Bankruptcy Reform: Bad News

There's really bad news on the bankruptcy reform front. As expected, the controversial new law is making things worse for folks who, in eight out of ten cases, were forced into dire financial straits by circumstances beyond their control. Almost all of the 61,355 people who have been seen so far by credit counselors can't pay back any of their debts.

These are the key findings of a study just released by the National Association of Consumer Bankruptcy Attorneys (NACBA), called "Bankruptcy Reform's Impact: Where Are All the Deadbeats?" NACBA surveyed credit counseling firms that have been approved to provide required credit counseling services to people before they can file for bankruptcy.

While the credit counseling requirement was designed to steer people who could repay their debts into a debt management plan, the study concludes this "simply imposes new costs and time burdens on individuals who can ill afford either."

As NACBA executive director Brad Botes puts it: "Contrary to the claims of the proponents of bankruptcy law changes that they would zero in on the alleged legions of 'deadbeats' who supposedly were crippling the U.S. economy with 'billions of dollars in losses associated with profligate and abusive bankruptcy filings,' the federal bankruptcy law changes ... are doing no measurable good whatsoever. "

"Instead," Botes explains, "they have put new hurdles in the path of people who are already flat on their back due to financial crises over which they have no control, such as the loss of a job, catastrophic health care bills, and so on."

Bankruptcy filings are down, perhaps because many Americans may mistakenly believe that due to the new law, they no longer have the option. "Even though the process is now more cumbersome, time consuming and expensive than before," Bote recommends "consumers who need help should still seek out a bankruptcy attorney to explore their options and figure out how to navigate this trickier and more confusing process."

For more info about the bankruptcy study, listen to an online interview between credit expert Gerri Detweiler, a contributor to this blog and host of EverydayWealthRadio.com, and Maureen Thompson of the National Association of Consumer Bankruptcy Attorneys. (If this interview is no longer listed on the front page, simply type Maureen Thompson into the search field to access the interview. )

What is a Schumer's Box? Decoding rates and fees for the Citi Simplicity credit card

All credit card offers are required to include a chart detailing their basic rates and fees. This chart is called a "Schumer's Box" after Senator Chuck Schumer who pushed for the regulation. You can click on this image to see a full sized sample of one Schumer's Box for a Citi Simplicity credit card offer from Citibank.

How do you make sense of these charts? Let's go through it step-by-step:

• The first section of any Schumer's Box is the annual percentage rate (APR) or interest rate. For this credit card, the rate is 10.49% after a 12 month 0% introductory period.
  
• Next up is the other APR section. Don't breeze over this important information about specific interest rates for balance transfers and cash advance requests. You'll also find the default rate in this section. For the Citibank card the default rate is 31.49%. This is the rate you will receive if you make a late payment or exceed your credit limit.
• After this is the variable rate category explaining that your interest rate can (and will) change.  This is explained by listing the APR's as their "prime plus" formulas, meaning that they are the prime rate plus a set number.  For example, to calculate the default rate you add 22.39% to the prime rate.
• Next is the grace period which is the period of time after your bill when interest charges are not yet applied on your debts. The grace period for the Citi Simplicity card is 20 days as long as you paid your bill last month in full. If you don't pay this balance in full, interested is charged immediately on your new purchases along with on the balance you have carried over.
• After this is the method for computing balances. For the Citibank card this method is the average daily balance including new purchases. This is the most common way credit card issuers calculate your finance charges and is more expensive for consumers than calculating based on the previous balance or adjusted balance. This only applies if you don't pay your credit card balances in full each month.
• The annual fee is listed next. The Citi Simplicity card doesn't have an annual fee so this is marked as "none." Be sure to read this section, some popular rewards cards and secured credit cards come with expensive annual fees.
• Also detailed in the Schumer's Box is the minimum finance charge. This is the amount that you will be charged if you carry a balance month to month even if your actually finance charges would be less. For example: if  your interest charge added up to only $0.25 by calculating your average daily balance, you would actually be charged $0.50 because that is the set minimum.
• Almost done! The next section details the international transaction fees that you will be charged for using your credit card in a foreign country. If you used this Citi Simplicity card for a purchase in Canada, you would be billed 3% of the transaction amount for the currency conversion.
• Finally, the last section details the other fees that are included. The Citi Simplicity card charges a 3% fee for cash advance and balance transfer requests. The card also includes a $0 to $35 late fee depending on the status of your account and a $29 fee for going over your credit limit.

Easy as 1-2-3, right? While decoding this rate and term chart can be confusing, imagine how much worse it was before the Schumer's Box!

