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.