Funny Money Friday: Capital One Sends Out Dear John Letters

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

In yesterday's mail, I had two letters from Capital One. The first was a "Dear John" letter, quite literally. The card in question hadn't been used recently and Capital One was inquiring why. Here are a few excerpts:

You never write. You never call. You never charge. What did we do? Or (gulp) not do?
...
No holding back. Here it is. This relationship is not working. But it's not you, it's us.

I understand the cheeky tone Capital One's marketers are aiming for here, but it comes across a bit more desperate boyfriend/nagging mother to me. It must be a sign of the credit crunch for a credit card issuer to beg for top-of-wallet placement in this particular fashion.

Here's where it becomes perfect for Funny Money Friday: The other letter from Capital One?  A bill for an annual fee.

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

Calling for collection account stories!

Have you ever had a collection account related to parking tickets, library fines, child support payments or another type of government debt? It's fairly common for state and local government agencies to sell overdue consumer accounts to private collection agencies.

If you fit this category, we want to hear your story! Send an email to emilyblog@credit.com as soon as possible.

Over 8 Million Identity Theft Victims a Year

The Federal Trade Commission just released the results of a survey that shows a whopping 8.3 million of us - 3.7 percent of all American adults - were victims of identity theft in 2005. About half of the time, the thieves made off with goods or services that cost $500 or less. Ten percent of the time, they got at least $6,000 worth.

Here are the FTC's five main findings about the victims:

1. About 3.2 million cardholders found unauthorized charges on their credit cards, while some 3.3 million had their non-credit card accounts misused.
2. About 1.8 million found that new accounts were opened in their names, or that their personal information was used to commit other frauds. Almost one-quarter of these victims didn’t find out about the misuse of their info until at least six months after it started.
3. Over 50% incurred no out-of-pocket expenses as a result of their identity theft, but 10% reported costs of $1,200 or more. The sooner people found out about the crime, the less it cost them and the less the thieves got.
4. Half said they spent four hours or less straightening out their accounts, which says to me that these folks must have found out about the problem right away, before new accounts were opened in their names. The other half reported spending more than four hours, which seems more in line with the horror stories we’ve all heard. Ten percent spent at least 55 hours resolving their problems. Of that 10%, half spent at least 130 hours on them. Ugh!
5. Sadly, more than one-third had credit problems over time. For example, some were: bothered by debt collectors, denied new credit or loans, and/or unable to use their existing credit cards or bank accounts. Some people even had their utilities cut off, while others ended up in jail.

What You Can Do to Protect Your Identity
Given these findings … and this time of year … when so many of us are whipping out the plastic at ATMs and in places where our wallets may get stolen, it's crucial to do what we can to protect our identities. For starters, be sure to check your credit reports regularly, and here are some of the other key precautions Credit.com recommends:

• Do not carry your Social Security with you; instead, store it somewhere safe, such as in a safe      deposit box.
• Buy a shredder and destroy sensitive documents, receipts, and mail.
• Select complicated passwords that combine numbers and letters (i.e. 5ps98xw).
• Don't include your Social Security number or driver's license number on your checks.
• Memorize your passwords and pin numbers; never write them down!

For more of Credit.com's advice on what you can do to keep your identity safe, click here. And if you are in the unfortunate position of having an identity theft emergency, click here, with my sympathies.

Do you have an identity theft horror story that you care to share? We'll be happy to commiserate with you and offer suggestions where we can.

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.

The Chip and Pin Credit Card System: A Field Report from France

I'm just back from a gorgeous 10 days in Paris. Being a credit geek through and through, I had Europe's new "chip and pin" credit card system on my list of must-sees along with the Eiffel Tower and the Arc de Triomphe.

Some background: Back in 2003, the UK instituted a new credit card security program to help reduce fraud. Called chip and pin, the system required all credit cards to be outfitted with a small microchip (many US cards now also have these chips) and for the user to have a pin number. This replaced the traditional swipe and sign system still in use in America.  Controversially, the switch also transfered fraud liability from the credit card issuers to the retailers directly under UK law.

