Money tip: Safeway makes it easier to track your health care costs

Here's a great money tip for a Friday: Safeway (Which also operates Vons, Randalls, Tom Thumb, Genuardi's and Carrs supermarkets) conveniently prints their customer's grocery receipts with special markings to indicate items that may qualify for Health Care Flex Spending Account reimbursement.

You can find a complete list of the medical and health care costs that qualify online at FSAFEDS.com or on your plan's own website, but it is difficult to remember the eccentricities of these lists. For example: that Metamucil qualifies for reimbursement but Ensure doesn't.

Instead of referencing your Flex Account's guide, you can simply look for the "#" mark next to health care purchases that may qualify on your Safeway receipt. Then, just fax in the receipt to your Flex Plan company and you'll be reimbursed with pre-tax dollars.

Funny Money Friday: Identity thieves in comic books

Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called "Funny Money Friday."

What do you picture when you think of identity thieves? Are they sophisticated international criminals? High flying ninjas? Russian mobsters? In the comic book world, identity thieves are just like any other bad guy. Earlier this week, I discovered a Hardy Boys comic book with a plot centered on catching identity thieves:

...Frank and Joe take to the skies to crack a diamond-smuggling team of sky-divers and then encounter a young woman whose identity has been stolen - literally! Or at least that's what a young woman claiming to be Joy Gallagher claims - that another girl is now living her life, with her friends, her family, and in her body! Action, thrills, and lots of mystery!

And the identity theft adventures don't end with the Hardy Boys. The Teen Titans have also started fighting identity theft on the comic book pages! It probably won't be long before Batman, Spider-Man and The Hulk start taking on these criminals, too!

Following in the great tradition of comic book villains such as the Joker, Magneto and Lex Luthor, what should we call this up and coming identity thief character? Phineas Phisher? Mister Skimmer? Share your ideas for identity theft villains in the comments section below!

Credit Geek contest winners!

We received so many great entries for our "You might be a credit geek if..." contest last Friday. It was impossible to choose just one winner!

CreditBloggers.com has decided to award two participants for their creativity and credit geekiness! We're going to send a free copy of the book Identity Theft: Protect your Name, Credit and Information to:

• Liz S from MoneyStuffed.com - "You discover that some credit card companies won't let you pay your credit card more than once in a 24 hour period."
• SingleMom from Single Ma's Fabulous Financials - "You find yourself explaining how credit works to your mortgage broker."

Congratulations Credit Geeks! You'll be receiving your free book in the mail very soon. Thanks to everyone who participated in the Funny Money Friday contest!

Credit around the world: Premium credit cards in China

Credit cards are so prevalent in America that we probably take them for granted. If you are like me, only a few actual bills ever pass through your wallet; most of your purchases are made with plastic. Even with its faults, the US credit system is remarkably convenient and reliable. Which is why it is interesting to tune into international credit news once in a while. For example, this news report from China today:

According to media reports, the Beijing-based China Minsheng Bank released earlier this month a new kind of credit card, the "diamond card," with an exorbitant slogan of "once acquired, life-long dignity and honour guaranteed." The bank does not accept applications for the card, but only invites privileged clients.

Now that's what I call a slogan! Forget "Life takes Visa" or "For everything else there's MasterCard!" I want a credit card that promises everlasting dignity and honor!

The Chinese bank issuing the "diamond card" has come under fire because the card caters to high level government officials and celebrities. The card also includes a three million yuan ($375,000) overdraft protection when many government officials only earn about a thousand yuan a month.  The US equivalent would be credit cards with a three million dollar credit limit for people who only earn $12,000 a year.

Prime rate increases to 7.75%

Ben Bernanke, the new Chairman of the Federal Reserve, followed in Greenspan's footsteps yesterday by raising the federal funds rate by .25% to 4.75%. This increase led to the prime rate being increased from 7.5% to 7.75%. What does all this financial mumbo-jumbo mean to you?

Each time the Federal Reserve increases the federal fund interest rate, interest rates on credit services tied directly to the prime rate also increase. Mainly, credit card interest rates and home equity lines of credit interest rates are impacted by these increases. Many credit card issuers set their APR's as "prime plus," as in the prime rate plus a set percentage. Check your credit card accounts online in the next few days. You'll probably see that your APR's have increased along with the prime rate.

Do you think interest rates will continue to rise? How will interest rate changes impact your finances? Share your feedback in the comments section below.

Mortgage brokers receive bonuses for selling high-interest loans

Your mortgage broker is on your side, right? Maybe not. According to an article in today's Los Angeles Times, mortgage brokers receive big bonuses when they sign customers up for higher interest loans than what they actually qualify for:

Say a consumer qualifies for a $400,000 loan at a 6.75% annual interest rate and an upfront fee of 1 percentage point, or $4,000. If that same borrower agrees to take the loan at 7%, a lender might reward the broker with a bonus of half a percentage point, or $2,000.