Do you have questions or opinions about credit card terms and fees? Share your feedback in the comments section below.

Ever wonder what counts in your credit score…and why? What about your age? Does that count?

Have you ever put any thought into what actually counts in your FICO scores?  Furthermore, have you ever wondered why some things count and why some don't?  Everyone who knows anything about credit scoring knows that your payment history, your debt and your credit shopping habits "count."  That's not rocket science and you certainly didn't need me to tell you this.  But there's more to it than meets the eye.  There's a darn good reason why some things actually count toward your credit scores and why some things don't count.  Join me…

• Your payment history – Okay, this is a no-brainer.  Everyone knows this counts and counts a lot.  So tell me why it counts?  I'll save that little nugget of gold for later.
• Your amount of debt – Another no-brainer.  This counts almost as much as your payment history.  Why?
• Your credit applications, the age of your credit file and the mix of accounts - Again, you can find all of this at any reputable credit scoring website.  We all know it counts. Why?

All of these things are what I like to call "the company line."  It comes straight from the Public Relations folks at the credit bureaus and Fair Isaac.  Let's talk about something else that doesn't get so much attention…

• Your age - You can certainly figure this out from a credit report.  Your date of birth is on your reports and if you can subtract you can figure out someone's age.  Does it count?  Yes or no?  Take a guess.  I'll say that it does NOT count and I'll say that it doesn't count because age is illegal to look at when determining credit risk.  What's your answer?  I'll give you a hint.  The answer will surprise you and it doesn't have anything to do with being legal or illegal. 

Okay, I'll quit teasing you with questions and start giving some answers.  The word that you need to become familiar with is "predictive."  All of the things I listed at the beginning of this post (payment history, debt, etc) are all predictive of something.  And since we're talking about credit scores that "something" is credit risk.  They are all predictive of future credit risk. 

What that means is that people who don't do well in these categories are more likely to miss payments in the foreseeable future.  And, their scores will suffer because of it.

How do the credit scoring companies determine what's predictive and what's not?  It's not really that hard.  They use a process called regression where they simply look in the past to determine what people who miss payments all have in common.  Guess what they have in common…payment history problems, a lot of debt and excessive credit shopping.  Voila!!  That's one mystery solved.  Let's tackle another one.

What about your age?  Does it count?  Nope, it doesn't.  Why not?  It's certainly not illegal to count your age when determining risk.  Did I say that?  Sure did.  Take a deep breath and after you get done dog cussing me I'll explain why it's not illegal.  Think about when you apply for auto insurance.  Better yet…guys…think about when you were 22 and you were single and you paid for your own car insurance.  It was pretty expensive wasn't it?  Ever wonder why?  It's because you were in a high risk group. 

What happened when you turned 25, got married, moved to the burbs and sold that GT Mustang and started driving a Buick?  Your insurance premiums dropped off the table because you went from a high risk group to a lower risk group.  You didn't seem too worried about your age being counted against you as a way of assessing your insurance risk.

It's certainly not illegal to use age to determine credit risk but it's a public relations nightmare.  Think about it…what if an 87 year old applies for a 30 mortgage?  Do you honestly think he is going to be able to pay it off over 30 years?  Of course he isn't.  But, you can't hold his age against him despite it being very predictive of him defaulting on that loan someday.  That's because he is a part of a protected class…the elderly. 

You can certainly count his age against him unless he's in a protected class.  In that case you have to build your model so that it gives him more points than the statistics say you should.  So basically you have to do the opposite of what your model tells you to do.  Not a good thing. 

So you add those two things together and you get a characteristic that's predictive and legal to look at but is a loser from a PR perspective. 

Plus, there's more than one way to skin a cat, isn't there?  How do I wink on this keyboard…oh there it is…semi-colon, closed bracket… ;)

What if I looked at your credit report and I took the oldest account on it and then added 18-25 years to the date it was opened?  I bet I can get pretty darn close to your age without having to actually ask for it. 

I have a Citibank account that I opened in 1988.  It was my first student credit card.  That was 18 years ago.  Add 18-25 years to 18 and you get 36-43 years old.  Guess what…I'm 37.  I figured out how old I was without actually telling anyone.  Why can't a credit-scoring model do the same thing?  It can.  Do they?  I can't go there.  Not allowed. 

There's more than one way to skin a cat.  ;)

The best and worst online credit card services

A report released today recognized Discover, American Express and Chase as having the best online customer experience.  Discover earned praise for having high customer satisfaction with rates and fees and for being the easiest card to apply for online.  American Express earned points for being "trustworthy" and Chase was commended for customer service. Click here to download the full PDF report by the Keynote Systems.

