By Terry Savage, The Street.com

Some life insurance policies are starting to haunt the living. Three years ago, I said “premium financed” policies were “not exactly a scam, but dangerous.” Today that warning seems like an understatement.

More than $20 billion of these so-called “spin life” insurance policies have been sold and now they’re starting to implode. Many policy holders don’t realize the trouble they face.

The concept seemed straightforward when sales were rampant several years ago. Agents promised clients that investors would lend them money to pay the premiums for the first two years, until the policy was past the “contestability period.” Then the policy would be sold to an investor, who would continue to pay the premiums, hoping to collect on this “bet” on the senior’s longevity.

Agents were encouraging elderly people to buy huge life insurance policies on themselves, even though they didn’t need the insurance, and couldn’t afford the premiums.

Why would any person let a stranger become the owner of a policy on his life? The answer is simple: money.

Pre-death bonus: Seniors were tempted by upfront “bonuses” that ranged from thousands of dollars to expensive cruises just for letting the investor bet against the insurance industry’s mortality tables, and eventually collect the policy proceeds. And they were promised more money when the policy was sold.

At first, there was no risk to seniors. The loans to pay the premiums were “non-recourse.” However, three years ago, insurance companies decided that customers needed to guarantee at least 25% of the premium. The insurers potentially sensed problems brewing, but still wanted to sell policies.

Sales agents collected fat commissions by convincing seniors there was no risk. Household names in financial services were raising money to buy these policies, betting they would pay premiums for a few years and then collect on death. Among them were LaSalle Bank (now part of Bank of America (Stock Quote: BAC)), Credit Suisse Group (Stock Quote: CS) and funds managed by Berkshire Hathaway (Stock Quote: BRK.A) and Goldman Sachs (Stock Quote: GS).

Death bet gone wrong: Then came the credit crunch. Demand for the policies dropped as investors struggled to borrow. When the two-year premium period expired, the insured expected brokers to sell the policies, allowing them to collect their bonuses. But there was no money to complete deals.

Suddenly, seniors faced premiums on insurance they didn’t need and couldn’t afford. It wasn’t unusual for a senior to take out a $5 million policy, citing estate tax purposes. The premium on that policy could be $200,000 a year.

Sure, they could stop paying premiums and drop the policies, but most had signed documents agreeing to repay at least 25% of the first two years of premiums, plus interest. At the end of two years, the senior would owe $100,000 plus interest, adding another $6,000 to the tab.

Forgiven loans taxed: If the senior manages to pay off the guaranteed amount, plus interest, the lender will “forgive” the balance and additional interest. However, the policy holders will owe taxes on the forgiven debt.

If $300,000 plus $18,000 in interest was forgiven, a senior in the 35% tax bracket would owe an additional $100,000 in taxes on this phantom income.

Marc Sheridan and Don Tolep of Sheridan Wealth Advisors in Bay Harbor, Fla., say they’re seeing more seniors facing financial ruin with these loans. They say the Internal Revenue Service might be collecting as much as $1 billion in taxes on this income.

It’s estimated that more than 10,000 of these “spin life” policies were sold in recent years. It looked like easy money for those willing to “share” their insurable capacity. Now they’re learning an expensive lesson. And that’s the Savage Truth.

By Randy Diamond | MainStreet.com

The economic downturn is bringing attention to a little known practice by auto insurers that targets consumers with blemished credit histories. Insurers can charge higher rates, decline to renew coverage or deny coverage to these customers.

A task force of state insurance commissioners is examining the issue. They’re expected to make recommendations by August as to whether auto insurers’ use of credit reports should be more tightly monitored, or even outlawed.

“We are trying to cut through the rhetoric and get the facts to make an informed decision,” says Michael T. McRaith, an Illinois insurance regulator who chairs the task force.

Three states currently ban auto insurers from using credit reports: California, Hawaii and Massachusetts.

