The real cost of credit card fraud

The June issue of The Nilson Report included a startling report on the true cost of credit card fraud in the U.S. As you know, credit card issuers often have "zero fraud liability" programs that leave them stuck with the fraudulent expenses. But how much money are we really talking about?

According to the Nilson Report, American Express, Discover, MasterCard and Visa incurred $1.14 billion in fraud losses in 2005. That is up from $823.6 million in 2004. While this number is staggering, I find it hard to really quantify dollar amounts that high. To clarify, that amount would equal a cube of dollar bills more than 20 feet tall and 50 feet long and is equal to the amount that 400 people would earn in their lifetimes.

The $1.14 billion figure calculates to 6.25¢ per every $100 in credit card volume. A pretty significant loss amount no matter how you look at it. Although the total amount of fraud losses increased in 2005, the percentage of total volume declined. Credit card fraud peaked in 1992 at 15.71¢ from every $100. And here's the scariest part:

A greater contributor to last year's uptick in fraud was competition among top issuers. In the fight for market share, issuers are likely to authorize a transaction made to accounts help by good customers, even if that transaction has been flagged as risky by a neutral network because it diverges from the customer's ordinary spending pattern.

The Nilson Report article ends with the prediction that: "As long as fraud doesn't go up above 7¢ per $100 in volume, issuers will continue to favor consumer convenience over security."

What do you think about this report on credit card industry fraud losses? Are you willing to choose convenience over security? Share your feedback in the comments section below.

Mortgage Junk Fees - Part 2

Last week I said that junk fees were to pay for assuring that all of the loan documentation met the standards of the Secondary Market where you loan is likely to be sold. Let's talk about specifics. The numbers listed below are typical but can range higher:

• Appraisals - $250 to $350. Used to be done by the loan officers or other employees of the lender.  Now appraisals must be done by licensed appraisers and the rules governing them must meet the Uniform Standards of Professional Appraisal Practice published by The Appraisal Foundation. You can learn more at http://www.appraisalfoundation.org
• Underwriting - $250 to $400. The cost of assuring that all the documentation in the file meets the standards of the lender's underwriting manual and those of the Secondary Market source to which they will be selling the loan.
• Document Fee - $100 to $200. The cost of preparing the more or less 80 pieces of paper that you will sign. 
• Funding Fee - $25 to $50. The cost of the person who actually checks in the signed documents and sends the money to the settlement agent, title company, or escrow company.  Sometimes, but not always, this includes the cost of the bank's wire transfer.
• Flood Certification - $20 to $30. The cost of federally mandated report that says you either are or are not in a FEMA flood zone.
• Administrative Fee - $400 to $900 - Usually a single fee that would include the above services.

So if the lenders are incurring these costs, how can they find the income to cover them?  The first option would be just to have it be part of overhead.  I think a better way is to have each of these fees be a variable cost and have each borrower pay the fees associated with his own loan.

Again, as distasteful as these may be, no lender is going to negotiate them.

More next week! Share your questions and feedback in the comments section below

- Randy Johnson

Funny Money Friday: Monopoly switches to plastic

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.

A new version of Monopoly released in England has replaced the traditional pink and yellow cash with a debit card system. This  scandalous change to the classic board game has made headlines around the world! The weirdest part is that the game's debit card system is branded with Visa logos. Talk about guerrilla marketing!

Of course, this isn't the first board game to choose plastic. Mall Madness, the glorious over-consumption game, has been using credit cards since it was first released in the 1980's. My personal favorite growing up was Pay Day, which probably partially explains how I ended up in personal finance years later!

What do you think about the new Monopoly debit cards? What was your favorite board game growing up? Share your feedback in the comments section below. Happy Friday!

Customized credit cards: What photo would you pick for your Visa card?

USA Today published an article about the latest trend in the financial world this morning: customized credit cards. Nope, that doesn't mean you get to pick your own rates and fees...customized credit cards allow you to use a personal photo as the design. Forget landscapes and gold patina, apparently consumers really want a card with a photo of the family or car on the front.

It's pure marketing genius on the part of the credit card issuers. It seems that most borrowers care more about the design on the front of the card than the actual rates and fees. Before you get carried away by your artistic impulses, always remember to investigate the "Schumer's Box" before you apply for a new credit card. Choosing a plain old blue credit card instead could save you hundreds.