The results of the switch were plain to see. Credit card fraud in the UK dropped by a third in the first year that chip and pin was implemented. Other European countries have followed suit, implementing their own chip and pin systems mirroring the UK model.

To pay with a credit card at a restaurant in Paris, the waiter brings you a wireless handheld credit card reader (pictured). A chip card is inserted in the device and then its passed over to the customer for pin entry. Once the transaction is approved, the reader prints out a receipt. The device also allows for cards using the swipe and sign process.

Paying using swipe and sign garnered a few funny looks from retailers while I was in Paris. For added security, most required me to produce an ID and copied my details on to the receipt. Some weren't even sure how to run a card not using the chip and pin system.

Given the proven effectiveness of the chip and pin system and the relatively easy implementation process, I'm surprised that the US hasn't considered the program.

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

Discover Launches New Credit Score Tracking Service

Discover Card is now offering comprehensive credit score tracking to its cardholders. Discover’s Credit ScoreTracker, which costs $7.99 a month, sends out alerts when a member’s score changes. It also provides resources to help members understand their scores and to reach target scores that they set themselves.

If you’re a regular reader of CreditBloggers, you’re already aware of how important it is to know your credit score, and to keep an eye on it – as well as on your credit reports – to both protect your identity and to make sure there are no errors cropping up. ScoreTracker gives you 24/7 access to your Experian credit report.

Discover has created some nifty tools for its ScoreTracker. For example, you can look at a graph that shows your credit score over time – as well as in relation to the goals you’ve set for yourself. You can take a short-term view, such as three or six months, or open up the picture of your credit score to one or two years, so you can see the highs and lows over time.

There’s also something called the Credit Score Illustrator, which shows the importance of various factors in determining a credit score, for example, payment history, closing accounts, credit inquiries, and so on. Interestingly, you can also use this tool as a simulator, to see what might happen to your score if, for example, you pay off more of what you owe or open a new account. I can see how this tool might motivate some folks to improve their credit.

Other resources that Discover makes available via its Credit ScoreTracker include an interactive survey and quiz, which were designed to lead to better financial decision-making, along with articles written to help cardholders better understand their credit. Perhaps the best benefit of this product is that if you need help understanding your credit score, you can always call a Member Services Representative toll free!

If you have a Discover card, you can enroll online or you can call Discover @ 1-888-201-1440. If you do enroll, please let us know your thoughts about this new service!

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

Subprime CEO Hanky Panky

With losses due to poorly supervised subprime lending now in excess of $60 billion, you wonder what happened to the compensation in the Executive Suite.

At the head of the list has to be Angelo Mozilo, the CEO of Countrywide. His salary for 2007 was reduced to $1,900,000 from $2,900,000. That isn't unreasonable compensation, but like the TV ads say.  "But wait! There's more!"  Here was the announcement in the company's Proxy Statement.

"As consideration for Mr. Mozilo's agreement to extend his term as Chief Executive Officer beyond December 31, 2006 and pursuant to his new employment agreement effective Fiscal 2007, Mr. Mozilo received a one-time award of restricted stock units having a grant date fair value of $10,000,000."

But what was not in the statement but has lifted a few eyebrows was his sale of stock valued at over $200 million. This is a graph of his stock sales this year.  Not bad.

That ought to provide a comfortable retirement.

But what was happening to the shareholders in 2007? 

The stock went from a high of over $45 per share down to a recent closing price of $9.65, a decline of over 75%. 

Obviously, there was none of that silly "I feel your pain" here.

From a cursory examination of the situation, it "appears" that people in Headquarters saw that bleak times were ahead and that Mr. Mozilo thought it was a good time to start reducing his exposure to losses.

Such sales have to be done in accordance with a plan filed with the IRS but what is bizarre here is that he kept amending the plan to increase the number of shares sold each month. This caught the attention of the Securities and Exchange Commission too, and the word is out that they are investigating this as well.

That's not all, folks. Stay tuned. The next episode stars the folks at NovaStar Financial. 