Do you agree with these rankings? I am an American Express customer and do enjoy using their simple but effective website. What are the worst internet banking and credit card services out there? Share your picks for the best and worst online banking services in the comments section below.

Saving for a home, car, children, college or retirement

Americans are not saving enough for the future. Just this year, statistics showed that our savings rate hit historical lows. Not only are we spending more than we earn, our savings rates are at the lowest point since the Great Depression. And we are not alone: this reduced savings trend can also be seen in Australia, Canada, Japan and Italy.

Why is this happening? Some experts point to the availability of affordable credit and the relatively high number of people who have most of their money invested in their homes. Whatever the reason, it is clear that we should be saving more.

The first step is to set up a short term savings account with enough money to cover all your expenses for at least three months. This account will help you handle the day-to-day emergencies and expenses. Online high-yield savings accounts from companies like ING or HSBC currently offer savings rates around 4.5%.

Your next step is to think about your long term savings goals. CNN has a special website called "Thinking Long Term" dedicated to helping you plan for future home, automotive, children, college and retirement expenses. On this website you can use free interactive planning tools, share your story, read articles and access planning calculators. Credit.com also offers easy-to-use calculators to help you evaluate your savings, college planning, monthly spending, cost of raising children and need for disability insurance.

How do your savings measure up? Are you doing enough to prepare for retirement and other long term expenses? Share your feedback and opinion in the comments section below.

What to do when friends or relatives ask you for money

It is a fairly common occurrence...a relative in need asks you for a loan or for help with co-signing a loan. You want to help but at the same time you know that lending money to someone you love can turn out badly. Before you consider opening your wallet, think about the possible consequences:

• Can you really afford it? - Don't be tempted to lend someone money when you aren't financially stable yourself. Unless you are debt-free and have an established emergency savings fund, you are not ready to start granting loans to someone else. If an unexpected expense arises, you may be put in the position of having to borrow money yourself.
• Your credit could be damaged by co-signing - In many ways, co-signing on a loan for a friend or relative is much worse than just lending them the money. When you co-sign, you agree to take responsibility for the loan. This means that the monthly payments will appear on your credit report and that you could end up paying for the loan if the borrower defaults.   
• You may never be repaid - Before you lend money to a friend, consider the very real possibility that you will never be repaid. How would this impact your finances? How would you feel? For large amounts of money you may want to work with a lender to formally administer a loan instead of simply working off the honor system.
• Why can't they get the money elsewhere? - Has your friend or relative tried applying for a loan on their own? If they have been unable to obtain financing independently, there is probably a reason. Lenders turn down applicants when it is likely that they would not be able to repay a loan. Are you willing to take a chance on lending money to someone that has already been identified by professionals as a high risk borrower?
• Will it actually help them? - Does lending money to a friend actually help? Consider why your friend or relative needs the money before deciding to lend to them. Is it because they are financially irresponsible or because of a real emergency? In some situations, lending money to a friend or relative is a bad thing because it actually allows them to perpetuate their problems. Instead, offer a creative solution such as dollar-for-dollar matching (Abraham Lincoln once offered this his step-brother) or paying for debt counseling.
• Consider the tax implications - Small loans may not have an impact on your taxes but large loans might. If you are considering lending over $10,000 to a relative, speak with a tax adviser first to see what penalties you may face.

If you decide to lend a friend or relative money after having considered these consequences, keep detailed records of your loan and don't be afraid to ask about repayment. Be very "matter of fact" about tracking the loan from the start. If you make it a policy to send monthly reminders you will feel less awkward and will help your borrower stay on track.

What do you think about lending money to friends or relatives? Is it a gesture of compassion or an instant disaster? Share your feedback and stories in the comments section below.

Funny Money Friday

(CreditBloggers.com is launching a new feature each Friday that will showcase the lighter side of the personal finance world. Have a suggestion for the next Funny Money Friday? Email it for consideration.)

Are you planning on starting your taxes this weekend? If tax season stresses you out, take comfort in the fact that you are in very good company. Some of the greatest minds in history have also struggled with their taxes. 

Albert Einstein is famously quoted as saying "The hardest thing in the world to understand is the income tax." That is pretty impressive coming from the father of modern science and developer of the Theory of Relativity.

