Biblical Origins of Credit Report Law?

I listened to a pretty terrible webinar this afternoon designed to teach mortgage lenders the "inside secrets" about how credit scores "really" work. I just love to torture myself listening to self-proclaimed experts spouting inaccurate credit advice. Misinformation such as hard inquiries causing a 3-point score drop each and that a paid off mortgage record will hurt your credit score.

One thing mentioned during the webinar did catch my attention, though. The speaker said that:

the reason negative records expire from your credit reports after 7 years is biblical. The bible said that debts should be forgiven after 7 years.

Hmmm...this is interesting. I've never heard of this bible/Fair Credit Reporting Act connection before. A quick Google search turned up the following passage:

"At the end of every seven years you shall grant a release of debts.  And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD's release" (Deuteronomy 15:1-2).

I suppose it is possible that there's a connection here. US bankruptcy laws preceded the Fair Credit Reporting Act. If there was a direct connection to scripture it would probably be from these earlier regulations that carried over into the FCRA.

I'll have to do a little more research on this. Are there any biblical scholars or colonial historians out there with information to share?

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Tips for Buying a New Car

Normally a dedicated used car buyer, I just bought my first ever new car over the weekend. It's a Honda Fit; affordable, great gas mileage and ideal for living in a crowded city. Here are few tips from my first hand experience:

• Start shopping online - Browse and compare cars online before narrowing your list down to a few makes and models. Don't forget to consider similar used options that might be less expensive. Revise this "short list" down to one car by taking a few test drives.
• Get an insurance quote before you buy - Call your insurance company to see how much your rates might change with your new car and factor this cost into your decision making.
• Negotiate by email, phone and fax - This is key! Most auto dealers now have online departments that specialize in replying to customer emails. We were able to reduce our price significantly by negotiating with competing dealers in our area. And saved a lot of time and energy too.
• Apply for an online auto loan - Even if you don't use it, getting an auto loan quote online will help you negotiate the best financing rates with a dealership.
• Make sure your loan doesn't have a pre-payment penalty - Paying your auto loan off early can save you a bundle on finance charges.
• Avoid expensive "up-sells" - Car dealers can make a lot of money on overpriced perks like car mats, clear coating, extended warranties and "touch of class" packages. Either negotiate the prices way down or skip them.

With a little preparation and online work, it can be easy to get a great deal on a new car!

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Funny Money Friday: Stock Market Crash Jokes

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 stock market has taken another dive this week, the second time that we've gone through 300+ point drops this year. Big problems in the mortgage industry and corporate lending markets don't seem to be going away anytime soon. CNN has gone so far to call it "The End of the Credit Party."

While I continue to watch the value of my 401(k) tick down, here are a few good stockbroker jokes for Funny Money Friday:

Merrill Lynch has adjusted its investment portfolio: 50% cash and 50% canned goods.

Bumper sticker on Wall Street:  My other Porsche is for sale.

How many investment bankers can you fit in the back of a pickup truck? Only 2 - you have to leave room for the lawn mowers!

I have an uncle down at Wall Street.  He used to have a corner on the market. Now he has a market on the corner.

"Get my broker, Miss Jones."

"Yes sir.  Stock, or Pawn?"

Have a great weekend!

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Squabbles Over the FTC Insurance Study Miss the Real Issue

The Federal Trade Commission released a report earlier this week about the use of credit scores in settling auto insurance rates. The report revealed a few conclusions, including the fact that credit scores do accurately predict a customer's future claim filing.

Already a highly controversial practice, this latest study on insurance risk scores has sparked a bevy of press releases from each corner of the debate. According to different groups, the FTC study definitively proves their opposing view points. Here's a quick summary:

Insurance Journal
According to this insurance trade journal, the FTC report backs their position that the use of credit scores makes insurance more affordable and fair. Their headline? "FTC Finds Use of Credit Helps Consumers."

"Now there should be no doubt about the value of using this highly predictive underwriting and rating tool...To achieve the goal of pricing based on an individual's risk of loss; insurers simply want to use the most accurate, statistically valid tools available and credit information has proven to be one of the best predictors of loss. With these findings, legislators and regulators should be very comfortable with insurers' use of insurance scoring."

Consumers Union
The Consumers Union approached the FTC study with a completely different perspective. They assert that the FTC report confirms that the use of credit scores leads to discriminatory pricing. Their headline? "FTC Study Confirms That Credit-Based Insurance Scores Mean African Americans and Hispanics Pay More for Auto Coverage"

"It's not fair that consumers with spotless driving records can be penalized with higher premiums just because of their credit score," said Norma Garcia, Senior Staff Attorney with Consumers Union. "Insurance premiums should be based on the risk of an accident, not a consumer's bill paying record for other goods and services."

