Universal Default is Universally Unfair

We think it is great that New York wants to curtail the practice called 'universal default' which basically is a creative way for credit card issuers to increase your interest rate even if you faithfully paid the lender on time, every month for as long as you had the card.  Instead of charging you the low, inviting introductory rate, or the 19.9% interest rate you thought you were paying on your outstanding balance, the card company just increases the interest rate -- Just like that.

How do they do that?  Card issuers are permitted to check your credit report.  If the issuer finds even one late payment to another creditor, the lender can increase your interest rate on the card it issued to you.  Some lenders will increase your interest rate even if you charged up your line of credit which increases your debt-to-income ratio. Card issuers justify this change in interest rates by claiming they are trying to protect themselves against pending doom -- The idea is that  if you default on any other creditor, you might default on the card issuer.  Of course the reality is, this sudden rate hike makes it that much harder for someone who is already having problems paying their bills.

If you are wondering why you didn't know this could happen, take heart. The 'universal default clause' is a bit of small print in the agreement that probably came with your shiny new credit card, or somewhere on the application for the card.  Didn't read it?  Most consumers don't read the small print.  And even if they did, the clause can be confusing. 

Let's hope Governor Pataki signs the bill into law.  Unfortunately it is just not enough -- the bill makes the practice a misdemeanor. A misdemeanor?  Let's add some teeth folks.  What we really need is a law that crosses state borders that is applied uniformly.  The law should prohibit creditors from using information from a credit report as the basis for increasing annual percentage rates, or changing the introductory rates for any reasons not directly related to the specific card issued by that lender. 

Like HR 3492, introduced in the House in July of 2005.  We like it. But this bill, like its counterpart in the Senate S. 2655, is likely to die in committee.  S. 2655 prohibits the practice of universal default by limiting fees that may be imposed on credit card accounts, and requires credit card issuers to verify a prospective consumer's ability to pay before extending credit.  Stop stalling.

What can you do? When you shop for credit cards, read the fine print; Keep your credit clean;  Speak to the card issuer and tell them what you think; and tell Congress you support these bills. E-mail your Senator, and Representative – it only takes five minutes.

Let us know what you think in the comments section

Funny Money Friday: Money marriage vows

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

I'm off to a close friend's wedding this holiday weekend! Getting read for the "wedding of the year" has left me thinking about the important role of finances in relationships.

Since money can be a leading cause of arguments, maybe "for better or for worse, for richer or for poorer" isn't a detailed enough marriage vow. What we need is something that covers all the money challenges married couples may face. How about this vow instead:

I, (Bride/Groom), take you (Groom/Bride), to be my (wife/husband), to have and to hold joint accounts from this day forward, for saving and for spending, for 401(k)s and for mortgages, in richness and in debt, to budget and to share, from this day forward until death do us part.

Actually, that's not half bad! I know a few couples who could be helped by taking this type of solemn money management vow. I'm sure our clever readers can do better, though. Share your money vow ideas in the comments section below! Happy Friday and 4th of July weekend!

Should Vets Be Concerned??

And so, the announcement came this afternoon.  The government has recovered the stolen laptop and hard drive with personal identifying information on the approximately 26.5 million veterans and active duty military personnel.

As reported by the Associated Press, the Secretary of Veterans Affairs announced,  "It was returned on Wednesday, by an unidentified person, in response to the $50,000 reward."

The FBI said that there was no evidence that Social Security numbers, or any other data on the equipment had been accessed. However, more tests are planned.

The Secretary stated that there had been no reports of identity theft stemming from the burglary at the home of the VA analyst. 

Secretary Nicholson stressed that veterans should remain vigilant regarding their credit and financial information until the tests are completed.

Of equal concern, however, are the recently discovered documents that confirm the VA analyst, at the center of this controversy, had received permission to work from home with information which included millions of Social Security numbers and other personally identifying information on veterans and military personnel.

According to the Associated Press:

• As early as September 5, 2002, the analyst had approval to use special software at home that was designed to manipulate large amounts of data.
• A separate agreement dated February 5, 2002, from the office of policy and planning, allowed the worker to access Social Security numbers for millions of veterans.
• A third document, also issued in 2002, gave the analyst permission to take a laptop computer and accessories for work outside the Veterans Affairs building.

The Associated Press reported that the VA said last month it was in the process of firing the data analyst, who is challenging the dismissal.

The recurring questions throughout this entire ordeal -- as well as so many others that have been reported over the past few years -- are these:

• What were they thinking?
• Why was the information unencrypted?
• Why should businesses and or government agencies give employees and/or consultants the right to remove extremely sensitive personal information that could impact the lives of thousands – perhaps millions of people and take it home or on road trips?

The answers will haunt us for decades.