If you do want to design your own custom credit card through Capital One or First National Bank be creative! You could actually use this as an opportunity to add some healthy personal finance messages to your credit cards. If you have trouble saving money put a photo of your dream house or vacation spot on the front of the card as a reminder to not overspend. Put pictures of your kids on your card as a reminder that you should save for their future. Or even better, design a graphic that includes one of our credit card "warning labels!"

What would you put on your credit cards? Share your ideas and feedback in the comments section below!

Are High Gas Prices Really the Problem?

Gas prices are causing financial hardship according to the Experian-Gallup Personal Credit IndexSM survey for the second quarter (April, May and June) of 2006. Lower income consumers are most affected, followed by those in the middle income bracket.

Uh, duh. 

I am not knocking the survey, but I think most of us are feeling the pain at the pump and it's logical that those with less cash to spare are hurting the most. It's so bad that investigators in Southern California uncovered an arson ring torching gas-guzzling SUV's!

I don't think most of us have really absorbed the fact that what we are experiencing isn't some short-term blip in the price of gas. Last year, after Hurricane Katrina, everyone in my Florida community panicked after hearing a rumor that no gas would be available for seven days. We lined up and I paid (gasp!) $3.10 for premium grade, which was the only gasoline available.

Now I am almost paying that for regular grade. But this time, I am not counting on prices dropping much soon, if at all. Some breakthrough or development might eventually make us less dependent on gasoline to fuel our rides, but I personally don't expect to be filling up on vegetable oil or driving a solar powered car in the near future.

It seems almost pointless to offer tips for saving money on gasoline at this point. Yes, you might be able to save a few dollars, and if you want reliable road-tested strategies for improving mileage, then I recommend you read Edmunds.com real-world tested tips. But saving a few dollars on gasoline isn't going to make a huge difference for most of us. I could also rail against the oil industry, the lack of mass transportation in many communites and what not. But it won't solve the problem in the short term.

What I've seen, and what many credit counselors have been saying for years, is that many consumers with financial problems are paying far too much for their vehicles when compared to their income.  With five-year car loans becoming the norm, it is also easy to be "upside down," owing more than your car is worth.

So here are the real questions to start asking yourself when it comes to your choice in vehicles:

1. How will you adjust your budget to account for current gasoline prices? Can you afford to pay the higher prices on an ongoing basis? If not, then what will you do to make up the gap? (Earn more, spend less somewhere else, or both?).
2. Do you really know how much it costs to own and operate each of your vehicles? Have you sat down and figure the total monthly cost including fuel, the loan payment, insurance and a realistic estimate for maintenance and repairs?
3. How much money do you have to earn each month to pay for each car or truck you own? If you are not sure what tax bracket you are in, then multiply the figure you came up with in question #2 by 20% (or 1.20) and use that as a rough estimate. Then figure out how many hours you have to work to earn that much.
4. Finally, is it worth it? I am just like anyone else when it comes to justifying expenses (that will be the subject of another post), but this one may hit you squarely between the eyeballs.
   

After this exercise, you may discover you just can't justify the cost of one or more of your vehicles and need to downsize. If you still need transportation and a bus, bicycle, motorcycle or taxi isn't feasible for your locale or schedule, then you may want to look for an auto that is less expensive to operate. I like Edmunds.com True Cost to Own(sm) calculator, a far more useful tool than just calculating a monthly payment.

How are you coping with the high price of gasoline? In the Experian, more than half of survey respondents said they are:

Decreasing driving
Cutting back on heating/air conditioning
Cutting back on vacationing
Spending less on eating out and
Reducing savings

How about you? Share your comments with us below! 

Myth Busting: Is it really possible to steal credit card numbers with a cell phone camera?

MythBusters is one of my favorite televisions shows. I love watching Adam and Jamie put urban legends to the test. In the spirit of that show, CreditBloggers is investigating the truth behind a common identity theft legend:

Can a shoulder surfing identity thief really steal your credit card numbers using a cell phone camera?

We took a few cell phone photos of our own in the office this morning to see if this was actually possible. I used a Motorola E815 phone with a pretty decent 1.3 mega pixel camera for our tests.

Test 1: Over the shoulder shot

There is no way you can see any numbers or name information on the credit card in this photo. I tried playing with the image in PhotoShop and it would be impossible for thief to get data from this picture. But this card is a light color and it was a sort of dark room. Let's try again.