The $2,000 is the yield spread premium. The "spread" reflects the difference between the lower interest rate that the borrower could qualify for and the higher interest rate that he or she actually paid. The "premium" is the reward paid to the broker.

This little known broker kick-back is starting to gather more attention for legislators and law enforcement. California Attorney General Bill Lockyer is a part of a nationwide task-force that went after Ameriquest Mortgage for these deceptive practices.

How you can you make sure you are getting the mortageg rate you deserve? Use online loan calculators to estimate your rates and compare different mortgage offers between a broker, online lender and bank. Don't accept a loan offer without evaluating all the terms and conditions.

What do you think about these kick-backs? Do hard working brokers deserve the bonus? Should it be required to disclose this premium to consumers? Have you worked with a mortgage broker before? Share your feedback in the comments section below.

What Else Can Credit Scores Do? Are They a One-Trick Pony?

The short answer is "hardly."  Credit scores are actually quite miraculous animals.  Slightly modified they can be used to predict a lot of different things.  In fact, if you have credit with any large sophisticated lender then you were probably scored (and are still being scored) by models that are designed to predict much more than whether or not you will pay your bills on time. 

All scoring models have what's called a "performance definition."  A performance definition is basically a complicated way of asking the question…"what are you designed to do?"  So, for the FICO credit scores that we've all become accustomed to…they are designed to predict whether or not you will go 90 days past due or worse in the 24 months after your credit file was scored.  That's the FICO credit score's Performance Definition…90DPD+ over 24 months.  Don't make this complicated because it really isn't.  Car keys were built to start cars.  A toaster was built to toast bread.  And a sock was meant to be worn between your foot and a shoe.  Those are all performance definitions.   

Here's a list of some other lesser known models that are used to predict something other than general credit risk…and no, you can't go out and get these scores anywhere.  Only your lenders and insurance companies have access to them.  Sorry!

Revenue Scores – These scores are designed to predict whether or not you will generate positive credit card revenue soon after you activate your credit card.  The higher your revenue scores are the more likely you are to revolve a balance from one month to the next.  And that means revenue!!

Lenders will use revenue scores in conjunction with risk scores when you apply for credit.  They'll also use them when they are buying their lists from the credit bureaus to determine whom they really want to send their pre-approved offers to.  If you have a decent credit score but a terrible revenue score then you might not get an offer.  On the flip side…if you have a not so good credit score but a great revenue score then most credit card issuers will roll the dice on you because you have such great revenue potential. 

Bankruptcy Scores – These scores are pretty similar to general risk models.  But, instead of predicting any sort of higher level of delinquency, these models are specifically designed to predict the likelihood of you filing for bankruptcy. 

Lenders will use bankruptcy models in conjunction with risk scores when you apply for credit.  Some lenders are particularly concerned about letting someone who is likely to file for bankruptcy in their doors…so they use these models to weed them out. 

If you have a poor credit score then you will probably have a poor bankruptcy score.  A lot of what's "predictive" of general credit risk is predictive of bankruptcy risk. 

Attrition Scores – These scores are built to predict if someone will actually STOP using credit cards.  Attrition is essentially customer erosion.  And, if a lender can do something to slow down that erosion then they're willing to do it. 

Attrition scores are used in the credit card industry primarily and here's a scenario where it could be used…

Let's say that I use an attrition score to "score" all of my credit card customers.  The lowest scoring 5% are going to be the most at risk of stopping their use of my credit card.  So, what can I do about that?  It's simple, do something nice for them so that they'll NOT stop using your credit card.  Why do you think you get convenience checks or phone calls from "customer service?"  It's because you are more likely to stop using their credit card so they want to just touch base with you so you don't forget about them.

Personally I think the entire credit card industry misses the boat big time on this one.  I've had the opportunity to sit through a ton of focus groups where consumers were asked why they used (and didn't use) their credit cards.  It was so entertaining.  Most of us so called "credit experts" would assume that it was all about the interest rates and credit limits.  Not even close.  Most of the consumers didn't care about all of that stuff.  They cared more about the color of the card, when the bill comes in the mail, if you can reach a customer service agent or not when you call and things like that. 

If the hot shots at the credit card companies would spend more time treating customers well and spend less time and money on silly commercials the entire industry would have a better reputation. 

Response Scores – You know all of that mail you get from creditors trying to get you to apply for one of their credit cards?  Well the industry average response to all of that mail is about one half of one percent.  It's terribly low.  There are two ways for them to continue to acquire new customers…increase that percentage or send out more mail. 

Most large credit card issuers send out over 1 billion (yes, I said billion) credit offers each year.  The reason they send out so many offers is because the response rate is so low.  Using a response score the credit card issuers can do a better job of targeting the consumers who are more likely to respond to one of their offers. 

Again, I believe the industry fails miserably here.  I've gotten 3 offers from the same credit card company IN THE SAME DAY before.  I've also gotten offers from credit card companies trying to get me to sign up for the EXACT same card that I already have.  They waste so much money with their scattergun approach and could do so much better if they just utilized response models (and common sense) a little more.