The insurance industry argues that studies correlate poorer credit with an increased likelihood of filing an accident claim. Consumer advocates, on the other hand, question the fairness and ethics of using credit reports to rate auto insurance customers. They are also concerned that consumers already affected by the current economic crisis may get a double whammy when they see their auto insurance rates go up.

“I don’t understand why someone who lost their job because of the poor economy is suddenly a worse auto insurance risk,’’ says Robert Hunter, insurance director of the Consumer Federation of America.

The insurance industry has statistical correlations but can only theorize about the reason for the connection between credit scores and a higher claim frequency.

“If you’re particular about managing your finances, then that same personality may make you a more attentive driver,” says Alex Hageli, of the Property Casualty Insurers Association of America.

Credit-based insurance scoring has been used since 1993 and is now used by 95% of auto insurers. Insurance representatives insist the current financial crisis hasn’t meant the sky is falling in for auto insurance customers. Rates haven’t risen in general, they say, because insurance scores derived from credit reports have remained flat on average through the financial crisis.

But Lamont Boyd, a project manager for FICO, which sells the most widely used industry model for credit scores, said scores have declined for those directly impacted by the economy.

“As a small but growing number of consumers have experienced recent financial hardships, it is impossible to generalize about the impact of such an event on an individual’s credit-based insurance score,” Boyd says.

The nation’s biggest auto insurer, State Farm Mutual Auto Insurance Company, says it has not seen a spike in higher insurance rates.

Regardless of whether motorists are paying higher rates due to the impact of the poor economy, opponents of insurance scoring say the practice is wrong.

Florida Insurance Commissioner Kevin McCarty says studies have shown that scoring has a disproportionate effect on minority groups. “The industry’s attempt to ignore this issue shows a failure to treat its consumers fairly and equitably” he says.

Hunter, with the Consumer Federation, says another big issue is that the information in credit reports is not always accurate, leading to inaccurate scores. (Which is why you should check your credit report regularly and correct any mistakes.) Scores can also vary, depending on which of the three credit reporting bureaus an insurer is using, he says.

What You Can Do Now to Save
Consumers are advised to shop around for auto insurance. Among companies that do factor in credit, different auto insurers assign different weights to it. Having poor credit could account for 30% of the total premium for one insurer and only 5% for another, says Boyd.

It may even pay to talk to more than one insurance agent because different agents represent different insurers, Hunter says.

He also says under federal law insurers must inform consumers who don’t get the best rates because of their credit history the reasons their insurance score was less than perfect. Consumers are then entitled to a free credit report from the credit agency used by the insurer.

By Marek Fuchs | MainStreet.com

Bank of America (Stock Quote: BAC) announced today they’ve raised $26 billion of the $34 billion the government told it to raise after the results of recent stress tests. That’s the amount of capital, according to the government, that the bank needs to absorb future investment losses.

But what about you? Can your finances withstand unpredictable, money-draining stress?

Financial planners say you should stress test your own personal finances. And it takes considerably less fuss and public debate.

“What we are really talking about is living beyond means,” says Scot Stark, the president of Stark Capital Management in Freeland, Md. “It boils down to whether or not you are being irresponsible.”

Personal Stress Test Simplified
Running an effective stress test on yourself is not complex financial engineering. If what is going out outweighs what is coming in, you fail.

Failing a stress test, Stark points out, is not much of an option. It a long time to resuscitate a credit score or your emergency fund. Moreover, you’ll need to change all your habits and make sure the new ones stick. It’s no easy lift.

The upshot: Catch yourself before you fail.

Toward this happy end, Stark has a secret. He sits down once a week to make certain his household expenses are not exceeding his income. Maybe that’s asking too much of a financial planning civilian, he allows, but once a month is absolutely mandatory.

Personal Stress Test: What to Look For
Besides making certain that inflows and outflows are matching up, you should make certain that your mortgage payment does not exceed 28% of your gross income, and that you have a stash of rainy day money.

If you work on commission or otherwise have a salary that fluctuates, you want nine months of salary to draw on in an emergency. If you work on salary and stand to earn a severance if fired, you can probably get by with three months and still pass. Anything less, in either case, is the equivalent of getting a warning notice from the school dean. “Watch it, Frosh, you are headed for failure.”