Test 2: Different card, different room

You can make out a bit more detail in this photo but still nothing that could actually be used. I was standing pretty darn close to our test subject and we had the card angled perfectly. I blurred out where the numbers would be in this photo just in case, but there was nothing legible.

Test 3: Super close up

I am about five inches away from the credit card in this shot and you still can only make out four of the numbers (I blurred them out in this photo for security). You would definitely know that a thief was up to something if they got this close to your card with a camera phone.

Verdict: This myth is busted! An identity thief would have to take a whole lot of camera phone photos before even getting one shot where any of the numbers are legible. It would be pretty impossible for an identity thief to use a basic camera phone to steal credit card data from you. I could see a thief possibly managing to steal information from a black and white printed piece of paper with a camera phone, but credit cards just don't show up well in low-resolution photos.

Tip: Apparently light colored credit cards are much less legible in camera phone photos. If there was a risk of having your data stolen with a camera phone, you could reduce it by using a white, silver or clear card. Older cards seem safer too; they are much less legible when the metallic sheen wears off the numbers.

McGruff the Crime Dog says "Take a bite out of identity theft crime"

The National Crime Prevention Council, best known for the trench-clad McGruff, has launched a new campaign to educate consumers about identity theft. The program is called "Keep your identity to yourself" and includes a dramatic public service announcement. Click on the image below to watch identity thieves in action and hear McGruff's tips: 

The campaign also focuses on the statistic that 53% of identity theft crimes are committed by someone you know. However, McGruff doesn't really get in to the details of what to do in the event that your cousin turns out to be a "crook." There are also a few details included in their identity theft brochure that are troublesome; including the advice to close all credit card accounts you haven't used for six months (which can cause major credit score damage) and the use of camera phones to steal credit card data (I'm not convinced that actually works).

What do you think about McGruff's new campaign? Watch the PSA and share your feedback in the comments section below.

Urban legend about credit card security code phone scam

We received a forwarded email this morning that included a story about someone being scammed by a caller posing as a credit card fraud investigator. Versions of this same story have been bouncing around the internet for a few years. Here are the basics:

A thief steals your credit card number somehow (from a statement, receipt or other source). In order to also get your 3 digit security code (also called a CVV) from the back of the card, they call you posing as a credit card fraud investigator.

The fraudster provides all sorts of official sounding case numbers and contacts before asking you to verify the three digit number on the back of your card. You give the caller the number thinking it is an official inquiry. Within a few hours, fraudulent purchases appear on your account and you are contacted by the real fraud investigators.

You can see a sample of the full email story online here. Since several different versions of this email are floating around it's hard to gauge the authenticity. However, it does seem that there have been real reported cases of this kind of fraud occurring. It certainly is a plausible and effective scheme. The New York State Banking Department even went so far as to issue a press release about this scam.

What's your vote? Is this a true story or an untrue urban legend? Share your feedback in the comments section below.

Considering buying a cabin or vacation home?

With the astronomical housing prices in San Francisco these days, buying a home is nearly impossible for those of us who aren't billionaires. Instead, I am considering continuing to rent and also buying a much less expensive property or cabin outside the city. There are some properties within a few hours of here that could be a lot of fun and a good investment.

Are you thinking about buying an investment property this year? If so, here are a few tips:

• Know where your credit stands - Your credit scores play an important role in the mortgage financing process. The better your score, the more you can save on your loan.
• Talk to a tax adviser - Understand your options and the tax impact of buying before you start shopping around.
• Crunch the numbers - Use free online loan calculators to estimate your payments, loan choices and affordability.
• Choose the right kind of loan - This article outlines and reviews 27 common mortgage types.
• Find a real estate agent - You can compare realtor rates, fees and experience using this free system online.
• Get pre-approved - Work with a lender before you start shopping around. This will help you understand how much you can buy and will speed up negotiations.

You can read more about financing your first investment property in this great article by Gerri Detweiler. Share your tips and feedback in the comments section below!

Must-read: Emergency plan for dealing with deep debt

Yours truly was quoted in a recent Bankrate.com article about dealing with a debt crisis. Even though my bias is more than apparent, I really do recommend you check out this story. Sheyna Steiner did a great job of outlining five simple steps that could help anyone get out of debt and back on track.

