Credit Mama's Notebook

Debt Collectors Go Beyond the Grave for Money

2009-03-04T12:30:00.005-05:00

According to the New York Times, "dead people are the newest frontier in debt collecting" – and apparently a lucrative one as well.

Yes, it's true – debt collectors that are "trained in the five stages of grief" (according to Adam Cohen, chief executive of Phillips & Cohen Associates of Westampton, N.J.) – telephone surviving family members to sympathize with their loss and then encourage them to make good on the deceased person's outstanding bill.

"We want the dead to rest easy, knowing their obligations are taken care of," said Michael Ginsberg of Kaulkin Ginsberg, a consulting company to the debt collection industry.

Never mind the fact that in most states, survivors are NOT obligated to use their own assets to pay for a dead relative's bills. Collectors can file against an estate and are actively using the databases of the country's 3,000 probate courts to discover when estates are opened, but if there is no estate to go after, collectors use the power of sympathy and the pitch of "honoring the wishes of their loved ones." Most of those being called probably believe they are required to pay the debt, as it is not clearly disclosed at the onset of the communication. It seems that the creditors/collectors could be pressing vulnerable, ignorant, non-culpable relatives into taking on the dead's non-existent responsibilities, thereby making the deceased relatives own debilitating debts, which weren't theirs until tricked or otherwise coerced.

Joel from Lowell, Mass., commented, "It was deeply upsetting for me to get a collection call about my father's Sears charge card balance a year after he had died. My father left no estate, and none of what he bought with the small outstanding balance had gone to me. It angers me that this big company was trying to make me feel guilty or responsible for a debt that was in no way mine and that I had no moral, much less legal, obligation to pay."

He isn't the only one outraged by these collection tactics.

Christine in San Francisco said, "As a Ph.D. candidate in psychology, the thought that the five stages of grief developed by Dr. Kubler-Ross could well be used to manipulate people to pay money they don't legally owe is beyond contempt. Particularly given the fact that many more deaths will not be the result of illness, but sadly, the increase in suicide rates resulting from the economic crisis. Here's a better idea: why don't these people get trained in goading rich people to pay the taxes they owe from their off shore bank accounts? Maybe guilt and fidelity won't be as lucrative in this endeavor, but I am sure the market is bigger."

This story, posted by Michael David of North Vancouver, summarizes such an experience:

When my father died after a debilitating and ultimately futile battle with cancer in 1991, we discovered that he had used his credit cards to pay for his obviously-ineffective chemotherapy treatments. Now, the creditors wanted their money and were calling, and calling…and calling…and though we understood ourselves to “not” be legally-responsible for his debt, they insisted every day (and several times a day) that we were.We didn't even have a chance to grieve because now, in addition to trying to bury our dead father, we had to continue telling creditors that he was no longer alive! But they wanted their money and insisted that we "were in fact responsible," contrary to what this article reports.What I don't understand is, why is this news now? "Suddenly" creditors have discovered this newest source of revenue?

After the 15th phone call in five days, an agent from Visa Credit Card services screamed into the telephone, demanding that my brother "provide a final address to send the bill to." So he obliged her by giving the address of the cemetery and told her to "go dig him up." After he slammed the phone down, I took a pair of scissors and physically cut the phone cord. Call-center agents, particularly this sinister brood, should occupy the same circle of Hell that Dante reserved for landlords: the 9th circle. There, frozen in a solid block of ice for all time, they can contemplate their own malevolence while eternally staring at their dead dunned clients’ accounts.

One collection agency, DCM, presented the NYT reporter with a "stack" of letters of appreciation (names redacted). I found this one to be particularly tragic:

One widow wrote that a collector “was so nice to me, even when I could only pay $5 a month a few times.” Saying that money was “so tight” after her husband died, she added: “It was very hard for me, and to get a job at my age. Thank you.”

No wonder half of these agencies' new hires don't make it past 90 days. There is no amount of yoga classes, foosball or free lunches that could motivate me to use false sympathy and guilt tactics to collect on a bill, or make old widows go back to work to pay $5 a month.

FICO '08 Rolls Out… A Year Late

2009-01-29T12:39:00.000-05:00

Yesterday, Fair Isaac Corp. (creator of the FICO score) and TransUnion, one of the three major credit bureaus, rolled out the long-anticipated FICO '08 to lenders.

The new scoring model changes a number of calculations. It's more forgiving of one-time "slips" – for example, the impact of a late payment will be less for someone who is in good standing on multiple credit accounts. Conversely, FICO '08 will be harder on those will have less impact on your credit score, whereas "repeat offenders" will see credit scores reflect habitual delinquencies. Those with good credit should see a slight increase in their scores; those with multiple delinquent accounts will see their score drop. The score will continue to range from 300 to 850.

Equifax is expected to roll out FICO '08 in the second quarter. Experian, which is currently embroiled in litigation with Fair Isaac, is not disclosing whether it will implement the new FICO '08 model. However, Experian recently sent a letter of termination to Fair Isaac, stating that it will no longer allow MyFICO to provide Experian MyFico scores to consumers. (Experian will continue to sell consumers the PLUS and VantageScores, which are NOT the scores used by lenders.)

One major concession in FICO '08 – the scoring model will continue to count authorized users (such as children or spouses) on credit card accounts. An authorized user on a good credit account will get a credit score boost. Fair Isaac has purportedly tweaked the algorithm to prevent credit repair companies from gaming the system.

According to the Wall Street Journal, Fair Isaac predicts FICO '08 will improve the accuracy of lending decisions by as much as 15%. But it may be a while before the score is widely available to consumers, as lenders will be carefully evaluating the score and deciding whether or not to use it.

Possibly the Biggest Credit Data Breach Ever?

2009-01-21T12:37:00.001-05:00

A global cyber fraud operation is thought to be behind what may be the biggest credit data breach ever reported, eclipsing the 2007 TJX breach that compromised the data of 45 million customers.

The breach occurred on the internal computer network of Heartland Payment Systems, a major payment processing company that processes 100 million transactions each month from about 250,000 businesses nationwide.

How did this happen?
After a customer swipes a credit or debit card, the information is then transmitted to obtain authorization from a bank or payment company. During this brief transmission, the data is unencrypted. "Sniffer" software, which may have been installed on Heartland's network as far back as May 2008, captured card numbers, expiration dates, and some cardholder names and internal bank codes during this authorization period. Personal security codes are not believed to have been compromised.

What credit and debit cards are impacted?
Visa, MasterCard, Discover and American Express customers are vulnerable.

How many people could be affected?
An exact number of compromised customers is not available; however, according to a report in the New York Times, 600 million or more cardholders might be affected.

When was this breach discovered?
The breach was discovered last week by a forensic investigator following inquiries by Visa and MasterCard of suspicious activity surrounding processed card transactions.

