Wednesday, February 25, 2009
I'm A Victim of Identity Theft, What Do I Do?

Here are some step by step instructions on what you should do if you suspect someone is attempting to use your name to establish credit or has successfully opened an account using your name. Many fraud victims panic and immediately cancel every account they have in an attempt to stop the fraudulent activity. This is not the correct course of action.

Step 1.  Contact the 3 major credit reporting agencies Equifax, Experian and Trans Union and request a fraud alert be placed on your credit report. This alert will immediately stop the fraudster from opening any new accounts. If new credit is applied for the creditors must now contact you before opening an account. While speaking with the reporting agencies please ask them to tell you if any new accounts have been established within the last year.  The bureaus should send you a copy of your credit report but go ahead and ask them for one while you have them on the phone.

Step 2. Contact your bank and any creditors that you believe accounts have been opened without your permission.  Each bank has different ways of assisting you with fraud but you should call and follow up with a letter as soon as possible.

Step 3.  File a police report. This is a good idea so that police can attempt to catch the fraudster but even more importantly many creditors need the police report to verify that a crime has taken place. Your fraud notifications with the creditors will be taken much more seriously with a police report.

Step 4.  Review your credit reports.  A few days after you contact the credit bureaus you should be receiving a copy of your credit reports.  For someone who is not familiar with credit reports they can be a little overwhelming but you need to go over every single line of the credit report and highlight anything that does not belong to you. Contact any new creditors that you haven’t already called and inform them of the fraud.

I’ve read many times that you should immediately dispute fraud charges with the credit bureaus. I disagree. You should contact your creditors and let them do their investigations before you file any dispute with the credit bureaus. Why? Because the bureaus simply contact the creditors to find out if an account is fraudulent. Once the information is determined as fraudulent the creditors will update their records with the credit bureaus.

After you’ve cleared the fraud and your name you may want to consider what credit damage has taken place. Have you been turned down for a loan? Lost a job? Have your interest rates increased because of the fraudulent activity?  You may have a credit damage claim against the fraudster or the creditor if you can prove your damage is measurable.

0 Comments >>

Tuesday, February 24, 2009
FICO Credit Scores Changes Installed at TransUnion

On Jan. 29, 2009, a relatively quiet event took place that will shape the future credit opportunities for hundreds of millions of Americans. TransUnion, one of the three national credit reporting agencies, rolled out and made commercially available the credit scoring model referred to as “FICO 08.” FICO 08, which will actually be called the FICO Risk Score Classic 08 by TransUnion, is the newest in the long line of FICO credit score redevelopments. Think of it as a newer version of Microsoft Windows; it does basically the same things as the older version but has some new bells and whistles.

Since 1989 Fair Isaac has been partnered with credit bureaus to offer and sell FICO scores to lenders. Every few years they re-engineer and re-develop their credit scoring software, which is generally not a newsworthy event. So why all of a sudden are we talking about this newest version? Consumers and the media have effectively ignored every other redevelopment since 1989. Why is this one so special? Here’s why:

1. This newest version of FICO includes the patent pending “anti-piggybacking” logic. Piggybacking is a process whereby a consumer with bad credit will pay to be added as an authorized user to the credit card belonging to someone with good credit. This is an attempt to defraud lenders into thinking a poor credit risk is actually a better credit risk. Credit repair companies broker this arrangement and charge hundreds or even thousands of dollars to unsophisticated consumers desperate for better credit scores. The new FICO score claims to be able to sniff out the illicit authorized user relationships from the legitimate relationships, between a husband and wife for example.

2. FICO 08 will ignore collections and public record items that have an original balance of less than $100. This means that Fair Isaac concluded in their research that very low dollar collections and public records no longer are synonymous with poor credit risk to the extent that they were in the past. So, for those of you who never got your final cable bill and had to suffer through a ridiculous $79 collection for seven years, you’ve been vindicated. Actually, the lending industry has long considered low dollar collections to not be terribly important.

3. Consumers with high credit card utilization percentages will be penalized more in FICO 08 than in previous versions of the score. This means Fair Isaac’s research has concluded that consumers who have balances that are too close to their credit limits pose a greater credit risk than they did in the past, hence the more severe treatment. Pay down your cards as soon as you can.

So what does this mean for you? Your score will be different with the new model, that’s a certainty. The question is whether it will be higher or lower. If you’re a good credit risk then your score will be higher. If you’re a poor credit risk then your score will be lower. And those of you who have been banging your heads against the wall because of that silly $79 Dominos Pizza collection on your credit reports, things are looking up.

Originally posted at CNBC.com

0 Comments >>

Tuesday, February 24, 2009
Fixing Your Credit On Your Own

In this economy more people than ever are having trouble paying their bills. If your credit is less than stellar and you’re wondering how to fix it, there are some things you should know.  Don’t make a bad situation even worse.  Regardless of what you may see advertised on the web, in your email box or even on a road-side sign, you do not need to pay money to fix your credit.

If the negative information on your report is accurate, meaning you really did pay your credit card 60 days late, no company can permanently remove it.  There are a number of schemes and some companies will even quote FCRA laws, but that does not mean that they can do what they promise.  Steer clear of most companies who advertise credit repair and look to sites that educate you on what steps you can personally take.

