New Year's Resolutions...Part 3

For the past 2 weeks we reviewed a series of six New Year's resolutions that are easy and inexpensive to implement in your everyday life and, most importantly, can have a significant positive impact on your personal credit and finances.  Let's quickly summarize the six that we've covered before we move on to the last three.

1. Get your credit card utilization to less than 10%.  Credit scores love to see a very low utilization.  If you can get it down to less than 10% you could see significant improvement in your credit scores.
2. Be sure to claim all three of your free credit reports this year.  And, you may be entitled to more than three. 
3. Do a better job of protecting yourself from identity theft.  There are many inexpensive ways of keeping fraudsters out of your life.  Again, review my previous blogs for more details.
4. Work on cleaning up any negative information from your credit reports.  You have the right to ask that anything on your credit reports be verified for accuracy.  You should execute this right.
5. Think about putting money into I-Bonds. Don't let it and rot in low interest savings accounts.  The rates as of last week date were 6.73%.
6. Think about participating in a company's dividend reinvestment program (or DRIP).  This cost effective way of investing is a great way to start playing the market.   

Now on to New Year's Resolutions 7-9. 

7. Navigate the real estate market. If you buy a home or refinance an existing home loan in 2006 then there's a right and wrong way to do it.  Mortgage rates went up in 2005 so you might not be in the market to refinance an existing home loan.  But, the rates might fall in 2006 and if you buy a home or an investment property you'll certainly need to apply for a new loan.  If you are in the market for a home loan then you should be sure to do all of your rate shopping (yes, you should shop around for the best rate) within a 14-day period. 

Take advantage of an intentional loophole that was consciously programmed into the FICO credit scoring systems that interprets multiple inquiries made within a 14-day period as rate shopping.  The credit scoring models will treat all of the mortgage related inquires (yes, they're smart enough to know which inquires are related to a mortgage application and which ones aren't) in a 14-day period as 1 inquiry.  That means that instead of docking your score for ALL of the inquiries it will only dock them the equivalent of only 1 inquiry. 

This logic behind this loophole is actually pretty simple.  Nobody, especially the credit models, wants to penalize you for being a smart consumer who aggressively shops for the best interest rate.  The model knows you're not applying for five or six home loans.  You're simply applying for the best rate on one loan.

By the way, this also works for when you're shopping for the best auto loan rate.  So, be sure to do all of your auto loan shopping within a 14-day period as well.

This not only makes great sense because consumers will shop around for credit but it also makes great business sense for the credit bureaus and the credit scoring companies.  If you penalized consumers for shopping for the best interest rates then you are giving them an incentive to only go one or two places.  That means fewer credit reports and credit scores being purchased and less revenue for the companies that sell them.  There's always another side to the story isn't there?

8. Get a copy of your consumer reports from ChoicePoint.  The same Federal and state laws that say you can get free copies of your credit reports also say that you can get a free copy of your consumer report from a company called ChoicePoint.  For those of you who are not familiar with ChoicePoint, they are the old Equifax Insurance Services division.  They spun off years ago and renamed themselves.

ChoicePoint is in the business, among other things, of storing and selling your insurance claim history to insurance companies where you've applied for either homeowner's or auto insurance coverage.  They are the equivalent of a credit bureau for the insurance industry.  Their insurance claim report is called a C.L.U.E report, which stands for Comprehensive Loss Underwriting Exchange.

If you haven't filed any auto or homeowner insurance claims ever then you won't have any CLUE reports.  However, if you've filed any auto or homeowner claims in the past 5 years then they’ll certainly have a record of this.  They will have them stored in separate reports, one for auto and one for homeowner.  You can certainly have one but not the other or you could have one of each.  And, since they're free you should definitely claim them each year.  You can claim them at ChoicePoint's consumer website which is www.choicetrust.com. 

Bet you didn't know this.  Hey, I'm here to please. ☺

Why is this important information to have?  It's pretty simple.  This information is used to calculate your insurance scores.  That's right, you have insurance scores too.  That brings me to #9
   
9. You should become familiar with your insurance scores.  In the insurance world Fair Isaac (or FICO) isn't the dominant player so most insurance companies don't rely on the FICO version of an insurance score, which they do sell.  The dominant player in the insurance score world is, you guessed it, ChoicePoint. 

ChoicePoint primarily sells two scores to insurance companies.  They are called ChoicePoint Attract for Auto and ChoicePoint Attract for Homeowners.  In the industry they are simply called CP-Attract scores.  Trust me, your insurance company knows exactly what CP-Attract scores are.  Fair Isaac does develop and sell their version of insurance scores but they are a distant second and don't enjoy the same market domination as they enjoy on the consumer lending side of the aisle.

These CP-Attract scores are used to determine if an insurance company will write an auto or homeowner's policy for you.  And, they can certainly increase your rates or flat out decline you if your CP-Attract scores are poor.
 
And here's a surprise for you.  Your Equifax credit report is also used to determine your CP-Attract scores.  So, that's a blend of previous insurance claim data and credit information determining your CP-Attract insurance scores.  How do you feel about that...how you handle your personal credit impacts your insurance rates?

These scores can be purchased (nope, they aren't free) online here.

I certainly hope that these 9 New Year's Resolutions are helpful to you.  Have a great 2006 and we'll do this again next January for 2007.