Check out the article here and share your feedback in the comments section below.

Reader Question: How do you clean up a credit report?

One of the most common questions we receive is about how to clear information from credit reports. I think that this is by far the most generally misunderstood part of the credit process. Consumers often think that a) there is a way to erase accurate information from their reports and that b) removing this information will always help their scores. We received a question along these lines from Andra in the Navy:

I'm interested in clearing some things off my credit report that I believe are causing damage to my credit ratings... either old accounts or accounts still active for no reason. Can you advise on which accounts I should remove and how to get rid of such entries?

Let's break this question down into a few key subjects:

1. Do old accounts damage your credit ratings? In most cases, the answer is no. Old positive accounts (with no late payments or other delinquencies) will stay on your credit reports for 7 or more years. Usually, these accounts have little to no impact on your credit scores. When in doubt, check your credit scores online and read the analysis that accompanies the scores. This personalized analysis can help point out exactly what is damaging your credit score and what you need to do to improve.

2. Can you remove accurate old accounts? Technically, no. The credit reporting system is set up to be a complete record of your financial behavior over the past 7-10 years. Just like a record of your grades in school, you can't go back and change the past. You can only focus on improving in the future.  Under FCRA law, only inaccurate, expired of fraudulent information can be removed by the disputing process. However, the credit bureaus often do remove old positive accounts when they are disputed by consumers.

3. Would removing these old accounts help my credit score? In so many cases, your credit score would actually be harmed by removing the old positive accounts records. This is a common mistake often made by people preparing for a major loan: they dispute all the old positive records and maybe even close their active accounts in an attempt to "clean" their credit reports. But the final result is a major drop in their credit scores instead of an improvement. By removing positive records, they make their credit history appear shorter and less established.

4. What about old negative accounts? Negative records such as collection accounts, late payments, judgments, tax liens and bankruptcy fillings all have set expiration dates. There is no way to remove these accurate records from your credit reports until the 7-10 year term expires. Payment of the debt or discharge of the bankruptcy does not cause the record to be removed. If the record is still on your credit report after the expiration date, disputing it can help you improve your credit scores significantly.

5. So, how do I improve my credit scores then? Small, precise changes are usually best when improving your credit scores. Using the analysis that accompanies your scores, you can make adjustments based on the specific factors that are harming your credit scores. If you have too much debt, you can improve by reducing your credit card balances. If you have too few accounts, you can open a new credit card. You can read more about improving your credit scores online here.

Keep in mind that this advice doesn't apply to every single person's situation. Credit scores are incredibly complex and there are some rare cases where disputing old positive accounts could help. It all depends on your own personal credit profile. Questions? Share your feedback in the comments section below.

Mortgage Junk Fees – Part 1

When you talk about things that irritate people, unanticipated miscellaneous charges that show up in any commercial transaction have to be really high on the list. The mortgage industry has developed this to a high art.

I can remember when I got my first mortgage. There were no extraneous fees, not even for an appraisal. Now, admittedly, that was in 1969 in a Savings & Loan Association dominated business. They did business in their home towns, their loan officers were expected to know the area and to do the appraisals themselves. The lenders kept the loans in their own portfolio and didn't have to satisfy anyone else except for the occasional regulator who came through town.

Today it is a different world with virtually every loan having to meet national criteria in almost every regard. Loans and their documentation today are expected to meet the standards of the Secondary Market, mostly FannieMae, FreddieMac, and Wall Street sources. They have manuals that are hundreds of pages long and the standards they set are quite specific. If some aspect of documentation is done wrong, the loan is not salable. Even for banks that do not want to sell their loans, the regulators still require that the loans they fund meet those standards so that IF they had to sell them in the future, they could.

Most of the junk fees are to pay for the costs that lenders incur in meeting those requirements. We'll talk about specific fees in upcoming posts, but I wanted to set this stage so you would understand the reasons for their existence. As objectionable as they might seem, there is virtually no way of making them go away, but some lenders specialize in hiding them so you can't see them. You're just paying for them some other way.

Do you have a question about mortgage fees that you want answered in this series? Share it in the comments section below!

Finanical institutions and creditors should take more responsibility for preventing identity theft

Good news. The federal financial regulatory agencies charged with enforcing the Fair Credit Reporting Act are seeking comments on some new proposed rules designed to add more protections for consumers from identity thieves.  These rules are a very good start, because they force institutions to prevent identity theft from occurring instead of leaving the task of recovering in the hands of the victims, after the theft occurs.