What remedies do customers have?
Heartland has set up a Web site to provide updates to customers about the incident: www.2008breach.com. Cardholders are not responsible for unauthorized fraudulent charges made by third parties. The United States Secret Service and the Department of Justice are actively involved

Please review your credit card statements carefully each month for any charges that you don't recognize.

Lenders Begin to Look Beyond FICO

2009-01-10T15:56:00.000-05:00

A few years ago, Fair Isaac reported that the average FICO credit score in the U.S. was 723 out of a possible 850. The higher the score, the greater the likelihood that the borrower would repay a loan.

At least that was what Fair Isaac pitched to lenders.

Thus spawned several years of streamlined loans – loans that were predicated solely on credit score. "Stated" loans allowed people with good credit scores to put down any income figure on a loan application and get approved. The sheer number of applications in an overheated market where an hour could mean a $50,000 difference in selling price necessitated glossing over details that were mandatory – or at least a consideration – in pre-FICO days. (I know you're thinking, what, there was a time when credit scores didn't exist? Credit scores weren't developed until the late 50s.)

According to an article in Time magazine,

A few years ago, Fair Isaac produced a chart predicting the odds that a borrower with a certain credit score would default on a mortgage. For example, it predicted that a loan to a borrower with a 680 score had a 1 in 144, or 0.7%, chance of becoming delinquent over the life of the loan; a person with a 700 FICO score would have a 1 in 288 chance, or just 0.3%.

Unfortunately, those predictions proved too optimistic. According to mortgage-data tracker First American Loan Performance, banks have already foreclosed on or are in the process of foreclosing on 1.5% of the mortgages originated in the last three months of 2007 to individuals with credit scores between 660 and 720. And those mortgages have been around for only a year. Over 30 years, the delinquency rate on those home loans is likely to be much higher.

The rise in defaults among "good credit" borrowers is beginning to force lenders to revert back to more traditional ways of predicting risk. Consumer advocates who have long opined that a three-digit credit score managed by for-profit entities is an inaccurate measure of creditworthiness should be pleased at this trend, which takes a number of variables (such as phone bill payment records) into account - especially helpful for those borrowers with thin or non-existent credit histories.

New Year's Resolution – Get Your Credit in Good Shape!

2009-01-05T15:47:00.003-05:00

Ever since the credit bureaus were mandated to provide one free credit report each year, I've made requesting and reviewing my credit report part of my New Year tradition. It's my opportunity (and responsibility!) to make sure that I haven't been the victim of identity theft and that the credit bureaus are reporting my credit history accurately.

I was especially motivated to do so this year because I recently discovered that one of the credit bureaus is reporting erroneous information – information that is causing my credit score to vary 50-75 points from the other two scores.

This year, make a resolution to get your credit and finances in good health. Remember, the ONLY place to get your credit report for free (per the federal Fair Credit Reporting Act) is https://www.annualcreditreport.com/... NOT freecreditreport.com.

You may also order your credit reports by calling toll-free to 877-322-8228, or by mail. To request your credit report by mail:

Download the request form (You need an Adobe viewer to view the requested form. Download the free Adobe viewer)
Print and complete the form
Mail the completed form to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

Here are some tips on ordering your credit report (courtesy of Bankrate.com):

Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.

No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.

Be secure: Always be sure you're on a secured Web site when entering your personal information.

Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.

Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.

Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.

Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.

Consumers Skeptical About New Credit Card Regulations

2008-12-20T09:17:00.000-05:00

After years of complaints against the credit card companies for unfair and deceptive practices, the federal government approved sweeping new restrictions on credit card companies on Dec. 19. Consumer responses to the measure, however, show that many remain skeptical about the long-term benefits of the changes and strongly disapprove of the 18-month delay in implementation.

Many comments echoed the sentiments of one poster: "When was the last time Barnes & Noble called you up and said they wanted more money for the book they sold you last month? Have you EVER paid in full for a computer or a cd player or a shirt and later received a letter telling you the price was actually 500 or 1,000 percent more than what you had agreed to pay and you had better fork over the bucks? Credit card companies are not our friends; they should not be taking taxpayer hand-outs; they should not be permitted to abuse the citizens of this country. Further, I am SHOCKED that the new rules will not take effect for eighteen months. There is literally NO COST involved in effecting them NOW."

Another wrote: "These rules and regulations need to be implemented NOW, not almost two years from now. What a joke as the ripoff continues. How come the Wall Street bailouts always take place immediately, why do new taxes always take place immediately, but when it comes to given [sic] Main Street some help it always takes years from the time they pass the new rules."

Under the new regulations, banks, credit unions and savings associations are prohibited from raising interest rates on existing balances unless a payment was received more than 30 days late; charging a late fee if a borrower was given less than 21 days to pay; and applying payments in a way that would result in debts with higher interest rates getting repaid last. It also protects consumers against predatory credit cards that reduce available credit to subprime borrowers through fee harvesting.

"I believe the eighteen month grace period was a compromise," one commenter wrote. "This timing could make the regulations toothless. The potential is the banks will cull all accounts, reduce or eliminate available credit for millions, raise interest rates to 29.99% or higher for most people, raise late and overdraft fees to $50 or more, and use their current “contract” to extract as many dollars as possible from cardholders. When the new regulations go in effect they will have us where they want us."

The issue of consumer protection from credit card industry practices will continue to remain a priority in the Senate, according to Sen. Christopher Dodd (D-Conn.). In a recent Washington Post article, he is quoted as saying, "To restore our economic stability, we must stop credit card companies from ripping off their customers and driving them into deeper and deeper debt…While I expect the Federal Reserve's rules to be a significant step forward in addressing this issue, I believe we need a strong law in place to protect consumers from unfair credit card practices including 'anytime any reason' rate increases, universal default, excessive and unreasonable fees, and marketing targeted to young consumers."

The $970 billion industry stands to lose about $10-12 billion in annual revenue as a result of these changes. The banks have provided dire warnings about the measures, citing a probable decrease in the amount of available credit that would be extended to consumers and increased difficulty in qualifying for new credit.

But most agree with one poster's sentiments that the changes are long overdue: "Too little too late. Where was Congress when these scummy vultures were robbing the American public for the past 10-20 years? And why do they have 18 months to continue robbing us? Maybe to have more time to find loopholes and new ways to screw the public? Look, it's no secret any more that a large part of most banks revenues and profits come from usurous [sic] fees and bogus penalties. They have to find a way to continue to rob the public along these lines. And Congress has to give them time to find those ways so the campaign contributions continue to roll in."

