Some help on keeping a good credit rating

Your credit rating can be a fragile and perishable thing. The Fair Credit Reporting Act and other legislation aim to protect you from unfair practices, but you must also take some steps to protect your credit rating if it is important to you. A credit rating may be unimportant to a person who uses cash exclusively.

Numerous questions relating to credit and one's rating come around regularly. A reader asked what would happen if a finance company repossessed a car that was worth less in the market than the outstanding loan balance. Would the finance company require payment of the difference?

It all depends. In a bankruptcy or Chapter 13 proceeding, the loan balance could be reduced if the court decided an inequity existed. Otherwise, if you abandon the car and it is repossessed, you will likely be sued for the difference, and the court may award a deficiency judgment.

If your are paying on a car that is worth less than the remaining principal and you want out, you should probably sell it yourself rather than abandon it. Since the title is encumbered by the loan, you would need to pay the lender the difference to gain a release for sale. But that differece could be far less than if the loan company repossessed the car, sold it at auction on the courthouse steps, and dunned you for the deficiency.

If you now have a fair or good credit rating and wish to keep it, abandoning a car will likely leave a blotch on your record. But your other bills, loans, or other credit transactions would not be affected. You might have trouble getting more credit later if the lender checked your record.

Filing for bankruptcy is the last step you should consider in resolving credit or debt problems. The first step is to determine the size of the problem. You can do this by listing all of your outstanding loans, contracts, credit card balances, and other debts. Many times a person can retrench, spend less, and pay off debts without asking for outside help.

A second step is to seek outside counseling when debts are overhwelming and creditors are demanding payment -- possibly threatening garnishment or attachment of property. The Consumer Credit Counseling Service in your city can often help out in these cases.

A third possibility is the new Chapter 13 provisions of the revised bankruptcy code that became effective Oct. 1, 1979. Under Chapter 13 a debtor pays off debts under the direction and protection of the court over about three years. During this period continued interest and penalty payments are stopped, and some debts may be scaled back if they are considered unreasonable.

The final step is straight bankruptcy, whereby many but not all of one's debts are legally discharged. An attorney is necessary in most cases to file and pursue a bankruptcy. Under the new law a bankruptcy is noted on one's credit rating for a maximum of 10 years; formerly the time was 14 years.

Your credit rating will follow you from place to place. But you are entitled to know what is on your record. No cost is involved if you are turned down for credit. If you are merely curious, the agency must disclose the infomation but may charge a nominal fee. If you find errors in fact, you are entitled to correct the information or supply a short written rebuttal for the record. You should be aware of your credit rating and protect it if you wish to continue using credit extensively.

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