Beyond that, telltale signs of am impending failure of a personal stress test are:

* Not paying off your credit card every month;
* Your credit rating declines significantly;
* You are late on any mortgage, utility or car payments; or
* You’re getting any sort of late notices in the mail.

If you are starting to fall short in any of these categories, you need to recalibrate what you are earning or spending, or both.

And if your credit card is a stubborn part of the problem, “just cut it up,” said Stark.

When you’re auditing, remember that this is your life. You’re not adding up these figures for a school class. The cost of failure is steep.

“I don’t think the government can run a birthday party,” said Stark, no fan of the Treasury Department’s bank stress test. But when it comes to your own private version, it’s easy to do, wholly accurate and, in the final estimation, essential to your future well-being.

By Karen M. Kroll | MainStreet.com

For most small business owners, dealing with deadbeat customers comes with the territory.

You want every sale you can get. However, a sale isn’t much good if you’re not paid. Given the sputtering economy, a growing number of clients or customers may decide to either delay payment or skip it altogether. However, there are ways you can cut the risk of getting stuck with deadbeat clients.

What to Do Before a Sale

1. Check out potential customers. Do a quick Google (Stock Quote: GOOG) search of their name, and see if any red flags, such as lawsuits, come up.

If the potential order is a large one – say, it would represent more than ten percent of your annual sales – it probably makes sense to spring for a business credit report, says Sam Thacker, a partner with Business Finance Solutions in Austin, Texas. These are available online through firms like Experian and Dun & Bradstreet, at fees starting at about $25. The more you pay, the more information you’ll receive.

Members of the National Association of Credit Management (NACM) can purchase business credit reports for about $15, says Toni Drake, a member of the NACM board of directors and president of TRM Financial Services, Inc., in Midland, Texas.

2. Request a portion up front. A good rule of thumb is to ask for enough to cover out-of-pocket costs directly associated with the order. To avoid generating hard feelings, Drake says, frame your request along these lines: “Our firm can do great work for you. Let’s structure the deal like this…”

3. Have new clients fill out credit applications. These should provide the company’s legal name and contact information – critical info if you later need to take legal action. The application should also give you permission to talk with several of the company’s vendors and its bankers. You’ll want to ask whether the firm has fallen behind in its payments or written non-sufficient funds (NSF) checks over the past year.

The application should state payment terms, including due dates, and the interest or penalties charged on late payments. Review these with clients, and have them sign the document.

What to Do After a Sale

1. Follow up. If you’ve done the work, sent the invoice, and the payment deadline has come and gone, call – don’t email – after a few days have passed, says Michelle Dunn, author of Become the Squeaky Wheel, and other books on credit and collections. Politely remind the customer of the bill, and ask whether there were any issues with the invoice or your goods or services. Then, ask when you can expect payment.

2. Consider compromise. Set up a payment schedule, and accept future orders on a cash basis until the balance is paid down. If it’s apparent that even waiting won’t assure you of all you’re owed – if the company has publicly announced layoffs, for instance – consider accepting partial payment.

3. Bring in the big guns. If you’ve set a new deadline that’s come and gone with nothing more in your bank account, consider engaging a collection firm. You’ll generally want to take this step within 90 days of the invoice deadline, Drake says. The longer you wait, the less you’re likely to collect. Most firms take about 25 percent of the amount they collect. Check out the collection firm before hiring it, however. Some have been known to simply walk off with the money they get, Drake says.

4. Get legal. Consider filing a suit in small claims court or entering a lien on the property, if that’s an option. “Don’t think you’re too small to do this,” Drake says, adding that fees generally total several hundred dollars. Keep in mind, however, that even if you obtain a judgment against the firm, you still need to collect. If the customer has no assets, you’re unlikely to get anything. On the other hand, judgments are publicly available, and can impact defendants’ credit records.

By Althea Chang | MainStreet.com

Considering online banking?