One proposed rule requires financial institutions and creditors to develop and implement red flag, or early warning and prevention programs to help identify and detect patterns associated with identity theft. A red flag is defined as “a pattern, practice, or specific activity that indicates the possible risk of identity theft.” In other words, financial institutions will be required to figure out what type of things might occur, are likely to occur, and the level of risk associated with that incident.  The idea is (1) identify the possible existence of identity theft even if there is no actual identity theft occurring, and (2) identify it before it occurs.  It is a forward thinking approach.  Whereas now victims have to struggle to undo the damage caused by a thief, lending institutions will be required to identify activities that pose a ‘possible risk’ of identity theft and have a procedure in place to nip it in the bud before the damage is done.

Under the proposed rules, the programs must include policies and procedures designed to:

• Identify red flags that might help an institution detect a possible risk of identity theft. For example a lending institution would be responsible to develop a plan to respond to a phishing attack where an e-mail is sent out directing the institution’s customers to go to a fraudulent web-site and provide personally identifiable information;
• Verify the identity of the person opening a new account, or making changes to existing accounts;
• Detect any red flags that the institution identifies as relevant in connection with the opening of a new account, or activities in existing accounts, such as an address change on a new order of checks;
  
• Mitigate the risk of identity theft commensurate with the level of risk associated with the red flag.  That is, if a creditor identifies a potential risk and determines it is a high risk, which poses a grave risk to the consumer or the institution itself, the fix must be appropriate to the level of risk;
• Requires the board of the institution to approve the program, (e.g., the board of directors will take responsibility for the program); and
• Requires a member of the board, or high level executive to oversee the program.

The proposed rules are a very good start. Whereas victims of identity theft were left on their own to untangle the damage, the FTC and other regulatory agencies are placing some of the burden on the financial institutions.  Good stuff. Comments must be submitted by September 18, 2006.  I expect financial institutions and creditors to object to taking on the responsibility to alleviate identity theft. Until now the burden and expense has been on the victim.  Are you in favor of making institutions, creditors and other users of credit information share some of the responsibility to prevent identity theft? What would you say to the FTC?  Read the proposed rules.

Funny Money Friday: Financial fashions!

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.

We all love money! It could even be said that our team of credit gurus here at CreditBloggers.com has an obsession with money! But who loves money enough to make it a part of their wardrobe? Apparently more people that we thought! The following garments represent the some of the funniest financial fashions we could find online:

• Money Ties - The best money designs crafted in pure luxurious polyester. Choose between pocket change, European currency, dollar bill and Mr. Monopoly designs.
• $100 bill motorcycle headband - Impress your colleagues at the investment office with this one-of-a-kind accessory.
• State quarter jewelry - Have your favorite state quarter design converted into a necklace, key chain, watch or money clip. Gold plating and enamel coloring options available.

Have you found a fantastic hat made of credit cards or a pair of suspenders with a Sacagawea design? Share your nominations for the most awesomely bad money clothes in the comments section below. The best entries will receive a free copy of the book Credit Scores, Credit Cards!

Reader Question: Rebuilding your credit after bankruptcy

Jami from Michigan wrote in to ask about rebuilding her credit after some rough times:

What is the quickest way to re-establish credit after a bankruptcy?  I have horrible credit. Now that I have felt how it affects me I need to get it repaired!

Rebuilding your credit after a bankruptcy filing takes a few smart moves and some patience. Your first step is to check that the bankruptcy records are being reported accurately on your credit report. Check to see that the accounts included in your filing as marked as "INCLUDED IN BK" on your credit reports.

Next, calculate the expiration dates of your negative credit report records. The actual bankruptcy record will remain on your credit report for 7 years from the filing date (10 years for chapter 7). Each account included in the bankruptcy will also remain on your report for 7 years. There is nothing you can do to remove these records before their expiration dates.

Finally, work on adding new positive records to your credit reports. Opening a credit card or small loan account and using it responsibly is a great place to start.  Look for an account that is designed to help people rebuild their credit. Be aware that many of these accounts come with expensive rates and fees. Shop online for accounts that fit your needs instead of accepting expensive offers than come in the mail. You may want to try the Orchard Bank Secured MasterCard. It has a decent APR and a low $35 annual fee.