American Insurance Association
The AIA praised the FTC insurance study as validation of the usefulness of insurance credit scores in their release titled "FTC Study Demonstrates Value of Using Credit Information for Auto Insurance."

"The FTC's study confirms what we have long professed, and many previous studies have shown, credit-based insurance scores help refine insurance pricing to better reflect an individual's risk profile.  We believe scores reduce subsidization of bad risks by good ones, meaning most consumers pay less for insurance."

Center for Economic Justice, Consumer Federation of America, National Consumer Law Center & National Fair Housing Alliance
These consumer advocacy agencies joined forces for a press release denouncing the FTC study, calling it a "fatally-flawed report [that] relies on handpicked data by insurance industry."

"Representatives of consumer and civil rights organizations today condemned a congressionally-mandated report on insurance credit scoring by the Federal Trade Commission (FTC) as biased insurance industry propaganda. The groups called for Congress to reject the defective study and ban the use of credit scoring in insurance."

So, who's right? It's hard to tell with all the shouting, but the reality of insurance credit scoring is that both sides are basically correct.

Yes, credit scoring is an effective and accurate way to predict insurance risk and the practice helps many consumers save money.

Yes, the use of credit scores over driving record to set insurance rates isn't logical and the practice does lead to African-Americans and Hispanics paying higher rates.

I think all the sides of this debate are really missing the big issue here: Why do African-Americans and Hispanics have lower credit scores than other groups? The credit scoring system itself is completely blind to race, address and other potential discrimination points. A shift in credit scores within these demographics represents a socio-economic crisis far greater than any squabble over car insurance.

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Credit Cards, Parking Meters, and the 21st Century

Parking meters are not a factor in my small town life, but every time I come across one of those "feed me your coins" relics, I marvel at how slowly some municipal governments are moving toward "smart" meters that accept credit cards.

I know ... why should meter management be any different from other aspects of government?!  Precisely because 21st Century technology makes possible a new breed of smart meters that are easy to use, easy to manage, efficient, and fair both to drivers and the jurisdictions that install them. That must be why parking meters that take credit cards … as well as the old-fashioned dimes and quarters … are being tried in cities like New York, Milwaukee, and Philly, as well as in many other locations.

Even a village not too far from where I live is planning to replace the traditional, individual parking meters in its "downtown business district" with high-tech multi-space machines that take coins, bills, and credit cards. The more aesthetically pleasing new machines will lead to less meter-clutter on the streets.

For municipalities, fewer coins means less frequent emptying and therefore, greatly reduced collection costs. Also, newer machines mean fewer breakdowns and less vandalism. For drivers, credit card convenience is the key selling point. Who wants to have to dig around for loose change, especially when they're in a hurry? 

Unfortunately, some of the systems being tested seem unnecessarily cumbersome and costly. For example, in Boston, you had to get a credit card receipt, then return to your car and, using the "sticky tape" on it, paste the receipt onto the inside of your windshield. Other cities and towns just require that the receipt be displayed, but either way, it seems to me that there has to be a better ... a 21st century ... way!

Another problem with the Boston meters was discovered by The Boston Globe: The machines were in violation of MasterCard and Visa's rules. While merchants accepting credit cards cannot require that purchases be above a certain price, Boston had set a $2 minimum when paying with plastic. While you'd think Boston could work this problem out, when last I heard, the meters had been set to cash only.

Back when they were accepting plastic in Beantown, some of the issues the new meters raise for drivers became clear:

1. It's no longer possible to use up the time left on the meter by the last car.
2. They don't make change. So if you'll only need 15 minute's worth of time, you had better dig for that quarter, or you'll be paying for time you won't need. 
3. It continues to be a pain to try to get a machine to accept a buck. In Boston's case, that means that some people gave up and fed the machines plastic, so they paid $2 for what otherwise would have cost them 25 cents.

Leave It to Beverly Hills
Beverly Hills and West Hollywood worked out a great deal, where they get to test solar-powered, wireless meters for six months before they actually have to buy them. These meters fit right onto the already existing poles and may actually help to reduce traffic congestion, because they warn drivers that it's against the law to park at them during rush hour. Now that's smart.

The meters are also smart but less driver-friendly, in Milwaukee, where the meter minders get updated reports … so they know which cars to ticket. Makes more sense, I guess, than having to place a receipt just-so in a car, but still … this is the 21st Century! Why are we ticketing people for such minor traffic infractions when we have so many more important problems to address?

Seems to me that we'd all be better off with smart parking meters that charge our credit cards for the time we use -- once we drive away. No more meter maids! No more tickets!

