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American Express agreed to pay $112.5 million to resolve allegations that it charged unlawful late fees, discriminated against some card applicants and engaged in other illegal practices.

According to the Consumer financial Protection Bureau, American Express will pay $85 million to about 250,000 consumers – about $340 apiece. Payments will either be by check or a credit in their accounts by March 2013. In addition to paying customer refunds, American Express will pay $27.5 million in penalties plus numerous fines. The violations occurred between 2003 and 2012.

American Express plans to notify each affected customer due to receive a refund in the coming months.

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According to the American Bankruptcy Institute, about 1.6 million people filed for personal bankruptcy in 2010. Sixty five percent of filers chose “income reduction” as a reason for filing. If you file, your FICO credit score will definitely take a hit. For instance, you can expect a reduction of up to 240 points if you have a 780 score and a reduction of up to 150 points for a 680 score.

What and how much someone in bankruptcy keeps depends mostly on where he or she lives. Here are five assets that may be protected in bankruptcy:

  • Home: Holding on to your home depends on the state you live and the equity in your home. In general, if the owner has no equity, he/she can keep it as long as payment stays current. For filers with equity, most states have an exemption – money from the trustee sale of the home stays with the homeowner. Any amount over the exemption amount is applied to debts.
  • Tax exempt retirement fund: Most are out of reach of creditors. IRA’s are protected up to $1.17 million per person.
  • Car: Holding on to a car depends on several factors, including what’s covered by state exemptions. Like homes, owners who owe more than the car is worth can keep it provided payment stays current.
  • Life insurance policy: Term insurance policies are exempt.
  • College Saving Plan: Depends on several factors. If a 529 plan is less than two years old, protection is only limited to $he 5,000. After the two year limit, the plan is safe provided the person filing for bankruptcy isn’t the beneficiary.

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A recent report shows the proportion of Americans with FICO scores below 600 – a level that makes it nearly impossible to get loans – has risen to almost 26%. The causes: high unemployment and bad debt. At the same time, lenders are getting pickier about credit qualifications. If you are concerned about your score, here are some ways to improve it:

  • Know your FICO score. The biggest factors in your score are payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%).
  • Pay on time. This one is obvious.
  • Lower your debt. Utilization rate is the combined balances on all credit cards divided by your combined credit limit. Try to keep this rate at 10% or lower.
  • Don’t apply for credit you don’t really need. Applying counts as an inquiry and can ding your score. Don’t take advantage of those 10% off offers if you open a credit card at the mall. That 10% you save on the purchase could lead to higher interest rates and a lower FICO score.
  • Don’t close credit card accounts. When you close an account, you reduce your available credit limit and that increases your utilization rate. Conversely, you should not have too many or too many idle accounts either.

 The easiest way to get your credit score is to go to www.myfico.com. Any score over 750 is very good. You can get a free copy of your credit report (but not score) annually by going to www.annualcreditreport.com.

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Filing bankruptcy is a very emotional and stressful event with huge implications. However, in this current economic hurricane, it may be a practical choice for some. Anyone considering filing should speak with a bankruptcy attorney to consider all possible options and to decide if it is the best choice for you.

Bankruptcy will damage your credit score. How much of an impact will depend on your entire credit profile. For example, someone who had spotless credit and a very high FICO score (780 or above) could expect a huge drop (160 points) in their score. On the other hand, someone with many negative items already listed on their credit report might see only a modest drop in their score.  

As time passes, the negative impact of the bankruptcy will lessen. Typically, here is how long you can expect bankruptcies to stay on your credit report (from the date filed):

  • Chapter 11 and 7 bankruptcies up to 10 years.
  • Completed Chapter 13 bankruptcies up to 7 years.

 

However, the good news is that eventually you can rebuild your score.

Advantages:

  • Creditors must stop all activities related to collecting the debt such as phone calls, letters, etc.
  • Fresh start because eligible debt is discharged. The requirements differ depending on Chapter 7 or 13 especially about secured and unsecured debt.
  • You cannot be fired solely for filing bankruptcy.

Disadvantages:

  • Will hurt credit score for 7 to 10 years which means it will be difficult to get credit.
  • Only temporarily stops foreclosure.
  • Once filed, withdrawal is difficult.
  • Stigma and embarrassment. 

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Do you plan to buy a home, car, or other major purchase? Before you start looking or take out your checkbook, you need to know your credit score.

After current income and employment status, your credit score is the most important factor that matters to lenders. It is your financial GPA and is based on your payment record over time, your current debt, and how much credit you now have.

The higher your credit score, the less risk the banks consider you to be. Based on your score the bank will decide:

  • What interest rate to charge.
  • How much to lend you.
  • Whether or not to lend you any money at all.

The easiest way to find your credit score is to go to http://www.myfico.com. FICO stands for Fair Isaac and Company. FICO scores range from 300 (worst) to 850 (best). Anything over around 750 is very good and will get you the best rates. The fee is $15.95 but is worth it. If your score is not where it should be, it is better to put off that major purchase until you can improve your score. One website that provides pretty good information on what the different scores mean is: http://www.creditscoring.com/pages/bar.htm

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