An Early Holiday Gift from Uncle Sam

The new Federal Reserve Consumer Help Web site and toll-free phone lines are now open for business! They consolidate and streamline the Fed’s previous consumer complaint and info programs, and will make it much easier for anyone who has a problem with a bank or other financial institution to click or call for prompt help in the following areas:

• Checking accounts
• Consumer credit
• Consumer protection laws
• Credit reports
• Deposit insurance
• Electronic banking
• Home mortgages
• Small business

The Fed says: “If you have a problem with a bank or other financial institution, contact the Federal Reserve for help. … The Federal Reserve is committed to safeguarding consumer rights in financial services.  Key to this commitment is hearing from the public about their concerns and the issues they are facing.”

I say, “Bring it on!”

The Fed is responsible making sure lenders comply with the various consumer protection and fair lending laws – for example, those pertaining to credit cards, bank accounts, and mortgages. The Fed is also responsible for making many of the rules and regulations that lenders have to follow. So the more they hear about the problems we are having with financial institutions, the more likely it is that they will look into the issues we raise (for example, that universal default is unfair) and/or change the regs to make them more consumer friendly (for example, that universal default should be nixed).

Unfortunately, the Fed, which is technically known as the Board of Governors of the Federal Reserve System, is incredibly complicated. It is government after all, so that might not be a surprise to you – unless you’ve ever had a complaint about a bank that you tried to get government help resolving – or you’re a reporter trying to research a story.

There are five separate branches of the Fed! Consumers no longer have to know which of these federal regulators “supervises the bank that they are concerned about in order to file a complaint or inquiry. Federal Reserve Consumer Help will direct consumers to the appropriate regulator and has made arrangements with several other banking regulators to transfer callers directly to another representative at the appropriate agency.”

Oy! See what I mean? It’s a plus that we can now easily file a complaint or ask a question online, and let the Feds figure out who has to do what behind the scenes. Prefer to call? A real, live “customer service professional” will be available to help between 8 AM and 6 PM Central Time, toll-free at: 888-851-1920.

By the way, there are many useful government publications that you can access through the site, in both English and Spanish, including the latest version of "How to File a Consumer Complaint Against a Bank."

If you do visit the site, file a complaint against a bank, or submit a suggestion, please let us know how you make out!

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.

Debt Elimination: When Is A Debt Truly Canceled?

A reader has ignited quite a debate among the debt experts.

"Tricia" is trying to settle her debts. One of her creditors had sent her a 1099-C, which is the form used to notify the IRS that a debt has been canceled or forgiven. (See, the IRS considers a forgiven or canceled debt as "income" and wants a piece of the action. But that's fodder for another post.)

Tricia had been told that the 1099-C didn't mean the debt was truly canceled. The balance could still be turned over to a collection agency and she would have to then try to work out a settlement with the debt collector. It didn't sound right to Tricia, so she started asking the experts, and that's when things got interesting.

In one camp are the experts who agree with the opinion above. The creditor may have written off the debt, the say, but it can still be sold off to a collector and she would have to pay if the collection agency comes after her.

On the other side are those who believe the 1099-C is proof the debt was canceled. If she hears from a debt collector, they advise, she can fax them a copy of the 1099-C and they would have to leave her alone.

When Tricia contacted me for my opinion, I decided to to straight to the "top" and offered to ask the National Consumer Law Center. The NCLC is known as "America's Consumer Law Experts." Their motto, which they live up to, is "Protecting Vulnerable Consumers and Promoting Marketplace Justice." Not only do they publish voluminous manuals on consumer protection laws (including the Fair Debt Collection Practices Act) but they also develop important consumer protection initiatives, such as a recent study of High-Fee Predatory Credit Cards.

Deanne Loonin, a highly respected attorney for the group, responded to my inquiry. After informing me that the question caused "quite a stir" at her office, Deanne said:

...the bottom line from what we found is that the issuance of IRS form 1099-C is evidence of the creditor's cancellation of the debt justifying the denial of a proof of claim in bankruptcy or foreclosure.  That evidence of cancellation may be rebutted by a corrected form 1099-C stating that the debt was not canceled.