Behavior Scores – These aren't really credit scores.  These are scores that just use information in the credit card issuer's "Masterfile."  A Masterfile is simply their record of your account use.  Yes, that can be scored too.

They use these models to determine whether or not they are going to re-issue a card to you when it expires, increase or decrease your credit limit and even approve or decline over limit expenditures. 

Almost all credit card issuers use behavior scores.  Some do a good job with them…some don't. 

Collection Scores - Oh boy, you don't ever want someone to score your credit file with a collection score.  These scores are only used to score consumers who have an account that's being handled by a collection agency or by a banks internal collections department.  It's never good to be scored by one of these models.

The purpose of a collection score is to determine how likely a collection agent is to collect a past due debt from you.  If you have a higher collection score then you are more likely to pay up.  If your score is lower then you're less likely to pay them. 

Insurance Scores – These are VERY controversial.  These scores look at your credit reports and even your previous insurance claim information to predict whether or not you will be a profitable insurance customer. 

There are a couple of different types of insurance scores.   Some predict the likelihood of you filing an insurance claim.  Others predict the likelihood of the insurance company collecting more in premiums than they will pay out in your insurance claims.  This is called a "loss ratio" model.  They are simply trying to determine if you will be a profitable customer or not.  If they can collect $2,500 a year in premiums and only pay out $500 in claims then you were profitable that year.  If, however, they collect $2,500 a year in premiums and pay out $25,000 in claims then that's not good for them.  They're likely to increase your rates or cancel your coverage. 

The question that consumers have is how in the world their credit behaviors impact their insurance scores.  Very much like credit scores, if you have excellent credit then you will most likely have an excellent insurance score and vice versa.  Here are their arguments…

• Consumer's who have bad credit are more likely to file fraudulent insurance claims.  Makes sense to me.
• Consumer's who have bad credit are more likely to be under stress and therefore are more likely to have an automobile accident.  I'm not sure I agree with this one but I guess I understand it.
• Statistics prove without a shadow of doubt that consumers with good credit are better insurance risks than those with bad credit.  Can't argue with solid statistics. 

So the next time you think that all you have to do is earn and maintain an excellent credit score…think again. 

Oh no! Can't pay your tax bill?

First, don't avoid filing. The penalties and interest for not filing will make your situation worse.

• Don't charge it. As tempting as that might be, it will cost you dearly. First, there are add-on processing fees and set-up fees. The government has special firms that handle credit card payments for taxes. These firms charge a standard 2.49% convenience fee. When you add in standard credit card interest rates, you could be adding to the cost of your taxes significantly.
• If you can afford to pay some now and more later, consider setting  up an installment plan with the IRS. The IRS charges $43 to set it up, and you'll pay interest and penalties, too. The IRS interest rate is now 7%, and a 0.25%-a-month penalty means you'll basically be paying 10% on the debt (if you file on time). You can set up and installment plan by filing form 9465. And, you can propose your monthly payments. If you owe $10,000 and pay it off in less than three years, you could save close to $1,000 over paying by credit card.
• Liquidate a savings accounts, savings bonds, stocks, etc.
• Borrow from a family member.
• Take out an equity loan in real estate you own.
• Qualify for a personal loan.

Remember - don't avoid filing.

They're Giving It Away!

If you've been putting off developing a retirement plan, how about letting Consumer Reports steer you to some good, free or low-cost financial advice? The magazine recently gave ten plans a try, sending in testers with different middle-class family situations. There was a couple with young children living on one salary,  someone in his 60's, almost ready to retire, as well as someone pushing 50 who is interested in an early rerirement. Then the magazine had an independent expert review the plans.

While the advice the testers received was generally sound, Consumer Reports found that you won't get a lot of hand-holding or specific stock advice from the freebie plans. So is it worth the time and energy? It's definitely worth it – especially if you choose one of the services where you'll end up with a written plan.

There's a real benefit to having something in writing. According to research by the Consumer Federation of America and NationsBank, people with written financial plans report having two times as much money as people without plans.

There were only two companies in Consumer Reports' investigation that suggested specific investments – and they recommended their own mutual funds. While these may be low-cost and well-run funds, Consumer Reports recommends that you only work with "fee-only" certified financial planners who have had at least five years of experience and will not personally benefit from their advice to you.

Interestingly, the magazine learned that there were issues with expensive plans as well as with the less expensive and free ones, leading it to conclude that you can't totally hand off the responsibility for managing your money and keeping your retirement plan on track, even if you pay a lot for the service.

Consumer Reports specifically recommends that you be cautious about the different assumptions planners can make. For example, if planners assume too low an inflation rate or too high a return rate on your nest egg – to say nothing of too short a lifespan -- a retirement plan can easily fall short of its mark.

