Prestige Credit Cards: Not Just for the Rich and Famous

The first and considered by many to be the most exclusive prestige credit card is the American Express Centurion, reportedly for people who charge at least $250,000 a year. Available by invitation only, the card is so exclusive, it's hard to get reliable information about it!

What's clear is that Centurion is for wealthy people who travel frequently, shop at high end stores, and are used to receiving VIP treatment. Stories about the rich and famous who use Centurion abound. There are free companion airline tickets, free upgrades to first class, special deals with hotels, personal shoppers at stores like Saks and Gucci, travel planning and concierge services, as well as bonuses and rewards galore. Starting this May, there's going to be a $5,000 initiation fee … to be followed by annual fees of $2,500. (Curious to know what cardholders have to say? Click here.)

If by some chance you don't qualify for Centurion – and wouldn't want it even if you could – you're not alone! According to industry estimates, there are only about 10,000 Centurions out there.

Is There a Prestige Credit Card in Your Reach?

Both MasterCard and Visa have prestige credit cards that are marketed as Visa Signature Cards and World MasterCards. These cards have lots of enhanced benefits, geared to more typical cardholders – at no additional cost. Surprised? Don't be. Card issuers are in fierce competition, and they want business so badly, they are dangling bigger and better carrots in front of us.

Like Amex's Centurion, these cards offer tons of benefits for frequent flyers and spenders, including hotel discounts and upgrades, rebates on travel, extra travel insurance, points good for free flights with no blackout dates, VIP reservations at expensive restaurants, special discounts at stores and spas, early ticket purchasing for concerts and sporting events, flexible, generous rewards … and on and on.

Chances are, you already have a credit card issued by a lender that would be happy to give you Visa Signature or World MasterCard privileges – assuming your credit is good to excellent, you earn in the range of $125,000 a year, and you charge at least $2,000 a month. While the offers on individual cards change frequently, it's quite likely that you can find a card with an introductory rate of 0%, no annual fee or a low one (up to around $85), and as reasonable an interest rate as you'd get on cards without the extra benefits.

Surf over to these two sites and take a gander at the freebies you can get:

1. Visa Signature

2.World MasterCard

Warning: Don't let the lure of the extra benefits tempt you into charging more than you can afford. But if you do a lot of traveling for business, why not reap the enhanced rewards?

Do you have a prestige credit card? Please tell us about the benefits you have used!

Curtis Arnold, is the Founder of CardRatings.com, a website that provides ratings and reviews of over 20,000 credit card offers.

Funny Money Friday: Credit Card Word Search

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're excited to welcome a new blogger to our team on Monday! Curtis Arnold is the founder of U.S. Citizens for Fair Credit Card Terms and CardRatings.com. He'll be giving you the inside scoop on everything happening in the credit card industry. If you have a question for Curtis to answer on CreditBloggers, email it to tidbits@credit.com.

In honor of our new credit card guru, this week's Funny Money Friday post is all about credit card terms. Click on the image below to see and print our Credit Card Word Search:

As always, you can send your completed puzzle to us by email (or mail/fax, email us for instructions). Each complete and correct entry we receive will win a free copy of John Ulzheimer's book, Credit Reporting & Credit Scoring. Happy Friday!

Are You Kidding Me? New Century Continues Making Bad Decisions

Orange County, CA is my home and it is also the home of a significant number of the sub-prime lenders that are closing down or have quit altogether.  The most visible one is New Century, up until recently the industry's largest. It has filed for bankruptcy protection.

New Century's latest problems were caused by the forced re-purchase of hundreds of millions of dollars of defaulted loans where borrowers did not make any payments.  When it happens with a lot of loans, you'd have to suspect wide-spread collusion between the borrowers and employees at the company. How far up the ladder did that go?  Well, there are investigations into insider-trading that reach into the highest levels of the company, so you would have to wonder.

In the meantime, the company is trying to sell the loans they had to buy back, the ones that are in default. The company is also trying to find a buyer for the organization itself. That might be a hard sell because of all those lousy loan officers who knowingly did bad loans just so they could make a commission.

The latest news is simply outrageous.  As reported in The Los Angeles Times, the company attorney appeared before the Bankruptcy Court and asked that $6 million be set aside for paying bonuses for 131 "key" employees who they felt necessary to retain so as to make the company more saleable. $3.4 million of that was to go to seven of the highest paid executives. In the words of the company, "The debtors require the means to motivate leadership and to address steeply declining morale of its employees."

I must not know much about morale but I also haven't watched my stockholdings of $100,000,000 evaporate to zero like mist under the morning sun as did each of the major executives of the company. That would tend to be a little depressing, so perhaps it is necessary to give them $500,000 pocket money to get them to come to work every day.

As I write this something like 10,000 unemployed mortgage folks are currently walking around Orange County. So it's not like ANY of those 131 people can go out and find a new job. No one is hiring. They may suffer from poor morale but they will stay as long as you pay them ANYTHING!

So what is everyone going to do without these bonuses? Quit? I don't think so.

I had already anticipated that the vultures were circling to see what they could find to feed off of as this empire collapsed. I didn't think that would include the guys who oversaw creating the mess in the first place.  I hope that the Bankruptcy Court refuses to approve the payments. 

A Co-Branded Credit Card That Makes The Grade

I criticized co-branded credit cards on a previous post for failing to negotiate better terms for their members/customers. My complaint is that the sponsoring organizations don't seem to care how badly these cards reflect on their brand. If you read the comments on that post, you'll see that some agreed with me, and others basically said "caveat emptor, it's all about making money."

