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Good Credit Is Priceless, Especially During Hard Times

MICHEL MARTIN, host:

I'm Michel Martin and this is TELL ME MORE from NPR News.

Coming up, a group of high achieving women dedicate millions to solving the problems of poor women around the world. Feminist icon Gloria Steinem, on the Women Moving Millions campaign. We'll hear from her in just a few minutes. But first, it's time for our Money Coach, that's our weekly conversation about the economy and personal finance. Credit troubles has fueled the nation's recession and while the federal government has offered bailouts to solve credit problems for the nation's auto and financial companies, many individual Americans are feeling crushed by consumer debit and credit card balances.

Last week our personal finance guest outlined the Credit Cardholder's Bill of Rights, proposed legislation that would change the way credit card companies do business. This week we want to focus on managing that debt, repairing your credit score. Our regular money coach Alvin Hall is traveling. So we are happy to have Washington Post personal finance writer Nancy Trejos sitting in our Washington, D.C. studio. Welcome, thanks for stopping in.

Ms. NANCY TREJOS (Personal Finance Writer, The Washington Post): Thanks for having me.

MARTIN: Obviously the issue of credit card debt is a major concern for millions of Americans. And there are reports that banks are now fearful that consumers may start defaulting on credit card balances. How legitimate is that concern? How extensive is the problem?

Ms. TREJOS: Well, Americans are really tied down with credit card debt. We have gotten used to using our credit cards for everything. And back in the day when people had home equity, they were able to get themselves out of trouble by just getting a home equity line of credit and paying off their credit cards. They can't do that anymore. So a lot of people are losing their jobs now. They have no other money to turn to and so they're having trouble paying their credit card bills.

MARTIN: Is this a cultural issue or do you think - is this an issue of attitude or do you think this is a function of the current economic conditions, the recession? People are just - losing their jobs and therefore they just cannot keep up with their obligations or would we be having this problem anyway? Do you think this is sort of a cultural issue that people began to over-rely on credit card debt?

Ms. TREJOS: I think it's a combination of those two factors. I think we're a nation that got used to having credit cards. For many years when the economy was doing well, credit card companies were willing to give credit to pretty much everyone. And people were willing to take it because we got used to overextending ourselves. But then the recession came along and things got worse for people and their homes, economically. And they were just not able to find other forms of income, you know, other credit that they can use to get themselves out of trouble.

MARTIN: So let's say you're there. That's where you are. You're listening to this and thinking, you know what, that's me, I'm right there right now. What do I do? Let's say, let's start with if you are just not able to meet your monthly minimum payments for whatever reason, what's the first thing you should do?

Ms. TREJOS: Well, you should actually try to contact the creditors. You should give them a call and ask to speak to a supervisor rather than a customer service representative because a supervisor is more able to let's say decrease your interest rate.

MARTIN: Do they actually have the authority to do that?

Ms. TREJOS: Many of them do and it depends on the company. But, you know, it doesn't hurt to just call them up and explain the situation to them. And be polite and say, you know, I would really like to stay with your company but, you know, I have other offers. Because most people do have, you know, you always get that in the mail - an offer for a credit card with a zero percent interest rate. So call them up and say, you know, I like to stay with you. But I have debt and I will switch over to this other credit card unless you're willing to, you know, give me at lower interest rate. And sometimes they're willing to do it.

MARTIN: Okay and then what if you don't have that other offer, you should still say you do?

Ms. TREJOS: Well, no, I think you should be honest and actually…

MARTIN: I mean, what if you lost your job?

Ms. TREJOS: Well that's, you know, you can explain that to them. And if they're still not willing to decrease your interest rate, then you should probably turn to a credit counseling agency.

MARTIN: I wanted to ask about that, what about this credit counseling agencies? We see these advertisements all the time and now we hear that some of these are legitimate and some of these are not. Some of these folks are just adding further burdens or adding further fees and penalties. How do you sort out the wheat from the chaff, somebody who is legitimately in the business is going to help you and those who are not?

Ms. TREJOS: Right. I mean you have to be very careful. First of all, you need to shop around. You're right, there are many companies out there and some are legitimate and some are not. So the best thing for you to do is to look at different companies, see what services they offer, look at the types of fees that they're going to charge you. They shouldn't be charging you lot of fees. A lot of these…

MARTIN: A lot? What's a lot?

Ms. TREJOS: …a lot of these are, you know, high monthly fees, you should not have to pay a lot every month.

MARTIN: Okay.

Ms. TREJOS: And a lot of these companies will say that they are nonprofits but they are not. Well, they are nonprofits but they'll still charge you. So you should contact the Better Business Bureau, contact your state attorney general's office, consumer protection agencies and see if there have been any complaints against them.

MARTIN: We had a lot of listener response to our conversations about credit. And I want to play a comment from one of our listeners for you. This is Nicky(ph) from Chicago. And it's kind of the other side of the equation that we've just have been talking about. Here it is.

NICKY: I struggled and paid off all my credit cards and currently have none. But I've been told by numerous people that I need one not only for emergencies but to raise my credit rating. And not only that but to keep a balance which makes my credit score higher. I feel trapped. I don't want anything to do with credit cards but I can't rent a car or various things because my actual cash, my debit card means nothing. Do you have any suggestions?

MARTIN: What about that? She's saying that really to function she needs a credit card but she doesn't want one. What does she do?

Ms. TREJOS: Well, that is a problem. You actually do need to have the credit history in order to get any sort of loan in this country. So, if you want to get a mortgage you do need to have a long history of paying bills on time. You know, I congratulate her for paying off her debts. You know, that will vastly improve her credit score, but I wouldn't suggest that she cancel all of her credit cards.

That'll actually lower your score because there's a thing called debt utilization ratio, it's a proportion of your debt that you use and that could affect your credit score. Basically the closer you are to being maxed out the lower your credit score. Yeah, so she needs to have a card. But, you know, have one and just use it not very often and pay it off right away.

MARTIN: All right. Nancy Trejos is a personal finance writer at the Washington Post. She was kind enough to join us from our Washington, D.C. studios. Nancy, thanks so much for joining us and you might want to get your pen and paper for this. It's a special resource for TELL ME MORE listeners.

Nancy Trejos was kind enough to share her checklist of five essentials every consumer should embrace as tools to help restore and maintain healthy credit. Those tips for beefing up your credit score, like the one Nancy just shared with us, is on our Web site. Those tips are on our Web site, I should say. Log on to npr.org and click on TELL ME MORE. Nancy, thank you so much for coming in.

Ms. TREJOS: Thank you. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.