The free services Consumer Reports tried were from Charles Schwab, Wachovia Bank, and Fidelity Investments. In the $100 to $250 range, the testers went to MyFinancialAdvice, T. Rowe Price, and FinancialEngines. T. Rowe Price, Alliance of Cambridge Advisors, and Garrett Planning Network plans cost between $500 and $650. The Vanguard Group and an independent, fee-only planner were the priciest services, at $1,500 and $3,000, respectively.

Get It Now!

You've seen all the stories about the importance of planning for retirement sooner rather than later, right? Consumer Reports' findings on "bargain financial advice," which includes tips on how to avoid rip-offs, can help, but it will only be available on the 'Net for free until April 10, 2006. After that, you'll have to subscribe to read this important article. So don’t procrastinate and get yourself some free help planning for your retirement.

You might be a credit geek if...

CreditBloggers.com received some terrific entries in our "You might be a credit geek if..." contest for Funny Money Friday last week. Here are some of the best entries so far.

You might be a credit geek if...

• You ask to see his credit reports (yes, all three bureaus) before you agree to a first date.
• Your idea of a relaxing weekend is to curl up on the sofa and review your credit report for errors.
• You give all your friends the same wedding gift--a copy of Evan Hendricks' book, "Credit Scores and Credit Reports."
• You have a newsreader consisting entirely of ID theft and credit news blogs.
• You could probably recite verbatim FACTA.
• You are more fired up about HR 3997 than any other legislation in congress.
• You start a website because you're tired of people asking you the same questions over and over again about credit and credit reporting. Now you can just refer them to your website for the FAQ.
• You read the terms and conditions on every credit offer you get in the mail simply for the entertainment value.
• You feel the need to share with your friends how entertaining these offers are. "For real! MBNA expects me to take out a line of credit with NO CAP on the transaction fee! Can you believe those losers!?!"
• You discover that some credit card companies won't let you pay your credit card more than once in a 24 hour period. *cough* Capital One *cough*
• You ask your spouse what makes you a credit geek and he replies, "I don't have the time to answer that question!"
• You contact Kiplinger to correct them on how to calculate property tax rates in an article about where the best places to retire are. (They said PA rated lowest because of property taxes in Harrisburg and I contacted Dauphin County to learn their specific method of calculation to prove Kiplinger wrong.)
• You know the FDCPA and FCRA like the back of your hand.
• You can answer a credit question with a direct quote that is verbatim from one of the above.
• You get tense when someone asks for your Social Security number.
• You know the exact day of the month each of your creditors update to all 3 bureaus.
• You know the 4th bureau but you think they suck because hardly anybody is reporting to them right now.
• You know the difference between a hard and soft inquiry.
• You think it's cool to have lots of credit cards with very high limits because you know how to maximize the benefits of each while paying zero interest.
• You find yourself explaining how credit works to your mortgage broker.
• You can type a validation letter in less than 10 seconds.
• You own stock in FICO.

Are you a credit geek too? Enter your best "You might be a credit geek if..." sayings before Wednesday this week to qualify to win a free copy of the book Identity Theft: How to Protect your Name.

Saving your tax refund

The average tax refund this year is expected to be the largest ever, a record $2,100, according to the IRS. While you may start out with good intentions for using your refund, the money can easily start to burn a hole in your pocket. Before you consider using your refund to buy a big screen TV or a new pair of shoes, consider how smart it would be to save the money instead.

Using Credit.com's free savings calculator, you can see exactly how saving your refund can pay off. Investing the $2,100 now can easily lead to having $4,661 in ten years. A little patience combined with an 8% return can double your money. Would you rather have $4,661 in ten years or $2,100 today?

Have you already received your refund for 2005? How do you compare to the $2,100 average? Share your feedback in the comments section below.

Funny Money Friday: Are you a credit geek? Enter our contest!

Each week, CreditBloggers.com takes a look at the lighter side of the personal finance week in a series we call "Funny Money Friday."

CreditBloggers.com includes a team of credit experts who post about personal finance topics. While each expert has their own unique specialty, we are all united by our "credit geekness." We love this stuff! With a nod to Jeff Foxworthy, you might be a credit geek if…

• You have accidentally spelled "fish" with a "ph" on your grocery list.
• You track your credit scores more closely than your weight
• Forget Brad Pitt and Angelina Jolie! You consider the launch of the VantageScore to be the biggest scandal of the year.
• You call credit cards "tradelines."
• You get a headache each time someone mentions the "fact" that checking your credit data damages your credit reports.
• You lecture retail store clerks about the negatives of opening store credit cards.
• You sign up to tour Equifax headquarters instead of the Coca-Cola factory on your trip to Atlanta.
• You bring up identity theft and debt statistics at cocktail parties.

Are you a credit geek too? Enter your best "You might be a credit geek if..." saying in the comments section below. The best entry received before Wednesday next week will receive a free copy of the book Identity Theft: How to Protect your Name. Our previous contest winner was MyMoneyForest.