What I neglected to point out was a "good guy" example that has defied the traditional model: the Union Plus Credit Card which is available to some 13 million union members. Union Privilege, the group that provides benefits to union members through unions across the country, has worked long and hard with the issuer (first Household Bank and now HSBC Bank) to negotiate and maintain a card with strong protections for cardholders. They also offer a secured card and rewards card.

Here's how the Union Plus credit card stacks up against the competition:

Punitive Rates
Other Cards

• Increase interest rates if cardholder pays late or for numerous other reasons.
• The average default rate is 25%; many issuers charge 32% or more.

Union Plus

• No increases above the members' standard APR, which is capped at 19.99%
• Promotional rates may rise to the member's standard APR, but only if they are 30 days late on the Union Plus card. That's almost unheard of in the industry.

Universal Default
Other Cards

• Most cards charge "universal default" interest rates based on alleged missteps with another issuers but involving no missed payments to the credit card company itself. This includes other credit card bills, mortgages, auto loans…even utility bills. Even a change in your credit report such as refinancing your mortgage can trigger a higher rate.

Union Plus

• No universal default

Grace Period
Other cards

• Grace periods have been getting shorter -- typically 20 days for many major cards.

Union Plus

• 25 days.

Raise Rates Any Time for Any Reason
Other Cards

• Credit card company contracts currently claim the right to change terms for any reason, including what often seems like no good reason at all!

Union Plus

• Terms can change only if Union Privilege agrees.

Mandatory Arbitration
Other Cards

• Force consumer to waive his or her right to a court trial as a condition of using a credit card. These mandatory arbitration clauses have been criticized as biased in favor of the issuers, and Class Action lawsuits are not allowed.

Union Plus

• No mandatory arbitration clause

Protecting Members
Other Cards

• No special protections for members facing financial hardship. If you want any kind of protection, you’ll have to purchase expensive disability or unemployment “insurance” type coverage.

Union Plus

• Special protections for members facing financial hardship, including:
• Lifeline Trust provides grants to cardholders who experience a significant loss of household income due to a long-term illness or prolonged disability ($100,000 in grants distributed)
• Free consumer credit counseling program with Money Management International which offers free budget analysis
• Disaster Relief Fund provides grants to members affected by a natural disaster ($400,000 provided to cardholders impacted by Hurricane Katrina)
• Layoff helpline assists members who have been laid off with reduced rates or fixed payment plans
• Skip payments (up to 4 per year) assist members on strike or facing other economic crises
• Full-time member advocate that works for Union Privilege to help members with concerns that are not addressed by the bank
• Union Privilege looks out for union consumers every day. Negotiates a contract with bank and oversees and monitors program.

Lest this sound like a commercial for the card, I want to point out that card programs like Union Plus should be the standard, not the exception. Organizations with large membership or customer bases should be similarly fighting for a good deal for consumers who carry cards with the sponsor's name on them. Yes, card programs must be profitable (and this one is) but at a time when long-term loyal cardholders are hard to come by, sponsors and issuers should be looking at ways to build loyalty through strong member benefits -- and by treating the customer well.

Beware Scam Sites Exploiting Sympathy for Virginia Tech Victims

The response to last week's massacre at Virginia Tech ran the emotional gamut, from stunned compassion for the victims and their families to anger at the shooter and perplexity at the school's slow response. Now comes a warning to temper our compassion with a measure of suspicion. The U.S. Computer Emergency Response Team (CERT) and other security experts are sounding the alarm that phishers and other scammers have moved quickly to exploit the tragedy, just as they did in the wake of Hurricane Katrina.

Within 24 hours of the shootings on Monday, at least 28 domain names had been registered that were clearly related to the tragedy, according to the US SANS Internet Storm Center. In fact, the Second City CEO blog reported that virginiatechshooting.com and three similar domains were bought within 20 minutes.

Some of this heartlessness is just the usual domain squatters and other speculators looking to make a quick buck, either by flipping a momentarily hot domain or by stuffing it full of ads. But it's a virtual certainty that some of these domains will be used to mine visitors' sympathy by soliciting donations "for the survivors" — then keeping the donors' money and stealing their credit card and identity data.

The good folks at the SANS Internet Storm Center summed up the risk very well:

Be on the lookout for a rash of spam and phishing coming from these leeches. If you receive a plea for donations, check the organization out closely before opening up your e-gold, PayPal, Visa or other account or providing any personal information. In some cases the phishers may use voice, fax, email and websites to dupe generous and thoughtful victims into disclosing valuable information.

This is not to say that every one of these sites was spawned by a phisher, fraudster, or other identity-thieving bottom-feeder. As a comment posted to Second City CEO by one domain's new owner explained:

When people look back at this tragedy they will find all of the sensational articles written by the media, the books, movies, etc. But the actual thoughts and feelings of real people around the world don't have a single, coherent place to be found. So I put up a forum on that domain last night in the hopes that real people will find it useful. When my father was battling cancer last year he found a lot of benefit in the group he belonged to who were in the same position.

And perhaps, just maybe, there is a tiny possibility that some future person who is contemplating an act such as this might come across this site and see not the sensationalism of the mainstream media, but rather the human side and feelings that their potential actions could cause. And just possibly they might change their minds.

It's pretty hard to argue with that — especially since the poster declined the opportunity to publicize the newly bought domain by including it in the comment. It's also quite possible that some of these domains were snapped up pre-emptively by Good Samaritans to keep them out of scammers' hands.

That said, however, it's a good rule of thumb that any fly-by-night web site asking for donations is simply not to be trusted. The same goes for email appeals, which are even more likely than web sites to be out-and-out scams. (If you do receive an email that you believe to be a phishing attempt — whatever the topic — please report it to the Anti-Phishing Working Group.)