I am not an attorney, so I wanted to make sure I understood her answer. I asked her: 

So if I understand you correctly, the 1099-C indicates the debt has been canceled, but the creditor can later submit a corrected 1099-C and then resume collection activity?

Deanne replied:

Well, this was more of an evidentiary issue if it is raised in court. In that case, the 1099-C is evidence for the debtor that the debt has been canceled.  The creditor could rebut the evidence by introducing a corrected version, but I don't think that happens often. Whether they can resume collection depends on what the corrected version says.  It could just be correcting the amount canceled. 

It sound like Tricia should hold onto a copy of the 1099-C and provide it to any collector that later tries to collect the debt. If a debt collector is persistent, or tries to take her to court, she'll need to talk with a consumer law attorney asap.

In the meantime, though, she'll have to find out whether she must pay the IRS taxes on that forgiven debt.

Funny Money Friday: An Explosive Gift Idea

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.

Leave it to the Japanese to find a clever and cute way to deal with a boring issue.  Japanese retailers are stocking their holiday shelves with a new piggybank that "explodes" when the owner fails to make a deposit regularly.  If you don't add cash the skull-marked door blasts open and spills the saved money.

The piggyback will retail for about $27 and is expected to sell well. Apparently, it's become traditional to gift piggybanks at the start of the new year to encourage savings:

Last year, the company launched a popular piggy bank with a screen showing comic characters that grow older according to the amount the user saved. It sold 250,000 in a year.

Sounds like one clever stocking stuffer! I'll be on vacation all next week, returning on the 27th, but our team of credit experts will still be around to post occasionally. Have a great weekend and a happy Thanksgiving!

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

Does the IRS Owe YOU Money?

The IRS owes 115,478 taxpayers about $110 million in refunds. Averaging $953, they were mailed out by the IRS for the 2006 tax year – but the checks were returned, because the Post Office couldn’t deliver them.

It boggles my mind that there are 115,478 people who got it together to send in their tax forms, W-2s, etc., and when they never got the refunds they were owed, either forgot about them, thought it wasn’t worth it to hassle with the IRS … or didn’t even know they had any money coming!

Why You May Be Owed a Refund Without Even Realizing It
There are 21% more taxpayers with undeliverable refunds due to them for 2006 than there were for 2005 -- probably because of the "Telephone Excise Tax Refund," that one-time payment on already collected long-distance telephone taxes that could be claimed in 2006, only. Individual taxpayers were entitled to claim a set amount in 2006, from $30 to $60, depending on their number of dependents.

Just think, your tax preparer may have put you down for this refund without you even realizing it! Even if it’s only $30 to $60, I’d rather see it in your pocket than in Washington, wouldn’t you?

To find out if Uncle Sam owes you a refund, use the IRS’s “Where’s My Refund?” tool. If you moved, which is most likely the reason why the Post Office couldn’t find you, you’ll be prompted to add in your correct address. You’ll have to provide your Social Security Number, filing status (e.g., married, individual) … and here’s the catch … the exact amount of the refund that’s shown on your 2006 return. So dig out last year’s tax return, first. Then click. I sure hope there's a nice, big check waiting for you.

Please let us know how you make out!

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.

Honk if You Love Credit Unions

I've just spent three days at the California and Nevada Credit Union League Conference in San Diego. It was interesting to get their take on the current credit and mortgage crisis. With a dedication to affordable loans, financial literacy and other benefits, credit unions can be a great option for your banking needs. Even if their branches and ATM's aren't quite as easy to access.

Where do you bank? With a large national bank like Wells Fargo, Citibank or Wamu? With a local credit union or bank? With an online-only bank like e*trade or ING?  A combination?  Vote below:

Opinion Polls & Market Research

Share your feedback in the comments section!

Help! I Paid A Credit Card Late!