Use your new account for small purchases and pay the balance on time each month for the maximum benefit. Work to establish a squeaky clean credit record post-bankruptcy and you'll be back on track within a few years. You can read more about rebuilding your credit online.

College for Less

Here's an easy way to cut the cost of college and the time it takes to get a degree: Take a CLEP test. Officially known as the College-Level Examination Program (CLEP), these tests are brought to us by the College Board, the same folks who create the SATs. Approximately 40 different tests are offered in composition and literature, foreign languages, history, social sciences, math, science, and business -- and are accepted at some 2,900 colleges.

Whether you're in the know because of a high school course, life experience, independent study, or on-the-job training, for a mere $60, you can get the same number of credits as you would for successfully completing a semester-long course -- or even one that lasts a full year. Given what tuition costs these days, $60 beats the cost of every college course.

Each school has its own rules (of course), so it pays to double-check in advance, but chances are good that you'll:

• Save money
• Cut the amount of time it takes for you to graduate
• Place out of introductory courses
• Fulfill some of your school's core curriculum requirements

With the exception of a test called "English Composition with Essay" all the tests are scored instantly online. Visit the College Board for more information about CLEP tests.

Special Note for Military Personnel: You can take the CLEP tests for FREE -- whether you are on active or reserve duty. Click here for more information.

Have you ever taken a CLEP test? Tell us how you made out!

Scam Alert: Website Listing Service

If you own a website or URL, beware! There are companies out there using your publicly available domain name registration data to send you expensive and confusing offers.

I received an official looking bill last night from a company called ListingCorp.com. At a glance, it appeared to be an invoice for $65 to renew my annual registration. After looking at it for a few minutes and trying to figure it out, I finally saw this message in small print on the back of the bill:

This is not a bill. This is a solicitation. You are under no obligation to pay the amount stated above unless you accept this offer.

I could see a busy bill payer completely skipping over this disclaimer and simply sending in a check for $65 to "renew."  Luckily, I remembered that I was registered with Yahoo.com and spotted the disclaimer before cutting a check. What a scam!

Have you received a confusing or misleading offer in the mail? First, report the company's unethical practices to FTC and BBB. Second, share your experience with us in the comments section!

Reader Question: Medical bills and your credit reports

In the last few days, we've received over 100 excellent questions from our newsletter readers.  This has given us a great opportunity to share some common questions about credit and personal finance with our blog audience. You know how the saying goes: "If one person is asking, 10 others are wondering." Here's an email from Monique in New York:

Can delinquent medical bills show up on your credit reports?

The answer is yes. If an overdue medical bill is sold to a collections agency, the subsequent collection account record will appear on your credit reports for 7 years. Collection accounts can cause significant damage to credit scores. Plus, paying off the collection debt does not cause the record to be removed from your credit reports and will only result in a minimal increase in your credit scores.

The selling of debts to collections is unfortunately a quite common practice for medical offices (and one that I personally think is terribly unfair to consumers).  Consumers who are unable to pay off a medical debt or cannot find a way to finance what they owe can easily end up dealing with damaged credit scores for years. It is also common for medical debts that are in dispute with an insurance company or inaccurately billed to be sold to collections.

If you have a medical debt that is in danger of being sold to collections, do anything you can to pay it off and avoid these damaging records. Communicate closely with the medical billing office. If your insurance company is not paying as they should, settle the medical debt using a credit card and continue to work with the insurance company to receive reimbursement. You are ultimately responsible for paying a medical bill, even if you have insurance that should have covered the expense.

When in doubt, pay first and ask questions later. The cost of destroying your credit for seven years often will outweigh the medical bill. The same is true for other types of debts that are commonly sold to collections. Watch out for unpaid parking tickets, library fines, video store fees and more.

Have you dealt with a medical collection account before? Share you experiences and tips in the comments section below.

Bonus information:  Medical collection information will be masked for your privacy on commercial credit reports provided to employers and creditors. Only the basic collection record and the amount will appear.

Reader Question: Why doesn't my divorce decree apply to my credit reports?