Are high-tech parking meters already in place where you live? What do you see as their pros and cons?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Reader Question: How do I Rebuild After a Bankruptcy?

Bankruptcy is meant to offer financially devastated consumers the change of a fresh start. However, this clean slate comes with a few hidden catches. The process of rebuilding your credit history after a bankruptcy isn't always simple. Melinda wrote in with a question about building her credit:

I have been discharged from my bankruptcy for about 2 months now.  What can I do or should I begin to build "good" credit through any particular practices?  How?  I have been thinking just to stay away from buying/financing another car, getting any credit cards or anything like that forever.

Melinda's desire to avoid credit "forever" is understandable, but not reasonable. She is actually in a fairly good position to open a new account now that her bankruptcy has been discharged. (Lenders and creditors won't usually issue new accounts to consumers who haven't been discharged yet because there is a risk that the account could be included in the filing). Ironically, her email signature included a very appropriate quote:

"The future depends on what we do in the present" - Mahatma Gandhi

This is really the key to rebuilding credit! Your credit future post-bankruptcy depends on what you do in the present. Opening new accounts and using them responsibly will help add new positive information to your credit report. Slowly, this positive information will begin to outweigh the negative records from your past. With a few years of work, Melinda could have a fairly good credit score.

Opening a credit card is a good first step toward establishing credit post-bankruptcy. Instead of accepting one of the many offers she's probably receiving in the mail, Melinda should look online for an offer that meets her needs. I recommend a secured credit card because the rates and fees are often much lower than a traditional unsecured subprime credit card.

Secured credit cards work by having the customer deposit money into a savings account as collateral for the credit limit. If you put $500 into the savings account, you'll get a $500 credit limit. When you close the account or it transfers to being unsecured, you'll get the $500 back with interest. Unlike a pre-paid credit card, secured credit cards report to the credit bureaus and can help you build up your credit history.

Auto lenders often market to post-bankruptcy consumers as a good way for them to rebuild their credit. But beware of these loans that often come with extremely high interest rates. It's much safer to start with a credit card and then apply for a loan once your credit is improve and you really need a new car. This article on rebuilding credit has more tips to help Melinda get started.

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

 

To Renz Nichols, President Certegy Check Services: Apology NOT Accepted

Today I opened my mail to find a letter from Renz Nichols, President of Certegy Check Services. Renz tells me that a rogue Certegy employee sold data from numerous checking accounts -- likely including mine -- to a data broker who in turn sold that data to a subset of direct marketing organizations. According to the letter, that data may have included my name, address, telephone number, account number, expiration date for check and debit cards, checking accounts, transactional data and date of birth.

The letter goes on to talk about all the things Certegy has done in light of this theft, such as notifying the credit bureaus and law enforcement.

What has me seeing red is the advice to monitor my credit report by going to the free credit report site AnnualCreditReport.com!

I have already requested my free annual credit reports within the past twelve months, so I am not entitled to another copy, unless I am a victim of identity theft or live in a state that gives me extra copies. Neither apply to me -- yet. You should be providing me with a year of free credit report monitoring from all three credit bureaus, along with identity theft detection and resolution services.

Sorry, Renz, the apology doesn't cut it. This is not a case of a lost tape that probably hasn't been compromised. In this case, you know an employee was selling information -- maybe mine -- for illicit gain.

You need to do better.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

You've Got Mail - From Your Credit Card Friends!

In 1998, credit card issuers could count on a response rate of 1.2% to the offers for new cards that they sent out. For every 1,000 pieces mailed, 12 people would sign up.

The projected response rate this year is only 0.28%, or four times less than what the credit card industry received less than a decade ago. Now, for every 1,000 pieces of mail, not quite three of us bite at the offers being sent to us.

Yet, from the industry’s point of view, direct mail is still very effective. Why? Because 42% of us got our newest card via a piece of mail. That’s the finding of a recent study of 400 cardholders, by the Auriemma Consulting Group, publisher of Cardbeat, a market research report for the credit card industry.

Still, as Cardbeat's Managing Editor, Megan Bramlette reported:

---

“Our data shows that most consumers do not enjoy receiving card solicitations in the mail. In fact, about 14% say that they are overwhelmed by the number of mail solicitations that they receive.”

---

On average, we actually open only 26% of the offers that arrive in our mailboxes – "with nearly half of respondents reporting that they do not open any of the credit card solicitations that they receive in the mail," according to the study’s findings.

It can’t make the industry happy that almost half of us toss these offers into the trash, unopened. (Remember to shred them, people!) But if issuers want to attract new customers, it still seems to be their best option. We’re more likely to respond to a piece of junk mail than we are to any other sort of offer, whether it’s a card we read about on the Internet, see advertised on television, or find out about at the bank.