If you're feeling the urge to help, there are plenty of established organizations out there — though even when you know the name and the logo, you should keep a sharp eye out for phishing emails and clone web sites designed to dupe you and engineered to rob you blind. By all means, feel what you feel and give if the spirit moves you. But don't let your sympathy and generosity be exploited — and your identity stolen — by a few sick, criminal freaks seeking to profit from someone else's pain.

Reader Warning: Fake Loan Scams

It's a terrible scam and one that has exploded on scene over the last year. Advanced-fee loan fraud takes thousands and sometimes even tens of thousands of dollars from unsuspecting victims hoping to get a loan. The frequency of cases reported to us has recently slowed down a bit, but there are still new victims of this scam emerging. John wrote in with his story:

I recently attempted to secure a loan in hopes of taking care of medical debt. With the promise of a loan, I sent my entire monthly income as a deposit to the company to secure the loan as I was instructed. Now, I'm left with nothing. My wife and I cannot buy groceries, make our mortgage payment, feed our dogs, pay our electric bill, or even purchase toilet paper.

It's a sad day in the United States when a disabled/blind Air Force veteran, 44 years of age, is defrauded of his only income and cannot receive help from any charity. My wife, age 48, recently became unemployed due to the business she worked for closing. That combined with our financial situation has brought on severe depression and illness for her.
Since this has happened, we have learned we are not alone. We have gotten several phone calls from people wanting us to tell them what to do! There are no resources for those of who strive to be good citizens of America.

Yes, we know NOW it is illegal for a company to ask for money upfront but everything looked and sounded legit at the time. We are going to lose our home and car.

I beg you to please help or give our information to anyone who will help.

Our team of experts put together a warning article for consumers when we first heard of this scam last summer. If you are contacted by a lender asking you to wire cash as a "deposit" or "insurance" payment, don't do it.

If you have already been a victim of this scam, please take the time to report it to the FTC, the FBI, PhoneBusters (most incidents seem to involve wiring money to Canada), your local police and your political representatives.

As they say: "Sunlight is the best disinfectant."  One way to stop these criminals is to bring their scam into the light. If everyone is aware of this fraud, the fraudsters will hopefully be put out of business.

Funny Money Friday: Credit Crossword Challenge

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.

The January through April personal finance crunch is officially over now that tax day has passed. Most consumers will stop worrying about their New Year's resolution to get out of debt and will forget about their plan to open an IRA for the rest of the summer. But not at CreditBloggers.com! Our obsession with credit and personal finance lasts all year long.

True credit geeks like us should have no trouble completing our crossword puzzle this Friday. Click to open the image and print out the puzzle:

When you're finished email your completed puzzles to tidbits@credit.com. Each accurate submission will win a free copy of John Ulzheimer's brand new book "Credit Reporting & Credit Scoring." Good luck and happy Friday!

Congress Must Change Bankruptcy Laws to Help Homeowners

Over two million families with subprime mortgages have already lost their homes to foreclosure or they're likely to lose them in the next few years unless Congress changes the bankruptcy laws. That's the message in a joint  "Call for Action" issued the other day by the National Association of Consumer Bankruptcy Attorneys (NACBA), the Consumer Federation of America (CFA) and the Center for Responsible Lending (CRL) – on behalf of the hundreds of thousands of families struggling with abusive subprime mortgages and hoping to escape foreclosure.

These three nonprofits warn that the bankruptcy laws are currently written in a way that means low-income subprime mortgage borrowers will have a very hard time keeping their homes … while those with second (and even third) homes will have a much easier time saving those properties.

Catch 22: The Rulz Is Nuts!
The problem is that the Bankruptcy Code includes very restrictive provisions that apply only to mortgages on primary residences. Home loans are essentially excluded from bankruptcy protection, which puts mortgage lenders in a far better position than virtually every other creditor.

In the best case scenario, the "Ponzi Scheme" subprime lenders came up with was based on low rates plus quick property appreciation. That’s the only way  folks could hope to keep afloat. But rates went up and property values have gone down, leaving borrowers who can least afford them with mortgages that are bigger than their homes are worth. So even if they were able to sell, they'd get a lower price, would still owe their mortgage lenders a pile, and would be homeless.

Then there are all the worst case scenarios brought to us by even more irresponsible lenders – for example, those who gave subprime loans based on appraisal fraud. Even in these circumstances, judges cannot restructure the mortgages. So how in the world are these people supposed to get back on their feet?!

The answer: Congress should modify the bankruptcy code so judges can write down these loans and let people stay in their homes.

You Can Help!
Let your legislators know that you support revising the Bankruptcy Code. And if you are facing this situation, please share some of the details with us. Your "horror story" may be what convinces a legislator that the current code must go!

Reader Question: International Credit Relations

One of the best things about the internet is how it allows informal conversations between people who live around the world. Today's credit question comes from Gerald in New Zealand:

I am an American citizen living the past 9 years in New Zealand. I will be working in USA from the end of May through the end of September 2007. I would like to assume a car lease for that time. BUT am having trouble getting proper credit approval.

I do not have a current address or telephone number in USA but have employment contract now and will physically be there on the 17th of May. I have an American bank account and just this week obtained a VISA credit card (albeit the limit is a measly US$300).

I have two New Zealand bank credit cards (VISA, MasterCard) all in good standing.  I and my wife own our own home registered valuation of NZ$600,00.  We own property in New Zealand without a mortgage worth NZ$160,000.We own two cars. No outstanding loans.