Eddie wrote in last week from Georgia with a really common post-divorce dilemma:

I have a question for you: I recently went through a divorce by which a vehicle was awarded to my ex-wife.  The loan was in my name only.  She allowed the vehicle to be repossessed and the lender is coming after me for payment.  It states in the divorce decree that she is responsible for payments and other issue surrounding the car.  What can I do to get this off my credit and hold her responsible this balance? 

Separating accounts after a divorce can be so complicated. On one hand, it seems like your divorce decree has settled everything. On the other hand, your responsibility for these accounts hasn't actually been changed by this decree. In many cases, people involved in the divorce process fail to mention the latter and it leads to serious financial problems.

Divorce decrees do not end responsibility for shared debts. Because the creditors are not a party to the decision, any transfer of accounts from a divorce decree doesn't actually change your financial situation. Only closing or refinancing accounts can legally end your responsibility for the debts. Eddie's auto loan was still in his name and was still his responsibility, even though the divorce decree said otherwise. The FTC has more information about divorce decrees. I wish the courts would make this more clear.

In Eddie's situation, he only has a few options. One is to immediately start working with the lender to remedy the situation. It may not be too late to stop the repossession and start making payments on the car. At least then Eddied could stop the credit report damage and hopefully have a chance to sell the car on his own.  If this isn't possible, there isn't much he can do aside from talking to an attorney. The late payment and repossession records will remain on Eddie's credit reports for seven years.

Eddie could have avoided all this trouble if he had only understood how divorce decrees actually work from the beginning. Credit.com has an article online all about the right way to separate shared accounts after a divorce. Share your credit and divorce feedback in the comments section below!

Reader Question: When do credit card companies report late payments to the credit bureaus?

We received an excellent question from Patrick this morning:

If I make a payment for a credit card and mail it on the due date, and they receive it say 5 days later I know I will be charged for the late payment. But my question is does it go on my credit report as late?  My credit report just shows 30, 60, & 90 day late history???? 

This is a great question! In all my years in the credit industry, I have never thought about the different credit card policies on reporting late payments. Patrick stumped me!

So, I called a couple credit card companies to investigate. The credit card issuers are a whole lot more lenient than I expected:

• Capital One reports late payments after 30 days.
• Chase reports late payments after 30 days.
• Orchard (HSBC) Bank reports late payments after 30 days.
• MBNA (B of A) reports late payments after 30 days.
• Citi waits 60 days to report late payments.
• American Express reports late payments after 60 days.
• Discover waits 60 days to report late payments.

A five day late payment will cause you to be charged a late fee (usually $35) but it will not be reported to the credit bureaus. You'll have to miss your payments for more than 30 or 60 days before they report you to the credit bureaus. That's a really long time!

When he got my email response, Patrick said: "I hope I don't start something here with people holding off on mailing in there payments promptly." I agree! Making your payments on time is still very important and $35 is a pretty big fee for paying late. Keep in mind that your creditors still track your payment records and could base their decisions about your rates and credit limits on late payments under 30 days.

Next question? Send us an email or post your question in the comments section below!

THE LOW BIDDER

Neil Armstrong’s most famous quote is, “That's one step for a man, one giant leap for mankind.” But I remember another during an interview just before they were to depart for the moon. A reporter asked him about the risk and he responded, “We’re traveling in a vehicle made up of 100,000 parts, each supplied by the low bidder. How would you feel?”

Indeed! I don’t know how many people have been burned by going with the low bidder, but it’s a lot. Not that bidding is wrong but the usefulness of that method of selecting who to do business with is based upon one essential ingredient: that each bidder will provide the exact same product with the same level of service and support. I suspect NASA’s bidding requirements were such that the risk had been taken out of the process, but that just doesn’t happen in normal life.

That essential element is missing when people go about their daily lives. When people buy something that they don’t know much about, the normal human reaction in America is to go with the low bidder. I have been bitten enough to not do it any more, and I bet you have too.

Bottom line anyone looking for ANY service or product should be looking for one of the top people in that field, and you don’t find that by bidding. In many cases, the low bidder is low because he has no intention of providing what you really want and could get from the best provider.

This is a good tip for borrowers as there are a lot of sleazy people who will APPEAR to be the low bidder.  Go with that low bidder at your peril.