If you’ve already been shopping online regularly, changing over to solely online banking won’t seem like much of a stretch. Plus, data encryption technology and other measures ensure security over the Internet.

Here are some pros and cons of making the switch to banking online:

Pro: Strong First-Rate Yields
A major factor driving the popularity of online banking is the great returns from high-yield checking accounts compared with those at brick and mortar banks. Since all of an online bank’s business is done on the Internet, over the phone and by mail, these banks have low overhead costs and the savings is passed on to the account holder.

Jacksonville, Fla.-based Everbank’s high-interest checking account, for example, offers an introductory three-month bonus yield of 2.51% and a first-year APY of 1.84% for balances between $50,000 and $100,000, compared with a recent national average of 0.16%. And Everbank promises to offer yields among the top 5% of competitive accounts at leading banks and thrifts.

Redneck Bank, which is owned by the Bank of the Wichitas, offers a whopping annual percentage yield of 5.25%, as long as you play by their rules.

Another popular online checking accounts include Schwab’s High Yield Investor Checking Account (Stock Quote: SCHW) which offers a 1% APY. ING Direct’s Electric Orange Checking Account (Stock Quote: ING), which yields as much as 1.65% (if your balance is more than $100,000) and at least 0.25% (if your balance is $49,999.99 or less).

Con: Don’t Forget the Fees
Racking up ATM transaction fees can become a problem with some online banks.

ING Direct Electric Orange account holders can only use the Allpoint national network of 32,000 ATMs free. At other ATMs, you’ll have to pay the ATM operator’s fee, but ING won’t charge you for using an ATM outside of their network. Your best bet here is to opt for cash back every time you go to the grocery store.

Schwab’s account offers the best deal for those who make frequent ATM visits. You’ll get a rebate for all ATM charges during the same checking account statement in which you incur them.

Pro: Tech Perks
One of the best features of online banks, especially for the forgetful or undisciplined, is an automatic savings plan feature that allows you to transfer fixed amounts of money to or from other accounts on a weekly, monthly or quarterly basis.

And for those who like to micromanage their finances, you can upload you transaction information from ING and Schwab to your home computer for use with personal finance software including Intuit’s Quicken (Stock Quote: INTU) or Microsoft Money (Stock Quote: MSFT).

By Althea Chang | MainStreet.com

You know you should, but it’s difficult to feed the piggy bank every time you get paid. Luckily, new bank accounts and the power of automatic savings plans may make it easier. And every little bit counts, after all.

Simple Savings
“Saving is a whole lot simpler when you don’t have to think about it,” says a Bank of America marketing campaign (Stock Quote: BAC) for its Keep the Change program. With every purchase you make with your Bank of America check card, your purchase amount is rounded up to the nearest dollar, and the difference is deposited into a savings account. Bank of America also says it will match your savings for the first three months after you enroll in the program and match 5% per year after that, up to $250.

If you have a Wachovia checking account (Stock Quote: WB), you can open a Way2Save account. Each time you make a purchase with your check card, pay a bill online or set up an automatic debit from your checking account, $1 will be transferred from your checking account to your Way2Save account, which gets a guaranteed APY of 5% for the first year, plus they’ll add on 5% of the amount you’ve saved. You can also set up automatic transfers of up to $100 a month, from your checking account to your Way2Save account.

Of course, many banks let you set up automatic transfers from checking to savings accounts online, and APYs may be higher at other banks (Bank of America’s Keep the Change program paid a variable APY of just 0.20% as of Monday). But these accounts could be perfect for those without the discipline to make regular transfers on their own.

Save When You Pay
An online bill pay feature gives you the option to paying bills electronically through automatic withdrawals initiated by your utility, credit card or other company. This is a must if you tend to forget when bills are due. (Those late fees are a killer.)

Just remember, you’ll have to make sure your bank account balance has enough funds to pay the bills when they’re due, or you could be subject to insufficient fund or overdraft fees.

