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First Connecticut Mortgage Co. Newsletter January 2006

CREDIT CARD COMPANIES PUT THE SQUEEZE ON CONSUMERS

Brought to you by Reynold Nippe

If you are like most American consumers, you may have been so caught up in the holiday buying frenzy that you may not have heard about the latest maneuver major credit card companies have pulled. Back in October they successfully enacted the stringent new bankruptcy bill that makes a consumer's ability to obtain bankruptcy relief all but impossible, they are now putting the squeeze on consumers by doubling the minimum monthly payment. They have locked them in the pot and now they're turning up the heat. And, as if to add insult to injury, the new law takes effect with the January statements, the time when credit card balances are at their highest levels for the entire year.

The guidelines for maintaining a good credit score dictate that you pay off your balances each month and that carrying a balance can make paying off credit cards more difficult with each passing month. However, sometimes consumers need breathing room and the credit card companies are cutting off the air supply with this new mandate that pushes the minimum monthly payment from 2% to 4%--an incredible 100% increase.

The move received a nod from the federal government who has been pushing for the move in an attempt to reduce the amount of consumer debt that is now hovering around $9,000 for every American household. That is a lot of debt and carrying so much debt makes your increasingly important credit score vulnerable to a blow should you fall behind in payments.

The importance of the credit score has increased significantly over just the last year or 2 as would-be employers, insurance companies and even utility companies look to the credit score as a sign of reliability. Credit card companies are aware that consumers now have an increased need to keep their credit scores high; it's no longer simply about getting a loan when you want one: it's also about getting a job or electricity to your home. This move forces the consumer to increase payments or suffer a blow to their all-important credit score.

WHAT CAN YOU DO ABOUT IT?

The most significant action you can take to protect yourself from getting into a payment situation you cannot meet is to manage your credit wisely. The bar has been raised. You may have been able to manage your situation until now, but you need to re-assess to make certain you can bear this burden going forward.

HERE'S HOW:

HOW THE CREDIT SCORING SYSTEM LOOKS AT YOUR DEBT

Credit card debt is non-secured, revolving debt and the credit scoring system doesn't like to see too much of it in any one place. How you manage your revolving debt accounts makes up a total of 30% of the credit score. That means that if you manage your credit cards inefficiently, your score will suffer.

The credit score does not factor income into the equation. It doesn't matter how much money you make. The 30% of the score that is impacted by revolving debt is considered in the following manner:

IN CONCLUSION

The passage of the bankruptcy bill empowered the financial institutions to put the squeeze on consumers. I think the doubling of the minimum monthly payments on consumer credit is just the first of many new mandates that will come from the banks. The best way to protect your finances and your credit is to understand how the credit system works so you can safely navigate your way through the system.

Your credit score is your fingerprint of reliability for debt management. The threats to your credit score will increase with every new mandate created by the banks. And the weight given to your credit score is only going to become more significant as time goes by.

By simply following the steps I have outlined above, you will go a long way toward establishing a good debt management program and creating a solid foundation for protecting your credit score. I am happy to provide this information to you and I sincerely hope it will help you start this New Year off on the right financial footing.

I wish you a Happy and Abundant New Year!