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Tuesday, November 8th, 2011

Social Networking, DNA may Affect Credit Soon

Living in the Information Age has a number of advantages: we can avoid holiday crowds to shop from the comfort of our living rooms, and even ditch the commute to work remotely from home. But new stirrings in the credit card industry about future plans for collecting and using customer information have raised warning cries from a number of consumer advocates.

A recent article in Time magazine discusses plans that credit card issuer Visa has to gather more information from consumers to better target ads and evaluate credit card applicants. Sources report that the company has plans to collect information from a number of sources, including:

  • Social networking websites, on which many consumers discuss their interests and post (even if indirectly) about their desires and spending habits.
  • Credit bureaus, which they already use. This is why filing for bankruptcy has an effect on a filer’s ability to get credit in the future: credit card issuers can see that the bankruptcy took place for seven to ten years after it’s filed.
  • Search engines, such as Google and Bing. This information could include not only shopping habits and interests but also information about everything a person researches, including words like “mortgage loan help” and “payday loans offers.”
  • Insurance claims, which might paint a picture of a person’s health, driving habits, and more.
  • DNA databanks. This last information source has caused the most uproar: information hardly gets more personal than a person’s genetic code, and the potential applications of such data are mind-boggling.

So how would credit card issuers use such a bevy of private data to their benefit? In a lot of ways, according to analysts. And many of them could seriously hurt consumers.

DNA or insurance claim data, for example, could reveal to credit card issuers a person’s health history or likelihood for developing a genetic condition. If that condition typically leads to significant medical expenses, the credit card issuer might deny the person credit—after all, many people end up discharging high medical bills in bankruptcy, and credit cards often get the same treatment in Chapter 7 cases.

Insufficient Legal Protections

What worries some analysts is that the U.S. currently has no laws in place to prevent such elaborate information gathering or denying credit on the basis of information like genetic code. As usual, the technology available has progressed far faster than the legislation designed to regulate that technology.

Another major concern? Identity theft and data breaches. It’s hardly uncommon to hear about data leaks and breaches in the news, but imagine the potential fallout if thieves had access to more than names and social security numbers.

At present, of course, neither Visa nor any other credit card issuer has such information on hand. But it could be a less distant future than we first imagine.

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Posted in Identity Theft, Your Credit Score | No Comments »

Tuesday, October 4th, 2011

Report: Credit Scores During the Recession

The Fair Isaac Corporation (FICO), which develops the primary formula used to calculate credit scores, released data this week on changes to credit scores during the economic turmoil of the last several years. The report shows credit score distribution from 2005 through 2011 and indicates that, on average, our credit scores have not changed significantly since the collapse of the housing market in 2007.

If that sounds fishy to you, don’t worry: the term “average” here is meant mathematically. Individual credit scores fluctuated in various ways:

  • More people in the highest group: In 2005, when the stock and housing markets were still going strong, 16.9 percent of Americans had a credit score in the highest range (800 to 850). In 2011, though, the highest-scoring group has swelled to 18.1 percent.
  • More people in the lowest group: In 2005, people with credit scores between 350 and 599 stood at 23.6 percent of the population. This year, the number has risen to 24.9 percent. Early in the recession, people with the lowest scores (350 to 499) jumped, too, though that percentage has leveled out in the last two years.
  • Fewer people in the middle: Those with credit scores between 600 and 799, usually considered to be in the middle of the credit scoring pack, saw their numbers decrease between 2005 (59.5 percent) and 2011 (56.5 percent).

Making Sense of the Numbers

While the findings at first may seem confusing or counterintuitive, there is a satisfying explanation behind the shift toward the extremes of the credit-scoring spectrum during a downturn.

  • The strong shore up: People who already have fairly strong credit scores tend to be more financially secure than those with lower scores. When the economy sours, these people tend to pay down debt more quickly than they might have otherwise, save more money, and avoid new sources of credit. These actions not only prepare them for potential financial road bumps (such as unemployment) but also improve their credit scores.
  • The weak struggle: People already overextended on credit tend to be less financially secure and may be hurt especially hard by tough economic times. Job loss, reliance on new lines of credit and unexpected expenses could cause this group even more financial distress, thus lowering their scores further.

Individuals close to either end of the spectrum may move further toward that end in tough times, thus lowering the total percentage of folks in the middle.