One of my sons, (living in USA with excellent credit history) has agreed to be a co-creditor.  PLEASE advise me on how can I get a good credit rating?

Gerald is lucky to have several options at hand for getting the car he'll need this summer. Because he is a US citizen, he doesn't have to worry about setting up a taxpayer ID number. And Gerald has already done a few smart things to get started.

Opening a visa credit card, using it for one small purchase each month (around $30) and paying the bill on time will go a really long way to helping establish his credit in the US. By the time he gets here next month, it is possible that Gerald might actually have enough of a credit history to get a car lease on his own. He should check his credit reports to see if the account is being reported accurately.

If Gerald's credit is not good enough to qualify for a loan in May, he will have several options. Asking his son to co-sign the loan can be a good idea. However, Gerald should keep in mind that the shared loan will appear on both their credit reports and will be both their legal responsibility if something goes wrong. Aside from co-signing, Gerald could also use a cash down payment to get approved or could buy a used car with cash to later resell.

Gerald will probably have the best luck finding financing through a dealership instead of a bank or online auto lender.  Dealers are usually the best resource for tricky credit. If that doesn't work, he can try a local credit union. They may be able to use some of his credit history in New Zealand for a manual underwriting.

If you are working on establishing your credit, from New Zealand or not, Credit.com has a great article with expert tips to help you get started. Next question?  Send your credit and money questions to tidbits@credit.com.

Reader Question: How do I Increase My Credit Score

Along with "to be or not to be" and "why did the chicken cross the road," "how do I improve my credit score" is one of those eternal questions that everyone asks and that also has no definite answer. Michael wrote in this morning to ask:

What is the fastest way to increase my credit score?  I am leasing a truck at the moment. I have been approved and received my first unsecured credit card (Capitol One). I have a Sprint cellular bill from 2001 and it has gone to a collections agency. Can I expect to have this account removed immediately from my credit report if i negotiate to make payments on the outstanding bill?   

There are a lot of factors at work on Michael's credit score. The first step for improving a credit score is knowing what factors are causing the score to be low. Credit scoring is not quite as simple as this, but let's divide them into that are helping his score and things that are hurting his score:

Helping His Credit Score
Auto lease (if being paid on time each month)
Credit card (if being paid on time each month and with a low balance)

Hurting His Credit Score
Inquiries from applying for the credit card
A short credit history
The collection account

Without knowing all the factors on Michael's credit report it is hard to guess his exact credit standing. However, with a relatively short credit history and a few dings I would guess that he is in the low 600's. 

Now let's get to the improvement part! The most important thing Michael can do is to continue using his auto loan and credit card accounts responsibly. Paying his bills on time each month is crucial. And it is a good idea to keep the debt-to-limit ratio on that credit card around 10% (which means no balances over $500 for a $5,000 credit limit).  Keep these accounts open for a long time to build up your account history.

Paying off the cell phone collection record will probably not help boost Michael's credit score significantly. The account will still remain on his credit report for 7 years, even if it is paid in full. However, paying off the collection record is still definitely the right thing to do and can help prevent future credit score damage. Michael should negotiate a reduced settlement with the collection agency and get their agreement in writing.

Time and good behavior are really the best recipe for credit score improvement. With some patience and hard work, Michael will be on the road to credit improvement very soon. When that collection record expires next year, he could have a credit score in the 700's.

Where Do I Send The Keys?

It's tough to pick up a paper today without some kind of article about the sub-prime meltdown story on the front page. I have been writing about the idiotic practices in that segment of the mortgage business for two years. Like many things in life, the anticipation was more interesting than the reality. Bottom line, we still don't know what’s going to happen long term, particularly the extent to which lenders are going to go to help some distraught borrowers.

The most recent stories are about the outlying areas around the core of Southern California, areas like the Riverside and San Bernardino and the Antelope Valley area of Los Angeles County. These have been "overflow" areas where builders have been able to buy cheaper land and deliver less expensive housing. Their market has been people who have been frozen out of the areas closer to the Coast where values are higher. 

Because these areas are 40 or 50 or 60 miles from where the jobs are, you are talking about buyers who have said, "I'll endure a longer commute if I can just buy a home." That commute gets less fun when travel times approach 2 hours each way and gasoline is over $3 per gallon. In some cases, it has caused people to throw in the towel and move back closer to their jobs. Knowing that, you'd have to conclude that these were the weakest markets in the area.

If the owners bought early enough their home may have gone up enough in value so that they can sell and walk away with some of their equity. But there are others who got 100% financing. Their homes would have to have gone up at least 6% in value just to pay the real estate commission and that's just not the case with many homeowners.

Those who are facing imminent reset to a high rate that they can't afford should immediately talk with their lender. Seriously, more than half of people in trouble don't ever bother to call.  That's a mistake because in many cases they'd find out that the lender is willing to work with them, assuming that there is some prospect of a reasonable long term solution.

Other buyers found homes that were under construction and bought them well before completion. They closed upon them, anticipating a quick re-sale and profit. That is not likely these days and sometimes there are no renters available or they can't handle the negative cash flow.  Not seeing any other solution, some of those people have called the lenders and asked, "Where do I send the keys?"

Arizonans Fighting for the Right to Freeze Their Credit

Credit freezes and identity theft are at the center of a hot debate in the sunny state of Arizona, where a bill to let Arizonans block fraud attempts by freezing their credit files has been tripped up by the head of the House Rules Committee, Arizona Representative Bob Robson. Residents of 27 other states can freeze their credit files already — and given that Arizona's rate of identity theft is one of the worst in the United States, I called Robson to ask him why he's against it.