By: Adam Levin

Give 'Em What They Want

There's an old marketing adage about success being dependent upon giving customers what they want.  Indeed, a friend who was a senior marketing executive with a huge convenience store company told me that "figuring out what customers were likely to buy" was one of the most energizing parts of his career.

In a strange twist, CKE Enterprises, operator of the Carl's Jr. chain in the West and Hardees in the East has carried that maxim to a whole new level. They have given up on thinking that people are driven to buy what is good for them – nutritious food that is low in calories and fat.  They offered those choices to consumers but people seem not to like these products and, while they are still on the menu, they aren't popular.

What people prefer to buy, and thus what CKE will offer, are traditional fast foods, hamburgers, fries, and soft drinks that are, relatively speaking, high in calories and fat. The newest entrant is the Monster Thickburger that has 1,400 calories, 107 grams of fat, and 2,740 mg of sodium. Zounds!

It seems to me that the mortgage business is just the same. We sell people whatever they will agree to, not what is good for them. Experts agree that the low payment negative amortization mortgages are not good for people.  Yet people keep buying them, and in record numbers.  Some are headed for disaster, others just for a severe headache, sort of the mortgage equivalent of a dangerous build-up of arterial plaque.

The debate over payday loans in the military

A new study released yesterday challenges common notions about payday lending and military personnel. According to the report by the Consumer Credit Research Foundation, fewer than 13% of military personnel have used a payday loan in the last year. The report also found that:

• Military personnel are more likely to repay their payday loan quickly and to remain out of debt than civilians.
• Military personnel consider themselves to be very financially stable. 83% of military personnel feel secure about their money vs. 44% of civilians.
• Geographic convenience of payday lenders was not shown to be a factor in military personnel decisions about borrowing.

This report strikes down many of the central claims used by opponents of the payday lending industry. For example, the Center for Responsible Lending reports that military personnel are targeted by abusive payday lenders and that payday loans negatively impact military readiness.

Not being involved in the military myself, it is hard to gauge  which side has a more accurate view of payday lending.  Let's open this issue up for debate. Do you think the military is hurt by payday loans? Or are these short term loans simply providing a needed financial service to personnel. Weigh in with your feedback in the comments section below.

New York Says No to Universal Default

The New York Legislature has passed a law banning the use of universal default: the annoying -- and expensive -- practice by credit card companies of increasing credit card rates on existing balances and new purchases based on other activity on one’s credit report.

Raising interest rates on card balances for non-related financial activity, such as paying a utility or cable television bill late, is commonly referred to in the small print of credit card agreements as "Universal Default."

When I hear from consumers who have been affected by Universal Default, they are angry, and astounded that it is legal. (Some scholars, like Harvard Professor of Law Dr. Elizabeth Warren believe it should be considered a breach of contract).  Consumers who always pay all their bills on time have seen their interest rates skyrocket simply because the card company that approved the credit line in the first place now decides they are “too risky.” This week I spoke to a consumer who felt pushed into bankruptcy when his card issuer raised his interest rate to 31%. At that rate, he will never be able to pay off the balance.

"Credit card companies are the only industry in the world to re-price something you already paid for," said Linda Sherry of Consumer Action, a nonprofit organization that conducts an annual survey on fees and rates. Sherry said universal default rates were as high as 29.99 percent in 2004 and have grown to as much as 35 percent this year.

The New York bill is fairly broad, and the impact is not clear at the moment. Out-of-state issuers may be affected, for example. "It will probably be challenged in court," warns Valary Miller, a consumer law attorney and contributor to CreditBloggers.com

You can read the text of the Assembly bill here. We would love to hear your comments on this issue. Have your credit card issuers raised your rates on your outstanding balances? Do you think consumer protection legislation is in order?

Only 3 days left to lock-in low student loan rates

Last call for consolidation! Consolidate your student loans before midnight on Friday to lock in low rates. On July 1, interest rates for federally guaranteed student loans will increase about 2% across the board. This means that your student loan rates could increase to 7-8%, costing your thousands more in interest on your debts.

There is still time to consolidate if you haven't already. Student loan consolidation companies and SallieMae are working double overtime up until the deadline to process last minute applications. Don't delay!

Could your business be at risk for identity theft?

We all know about the risk of identity thieves stealing your personal information, but what about business information? According to an article by MarketWatch (free login required) today, business identity theft complaints are on the rise:

If you have your own business and you think it's a victim of identity theft, good luck. Many consumer protections, available to credit-card identity-theft victims, don't apply to businesses. Nor, experts say, do local police typically investigate business identity theft. You may not always get help from a credit issuer either.

Business records can easily be accessed by thieves through Dun & Bradstreet databases and government offices. Armed with this data, thieves can open new business accounts, apply for business loans, process credit card transactions and basically make life for the "real" business owner pretty miserable.

