agency.

2. Debt collectors job to investigate: The debt collectors report the agencies in regards to credit information immediately. Make sure the time frame of response is same when you send a dispute letter to a consumer reporting agency. In most of the cases, the company has 30 days for investigation and the this period may get extended up to 45 days if you provide additional information. Make sure you get information in regards to the credit information within five business days of completion.

3. The debt collectors may not respond to your letter: Well, the debt collectors may not respond to your letter if you contact the credit reporting agencies to dispute erroneous information on the credit report. If the debt collectors have already responded to the dispute, then it may not respond to your letters any more unless you provide more information.

4. Liability of the debt collectors: According to the Fair Credit Reporting Act, if the debt collector provides information to the CRA, he has to follow certain liabilities.
• Finds out more about dispute reported information.

• Provides accurate and complete information if the reported information is incorrect.

• Informs the credit reporting agency if the consumer disputes information.

• Checks when the accounts are “closed by the consumers”

• Sends the credit report agency with the required details like the month and years of the delinquent accounts given to the collection agency or charged off.

• Needs to complete the investigation of a consumer dispute within 30 to 45 days time span, so that credit report agency can manage to complete the scrutiny.

Therefore, you’re required to keep the above mentioned points in mind when your plan to dispute the accuracy of the items on the credit report with the debt collectors.

***This article was contributed by Anjelica Cullin.

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Effects of the Credit Downgrade

Late Friday afternoon, Standard & Poor’s (S&P) announced it was downgrading the credit rating of U.S. Treasury securities from AAA to AA+ and retained its negative outlook.  Although S&P previously announced it was considering a downgrade, the announcement was a bombshell dropped at the end of a tumultuous week of economic and political news.

  • After weeks of political posturing and rancorous debate, Congress passed the Budget Control Act of 2011, increasing the debt ceilingPresident Obama signed the legislation on August 2, thereby avoiding a potential default by the U.S. government.
  • After the debt deal was done, Moody’s and Fitch Ratings announced they would retain their AAA rating of U.S. Treasuries but continue to monitor U.S. fiscal health.
  • The Dow Jones Industrial Average ended a 9-day losing streak with a blistering 334 point decline; wiping out all of the gains for 2011.
  • S&P capped the week by announcing their downgrade.

Since Friday afternoon, politicians, economists, and pundits have been discussing the impact of the downgrade.  There has also been a lot of pointing fingers of who is to blame for  tarnishing the image of the U.S.  It has also left a lot of people wondering about the real implications of a downgrade in the credit rating of the U.S. Government.

Here are a couple of things I think you can expect from the downgrade.

  • There is a bruising to the American pride and psyche.  Nothing has changed since Friday, but most Americans want to believe we are the best of the best.  The downgrade is likely to increase the uncertainty and pessimism of the American consumer.
  • Interest rates won’t change immediately.  Interest rates are effectively determined by the free markets, not by S&P.  A credit ratings agency simply tries to assess the risk of a particular security, but it’s up to the market to decide the interest rate.  Don’t expect interest rates to change in the near future, but there could be some upward pressure on rates if investors become more leery about the fiscal stability of the U.S. government.
  • The stock markets aren’t going to crash.  As anticipated, the markets were battered yesterday and lost about 5% of their value, but it’s not a direct correlation to the S&P ratings change.  Remember the Dow took a 334 point hit last week before S&P made its announcement.   Furthermore, the 10-year Treasury yield fell from Friday’s rate of 3.558%. This means investors bought more Treasuries; the very securities that are supposedly more risky.  The selloff is more attributable to the poor outlook of the global economy and European sovereign debt worries.  Investors are seeking stability, so they’re buying up Treasuries and gold.

There is one potential redeeming element which may come from the downgrade, but it’s far from certain.  This might serve as a wake-up call for our political leaders to get serious about the fiscal future of our country.  As I wrote last week, the debt deal was long on promises and short on spending cuts.  In my opinion, a 0.6% cut in spending for 2012 is a pittance in light of overall spending.  The rating downgrade could prompt our leaders to get serious about tackling the debt and deficit.

No longer is it just extreme fiscal conservatives who think it unrealistic for the U.S. government to overspend by $1 trillion each year without consequence.  Standard & Poor’s is a significant player in the global economy.  You may question the timing and motivation of their downgrade, but it should serve as a clarion call of the long-term risks and ramifications of our debt and deficit spending.  I can only hope our politicians are listening and have the courage to do something about it.

Debt Ceiling Extension – Short or Long-Term

One of the issues in the debt ceiling debate is the size of the increase in borrowing capacity, which effectively determines how long before the government runs out of money again.  President Obama and some Congressional leaders have demanded any debt ceiling increase cover the projected federal deficit for at least 18 months, thereby deferring the next debt ceiling vote until after the November 2012 election.

Congress has passed and the President has signed three debt ceiling measures over the past 2 ½ years. Here is the  history of the debt ceiling votes since President Obama took office in January 2009.

  • February 2009 – debt ceiling increased to $12.1 trillion, lasting 10 months
  • December 2009 – debt ceiling increased to $12.4 trillion, lasting 2 months
  • February 2010 – debt ceiling increased to $14.3 trillion, lasting 15 months

President Obama’s current insistence for a limit to last 18 months is longer than any of the three extension bills he previously signed.  Given the acrimonious nature of the current debate and political wrangling, it’s understandable why he prefers to push any future debate beyond the 2012 election.   However, a political preference to avoid a contentious issue does not justify vetoing legislation with a shorter time frame.