Democratic Congress Passes Credit Cardholders' Bill of Rights

2008-09-24T15:03:00.002-04:00

For anyone who has experienced universal default, where a credit card company raises its interest rate based on any change in your credit report, even if that change is unrelated to that company… or wondered why their payment due date has shrunk from 21 or more days to just 14… for anyone who has paid off their credit card in full and then got a bill the next month for interest accrued the previous month… for anyone who has been upset that payments are always applied to the lower-interest balance first… good news is on the horizon.

Yesterday, 228 Democrats and 84 Republicans in the U.S. House of Representatives voted to support The Credit Cardholders' Bill of Rights (H.R. 5244). The bill now heads to the U.S. Senate for its consideration.

Not unexpectedly, banks such as Bank of America, JPMorgan Chase, Citigroup, Capital One Financial Corp and Discover Financial Services oppose the bill. With the markets in turmoil and drowning from the collapse of the U.S. housing and subprime mortgage markets, the legislation could limit their credit card revenue by limiting the fees they can charge for practices that consumer advocates say are designed to hurt or deceive consumers. The White House also opposed the legislation, which seeks to curb unfair and deceptive credit card practices, saying it would constrain banks' ability to price risk.

Summary of the H.R. 5244 bill

111 Republicans and 1 Democrat voted "nay." How did your representative vote on H.R. 5244?

Do Medical Bills Hurt Your Credit Score?

2008-09-16T16:49:00.004-04:00

MarketWatch recently addressed the issue of unpaid medical bills and the effect that those unpaid bills have on one's personal credit. The reader asked if medical bills are treated the same as outstanding credit card debt and whether it affects the FICO score.

According to the MarketWatch reporter, medical bills are treated differently than credit card debt and as a result, "don't always have a direct effect on your FICO score." That's because medical debt is not always reported to the credit bureaus – just the debts that have been sent to a collection agency. And the debt owed for medical bills does not count toward your total debt utilization ratio – that is, how much you owe on your credit card balances compared to your credit limits.

However, your Credit Mama has a few words of caution. Once your unpaid medical debt is forwarded to a collection agency, the debt is very likely to be reported to the credit bureaus. And as a collection debt, it will have a significantly negative impact on your FICO score.

If you are trying to qualify for a mortgage or car loan, a lender will look closely at any unpaid bills, including medical. Most mortgage lenders require that any unpaid bills over $500 (or multiple bills adding to $500) be paid in full before they will lend for a home or investment.

Fannie Mae guidelines generally require that collection accounts (including medical) in excess of $250 per individual account or $1,000 in the aggregate must be paid in full.

Given the current credit crisis, I believe most underwriters will not waive this requirement.

Medical bills are one of the top three reasons people file for bankruptcy, accounting for half of all U.S. bankruptcies. Most frightening is that 75.7% of those whose illnesses led to bankruptcy had insurance at the onset of the illness, according to a study published in the journal Health Affairs.

Bankrate.com suggests contacting the hospital directly to see whether you can qualify for low-income waivers or financial assistance, and researching nonprofit organizations that specialize in helping people with high medical debt to negotiate on your behalf to reduce the balance. Once you get sent to collections, you are dealing with a for-profit company that is not interested in you – just your repayment of the debt.

In case you missed it - a previous post on the new medical FICO scoring system that is being developed.

Overdraft Protection Will Cost You

2008-08-21T09:30:00.005-04:00

Overdraft protection, a service offered by many banks as a convenience, kicks in when a bank approves a transaction and the customer doesn't have enough funds to cover the cost. The bank allows the transaction to go through, like a temporary loan, and then charges the customer a fee somewhere in the range of $25 to $35, regardless of how much the transaction was.

As many unsuspecting consumers have discovered, the convenience factor comes at a cost. One reader wrote that he had deposited a check for several thousand dollars in his bank account. Unbeknownst to him, however, the bank did not release the funds for several days. During that time, he assumed he had funds in his account, and used his debit card for a number of minor transactions – groceries, gasoline, movie tickets, prescription medications. Every transaction racked up an overdraft fee of $35. "That's $140 just in fees… and none of my purchases was over $35," he wrote.

According to a CNN Money article, debit card transactions account for nearly half of all overdrafts, with most of these transactions averaging far less than the overdraft fee itself. And if you don't repay your overdraft within a few days, some banks charge additional fees. The Center for Responsible Lending states that financial institutions "manipulate the order in which they clear deposits and withdrawals in order to maximize overdrafts," and estimates that Americans now pay $17.5 billion each year in fees for abusive overdraft loans, more than the $15.8 billion total paid out to cover those loans.

It's an issue that Congress has decided to act upon. Rep. Carolyn Maloney (D-NY), who introduced the "Credit Cardholders' Bill of Rights Act of 2008" (H.R. 5244), and Rep. Barney Frank (D-Mass.) are trying to protect consumers from such hefty fees with a new proposal: the Consumer Overdraft Protection Fair Practices Act (H.R. 946).

"I've been working on reducing sky-high overdraft fees for several years now," Congresswoman Maloney wrote to CNN Money.com. "Overdraft loans can be useful financial tools, but many consumers are being enrolled in costly overdraft protection programs without their consent." The legislation would require that consumers would have to "opt in" to overdraft protection programs, and banks would not only have to inform consumers when they are about to overdraw their accounts and allow them to cancel the transaction, but also would have to provide full, written disclosure of the overdraft policies to consumers.

But with banks countering massive losses in their mortgage portfolios with revenue-generating practices such as exorbitant overdraft fees, anytime rate hikes, universal default, and reducing the window between the time a bill is mailed and the payment due date, your Credit Mama is guessing that such a move will meet with great resistance by the banking industry lobbyists.

77 Percent Chance Your Credit Card Rate May Change for Any Reason

2008-08-14T10:16:00.006-04:00

Imagine if after a year of owning your car and paying down your loan, the car dealer told you that your interest rate on the car loan was going up by double-digits because the dealer was having a bad year. Outrageous! you think. He can't do that!

Yet that is exactly what credit card issuers are doing. A survey released by Consumer Action, a nonprofit education and advocacy organization, found that 77 percent of the major financial institutions they contacted said they reserve the right to increase a cardholder's interest rates - even on existing balances - at any time and for any reason.

The reasons cited by bank officials included "the economy," "business strategies," or "market conditions" (the stated cause of recent rate hikes by Bank of America and Capital One).

At a time when a number of banks are finding themselves too heavily invested in failing mortgages, it is all too clear that some of the shortfall in profits may be covered by bumping rates and fees for consumers like you and me.

Other items of note:

The average default rate is now 26.87 perent, up from 24.51 percent in 2007. The highest default rate in the survey was HSBC, with a default rate at 31.99 percent. Default rates can click in for a number of reasons, including late payments to another company, too many inquiries on your credit file, or even a small drop in your credit score. Once your rate adjusts to the default rate, it's very difficult to re-adjust it downward.