What can business owners do to guard against identity theft? Here are some tips:

• Routinely check your company records with Dun & Bradstreet and Equifax.
• Review business credit card and loan statements carefully for signs of fraud.
• Regularly Google your company's name to see if there is any unusual or inaccurate information posted online.
• Check your own credit reports every 3 months. Suspicious business activity could appear on your personal credit files.
• Keep a close eye on your business mail. Strange bills or missing letters could be a sign of fraud.
• Encrypt sensitive data stored on business computers and servers.
• Shred business records and bills before throwing them away.
• Understand how targeted "spear phishing" could impact your business.
• Implement a data security and privacy policy for your company and employees.

Although business identity theft is fairly unusual, it can be very difficult to resolve and devastating to small business owners. Take some steps to prevent your business from becoming a victim of identity theft today.

New data breach cases bring total number of victims in 2006 up to 88 million

More bad news about consumer data privacy and security: four new data breach incidents have been reported in the last few days. According to PrivacyRights.org, these new cases bring the total number of data breach victims in America to over 88 million in 2006 so far. Here is the latest news:

110 FTC Records - Two Federal Trade Commission laptops were stolen last week. These computers contained sensitive records on 110 consumers.

3,000 San Francisco State University Records - A laptop containing Social Security numbers and other records for 3,000 current and former students was stolen from a faculty member's car. Apparently, this practice of faculty members carrying around student data is "very common."

23,000 USDA Records - A hacker gained access to USDA computer systems and 23,000 personal records that were used to manage the building access ID cards.

28,000 Navy Records - Social Security numbers and other data on sailors and their families were found posted on a civilian website according to an announcement on Friday.

Four consumer data incidents from four government agencies in one week? 54,110 new consumer records added to the data breach total in just a few days? How many more data breaches need to be in the news before people start encrypting sensitive records?

Debt collector appears on Forturne Small Business 100 for the first time

In a potential symptom of America's personal finance troubles, a debt collection company made the annual Fortune ranking of the 100 fastest growing small companies for the first time this year. Portfolio Recovery Services joined the list at #69. This year's FSB 100 is predominantly made up of energy and defense companies.

Debt collection businesses operate by purchasing delinquent or charged-off debts from creditors and businesses for pennies on the dollar. Collectors then attempt to receive payment for the debt by finding the borrower, calling, writing letters and placing credit report records.  According to the Nilson Report, Portfolio Recovery Services is the #7 buyer of credit card debt in the US. In 2005, they purchased about $4 billion in direct credit card debts. Here are the other top collection agencies:

• Sherman Financial - Bought about $10 billion in credit card debts in 2005.
• NCO Portfolio Management - Bought about $13 billion in credit cards debts in 2005.
• B-Line - Bought about $8 billion in credit card debts in 2005.
• Unifund - Bought about $6 billion in credit card debts in 2005.
• Encore Capital - Bought about $5 billion in credit card debts in 2005.

These top five collection agencies purchased about 55% of the credit card debt sold by direct card issuers last year. In 2005, almost $90 billion in credit card debt was purchased by collection agencies. This is a dramatic rise from about $40 billion in 2000 and $11 billion in 1995. This growth is due both to the increase in consumer debt and to aggressive growth of external collection agencies (many credit card issuers used to manage collections in-house).

What do you think the growth of the collection industry means for consumers? Have you had a debt purchased by one of these companies? Share your feedback in the comments section below.

*Note - $90 billion in bad credit card debt equals over $300 for every man, woman and child in the United States. For Pete's sake, that's a lot of credit card debt in collections each year!

 

Funny Money Friday: Dollar Bill Origami

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

Congratulations to Robert Lemos, the winner of our credit haiku contest! Here is his winning poem:

Obtuse addendum
Hides change to default language
Rates soar, debt deepens

Thanks to everyone who participated in the contest! Robert, your free copy of the book Credit Scores, Credit Cards is on it's way!

Continuing in the Japanese theme, this week's Funny Money Friday is about origami. Particularly, origami with dollar bills. Impress your co-workers and become the life of the party with simple origami tricks explained by Clay Randall. Here are some things you can make with a dollar bill:

• Boot - Give your money "legs!"
• Ring - Wear it as a reminder to keep your spending under control.
• Shirt - Use it to teach your kids that their clothes cost your money.
• Bow Tie - Replace your boring ol' bow tie with a version that reflects your personal finance sensibility.
• Gift box - Give a cash gift creatively!

Try out these designs today! If you send us a photo of your final results, we'll post it on the blog for everyone to see! Happy Friday!

Closing Cost Rip-Off - Part 4

My son recently sold his home. The custom in this area is that the seller pays for an Owner's Title Insurance Policy. This assures the buyer that he has good title to his new home. In our state title insurance rates are regulated by the Department of Insurance. That Department doesn't tell the companies what to charge, but once they have registered the rates with the Department, they are not supposed to deviate from that price list.