Individual Habits Most Important

Another important factor in determining credit scores is a person’s individual spending and saving habits. Because these tend not to change much regardless of external forces, recessionary times might not affect credit scores as much as they affect other economic indicators such as home prices and interest rates.

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Posted in Economic News: How Are We Doing?, Your Credit Score | No Comments »

Monday, September 19th, 2011

Changes on the Way for Credit Scores?

Though the Fair Isaac Corporation (FICO) introduced a new credit-scoring model more than three years ago, lending institutions are only now beginning to adopt it. According to a new report on Credit.com, the delay could be bad news for consumers hoping to apply for credit or loans.

The new model, called FICO 8, was ready for adoption in 2008 and rolled out in 2009. But, aside from Citibank, which adopted the new scoring method earlier this summer, the major lenders in the U.S. (including Bank of America, Wells Fargo, Chase, Fannie Mae and Freddie Mac) have yet to change their scoring techniques.

FICO Background

The FICO credit score is generally heralded as the gold standard in the lending industry. This score ranges from 300 to 850 and determines what kind of rates consumers get on loans (and whether they qualify for loans at all).

Negative credit actions (including defaulting on loans, filing for bankruptcy, going into foreclosure, etc.) lower a credit score; positive credit actions (paying bills on time, having a low credit usage ratio, etc.) raise it.

Is the Delay Hurting Borrowers?

Sources note that FICO 8 introduces scoring tools that could give consumers a better chance of qualifying for loans, including:

  • Less emphasis on unpaid debts under $100. Many of those debts, it seems, might be from the doctor. According to the Commonwealth Fund, 14 million Americans are currently fighting medical bills. And the FTC notes that half of all debts in collections are medical.
  • More consumer categories. Rather than dividing consumers into 10 groups, FICO 8 carves out 16, meaning that scoring tools will be able to more accurately predict consumer behavior.
  • Fairer comparisons. The old credit-scoring model (still currently in use in much of the country) essentially had one ruler for every lender. The new model allows lenders to compare someone with, say, a short credit history to others with histories of a similar length. This will help provide a more accurate picture of whether or not someone is a good credit risk compared to her peers.
  • Credit utilization will count more. To balance the effect of counting small unpaid debts less, high credit utilization ratios will hurt a score more significantly (i.e. those with maxed out on cards will suffer).

Possible Reasons for Delay

According to Credit.com, the delay in adoption of FICO 8 might be related to a number of factors. Fannie and Freddie (responsible for underwriting most mortgages in the U.S.), for example, are currently facing opposition in Congress to the government support they enjoy. After suffering major losses in the mortgage meltdown, they may be more focused on staying afloat than changing the way they do business.

As for other major lenders, the outlook isn’t much better. Seventeen major banks are now facing lawsuits regarding toxic assets they sold to investors during the mortgage boom. Depending how the suits play out, those institutions could owe serious money that they may or may not have. Considering those conditions, a non-essential policy change may seem frivolous.

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Posted in Your Credit Score | No Comments »

Wednesday, July 6th, 2011

When Debt Collectors Have the Wrong Guy (or Gal)

Dealing with debt collectors can be stressful enough when you know you actually owe them money. But with cases of identity theft and mistaken identity, some people have the unpleasant experience of debt collector harassment when they don’t owe anything at all.

Here’s a look at how debt collectors might get the wrong person and what you can do if you’re on the wrong end of the phone.

Identity Theft or Mistaken Identity?

Generally speaking, there are a few reasons a person would get collection calls intended for someone else. These include:

  • Identity theft: When someone uses another person’s identifying information (Social Security Number, credit card numbers, bank account numbers, etc.), that’s identity theft. Some thieves apply for jobs with stolen SSNs, some open new credit accounts and some simply use existing accounts. To check whether someone besides you has been using your information, log on to AnnualCreditReport.com for a free check of your credit report. If debt collectors are calling because of identity theft, you might have a lot of work ahead of you straightening things out. The sooner you check your reports, the better.
  • Mistaken identity: In this situation, a debt collector simply mistakes you for someone with a similar (or identical) name. Those with common names are naturally more susceptible to this than those with unusual names, but it could happen to anyone. In some cases, third-party identity checkers will contact you before you receive debt collection calls to verify your name and phone number. If you get a call like this, insist on learning as much as you can.
  • A combination: It’s possible that a credit reporting company accidentally combined two credit reports (i.e. merged information from the reports of two people with similar or identical names). If this has happened to you, you need to take action to get your credit situation sorted out. It will require a little effort, but it’s essential to avoid future confusion and to maintain your individual credit.