In case you're unclear on the credit freeze concept, you need to realize just how easy it is to get "instant credit" (with a reasonably healthy credit record) just by providing a few items of personal information. Sadly, it's just as easy for an identity thief who has your personal information — unless you've put a freeze on your credit file to prevent it.

Which brings us to SB 1345, a bill sponsored by Arizona State Senator Amanda Aguirre to allow all Arizona consumers to do just that. Currently, only Arizonans who have suffered identity theft or a security breach can freeze their credit files. Aguirre's bill would extend that tool to any Arizonan who wanted to use it, giving them greater control over their personal information and their credit.

Of course, if getting and using a department store credit card on the spot is a basic element of your shopping M.O., you might not want to use this tool — and there are plenty of retailers and other credit providers who don't want you to have it for exactly that reason. (Big surprise — between your security and an easy sale, they'll take the sale.) But the process isn't really all that cumbersome: basically, consumers could use a secret code to unblock credit requests, paying a "reasonable" fee each time.

Given the nightmarish alternative, I'd say the slight inconvenience and small expense are well worth the added peace of mind. Given that all 30 Arizona state senators voted for Aguirre's measure, that it sailed through the Arizona House Judiciary Committee with unanimous approval, and that 27 states already have something like it on the books, it would seem that plenty of people agree.

Is Bob Robson one of them? Not being his confessor, it's hard to know for sure. Robson began our conversation with the astonishing statement that the credit freeze bill "is a credit issue, not an identity theft issue" — though he backed away from that oxymoronic position when I pointed out that no fraud expert on Earth would agree.

When pressed, Robson also acknowledged that, in principle, credit freezes are a useful tool against identity theft, and one he can support. So what's the hangup with the Aguirre bill — as well as a similar bill by Arizona Representative Marian McClure, whose progress Robson is reportedly also impeding? Robson says he wants to nail down that "reasonable" fee, provide regulatory oversight and support for people who are victimized, and take a hard look at how this is working in those 27 other states.

In written comments to Aguirre, Robson also noted that "just as a credit freeze stops identity thieves, it can also stop consumers," adding that a credit freeze can delay transactions by several days. As it turns out, this isn't true: Aguirre's bill actually requires that a freeze be lifted within 15 minutes of notification — a provision included by Aguirre at the insistence of Arizona auto dealers.

"If this is worth doing, it's worth doing right," Robson told me. That, in his view, means addressing the issue in a comprehensive way — and, apparently, not in any particular hurry. Does he have a hidden agenda? Have business interests asked him to drag his feet? He told me no. But he also said Aguirre's bill will have to wait until next year.

For her part, Senator Aguirre told me she still plans to meet with Robson in hopes of getting the bill through sooner. "We worked hard on this bill," she said. "The people of Arizona need it, and they should have it now. Let's move it. Let's get it done this year. We can't afford to wait."

Aguirre was nonplussed (as I had been) by Robson's notion that her bill must be comprehensive to be ready for prime time. "Giving the people of Arizona the ability to freeze their credit files if they so choose is just one safeguard among many, but it's an essential safeguard. We're not going to solve identity theft with a single bill. Creating a bill like that would be an endless job."

Aguirre also feels a special urgency, given the aggravated identity theft risk that Arizonans face. "On Monday, when President Bush was in Yuma, I spoke with Ralph Basham, the Commissioner for U.S. Customs and Border Protection, about this very issue. There is a relationship between identity theft and illegal immigration." In fact, the traffic in illegal immigrants is arguably one reason the  Phoenix-Mesa-Scottsdale metropolitan area — which includes Representative Robson's constituents in Chandler — has the worst identity theft numbers of any in the U.S.

Let me be honest: I don't expect Representative Robson (or anyone else in the Arizona legislature) to deliver a comprehensive solution to identity theft, this year or next, any more than I expect to drive a hydrogen fuel cell car to Chandler, Arizona to congratulate Robson and company for doing it. In my view, this problem is so huge and so immediate that we'd be idiots — or, at the very least, disingenuous — to make consumers wait for a "perfect" solution in lieu of giving them imperfect but practical help in the here-and-now. Those with the power to do something should do it, and do it without delay. In my possibly skewed opinion, anything less is an ethical lapse and a breach of the public trust.

Call me biased if you like (Robson has already flung that tag at straight-shooting journalist Howard Fischer, whose excellent reporting first alerted me to this story), but I think Arizonans deserve whatever weapons we can give them — including credit freezes — to help them fight off identity thieves. Do you agree? Let us know in the comments below. While you're at it, let Representative Robson know, too: brobson@azleg.gov or 602.926.5549. You can express your thoughts to Senator Aguirre at aaguirre@azleg.gov or 602.926.4139.

Funny Money Friday: Tax Trivia

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.

Tax day is just around the corner. Hopefully, all of you have filed and have put your 2006 taxes to bed. Courtesy of the IRS's "cool stuff" kids site, here are some trivia questions to put your tax knowledge to the test:

Q: How much does it cost taxpayers for each $100 collected by the IRS?
A: 39 cents

Q: Which ancient civilization revered the tax professional as the most noble man in society?
A: Greece

Q: Which issue had the most lobbyist working on it in 1999?
A: Taxation

Q: In 2000, President Bush declared a taxable income of $744,682. What was their total tax liability for that year?
A: $240,342

Q: What was the average annual income in 1913?
A: $800

Happy Friday and happy almost-end-of-tax-season! Have a great weekend!

This Pig is Perfect for Kids

"It's the cutest little thing you ever saw"…

If you're a parent of an elementary age school girl hooked on Full House reruns (there happen to be quite a few of us out there!) then you've heard that phrase more than once.