So who is supposed to look out for this in a transaction? Certainly not the poor guy who is paying for it! He doesn't know the policy and he doesn't have access to the rate sheet anyway. He assumes someone else is looking out for him, and he should. But who is?

Theoretically, the title company itself should charge only what is legal. For example, if the borrower qualifies for a "Short-term" rate because of having purchased a previous policy within the last 5 years, he should be charged only the Short-term rate.

Next, the closing agent, escrow officer or attorney, whomever, should also know this and make sure it's proper. I think one of their jobs is to take responsibility for insuring accuracy. Finally, the real estate agent certainly should know this. He should review a copy of the estimated closing statement. The charges on that statement should be compared with the rate sheet to assure nothing is improper.

In the case of my son's transaction, none of those people did his job. But when I reviewed the statement and saw he was over-charged. Result? A $613 refund!

Put this on your list of things to check!

Book reveals that First Data handed over consumer records to the FBI after 9/11

According to a book called The One Percent Doctrine by Ron Suskind, First Data (a credit card processor and owner of Western Union) turned over their consumer database to the FBI after the September 11 attacks. The Associated Press article mentions:

Suskind wrote that First Data contacted the Federal Bureau of Investigation within two days of the Sept. 11 attacks and offered help. Federal agents later checked the last names of terrorists against First Data's records of credit-card transactions at an Omaha, Neb., processing facility, Suskind said.

He also said that Western Union permitted the Central Intelligence Agency to monitor transactions in real time in early 2003.

First Data hasn't verified Suskind's reporting, but what if the story turns out to be true? First Data's release of data could be seen as a patriotic gesture to help law enforcement combat terrorism. It could also be viewed as an egregious violation of consumer privacy laws and the fourth amendment of the Constitution:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Let's start a business ethics debate! What do you think about this story? Did First Data do the right thing? How do you feel about the CIA monitoring your transactions? Share your feedback in the comments section below.

Stop Cell Phone Spam

I was trying to make friends with my cell phone on a recent road trip, when I discovered that there were some "text messages" waiting for me. Text messages?! Who could be writing to me at my cell phone? I can't figure out how to use the blasted thing to make a call, and now people think I'll be able to write to them?!

Turns out they were just spam 'bots, trying to sell me you-know-what that starts with a V. Depending on the cell phone plan you have, these lovely messages may be coming in on your dime – or more. Some plans charge as much as 15 cents each. So if you received similar messages, you might want to call your carrier and ask a couple of questions:

1. Am I being billed for spam coming to my cell phone? Fortunately, my plan doesn't charge for text messages, but if it did, I'd ask …
2. Will you please waive the fees for these junk calls?

Whether you have to pay for them or not, who wants the bother? So put your cell phone on the  National Do Not Call Registry. If your other phone numbers aren't listed there, you can sign them up for no telemarketing calls, also.

More Ways to Save on Cells
If you – or your teen or tween -- is likely to be tempted by text messaging and/or some of the newer downloads, such as games, ringtones, ringbacks, subscriptions, and music, I urge you to read  "Cell Phone Fees That Sneak Up on You," an eye-opening article in PC World’s July 2006 issue. I had no clue that it could cost someone $6 to send a photo by phone, or that people were signing up at $2 a month so they can buy movie tickets with their cell phones. Why pay the $24 when you can order them for free with your PC?   

Here's your best defense as a smart cell phone shopper, according to  PC World’s senior editor, Yardena Arar: "Ask carrier sales reps for pricing details that will help you determine the true costs of any services that interest you, and ask if there's any way to track your bandwidth and message usage between monthly bills."

She also suggests ways to avoid fees. For example, "instead of downloading songs from a carrier's music service, get a phone equipped with a memory card slot so you can play tunes you've ripped on your PC." Even if you're not likely to rip a tune any time soon, you can still save money on your wireless bill.

The secret is to pick a plan that fits your calling pattern. Look at a few previous bills, and find out: 

• When do you make most of your calls?
• What's the average length of each call?
• Do you use your cell to make long distance calls?
• How often do you travel beyond your home calling area?

Then visit Point.com, where you can compare your plan to the newest plans out there. You might save money or get extra freebies like free long distance if you switch carriers. But if you're happy with your carrier, call and ask for a better deal – assuming there's no extra fee for it. All the sales reps know competition is fierce, and while new business is great, so is keeping an existing customer. So don't be bashful! You might just get some of the newer freebies included, like free text messaging!

If you give it a shot, please let us know how you make out!

17 million veterans offered free credit monitoring

The theft of 26.5 million veteran records from a Veteran Affairs Department laptop in May made headlines around the world and brought significant attention to the issue of data theft.