I reader just wrote to us in a panic. It seems her husband travels for business and she accidentally paid his credit card bill seven days late. She was afraid of what that late payment would do to his credit (and their relationship!)

First, the bad news. Since her husband's payment history is otherwise impeccable, one late payment -- even if minor -- would likely result in a significant drop in his credit score.

But here's the good news: Most credit card companies will not report you as late until you are 30 days late. It would be very unusual for a seven-day late credit card payment to be reported to the credit reporting agencies. However, the late payment could trigger a late fee and perhaps a higher interest rate. I told her to be on the look out for a late fee and if one appears, suggested she call and negotiate to have it reversed. (The card company may require her husband to call, in which case she'll have to fess up.) 

Going forward, it would be a good idea for them to set up online alerts for this account so they will both be notified when a payment is due. Most card companies will send you an email and/or text message to your cell phone reminding you to send in your payment. Then he can double check that she made the payment, and she's less likely to forget to pay it on time.

I love happy endings!

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

P.S. Do you have a credit question for the Credit.com team of experts? Don't be shy about asking! We'll even keep your name and personal details anonymous if you like.

Subprime Fallout

The other day a friend who knew I was in the mortgage business asked me about all the subprime articles he was reading in the news lately.  His opening question was simple, "If a bunch of dumb lenders wanted to lend money to some people who would have trouble paying it back, what does that have to do with me?"

That's a question many people have asked, because it is obvious to everyone these days that the repercussion of the credit crunch are much more far-reaching than anyone had imagined.

If you had gone to the CEOs of Merrill Lynch and Citibank a year ago and told that subprime lenders would cost them their jobs before the end of 2007, they would have said you were crazy. Yet they were getting their companies involved in programs that were very risky, but they just had no idea about how risky that really was. In part that was because the securities backed by the junk loans the subprime gunslingers were selling to them were being rated as AAA by outfits like Standard & Poor's. Fittingly, the CEO of that company lost his job too.

Those of us who were seeing this activity at street level could see that these yahoos were making really foolish loans. They were lending to people with poor credit, with no money in the bank, and without documenting how much income the borrower really had. If that sounds stupid to you, you're right. But somehow what we could easily see was never heard on Wall Street.  It is likely that they heard some warnings too but just didn't want to face reality.

The first real acknowledgment of the problem was in mid-July. This graph shows the initial deterioration when the crisis first hit. Prices of these AAA bonds fell from 100 to 95.5. That is a huge move, especially when it was unexpected. This triggered a drying up of liquidity which led, for example, to the $930 million loss at Thornburg, a fine company that NEVER did subprime loans.

Of course, that also triggered wild gyrations in the stock market where the Dow Jones Industrial average dropped over 1,000 points. That hits a little closer to home, like everyone who has a 401(k)! 

Asset backed commercial paper that many lenders used instead of bank financing dried up too. As I write this, the total amount of such paper outstanding as dropped by 25%, a huge drop. That is one reason over 182 subprime lenders have folded. See www.ml-implode.com   

At this point you should understand that accounting rules require many firms like financial firms to value assets on their books at market value. If the market drops, they have to write down assets.

Here as a graph of the drop in October where prices fell to 80% of par value, a drop of 20% from early July. That is what triggered the massive write-downs at Citicorp, Merrill Lynch, UBS, and Morgan Stanley that cost the Merrill Lynch and Citibank CEOs their jobs.

When will it end? Hard to say! Right now a lot of executives and Boards of Directors simply do not know how to value many of the assets on their books. It may well be years before the dust settles. What is sure is that this whole scenario has gone well beyond a bunch of dumb lenders doing dumb loans.

Funny Money Friday: Investing in the Finer Things

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.

Economists often recommend that investors move their savings to bonds and metals during a recession. The theory being that things like gold and silver are able to better weather the storm. If you're looking for a safe harbor that's a bit more creative, we have some great suggestions for you:

Platinum Hello Kitty - Why settle for boring gold bars when you can get cute instead. A 2-inch, diamond studded figurine of the famous Japanese cat retails for about $100,000.

