Protect Yourself and Your Credit: What to Watch Out For
Often, consumers find themselves in serious financial trouble without knowing quite how they got there. The best way to avoid serious problems is to learn about them. The more you know about credit cards, credit reporting, identity theft, and bankruptcy, the less likely you are to be taken off guard. So read on and learn to protect yourself and your credit.
Credit Cards
Credit cards are an important part of building or rebuilding your credit score, especially after a bankruptcy filing or other credit setback. But some credit cards include outrageous terms and conditions, making them much more expensive than they're worth. Finding a credit card after a bankruptcy filing can be tricky, but it's not impossible. Follow these tips and you should be on your way to building better credit.
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- Beware of Hidden Credit Card Fees: Some credit cards-often "pre-approved" ones sent in the mail-may seem like an easy way to begin building your credit rating after bankruptcy. But usually, they're not. One such card, the VISA Aspire*, offers a $300 line of credit, but charges a $29 startup fee, a $150 yearly account fee and a $6.50 monthly fee to have the card. After making the first minimum payment, a borrower only has $141 in available credit-plus a $165.50 balanced owed. And the interest rate begins around 21%. Another infamous card is the First Premier* credit card, which can cost hundreds of dollars to start up and leave you with less than $20 available! *Specific figures relate to one particular card offered by each company as of December 2007-rates and fees may vary for other products or at other times.
For more information on how to select a credit card that will work for you, check out this article or the website VeryBestCreditCards.org.
- Does Your Lender Practice Universal Default? Universal default is when one lender changes your interest rate to a "default" rate based on activity in an unrelated account. For example, if you're unable to make mortgage payments for a few months, the interest on your home loan might increase to an amount specified in your mortgage agreement for such circumstances. Let's say you also had a credit card. Even if you hadn't missed any payments on your credit card, if your cardholder practiced universal default, the interest rate on your credit card would also rise.
Talk to your cardholder about its practices-universal default has taken a lot of heat recently. In 2007, Citibank voluntarily stopped using universal default.
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Credit Reports
- "Free" Credit Reports: Most people are aware that they're entitled to a free credit report from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion) each year. But, as many people have found, some credit reports advertised as "free" can actually cost serious money. Sites with names like FreeCreditReport.com, Free3BureauCreditReport.com, PrivacyMatters.com and ConsumerInfo.com offer credit reports that are available for a price or with a costly subscription to some credit reporting service that you might not want and probably don't need.
The place to get a free, no-strings attached credit report is AnnualCreditReport.com. Keep in mind that a credit report is different from a credit score. Your FICO credit score, calculated by the Fair Isaac Corporation, can be purchased online, but your free credit report should give you all the information you need for monitoring your credit health.
- The Deal with Store Credit Cards: We've all been there: at the checkout counter with a huge pile of stuff, and the sales associate asks if you'd like to open a store account-usually for a significant initial savings. This can be tempting, but as a general rule avoid store credit cards. Why? First of all, each time you open a new credit card, a "credit inquiry" is made into your finances, which lowers your credit score by up to five points. Once in a while, this may not affect your score too much, but opening several new accounts can be harmful.
Also, the interest rates on store cards tend to be higher than normal credit cards, which can cancel out any initial savings if you can't pay the card's balance all at once. As a general rule, spur-of-the-moment credit decisions are best avoided.
- Hidden Credit Score Influences: Okay, so you know where to get your credit report and you may know that your credit score affects not only your ability to borrow money but what terms you'll get on the loans you take out. But do you know exactly what's affecting your credit score? Some of the items may surprise you.
One of the largest factors is your debt-to-credit ratio: how much of your available credit you're using. Another factor is how promptly you pay off your bills-the sooner, the better for your credit score. But unpaid library fines, parking tickets, red light camera violations and utility bills can also cause your score to go down. This is one of the reasons that checking your credit report regularly is so important: the factors that influence your credit score are sometimes unexpected.
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Identity Theft
Unfortunately, identity theft is easier than ever in the Information Age: more and more people are opting for plastic methods of payment and Internet scams are tricking people into divulging sensitive information to the wrong people. But you can protect yourself. Check your credit report regularly, so that if you have been victimized by identity theft, you can be aware of it and take steps to stop the abuse as soon as possible.
- Watch out for DVD Boxes: A report in the Logan Herald Journal noted that users of Family Funbox DVD rental machines had their credit card information stolen. Users of the Redbox DVD machine have apparently not reported any fraudulent credit card charges. But keep in mind that using a credit card for convenience now could lead to serious headaches down the road. If you feel at all uneasy using your credit card or issuing your number, don't-use a different payment method.
Payday Lenders
Payday lenders, also known as cash advance lenders, are one of the most dangerous and expensive sources of short-term credit available. Financial experts recommend pretty much any other lending source over payday lenders because of the cycle of debt borrowers almost always enter. Take a moment to watch this video and read about the specifics of payday lending practices.
If you're really strapped for cash, consider borrowing money from a friend or family member, asking for a payroll advance from your employer, taking a cash advance from a credit card, consulting a credit union, or visiting a small loan company, all of which offer more affordable repayment terms than payday lenders.
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Debt Revival
If you've ever filed for bankruptcy, you've likely gotten a discharge from a bankruptcy judge for some or all of your debts. By law, you no longer owe the money in those debts and nobody is allowed to collect on them. But, according to a Business Week report, many companies are collecting on and making a profit from debts legally discharged in bankruptcy. Consumers often pay debts they don't owe because it's the easiest way to clear up the damage missed payments can do to a credit report. If you notice or suspect an attempt to collect on a debt that's been discharged, inform your bankruptcy lawyer immediately.