Retirement Savings Under Your Radar
Anyone contributing to a 401(k) knows that contributions taken right out of your paycheck really add up over time, even if the market downturn has taken a chunk out of their balances in the past year. But even if you’re self-employed and contribute to an IRA, you can make automatic contributions as well if you have an account with Fidelity, Schwab (Stock Quote: SCHW) or other financial services companies that offer the feature.

Automatic for the Children
If you have kids and you’ve been making adequate contributions to your retirement savings plans, a 529 plan is a great investment vehicle to help you save for college. And you can schedule periodic automatic payments online. Minimum contributions can be as low as $25, and you may be able to set up automatic deductions from your bank account once every week, month or quarter.

By Althea Chang | MainStreet.com

If you’re a homeowner 62 years of age or older and you need to supplement your income, you may be able to tap into the value of your home using a reverse mortgage to get money now.

Unlike a traditional mortgage, you won’t have to make monthly payments and your income doesn’t affect your eligibility, according to Peter Bell, president of the National Reverse Mortgage Lenders Association.

If you’re interested in getting a reverse mortgage, one of the major considerations is how much you can get. How much you get also varies on how you choose to receive your payouts. Here is what you need to know to get started.

How Much Can You Get?
The simplest way to figure this out is to use an online reverse mortgage calculator, where you plug in where you live, your age, your spouse’s age and the value of your home, says Bell.

How much you actually get is also determined by a variable: an interest rate that’s either calculated using the one-year treasury or the one-month London Interbank Offered Rate (LIBOR). The calculator on ReverseMortgage.org figures out interest rates for you and explains how it’s calculated. If your lender offers both an interest rate based on the treasury and one based on the LIBOR, you can discuss with your loan originator which one would be better for you. The LIBOR rate may be recommended, since a set margin means it carries less interest rate risk for brokers, but patriotic investors tend to choose the treasury-based rate, Bell says. Some lenders only offer one or the other. Both rates fluctuate.

About 90% of reverse mortgages, according to the AARP, are made through the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Authority (FHA) and their Home Equity Conversion Mortgage program.

Late last year, FHA-backed reverse mortgage loans were limited to between $200,000 and $300,000, depending on where you live. This year the American Recovery and Reinvestment Act raised the limit to $625,500.

Some proprietary lenders, such as Bank of America (Stock Quote: BAC), MetLife (Stock Quote: MET), Senior Lending Network and other national and community banks may offer higher-amount reverse mortgages, but such loans will not be FHA-insured.

Payout Options That Pay More
How much you can get also varies on how you choose to receive your payouts. You may choose a lump sum payout to pay off a single debt such as a credit card balance. If you need help covering regular expenses, you can receive monthly reverse mortgage payments, known as the tenure option, for as long as you live in your home. A similar option is to receive monthly term payments, which only last for a set period of time. Lastly, you can opt for a line of credit if you want backup cash in case of unexpected expenses.

As a general rule, the older you are, the more money you can get. If you’re younger, your loan amount will have to stretch over a greater number of years.

With a line of credit, your unused available credit increases annually, meaning you can have more access to cash as years go by. If you opt for tenure payments, even if they’ve added up to more than the value of your home, you’ll continue to receive them regularly for as long as you live there.

So what does this all mean in real terms? Consider these two examples of hypothetical neighbors in Sacramento, Calif.

Reverse Mortgage Example No. 1:
If a 70-year-old man and wife, 62, have a $200,000 home, and need extra money each month to help cover regular expenses, monthly payouts are determined using the age of the younger spouse.

According to the reverse mortgage lenders association’s calculator, the couple can get a lump sum of about $80,363; a line of credit for about $80,363 that increases by 4.6% each year; or monthly payments of $509 for as long as either one lives in their home, based on interest rates calculated using the one-year U.S. treasury.

With an interest rate calculated using the LIBOR, electing a lump sum would pay $88,119; a line of credit equal that amount plus a 3.90% increase per year; or monthly payments of $535 per month.

So, the best option for the couple would be monthly payments from a reverse mortgage with an interest rate calculated using the LIBOR.