Diamond Studded Phone - Neiman Marcus is promoting this luxurious phone in their holiday catalog this year. For $73,000, it comes studded with 7.3 carats of diamonds, coverage in 150 countries and a concierge service.

Jeweled Rims - Of course, you'll want your car to match that glittering cell phone. For $250,000 you can buy a set of cubic zirconium tire rims. Or you can up the anti for a set with real gemstones for about $1 million. That set comes with a free Bentley!

Have a great weekend!

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

How Would You Like to Save Grandma Around $1,200 a Year?

I've said it before and I’ll say it again: If you invest a little bit of time and energy now, chances are very good that you can help your grandparents or parents save some big bucks on medicine. If they’re over 65 and eligible for Medicare’s Prescription Drug Plan (aka Part D), they can save about $1,200 a year, compared to people who are eligible, but not participating.

Open Enrollment in Part D, when seniors can re-enroll in their current plan or change their plans/providers, runs from November 15, 2007 through December 31, 2007 – for coverage beginning on January 1, 2008. But eligible elders can begin looking over their 2008 options starting now, which is a good idea, because the federal prescription drug program is complicated, and the choices are sometimes not easy.

To help your loved ones out, devote some time to helping them consider their current insurance options. You can do it all online at Medicare’s site, assuming you have their current list of prescribed medications, including dosage and quantity. Medicare believes that it has made the site more user friendly. Let us know what you think. There’s plenty of info on the site, but you can also call 1-800 MEDICARE (1-800-633-4227) with any questions, 24/7.

If your seniors are resistant, you can tell them that the program’s statistics are encouraging. According to Medicare:

• Over 4.75 million people have been enrolled.

• About 100 million prescriptions are being filled for participants every month. Premiums are lower than had been originally estimated – much lower. Medicare predicts that the average 2008 monthly plan premium will be 40% less than had been expected.

• Most participants are satisfied with the program. Surveys show that over 75% give it good ratings.

• Over 90% of people already enrolled in Part D, will find at least one plan in 2008 with a cheaper premium than the one they paid in 2007.

• The average monthly premium in 2008 is expected to be $25. Medicare expects that seniors in every state will have access to at least one plan with premiums of under $20 a month and at least five with premiums under $25 a month.
  

• Extra help of up to $3,600 is available for seniors with limited income and resources.
  

The Two Big Downsides

        1. It Costs Too Much. As Consumers Union (CU) asks, “Why are seniors paying nearly twice the     price for their prescriptions as veterans, even though the government runs both programs?”

CU provides the answer to its own good question: “Because Congress specifically prevented Medicare from negotiating lower drug prices for seniors. In a time of record budget deficits, that just doesn’t make sense.”

I hope you’ll send a letter to your elected officials in Washington and tell them to pass legislation that gets Medicare to negotiate for lower drug prices. I just did. Consumers Union makes it easy. Just click here.

        2. It’s way too complicated. Consider the donut, just one of the program's essentially inexplicable features, which Medicare explains this way:
    "Medicare drug plans may have a ‘coverage gap,’ which is sometimes called the ‘donut hole.’ A coverage gap means that after you and your plan have spent a certain amount of money for covered drugs (no more than $2,510), you have to pay out-of-pocket all costs for your drugs while you are in the ‘gap.’ The most you have to pay out-of-pocket in the coverage gap is $3,216.25. This amount doesn't include your plan's monthly premium that you must continue to pay even while you are in the coverage gap. Once you've reached your plan's out-of-pocket limit, you will have ‘catastrophic coverage.’ This means that you only pay a coinsurance amount (like 5% of the drug cost) or a copayment (like $2.15 or $5.35 for each prescription) for the rest of the calendar year.”

Fortunately, I can recommend a good place to go if you want independent information or if you’re having trouble understanding what program to recommend to the seniors in your life: The Medicare Rights Center, which also runs a Medicare hotline at 800-333-4114 (9 to 6, Eastern Time, M –F).

