Credit Scores; E-Banks; Debt Relief

Questions from listeners yield advice on why good customers are seeing shrinking credit lines, how to avoid getting a bad credit rating, using e-banks (make sure they're FDIC-insured) and whether to trust debt-settlement companies (hint: you can do most of it yourself).

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MADELEINE BRAND, host:

From NPR News, it's Day to Day. From time to time our personal finance guru, Michelle Singletary takes your questions, and today we'll do our final round of listener emails with Michelle. She joins us now, hi, Michelle.

MICHELLE SINGLETARY: Hi.

BRAND: Our first question comes from Shaun McBride(ph) and his partner Patrick(ph). Shaun is a 45-year-old consultant in Albuquerque, New Mexico. And he writes, I'm in the market for my first home. I've saved a little money and I have a VA loan that I can use. I have very little debt because although I have credit cards, I only use one and I pay it off every month. I also have a credit score of 7.99. Michelle, it sounds like you're going to love this guy.

SINGLETARY: I love him already. Love him.

BRAND: Now, but here is his question. In the last two weeks, two credit card companies I seldom or never used have canceled my card or reduced my credit limit. Should I be concerned about this for my credit scores or anything I should do?

SINGLETARY: You know, for many people, it's not just their investments that are down. They are seeing shrinking credit lines. And part of the reason is because banks are worried that people are going to be able to pay off their credit cards. So, they are mining their databases and looking for people who are not using their cards or overexposed and canceling those limits. But you know, the good thing in this case is that he doesn't have to worry, and here's why. First of all, he doesn't carry balances. When you use a credit card, you have to worry about how much credit you are utilizing, and that translates into a ratio. So, you don't want to use all of your credit line. If your credit line is reduced it makes it look like you're overexposed, and so, in that case, it does impact your score. But in our listener's case he doesn't carry a balance, and so really having those lines cut is really not going to impact him very much, if at all.

COHEN: Our next question comes from Simon Via(ph). He's 22 and lives in Charleston, South Carolina but he is moving to Portland, Oregon later this year. And he writes, I'm moving and I'm leaving my terrible bank. I was thinking about joining E-Trade but I saw their stock fell, what should I do? Should I be scared?

SINGLETARY: When it comes to the banks, as long as your bank is FDIC-insured, your deposits are insured up to a certain amount. It was a $100,000, it got raised temporarily to 250. So, the key here is, is the bank FDIC-insured and no depositor with insured deposits has lost any money? So, I think what's happening with the stock is different to how well the bank is managed and whether it's FDIC-insured.

COHEN: Our final question comes from Elizabeth Tenny(ph). She's 43. She's married with no kids and lives in Columbus, Ohio. She writes, my husband wants to contact one of the many debt-relief groups that advertise on the Internet. He wants to reduce his credit card debt, but she says they look like scams to her. Are they? What do these groups do, and are they legitimate?

SINGLETARY: These are basically debt-settlement companies, and essentially you paid them some lump-sum fee. And in case - in some cases, it could be as much as $3,000, and they'll tell you that we'll help you reduce your credit card debt. Now, many of them are scams, not all of them. You know, they're some that are legitimate. But for the most part I tell people to stay away from these companies. What they do you can do for yourself. Call up the company. Negotiate a repayment plan. You can even get them to reduce some of the fees or the interest rate. And here's the thing. If you got $3,000 to pay for this company, you can use that money to pay off your debt. So, she should tell her husband to stay away, to do it themselves.

COHEN: Michelle Singletary writes the Color of Money column for the Washington Post. And Michelle, you have answered many questions from many listeners over many years. So, on behalf of all of them, thank you.

SINGLETARY: Oh, you're so welcome. It's been my pleasure.

COHEN: Day to Day returns in just a moment.

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