Must read: Child identity theft victims becoming more common

The Christian Science Monitor has a fascinating article online today about the growing number of children who are victims of identity theft. The article mentions Zach Friesen whose identity was stolen to purchase a $40,000 houseboat when he was only 7 years old. He didn't discover the crime until he was 17 and applying for his first job. Friesen now travels the country educating students about identity theft.

According to FTC records, about 5% of identity theft complaints involved victims under the age of 18. This equals about 500,000 children and is the fastest growing demographic for identity theft. Adults between 29 and 18 accounted for 29% of filings themselves. Child identity theft is especially dangerous because it usually isn't spotted until many years later. Some common types of child fraud include:

• Record theft – Children's Social Security numbers and birth dates are often used by schools, doctors, childcare providers, camps and sports teams. When these records are not stored in a secure manner, they can be easily stolen by an identity thief. Because parents do not check a child's credit reports or financial records often, a criminal may be able to misuse the stolen information for a long period of time before being caught.
• Tax fraud – There have been numerous cases reported in which an identity thief claims someone else's children on their taxes in order to obtain a higher refund. In most cases, the crime is discovered when a parent receives notification from the IRS that their children have already been claimed as dependents by someone else.
• New accounts – Credit cards and loans can be opened fraudulently using a child's stolen information. A common misconception is that the child's age is on their credit reports and should prevent accounts from being opened. While credit reports do include a birth date, this data is derived from information provided to creditors and can be easily faked. If an identity thief applies for credit using a child's Social Security number and a forged ID, the birth date listed on their application can become the official listed birth date on the credit report.
  
• Identity takeover – The complete take over of a child's identity is less common but more damaging crime. Working with unscrupulous "credit repair" artists, people with credit problems and illegal immigrants purchase the identity of a child and start using it as their own.  When this type of damaging crime occurs, it may be necessary to go through the difficult process of establishing a new number with the Social Security Administration. 

Protect your children from identity theft. Read a true story from Gerri Detweiler about identity theft impacting a teenager and read more about keeping kids safe from identity theft.

Enron, IBM and the future of pensions plans

Enron officials Kenneth Lay and Jeffrey Skilling are on trial today in Houston for fraud and conspiracy charges. Since Enron first filed for bankruptcy in 2001, there has been an emphasis on the losses suffered directly by the company's 50,000 employees. Thousands were left with little or no pension after the company collapsed. For many, this loss was in the hundreds of thousands of dollars.

Pension programs have also recently been frozen or eliminated at some of the nation's largest companies, including IBM and Alcoa. Traditional pension plans (where the employer contributes a set amount) are being replaced by 401(k) plans (where the employee contributes for their retirement). According to The Christian Science Monitor:

Already nearly 65 percent of employers with retirement plans have a 401(k) system as their primary vehicle. But almost no plans are generous enough.

"Most people are going to arrive at retirement and not have adequate money," says Alicia Munnell, director, Center for Retirement Research at Boston College. "This is serious. None of us are good at doing our own retirement savings."

With the real value of Social Security pensions shrinking as Medicare premiums rise and the normal retirement age climbs to 67, the bottom one-third of new pensioners will be poor, Ms. Munnell says - far greater than today's 9.8 percent poverty rate for retirees.

When you add up all this news, the future looks pretty bleak for pension plans. It is an increasingly smart move for consumers to "back-up" their retirement savings with a secondary type of fund. In addition to 401(k) or pension savings, use independent IRA's to save for your golden years. If you are worried that your pension is at risk, research the Pension Benefit Guarantee Corporation (PBGC) and the Employee Retirement Income Security Act (ERISA) online for information about your benefits being protected by law.

American Express and Bono pair up for charity credit card program

Credit card users in the UK are getting a new way to do good. Starting next month, Bono and American Express are pairing up to offer an American Express Red credit card in England. This cool card automatically makes a donation to HIV/AIDS charities in Africa equal to 1-1.28% of your credit card spending. No word yet if the card will be offered in the United States.

While you are waiting for this Red credit card offer to cross the pond, why not consider some similar alternatives that already exist for American borrowers:

• American Express - Amex cardholders can donate their membership rewards points to select charities. A $5 donation is made for every 1,000 points you donate. American Express also has an online program to help you choose, submit and track standard donations online.
• Working Assets - This VISA card has a low 9.9% APR and makes a $0.10 donation to the charity of your choice with each purchase.
• Citi AAdvantage - The AAdvantage card allows members to donate American Airline miles to the Make a Wish Foundation. This card even has a matching program that will donate one mile to the Miles for Kids program for every three miles you donate.
• Point donations - Many charities and non-profit organizations accept donations of credit card reward points or miles. For example, the American Red Cross accepts airline miles.

Don't wait for Bono's card, do something good with your credit card spending today!

Pension Benefit Information: Doing business in the age of identity theft

Now that phishing, pharming and all sorts of fraud are becoming commonplace, it can be increasingly difficult to distinguish real information from fakes. How do you know that that email from Amazon is authentic? How can you tell if that letter from the IRS is real? Is this representative from my insurance company actually an identity thief?

One company that is struggling with this issue is Pension Benefit Information. I spoke with their President, Sue McDonald earlier today. Pension Benefit Information's job is to locate consumers that are owed pension money and to try to connect them with forgotten benefits. The company does this by sending letters to the consumer on behalf of their former employer.  Unfortunately, many of their clients ignore these letters and choose to forgo the benefits that they are owed.