"Chasing balances" is becoming a common practice whereby banks reduce credit limits based on their assessment of a customer's risk. A reduced credit limit negatively impacts your credit score by increasing your debt utilization ratio, which may then trigger the universal default clause. And if the consumer isn't aware that the limit has been decreased, he or she may very well be hit with an over-the-limit fee and then a penalty interest rate for being over the limit.

If you're not outraged, you're not paying attention. Contact your House and Senate representatives and tell them to support the Credit Cardholders Bill of Rights in the House (H.R. 5244), and the credit card bill in the Senate Banking Committee.

Shopping for Student Loans Damages Credit Scores

2008-08-11T14:48:00.005-04:00

Fact: Too many credit inquiries can damage your credit. That's because the credit scoring formulas assume that the borrower is financially troubled and may even be going bankrupt.

Fact: If you comparison shop for a mortgage or car loan to try to get the best interest rate, FICO's secret credit scoring algorithms lump together all related inquiries that occur within a short period time. Such credit inquiries have a relatively neutral impact on credit scores.

Fact: The New York Times recently reported that students and parents shopping for the best rates on private student loans DO NOT benefit from the same type of calculations as those shopping for home or auto loans. Translation: each time you compare a new student loan, your credit file gets dinged with another inquiry. Each inquiry can drop your score up to 5 points.

It's a bad equation for students and parents:

Too many inquiries = lower credit score.
Lower credit score = higher rates on student loans.

If you have a thin credit history (as many students just getting out on their own often do), such inquiries may have an even greater impact. Anyone who has shopped for a mortgage knows that a measly five points can make a big difference in qualifying for that higher tier interest rate break.

Apparently the New York State Attorney General's office has stepped in and asked Fair Isaac, creator of the FICO score, to treat student loan borrowers the same as those shopping for mortgages and car loans. The Times reports that Fair Isaac isn't changing its policy any time soon and believes its policy doesn't cause any damage most of the time.

However, at least one credit bureau – Experian – confirmed that that this policy may have an impact on credit scores. And a spokesperson for Sallie Mae, the nation's largest private student loan lender, says the company does, in fact, see the negative impact on credit scores and believes that students should not be penalized for trying to make smart financial decisions.

The Times still recommends comparison shopping with 3-4 lenders, preferably within a week or two. Fair Isaac did say that IF there is any negative impact on credit scores, it is more likely to occur when people apply to smaller or specialized student loan lenders, and a lesser impact when applying to big banks.

The Times' advice:

"Start with a lender or two that your college recommends, since it may have negotiated special terms with them... [shop] one bank, one finance company that specializes in student loans and then [look] for nonprofit loan agencies that work with people in the state where you live or the state where you attend college (or both, if you’re lucky enough to have a choice)."

Check this list of lenders or ask people in the financial aid office whether a nonprofit lender serves the college.

FICO Decides to Keep Piggybackers After All

2008-08-07T14:12:00.001-04:00

Fair Isaac Corporation has had a change of heart.

The creator of the FICO credit score had planned to roll out its new FICO '08 scoring system this year. Among the changes in this new version: banning "piggybacking," the process by which consumers with no credit or poor credit can benefit by being added as authorized users to the accounts of credit cardholders with good or excellent credit. Piggybacking was often used by parents to give their children a head start in building a good credit history or by a spouse trying to help their partner improve his or her score, but came under intense scrutiny after private companies started to profit from a business model that boosted credit scores of those who were paired with someone with good credit. Lenders were outraged by the practice, saying it dramatically increased their risk.

It is estimated that more than 50 million U.S. consumers are legitimate authorized users on another person's credit card. The new provision would effectively lower credit scores for millions of consumers, forcing them to pay more for everything from mortgages to car loans. And since about 1% of consumers would no longer have enough of a credit history to get a score at all, according to a survey by Credit.com, those consumers may not qualify for a loan at all.

Another concern dealt with regulatory issues. Lenders must comply with the Equal Credit Opportunity Act, which requires them to consider a spouse's credit history when weighing a potential borrower's credit risk. They warned Fair Isaac that such a change would prohibit them from using FICO scores if they wanted to be compliant with the ECOA.

At a recent Congressional hearing, the company announced that "after consulting with the Federal Reserve Board and the Federal Trade Commission earlier this year, Fair Isaac has decided to include consideration of authorized user trade lines present on the credit report." In a company press release, they state that their scientists have discovered a way to restore authorized user credit accounts to the calculation of FICO '08 scores while making it "much hard to game the system." No further details were provided regarding this technology.

To accommodate this change, the phased rollout of FICO '08 has been halted temporarily. It is not clear when the rollout will take place.

Identity Theft Alert: Anheuser-Busch Workers at Risk

2008-08-05T14:11:00.000-04:00

If you work or have worked at Anheuser-Busch, your personal information (including Social Security number, addresses, date of birth, and more) may have been among those stolen when laptops disappeared from Anheuser-Busch's St. Louis headquarters in June.

Nationwide, about 150,000 people are affected; of those, 87,500 are in Florida.

If you have been affected, you are entitled to one year of free credit monitoring service.

Credit Card Companies Pull Back on Soliciting Via Direct Mail

2008-07-31T14:09:00.000-04:00

The days of receiving credit card solicitations in your mailbox on a weekly or even daily basis may be over… at least temporarily.

Facing increasing delinquencies, consumers who are already credit-stretched, industry competition and profit losses, credit card companies have pulled back the reins on mailbox pitches, reducing the number of direct mail offers by an average of nearly 14 percent in the first quarter of 2008 compared to the same period in 2007.

According to a report in MSNBC.com, JPMorgan Chase reduced its mail volume by 34 percent, HSBC had a 23.3 percent reduction, and Bank of America and Capital One both cut mail volume by more than 17 percent.

Mortgage and loan companies cut their direct mailings by 6 percent. A handful of companies, including American Express, Discover and Washington Mutual, increased their volume slightly.

Of course, while there is a measurable decline in direct mail volume from banks and consumer lenders, there still is an enormous amount of direct mail solicitations landing in mailboxes, with an estimated 4.2 billion pieces of mail sent by financial service companies. According to Direct Marketing Association, U.S. banks and credit institutions spent $13.4 billion last year on direct marketing, generating $178.8 in sales.

Debt Collectors Using New Strategies and Technologies to Get Your Cash

2008-07-29T11:47:00.000-04:00

As the economy slides and consumer debt and delinquencies rise, debt collectors are having an increasingly difficult time coercing cash-strapped people to fork over payments. Many are getting more creative – and often, more aggressive – in their efforts to collect payments.

According to an article in Newsweek, some collectors are even resorting to the types of harassing tactics that were made illegal years ago.