If you’re going to do this good deed, please don’t wait until the end of December. Procrastination could mean that there’s a problem getting prescriptions filled in January. I recommend you shoot for filing during the first week in December, which means you and Grandma should start nosing around during the next couple of weeks. Please let us know how you make out!

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.

 

Still a Bad Time to Buy Authorized Tradeline Services

I've received a couple calls from consumers this week asking about the "delay" in rolling out the new FICO credit score model. The updated FICO formula is designed to ignore authorized user accounts in score calculations and was officially launched in September. Read our whole alert on the FICO change online. Here's the scoop:

The roll-out of the new score was planned to take a few months. The credit bureau, Experian, was the first to implement the score in September. Individual banks, lenders and other credit agencies are converting between now and 2008.

There has recently been a hitch in this plan, though. The aforementioned delay was reported by American Banker on Friday (paid subscription required). It all began last year when Fair Isaac (maker of FICO scores) sued the three credit bureaus for unfair and anticompetitive practices relating to the release of the VantageScore.  According to the American Banker article, Equifax will not implement the new FICO score while the case is pending:

"Until that lawsuit is resolved, our relationship with Fair Isaac is strained," Paul J. Springman, Equifax's chief marketing officer, said last week. "Whenever we take care of the lawsuit, then we decide what to do with FICO 08."

All this sounds more like something from a soap opera than the business pages. Especially, when you consider that Equifax and FICO used to have a very strong partnership.

In the meantime, all those formerly shut-down authorized tradeline (aka Piggybacking) companies are back at it. Fueled by the news of possible delays, they've been marketing their authorized user accounts with a renewed fervor.  For a $500 to $2,500 price tag, a consumer can pay to be added as an authorized user on a stranger's credit card account.

Despite FICO roll-out delays, authorized user accounts are not likely to be counted in credit scores. Most lenders and credit score users have figured out the scam and adjusted their  models accordingly.  Buying an authorized tradeline is a gamble at best and most-likely a huge waste of money. There is no "grandfathering" of these authorized accounts. Even if they do manage to get you a score boost now, the increase will disappear once everyone converts to the new scoring formula.

Instead, someone struggling to rebuild their credit should apply that $500+ investment toward opening a secured credit card. With secured credit cards, you deposit a balance into a savings account to "secure" your credit limit on the card. A $500 savings account gets you a $500 credit limit. The card will report to the bureaus each month under your name. If you use the account responsibly, the creditor will convert the card to an unsecured account and you'll receive your deposit back with interest. Plus, there is no danger of this account being ignored in credit score calculations.

If you're considering working with an authorized tradeline company, I hope this information helps you make a smart decision. If you have any questions, feel free to email us at tidbits@credit.com.

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

Waking Up to Credit Woes

There are two interesting articles to read at the start of this week. First, the New York Times dissected the correlation between subprime mortgage loans, geographic location and race (free login may be required). According to the article, subprime loans are most highly concentrated in neighborhoods that are largely black, hispanic or both.  This is true across middle-income and even high-income areas.

Since subprime loans are based on credit scores and credit scores don't take into account rate, income, neighborhood or net worth, it is interested thing to see this organic gap emerge. The article cites the lack of traditional banks and the prominence of largely s bprime banks in these areas as the likely main cause.

The moral to this story is definitely "shop around for your mortgage." It's possible that a large percentage of people who received subprime loans could have qualified for a traditional mortgage if they went to a different bank or lender. An interactive graphic of the percentage of subprime mortgages by county accompanies the article. Did you know there is a county in Texas where 82% of the mortgages are subprime?

The second must-read article of the day comes from MarketWatch (login may be required). According to a recent Fed report, we're currently going through an unprecedented tightening in lender standards. Mortgages are harder to get now than they have been in the last 17 years. Banks are cracking down on prime borrowers and subprime borrowers. 60% of banks have raised their lending standards for non-traditional (alt-A) mortgages and many have stopped issuing subprime loans at all.

I hope you'll read both articles this morning. Overall, they paint a pretty worrisome picture of the future housing market. If you want, share your opinions and feedback in the comments section below.