IMPORTANT: If you would like to stop receiving unsolicited credit card offers in the mail, all you have to do is call 888-5-OPTOUT (888-567-8688)  or click here.

According to Cardbeat’s study, we typically get 11 credit card offers a month. If my mailbox is any indication, that number seems low to me. Please let us know what you think about the card offers in your mailbox!

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

 

The Screws Are Turning

Even those who are not close to the mortgage business can't help but see all the newspaper articles about subprime lending. The various branches of our government are weighing in on the problems that are happening as a result of the lax underwriting. We've seen the posturing statements by the Congress's Committee Chairmen.  However, not much concrete has happened until this week. We are finally seeing some action in the trenches.

FannieMae has announced that it will comply with new guidelines issued by a consortium of agencies. The rest of the industry will likely follow. These guidelines include:

All fixed rate interest-only loans will be underwritten using the fully amortized payment, not just the interest portion. For example an application for a $200,000 6.5% loan would be underwritten with the payment of $1,264, not just the interest portion, $1,083. That's 16.7% higher, which means that qualifying ratios are affected. A borrower who had ratios of 36% before would have ratios of 40% now.

All interest only ARMs will be underwritten using the fully amortized payment at the fully indexed rate. The initial rate on a 5/1 ARM, for example, might be 6%. The initial interest-only payment would be $1,000 but if index plus margin is 7.5%, the borrowers would have to qualify for a payment of $1,398, 40% higher.

Option ARMs, the negative amortizing loans, must be underwritten as above AND the payment has to be based upon a loan balance of 115% of the initial loan. Thus a $200,000 loan would have to be underwritten assuming that it was really a $230,000 loan. Using a figure of index plus margin equal to 7.5%, that means the payment would be $1,608, a full 60% higher than the initial payment.  If some lender is discounting that initial payment rate even further, VERY likely the case, it means that the payment for underwriting purposes might be double the actual obligatory initial payment.

No one knows exactly what the full implications are going to be, but for many borrowers who are at the borderline for qualifying purposes are going to be disappointed. It is likely that the number of Option ARMs that have been originated in the recent past, as many as 50% of all loans in some markets, are going to see drastically reduced volume.

There are going to be further restrictions on stated income loans. Those lenders who told their borrowers who can't qualify to lie about their income will have that option taken off the table except for borrowers with very strong credit.

Finally, there are many lenders whose oversight does not lie with these agencies.  In fact, it's not clear exactly who DOES regulate them, meaning who did let them get away with poor practices?  If they don't sell loans to FannieMae and the investors who buy the loans don't adopt the same rules, there will be little change. Not a good sign.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles. Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Funny Money Friday: 50 Ways to Leave Your Credit Card

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.

Cutting up a credit card is one of the great symbolic acts in modern times. Whether you are cutting up offers you've received in the mail, old expired cards or cards that you've paid off and don't want to use any more, there is something really powerful about taking scissors to your plastic. Just remember not to close those old accounts after you cut them up in order to avoid credit score damage.

Here are some creative ways to destroy your credit cards starting with "A":

 Art - This couple saves their names off old credit cards and keeps them in a small jar.

Animal - A new puppy's sharp teeth can make quick work of a credit card.

Axe - This guy really meant it.

Architecture -  A handy way to remind yourself that you are paying off your debt in the hopes of buying a house.

Aeration - With a hole punch.

Autopsy - An inquisitive fellow dissected his credit cards to remove hidden RFID chips.

Happy Friday!

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Reader Question: How I can I Improve my Score Before a Refinance?

Working with consumers directly each day gives you the benefit of a "front-line" perspective on economic changes in the US. Fed chairman, Ben Bernanke, said this week that US subprime foreclosure and mortgage delinquency woes will "likely get worse before they get better." Unfortunately, my experiences lead me to agree.

For the last few months, I've received a deluge of emails from consumers with credit problems who are coming up on an urgent refinance. Rising interest rates, the recent decision to drop authorized user accounts from FICO scores and big increases in consumer credit levels are all pointing toward trouble. Here's one email I received this week:

I need to get refinanced by June of the next year when my interest-only mortgage resets. What can I do to increase my score? It is in the high 400's (terrible), mostly due to debt from credit cards and medical bills. I'm scared because I'm not in a regular loan and my payment can (and will) change tremendously.

Yikes, a credit score in the 400's usually represents several different credit and financial issues and isn't likely to be resolved in a short amount of time. Paying down her active debt accounts down to a 10% debt-to-credit limit level could help. Adding new positive account information via a secured credit card could also do some good.

