Terry Savage: Warning on credit repair and chasing rewards

In my recent column about credit card warnings, I explained the dangers of zero-interest cards, particularly those offered by retail stores. If you fail to pay the FULL balance off within the specified zero-rate time period, you can be charged a 30%+ rate for the entire amount, retroactively from the original date of purchase!
Even the zero-interest period on balance transfer cards can get you deeper into trouble. If you don’t pay off the balances within the zero-rate period, you can expect your finance charge to soar to around 30%.
Here are some more warnings — especially pertinent as Americans now carry record high credit card balances, over $1.13 trillion. A new Bankrate survey finds “more than one in four Americans say they are willing to take on debt to travel this year (27%), while 14% are willing to take on debt to dine out and 13% are willing to take on debt to attend a live entertainment event such as a concert, theater performance, or sporting event.”
To be clear, these purchases are not intended to be paid immediately upon receiving the credit card bill. Instead they will be financed over time. And if you’re willing to pay 20% interest on a dinner that is literally “down the drain” before you get the bill, you’re in deep trouble!
Avoid chasing rewards
Chasing credit card rewards may lead to another disaster. It might be an offer of immediate miles on an airline card, or a bonus on a travel card or cash back on purchases. But if you’re carrying debt, your top priority should be to pay down the existing debt, not to chase rewards. You may think you’re getting something for nothing, but your trail of opening cards to get rewards is noted in your credit report.
Too much open credit can ding your score since card issuers are becoming more concerned about the possibility you’ll use those cards to carry another balance. And why pay 20% interest to get a travel reward, enticing you to charge even more!
Younger cardholders are more likely to be reward-chasers, according to Bankrate, with 77% of Gen Z (ages 18-27) cardholders and 74% of millennials (ages 28-43) doing so. A word of advice: You’re outsmarting yourself!
Credit repair traps
When everything goes wrong, there’s a temptation to fall for targeted Internet ads promising to “repair” your credit. They offer a “free” credit report, a “free” initial consultation, and they boast of having worked with scores of people to remove bad stuff from their credit reports and improve their scores. They say they have lawyers and paralegals on staff to “fix” your credit history — all for an initial low fee ranging from $19 to $99. But wait, there’s more! There are certainly many more fees to come once you’ve signed on.
Even worse, everything that they do for you, you could do yourself! You can check your credit report at all three bureaus, using the links at AnnualCreditReport.com. You can get your free credit score at your bank or from CreditKarma.com.
If you spot an error on your credit report, you can contact each credit bureau and post a response or create a dispute if the information is incorrect. If you removed an ex-spouse from your card or mortgage documents, you can make sure that person’s credit is no longer reported with yours. And you can freeze your credit report for no charge at all three bureaus.
But the one thing you can’t do — and the “fix-it” agencies can’t do, either — is remove accurate (and damaging) bad stuff from your credit history. Period. It will roll off after seven years in most cases, or not until 10 years after a bankruptcy.
Yes, you can improve your credit by paying your bills on time, reducing existing balances (although not by repaying those already charged off), and by keeping your oldest card while closing other, unneeded cards. And you don’t need to pay for help to do any of those things!
And if you know you need trusted help, contact the nonprofit National Foundation for Credit Counseling (800-388-2227; NFCC.org). The only cost is typically $35, waived in hardship cases.
You’ve already gotten into credit trouble. You’ll only make it worse by shelling out more big money to try to fix it. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)