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

Subprime Progress?

The headlines have been shouting about pending foreclosures as subprime loans and other ARMs reset and result in unaffordable payment for borrowers who got into the homes on teaser rates. Talk! Talk! Talk! What are the results?

Darn little, it seems. One study stated than lenders have renegotiated less than 1% of their loans. How long will it take to contact and work with the millions they haven't called yet?

FHA announced a rescue plan but it appears as if the criteria they are using are not much different than their normal underwriting criteria.  I hope that changes because it isn't going to be much help to the stressed homeowners. The targeted group numbered only 80,000.

Countrywide announced a plan to work with more than 80,000 of their 7,000,000 plus borrowers. But this seems like a drop in the bucket and again, it probably doesn't have impact on the borrowers that need it most. Countrywide was a pretty big player in this market.

In a separate announcement, they noted that they are adopting new underwriting rules. It's not like this was voluntary because these were essentially mandated by the government. The new rules require, for example, that Option ARMs, the negative-amortizing loans with the low teaser rates, be underwritten as the full index plus marking rate and 30 year amortization.

Countrywide acknowledged that had these rules been in effect a year earlier 89% of these loans would have been denied. Sorry for making an embarrassing point here but it looks as if these new rules will now prevent borrowers from refinancing out of their current loans. Who IS going to refinance them, especially when you consider that values have dropped and they are under water?

I also hear stories of the experiences of people with other lenders. The lenders are going to their best customers, the A-paper borrowers who could get a loan anywhere, and are offering them excellent terms to stay so that the lender keeps the profitable servicing rights.

In effect, rather than serve the most needy, they are going to their most creditworthy customers and making sure they don't lose them.  That may be good for them, but it sure isn't a way to solve the problem. It also reflects a problem that no one seems to want to acknowledge: the "lender" isn't really the lender. He's the party that "services" the loan for the investor and he doesn't get hurt by a foreclosure.

I finally heard one suggestion from Washington DC that mirrors my own recommendation. That is to keep the borrower at whatever initial rate they started out at. If they were at 5%, leave them there instead of raising it to 8%.  Presumably the borrower could afford that so they can continue to afford it. The investor who really wanted the 8% return doesn't get it, but he wouldn't get it anyway. He'd own the house with nobody paying anything. Give people a five year window and many, many people would be able to work it out.

This would seem to have the government jumping in the middle of a private contract – the loan agreement – but it sure beats what is going on now, inaction that makes more foreclosures inevitable.

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: America's Worst Jobs

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.

Let's ignore the manic depressive stock market for a moment and find something else to worry about. How about bad jobs? The Center for Economic Policy Research released a report on the top 10 worst jobs based on being paid very low, having no medical benefits and having no retirement plan. The group calculated that $16.50 an hour was equivalent to minimum wage in 1979, adjusting for inflation. That's $34,320 a year.

This calculation reveals quite a bit about the changing value of minimum wage in the US. The current national minimum wage is only $5.85 an hour. This will increase in July 2008 to $6.55. The highest state minimum wage in the US is currently $7.93 an hour in Washington state. Anyway you look at it, this is a far cry from the $16.50 an hour the CEPR calculated.

Here's the worst of the worst:

1. Hosts and hostesses, restaurant, lounge, and coffee shop -- 87.0% qualify as bad jobs
2. Counter attendants, cafeteria, food concession, and coffee shop -- 87.0%
3. Ushers, lobby attendants, and ticket takers -- 85.4%
4. Fabric and apparel patternmakers -- 82.2%
5. Lifeguards and other protective-service workers -- 81.6%
6. Waiters and waitresses -- 80.4%
7. Tour and travel guides -- 79.4%
8. Models, demonstrators, and product promoters -- 79.2%
9. Dishwashers -- 78.8%
10. Motion picture projectionists -- 78.1%

Surprised by the results? Who would have thought that modeling would have made the list above dishwashers?  Do you have one of these "bad jobs"? What do you think of the list?

Have a great weekend!

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