Dealing with Debts that Aren’t Yours

So what can you do if debt collectors won’t leave you alone about someone else’s debt? Thanks to the Fair Debt Collection Practices Act, you can take action:

  • Review your credit report. Make sure your identity isn’t being used by anyone other than yourself.
  • Send the collectors a letter explaining why you are not responsible for these debts and asking them to stop contacting you.
  • Request written proof that you are the one who owes these debts. Because the debt collector is unlikely to be able to do this, you may never hear from them again.

If you are unable to convince collectors of your identity, you may want to consider enlisting legal help.

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Posted in Identity Theft, Your Credit Score | No Comments »

Monday, April 25th, 2011

Understanding the Changed U.S. Debt Outlook Rating

The credit rating agency Standard & Poor’s made waves last week when it announced that it had downgraded the outlook on U.S. debt from “stable” to “negative,” leaving many ordinary Americans wondering what the change means for the economy and how debt rating works in the first place.

Here’s a look at what our country’s debt rating might mean in future months and how that rating is like an individual credit score.

Rating the U.S. Debt

Currently, the United States has a credit rating of AAA, which is the highest rating possible. This rating indicates that the U.S. is a stable country and is likely to repay any loans it takes out. But there’s more to the story.

  • Outlook on U.S. debt: While the other two major credit rating agencies (Moody’s and Fitch Ratings) have not announced any changes to their ratings on the outlook for U.S. debt, Standard & Poor’s downgraded that rating last week, citing as one reason the continued inability of Congress to make a decision regarding the long-term future of spending policies.
  • A warning move: While the change in the outlook rating does not officially alter the country’s credit rating, it serves as a warning and reminder to legislators and others in positions of power that the country’s financial stability and credibility on the world stage are at stake.
  • Potential for positive impact: Some commentators have mentioned that the changed credit rating could actually prove beneficial to the country, as it may push Congress to act swiftly (and without unnecessary political posturing) in taking steps toward changing financial policy.

The Parallel with Individual Credit Ratings

As anyone who has ever file for bankruptcy, applied for a mortgage or thought about borrowing money for a car knows, individuals have credit ratings too. And, as with the credit rating for the United States, credit ratings for individuals are used to help lenders and investors determine whether or not to lend money to a person and on what terms.

If Standard & Poor’s actually downgraded the country’s credit rating, it would have a similar effect on the nation as seeing a drop in a credit score would for an individual. In other words, the U.S. would have more difficulty borrowing money and could suffer a variety of financial consequences.

So how can a country (or an individual) keep its credit rating as strong as possible?

  • Pay bills on time.
  • Pay down as much debt as possible.
  • Try to keep credit usage low (that is, stay well below the limit).
  • Keep old accounts active (but not maxed out).
  • Contact creditors before bill due dates if there is ever reason to expect inability to make timely payments.

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Posted in Economic News: How Are We Doing?, Your Credit Score | 1 Comment »

Monday, April 18th, 2011

Identity Theft & Taxes: What the IRS Recommends

In the wake of tax season, the Internal Revenue Service has issued a statement warning Americans about how to spot and rectify identity theft that may affect their taxes. Identity theft can be a difficult crime to deal with, and can cost victims hours of time and even money to repair.

Here’s a look at what you need to know about identity theft and your taxes.

  • The IRS does not initiate contact by email. If you receive an email from someone claiming to be the IRS, report it as spam and do not click on any links or provide any of your personal information.
  • Pay attention to any snail mail contact. If the IRS contacts you by postal mail and indicates that multiple tax forms were filed in your name or that records show you received wages from an employer you don’t know, you should suspect possible identity theft.
  • Contact the IRS. If and when you receive a notice from the IRS by mail that indicates unusual or suspicious activity, you should contact the IRS by responding to the address or number provided on the form you received.
  • Check your credit report. If you’re interested in knowing more about whether your identity might be at risk, visit www.AnnualCeditReport.com to check your credit report for any suspicious activity. You are entitled to view a credit report from each of the three major reporting bureaus for free once per year.