But what happened to the veterans impacted by the theft? Not much. The VA sent a letter to the 17 million veterans who had their Social Security numbers on the laptop and set up a hotline. According to the Associated Press, these two steps have already cost the government $14 million.

Now the AP is reporting that 17 million veterans will be given free credit monitoring services as well. It doesn't sound like the type of monitoring program or length of service to be offer has been determined by the VA just yet. One thing is for certain, this will be one of the largest spikes in credit monitoring customers ever seen!

As our way to say "welcome to the world of credit monitoring," here our some tips for the 17 million veterans:

• Most credit monitoring programs send you updates by email. Make sure you add the company's email address to your safe list so the messages won't be spam filtered.
• Try to sign up for three bureau monitoring instead of single bureau monitoring. Single only tracks changes to one of your three credit reports.
• It can take about 30 days for credit changes to appear on your credit reports. Don't be surprised when you receive a new account warning a month after opening a credit card.
• Fraud alerts and file freezes can impact your ability to sign up for credit monitoring programs. You may need to go through extra identity verification steps when registering.
• Identity theft insurance is often bundled in with these monitoring programs. Be aware that this insurance doesn't usually cover "pre-existing conditions."
  
• The free credit reports that come with monitoring are often more important than the email alerts. Closely review your credit report each time it is offered.

Credit monitoring can be a great tool to help veterans guard against identity theft. However, I wish that the government had dedicated to offer veterans free credit report file freezes instead. These file freezes are currently only available in a handful of states and may become available nationwide in a limited fashion under new legislation.

Product Review: Experian VantageScore

In my first VantageScore post this morning, I recommended that you check your Experian VantageScore online. I might want to take that statement back. I just completed my purchase of the Experian VantageScore and I have to report that I am less than impressed. Here's a description of what happened:

Step 1: Ordering.
I have always disliked the Experian order process. Compared to the other bureaus and FICO, their forms are confusing and their security a bit too relaxed. Experian doesn't tell you the price of the product ($5.95) until you are halfway through the order. Their identity verification questions would be far too easy for a thief to guess the answers. There is no account creation system so that you can return to your score after your order. Experian only allows for credit card orders and they don't even ask for the three digit security code from the back of your credit card.

Step 2: Still Ordering?
For some reason, Experian decides to send you to a page with credit tips and information about the VantageScore instead of directly to your purchase. It took me a few seconds to read over this page and see that I had to click the blue button at the bottom to proceed.

Step 3: Reviewing my Score
Whew! I finally reached the end of the order process and received my score...or did I? This page is pretty terribly designed, and I couldn't find my score for quite a few seconds. Click on the image to see for yourself. How long did it take you?  Why did Experian decide to bury the good stuff in mounds of marketing copy about the importance of the Vantage Score?

Since this score doesn't include my Experian credit report, it's hard to put it into perspective or to check on the factors that are impacting my standing. And the new VantageScore range is definitely confusing to me. According to Experian, I have an 885, B, PrimePlus score. Even as a "credit expert" I have a hard time understanding just what that means.

Overall, I was not very satisfied with the Experian VantageScore. I decided to order my Experian FICO Score online in order to compare products:

Step 1: Ordering
I have a login with FICO from previous orders and didn't have to go through the account and identity verification process. The system took me straight to the order page once I was logged in. The FICO Score and report does costs $14.95, more than twice what the VantageScore costs. But FICO allows you to pay with something other than a credit card and does ask you for your credit card's 3 digit security code. Once you hit the "Make Purchase Now" button you are taken to a receipt page and then straight to your credit score.

Step 2: Reviewing my Score
It is a lot easier to see my credit score on the FICO page. It's posted right at the top and again in the middle of the page. FICO's range graphic is a little hard to read but gives me a fairly clear idea of where I stand. What my score means is outlined in bullets below my score. While Experian only said I had a "B," FICO explains that my score is "excellent" and that "it is extremely unlikely" that my credit and loan applications would be denied. Plus, the FICO score includes my Experian credit report data. I can check on each of the accounts on my credit report to see if they are reporting accurately. And, because of my login, I can return to FICO for 30 days to check this score again.

Summary
FICO wins this battle from a usability perspective. Ordering online was simple, I felt that my order was secure and the final product was easy to understand. Experian's VantageScore was difficult to interpret and their ordering system was poorly designed. It's a shame that Experian didn't incorporate their flashy interactive graphics from their homepage into the final product. I hope that the Equifax and TransUnion VantageScore products are going to be better than Experian's product. If the bureaus are serious about competing with FICO, they need to work on making this score the best in the industry for both consumers and businesses.

Did you order your VantageScore online? What did you think about the new credit score? Share your feedback in the comments section below.

VantageScores have arrived!