See You in Court
Collectors are taking people to court more often these days. Interestingly, some are going to court to defend themselves. Minnesota Attorney General Lori Swanson told Newsweek that she sued a debt collection agency for using illegal tactics, and expects this to be a growing trend among other AGs.

Debt Profiling
New software helps collectors assess debtors "most likely to pay big" by calculating what type of debt is owed, how old it is, how big it is, when the account was opened, credit reports, bankruptcy filings and the debtor's socioeconomic status.

Consumer advocates believe the software unfairly profiles debtors, as the data shows almost all of the people sued by debt collectors lived in low income, predominantly African American communities.

Telephone Tech
Collectors are using offshore call centers and automated dialers to find debtors. And about half of collectors are using automated calling systems with recorded messages. The problem with this method, however, is that many calls don't disclose who the debt collector is and what the call is about. Courts have held that this is deceptive. Even more problematic is that recorded messages may be left on a voice mail system used by more than one person – which could be considered unauthorized disclosure of the debt to a third party.

More and more collectors are calling cell phones – which often means that those in the lower-income bracket are paying for minutes spent on calls from collectors.

Negotiating Payment Plans
Under the philosophy of "a bird in the hand is worth two in the bush," collectors are becoming more open to negotiating partial payment plans.

Remember: debt collection agencies must identify themselves, and if you request it, they must prove that the debt is, in fact, yours.

Identity Theft Alert: Alaska Air Customers' Credit Cards Misused

2008-07-23T11:45:00.000-04:00

If you bought tickets from Alaska or Horizon airlines, pay close attention to your credit card statements. (You should be doing this anyway, you know.)

About 1,500 customers have been notified that their credit cards were misused when a call center employee diverted some payments to a personal account.

The airlines' parent company is working with police to resolve the investigation and have stated that customers are not responsible for repaying the diversions that took place between August 2006 and June 2008.

I Never Said You Could Pull My Credit!

2008-07-16T17:35:00.001-04:00

Dear Credit Mama,

I got a copy of my credit reports and noticed what appears to be a list of companies that have pulled my credit… companies that I had contacted about their service but never actually did business with or authorized to pull my credit. Don't businesses have to get permission to run a credit report? And should I do anything about this?

-- Danielle

Dear Danielle,

Yes, you are correct – under the Fair Credit Reporting Act, businesses must have your permission or a "permissible purpose" to pull someone's credit. (Permissible purpose means they have a legitimate need for the information.)

Merely inquiring about a service does not give the company the right to run your credit report. Companies should tell that they are pulling your credit or ask for your permission first. Employers must get written permission from you in order to check your credit.

These types of inquiries – known as "hard" inquiries – can have a negative impact on your credit score and will typically remain on your credit report for a year, sometimes up to two years.

Although the impact may be relatively minimal -- five points or so per inquiry -- recent studies show that an increase of just 30 points in one's credit score can have significant financial benefits… which means every point in your favor is important.

Hard vs. Soft Inquiries

Hard inquiries include requests for new credit (credit card or loan, or increase in credit card limit), employment credit checks, and applications for certain services such as cell phones or utilities.

Soft inquiries occur when your creditor reviews your files, creditors extend you offers of credit, or when you pull your own credit.

Action Steps

When inquiring about services, be upfront and let them know that you do not want your credit pulled without your permission.

If you believe that the companies listed on your credit report did not have a legitimate reason to access your credit, you can contact the company and request that they correct the information. You also can contact the credit bureaus directly to correct your report.

If the company is in the wrong and refuses to correct the information, you can sue them for up to $1,000 in statutory damages for violations of the Fair Credit Reporting Act.

Consumer Knowledge About Credit Improving… But Still Poor

2008-07-11T11:29:00.002-04:00

Consumer awareness of credit scores is improving, but not enough to prevent $28 billion in credit card finance charges, according to a survey by the Consumer Federation of America and Washington Mutual, Inc.

According to the report, most Americans know why credit scores go up and down – for example, two-thirds understand that paying off a large credit card balance improves credit scores, and 80 percent know that missing monthly credit card payments lowers scores. And just about half of Americans have obtained their credit scores in the past two years.

However, the findings show that less than a third of Americans understand that a credit score reflects the risk that a consumer won't pay back a loan – most believe that it reflects factors such as their overall financial resources and that demographic factors such as income, education and age affect their score. And 59 percent did not know that maxxing out a credit card would lower their credit score.

According to estimates by Washington Mutual, a boost in one's credit score by 30 points would save a consumer $105 a year in credit card finance changes, as financial institutions offer lower interest rates to consumers with better scores. That translates to annual savings of $28 billion for all consumers.

To learn more about credit, check out the free webinars under "Your Credit Mama Recommends…"

Thieves Steal Gas With Stolen Sweetbay/Hannaford Customer Credit Cards

2008-07-08T09:00:00.000-04:00

With gas prices floating over $4 a gallon and diesel approaching $5 a gallon, fuel is a valuable commodity that is attracting thieves along the East Coast.

The arrest of five Florida men who drove pickup trucks with hidden gas tanks that could hold up to 1,000 gallons of fuel brought to light a disturbing trend – the use of stolen credit card numbers to purchase excessive quantities of fuel at gas stations in several states. Murphy Oil, which runs Wal-Mart gas stations, reported losses of $1 million in one month as a result of similar gas thefts.

New cases involving the 4.2 million stolen credit and debit card numbers from the recent Hannaford/Sweetbay breach are being investigated as the crooks continue to try to convert the stolen numbers to cash.

If you used a credit or debit card at Sweetbay or Hannaford stores between Dec. 7 and March 10, keep a close eye on your bank or credit card statements and immediately challenge any purchases that are not yours.

Are You a Recent Victim of Identity Theft? If So, the FTC Wants to Hear From You.

2008-07-03T08:50:00.004-04:00

The Federal Trade Commission has announced in the Federal Register that it will conduct a wide-ranging study of identity theft victims in order to assess the current remedies available to them following the crime. Identity theft victims who have contacted the FTC between January 1 and May 30, 2008, will be asked about their experiences after contacting one or more credit reporting agencies and when they sought to use their FACT Act rights.

The FACT Act (Fair and Accurate Credit Transactions Act of 2003) gives consumers certain rights in dealing with identity theft, including the ability to place fraud alerts on their credit files if they are, or suspect they may become, victims of identity theft, to block information on their credit reports that resulted from identity theft, and obtain copies of their credit reports free of charge.

For the seventh year in a row, identity theft has been the top consumer fraud complaint handled by the FTC. The agency's recent report shows that of 813,899 total complaints received in 2007, 258,427 (32%) were related to identity theft. The monetary losses related to identity fraud totals more than $1.2 billion; the median monetary loss per person was $349. Not included in this is the time-value equivalent (for example, the hours spent on the phone with credit bureaus, creditors and police, or monitoring bank and credit accounts for fraudulent activity), which can be significant.