(Thank you to Hetemeel.com for the fun Einstein image generator)

Federal Reserve survey shows decrease in family incomes

The Federal Reserve conducts a Survey of Consumer Finances every three years to see how American households are holding up. The survey results released this week indicate that family incomes have declined and net worth growth has slowed down. Between 2001 and 2004, average family incomes dropped 2.3% after adjusting for inflation. The survey also reported that:

• Net worth increased 6.3% but this is the smallest increase since the 1989-1992 recession period. This drop would have been larger without the increase in home prices to drive net worth gains.
• The gap between the rich and the poor widened significantly.
• The wealthiest 10% of Americans (making over $129,000 a year) saw their net worth increase 6.1% to an average of $3.11 million.
• At the same time, the poorest 10% of Americans saw their net worth drop to negative $1,400 of their total assets.
• 40% of Americans families make less than $33,900 a year.
• Fewer people are investing in the stock market and more are investing in real estate. The number of people who owned stocks dropped 3.3%.
• Mortgage debt increased more than 27% and median total debt increased 34%.

What does this mean? Unless you are in the wealthiest 10% of the population, you may be feeling the pinch. While the overall economy has grown, very little of this growth has "trickled down" to average Americans.

What do you think about these survey results from the Federal Reserve? Where do you fit in to the statistics? Where do you think we'll stand when the next Federal Reserve survey is released in 2009? Share your feedback in the comments section below.

Quick tip: Ordering your credit reports and credit scores using personal checks instead of credit cards

In order to purchase your credit reports, credit scores and other credit management tools online, most companies require you to use a credit card or debit card (with a Visa or MasterCard logo) to pay. Only TrueCredit and TransUnion allow you to pay online using a personal check. Equifax and Experian both require credit cards or debit cards for online transactions.

To order by check online from TrueCredit or TransUnion, simply enter the account number and routing number printed on the bottom of your checks and the money will be deducted from your bank account directly. No credit card needed!

The impact of bankruptcy reform on credit scores and consumers

The results of a recent study by the National Association of Bankruptcy Attorneys have been making news across the country this week. The study indicated that tough new bankruptcy laws are doing more harm than good.  The bankruptcy laws went into effect last October and have made it harder for people with financial emergencies to obtain assistance.

When this bill first passed the Senate last summer, CreditBloggers.com expert, John Ulzheimer, wrote an article dissecting the bankruptcy reforms and predicting that they would be damaging to consumers:

Consumers will still be saddled with their debts, and those lenders who had programs for bankrupt consumers will likely sit on the sidelines until consumers have paid well through their Chapter 13 bankruptcy. This will take up to five years in most cases, thus delaying the consumer's ability to rebuild their credit and credit scores quickly. They will be forced to pay higher rates, or face outright declination for years. And there's nothing they can do about it.

All told, the new bankruptcy reform bill is a huge win for credit grantors and a huge loss for the vast majority of consumers who file for bankruptcy protection.

Click here to read John Ulzheimer's article on the impact of bankruptcy reform on credit reports and  credit scores.

Over the next few days, CreditBloggers.com will be investigating this study and the impact of the bankruptcy law in depth. Share your questions about the bankruptcy law or NABA report in the comments section below or by email. Our experts are happy to provide answers!

Can You Sue for Credit Report Damage?

Can you, or should you, sue if wrong information isn't removed from your credit report? Attorney Robert Brennan was recently a guest on my Internet radio show, EverydayWealth Radio: Your Consumer Advocate and he shared some insights on lawsuits related to credit damage. Brennan happens to be a very successful litigator in the area of consumer credit damage, and has even been voted a "super lawyer" by his peers.

Brennan noted that consumers who successfully sue for credit damage may be awarded attorneys fees, damages and even punitive damages. While I had cautioned consumers in the past that these cases are difficult to win, Brennan boasts an impressive success rate. Before you rush to hire an attorney, however, he recommends you take these steps:

Check your credit report and dispute any erroneous items by filing a dispute with the credit reporting agency and the creditor or agency reporting the negative item. Include copies of any documentation you have, and keep good records. If they don't respond or don't remove the wrong information, you may need to talk with a consumer law attorney with experience in Fair Credit Reporting Act cases. Of course, if you are in Southern California, you may want to contact Robert Brennan's law firm.

We also discussed a question from a listener who wondered whether it was legal for a debt collector to check her credit report on a debt that was fifteen years old. While Brennan pointed out that there is no case law on that specific issue, it would be likely that particular inquiry was unauthorized, and he does go into detail about the issue of unauthorized inquiries on his website.

If you would like to learn more about your rights when it comes to credit damage, you can listen to my radio interview with Robert Brennan online 24/7. Simply type "Robert Brennan" into the search field.

Mortgage fraud scheme entangles borrowers

Buy a home in your name with no money down, we’ll rent it out and make the payments -- and you will get the appreciation and build your credit.