This is a classic example of how being too concerned about identity theft can sometimes actually be a bad thing. If you ignore a letter from Pension Benefit Information because you think it is a scam, you are throwing money down the drain.  So what should you do if you receive a letter from a company like Pension Benefit Information? Don't immediately shred it. Instead, conduct a mini-background check to see if the letter is authentic.

Start by reading the letter to see if the information it contains is accurate. Con artists will probably not have correct information about details like your previous employer. Next, run a quick search with the Better Business Bureau online. Finally, use Google to search for information about the company's program and their contact information online. If you still have questions, you should call the company directly to verify their authenticity.

Being aware of identity theft risks is still a good thing. You have the power to stop phishing, scams and fraud. But there also needs to be a balance. You can learn more about Pension Benefit Information's services at www.pbinfo.com or www.aboutmyletter.com.

ChoicePoint fined $15 million for data breach and FCRA violations

ChoicePoint, the consumer data company that accidentally gave 163,000 records to an identity thief in 2005, was fined $15 million today by the Federal Trade Commission. This is the largest fine the FTC has ever issued. ChoicePoint received this penalty for "handling personal data carelessly" and violating the Fair Credit Reporting Act.  About 800 people became identity theft victims before this crime was discovered.

Thursday's action generally won praise from consumer groups. The FTC penalty "is a lot of money," even for a big company like ChoicePoint, said Chris Hoofnagle, West Coast director of the nonprofit Electronic Privacy Information Center. "It shows that the FTC is getting serious about security."

ChoicePoint still faces private lawsuits over the data breach. The Securities and Exchange Commission also is investigating whether Chairman Derek Smith and President Doug Curling improperly sold company shares before the breach became public.

This fine is a huge step in the fight for data privacy in the business world. What I find surprising in this announcement is that $15 million dollars is only 10% of ChoicePoint's annual profit; not revenue but actual profit after all their operating costs. Even after this charge, ChoicePoint reported $258 million dollars in revenue just during the last three months of 2005. ChoicePoint is making huge amounts of money off collecting consumer data (without our permission) and reselling it to businesses. And they've been making this kind of huge money for years, without protections to keep consumer data from thieves. 

I don't know about you, but I am going to order my free FACT Act disclosure report from ChoicePoint today. To request copies for your claims history report from ChoicePoint, call 1-866-312-8076. To request a copy of your employment history report, call 1-866-312-8075. To request a copy of your tenant history report call 1-877-448-5732. Take control of your records today!

Cross Country Bank is fined $9 million for abusive credit cards

Cross Country Bank (now know as Applied Card Bank) was ordered by the courts to pay $9 million in penalties and restitutions for taking advantage of borrowers with poor credit. Cross Country Bank regularly marketed $2,500 limit credit cards directly to borrowers with credit problems. But when borrowers opened their accounts, their credit limits were only $400 and most of this limit was taken up with Cross Country Bank fees.

Cross Country's debt collector, Applied Card Systems, then tormented delinquent customers with abusive collection practices that included rude and sometimes obscene language, repeated and disruptive phone calls, and improper threats, Spitzer's office said.

In 2004, the bank was convicted of fraud, false advertising and deceptive business practices by the New York Supreme Court. Other states, including West Virginia, Pennsylvania, Washington and Florida have also filed similar suits against the company. What does this mean to you? If you live in New York and had a Cross Country credit card, you could see some restitution money coming your way.  To the rest of us, this verdict is a signal that consumer complaints about deceptive credit card practices are being heard.

ABC's Boston Legal takes on data privacy issues

ABC's Boston Legal got our attention last month with a scathing critique of the credit card industry. This month, the show's producers seem to be going after data privacy issues. In this week's episode, Alan Shore sues an HMO for inadequate internet security that led to a woman being murdered. (Read the transcript here) In this case, a man armed with his ex-wife's Social Security number was able to login to her insurance records and track her down. Could this happen in real life?

Unfortunately, yes. If someone is armed with your name, birth date, Social Security number and address, they can likely gain access to your personal information. Most large data companies (including the credit bureaus) have "identity confirmation systems" online to prevent this type of fraud. However, these systems only ask a few questions and a thief who knows a lot about you might be able to pass through. More worrisome are the smaller online businesses (such as health insurers, accountants or universities) that may not have such protections in place.

The moral of the story? Businesses need to be exceedingly careful about the way they store, safeguard and share consumer data. Although there are few laws in place to regulate business data policies, it is important for companies to take every precaution to protect their customers. Consumers also need to be aware of their own identity theft risks. Messy divorces can often lead to identity theft when the ex uses their knowledge of their former spouse to steal data or get revenge. If you think you may be at risk, sign up for a credit monitoring program, reset your passwords and closely watch your online accounts.

Depressing credit card statistics

According to British researchers, January 24th is officially the most depressing day of the year. At CreditBloggers.com we aren't battling weather related blues; it's actually pretty warm today in San Francisco. We are depressed for another reason: we just discovered credit card statistics online at CardFacts.com. Here is some bad news to finish off the "worst day" of the year:

• The average US household carries $9,312 in credit card debt.
• This is a $6,300 increase in debt since 1990, when the average was only $2,966.
• California has the most debt with a whopping total of $96.8 billion.
• Credit card interest rates have broken the 30% barrier with some providers offering rates as high as 30.49%.