Experian is the first credit bureau to offer consumers a look at their VantageScore. This new scoring system was launched in March by the three credit bureaus and is designed to replace the FICO Score as the industry standard.

Be prepared for a different score than you are used to seeing. The VantageScore ranges from 501 to 990 and breaks the scores up into "grades" from A through F. A score above 700 is only a "C" with this new model. Plus, this new mod el includes different score factors than the traditional five we're used to with FICO.

I'm going to order my VantageScore today to check it out for myself. It's $5.95 to buy it online from Experian, but it doesn't include your credit report. You should too! Share your feedback, opinions and questions about the VantageScore in the comments section below.

Equifax employee data stolen

An Equifax laptop containing Social Security numbers and other data on 2,500 employees was stolen in England a few weeks ago. Equifax reported that the employee violated company policy by storing the data on his hard drive. The article doesn't mention any type of password protection or encryption on the laptop. In a similar case, ING experienced a similar theft when a laptop containing 13,000 employee records was stolen last week.

The data theft incidents highlight the lack of security at many large financial institutions. Banks and credit bureaus may tout their online encryption systems but often overlook the simplest and most common risks. Along with data stored on laptops, companies may also have lax regulations concerning employee access to sensitive records, the disposal of files and the storage of printed records. These small, low-tech loopholes often pose the most danger.

Hopefully these data theft incidents will help companies like Equifax and ING increase their data security measures. There's nothing like becoming an identity theft victim yourself to increase your awareness of these crimes. 

What do you think about the Equifax data theft? Does your employer do a good job of keeping your records safe? Share your feedback in the comments section below.

Buyer Beware: Will The Real Credit Scores Please Stand Up, Part 3

For the past two week's I wrote about how some companies market and sell credit scores that are not used by lenders and don't even closely resemble the scores that lenders and insurance companies use.  If you'd like to review the first post, please click here.  To review the second one, please click here.

This week I'll be finishing up with the last credit bureau and some non-bureaus that sell scores - both real and fake.

Equifax.com - I use to work for Equifax but I was gone long before Equifax.com started selling products to consumers.

Regardless, they sell the legitimate FICO score based on the consumer's Equifax credit report.  This score is called BEACON in the lending environment although you won't see that term on their website just like you won't see EMPIRICA referred to on the TransUnioncs.com site.

You also will NOT find any fake scores on the Equifax.com site.  Whether or not this is by choice - Kudos to them.

Now here's where it really gets interesting.  The following sites are owned and operated by companies that are not, by legal definition, credit bureaus.  They have partnerships with the credit bureaus which allow them to sell credit report data bundled with other services or products.  I'll call these "re-sellers."

PrivacyGuard.com - This site is owned and operated by Trilegiant.

Again, they are not a credit bureau but they do have the ability to sell credit data.  They sell fake scores as part of their products. Buyer beware!

IdentityGuard.com - This site is owned and operated by Intersections.

It's the same story as before with PrivacyGuard.  They aren't a credit bureau but they can sell credit reports. They also sell fake scores.  Buyer Beware!

I actually own one of their products because I like their credit monitoring service but those fake scores are…well, FAKE

myFICO.com - I use to work here too.

This is the only place where you can get all three of your legitimate FICO scores (other than from a lender).  Click here to visit the Fair Isaac consumer website.

Providian - Some of you may have a credit card account with Providian.

Providian has (or use to have, I'm not 100% sure since I don't have their credit card) a program where they give you one of your FICO scores (I believe it's the TransUnion FICO score) printed on your monthly credit card statement.  These scores, while they are the real deal, are about 30 days old by the time the cardholder gets their statement.

E-Loan - E-Loan use to give away FICO scores to consumers on their website in exchange for you creating an E-Loan online account.  The CEO tried very hard, and still does, to convince consumers and writers that you deserve to know your scores, which was their motivation to give them away.

However, it was obviously a marketing gimmick used to try and generate business.  Fair Isaac had one of the three bureaus shut off their credit report/score access until they agreed to stop giving away FICO scores.

Today E-Loan gives away a fake score and even promotes one of the more sleazy suspect's products, which we talked about in the first blog on this topic two weeks ago.

AutoCreditScores.com - Very interesting site.  These guys can deliver your FICO scores as part of a fee based educational report but they aren't the same FICO scores that you can get via myFICO.com, Equifax.com or TransUnioncs.com.

They sell the FICO Auto Industry Option score that auto dealers and lenders use.  To my knowledge these aren't available anywhere else. But be warned, buying your FICO Auto Industry Option score will be recorded a hard inquiry on your credit report.

Where else have you purchased a credit score? Share your feedback and questions in the comments section below.

Reader Question: Why is my credit score with a lender different than my other credit scores?