As for the medical collection records and any other negative accounts (liens, judgments, charge-offs) there isn't much she can do. She should pay them off but understand at the same time that the payment will not do much to improve her credit.  Negative records like these remain on credit reports for 7 years, whether or not they are paid. This article on rebuilding credit has more tips.

Ideally, she should start working on improving her credit and weighing her refinance options now. Subprime mortgage lenders have cracked down on their underwriting standards and it will likely be hard to find a lender who will work with her (even if she improves her credit a 100+ points). Communicating with her lender, trying to find a co-signer for her refinance, contacting a HUD-approved counselor or even evaluating bankruptcy options are all good steps to take before it is too late.

Are you worried about an upcoming refinance? Share your advice and stories in the comments section below.

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Think Gas is Expensive? Try Water!

"$15 Billion of Bottled Water Down the Drain!" is the headline on Fast Company magazine this month. Inside, a must-read article by Charles Fishman is filled with sobering facts about Americans' love of bottled water, exposing the unhealthy side of an industry that has us shelling out big bucks for something we can easily get for free.

Get this:

Fishman explains that tap water in America is almost always high quality, and "if the water we use at home cost what even cheap bottled water costs, our monthly water bills would run $9,000!" He also points out that "24% of the water we buy is tap water essentially repackaged by Pepsi or Coke."

It's not uncommon knowledge that while we complain about the high price of gasoline (which most of us need in order to get around) the price of bottled water is even higher -- but we don't have to spend it.

I know that not everyone's water tastes great, but growing up I remember visiting my cousin's farm where the water seemed to me what I might now call an "acquired taste." But back then we didn't think twice about drinking it anyway. Water was water.

Even more disconcerting than the money we're wasting on the premium stuff are the costs described in Fishman's article for manufacturing the bottles, shipping them and then trying to recycle the plastic that's left over. Even the healthiest environmentalist will shudder when they read his description of the resources required to produce a bottle of Fiji water and get it to us on our store shelves.

Truth be told, I've often felt guilty when buying bottled water, which I don't do that often. Even during a recent trip, I refilled my water bottle at the airport drinking fountain rather than shell out $2 for another one. When I do buy bottles of water at home I often refill them and stick them in the freezer for another use. I have my money vices (I splurged on Starbucks on that same trip!), but spending money on bottled water to me usually feels...well, like money down the drain. When I remember, I tote sports bottles I have filled from the faucet at home. And when I don't, I kick myself for having to buy a bottle.

After reading Fishman's article it's going to be even harder for me to buy bottled water. I think I'd better stock up on a couple more sports bottles.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online. 

It's Mine! Mine! Mine!

Occasionally, I have an opportunity to act as someone's agent in a real estate transaction. As it happens, I'm doing that right now. My clients found a home they liked through a friend of the seller. As they were inspecting the home for about the third time, they were introduced to the seller's agent.

Now I can tell you what happened in the listing agent's mind at the moment he met the potential buyers: the Sugar-Plum Fairy began sprinkling thoughts that danced through his head, like, "I'm going to double-end this deal and get twice as big a commission check."  This feeling persisted even when they told him at the first meeting that he wasn't going to be their agent.

They felt as if they wanted to have someone in their corner, someone they could trust to represent their interests. They didn't want to worry about whether the agent who represented them both might be representing the seller's interest more than their interest.

They called me because I had successfully represented a business partner and was highly recommended.  We prepared an excellent offer and it was submitted.  My next call was from the seller's agent who indicated that he had faxed a counter-offer to me. He also indicated that he was prepared to pay me a one-half percent referral fee instead of half of the 5% that would be paid by the seller. He intended to keep 4.5% as his share.

He said that I hadn't been the "Procuring Cause," meaning I hadn't found them this property. True enough, but he hadn't found them either; a mutual friend had brought them to the property, not anything he had done.  In fact, this agent had an opportunity to convince them to become his clients too, but they rejected him. They have a right to do business with whomever they want.

Then in the "discussion" that followed, the seller's agent actually told me, "You are stealing my commission." Remember the Sugar-Plum Fairy? He had managed to convince himself that the entire commission was his even though there was evidence – the buyer's rejection – making it clear that he was never going to get all the commission.

What ought to be obvious here was that this agent was putting his own commission ahead of the seller's interest.  I guess my client's intuitive judgment about the agent was on the mark. He was actually outraged because he wants the home and perceived that the seller's agent's latest action was putting his commission ahead of his, the buyer's interest, too.

In reality, a realistic solution would be to acknowledge that neither of us had found the property for the buyer and that the selling commission and price should be reduced by 2.5%, but that's not the way the business works. The seller was obligated to pay a 5% commission, and his agent was there to make sure he got most of it.