Reader Question: Recovering from collection accounts

This morning we received a question from Kevin L. about improving his credit score and recovering from collection accounts:

I have been working on cleaning up my credit report.  I am now left with 2 outstanding collection accounts and a credit score of 611. I also opened a "secured" credit card, and have the balance at $0.  My question is, do I pay off the old collection debts? If so, should I, or CAN I, even go to the original lender and pay them? One is for AT&T (now sold to Palisades), and the other is a credit union (now sold to Arrow Financial).  Both are from Illinois, and I have now relocated to Arizona. One is estimated to expire on 7/09, and the other is expiring 08/2008. Should I pay them? Or let them fall off and continue to rebuild with this secured card and try to get a car loan?

Kevin's situation is fairly common. It is one of those odd credit loopholes where doing the right thing (paying off the money he owes) may not actually be the best thing for his credit. Collection records remain on credit reports for 7 years, whether or not you pay the debt off. Kevin would only see a minor improvement in his credit score (related to reducing his overall debts) at best by paying off these collection accounts. The major credit score improvement will occur in 2 to 3 years when these records expire from his credit reports.

Paying these collection debts can still be a good move, however. It may not improve Kevin's credit score much but it can stop the collectors from calling him. Consumers can't go back to the original creditor to pay the debts in most cases. Once the debt has been sold to the collection agency, you need to work with that company directly to negotiate a payment deal.

In Kevin's situation, he can improve his credit score by using his secured credit card regularly and paying the balance off in full each month. After a few months of this responsible credit behavior, the offers for other types of credit will begin appearing in the mail. Opening an unsecured credit card or an auto loan is a great next step to help raise his credit score.

Next question? Share your questions or feedback in the comments section below. You can also email your questions to the CreditBloggers.com team.

Tune in: CreditBloggers.com appearing on EverydayWealth Radio

Tune in to the EverydayWealth Radio: Your Credit Advocate program this Thursday at 12:00 PST to catch CreditBloggers.com editor, Emily Davidson, discussing current personal finance topics. This online radio program is hosted by consumer advocate, author and CreditBloggers.com contributor Gerri Detweiler.

Have credit questions or concerns? Call in at 1-877-474-3302 between 12:00 and 1:00 pm PST tomorrow to ask the experts on the air!

Coming soon: Better and more accurate credit report data

The Federal Trade Commission and other regulators are in the process of developing new guidelines to regulate the accuracy of information provided to the credit bureaus. The creation of these guidelines is part of the 2003 Fair and Accurate Credit Transactions (FACT) Act. According to an article by Reuters:

Areas to be examined include identifying patterns, practices and specific forms of activity that can compromise the accuracy and integrity of information furnished to credit bureau and reviewing methods, including technological means used to furnish such information.

Equifax, Experian, TransUnion and Innovis currently collect data on a voluntary basis from creditors, lenders, insurers, courts, tax agencies, employers, health care providers and debt collectors. There are very few regulations about what information these businesses need to provide. The Fair Credit Report Act (FCRA) only specifies that the information they send in must be correct.

This lack of regulation has led to some businesses reporting incomplete information on consumers. For example, Capital One famously doesn't report credit limits. Also, some smaller companies may only report negative information or only report to one of the three bureaus. Missing information on credit reports can often lead to low or inaccurate credit scores for consumers. It's only fair that businesses should report both the bad and the good about their customers.

What regulations would you like the FTC to put in place? Do you think these new rules will help make your credit reports more accurate? Share your ideas and feedback in the comments section below.

How to deal with collection agencies

Even the most careful consumer can occasionally find themselves dealing with a collection agency. Overdue magazine subscriptions, parking tickets, video store late fees, library fines, medical bills and more can all be sold to collection agencies. To make matters worse, collection records are extremely damaging to credit scores and will remain on credit reports for 7 years whether or not the account is paid off later.

What should you do if you find yourself sucked into the collection world? Here are a few tips:

• Take overdue bill notices seriously. Call the creditor immediately if you believe the bill is inaccurate or fraudulent. Don't ignore these warnings.
• Pay up. It is sometimes better to pay a bill you feel is inaccurate before it is sent to collections rather than continue to protest and risk damaging your credit. You can always continue to dispute the bill after it has been paid.
• Know your rights under the Fair Debt Collection Practices Act. Collectors cannot contact you at unusual times or places, cannot threaten or harass you and cannot tell you false things.
• Understand how collection accounts are reported. Once the collection account appears on your credit report it will remain there for 7 years. The record will not be removed from your credit report if you pay off the debt. Also, you may see multiple records appear on your report if the collection debt is sold.
• If you do decide to pay the debt, negotiate a reduced settlement and get everything in writing before you send any money.
• Watch the collection agency closely. The agency may try to collect more than your agreed settlement or to remove extra funds from your checking account. Having a written agreement can help you stop these actions.
• Keep detailed records. Save copies of letters and other communications with a collector for future reference. You'll need these documents if the collector tries to change the date of your record so it will remain on your credit report longer.