It's the first thing that popped into my mind when I received the Money Mama piggybank from Lori Mackay.

As a parent and financial writer, I am constantly on the lookout for great financial education tools for my daughter (and fodder for my blogs and articles), and the Money Mama piggyback kept popping up in online recommendations. Lori generously sent me one to check out. 

The bank itself is absolutely darling, with Mama pig and her three little babies in front. The quality of the ceramic bank is excellent, though I wouldn't test the durability on my tile floors. Alone it would make a great gift for your child, or for someone else's.

But it's the book that comes along with the bank that's the clincher. Beautifully illustrated, Money Mama and the Three Little Pigs explains to kids the concepts of using money for investing, charity, savings and spending through a story that is engaging and not the least bit preachy. My daughter and I loved it.

She's in second grade and, as my guinea pig, already exposed to a variety of financial education tools. We both felt it was a bit young for her. But it was the perfect fit for her four-year old cousin. Kids at that age are very hands on, and the bank is a good way to allow them to keep an eye on their money, while learning how to divide it up among the things that are important to them.

If you're a parent or grandparent looking for a better gift for your child than the latest GameBoy release or Webkinz toy, I'd highly recommend the Money Mama piggybank and book.

Has your Bank of America credit card APR increased?

Getting daily emails and comments from readers all across the country puts us in a unique position to spot trends in the financial world. One phenomenon we've been following for the last few months are dramatically rising Bank of America credit card interest rates.

As you know, Bank of America acquired MBNA in June 2005 and became one of the world's largest credit card issuers. There were some technical glitches here and there as consumers had their accounts switched over to the new bank, but the process went pretty smoothly overall. Now, a few months later, Bank of America has been sending term amendment letters to card holders with rate and fee increases. Here are some of the stories we've heard:

• Del had his interest rate increased from 7% to 25% without ever missing a payment.
• Karl had his interest rate increased from 8% fixed to 22% variable. Bank of America told him it was due to his "high balance" on the account.
• Devender had his interest rate increased from 9.9% fixed to 19.99% variable with no explanation. 
• Jim had his interest rate increased from 9.9% fixed  to 25.24% variable. Bank of America told him it was due to his high balance and insufficiently large payments each month.
• Kim had her interest rate on a balance transfer increased from 3% to 22% before the end of the promotional period.
• Mitch had his interest rate increased from 5.9% fixed to 19.99% variable.
• Fiona had her interest rate increased from 9.9% to 23.99% without ever missing a payment.
• Bill had his interest rate increased from 14% to 23%.
• Shaun had his interest rate increased from 7.99% fixed (for 9 years) to 25.99%.
• Tammy had her interest rate increased from 9.9% to 22%.
• Brittany had her interest rate increased from 5.9% fixed (for 3 years) to 11.9%.

With 11 reported cases, this is more of an epidemic than a trend. If you have a Bank of America credit card, and chances are you do, check it today to see if your interest rate has increased. If they have, it doesn't seem like there is much you can do to convince Bank of America to lower your rates. Your best bet is to pay off your balance or transfer it to an account with a lower APR. Here are few things to keep in mind:

• Yes, it is perfectly legal for Bank of America to raise your rates. Not necessarily fair, but legal.
• If you are transferring your balance, be sure to investigate the rates and terms for that with the new card. 3% balance transfer fees are pretty common.
• Avoid closing the Bank of America card. Closing older accounts can hurt your credit score. It is better to leave it open and unused with a high limit.
• Don't forget to cash out any rewards or miles that you may have on the account.
• If you let your Bank of America card go "dormant," don't forget to check in on it once in a while. Keep an eye out for sneaky annual fees or signs of identity theft.
• If you have complaints about your account, you can send them to the Comptroller of the Currency at Customer.Assistance@occ.treas.gov, the Federal Reserve Board, the Federal Trade Commission, Consumer Affairs, the Senate Banking Committee, and the House Committee on Financial Services.

And please keep us posted!

Reader Question: What is Average Daily Balance?

Matt wrote in last week with a very good, very tough question about a certain credit card billing practice:

I am confused by my credit card agreement definition of the "average daily balance method" of finance charge calculation. When I look this definition on the web the most common definition is this:

Average Daily Balance. This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."

But my credit card company also adds that finance charges accrue and are compounded on a daily basis. This confuses me. Can you please explain this to me and help me understand how this fits into the average daily balance method?

Matt is hardly alone in being confused by this credit card term. It's something I've studied often and still have a hard time explaining!  The definition he quoted is correct, but doesn't help clarify much. Here's how it works:

Let's use April as an example: If you started with $200 balance on your credit card, charged $20 each day from the 2nd through the 10th, $1,000 on the 11th, paid it all off on the 12th and then charged nothing from the 13th to the 30th, your average daily balance calculation would be $142.66. If you had a 12% APR, you would be charged $1.42 for that month.

1- $200      
2- $220      
3- $240         
4- $260
5- $280
6- $300
7- $320
8- $340
9- $360
10- $380
11- $1,380
12 through 30- $0

With adjusted balance method (the best for consumers), you wouldn't pay any interest on this balance because you owed $0 at the end of the statement. With the previous balance method, you would pay $2 in interest for the $200 balance you had from March even though you paid it off in April.

Some issuers use "double cycle" or "two cycle" average daily balance billing which is even more complicated and expensive. Double cycle billing takes the average balance from the last two months, even if you paid part of the previous balance. For example: You had a $1,000 balance in March and paid $500 of it.  You don't add any new charges in April, but the credit card issuer charges you interest on the full $1,000 instead of just the $500 you had remaining.