This seductive pitch resulted in several arrests in Florida in connection with a mortgage fraud scheme. An investigation dubbed "Operation Green Acres" uncovered a scam in which 24 "straw buyers" were recruited from Miami and Naples to "purchase" Big Sun Valley houses in the Ocala area. Most of the straw buyers did not speak, read or write English or had a very limited English vocabulary.

These "buyers" were allegedly told they could buy a home with no down payment, and that the builder would rent the house for them and make mortgage payments for several years. The buyer could then move into the house or sell it for a profit and increase their credit rating for future purchases.

The builder was paid, but the mortgage lenders weren't. Some borrowers were forced into bankruptcy, and their credit ratings were damaged instead of helped.

Right now, the real estate market it hot, and so is mortgage fraud.

Just last week I heard from a woman who was a straw buyer on a house that was headed for foreclosure. While she was worried about hurting her credit rating, I knew that would be the least of her worries. I advised her to find a good attorney to make sure the mortgage fraud scheme she participated in didn't land her in jail.

Beware: Don't let anyone talk you into a real estate investment opportunity that doesn't pass the sniff test.

Celebrity identity theft victims

What do you have in common with Michael Jordan? Paris Hilton? Oprah? If you have been an identity theft victim, you may share quite a bit with these famous names. Identity theft is a fairly common problem for celebrities, actors, musicians, CEO's, athletes and politicians. Living in the public eye makes you an easy target for identity thieves. Here are some of the most famous identity theft victims:

• Oprah Winfrey (read about Oprah's identity theft case)
• Paris Hilton (read about Paris' identity theft case)
• Michael Jordan (read about Michael's identity theft case)
• Tiger Woods (read about Tiger's identity theft case)
• Franklin Delano Roosevelt (read about FDR's identity theft case)
• Steven Spielberg (read about Steven's identity theft case)
• Barry Bonds (read about Barry's identity theft case)
• Ted Turner (read about Ted's identity theft case)
• Warren Buffet (read about Warren's identity theft case)
• Mayor Michael Bloomberg (read about Michael's identity theft case)
• Robert De Niro (read about Robert's identity theft case)
• Martha Stewart (read about Martha's identity theft case)
• Will Smith (read about Will's identity theft case)
• Ross Perot (read about Ross' identity theft case)
• Football star Ty Law (read about Ty's identity theft case)
• Disney CEO Michael Eisner (read about Michael's identity theft case)
• Pro-basketball player Steve Smith (read about Steve's identity theft case)
• Law & Order star Jerry Orbach (read about Jerry's identity theft case)
• Quarterback Danny Wuerfful (read about Danny's identity theft case)
• Novelist Grahame Greene (read about Grahame's identity theft case)
• Oracle boss Larry Ellison (read about Larry's identity theft case)
• Motown star Martha Reeves (read about Martha's identity theft case)
• American Idol Ruben Studdard (read about Ruben's identity theft case)

Celebrities really are "just like us" apparently! Even the rich and famous struggle with identity theft, credit card fraud and con artists. Identity theft has become so common for professional athletes that NFL Security now provides incoming rookies with fraud prevention training.

Know of any other celebrity identity theft victims? Add them to our "Walk of Fame." Share your tips and feedback in the comments section below. We'd love to hear from you!

Must read: Generation Debt

Anya Kamenetz is the 25 year old author of Generation Debt, a new book that discusses the financial problems of young Americans. A former columnist for the Village Voice, Kamenetz critiques her generation for having too much debt and little control over their spending.  I haven't had a chance to read the book yet, but today's Salon.com interview with Kamenetz was very interesting (subscription or free day pass required):

"These days, when you are 21, you can get a credit card and you can use it to fly to Miami on spring break. People do that because they see their friends doing it and that is the normal thing to do, but it's a mistake. At the same time, these people are also going home and eating Ramen noodles. It's schizophrenic. For instance, everyone has cable TV now. Even very poor people have cable TV. And there is this whole shadow credit economy where no matter how badly off you are, you can buy a big-screen TV. It's messed up."

Kamenetz also discusses credit cards on campus, mandatory financial education, the job market and student loans in her interview with Salon. If you are interested in reading more about Kamenetz you can visit her blog for more information. It is also interesting to read the Amazon reviews of her controversial book.

Do you agree that this latest generation has more financial problems than others? What do you think needs to be done? What were your experienced with money in your 20's? Share your feedback in the comment section below.