You can read more about dealing with collection agencies online here and here. Have you had to deal with a collection agency in the past? Share your stories and feedback in the comments section below.

Spring clean your credit scores

Spring officially started yesterday. That means it is time to take a quick look at your credit. Most of us could stand to give our credit scores a bit of a boost this spring, myself included. Increasing your credit scores can help you save big on loans, credit cards, insurance, utilities and more. Here are a few things you can do to spring clean your credit scores:

• Aim for a balance of 2 to 6 credit cards and 1 to 2 loans on your credit report. Opening a new credit card or loan could give your scores a boost.
• Check your credit reports for errors. Are there mistakes or fraudulent records holding your credit score back.
• Reduce your credit card debts. Keep your credit card balances well below 35% of your credit limits.
• Dispute expired negative records. Most negative records such as collection accounts, late payments and bankruptcy filings should expire from your credit report after 7-10 years.
• Watch out for common credit mistakes people make. You may think these steps will give you a boost but they can actually damage your credit.

Where does your credit stand right now? What are your improvement goals for this spring? Share your feedback in the comments section below!

ChoicePoint CEO paid $5.3 million

These last few days have been chock full of personal finance news. Between the VantageScore announcement, the H&R Block banking charter and the Financial Data Protection Act, I was too busy to notice a small announcement about ChoicePoint.

Remember ChoicePoint? The company that provided 163,000 consumer records to an identity thief posing as a business customer?  Turns out that ChoicePoint CEO Derek Smith was paid $5.3 million dollars in 2005. He apparently didn't get a bonus (how sad) but he did receive use of the company plane and club dues. He also received something called "security services" related to the data breach. I am not sure what this means. Perhaps it was a team of bodyguards to protect him from enraged consumers?

What do you think about ChoicePoint's CEO being paid $5.3 million for a year where the company exposed more than 160,000 consumers to identity theft? Share your feedback in the comments section below.

VantageScore...Beyond the Hype

Do you realize how rare it is for the three national credit-reporting agencies to get together and collaborate on anything?  These guys hate each other with a passion.  Right now one of the only things they cooperate on is to sponsor www.annualcreditreport.com.  And let's face it, the only reason they do that is because Federal Law says they have to.  They are also nice enough to share fraud alerts with each other if a consumer feels that he or she has been a victim of fraud.  And that's about it for the cooperation my friend. 

That was until this past week when all of a sudden they announce VantageScore.  VantageScore is a credit risk score built by VantageScore Solutions, LLC.  And who is behind VantageScore Solutions?  Well it takes about 10 seconds of research and you'll find out that VantageScore Solutions isn't really company at all.  It's a paper company formalizing a collaborative effort by the three credit bureaus to build a new credit risk score available for sale to lenders.

A couple of observations if I may…

• This is clearly an assault on Fair Isaac’s FICO credit scores.
• This is clearly a great example of sizzle versus steak, hype versus substance or perception versus real value.  Chose your favorite of the three.  And last but not least…
• This is clearly a huge waste of time and a missed opportunity for some really good work to have been done for consumers

First things first…this is an assault on their largest strategic partner, Fair Isaac.  Let me explain.  All three of the U.S credit bureaus and the two Canadian bureaus collectively make several hundred million dollars each year selling the various scores that Fair Isaac (FICO) builds.  A portion of that revenue goes back to Fair Isaac in the form of a royalty.  Fair enough, right?  If you build a product that I can sell almost a trillion of each year then you deserve your cut.   

It looks like the credit bureaus are not happy with that arrangement any longer despite the fact that it's a dependable and predictable revenue stream that has been in place for over 15 years.  I guess it's smart business.  Publicly spit in the face of your cash cow partner who basically does all of the work for you while you collect the cash. 

What exactly do you think Equifax, TransUnion and Experian do for their portion of the hundreds of millions of dollars in FICO score revenue?  Would it surprise you to learn that they do NOTHING other than process the credit report like they would have done anyway and deliver it to the lender along with the FICO score?  They do nothing more.  Trust me, I lived that process for seven fun filled years at Equifax and seven more at Fair Isaac.  It's easy money for them.    

Fair Isaac, on the other hand, practically invented credit scoring, they built the models, they re-develop them periodically and they are the ones who have to answer the zillion questions that pop up from consumers when they don't agree with their scores.  The credit bureaus ARE LUCKY to be able to sell the FICO scores.  Without them they couldn't charge lenders the 50 or 60 cents that they're charging them now for credit reports.  They'd be giving them away for a little more than a dime because that's about as much as they'd be worth.  Analogy time…would you pay $1,000 for tickets to a football game?  Doubtful.  Would you pay $1,000 for a pair of tickets to the Super Bowl?  I bet you would.  FICO scores add that kind of value to a credit report. 