And it appears that even with data breach notification laws in place by nearly all of the states, it has not slowed the proliferation of identity theft. Part of this is attributed to consumers ignoring data breach notification letters. But in most instances, inadequate security practices by companies handling sensitive data are the culprit.

The deadline for submitting comments is Sept. 2, 2008. Comments filed in electronic form should be submitted at: https://secure.commentworks.com/ftcfactasurvey. To ensure that the Commission considers an electronic comment, you must file it on the web-based form.

*** Remember: If you had any type of loan account between January 1987 and May 28, 2008, you are entitled to learn your credit score – free of charge – and get at least six months of a monitoring service from credit reporting giant TransUnion. The monitoring service would provide e-mail notification of late payment reports or accounts opened in your name – red flags that would indicate identity theft. You can file a claim by visiting http://www.listclassaction.com/ or calling 866-416-3470.

Credit Card Business "Rife With Scams"

2008-07-02T09:41:00.003-04:00

Dear Credit Mama,

First, the credit card companies started changing the payment due dates on me. I used to get the bills about three weeks in advance of the due date. Then suddenly, it was two weeks. Now sometimes it seems like less than that.

I'm smart enough to always look at the due date right when the bill comes in and mark it on my bill-pay calendar. But last month they hit me with a late payment charge… when I KNOW I sent the check with plenty of time for it to arrive at the processing company. I'm lucky that this wasn't a card with a 0% "provisional" rate since that would have been bumped to 32% with this one wrongly-processed payment. I feel like their game now is to nickel-and-dime any extra fees they can squeeze out of the average consumer! Is it just me??

-- Joe "Fed UP" in N.C.

Dear Joe,

If you think that the credit card companies aren't necessarily on the side of consumers, you're right. The tactics that have been used increasingly over the past several years have capitalized on the tendencies of consumers not to look at their bills too closely, not to question extra fees, and to pay their bills as close to the due date as possible.

Thought I'd share an interesting comment that was posted on a diary on the dailykos.com blog. The author, KeepingItBlueKrstna, gives an insider's perspective on what it's like to work at a credit card company and offers some nuggets of advice:

I worked for a major credit card company, which has since been bought and then bought again, but it was one of the major players.

When I worked there, it was clear that the processing company we used was late posting payments that had arrived on time. They did it all the time.

The Customer Service Reps brought it to the attention of management and it was escalated all the way to the CEO. So did they fix the problem? No. They made a video (I kid you not) of how efficient the payment processing company was and how their systems worked and held a meeting to show it to us. They told us, sure you get a lot of calls about this, but it's because there are only so many possible due dates, and you'll get a wave of calls about late fees after certain due dates. They said "It's the customer's fault" (or the post office's fault) and don't waive too many late fees.

This was a large scale fraud like the one described above where statements are mailed late. And it wasn't just the late fee revenue they were after. They used people's "late" payment history as an excuse to raise their interest rate on the card to penalty levels, even if that was the only late payment. In some cases, they used that one "late" payment as an excuse to change someone to a card with an annual fee instead of none.

The credit card business is rife with scams like these, masquerading as a normal way of doing business.

I strongly advise paying your credit card bill online within the terms posted there. If it says your payment will be posted in 3 days, make it 4 days before the due date. This is, in my opinion, the only safe way to avoid late fees. If you are mailing your payment, no matter how careful you are, you could get screwed.

If you get an unfair late fee, you should not only call to ask for the fee to be reversed, but also at least ask to have that late payment wiped off your payment history. (We were able to do that - it was called a re-age, but don't use that term - someone may think it's fishy that you know it.)

We were told repeatedly only to waive fees for the very best customers and if we waived or re-aged too many accounts, we would get written up. But I did it all the time and never got written up. Especially for nice people.

Credit Card Advice From An Insider

2008-06-26T15:45:00.004-04:00

Wanted to share this interesting post I found at DailyKos.com, courtesy of Lava20.

Who am I? My name is Nicole. I worked for the two largest credit card companies in the world. I worked in various departments, but the most important department I worked for was customer service. This advice is just one friend to another. It is based on my own personal experience with what does and doesn't work.

1. Protest every fee. Overdraft fees. Late fees. Call and ask for the fee to be waived. If you were late. Call. If they tell you no. Ask again. If they tell you no. Ask for a supervisor. Most fees can be waived. The times the bank will not waive a fee is if you are 60 days or more behind. Or if you are always over your credit limit. I promise you. If you are willing to spend the time. That fee will be waived. This works about 85% of the time. I'll be honest here. The only reason that they may not waive the fee is if you are over 30 days late in the last 6 months or over 60 days in the last 12 months. So catch up if you can. Then make that call. You might be part of that 15%.

2. Report your card as lost or stolen. WHAT? Yes. This goes for debit cards also. Once you give out your credit card number, you have no control over who has access to your information. How often? I do this twice a year. If you shop online a great deal, do it more often. I know no one who reads this surfs porn, but if one does do this, you might want to cancel your cards more often. It doesn’t effect your credit report any, if at all. As long as you’re not doing it every week on every card, you’re fine. This is also helpful to prevent id theft.

[Note from Your Credit Mama: If you struggle to pay your minimums or have a hard time keeping your account below the limit, DO NOT DO THIS. If you are late on your payment or over your limit or have an internal "credit score" too low, or bad credit elsewhere, when you call to do this, they will close your account since it was "stolen" but may NOT issue you a new card. Also, many card issuers now routinely issue replacement cards after a certain period of time.]

3. If the bank makes an error, it’s never in your favor. So don’t do any sort of direct authorization to your checking account. For example, you might give your checking account number and routing number so that the minimum payment will be charged every month. Not a good idea. Errors can happen. I have seen many times where the bank has charged the members account for the total credit card balance instead of the minimum balance. This causes the members checking accounts to become overdrawn. The bank may be required to reimburse you for their own credit card fees. But it is completely up to the credit card company if they pay your banks fees (overdraft fees, fees to the store you wrote the check to etc.) Don't risk it. Your best bet here: Use your personal banking account and sign up with your bank to pay bills online.

4. Do not sign up for anything the credit card company wants to auto bill you for. Save yourself the time and headache. Insurance. Fraud protection. This is a billion dollar industry. And normally you will get no benefit from it. In fact, you will most likely spend more time trying to cancel it than any benefit you will receive from it. I have yet to meet the person who saved time or money with a fraud prevention unit that they couldn't do on their own. If you want to, go for it. Good luck. You're going to need it.