Oh, and don't forget the minimum finance charge. Most credit cards will charge you a minimum interest charge of $0.50 if your real interest charge is below that amount and more than zero. But now some credit card issuers, including Bank of America, are increasing this minimum to $1.50. That means that our $1.42 example above would more likely be $1.50 instead.

Is your brain hurting yet? I think my math here is accurate, but am open to corrections if there are any mathematicians or credit card issuers out there with a better explanation for Matt.

Funny Money Friday: Weird Tax Rules

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.

Ugg...it's tax time. I finished my filings a few months ago and have already gone through the five stages of grief for the big checks I sent to the IRS. My fiance always waits until the last minute, though, and is going through the stress of decoding tax rules this week.

There are some real gems hidden in the 295-page Federal Income Tax handbook (pdf). One of my favorites is the Other Income section that instructs you to declare:

• Page 87 - "If you receive a bribe, include it in your income." Exactly how would this work?
  
• Page 89 - "Illegal income, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity" I'm sure my local meth dealer will get right on that, Uncle Sam.
• Page 90 - "If you steal property, you must report its fair market value in your income in the year you steal unless in the same year, you return it to its rightful owner." Are there actually criminals out there stupid enough to go for this?

Good luck with your taxes this weekend! If you find any other funny tax rules, post them in the comments section below. Happy Friday!

Great News for Mortgage Shoppers

If you're looking for a mortgage like I am, there's a brand new site you should check out   --  FreeRateSearch.com -- which searches through thousands of loan programs to find the best rates you can get. Whether you have perfect credit or you fit into the sub-prime category, whether you want a fixed or adjustable rate loan, whether you're shopping for a new mortgage or a refi, I urge you to check out the free, unlimited, anonymous searches that you can do with FreeRateSearch.com.

The search results you'll get are the "par rates" for your situation –- the rock-bottom rate lenders charge brokers -- without the hidden markups that usually get passed on to homeowners and add anywhere from $300 to $3,000 … or more … to the cost of borrowing. It's the equivalent of getting the dealer invoice price for a car, and puts you in a position to negotiate the best rate.

Knowledge Is Power
One of the people who brought FreeRateSearch.com to life is my co-author, co-blogger, and dear friend, credit expert Gerri Detweiler. I did some research for the site and was one of the first people to put it through its paces. Little did I know that just a few months later, I would be mortgage shopping (a long story) --  and the first writer to get the word out about this new site! It's a scoop for me and for CreditBloggers!

I'm so glad FreeRateSearch.com exists, and that it's such a snap to find out the par rate for my different loan scenarios. It is going to be a lot easier for me to get the best deal. The same will be true for all borrowers who use FreeRateSearch.com, especially those of us who have traditionally had to pay more for mortgages –- women, people of color, and everyone with a spotty credit history.

Before, without the par rate information, we were at the mercy of lenders. Now we can say, "No!" to hidden markups (aka "yield spread premiums" or YSPs) that allow loan originators to get lender kickbacks of anywhere from 1 – 5% or more of the loan amount.

I know this insider mortgage stuff is Greek to most of us, so to be clear, many loan officers will often pad their commission with a hidden lender kickback by quoting a rate higher than the par rate. And they may even charge an origination fee on top of that! Thanks to FreeRateSearch.com, I believe we can put an end to loan officers sneaking in commissions -– because we can find out the par rate and negotiate from there.

It's a Whole New Ballgame
For years, it's been a piece of cake to get accurate online price quotes for insurance, airfares, and cars. It's great to finally be able to do the same thing for mortgages. I don't see the benefit of sites like LendingTree, where you have to provide a lot of personal information only to have five lenders call you. I certainly have no interest in fielding the calls from mortgage brokers and bankers just because I want to find out a rate. Nor do I want to pay for the privilege of finding out what my options are for making a lender a lot of money. TransUnion recently came out with a "Mortgage Simulator" that for $9.95 will deliver "a listing of mortgage rates for which an applicant should qualify, based on a nationwide survey of rates." Thanks, but no.

I much prefer the  "no strings," 'no one will call,' instant access to the real numbers that FreeRateSearch.com provides.  Give it a shot and let us know what you think.   

More Vending Machines Take Plastic

If you haven't come across cashless vending yet, you will soon. By 2009, we'll be able to pay by credit card at over 50% of the vending machines in the United States.  Watch out!

Already, at thousands of machines across the country – located in airports, department stores, highway rest areas, ice rinks, zoos, and test sites galore -- you can use plastic to buy:

• Refreshments -- soda, snacks, ice cream, milk, and candy.
• Tickets – for the subway, bus, and train, with movie tickets not far behind.
• Electronic gadgets -- iPods, cellphones, digital cameras, DVDs, etc.
• Cigarettes (boo, hiss).

You can now swipe your credit card at "ShredStations" at Staples stores in Los Angeles and Phoenix, which will shred up to two pounds of confidential papers for you. In exchange for the $5 it will cost, you can receive a "Certificate of Destruction" announcing the successful shredding of your documents. While I don't see much of a future for the pricey ShredStations, there's a lot to be said for the convenience of some of the other on-the-go payments.

What worries me is how much easier it's going to be to make impulse purchases. From the industry's point of view, cashless vending is going to be terrific! We're expected to spend 50% more and of course, their profits are expected to go up, way up. They're going to tempt us with "stylish, user-friendly" equipment designed to part us from our money … fast. Just what we need.