We love receiving emails from our readers! Send us a message anytime you have a question! Last week, Patrick send in an email about credit scores:

I am on the road to improving my credit. I have been "lazy" when it came time to make payments and have damaged my credit as a result. I make very good money and I am paying off all my debt ASAP. The question I have is that I signed up to monitor my credit and scores. I just purchased a new vehicle and I printed my credit history and related scores from the BIG three. I was showing my best score of 669 with Experian but when I went to my credit union to get financing to my surprise I came up with a 596 with their score. Why such a big difference ??????

Patrick's question about the variation in credit scores is very common. The problem is that there are currently hundreds of different credit scores used by businesses, lenders and consumers. Each scoring formula is slightly different, resulting in credit score variations even if the same credit data is used.

Consumer credit scores, like the ones included in his monitoring program, are designed to be a general match with the most commonly used business scores. Some variation is expected, but an seventy point change is rather extreme. Patrick's credit union may also have not used his Experian data, causing the score to be significantly different. Or it is possible that the credit union's score has a different range than 300 to 850, causing his score number to be different even if his ranking is the same.

Luckily, this tricky credit score situation is starting to change. FICO scores are becoming an industry standard (although there are still many different types of FICO scores) and the newly launched VantageScore promises to replace the different bureau scores with one uniform model.

In the meantime, you can purchase your FICO scores online for the most accurate look at your scores. You can also purchase your FICO Auto Score (used by most auto lenders) online, however this product causes a hard inquiry on your credit report.

Funny Money Friday: Dad's best money tips

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

In honor of Father's Day this weekend, we are sharing our father's best money tips with you! After all, our team of financial experts each got their start with weekly allowances and advice from their parents. Here's what we learned from Dad:

Gerri Detweiler - Personal finance author, radio host and EverydayWealth credit expert

My dad always said our favorite toy was the box the appliances came in.
Every time I try to clean out my daughter's room I get hit between the eyeballs with this one. At 7 years old, she's accumulated so much stuff already, and some of it has barely been played with.

Dad was right. And one of these days I'll start listening.

Todd Kutcher - Chief Operating Officer of Credit.com

The bigger the pile of money the more dangerous the sharks that are swimming around it.

John Ulzheimer - Credit scoring and credit reporting expert formerly with FICO and Experian

1. Dad's advice...As long as you make your minimum payment each month everything will be fine.

Today's reality...yeah, if you don't mind being in incredible credit card debt.

2.  You should never buy anything on the internet.

Reality...Most reputable internet sites have encryption logic that rivals NASA.  But, he'll give his credit card to a high school drop out who disappears for 10 minutes to run his card after going out for dinner.

3.  You want to try and get a job where you are in management and have people reporting to you.

Reality...yeah, if you want to get laid off when the company chops away all of the middle management fat.

Nancy Castleman - Investing, personal finance and small business expert and author.

My dad was a child of the Depression, who taught me about money by example. He bought less house than he could afford, to sock money away to put my sister and me through college, to send us to summer camp, to take us on great trips -- including a photographic safari to Africa. We were especially fortunate that he saved when he was young, because he got very sick in his late forties. Although he lived for another 30 years, he probably never earned as much money.

Randy Johnson - Mortgage broker, author and real estate expert.

WORK!

SAVE!

Emily Davidson - Former TransUnion credit expert and moderator of CreditBloggers.com

My dad taught me that managing your money wisely can help you achieve your dreams. After growing up during the great depression, he managed to start his own company, go to medical school (in his 40's!) and buy his dream sailboat.  Saving and planning may be a pain but it pays off!

Adam Levin - Founder of Credit.com and former Director of the New Jersey Division of Consumer Affairs.

Never forget that all money is round. You can lose it as fast, if not faster, than you made it.

What did your dad teach you about money? Share your Father's Day feedback in the comments section below. Happy Friday!

Overdraft protection can cost you a bundle.

What is the difference between overdraft protection and a payday loan?  Not much if you are comparing the effective APRs of each.  Like a payday loan, overdraft protection when used wisely can be a big help.  And overdraft protection does protect you if you overdraw your account.  But, overdraft protection also comes at a very high cost.

Overdraft protection is really just a short term unsecured loan that your bank gives you when you draw against your account by writing a check, or using your debit or ATM card. If you overdraw your account, your bank loans you the money to cover the check, pays the amount you've overdrawn, and then charges you a fee for the loan.  Those fees can range from $20-$35 for each transaction or item that is overdrawn. 

Of course if you read all of the fine print you would know that you were going to be charged a fee for the protection. But what banks don't always tell you is that you are overdrawing your account.   Let's say you have $70 in your account and overdraft protection with a $300 limit.  The bank charges $30 for each transaction.  It's your friend's birthday so you buy him lunch for $45 and use your debit card.  On the way home you make a stop to pick up some groceries ($50), and buy some gasoline ($40), using your use your debit card.  You're overdrawn by $55 but the ATM machines you used for both transactions don't give you any warning.