Reverse Mortgage Example No. 2:
A 75-year-old widow has a home worth $625,000. She wants to make minor home repairs and have backup funds in case of an emergency or unexpected medical bill.

She can get a lump sum of about $364,372; a line of credit for about $364,372 that increases by 4.6% each year; or monthly payments of $2,593, based on the one-year U.S. treasury, according to the calculator.

With a home equity conversion mortgage pegged against the LIBOR, electing a lump sum would get her $382,952; a line of credit for that amount plus a 3.90% increase per year; or $2,633 per month.

The best option in this case would be a line of credit.

Once you have an idea of how much you should be able to get, discuss your financial situation and your income needs with a reverse mortgage counselor and a loan officer. When deciding what payout option that works for you, remember that you’ll still have to pay your real estate taxes, homeowners insurance, home repairs and mortgage insurance, too.

How do credit unions and banks differ? Here are the key differences:

Credit Unions

Banks

Money deposited in credit union members typically stays in the local community. They are also more willing to loan smaller amounts banks feel are unprofitable. For these and other reasons there is increased interest in, and support for, credit unions. Here’s how you can find a credit union.

Any wonder why credit unions are so popular? Share your favorite credit union. What makes it special to you?

We’re coming close to the end with our simple reminders to keep your budget and your finances in order.  Check out these final 6 simple tips for your finances.

U - Understand your biggest weaknesses – If you know that you are going to have a hard time resisting the urge to buy that new pair of pumps, then maybe it is best to avoid that store altogether.  If you are trying to decide on a big purchase, for instance, a car, and you know you can’t afford to drive anything over $20,000, don’t tempt yourself by test driving something above that price range.  When it comes to purchases, big or small, do not test your emotions, because more than likely, you will begin to rationalize while this is better than that, or why you should get something now verses saving up for it later.

V - Variety is the spice of life.. and your wallet – When grocery shopping, you may have made your list, and you may have been sticking to it very well.  But let’s say that you were going to get roma tomatoes, but the vine tomatoes are on sale.  Or how about lettuce for salads but the pre-mixed salad bags are on sale (you could save money AND time on this one).  You won’t know if you like something unless you try it, so be open to new experiences.  You never know, a recipe might be better with the replacement.

W - Wait out your purchases – If you want something, and it is a big purchase, you may want to wait out the purchase to see if you still want it in 2-3 months.  Even 2-3 weeks could allow you enough time to determine if it’s really neccesary.  If it’s a smaller purchase, you may still want to wait it out as it could go on sale or get even drop in price.

X - X-amine your goals – Sometimes you will need to revisit your goals, and adjust them according to your current circumstances.  If you realize that a current goal is not attainable with your immediate circumstances, put it on the back burner, and work on the next one.  Then revisit it in the future to see if you can do it.  As you complete goals, create new ones.  Always keep an eye on where things are heading, and you will be able to better stay on track.  Also having your goals in a place that is readily seen on a daily basis will help keep your goals fresh in your mind, and hopefully deter you from anything that may get you off track.

Y - You should always have faith in yourself – You can do anything as long as you put your mind to it.  You should always remember that if you make a decision, work hard at achieving it, you will attain it (even if only eventually).  You have to have faith in yourself, and keep telling yourself positive things (avoiding those ANTs).

Z - Zip up your wallet – don’t spend it just because it’s there – Finally, when it comes to your spending, you should keep track of where you money has gone, and where it needs to go.  Just because there is money in your bank account today does not mean you should buy something.  You may have upcoming bills you need to pay for first.  Or you may even have bills that have not cleared your bank yet.  This is why keeping a budget, and keeping track of your accounts is vital.  Even better is to keep a check register so that you know what bills you have paid even if they have not cleared your bank.

So there you have it.  26 simple things you can do to work on, improve, or keep up with your budget and finances.  Do you have any other tips or tricks that help keep you on track?  Share them with us in the comments below!

