Avoiding a bad credit rating

Communication critical in addressing outstanding debt

By: Brian Reisinger

Posted: 3/14/05

It's no secret that college students often are strapped for cash.

But missed credit card payments or trends in financial irresponsibility can establish a bad credit rating - a situation that Harry Hertel, legal services attorney for UW-Eau Claire, said can lead to extended payment plans, difficulty in receiving loans and even bankruptcy.

What you need to know about credit:
- Credit is more than just a plastic card you use to buy things - it is your financial trustworthiness.

- Good credit means that your history of payments, employment and salary make you a good candidate for a loan, and creditors - those who lend money or services - will be more willing to work with you.

- Having good credit usually translates into lower payments and more ease in borrowing money.

- Bad credit usually results from making payments late or borrowing too much money, and it means you might have trouble getting a car loan, a credit card, a place to live and, sometimes, a job.

- In most cases, it takes seven years for accurate, negative information to be deleted from a credit report.

What do creditors look at?
- Bill-paying history
- How many accounts you have and what kind
- Late payments
- Longevity of accounts
- The unused portions of lines of credit
- Collections actions
- Outstanding debt

- The Federal Trade Commission

"Basically, what you want to do is avoid a bad credit rating," he said.

A history of failing to make payments on time, irresponsible use of credit cards and large amounts of debt can all contribute to a bad credit rating, said Jean Baglien, a mortgage consultant for Wells Fargo.

Sophomore Megan Holman said she uses online banking to track her spending.

"I use online banking, and then I can check my account everyday," she said.

Holman, who currently lives on campus, said she understands how tracking finances could become difficult while living off campus, as students must pay rent and buy groceries.

"You're writing out hundred dollar checks or more," she said. "It'd be easy to lose track."

Hertel, who offers legal counsel to Eau Claire students in addition to his private practice, said students in financial trouble should take immediate action to remedy their monetary woes.

One of those steps, he said, is to establish active communication with the person or company owed so an agreement can be worked out.

"The biggest issue probably is communication," Hertel said. "Make it clear you want to take care of the debt."

Sometimes students are able to work out extended payment plans with the people or organizations they owe money to, he said.

Ginger Tinsman of Associated Bank, 806 S. Hastings Way, said counseling services and payment plans are available for students in financial trouble.

"We work with (students) like any client to find a solution," she said.

Darin McFadden, also of Associated Bank, said failure to address a build-up of poor credit could lead to difficulty in receiving loans.

"If we notice delinquency with other creditors, we might not be able to extend credit," he said.

McFadden said in general, Associated Bank makes a concentrated effort to work with students who have various financial situations.

In extreme cases, such as extensive credit card debt with interest rates of 18 to 25 percent, bankruptcy becomes the only viable option, Hertel said.

"In those cases, legal counsel is in order," he said.

There are times when attorneys are able to negotiate payment agreements that may abolish interest, since collectors don't want to risk their debtor filing for bankruptcy, he said.

"Companies don't want to risk losing payment," Hertel said. "Something is better than nothing."

During the bankruptcy process, he said, assets are weighed against debt. If that debt exceeds one's assets, bankruptcy is possible, he said.

A successful bankruptcy can lead to a loss of some assets, although, sometimes savings can be salvaged, Hertel said.

"It's effectively a clean slate," he said.

But Baglien said even bankruptcy can't completely remedy financial woes.

She said bankruptcies are also documented and can affect credit ratings for up to 10 years.

"You're going to pay very high interest rates the closer you are to bankruptcy," she said.