Second…this is a great example of mega-hype.  If you read the press release or any of the FAQ's from VantageScore Solutions and you really understand credit score modeling then you will quickly conclude that these new scores are about as valuable as snow tires in Miami.  Here are just a few of the good juicy ones…these might be a little confusing so excuse me in advance please.

• The new score promises to "decrease bad rates and charge offs by identifying delinquencies and accounts likely to default."  Wow, sounds great.  The problem is that it's about 25 years too late to toot that horn.  All credit-scoring models do this…it's the only reason they exist.
• The new score was built using "advanced segmentation techniques used to create a stronger model."  Okay, now we're getting somewhere, right?  Oh wait, Fair Isaac practically invented credit bureau scorecard segmentation about 3 decades ago.  Sorry credit bureaus…what else does your model do that you didn't try and steal from Fair Isaac?
• The reason this new score was created is because it's a "direct response to market demand for a more consistent method of credit decisioning."  That quote came right out of Equifax's customer announcement letter from a guy named Dann Adams who is one of their most senior executives.  Surely he's in touch with his customers well enough to know that NOBODY IS ASKING FOR ANYTHING OF THE SORT.  It's pretty obvious that his public relations folks wrote that letter.  Good idea though…fabricate a problem and then solve it with a new product.

I'll stop with my examples here but safe to say I can go on for several more pages of the "sizzle versus steak" examples.

Third…what an unbelievable opportunity was missed to help consumers.  The three credit bureaus, which fight like Democrats and Republicans, actually sat down at a table and agreed to work together on something.  For those of you not familiar with how these types of deals are formalized you can safely assume that it took between 6-12 months to fully negotiate terms between the three of them.  Then, it took at least another 18 months to two years to fully develop the new score.  If they got it done in any amount of time less than that then you can rest assured it's being held together MacGyver style…with chewing gum and a Q-Tip.  Scoring models are like contact lenses, heart surgery and a good steak…they're worth waiting for it to be built, performed or cooked right.  "Fast" in this case is not good…it's sloppy. 

Here are a couple of things that I really wish the bureaus had agreed to do rather than spit in the face of their largest partner…

• Figure out a more efficient way to deliver credit reports to consumers via the web.  It took me almost half an hour to answer all of their silly security questions that last time I claimed my annual free reports.  Who the heck can remember what the monthly payment was on an account that they had back in 1996?
• Figure out a way to ensure more data accuracy.  Studies continue to show that credit reports are riddled with errors and that a significant percentage of those errors are serious enough to cause you to be declined for a loan.
• Since identity theft is such a problem maybe they can get together to build a more robust data security protocol that would prevent unauthorized access into their credit databases.  When you want to get a copy of your own credit report you have to go through tighter security than at an airport.  When a lender wants to get a copy of your report they can pull it in without anyone asking why.  That's scary.

The bottom line is that I'm not angry at the bureaus for trying to muscle out FICO.  It's a smart business decision to keep more "score" margin rather than pay FICO a royalty.  But, my question is could they have spent their collaborative time together more constructively for consumers?

And, I'm not going to let them and their marketing people try and confuse consumers into thinking that all of the features and benefits they are touting are somehow bleeding edge technological breakthroughs when they simply are nothing more than tried and true practices that have been around since the 1960's.  The press release last week was simply nothing more than an effort to confuse consumers and unsophisticated lenders. 

I'm certainly not worried about most lenders being confused by what's going on here.  Lenders almost always employ a staff of people who are nothing less than statistic's gurus.  And in the short week that I've had to talk to a few of them it's very clear that they can see right through the PR fog.  It's going to take a whole lot more than "hey, we've created a new model and it's really really really good" to fool those guys.

Good luck bureaus.  We'll check back in a few months to see how well VantageScore is selling.  :)

Financial Data Protection Act: More harm than good for many consumers

California has been a long time leader in providing consumers with identity theft protection laws. All residents of the Golden State have the ability to freeze their credit files and California law requires businesses who lose sensitive information to notify affected customers. Now, it appears that Congress is close to taking away these protections.

A bill recently passed the House Committee on Financial Services that would replace the strong identity theft protections in California and other states with weaker rules. The Financial Data Protection Act (HR 3997) only requires companies to report data breaches when they are "likely to result in substantial harm."  The bill also would only allow credit report file freezes for Americans who have already been victims of identity theft. PIRG's Ed Mierzwinski likens it to "You've already been shot, so they give you but no one else a bulletproof vest."

It is wonderful that Congress is interested in enacting national identity theft protection laws, but this bill does not go far enough. Instead of weakening protections available to consumers in certain states, this bill should be improved to require mandatory data breach reporting and universal file freeze accessibility.

Read more about this bill here or can help campaign against the bill's passage here. The bill is currently supported by Congresswoman Deborah Price (Ohio), Congresswoman Darlene Hooley (Oregon), Congressman Steven LaTourette (Ohio), Congressman Dennis Moore (Kansas) and Congressman Mike Castle (Delaware).