Over the course of the next couple of days your bank pays your loan payment automatically ($100) and you use your debit card to make three additional purchases totaling $120.  When you reach the $300 limit your transaction will finally be declined.  But, by then you are overdrawn by $285 and owe the bank $180 in fees.  And since most banks charge additional fees for the days it takes you to replace the overdrawn amount, this translates into triple and quadruple-digit interest rates. Ouch!

Here are some tips to avoid costly overdraft charges:

• Avoid using overdraft protection as a short-term loan—overdraft protection is a costly form of credit.
• If you overdraw your account, get money back into your account as soon as possible. Remember that you need to put enough money back into your account to cover both the amount of your overdraft and any bank fees. The bank can continue to charge you fees for any amounts you fail to pay plus the fees.
• Even if you have an overdraft plan, there is no guarantee that your bank will cover transactions that overdraw your account.  Read the small print.  Banks have policies that dictate when it will cover your overdrafts and when it will not; when it will make you a loan and when it won't. But keep in mind the policy can change at any time.
• Keep your check register up to date.
• If you need overdraft protection every now and then, ask your bank about services that are right for you.  Ask the bank about plans that link to your savings account, or credit card at no cost to you.
• Put $300 extra in your account and provide your own overdraft protection – but don't spend it and don't count it. Forget it is there.
• Pay special attention to your electronic transactions. Record your ATM withdrawals in your register once a week.
• Don't forget about automatic bill payments – record them every at the beginning of every week in your check register.
• If your bank has online banking, regularly check your balance and watch when large checks and automatic withdrawals clear.
• Review your bank account statements each month.

Overdraft protection plans can save you bounced check fees but they can also cost you a bundle. Share you ideas for avoiding costly overdraft fees in the comments section below.

Closing Cost Rip-Off - Part 3

In previous blogs I discussed excessive closing costs. As the profitability of closing agents has increased, one group of businesses has figured out how to make them even more profitable: the real estate brokerage companies.

Under the guise of providing "one-stop-shopping," something consumers don't give a hoot about, they set up their own "title companies." The title companies really aren't full-blown title companies just sort of a sales company that feeds the orders to a real company that takes the risk. But those real title companies saw the pretend title companies as real volume producers because of their ability to deliver a lot of orders from their agents' deals.

Importantly, the real estate offices have the ability to eliminate competitors' access to their office and their agents. Can those companies do a better job of snaring clients in a non-competitive environment? You bet they can. It makes more money for them, but how does it help you?

Consequently the real title company can afford to pay what amount to generous sales commissions to the real estate agency's "title company" because the actual title company has no marketing cost on those transactions. Note that these arrangements are legal as long as they are disclosed as being "affiliated" businesses. That doesn't mean that they operate ethically or that kickbacks to the individual real estate for referrals don't happen. In fact, it seems as if some real estate companies are in court on almost a continuing basis.

When you make a deal to buy or sell a home, you might get better service and a lower cost from an independent company, not the affiliated one that your agent might suggest.

High tech solution for bad credit car buyers

A friend of mine alerted me to some interesting car buying news by IM yesterday afternoon:

Nicole: I just read an article about this new system where car dealers are now allowing people with bad credit to finance cars if they get this ignition blocker thing. When you make your weekly payment you get a code to put in this keypad near your ignition.
Emily: Sounds interesting!
Nicole: If you miss your payment, you don't get the code and the car won't start. People love them. It lets them buy a car when normally they couldn't. If you need your car for an emergency they'll give you a code, even if you haven't paid.
Emily: That's so cool - I hadn't heard about it.
Nicole: It's a nice way to get a car if you're responsible, but with credit problems.
Emily: I'm going to do some research about this...thanks for the tip!

It turns out that this "ignition blocker" system is produced by a company called PayTeck. This locking system is being used by lenders who specialize in selling cars to people with no credit or bad credit. According to an article in USA Today:

Payments are due every two weeks at Patriot. Sales staff program the first due date into the Smart Box, and the system keeps track from there. As time runs out, tiny lights on the keypad shift from green to red, and a chirping noise provides an audible nudge. Codes, once keyed in, reset the box for another two weeks. There is a four-day grace period. After that, the unit kicks in and voila: no vroom.

And it seems to work, too. One dealership in Virginia saw repossession rates drop significantly when they installed ignition blockers on their cars.  However, not everyone is in favor of this high-tech system. Some consumer advocates are speaking out against ignition blockers because they consider them demeaning and overly controlling.

What do you think about ignition blockers? Are they a great way to allow people with bad credit to buy cars or another sign of "big brother" controlling consumers? Share