Consumer Protector: Wisconsin State Senator Russell Decker

Wisconsin may be the latest state to allow consumers to "file freeze" their credit records thanks to the efforts of Wisconsin State Senator Russell Decker. Decker recently proposed a bill that includes numerous identity theft protections:

• Restricting the required use of Social Security numbers by employers.
• Prohibiting discrimination by businesses against people who refuse to provide their Social Security number.
• Making mail theft a felony that is punishable by fines up to $10,000 or up to 3 1/2 years imprisonment.
• Creating new identity theft penalties for criminals who prey on seniors, children and the disabled.
• Allowing Wisconsin residents to request credit report "file freezes" to lock their data from unauthorized access.

If passed, this bill would grant some great new protections to Wisconsin residents. It appears that Senator Decker considers identity theft and consumer privacy to be an issue close to his heart. Along with regularly refusing to provide his Social Security number to businesses that don't really need it, Senator Decker considers Social Security numbers to be overused. Hopefully Senator Decker will continue to push for consumer protections like the guidelines proposed in this bill.

What do you think of these proposed changes? Will they be good for Wisconsin? Share your feedback in the comments section below.

Have you tried doing your taxes yet?

The W-2s and 1099's have all been sent by now. Have you started thinking about your taxes yet?

I usually go to a friendly and affordable accountant for my annual filings. But a recent move across the state and some misguided ambitions led me to try filing on my own this year. I got jump start on my taxes President's Day weekend using the discounted TaxCut software that is offered online to Vanguard customers.

Good thing I tried this out early...after three hours of anxiety I decided that doing my own taxes is not going to work for me. Between a stock sale, a 401(k) rollover and an inheritance...I was way in over my head.  I may be a credit expert but I am not a tax genius and I most definitely do not understand cost basis analysis. Because I got started early, I still have plenty of time to send in my tax documents to my old preparer. When it comes to taxes, sometimes it can be better for your wallet and your blood pressure to pay a professional.

If you haven't thought about your taxes yet, set aside a few hours this weekend to crunch the numbers. By either using this free tax estimator or starting to prepare your filing now, you'll have plenty of time to work out any issues or problems that arise. If you do decide to work with a tax preparer be sure to shop around before deciding on a service. Also, avoid the expensive refund anticipation loans that are offered by many tax preparers. 

Have a tax tip or nightmare to share? Always do your taxes on your own? Recommend using a tax professional instead? We'd love to hear from you. Post your feedback in the comments section below.

President's Day weekend: How did your finances fare?

President's Day weekend is pretty much known for big sales instead of historical reflections on the lives of Abraham Lincoln and George Washington. All the major department stores have President's Day weekend sales. Furniture stores offer "no sales-tax" deals. And mattress stores promote "sleep for free for a year" financing programs. It can be difficult to keep your credit cards and bank accounts safe from all these sales! Recover from your President's Day spending by checking out these recent CreditBloggers.com posts:

• The truth about "Same as cash" offers.
  
• The hidden dangers of in-store financing deals.
• Bad deals to watch out for at the Best Buy register.
• How to break out of the payday loan debt cycle.

Did you overspend this President's Day? Share your stories, questions and feedback in the comments section below.

George Washington: Debt and money facts about America's first president

President's Day weekend is only a few hours away. In recognition of this holiday, CreditBloggers.com featured information yesterday about Abraham Lincoln's fascinating ties to credit, debt and loans. Not only did Lincoln work as a credit reporting correspondent, he also had some very interesting things to say about getting yourself out of debt.

Today, we are going to continue our presidential history geek-out session by investigating credit and money facts related to George Washington:

• Washington was land-rich but often cash-poor, and had to borrow money in order to get to his first inauguration in New York. His tobacco plantation on Mount Vernon often lost money, leaving Washington in debt to British businessmen.
• George Washington is quoted as saying "Worry is the interest paid by those who borrow trouble."
• George Washington often felt obligated to grant loans to his employees and acquaintances, even when he was in debt himself. He did not like to charge interest on these loans and the loans were often left without being repaid. Washington lent a weaver money to bring his family to America and a friend money to send his son to college but was not repaid for either loan.
• George Washington's portrait has been on the quarter since 1932 and on the dollar bill since 1869. The first president's image also briefly appeared on the 20 dollar bill.
• George Washington only had the equivalent of an elementary school education (Okay, this one is not related to credit…but isn't it interesting?)
• George Washington oversaw the development of a funded national debt, the launch of the Bank of the United States and the development of new taxes in cooperation with Alexander Hamilton.

As you can see, Abraham Lincoln and George Washington had very different opinions about debt and financial management. While Lincoln was careful with his money, Washington often had trouble with debts. Which president are you most like when it comes to managing money? Share your feedback in the comments section below.