5. The only thing that will save you money is time. You must call. Every single time. Program the customer service number to your credit card company into your phone. right now. You don’t have to have your credit card number to call. Have them look your account up by your Social Security Number or name. Call every month to ask for lower interest rates. To have fees waived. To check your balance. To lower your credit limit. For every little thing.

I want to give an example here. Two different accounts. One group of members have high credit limits, pay off their bill in full every month. The other group pays as much as they can every month and has interest fees. Who saves the most? The first. Why? Because they call. They will have us read off every damn purchase. They will have us explain in detail over and over again how the interest is calculated. They will stay on the phone for 30 minutes to get the $50 yearly membership fee waived. And you know what? It works. They get a free service, basically. And bravo. The credit card company expects this. They also count on you, the person reading this right now, to be the person who doesn't do this.

One other thing I would like to bring up with this diary. Sometimes things happen. For example, I’ve seen entire zip codes where card members statements arrive late. Thousands may not receive their statement in enough time to mail the payment. This is strange because it appears that most of these card members all live in the same zip code, or they may all hold Union cards (the highest interest rate and the most revolvers – people who carry balances.) This makes the card member late in sending in a payment. And wouldn’t you know it. Millions of late fees. Most call to have the fees reversed. That’s fine with the credit card company. Because they only really need 10% to not bother.

Did you just say 10%? Yes. That’s all they need really. It doesn’t cost them anything if you never call. In fact, they can save here too. What would a smart bank do?: on the days the late mailed statement arrives, make sure that is the day that most of your customer service representatives are off. That way people will have to wait longer to get through to a live agent. Many don’t want to spend their Saturdays waiting for a customer service rep to answer. So they hang up. BINGO that 10% just went to 12% now. Millions. So again. Read #1.

One neat trick credit card companies use is to shorten the amount of time you have to send in a payment. This varies by bank. Normally you want 25 days. I've seen as short as 20. Call. Ask them for a longer length of time to send you bill in. Even if you don't need it. Why have the bank earn interest on the money if you can?

One final word of advice. Try not to sign up for auto anything. Again, it is so very difficult to get things auto-billed to stop. The company might be great, but unless you are getting a huge discount, I wouldn’t take the risk. If you do insist on auto-billing make sure you do #2! And if you do have things auto billed...make sure it is to a debit or credit card. That way you can easily report it lost/stolen when your friendly everyday auto insurance company decides to raise your premiums and change from monthly to biannual.

Okay. I saved the best for last. Guess what will work more than all the other things listed her combined? BE NICE!!! W T F?!?! Yes, calling with a bitchy attitudes actually inspires a customer service representative to do the least they can for you. Now, I may be taking the 100th call for the day about the statement arriving late, and all 99 of them have been royal jerks...then I get lucky number 100...who has read this diary and might start off the conversation like this, "Thank you so much for taking my call, I really hate to call with this, but do you think you can help me out with this late fee..." Throw in the customer service representative's name, no matter how horrid, tell them you love that name...

That Visit to the Marriage Counselor May Hurt Your Credit Score

2008-06-20T15:27:00.003-04:00

Same with a visit to a massage parlor, bar, tire and re-treading shop or billiard hall. Discrimination against consumers based on purchasing behavior is the heart of the issue in a lawsuit filed by the Federal Trade Commission against Atlanta-based card issuer CompuCredit Visa.

According to a report in Business Week,

The allegations, in part, focus on CompuCredit's Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn't properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices.
"The company touted that cardholders could use their credit cards anywhere," says J. Reilly Dolan, assistant director for financial practices at the FTC. "What they didn't say was that you could be punished for specific kinds of purchases."

The algorithms for determining credit scores – and there are many different versions – are highly guarded. Your Credit Mama has outlined the basics of the FICO scoring model, which is based on things like debt utilization, on-time payments, etc. But it appears from this lawsuit that there are many undisclosed variables that can have a negative impact on your financial profile. If you've always suspected that purchasing behavior – not just payment history – influences your credit score, this case may prove you right.

The Federal Deposit Insurance Corp. is also seeking $200 million in penalties from CompuCredit in the matter.

First, Thieves Steal Identities. Now They Steal Homes.

2008-06-17T15:23:00.000-04:00

The Chicago Tribune recently investigated an FBI report on new identity theft tactics being used by thieves to "steal" your home.

The report warns of several ways in which people have been conned out of their homes. While thieves generally target vacation homes or empty homes, the FBI has investigated sales of occupied houses. By law, as the rightful owner, you won't lose your house as long as you have proof that you are the legitimate owner. But it's likely to cause an enormous expenditure of time and money.

Among the cases being investigated by the FBI:

Con artists "stole" an occupied house and sold it to someone so enamored of the great price is getting that he's satisfied with online photos.
Thieves posed as the rightful owner and took out home equity lines of credit against the property, draining it slowly so it wouldn't be detected.
Thieves deposited proceeds from an illegal loan into a business account to get under the lender's radar.
Cons changed the title of a house to his name and sold the house.

All of the schemes involved using the owner's personal information to create fake IDs and Social Security cards so that the thief can file the papers to complete and/or transfer the property.

"In one case prosecuted by the feds, the ID thieves used the name-change mechanism offered to people who are getting married or divorced to obtain false driver's licenses, which they used to get Social Security numbers," the Tribune reported. In most cases, though, business records are the main source of private information theft.

A "red flag" rider to the Fair and Accurate Credit Transaction Act of 2003 was recently passed by Congress. This rider, which takes effect Nov. 1, 2008, requires any business that handles personal documents to develop a program to prevent ID theft. That includes financial institutions and creditors.

The guidelines say institutions should be on the lookout for actions such as:

ID theft alerts from fraud detection services, customers, law enforcement agencies and others
a credit bureau's notice of credit freeze provided to an institution along with the institution's requested consumer credit report
an increase in credit report inquiries or other unusual patterns on a credit report
the appearance of doctored or forged documents
inconsistent information
identifying information associated with known fraudulent activity
use of a single Social Security Number or other identifying number used to open accounts under different names
applicants failing to provide all required identifying information
information supplied that is not consistent with existing information on file
a new revolving credit account used in a manner commonly associated with fraud patterns
an account used in a manner not consistent with established patterns of activity on the account
mail sent to the customer's on file address repeatedly returned as undeliverable.

Sigh. Yet another good reason to check your credit report regularly.

WaMu Suspends $6 Billion in HELOCs

2008-06-13T10:16:00.001-04:00

As banks look for ways to stop the bleeding and reduce their losses, WaMu has decided to tighten its purse strings by joining Bank of America, Countrywide, JPMorgan Chase and others in reducing or suspending home equity lines of credit (HELOC).

The amount of money that WaMu has eliminated is about $6 billion. The company cites those customers with declining home values and poor payment histories as primary targets for a HELOC reduction or suspension.