If the information is incorrect you can dispute the information by contacting the credit bureau or company that reported it.  There is no cost to you and you can do this yourself (in fact, many times you must do it yourself). First try contacting the company that reported the incorrect data—it  may be a quick fix if they have made an error and you have proof of payment.  If that doesn’t resolve it, you can dispute it with the credit bureau.  Methods vary, but some allow you to dispute online—most require that you have a copy of your credit report first.  The credit bureau will investigate and give you a response within a specified period of time.

So what do you do if after these attempts, your credit score is still low?  First, time is the best healer. Most negative account information only stays for 7 years and over time older activity is less important than recent behavior.  So that 30 day late payment 5 years ago won’t impact your nearly as much as the 30 day late from 2 months ago.  Also try to keep your credit utilization low.  This means that you should only use a small portion of your total credit limit as opposed to ‘maxing out’ your cards.  And most importantly, make sure you pay all your future bills on time, before you know it your credit will gradually improve.

0 Comments >>

Tuesday, February 17, 2009
The Credit Crunch and Your Credit Scores

So exactly how many ways does this credit crunch impact your credit and credit scores?  Let me count the ways...

1.  Foreclosures and short sales - These will BOTH, yes both, have a negative impact to your credit reports and FICO scores for seven full years.  The foreclosure is no surprise, but the short sale is.  A short sale occurs when the lender accepts as payment in full an amount less than you currently owe as principal.  It shows up as a settlement on your credit report or a charged off deficiency balance.  Either way, there go your credit scores for a very long time.

2.  Lenders are now requiring higher credit scores - In the past as long as you had decent credit scores you were assured of an approval, even with poor interest rates.  Those days have past.  And while lenders have a short memory it is possible that you will have to have higher credit scores for some time in order to find lenders to approve your loan applications at decent rates.  If you had FICO 620 two years ago you were able to get approved for almost anything, which is very scary.  Today you need FICO scores in the mid to high 700s in order to practically guarantee yourself approval.

3.  Credit card issuers are doing counterintuitive things to their customers -  Closing accounts  due to inactivity, lowering credit limits because of your shopping patterns, and increasing minimum payment requirements due to, what else, not enough use?  These are some of the actions being taken by the largest credit card issuers.  Their actions seem to have less to do with credit scores and more to do with panic.

0 Comments >>

Tuesday, February 17, 2009
Mortage Acceleration Programs

Mortgage Acceleration Programs - Originally Posted at CNBC.com

Despite the fact that homeowners are having a hard time paying their mortgages and, even worse, understanding the basic terms of their home loans, mortgage lenders and some other creative “cash flow management” companies are still pushing the need for accelerating your mortgage payments.  Personal finance and tax experts often criticize the strategy as being a poor use of your money.  Here’s why;

1.    You’re “de-liquefying” your cash – When you spend more money paying down your home loan you convert liquid assets into non-liquid assets.  This is problematic especially if you believe the stock market will eventually recover.  The more money you throw at your loan the less you have to invest in the market.  This is problematic given that many experts predict the market will eventually rebound at a rate that easily outpaces the rate of your home’s appreciation during any sort of real estate recovery.  If you have extra money that you don’t know what to do with, save it for your “rainy day” fund and keep it in an interest yielding account such as a money market account or short-term certificate of deposit.
   
2.    You actually might want and need mortgage debt – Of all of the debts that we, as individuals, incur there are so few that offer as nice of a tax break as your mortgage interest.  In most cases every dollar of interest you pay on your mortgage loan, which is usually substantial, is completely tax deductible.  This is especially nice in the early years of your loan when the distribution of your monthly payment is heavily tilted toward interest.  For example, I have a home loan, 30-yr fixed at 6%, and every month I pay $1,446.  Out of that amount all but $230 goes right into the lender’s pocket as interest.  And I write off every cent of that at the end of the year.
     
3.    It’s cheap money – Unless you have poor credit the odds are you’re paying an interest rate less than 7% on your mortgage loan and around 3.5% on your home equity line of credit.  This makes for very inexpensive credit so it doesn’t really make sense to throw money at those accounts.  Paying down credit card debt at 19.99% is a much better use of your cash.
 
4.    You can do it yourself, for free – Mortgage lenders position these programs as if they’re doing you a favor by letting you pay back your loans faster.  And, even worse, some 3rd party companies actually want to charge you to facilitate the process of making more frequent payments.  The most popular is the weekly payment taken directly out of your checking account.  These services are nothing more than a lender getting paid more frequently, and on their timetable.  This is great for their cash flow and poor for yours.  If you insist of paying more than you have to each month then look at your mortgage statement.  Do you see that section called “Additional Principal?”  That’s where you can add in some amount of extra money each month and direct the lender to apply it to your principal loan amount, for free.

5.    Your money is better spent elsewhere – If you really want to make better use of your extra money each month then you should throw it at your credit card debt.  The interest rate is probably much higher than your mortgage interest rate, it’s not tax deductible and is damaging your credit scores much more than your mortgage ever will.

0 Comments >>