If you paid only the 4% minimum payment each month on a credit card debt of $9,312 with an 18% interest rate, it would take you over 14 years and $5,500 in interest to pay it off. See for yourself online here.

Luckily, it's still January and there's plenty of time for people to set a resolution to pay off their credit card debts in 2006. If you have credit card debts anywhere near the $9,000 national average, read Gerri Detweiler's article about going from debt to wealth online today.

Identity theft watch: Court records

A report today by the Charlotte Observer highlights the identity theft risk embedded in court documents. In North Carolina, court records continue to contain Social Security numbers that cannot be removed and are available to the public. The data protections are even less stringent in South Carolina. The discovery of this risk comes recently after new national and North Carolina laws took effect that were intended to keep sensitive consumer information private.

Although identity theft awareness is increasing, there are still hundreds of potential places an identity thief can look for your information. Is your information stored securely? Think about the following types of records that may contain Social Security numbers:

• Medical records
• Tax documents (especially W-2 and 1099 forms this time of year)
• Childcare records
• Job applications
• Credit card applications
• Military records
• Government assistance documents
• Utility account records
• School or university records
• Accounting records
• Human resource records

Identity thieves can steal or gain access to each of these types of records in order to steal your information. Read more about keeping your identity safe online here.

When do negative records expire from credit reports?

Sometimes your past can come back to haunt you. This is especially true when it comes to credit reports and credit scores. Negative records such as late payments, collection records and bankruptcy filings stay on your credit report for 7-10 years under FCRA law. This means that a few years of irresponsible behavior in college can lead to higher interest rates on your mortgage five years later. Luckily, these records do eventually expire from your credit reports and leave you with a clean slate. Here is a breakdown of the expiration dates for credit report records:

Bankruptcy filing records – Bankruptcy filing records expire from your credit reports 10 years after the filing date. Based on credit bureau preferences, Chapter 13 bankruptcy filings may be removed from your report after 7 years instead. Each account marked as “included in BK” remains on your report for 7 years from the filing. 

Charge-off records – When a creditor or lender charges-off your delinquent debt as a loss a record appears on your credit report. This record remains on your credit report for 7 years.

Collection records – Collection records expire 7 years after the last 180 day late payment that led to the account being sold to collections. This expiration date is the same even if the account was sold to another collection agency.

Closed accounts – Closed negative accounts (with late payment or other negative records) will expire from your credit report after 7 years. Closed positive accounts (with no late payments or other negative records) can remain on your credit report longer.

Foreclosure records – Property died-in-lieu and foreclosure records will remain on your credit report for 7 years.

Inquiries – Records of credit and loan applications will remain on your credit report for 1-2 years. Checking your own credit reports and scores online does not cause this kind of damaging inquiry.

Judgments – Court decisions such child support, civil and small claims judgments will remain on your credit report for 7 years from the filing date.

Late payments – All late payment records remain on your credit report for 7 years. However, only late payments that go beyond 30 days will continue to have a negative impact for all seven years. Read more about the real impact of late payments.

Repossession records – Vehicle and property repossession records remain on your credit report for 7 years.

Tax liens – Tax lien records can remain on your credit report indefinitely if left unpaid. Once the lien is paid, the record remains on your credit report for 7 years from the paid date.  This is true for city, country, state and federal tax liens.

If you find a negative record on your credit reports that should have already expired, you can submit a dispute to the credit bureaus (Equifax, Experian and TransUnion) to have the record removed. Get those financial skeletons out of your closet today!

Helping consumers: Illinois Attorney General Lisa Madigan

Illinois Attorney General Lisa Madigan proposed two bills today to help consumers deal with rising health care costs. As we discussed earlier on CreditBloggers.com, health care billing practices are often unfair, Americans pay the most for their health care and patient debts are sold too quickly to collection agencies. Today's new proposed bills address some of these issues:

• Tax-Exempt Hospital Responsibility Act: This bill proposes that non-profit hospitals would have to deliver a minimum total annual amount of charity care, calculated as 8% of hospital operating costs. Non-profit hospitals receive large tax breaks in exchange for their promise to provide charity care. However, hospitals in Illinois spent less than 1% on charity care in 2003.  The 1.8 million uninsured in Illinois would benefit greatly from this bill.
  
  
• Hospital Fair Billing and Collection Practices Act: This bill proposes new regulations about the use of collection practices in Illinois hospitals. Included in these regulations are rights for consumers to dispute bills and an approval process for any medical debt wage garnishments or liens. Currently, health care providers have very little regulation over the way they sell debts to collections agencies.

The downside? These bills only apply to Illinois. According to a Forbes report, 77 million people nationwide have had medical bill problems in the last 12 months. The time has come for bills such as these to be introduced on a national level. For more information about Madigan or these bills, visit the Illinois attorney general website or the Chicago Sun-Times. Madigan has also made news recently by working to assist identity theft victims, protect cell phone record privacy and prevent mortgage foreclosure scams.

What do you think of these proposed bills? Share your opinion in the comments section below.

New Year's Resolutions...Part 2

New Year's Resolutions, Part 2

Last week we started reviewing a series of nine New Year's resolutions that are easy and inexpensive to implement in your everyday life.  Let's quickly summarize the three that we covered on CreditBloggers.com last week before we move on to the next three.

1. Get your credit card utilization to less than 10%.  Credit scores love to see a very low utilization.  If you can get it down to less than 10% you could see significant improvement in your credit scores.