Funny Money Friday: Our favorite online credit experiments

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 love internet experiments! Thanks to these three creative minds online, we now know just how easy it is to apply for a new credit card, fake a credit card signature and erase a magnetic strip using a sidekick:

The Torn Up Credit Card Application test is probably the most famous online credit experiment so far. The researchers at Cockeyed.com ripped up a Chase credit card application in to 16 pieces, taped it back together, changed their address, mailed it in and got approved for the new account.  That experiment made headlines across the world!

Then there was the Zug.com credit card signature test. In this experiment, the researcher used increasingly weird and inaccurate signatures on his credit card receipts to see if anyone would notice. Zug presents 24 different examples including sketches, celebrity names and actual identity theft clues taken from a credit card security ad. The only time Zug was stopped was at Circuit City when he tried buy three $5,000 TV's using a signature of "Not Authorized."

Now, there is a new internet experiment making news: The Internet Patrol has found that the strong magnet used to lock the Sidekick 3 swivel screen will erase credit card data in seconds. The magnet is strong enough to hold pieces of silverware and could easily wipe out the magnetic strip on a credit card carried in the same pocket or purse. They even post photos to prove it!

Have you seen a great online credit experiment lately? Share it in the comments section below!  Happy Friday!

Do you know where your mortgage broker has been?

The National Association of Mortgage Brokers gets today's "Good Idea" award. During their testimony to the Federal Reserve Bank in Atlanta, NAMB supported requiring all loan originators to complete criminal background checks:

[NAMB President Harry Dinham] said that licensing is important because while most consumers don’t know the difference between a banker and a broker, they need to have the assurance that they are using an educated originator no matter which lending channel they choose. Providing licensure requirements for every originator including a criminal background check to weed out bad actors is a vital role that government plays in protecting consumers according to Dinham.

Currently, only a few states have detailed regulations for mortgage brokers. In other states, there are no rules to stop convicted felons and identity thieves from origination mortgage loans. Recent cases in Sacramento, Iowa and Kansas demonstrate just how damaging fraud can be within the mortgage industry. 

Until mortgage broker background checks become commonplace, borrowers should thoroughly  research their broker on their own. Check that a broker's state license is authentic and see if they are registered with the NAMB. You can also ask for client references. Keep an eye out for suspicious behavior and don't sign or provide any data that seems unusual without researching first.

Reader Question: Can I be charged interest on an account tainted by fraud?

Thank you for your question, Robert:

I've heard that Federal Law prohibts interest being charged on credit accounts that are being investigated for fraud or inaccuracy. Is there such a law?

You should not be charged interest on 'billing errors.' Under the Fair Credit Billing Act 'billing errors' are defined as incorrect credits for payments, charges that you did not make, and charges for goods or services that you did not receive or that were not as promised.  If you find an error on a credit card or charge account bill, you have the right to dispute the problem.

Write to the creditor within 60 days of the postmark of the first bill with the disputed charge. If you just recently found the problem, and more than 60 days have passed, you should still try to dispute the charge.

• Send a letter to the address provided on the bill for questions or inquiries. Do not send the letter with your payment.
• Be very specific about what you are disputing. Include:

• Your name as it appears on the account
• Your account number
• The date and amount of the charge
• An explanation of why you are disputing the charge

• Send your letter by certified mail, with a return receipt requested.

If you follow these steps, the creditor must acknowledge your letter in writing within 30 days of receiving it and conduct an investigation within 90 days.

While the bill is being investigated, you do not have to pay the amount in dispute. The creditor cannot:

• Try to collect the disputed amount, or
• Report the amount as late, or
• Close or restrict your account.

The letter from the creditor should include information explaining:

• Why the disputed charges are still owed if they are, and
• Some sort of proof that the charges are valid – that you still owe the money.
• Charges - You will owe the amount disputed plus any finance charges that accrue.

If you were right and there was an error, the creditor must credit your account and remove any related finance charges or late fees.

Share your feedback about credit billing problems below.

Allstate Auto Insurance Class Action Settled

If you signed up to participate as a class member in the suit against Allstate last year you will be delighted to learn that you may be getting some money for your trouble IF you suffered damages as a result of Allstatess actions.  That is a fancy way of saying that if there are mistakes on your credit report, and your premiums went up, you will get a check.  And some members of the class will get a reduction in premiums.  More information about the different classes.

I love this outcome!  It means that insurers can't get away with looking at consumer credit reports without a good reason to do so.  Under the Fair Credit Reporting Act ('FCRA'), everyone who uses your credit report must