The next day the agent's heart was still hardened right up until the point in time when the buyer called the seller – remember that they had been introduced by a mutual friend – and said that he wasn't going to go through with the deal unless the commission thing got worked out. Ten minutes later, it got worked out.

Truthfully, buyers and sellers should not have to get involved in squabbles like this, but they shouldn't happen either. 

My point is that, unfortunately, there are a significant number of real estate agents who don't have any problem putting their own commission ahead of a client's welfare when it is in their interests to do so. That is particularly true when times are a little tough, as they are now. Luckily, the majority don't, but you shouldn't assume anything.

I believe that the greed factor is more at work today than at any time in my memory, and others confirm that. The grim reality of this is that buyers and sellers may just not know what to look for. Someone may be doing this to them in one way or another but they don’t know what warning signs to look for.

All the better reason to find someone you can trust. Get referrals and check references and you will not have to deal with this.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles. Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Reader Question: Can Lenders Take Away my Loans when my FICO Score Changes?

We sent out an email newsletter last week with news about the FICO credit score change and received some great questions back from our readers. Ron had a question that we've heard a couple times:

If you have used authorized user accounts to obtain credit and the scoring model changes do you lose the credit that you have established in your own name? For example, if I went from a 500 score to a 700 score with an authorized user account. And then I went out and obtained 2 major credit cards and a low interest auto loan and maybe even a mortgage. All of that activity is reporting with an excellent pay history.

When the authorized user points are taken away wouldn’t my credit score not really see an impact due to the new credit that I have obtained? Or will it rise back up in say 12-24 months as the depth of the new credit reports?  Can the lenders revoke the credit that was given to me at any point even with a perfect payment history?

This is a complex question. Let's break this down into a few different pieces:

1. Will his credit score change when the FICO model drops authorized user accounts? Yes, if the authorized user accounts are still listed on his credit report and still contributing "points" for account age and available credit. No, if the authorized user accounts aren't listed anymore or have become insignificant due to other accounts.

2. How much will his credit score change? It's most likely that his credit score will dip slightly when the FICO score change takes effect this fall. He'll probably lose some Credit Age points if his new accounts are younger than the authorized user accounts. And he could see some drop in the Debt Utilization category if his debt-to-limit ratio increases when he loses the credit limit from those extra accounts. His credit score will continue to be lowered until these factors improve.

3. Can lenders "take back" their accounts once they see that his score has dropped? Technically, they could. But it is very unlikely that a mortgage or auto lender will make a change to his loans based on a change in his credit score. He's more at risk for changes to his credit card rates and terms based on a drop in his credit score. Credit card companies regularly review your credit scores and can adjust your account pricing accordingly. And refinancing his mortgage may be tricky if his credit has dropped to subprime levels.

Next question? Send your credit and money questions to our team of credit experts at tidbits@credit.com.

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Funny Money Friday: Credit Education Circa 1960

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 credit world as we know it is really only about 30 years old. Consumers didn't have access to their credit reports and credit scores until after the Fair Credit Reporting Act was passed in 1970 and credit cards were still fairly novel until the late 1980's. The emergence of the internet in the 1990's revolutionized the way consumers managed their credit and controlled finding new loans and credit cards.

It's always fun to dig up a relic of credit management from the pre-history of our modern credit system; those heady days where credit records were stored in file cabinets. The 1960 educational film, The Wise Use of Credit, is packed full of sincere life lessons, a high tech "learning machine," surprisingly accurate advice and darling animation.

Click on the image below to watch the 11 minute film:

Happy Friday!

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

17.5 Billion Reasons to Balance Your Checkbook

Banks and credit unions generate $17.5 billion in fees every year off the overdraft loans we get when we spend more than we have in our checking accounts. That's the key finding of a report released today by the nonprofit, nonpartisan Center for Responsible Lending (CRL). Another key finding is that the overdraft systems lenders use are designed to generate yet more overdrafts, leading to yet more income for the banks and credit unions.

In fact, they bring in more in fees than the $15.8 billion a year in overdraft loans we take out. That's the equivalent of 117% in interest for lenders! As if that weren't bad enough, there's another alarming finding from CRL's study, which is called, "Out of Balance." Debit card overdrafts are now the single largest source of overdraft fees. Think about this the next time you whip out your debit card to buy a widget. If you're not sure of your balance, you could end up buying one widget for yourself and another one – or more – for your banker. 

