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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Tuesday, December 27, 2005

FICO Credit Score Back Down To 688: Good Grief!

Some good news and some bad news today. First, the bad news: my FICO credit score has dropped down to 688. My FICO score had recently jumped from 686 to 706, but it's back down again, and I have to deal with the fact that I am once again a sub-700 borrower! The FICO system is just too cruel! I am placed in the near-elite class of 700-720 FICO borrowers, only to have my status taken away from me 2 months later. It's not right!

Actually, I'm not surprised about this recent change to my FICO score. My baby girl--who is growing at an incredible rate (she's off the height chart @ the doctor's office)--needed new clothes, so I charged some baby shopping. I also invested in a bunch of space heaters for my home, an investment that has already shaved plenty off my heating bill, so no regrets there. Lastly, I took advantage of a "3.99% APR until transferred balance is paid in full" balance transfer offer from Citibank, which, again, will save me plenty in the long term, but may have contributed to the latest (temporary!) decline in my credit score (sometimes transferring a credit card balance helps my credit score, but then sometimes transferring a similar balance with similar circumstances hurts it. Makes me wonder if some credit card companies/banks have more "weight" than others...Hmmm...)

Don't get me wrong: I know that 688 is still a good FICO score, a score that will still get me a favorable to excellent rate on just about any loan product, so I'm not really crushed. Furthermore, I know that within a few months, I'll be back here reporting that my score is back up above the 700 mark, as I plan on making some large payments to certain creditors in the near future, and I don't plan on missing any credit card or car payments! I am no way near ready for my own home, so I can wait.

The good news is that I have completely paid off 2 credit cards by taking advantage of the Citibank balance transfer offer I mentioned above. I managed to pay off 2 relatively high balances, and, even though those balances have been transferred to one of my Citibank credit cards, my Citibank card is still OK, as my balance on that card is still below the halfway point of my total credit line, and that's important.

And kudos to Citibank for offering a credit line increase in conjunction with the "3.99% APR until transferred balance is paid in full" balance transfer offer. That's what basically sold me on using Citibank, as opposed to a going with a competing bank or credit card company. By offering a credit line increase with the balance transfer deal, Citibank is basically communicating to me, "yes, we want your business, and we know that having a high credit card balance can hurt your credit rating and put you at risk of "maxing out" your account. So we'll give you a credit line increase with this deal, so that you don't have to worry about that stuff."

What am I going to do with the credit card accounts that I've managed to pay off? Well, I'm keeping them, as it's the right thing to do. Bottom line: Lord FICO, master of my credit destiny, likes to see accounts that are "old." The benefits of having long-standing relationships with creditors outweigh the benefits gained, if any, by canceling the accounts.

I'm hoping that banks will be offering some exceptional balance transfer offers in January; I predict that transferring credit card balances will be all-the-rage next month, as holiday shoppers try their best to avoid the interest charges related to all that shopping done for Xmas/Hanukkah/Kwanza 2005.

Peace and prosperity to all in 2006!

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Wednesday, December 07, 2005

Supreme Court Decision: Social Security Benefits Are Fair Game

Student Loan Debt Horror Story Years ago, when the government emptied my bank account in order to satisfy a portion of the student loan debt that I wasn’t repaying, I was floored. I could not believe that the government had the power to take away all my money in such a manner. It was a wakeup call that I won’t ever forget, and it was, quite frankly, one that I really needed.

From this day forward, many retired and disabled folks who receive Social Security (SS) benefits, and who’ve made the mistake of disregarding their student loan debts, may experience the same shock and horror that I went through when they get their next SS check.
Today, the Supreme Court ruled against Mr. James Lockhart, the 67-year-old retired postal worker who’s SS check had been cut by 15% in order to make payments towards his 20-year-old student loan debt.
Lockhart’s case was controversial in 3 dimensions:
  1. Lockhart defaulted on his student loan debt 20 years ago, which means that his SS benefits should have been protected by the Debt Collection Act of 1982.
  2. The Social Security Act stipulates that SS benefits should not be "subject to execution, levy, attachment, garnishment, or other legal process."
  3. Lockhart claimed that he needed every penny of his monthly social security check ($874) to pay for food and the medicines he needs to treat his diabetes and heart disease. James Lockhart lives in public housing.
Today’s Supreme Court ruling sorts out 2 conflicting rulings made by 2 lower courts regarding Lockhart’s case and another similar case.
The 9th US Circuit Court of Appeals had ruled against Mr. Lockhart because The Court felt that the Higher Education Act gives the government every right to take a cut of Lockhart's SS benefits.

However, the 8th Circuit Court made a contradictory ruling in a case that was separate from, yet very similar to, the Lockhart case. The case involved Ms. Dee Ella, a Kansas City, Missouri woman who defaulted on her student loan debt 20 years ago; the 8th Circuit Court decided that the Social Security Act and the Debt Collection Act should protect Ms. Ella from having her SS benefits offset by the government.

So, basically, the job of the Supreme Court was to decide which Act of Congress should trump the other: The Higher Education Act (or, to be more precise, the Higher Education Technical Amendments) won out.
So now it doesn’t matter how poor or disabled your are, it doesn’t matter if you need every penny of your SS check to pay for life-preserving medicines and food, and it doesn’t matter if you defaulted on your student loan debt 30 or even 50 years ago: the government can--and most likely will--offset your SS benefits if you default on your federally subsidized student loans.

Your comments are welcome and appreciated.

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