By Althea Chang | MainStreet.com

We’re in a recession, banks are under pressure and it’s getting harder for the average consumer to get a new credit card. So what’s going on here and, more importantly, what can you do about it?

Where Did All the Credit Go?
Because the economy is in rough shape, banks are worried that more people won’t be able to pay their credit card bills. In fact, statistics bear this fear out. The percentage of balances deemed by credit card companies as uncollectible reached a record high of 9.3% in March, a figure that’s expected to rise to 12% next year, according to Moody’s Investors Service (Stock Quote: MCO). As a result, credit cards are becoming tougher to get and more expensive. Fewer people are getting credit card solicitations in the mail, and those who do apply for cards are subject to increased scrutiny, says Stephanie Jacobson, a JPMorgan Chase Card Services spokesperson (Stock Quote: JPM).

“As leading indicators began to change in early 2007, we adjusted our risk management policies and procedures to better manage potential losses, including raising the credit score threshold for direct-mail marketing,” Jacobson says. “And [we’re] increasing the number of applications that go through our internal judgmental review process.”

Your credit score often determines whether you qualify for a particular credit card and what your interest rate is if you do. If your credit score falls below a certain number, you could be denied a card, or be subject to interest rates as high as 30%.

“Credit score requirements have increased,” says Gerri Detweiler, credit advisor for Credit.com. Some time ago, “720 was considered prime. Now you may need a 750 or 760 score,” Detweiler says. “Lender requirements have gotten stricter.”

What to Do if You’re Denied
If you apply for a card and do get denied, don’t worry. It’s not the end of the world and you do have options.

1. Check your mail. You’ll receive what’s called an adverse action letter from the creditor denying your application for a new card. It should list the reasons why you haven’t been granted a new credit card, and if you’ve been denied credit because of your credit score, you’ll be able to get a free copy of your credit report, says Detweiler.

2. Contact the creditor. If your application was denied for a reason you don’t understand, or if their reason is wrong, contact the credit card issuer and ask for an explanation, Detweiler advises. If you’ve been denied due to a discrepancy on your credit report, ask the credit card company whether you can dispute a discrepancy directly with them. But even if you can, you’ll want to contact the credit reporting agency directly to make sure that any mistakes on your credit report are addressed. You’ll be less likely to have a problem next time you get a credit check.

Once a mistake on your credit report has been corrected, you can request that the revised version be sent to anyone who’s recently pulled your report. This could improve your chances of getting a new credit card after all.

3. If you don’t have it, build it. If you have bad credit, there are a few things you can do to raise your score:

* This one’s a no brainer, but if you’ve got lots of credit card debt, you need to work on paying that down. If you’re having trouble doing that, you may be able to negotiate lower APRs with your creditors.

* Often, people with bad credit don’t have enough credit history. If this is the case, you may be able to get a secured credit card. A secured credit card works like any major credit card except that you need to put down a deposit. The deposit isn’t used like it is with a debit card. You still make monthly payments. Your deposit, which equals your credit limit, is just there in case you default. You can get a secured credit card to establish credit with just a $200 deposit, but beware of steep fees, Detweiler warns.

* Another way to build your credit history is by being added as an authorized user on another person’s credit card account. You don’t even have to use the account to build that credit. But if the accountholder ends up making late payments and running up their bills, it could hurt you as well. You can also open a joint account, but you’ll be equally liable for any balance on the account, and it’s difficult to remove one accountholder without closing the account entirely, Detweiler says.

* Find a credit counselor through the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. The U.S. Department of Justice also has a list of approved credit counseling agencies. They’ll be able to help you find the best route to a higher credit score.

Prevention: Before You Apply
If you’re considering applying for a new credit card, first check your credit report and make sure there are no mistakes. Take a look at what the credit card requires for qualification, which can be found along with an application for a new card, on the company’s Web site or by calling a customer service line.

One common mistake people make is to assume that “as long as they’re paying bills on time that they have good credit,” Detweiler says. But about one-third of your credit score is actually determined by how much debt you carry. “The ideal ratio is 10% or less of available credit,” Detweiler says.