Here are some of the specific bank practices that CRL found lenders using to rake in more bucks because we're not good bookkeepers:

• They post charges against our checking accounts promptly, "while intentionally delaying the posting of deposits."
• They pay our bigger ticket bills first so they can lower our balances faster.
• They no longer warn us when we're about to go into the red, even when it would be easy for them to do so, say when we're using an ATM. "Most banks gave these warnings in the past," says CRL, "and customers want them and would most often decline transactions that were not covered if given proper warning."

Along with other consumer advocacy organizations, CRL is in support of  HR 946, a bill before Congress which would make these loans subject to Truth-in-Lending Act interest rate disclosures, require lenders to warn customers before an overdraft loan is needed, and stop the hanky-panky banks use to increase their income from overdrafts. It's easy to lend (hehe) your support by writing to your Congressperson. The money you save will be your own! 

If you have an overdraft horror story, please share it with us. And if CRL and CreditBloggers.com have motivated you to better manage your checking account, let us know that, too.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Reader Question: Why Did my Score Drop When I Transfered Balances?

Answering reader questions about credit sometimes requires a bit of detective work. You rarely get the full story. Today's question comes from Paul:

Recently I was advised by Experian that my credit score decreased because I paid off one of my high interest credit cards by transferring the debt to Chase.

All I was doing was trying to be a good steward of my credit by eliminating on payment and doing it at a lower rate.  I over pay my credit cards every month and have a perfect record on all my debt.

How can they dock you for trying to do the right thing?

It sounds like Paul misunderstood the score explanation that Experian provided (and who can blame him. those "reason codes" are notoriously tricky). I'm betting that the damage to his credit score was not from the transferred balance, but instead from the fact that he probably closed the high interest credit card after the switch. 

Transferring debt balances between existing accounts has little impact on credit scores because the debt utilization ratio that counts for 30% of your score is calculated as a total of all the credit limits and all your balances. As long as your limits don't change, the ratio stays the same.

However, closing credit card accounts can cause major credit score changes. Closing an old, established account with a high credit limit is especially damaging. In fact, closing credit cards earned the No. 1 spot on our list of the top 10 credit mistakes people make. 

Paul might have considered leaving his old expensive account open after transferring the balance in order to avoid credit score damage. In his case, the old account came with a hefty $12 a month fee and not closing it would have cost him.

It certainly doesn't seem fair, but it is really never a good idea to close old credit card accounts when it comes to your credit scores. The system is set up to reward consumers who keep accounts open for 7+ years and who have a high amount of available credit limits.

Do you have a credit question? Send it to our team of personal finance experts at tidbits@credit.com.

Emily Davidson is editor of CreditBloggers.com and a former credit expert for the credit bureau, TransUnion. She writes about credit and personal finance topics.

Blogs We Love: The Budgeting Babe

I love personal finance blogs, especially blogs where the author is personally working toward some financial goals. One of my favorites is The Budgeting Babe, where Nicole is a 27-year old working girl on a budget. She covers tips for cost-cutting, homebuying, budgeting and building wealth with a dash of humor and a good helping of realism on her site.

When Nicole asked CreditBloggers to help answer a question about collection accounts last week, I jumped at the chance. You can read my advice to a reader facing overwhelming credit card debt and collection accounts online today!

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

Giving Credit Where Credit’s Due: Three Cheers for Linda Sherry

My hat's off to Linda Sherry, the director of national priorities at Consumer Action (CA), for her 13 years of work in protecting our rights, whether the issue is unfair credit card practices, Internet privacy, insurance fraud, or bankruptcy reform. Linda is in charge of researching and writing the many free publications CA offers on these and other subjects – in addition to its important annual surveys of banks, credit cards, prepaid phone cards, and long distance telephone carriers.  Much of the information Linda and her team assemble are available right on CA's easy-to-use Web site, in Chinese, Korean, Spanish, and Vietnamese, as well as in English.

During a recent phone conversation, the topic quickly turned from what Linda has accomplished over the years to what we can do now to get more consumer-friendly credit card legislation in place. The first step, Linda says, is to pay a visit to the Take@ction Center on CA's site, where you'll find lots of info on unfair credit card practices, and a form letter that makes it easy to tell legislators you want them stopped.

From where Linda sits, Congress is at a real "tipping point." As she explains it,

"Congress is poised on the edge, and it could go either way. Many would like to say that the credit card industry will clean itself up. The reality is that many in Congress understand that consumers are really being hurt. If consumers push hard enough, we can convince legislators to focus on consumer rights."

Now Is the Time

Linda believes "we all need to be incredibly active' now if we are to get this legislation through. She urges everyone to contact their senators and representatives – ideally via snail mail. Linda wants us to spring for the stamp because she believes a printed letter doubles the impact of an email. But either way you want to connect with your legislators is a big help from her perspective.