It’s best to act quickly if you suspect identity theft related to your taxes, because if someone else filed a tax return in your name (or using your Social Security Number), that person could be eligible for a return – and you might not get one.

Online Resources to Protect Yourself

One of the best ways to combat identity theft is to prevent it. And, seeing as identity theft can cost serious money (and even triggers bankruptcy filings for some victims), it’s never too soon to start protecting yourself, your sensitive information and your money.

The Federal Trade Commission, the IRS and a number of other government organizations have teamed up to create the web site OnGuardOnline.gov, which offers information, tools and tips for staying safe in the digital world.

The site’s online resources include:

  • Detailed instructions for dealing with identity theft (tax-related or otherwise);
  • Pointers for keeping your information, accounts and passwords safe at WiFi hotspots;
  • A number of games designed to educate users about various digital risks and how to protect against them;
  • Informative videos that include expert interviews and how-tos designed to help people stay on top of digital and cyber safety; and
  • Tools to use to protect yourself in your everyday life.

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Posted in Identity Theft, The Law and Your Money | 4 Comments »

Wednesday, April 13th, 2011

New Solutions for Those with Mortgage Woes?

These days, many Americans are desperate to stay on top of mortgage payments, and are considering unorthodox ways to pay the bills. apparently, when a company called Adzookie offered to pay people’s mortgages for up to a year if those people would display large advertisements on their homes, applications flooded in by the thousands, as a recent report from Credit.com details.

The deal reportedly works like this: if you apply and are accepted into the program, Adzookie will paint advertisements on your home and pay your mortgage for three months (with a chance to renew for another nine if the ads remain in place).

While that may sound like heaven to some struggling homeowners, only a handful of people will be selected for this deal. So what can the rest of us do?

Finding Affordable Housing

Because of the tight standards of many refinancing programs, few homeowners are able to qualify. So that might mean a few things, one of which could be giving up a mortgage (whether with the help of personal bankruptcy or not) and renting for a while.

So how can you find affordable rent? By following these steps for negotiating:

  • Know the area: Figure out what people are paying for apartments in the neighborhood you want. In addition, try to determine whether there are more apartments than tenants or vice versa. If there are lots of vacancies, you have a better chance of negotiating a deal. You can do this by scouring local postings and asking people who rent nearby.
  • Consider amenities: Determine whether your potential apartment is bare-bones or all-inclusive. The former may provide you better negotiation opportunities, but make sure you’re able to find necessary services nearby—if you have to haul your laundry across town every time you’ve got dirty clothes, a small rent savings might not seem worthwhile in the long run.
  • Prove yourself: Offer to show to a potential landlord a strong credit report, a reference from a previous landlord or proof of steady income. A landlord who views you as a good credit risk is more likely to cut you a deal because she’ll be less likely to have to chase you down for rent or lose money on you.
  • Think outside the box: Offering to sign a lease longer than one year (which saves a landlord the work of finding new tenants), pay ahead of the due date (which saves a landlord worry and possibly money loss) or move in whenever works best for a landlord can all give you leverage in negotiations, as all these circumstances tend to ease a landlord’s financial (and worry) load.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | No Comments »

Saturday, May 22nd, 2010

Take Time for a Financial Tune-Up

Many people know that it's important to maintain healthy credit, particularly in a bad economy. But “maintaining good credit” is a vague concept at best. Here’s a look at some concrete steps you can take to improve your finances—even if you only have a few minutes to spare.

Fifteen-Minute Finance Boosters

Here’s a look at a few ways you can bolster your financial situation in a mere quarter hour.

  • Set up an emergency fund: Most experts advise having some money set aside for unexpected expenses (like car repair, illness or even job loss). This can be as easy as figuring out how much money you’d like to have in your fund (experts generally recommend anywhere from three months’ to one year’s expenses), setting up a high-interest savings account and starting regular contributions.
  • Look at your credit report: One essential part of maintaining healthy finances is keeping current with how the authorities view you as a credit risk. And, thanks to the Fair Credit Reporting Act, doing so is as easy as visiting www.annualcreditreport.com and following the prompts. All Americans are entitled to one report per year from each of the big three reporting bureaus. If you space them out, you could check up on your credit once every four months.
  • Review your bills: Take a look at the goods and services you pay for each month (utilities, cable, phone, insurance, etc.). Then do a little research online or by calling your providers and see if you can get a better deal somewhere else (or from your current provider). Bonus: the money you save each month can be funneled into your emergency fund.
  • Draw a map: In order to stay on top of your finances, you should be able to understand them fairly easily. Take out a sheet of paper and outline your accounts, debts and credit cards. Making a visual representation of your finances should help you see any unnecessary duplications and help you determine what you can eliminate to streamline things.
  • Think about retirement: Even if you already have a retirement account through your job, you can start a Roth IRA, which would grow tax-free. The government has instituted contribution limits, though, so do a little research before you commit.