Q&A: How forgiving are the credit gods?

The credit reporting system is not perfect. You could even say that it has many faults...but being unforgiving is not generally considered to be one of them. Under Fair Credit Report Act (FCRA) laws, every negative record has a set expiration date. In today's reader Q&A, we received a question from a woman named Mary about rebuilding her credit:

What can do to make my credit good?  Do you think the CREDIT GODS will be forgiving?

It's an interestingly phrased question, isn't it? Equifax, Experian and TransUnion have probably earned their reputation as "credit gods" due to their relative power over people's financial lives. Credit impacts your loan rates, credit card rates, home insurance, auto insurance, utility rates, employment, apartment deposits and cell phone rates. Combining this power with a long track record of secrecy (now finally lifting) is a recipe for Zeus-like status.

Luckily the credit bureaus are very forgiving deities. Under national FCRA law, every negative record on your credit report has a set expiration date. This includes bankruptcy, late payment, foreclosure,  lien, judgment and collection records. All it takes for a clean slate is 7-10 years of patience. You can read a full list of when negative records expire from your credit reports here.

However, most of us aren't willing to wait that long to see some improvement.  Instead of waiting you can start improving your credit now by opening a few new accounts, using them responsibly each month and paying the bills on time. It's amazing how this simple process can cause dramatic improvement in credit scores. If you have trouble opening standard accounts, try applying for a secured credit card or card that accepts borrowers with poor credit first.

Free online money management tool

Let's face it...I'm busy...you are probably busy too. Who has time these days to sit down and balance their checkbook or update complicated financial software each month? And managing your individual accounts online can be a nightmare. If you have a bank account, a retirement account, a savings account, a mortgage, an auto loan and three or four credit cards - that is nine accounts to login to on a regular basis!

Try simplifying your money management by signing up for a free OnCenter account. This service from Yodlee allows you to securely login to one website to see up to date information about all your savings, banking, investment, rewards, credit card and loan accounts. When you want more information or need to pay a bill, just click on the links in OnCenter to be transferred directly to the account. Plus, there are great charts and graphs to help you track your financial standing month-to-month.

I've used OnCenter for a few years now and had no issues with the free service. Yodlee makes money by selling similar software to financial planners and service providers such as Bank of America, AOL and E*TRADE. The service is free, safe and very helpful...what more could you want!

You don't have to take my word for it though (do they still say that on Reading Rainbow?). Here are some other bloggers who agree that Yodlee is a great money management tool: Ryan Battles, Frugal Momma and MyMoneyBlog. 

Prime rate: What is it? Why does it impact your credit card rates?

Credit card interest rates are on the rise. At Credit.com we've been tracking increased APR's for the last few months. It's a lot of work to update all our credit card offers, so we definitely take notice when there are changes. What is driving these increases?

Many credit card interest rates are rising because they are directly tied to the "prime rate." The prime rate is determined by the Wall Street Journal surveying the top 30 leading banks to see what rates they are offering to their best customers. When 75% of the banks change their rates, a new prime rate is published. Prime rates move up and down in coordination with short-term interest rates set by the Federal Reserve Board.

Currently, the prime rate is 7.5%. Last month, the prime rate was 7.25% and a year ago this rate was 5.5%. Aside from a brief increase at the end of 2005, this is the highest the prime rate has been since 2001.

It's common for credit card offers to be listed as "prime plus" as in the prime rate plus 2% to 15% on average. Most credit card offers range from 9% to 22% APR right now because of the prime rate. You will also see references to "prime plus" with student loans and auto loans. You can check the "Schumer's Box" on your next credit card statement or look for the "Rates & Terms" link online to see where your credit card APR currently stands. 

Abraham Lincoln: Interesting credit and money facts about the 16th president

President's Day weekend is just around the corner.  Before the holiday weekend starts, things are going to get a little geeky here on CreditBloggers.com. Taking a break for the normal information about consumer credit scores, scams, deals and identity theft, we are going to dig in to a bit of presidential history.