Who "Needs" a Soda?
I don't know about you, but coming upon an "old-fashioned" vending machine with some of my nine grandkids in tow has been difficult enough. My attempts at talking with them about wants versus needs notwithstanding, when reason hasn't worked, I have eventually run out of spare change. Now that there's going to be an alternative to coins, it's going to be harder to say, "No!"

If you know you can trust yourself (or your kids) to use the new fangled machines wisely, great! But the rest of us are going to have to be really vigilant, or the combination of credit cards and vending machines will be a real budget buster.

Have you had any experience with swipe-and-go vending? Did you spend more? Please share your stories with us!

Reader Question: Help! I'm in an ARM Mortgage Crisis

Today's reader question is unfortunately one we've been hearing more and more lately. Lisa wrote in this morning with an ARM mortgage crisis:

I need help! My mortgage is not fixed and the rate reset is coming up in September.  I have bad credit and I think no way to refinance -- Please help!

It sounds like Lisa could end up as another victim of the current mortgage crisis if she's not careful (The New Yorker has a great short article that explains the subprime mortgage industry problems online). Luckily, she still has five months before her adjustable rate mortgage resets. This should be plenty of time for her to evaluate her option and take action.

Step one should be to order all three of her FICO credit scores online immediately. The nice thing about mortgages is that they have more relaxed standards when it comes to credit scores than other lenders. A credit score in the 600's that would be considered "bad" for an auto loan or credit card, can actually qualify for a prime home loan in many cases. Lisa's credit may not be as bad as she thinks.

The next step is to find a reputable mortgage broker in your area. Look for someone who has been in the business for a very long time and who comes highly recommended. This broker can help you find refinance options to fit your credit score and situation. Mortgage rates are still pretty low, so refinancing as soon as possible may be the best choice.

If you cannot or do not want to refinance, there are some decisions to be made now.  You might be able to afford your higher reset ARM payment for a while while you work on your credit score, crunch some numbers to see if this is an option. If not, you might need to think about selling the home. A good credit counselor or financial adviser can help you figure out what to do if refinancing isn't an option.

Lisa is smart to be thinking about her mortgage future now, before she gets in trouble. However, there are a lot of homeowners out there who don't have the luxury of time. If you are already defaulting (not paying on time) on your mortgage, you need to get serious now. Our blogger, Gerri Detweiler, wrote a fantastic article called "How to Save Your Home from Foreclosure" that is a must-read for anyone already in mortgage trouble.

Next question? Send your questions to us by email at tidbits@credit.com or post them in the comments section below. Randy Johnson, a 15-year veteran mortgage broker, is on hand to help answer your home loan questions.

Who Caused the Problem?

Among all the words written about the sub-prime mess, one aspect has been totally overlooked: the rapacious loan officers.  In fact, they could easily be looked upon as the procuring cause of many of the problems.  All the talk in Washington D.C. about cleaning up the industry, I see nothing about changing any of the rules under which loan officers operate.

In the last 20 years Americans have had an opportunity to see corporate malfeasance up close and personal. Some are golden parachutes to high paid executives who screw up a company and then get paid millions as they are booted out the door. In other case, there has been systematic looting of the company treasury as in the cases of Adelphia and Tyco. I suppose Enron and World Com are in their own class.

In the mortgage business, I'm going to make the assumption that what goes on in the trenches is known in the highest corporate office. In the case of one large lender where skullduggery was discovered, the CEO, I will PRESUME, either knew about what dastardly deeds his employees were doing or, more probably, actively encouraged them, was sacked. He had the last say, however, and sued his company for a multi-million severance package he wasn't paid.

I suspect that guy should have been in jail and here he is suing for millions from a company he had a singular hand in destroying. What a world!

In a tightly controlled environment like that of a typical bank, each level of management knows what is going on down one level. In addition, the bank employees likely get paid a salary that doesn't vary with loan production.  Thus the system does not encourage tinkering with the facts so as to make more loans.

In the sub-prime lenders' world and, more important, the mortgage brokers who fed loans to them, there was a direct incentive for the employees to get appraisers to fudge value to make bigger loans, and to exaggerate income on "no-income-verification" loans so as to get them approved and collect a commission.

In the cases of early-payment default where the borrowers never even made one payment, try to convince me that the loan officer didn't know what was going on. If the borrower is going to lose his house anyway but if he can do a cash-out re-finance for as much of the equity as he can extract, does he care if the loan officer also makes an egregious commission? Why should he? From everyone's perspective, the lender is a sucker and the borrower and loan officer are just taking advantage of the situation.

And I have not even gotten to the good part: who should the loan officer represent?

When Retailers Put Your Identity at Risk

Let's say you did the smart thing and bought yourself a shredder so no identity thief could dig your personal information out of the trash. Wouldn't it be funny if the store then tossed your transaction record in the dumpster out back — without shredding it?

That's exactly what happened to one woman who bought a shredder at a Texas RadioShack — and I don't think she's laughing.

She's also not alone. Yesterday Texas Attorney General Greg Abbott charged RadioShack with tossing thousands of customer records — hers included — into a trash can in an alley behind a RadioShack store near Corpus Christi. We're talking names, addresses, telephone numbers, Social Security numbers, and credit and debit card information — an identity thief's dream.

The Texas AG is now investigating whether the dumped records have been used to defraud RadioShack customers. In the meantime, he's charged the company with violating Texas identity protection laws by exposing thousands of customers to identity theft.

RadioShack hasn't returned my calls. (I'm trying not to feel too bad about that — they wouldn't talk to the Washington Post, either.) But in an official response, a RadioShack VP did acknowledge the breach: "Our Northshore Plaza store in Portland, Texas, is part of a shredding program we have in place throughout the state for the secure disposal and destruction of such docu