2. Be sure to claim all three of your free credit reports this year.  And, you may be entitled to more than three.  Go back to last week's blog to see how you can do this.

3. Do a better job of protecting yourself from identity theft.  There are many inexpensive ways of keeping fraudsters out of your life.  Again, review last week's blog for more details. 

Ok, on to New Year's Resolutions 4 through 6. 

4. Work to get any negative information removed from your credit reports.  We all have the right, as stipulated by the Fair Credit Reporting Act (FCRA), to ask that any information on our credit reports be validated for accuracy.  And, any information that is incorrect, outdated or misleading must be corrected or removed from your credit reports. 

One of the lesser known facts is that even if something is completely accurate it still must be verifiable or it must be removed from your credit reports.

If you can be successful getting negative information removed from your credit reports then your credit scores should skyrocket.  That means lower interest rates on any future credit that you apply for.  So go for it.  It doesn't hurt to ask, right?

5. Consider I-Bonds. Rather than traditional savings accounts or mutual funds that have a very low interest rate yield (currently anywhere between .5% and 3%), look into other low risk savings options such as I-Bonds (current interest rate is 6.73%).  I-Bonds are a lower risk savings product.  You can purchase them in almost any denomination and you earn interest while you own them.  You are guaranteed your interest earnings.  There are a few restrictions that you should become familiar with before investing in I-Bonds.  You have to own them at least 12 months.  And, if you redeem them before you own them for 5 full years then you will have to forfeit the most recent three months of interest.  Most financial institutions sell I-Bonds in paper form.  You can also buy them online at www.treasurydirect.gov.  If you buy them online you have more flexibility with respect to fees, denominations and scheduled purchases.  If you have money that you don't need for the next few years and are tired of earning an embarrassing amount of interest from your bank or credit union then I-Bonds might be right for you.   

6. Think about Dripping.  A DRIP (or Dividend Reinvestment Program) allows you to buy shares of stock directly from companies who offer these programs.  For example, you can buy GE or Home Depot or IBM stock directly from them.  They are an easy and inexpensive way to begin building a portfolio.  All you have to do is own 1 share of stock in a company and you are eligible to participate in their DRIP program.  And, you can normally buy that 1 share directly from a brokerage company for a very small fee. 

Essentially what a DRIP allows you to do is invest a small amount of money each month into a company and begin accumulating small amounts of their shares.  This amount can be as little as $25 per month in some cases.  And, any dividends that are paid are reinvested back into more company stock for you, hence the name "dividend reinvestment program."  And, since you are investing a small amount at the same time each month you'll be somewhat immune to large swings in the stock price.  You'll be buying more shares as the price falls and fewer shares as the price increases.  This is called Dollar Cost Averaging and is a smart way to buy stock, especially if you are an amateur at playing the market.  It's pretty much on cruise control once you sign up.

Another little trick is that once you've signed up for a company's DRIP program you can buy larger amounts of stock directly from them rather than from a brokerage company.  So, why pay a brokerage company a $29.95 commission (or more or less in some cases) to buy stock when you can buy it directly from the company for, in most cases, a service fee of a couple of bucks.

You can sign up to have the monthly investment taken directly out of your savings or checking account and after a while you'll forget about the program and it’ll be like a monthly bill.  But, you'll be building for your future…automatically.

For a list of companies that offer DRIP programs you can Google the term "DRIP."

To Do: Quick tax estimate

The 1099 and W-2 forms are starting to arrive in the mail daily now. Tax time is just around the corner. Instead of waiting until April to see how much you may owe or will receive as a return, take a few minutes to do a quick calculation online today. This MSN Money tax estimator is free and takes about five minutes to complete. By entering a small amount of information about your income, investments and credits, you can get a general idea of what April will bring.

If it looks like you'll owe money to the IRS, start saving up now so you aren't strapped for cash in April. Also, consider a few things you may be able to do to reduce your tax expense, such as contributing to an IRA account. If it looks like you'll receive a refund this year, think about smart ways to use this money. Instead of buying a TV, think about opening a savings account or paying off your credit card debts.

I've made a huge credit mistake

Fans of Fox's Arrested Development know GOB's catch phrase well: "I've made a huge mistake." How many times have you said this to yourself? In the credit world, huge mistakes happen all the time. The credit scoring system is complicated. People often make changes that they think will boost their credit score but actually have the opposite result. Here are some of the worst mistakes you can make with your credit:

• Closing all your accounts - It's all too common. In an attempt to quickly "clean up" their credit report, a consumer will close all their accounts. Not only does this not remove these account records from your report, but this also causes a major drop in your credit score.
• Thinking all scores are the same - You had a credit score of 650 when you checked online, now a lender is saying your score is really 600. What's going on? There are actually thousands of slightly different credit scoring systems used for different purposes. Depending on the scoring model, your credit score can fluctuate up to 100 points.
• Paying off a collection account to improve your score - Collection accounts remain on your credit report for seven years, whether or not you pay them off. Paying is fine (and can sometimes improve your loan rates) but will not improve your credit score.
• Making late payments - Even with the new Citi Simplicity card saying it's okay to pay late and with new information about how 30 day late payments work, paying your accounts late is still a really huge mistake. Just one 60 or 90 day late payment is as damaging to your credit score as a bankruptcy or collection records.