Consumer Action's form letter is a snap to modify with your personal comments, if you're so inclined. Want some additional points to make? I recommend  "A Brief Summary of the Proposed Credit Card Reforms," by our chief CreditBlogger, Emily Davidson.

Whether you add something extra to your letter or not, you can then either email it, or print and send it off to your elected officials. If you're willing to take it one more step, Linda recommends that you call your legislators' local offices. Tell them about your letter, and say that you want their votes for consumer credit card protections.

Let's make it clear that while they are off on a summer vacation, we're focused on what Congress needs to do for us bill payers when they return. Please  let us know what your elected official have to say in response!

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

Want to Lease a Car? Want to Get Out of Your Lease? Swap It!

I normally don't lease cars. I buy them used and drive them forever. But last year when my husband needed a vehicle and we weren't sure what to get, we followed a tip from Phil Reed at Edmunds.com and used the Internet to find a great deal on a lease. Two websites: SwapALease.com and LeaseTrader.com allow you to either find someone to take over your lease, or to find a good deal on a lease someone wants to get out of. You don't actually have to trade your lease for someone else's -- all you have to do is either find someone willing to take over the remainder of your lease or find one you'd like to take over.

Using one of the services (I honestly can't remember which) we took over the lease of a Ford Mustang convertible for two years from a woman who was pregnant and needed a different car. Instead of paying a deposit, she paid us to take over the lease! We did have to get approved by Ford Motor Credit, but oddly enough the lease never appeared on our credit reports. The monthly lease payment was lower than a similar payment if we bought the vehicle, though of course we wouldn't own it after the payments were finished. In our case, though, we were obligating ourselves for two years with the car, which we felt was safer than a three or four year commitment.

The best deals seems to come out of Detroit where autoworkers get employee discounts but then need to get out of their leases for one reason or another. In our case, my husband flew to Detroit in the early summer and drove the Mustang back to Florida. Tough life, isn't it?

Unfortunately, he also totaled the car last year. But the car was worth more than what we owed on the lease, so we ended up getting a check for the difference when all was said and done. (Thanks Geico for handling things so smoothly!)

Would I use Swap a Lease or Leasetrader again? Very likely, yes. If you do your homework and choose the right vehicle it can be a much better deal than a dealer lease.

Mortgage Hanky Panky

Someday, someone may sit down and write a long book about the hanky panky that has gone on in the sub-prime mortgage business in the last few years.  It'll be a long book.

At last count the Implode-o-Meter showed 92 companies had imploded or were ailing.  Are there more to follow? Who knows, but the site would make interesting reading if it were not for the amount of suffering that these people caused, not all of which has yet come home to roost.

In the most recent news, a Vice President of a major homebuilder was fired for unauthorized shredding of documents.  Perhaps they would have showed that some of their activities were improper.  I have long suspected that homebuilder owned mortgage companies were particular susceptible to doing loans that "weren’t quite right" when the company had to close more houses to make the end-of-quarter statement look good.

Three now-former employees at Countrywide agreed to plead guilty to insider trading of the company's stock and apparently the FBI has raided a Countrywide office to gather documents as part of an investigation, presumably into lending practices in the sub-prime area.

At New Century, which filed for bankruptcy, the SEC has upgraded their investigation to a more serious level. In addition, there is an investigation into accounting practices at the company.

I heard about a case today where the now-ex employees of a mortgage company were going into closed-loan files and changing the income on them so that when someone submitted a new refinance application on the same borrowers, the income on the new file correlated with what it was on the old file.

Obviously, there has been fraud at everyone connected with the sub-prime business, whether mortgagee broker, lender, or Wall Street firms that sold the mortgage-backed securities. My strongly held belief is that if it is going on at the higher levels of a company, it’s going on at lower levels too. Certainly not all employees are guilty, but there are probably plenty of blame to assign.

I chatted with the head attorney for the Department of Real Estate in California about consumer protection. He said that they are so busy with major fraud cases, they simply do not have enough manpower to look out for the individual consumer these days.  I don't blame him or the legislature that funds them, but if you are a consumer, it does make you want to take extra precautions to protect yourself.

In case you think that you have been taken advantage of by some lender, I'd try Small Claim Court before I would complain to regulators. If, for example, you ended up paying your broker more compensation that was shown on your initial Good Faith Estimate, call the Manager at your lender first and ask for a refund. If you don’t get it, head for Court, and let me know how it turns out.

Finally, for an exhaustingly thorough discussion of what happens to sub-prime loans after they go to Wall Street, check out the article below.

Investment Landfill: How Professionals Dump Their Toxic Waste on You