Many Republicans are willing to pass a shorter-term measure because they believe the political sentiment on this issue is in their favor.  In all fairness, if they believed a short-term measure was detrimental to their political future, they would be pushing for a longer term solution as well.

The supporters of the 18-month measure have argued a short-term increase will continue to negatively impact the economy and jeopardize the U.S. Government’s credit rating.  However, neither Moody’s nor Standard & Poor’s have indicated the size of debt increase as a significant factor in assessing the credit rating of U.S. Treasury securities.  Both have stated there are two primary factors they are considering; 1) the U.S. not defaulting on any of its payments and 2) a meaningful reduction in future budget deficits.  The length of a new debt ceiling has not been mentioned as having any bearing on their assessment.

The markets seem to echo this sentiment.  We’re days away from the August 2nd default date, yet there has been no appreciable change in the trading or pricing of U.S. Treasuries.
It appears traders and investors assume Congress will pass some measure to prevent the government from defaulting, even if it’s short term.  Although investors prefer Congress to act sooner, they understand the political landscape and realize such issues often result in deals being cut at the last moment, or Congress passes a short-term extension to grant themselves more time to reach a deal.

The 2011 Budget is a good example.   Rather than shutting down the government for failing to reach an agreement, Congress passed six continuing resolutions to fund the government from October 1, 2010 through April 8, 2011, before the final budget deal was reached.  The shortest continuing resolution was 3 days, keeping the government operating from December 18 – 21, 2010.  Although it may be annoying and unnecessary, short-term extensions to keep the government operating have become rather common.

At this point, I think a short-term resolution is probably the most likely bill to pass.  As much as the President may want an 18-month limit and some conservatives want no increase in the debt ceiling, neither one of them wants to be the blame for the U.S. government defaulting and the potential economic chaos which could result.  Political winds can shift rather quickly, and no one wants to be caught downwind of decision which freezes the markets or dramatically increases interest rates.

If you have read any of my prior articles, you know I strongly believe dramatic long-term changes to our fiscal policies are necessary. At the same time, significant changes in policies or spending should not be hastily passed, and I would much prefer good legislation over expediency.

Everyone may be tired of the debate and just want it to be over, but don’t allow politicians to obscure what they’re doing by waiting until the last minute to present and pass something.   Spending cuts and tax increases affect real people.  Tough choices need to be made… that’s a given.  Let’s just make sure we all have time to understand the choices being made by our elected officials; before they are enacted.

U.S. Credit Rating at Risk

If you’re concerned about the long-term ramifications of the growing federal debt, you’re not alone.   Two major credit ratings agencies, Moody’s Investors Services (Moody’s) and Standard & Poor’s (S&P), issued a warning to investors about the possible future downgrade in the credit rating of the U.S. Government.

 Moody’s report issued this week stated that the U.S. Government “must reverse the expansion if its debt if it hopes to keep its ‘Aaa’ rating.”  Separately, the head of S&P France said that “the firm could not rule out lowering the outlook for the U.S. rating in the future.”

A downgrade in the rating is not imminent, but these statements can be seen as a warning signal to investors. 

Credit rating agencies are supposed to provide an independent and objective opinion of the creditworthiness of publically-traded debts.  The credit rating impacts the interest rate and the value of the bonds when they are traded on the secondary market.

The following are a few of the factors contributing to the forewarnings by Moody’s and S&P.

  • The rapid and continued growth in the federal debt over the past 4 years
  • Rumblings in Congress over the reluctance to increase the debt ceiling
  • Sovereign debt issues roiling Western European countries and the Eurozone
  • The recent backlash to Moody’s and S&P for giving high credit ratings to mortgage-backed securities that turned out to be the equivalent of junk-bonds

Moody’s and S&P may have their own selfish motivations for these advanced warnings, but it’s a message to be heeded.  There were early warning signs that the housing market was in trouble, but most people brushed them aside.  Likewise, there are warning signs that the size and growth of the federal debt poses serious financial threat to us that you should not ignore.  The recent comments by Moody’s and S&P are one of those signs.

So… what does this mean to you? Probably not much at the moment.  However, the long-term consequence may be significant.

A downgrade in the credit rating of U.S. Treasury securities would likely cause an increase in the interest rate on future debt issues. Increasing interest payments will further exacerbate the current budget crisis.  Since more money is required to pay interest on the debt, less money is available for other spending, thereby further increasing the deficit or causing larger spending cuts.

A downgrade in the credit rating would also impact what it costs you to borrow money.  Virtually every loan in the U.S. in directly or indirectly tied to Treasury rates.  Be it credit cards, auto loans, home mortgages or business loans, you can expect the cost of borrowing to increase for any type of credit you obtain.

Moody’s and S&P may have intended their statements to be a “heads-up” to investors, but the audience is much larger.  Hopefully it’s a message our political leaders will heed regarding our current fiscal situation.  It’s also a message to you as an individual.  You may not be able to control what happens in Washington, but beware and be prepared.  A future downgrade in the U.S. credit rating may be coming, and if it happens, it’s going to cost you.