You can read more about huge credit mistakes and what you can do to recover online here. Have you made one of these credit mistakes before? Share your experience in the comments section below.

Financial industry New Year's resolutions

While we're talking about New Year's resolutions that consumers can set this January, we should also take a look at New Year's resolutions that credit card companies, credit bureaus and other financial businesses should consider for 2006. After all, it takes two to tango! Here's a few of our industry resolutions from CreditBloggers.com:

• Credit card companies - It would be great if creditors would post their minimum payment schedule on the "Schumer's Box" that includes the APR and fee disclosures. Especially since credit card minimum payments are rising, consumers want to know about a card's payment schedule before they apply. Also, it's time to quit using the universal default clause.
• Health care companies - Medical providers should make it a policy to charge uninsured patients the same prices that they charge insurance companies instead of much higher "retail prices." Also, medical providers should investigate low APR loan programs for patients that can actual increase billing returns.
• Credit bureaus - The credit bureaus have survived the FACT Act, now it's time to focus on accuracy. It's an extremely complex business to manage 250 million credit files, but Equifax, Experian and TransUnion have the power to make credit reports better. Streamline the consumer dispute process, be better about removing expired/duplicate records and work with businesses to ensure they are reporting accurate information.
• Bankruptcy law - Greater provisions for illness, loss of job and divorce (the leading causes of bankruptcy) need to be added back into bankruptcy laws. So far all the new bankruptcy law has done is pad creditor pockets and create a surge in consumer filings.
• Credit counselors - Counselors now have guaranteed business through the new bankruptcy law, they should use it to start focusing more on consumers and less on profits. Also, spend the time to train counselors to understand how financial changes really impact credit scores.

These are just a few of our wishes for financial industry changes in 2006. Share your own ideas for credit card issuer, bank, credit bureau and industry resolutions in the comments section below!

Managing your money in 2006

We've been talking a lot about New Year's resolutions on CreditBloggers.com this week. Resolutions, especially financial resolutions, hard to keep up more than a few months. But at least we are going into 2006 with an optimistic outlook. According to an Experian-Gallup poll, 65% of consumers said they were "very likely" to reduce their credit card debt in 2006. In addition:

• 48% said they were likely to check their credit score this year
• 45% said they were likely to cut down on entertainment spending
• 36% said they were likely to read a book or take a course on personal finance
• 23% of respondents said that they would make a New Year's resolution to improve their finances. This is up from 14% of consumers last year.

These statistics are meant to be encouraging, but you can't help noticing that only around half of people have even set goals to improve their finances or reduce their debts. When you consider how few New Year's resolutions are ever accomplished this may not bode well for personal finances in 2006. In fact, further down in the survey it is mentioned that 77% of consumers are comfortable with their level of debt.

Maybe it's time to make managing our money more than a resolution. It's a fact that the average consumer carries about $8,000 in credit card debt. As we have calculated before, this amount of debt can be wildly expensive to carry month-to-month. This amount of debt can also harm your credit scores and cause you to pay more for insurance, utilities, loans and credit. Break out of the debt cycle now! Read more about going from debt to wealth online here.

New Year's Resolutions: Part 1

Happy New Year!!  I'm sure you've made some New Year's resolutions that you're bound to break in the next few weeks.  And I'll even bet that some of you have resolved to get your credit and financial houses in order.  Bravo!!  I'm very proud of you.  So proud, in fact, that I've resolved to give you some great resolutions that you can easily (and affordably) implement in 2006.  I've got nine of them for you and if my math is right that means we'll do three a week for the next three weeks.  These aren't in any particular order.  They're all very important.  Here we go…

1. Strive to get your overall credit card utilization to less than 10%.  Why?  If you can get your utilization to less than 10% then your credit scores will thank you.  Your scores will improve and any credit you apply for in 2006 will come cheaper because of it.  Credit card utilization is one of the most valuable components of your credit scores.  It's almost as important as whether or not you pay your bills on time. 

Here's how you can find out if your utilization is greater than 10%.  Grab all of your most recent credit card statements and a calculator.  That's all you need.  Each of your credit cards has a "credit limit" which will be listed on your statement.  And, each of your cards has a "current balance" which will also be listed on your statement.  Take your balance and divide it by your credit limit.  If it's over 10% then you've got some work to do.  Here's an example…

The balance on my most recent Discover Card statement was $3,800.  My credit limit is $10,000.  $3,800 divided by $10,000 is 38%.  Not great. 

Do this with all of your credit cards individually and then you'll want to do it in aggregate.  Add up ALL of your credit card balances and ALL of your credit limits.  Now divide your aggregate balances by your aggregate credit limits.  This will be your aggregate revolving utilization percentage.  This percentage is incredibly important to your credit scores.

Here's a hint, kind of an insider secret if you will…this is just a math problem that can be solved several ways.  Think. ☺

2. Be sure to claim all of your free credit reports in 2006.  There was a lot of press coverage of a new law that went into affect last year.  The law allowed every one of us to get one free copy of our credit report from each of the three national credit reporting agencies.  That's great but the press is unlikely to make as much noise about this in 2006 since it's not new and exciting news. 