What do you think about the Financial Data Protection Act ? Share your feedback in the comments section below.

FDIC Insurance Limits Raised for Retirment Accounts

If you have done a good job of socking away money for retirement, the FDIC has good news for you. For the first time in more than 25 years, federal deposit insurance coverage has been raised, for certain types of retirement accounts. As of April 1st, FDIC deposit insurance coverage will be raised to $250,000 (up from $100,000) for certain retirement accounts held at banks or savings institutions.

Before you get too excited, keep in mind that this boost in coverage does not protect you if you lose money by investing in mutual funds, stocks, bonds, life insurance policies, or annuities at an FDIC-insured financial institution. After all, FDIC insurance is designed to protect against bank failure, not investment risk. But if you hold deposit accounts (certificates of deposit, for example) in traditional or Roth IRA's at a covered institution, then your funds would be insured against bank failure up to $250,000.

Other types of retirement accounts covered by the increase include Keogh accounts, "457 Plan" accounts for state government employees, and employer-sponsored "defined contribution plan" accounts that are self-directed, which are primarily 401(k) accounts. The increased limits also apply to certain retirement accounts at credit unions insured by the National Credit Union Administration (NCUA).

The current FDIC insurance limit for non-retirement accounts is generally $100,000, but there is a variety of ways to get more coverage, such as holding a personal account, business account and an account jointly with another person -- each of which may be covered up to $100,000. You can learn more about this change and FDIC insurance basics in this bulletin (link) on the FDIC website.

VantageScore in the news

It's been almost one week since Equifax, Experian and TransUnion officially launched the VantageScore. Over the last few days, Google has gone from delivering zero results on the search "VantageScore" to delivering 62,000 web pages. The launch of this new scoring model has made headlines around the world. Here are some of the best articles about the VantageScore:

• Still Garbage In, Credit Score Out - Washington Post
• Credit Scoring Unified - Sacramento Bee
• Dissecting New Credit Scoring - San Francisco Chronicle
• Giving Credit Where Credit is Due - Business Week

Want to learn more about the VantageScore? Equifax has posted a PDF document for their business partners that goes into a little more detail. You can also visit www.VantageScore.com for information. VantageScores will not be available for consumer purchase for at least a few months.

Questions about the VantageScore? Opinions about how it will impact consumers? Share your feedback in the comments section below.

Anatomy of a phishing email scam

My email account at work is pretty well set up to filter out spam and other uninvited messages. I've gotten so used to having my email protected that it surprises me when an occasional message slips through. Like this morning when I received a very official looking PayPal phishing message (click on the image to enlarge).

Phishing emails are fake messages designed by identity thieves to try to gather personal data from unsuspecting consumers. The PayPal email I received today was centered on convincing me that someone had purchased $350 stereo equipment in my name. When you click on the prominent "cancel order" button it delivers you to a PayPal login page. This page is designed to look exactly like the PayPal website and even links back to the official website. But with a web address of "Mujes.cz" it is most definitely not authentic.

What should you do if you receive an email like this? First, do not enter your information into any of the forms provided. Next, do a little research to confirm that the email is a fake. You can look up recent phishing scams online here and can visit the PayPal security center here. If you are still concerned that the email may be authentic, call the company directly to investigate. You can go directly to the website (by typing in the URL yourself) to login and check your account status. Phishing emails are getting increasingly sophisticated; it is often difficult to determine real emails from the fakes.

Have you received a phishing email lately? Have you almost fallen for a phishing scam before? Share your feedback in the comments section below.

H&R Block Gets Green Light on Federal Bank Charter

In another example of our government not protecting us when it comes to national bank practices, the Office of Thrift Supervision has granted H&R Block a federal bank charter, at the same time that New York Attorney General Eliot Spitzer is going after H&R Block for fraudulent marketing of individual retirement accounts, California Attorney General Bill Lockyer is suing the company for refund anticipation loans that target low income families.   

We shouldn't be surprised. After all, the Office of Thrift Supervision (regulator of savings banks, and savings and loans) and the Office of the Comptroller of the Currency (which regulates national banks) haven't been impressing consumer groups with their consumer protection efforts.

"Block has had a long history of selling high cost, abusive products using questionable tactics," warned Chi Chi Wu, a staff attorney for the National Consumer Law Center in a press release today. "Despite lawsuit after lawsuit claiming consumer abuse, including one by the New York Attorney General on the same day Block's bank charter approval was announced, the OTS seems to think this is the kind of company fit to be a bank."

Consumer groups are criticizing H&R Block for high cost refund anticipation loans, high-cost IRA's, and subprime loans offered through its mortgage company Option One.

"Given all of Block's corporate missteps and gouging of low-income consumers, it leads us to wonder exactly who can't get a federal charter from the OTS," said Kevin Stein, Associate Director of the California Reinvestment Coalition in the same press release.

Good question, indeed.