One of the most important things to remember about improving and maintaining your finances is that you don’t have to do everything at once. A little work at a time can make a big difference in the long run.

Additional Resources

For more tips on maintaining strong financial skills, check out The Debtress blog.

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Posted in Finance 101: Secure Your Future | No Comments »

Wednesday, July 22nd, 2009

Ben Stein and Not-So-Free Credit Scores

The blogosphere has been all over Ben Stein, a financial guru, spokesperson and New York Times columnist, over his involvement with what appears to be a slightly shady "credit-score" site, FreeScore.com.

In advertisements, Stein shills for the group, which claim to offer you a free credit score. As several blogs point out:

  1. Your credit score doesn't tell the full story. While your credit score is important, you'll need more information if you want to take action to improve. In order to see what's bringing your credit score down, you'll need to see your credit report, which includes any claims against you.
  2. FreeScore.com isn't actually free. After giving you a "score" for free, they begin charging you monthly fees.

While some people may want to check their credit score monthly, in most cases you don't need this kind of scrutiny. In fact, simply requesting your credit score or credit report can affect your credit score.

You are entitled to a free annual credit report from the government. And the government makes one available at exactly one - and only one! - Web site: Annualcreditreport.com.

Don't be fooled by similar or imitator sites.

If you're in debt and trying to get out, you may become a target of predatory merchants. These groups are looking to make a quick buck off your troubles.

Avoid this by informing yourself, reading the fine print and sticking to reputable, trustworthy sites and sources.

Trying to repair your credit but can't keep up with the bills? Consider filing bankruptcy.

Filing bankruptcy doesn't have to ruin your credit for life. Learn more: Credit After Bankruptcy.

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Posted in Predatory Lending | 2 Comments »

Monday, March 9th, 2009

Protect Your Credit Identity – Monitor Your Credit Report

The crime of identity theft occurs when someone uses another person’s identifying information (including Social Security Number, account numbers and credit card information) to make fraudulent transactions.

Unfortunately, the same technological advances that allow us to pay bills, shop and bank over the Internet also offer identity thieves opportunities to steal our data.

What Happens if My Identity is Stolen?

If you’re victimized by an identity thief, you may find your finances thrown into turmoil – and, depending on how quickly you realize the problem, you may have quite a headache in store.

Identity thieves can do many things, including:

  • make purchases with your credit cards
  • pose as you during a criminal arrest
  • use your SSN to pose as you during everyday life
  • obtain lines of credit using your information

Preventing Identity Theft

There’s no surefire way to prevent identity theft, but you can take steps to make sure you protect yourself as much as possible, including the following.

  1. Check your credit report! This is the single most important preventive measure you can take. Visit www.annualcreditreport.com for a truly free credit report from major reporting bureaus. This report will include information about action on all of your accounts. You’ll be able to see any suspicious activity – and take care of it immediately.
  2. Avoid phishing scams. Be cautious about e-mails. Many scammers pose as legitimate banks or lenders and request personal information for “verification” purposes. Never send sensitive information unless you are SURE you know where it’s going and that it’s secure.
  3. Treat your SSN like gold. Some people, like lenders and employers, actually need your Social Security Number; but most do not. If you’re uncomfortable about giving out your Social Security Number, ask how it will be used and why it’s needed. If you still feel uncomfortable, withhold that information. It is generally considered best practice to never give it out over the internet.
  4. Shred your important mail. Once you’re finished with credit card offers, bank statements, medical reports and other important mail, shred them. Shredding is an easy and effective way to prevent identity thieves from getting their hands on your information.

If you've been a victim of identity theft, a bankruptcy lawyer may be able to help you sort things out.

Learn more about how filing bankruptcy may help you.

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Posted in Find a Bankruptcy Lawyer, Identity Theft | No Comments »