The law that I'm referring to is actually an amendment to the Fair Credit Reporting Act (FCRA).  The amendment is called the Fair And Accurate Credit Transactions Act (also known as FACTA or The FACT Act).  FACTA, which is Federal or national in coverage, says that we now are entitled to these free credit reports.  But the news gets even better for some of us.  There are several states that have laws that require that residents get freebies too.  The best news is that these are in addition to the FACTA freebies, not in exchange for them.  For example, Georgia residents get two free reports each year from each of the three national credit reporting agencies.  That means that us Georgians get 9 freebies each year.  And guess what…I'll claim every single one of them.  It's my right, which I exercise freely.  You should too.  Here's a list of the states that have free report laws: GA, CO, ME, MD, MA, NJ and VT.  To claim your free annual credit reports (FACTA freebies) you can go to www.annualcreditreport.com.  Just try and be careful not to fall for any of their cross sell efforts.  You don't need the other things they are selling, just claim your free reports and move on.
 
3. Do a better job of protecting yourself from identity theft.  Identity theft is the fastest growing white-collar crime in the U.S.  And victims spend months and thousands of dollars correcting the problem and clearing their name and credit reports of the damage caused by the theft.

The truth of the matter is that you can't really prevent being a target of identity thieves.  But you can do some simple and inexpensive things to reduce your exposure.  And, since thieves are opportunistic scum if you can make yourself a little less attractive to them then it's likely that they'll move on to other more vulnerable targets.  Here are some obvious and not so obvious tactics you can take to avoid identity theft:

• Buy a shredder and use it…A LOT.  The easiest way to get your personal information (which is used to apply for credit in your name) is to dumpster dive.  If you throw away unshredded bank statements, check carbons, old credit cards, receipts or anything with your name and address on it then you're just asking for someone to use that information to apply for credit.  Get a good quality cross cut shredder (or a high end unit that shreds paper into a fine powder) and start shredding everything you can find that has your name and address on it.  Here's a hint:  little kids love to use shredders so turn it into a weekly family event.  Nothing says it has to be a pain.  Here's another hint:  some mail order catalogs are now pre-filling out the order forms they insert in the middle of the catalog.  Don't forget to rip that out too and shred it.  If I'm smart enough to figure that out then so are the thieves.
• Mail your mail from work or from a post office rather than leaving it in your mailbox with the flag pulled out.  That flag basically says "Hey, look at me.  I probably have some checks inside me.  Come and get it??"
• Some states assign your Social Security number as your driver's license number.  That's bad news because if your license is ever stolen or lost then whoever finds it has all they need to apply for credit in your name.  Ask the DMV in your state to please use something other than your Social Security number as the driver's license number.  Don't make the thief's job any easier.
• Monitor your credit reports as often as possible.  Since you get at least three freebies (and possibly more) each year you could strategically spread out when you claim them throughout the year and monitor them for unauthorized activity.  Or, you could purchase a service that monitors them for you.  There are a lot of products that do this and some are good and some are a waste of money.  Do some shopping and choose a service that will monitor all three of your credit reports rather than just one.  Anything less than all three leaves you exposed.  The prices for these services vary but you can find one for less than $100 each year.  Trust me, it's well worth the money. 

Most decent services offer several methods of alerting you that something on your credit reports has changed.  Some will send you emails and some will send you emails AND text messages.  Those are going to be the best. 

Avoid services that only monitor your reports once a month.  That's not frequent enough to keep you safe.  Chose a service that monitors your reports at least once a week and, optimally, once a day. 

And, don't be too impressed with services that offer huge identity theft insurance policies with their service.  Some offer $15,000 or even $25,000 policies but make it next to impossible to file a claim because it's difficult to prove that your victimization wasn't a pre-existing condition (meaning that the theft occurred before you were covered). 

Some of them don't cover you if you were a victim of identity theft from a family member (which accounts for about 40% of the reported cases).  So, chose a service because of the features and not because of the insurance policy.  It's more sizzle than steak.

Again, Happy New Year to you and yours.  We'll cover resolutions 4-6 next week.      

Many credit counseling companies are losing their non-profit status

The IRS recently completed an audit of 60 credit counseling agencies. The result? More than 30 agencies are having their non-profit status and tax-exempt status revoked. The IRS was tipped off to these questionable non-profits by hundreds of consumer complaints. According to The Washington Post, "The IRS has been trying to determine if credit-counseling agencies were misusing their tax-exempt status to take advantage of financially strapped consumers."

It's not that credit counseling is a bad industry as a whole. While there are genuinely helpful and affordable companies available, there are also a more than a few rotten credit counseling agencies out there that are more interested in making millions by charging high rates to consumers in financial distress. Plus, it's a little known fact that these companies are also paid directly by banks and creditors.

The impact of revoking these non-profit statuses is yet to be seen. What will happen to consumers already working with these companies? What will happen to consumers who are required to obtain credit counseling under the new bankruptcy laws? Will the removal of a credit counselor's non-profit status cause them to charge consumers higher rates? Read more about the IRS decision online, learn how to spot unethical credit counselors and weigh in with your opinions in the comments section below.

How small businesses can stop identity theft

Identity theft is considered the fastest growing crime in America. There are no easy answers about what we can do to curb the increasing prevalence of these crimes. Some experts recommend increased police involvement, longer jail sentences and changes to the way Social Security numbers are used.