As my fellow credit nerds may know: President Abraham Lincoln had interesting ties to credit, loans and debts. Here are some fun credit and money facts about Abraham Lincoln in honor of President's Day:

• Abraham Lincoln was the first of four presidents who worked as a credit reporting correspondent for Dun & Bradstreet. Before the information age, credit reporting was conducted by sending agents to investigate a business or a business owner in person. Abraham Lincoln was well known for sending back detailed and humorous reports. "Of one of them, he described a grocer in his home town of Springfield, Illinois as possessing a rat hole in his shop that 'would bear looking into.'"
• Abraham Lincoln's portrait appears on both the penny and the five dollar bill. The 16th president has been on the penny since 1909 and the five dollar bill since 1928. Lincoln was also on the hundred dollar bill between 1869 and 1880.
• Abraham Lincoln often served as a consumer advocate. In one case, an impoverished old woman was being charged $200 to obtain a $400 pension. Lincoln sued the pension company and won. In another case he defended a mentally ill woman against mortgage fraudsters.
• Abraham Lincoln was a supporter of a national banking system to provide affordable credit to help build American industry.
• Abraham Lincoln once turned down a loan request for $80. Calling his step-brother "idle" Lincoln writes: "You are now in need of some money; and what I propose is, that you shall go to work, "tooth and nail," for somebody who will give you money for it." Lincoln also offers to match every dollar his step-brother earns on his own as a way to get him out of debt: "Now, if you will do this, you will be soon out of debt, and, what is better, you will have a habit that will keep you from getting in debt again. But, if I should now clear you out of debt, next year you would be just as deep in as ever." Click here to read the full text of this fascinating letter from Abraham Lincoln.

Happy President's Day! I hope that these credit and debt lessons from President Abraham Lincoln give you something to think about this weekend. Share your feedback about this presidential history lesson or other interesting facts about Abraham Lincoln in the comments section below.

Secret credit card fees enter the spotlight

A congressional hearing has been held this week to discuss the issue of secret credit card fees. These secret fees are called "interchange" fees and they are applied to every purchase a consumer makes with a credit card or debit card:

The subject of the hearing is interchange, a secret fee of about 2 percent that Visa, MasterCard and their member banks charge consumers each time a credit or debit card is used. Visa and MasterCard's non-negotiable contracts with merchants require that the fee be built into the advertised price of merchandise, forbid the fees from being shown on receipts, and effectively block cash discounts from being offered in most situations. Other credit card companies don't charge interchange as such because of differences in the way payments are handled, but nonetheless charge similar fees to process transactions.

This secret interchange fee adds up to nearly $40 billion a year from the pockets of businesses and consumers. And interchange fees are applied in addition to the late fees, overlimit fees, balance transfer fees, withdrawal fees and annual fees that credit card companies already charge consumers.

What do you think about these fees? Are they just a part of the "cost of doing business" as MasterCard has suggested? Or are they part of a damaging monopoly?  Share your opinion in the comments section below.

Need A Fast Tax Refund? Avoid Refund Anticipation Loans

Would you pay a lender 100 – 1800% to borrow your own money? Millions of consumers do when they get their tax refunds immediately through Refund Anticipation Loans (RALs). Though the service may seem innocent enough – get your refund now instead of waiting a few weeks – the costs are staggering.

According to a recent report by the National Consumer Law Center (NCLC) and the Consumer Federation of America (CFA), one out of every 10 tax returns in the 2004 filing season involved an RAL and those consumers paid an estimated $1.24 billion in loan fees and more than $360 million in administrative fees. The working poor are especially vulnerable targets of this "coporate profiteering," says NCLC's Chi Chi Wu.

The report also warns that if the taxpayer's refund is denied or delayed for any reason, the taxpayer will still be on the hook for the pricey loan, which will then likely be turned over to a debt collector. And we know that dealing with debt collectors is about as fun as, well, dealing with the IRS.

Want your refund fast? NCLC and CFA recommend you file your return electronically (E-File) and ask the IRS to directly deposit your return into your bank account. Avoid the steep price of an RAL to get it faster. When it comes to these loans, haste does make waste…or worse.

Avoiding hidden dangers at the Best Buy register

Best Buy is dangerous enough as it is...With all those big screen TV's, shiny CD's and other alluring consumer gadgets, a shopping trip to Best Buy can be bad news for your credit cards and bank accounts. Along with these dangers, Best Buy also has three hidden traps at the register than can come back to bite you. Here's what you need to look out for:

1. Too good to be true financing - 0% percent offers range from 90 days to 30 months depending on what kind of electronics you are buying. If you don't have the cash you need to buy something right away, these offers can be very appealing. And as long as you pay the balance off before the end of the 0% term, they can be a good deal. But as soon as you miss a payment, you are in a world of pain. You are suddenly responsible for paying a 28% APR on the debt from the start of the finance program. If you decide to use these 0% financing programs, be absolutely sure to pay the bill on time every month and to pay off the balance well before the end of the term. Plus, depending on the type of account the retailer is offering accepting a financing offer can damage your credit score.
2. Credit card offers in the fine print - I am speaking from experience here - When applying for 0% financing on a c