However, there is one segment of the population that probably has the most power to reduce identity theft crimes. Small and mid-sized business owners may be the key to reducing identity theft crime rates. These businesses are important gatekeepers in the war against identity theft. Business owners and managers should consider the following in order to guard against identity theft:

Shred sensitive documents – Under Fair and Accurate Credit Transaction law, every employer must securely destroy "consumer report" documents (background checks, credit reports, medical histories and employment records) before throwing them away. This is true even for people who only employ one nanny or housekeeper. Applications and other sensitive forms aren't included in this law but should always be shredded before being thrown away.

Secure your data – Certain types of data (such as medical information and credit report data) is protected by specific business privacy laws, but most information is not regulated directly. Companies should store all consumer information in computers that are encrypted, password locked and protected by virus software or firewalls. Offices containing sensitive information should be locked and monitored with video cameras when possible.

Store documents safely - Printed documents containing customer information should be kept in locked file cabinets. Access to sensitive identity records should be limited to employees with a specific business purpose. Employees with access to sensitive records should be instructed on the company's privacy policies and expectations.

Verify customer information – Many identity theft crimes start with a thief using stolen information to make a purchase or open an account. Stop these crimes by confirming the identity of customers before you make a transaction. Check the customer's identification for credit card purchases and know how to spot fake ID cards. Internet businesses should ask for credit card verification numbers (the small numbers usually printed on the back of credit cards) when processing online transactions.

Guard against phone fraud – Carefully verify the identity of companies with which you do business. Don't give out sensitive information over the phone or fax without confirming the business purpose. Thieves may pose as tax official, health care businesses or law enforcement agents to obtain identity information over the phone. 

Know your employees – A large percentage of identity theft crimes start with employees stealing data. It's a smart idea for business owners and managers to complete background checks of employees who will have any sort of access to sensitive data. Background checks can be ordered easily online. Look for criminal records and information that doesn't match up with their application.

Reevaluate your data policies – Think about the ways that your business uses sensitive information. Can your company use ID numbers instead of Social Security numbers to identify customers? How are you collecting this information? How is it being stored and discarded? See if there are ways you can reduce your use of sensitive data, and therefore also reduce your risk of identity theft. 

Protect online customers – Internet businesses also need to ensure that their order forms and data collection systems online are secure. All web forms should be protected with 128 bit encryption. Obtain a VeriSign SSL Secured certificate for your company. Also, inform your customers about how to avoid phishing and how to transmit data securely. Take customer security concerns seriously and investigate suspicious events.

Develop a security policy – Create a security policy for your business that establishes methods for protecting sensitive information, discarding documents and dealing with theft situations. Set clear penalties for violating the security policy. Include a program for immediately disabling an employee's access to sensitive data when they leave the company.

Are you a small business owner? Are you working for a company that needs to improve their security policies? Share your insight and suggestions in the comment section below.

Debunking credit rumors

Why are rumors, urban legends and myths so durable? Remember the one where Bill Gates would give you $100 for forwarding an email? Or the one about it taking seven years to digest swallowed chewing gum?

The same thing is true for urban legends concerning credit. Because the credit reporting system is complex and rarely understood, rumors tend to fly about credit reports, credit scores and more. Here are some of the most popular credit rumors:

• Making a lot of money helps your credit score (False)
• Checking your own credit data harms your credit scores (False)
• Paying off collection accounts doesn't help your credit score (True)
• Paying cash for everything improves your credit score (False)
• Closing credit accounts will help boost your credit score (False)
• Insurance and utility companies use your credit data to determine rates (True)
• Once you have poor credit, you are stuck with it for seven years (False)
• Debit cards can help boost your credit score (False)
• You can opt-out of pre-approved credit card offers (True)

Click here to read an article by John Ulzheimer that explains why some of the most common credit myths are not true. Share credit rumors you've heard in the comments section today! 

Managing soaring health care costs

Health care spending in the US doubled in the last nine years according to a report by the Federal Centers for Medicare and Medicaid Services. Of course, anyone who has been to the doctor or pharmacy recently has experienced these soaring costs first hand. In a PBS NewsHour report last night it was reported that:

• Total health care spending in 2004 amounted to $1.9 trillion. That's 16% of the US GDP and $6,000 for every person in the population.
• Health care costs grew at more than double the national inflation rate in 2004.
• "It's 50% more per capita than the next biggest spender -- which is Switzerland -- are we getting value for our money? And the answer unequivocally is, no, we're not."
• "The Kaiser Family Foundation Survey shows that 69% of employers were offering coverage in 2000. That number is now down to 60%."
• There are currently 46 million uninsured Americans.

With no end in sight to these soaring health care costs, what can consumers do to protect themselves? Here are some tips for keeping health care expenses under control:

• Always be covered by some form of health insurance. Even expensive health insurance is more affordable than paying medical bills on your own.
• Research health insurance programs that may be available in your area. Call 1-877-KIDS-NOW for information about low cost health insurance for children from the US Department of Health and Human Services.
• Ask your employer about the availability of health care "cafeteria" plans or "flexible spending" plans. These accounts allow you to set aside pre-tax income to pay for health care costs.
• Ask your doctor to prescribe generic versions of expensive medications. In many cases this can reduce your co-pay costs.
• Visit the doctor for preventative care when possible. A visit to the doctor in advance is much less expensive than a visit to the emergency room.
• Keep an emergency savings account and a few credit cards with high credit limits available to deal with unexpected health care costs.
• Review medical bills closely for inaccurate or double billing. Errors in medical bills are very common.

You can read more about the increase in health care costs and more about the issue of affordable health care here. Share your feedba