If you have had your home equity line of credit suspended or reduced, you will want to keep an eye on your credit score. That's because this type of action can increase your debt utilization ratio and drop your score significantly.

For example:

If you had a $25,000 credit line and you have used $10,000, your debt ratio is:

$10,000 (debt) ÷ $25,000 (total available credit) = 40%

But if the bank suspends your account to your existing balance, your debt ratio is maxed out:

$10,000 (debt) ÷ $10,000 (total available credit) = 100%

Since 30% of your credit score is your debt ratio, going from 40% to 100% debt ratio will not only decrease your financial flexibility but also your credit score.

There's No Substitute for Checking Your Bank Accounts

2008-06-10T14:45:00.006-04:00

Fraud alerts can only do so much to protect you.

A recent identity theft victim discovered that fraud alerts -- while very helpful in guarding against thieves who try to obtain credit in the victim's name -- don't protect the victim 100% against financial losses.

Meet Patrick Grant. Patrick is a professor at the University of Virginia. According to a story in The Richmond-Times Dispatch, Patrick knew something was amiss when he found three letters in his mailbox that stated they would not raise his credit limit -- because he had never requested it. According to the report:

"Identity thieves in New York had opened a checking and savings account in Grant's name, aided by his Social Security number and a fake New York driver's license with his name on it. Using an online banking feature of the fraudulent checking account, the thieves hijacked Grant's existing Bank of America credit-card account... They drained Grant's credit-card account by authorizing cash-advance payments, which they then withdrew from an ATM. Over the course of nine or 10 days, the thieves obtained $22,000 with Grant's credit card."

While Patrick is not positive how his identity was stolen -- his information had been compromised several times in university-related data breaches -- the first thing he did was purchase credit monitoring and place fraud alerts on his credit file. But the thieves didn't try to use his identity to open new lines of credit. Instead, they just tapped into his existing credit accounts.

In November 2007, the Federal Trade Commission reported that 3.7 percent of all American adults -- or 8.3 million people -- had their identity stolen in 2005. These thefts totaled an estimated $15.6 billion in losses. And the numbers are increasing.

It's a good reason to keep a close eye on what's going on with your bank accounts.

Ain't Nothin' Like the Real Thing… But You Should Still Do It

2008-06-06T09:24:00.003-04:00

Hey Credit Mama, is that Free TransUnion Score that I can get through the settlement my REAL credit score? --Eric

Well Eric, the short answer is "no." The score you will get if you take advantage of the TransUnion settlement (which provides most Americans with free credit monitoring services and unlimited access to their credit scores for a limited period of time) is TransUnion's proprietary "personal credit score."

As you know from my previous posts and webinars, credit scores are like wines – there are different varietals for different purposes. TransUnion's score is NOT the same score that lenders will see and use to evaluate you for loans.

But there IS a value to the settlement offer. That is, in an age where identity theft is one of fastest growing crimes in the world and that three-digit score means everything, you should know what is in your credit file in order to correct errors (and nearly eight out of 10 credit reports contain errors). It will also give you an opportunity to see how your actions (such as paying down debt or removing inaccurate, negative information) are impacting your score over a period of time.

In addition, it is believed that should enough people take advantage of TransUnion's offer, the monitoring services offered by the other credit bureaus (Experian, of FreeCreditReport.com fame, and Equifax) will be devalued. One of the biggest complaints by consumer advocates was the unwillingness of credit bureaus to include a credit score with the free credit report that they are legally mandated to provide each American every year. Given that credit scores impact interest rates on any type of loan you can get, insurance rates, and even job offers, it is practically a necessity to know what your score is. So far, selling credit scores and monitoring services has been a huge moneymaker for the bureaus – to the tune of $150 million for Equifax alone, an increase of 22 percent in 2007.

According to an article on msnbc.com, consumer advocate Ken McEldowney of Consumer Action "thinks if consumers who sign up for the free offer get an appetite to see their scores for free, perhaps people will no longer be willing to pay for them. The TransUnion settlement will obviously hurt that firm's ability to sell its credit monitoring product, which retails for about $10 a month. But McEldowney thinks it will also hurt sales of similar products by Equifax and Experian, too."

So spread the word… and start checking the http://www.listclassaction.com/ Web site on June 16, 2008.

Encore! TransUnion Class Action Settlement #2

2008-06-04T14:56:00.002-04:00

The beleaguered credit reporting giant TransUnion has agreed to another settlement, this time to end litigation* that alleges they violated the Credit Repair Organizations Act (CROA) when they marketed and sold their credit score and credit repair products.

If at anytime between Dec. 1, 1999, and April 16, 2007, you used credit monitoring services provided by TransUnion or TrueLink, you are entitled to receive three months of credit monitoring services for free from TransUnion. This will give you unlimited access to your credit report and credit score.

To qualify, you will need to submit an authentication form by July 22, 2008. The form, which can be printed and mailed or filed electronically, is available at www.townessettlement.com/claim.php3.

*Townes v. TransUnion, LLC and TrueLink, Inc.

Get Your No-Strings-Attached Credit Score Thanks to TransUnion Settlement

2008-06-02T14:40:00.003-04:00

If you had any type of loan account between January 1987 and May 28, 2008, you are entitled to learn your credit score – free of charge – and get at least six months of a monitoring service from credit reporting giant TransUnion. The monitoring service would provide e-mail notification of late payment reports or accounts opened in your name – red flags that would indicate identity theft.

More than 160 million Americans are expected to benefit from the proposed settlement – the largest class action settlement in U.S. history, according to Peter Chapman, editor of the Class Action Reporter.

Under the settlement (which is expected to be officially approved in September), consumers would be able to select one of two options:

A basic service would provide free credit monitoring for six months. It normally retails for $59.75, according to the settlement. Those who select this service can also apply for a cash payment, which would be paid out of any remaining money in the $75-million fund after two years. (Although Your Credit Mama seriously doubts that there will be any money left in the kitty.)
An enhanced service would provide nine months of free monitoring, plus use of a "mortgage simulator" that lets consumers see whether improving their credit score would affect their mortgage rates and how much they could save if it did. This option also includes access to one's insurance score, which is used by some insurers to set rates. The settlement values this option at $115.50.

BONUS: there are NO strings attached. A credit card number would not be required to sign up for either service. After the free service ends, TransUnion could not charge for an extension unless it was requested by the consumer.

The lawsuits came about because TransUnion – through a subsidiary company – sold consumers' private credit data to retailers and lenders that wanted to market to select types of customers. Federal law prohibits the sale of credit data except under certain circumstances – such as when the consumer applies for a loan.

You can register your claim beginning June 16 by visiting www.listclassaction.com or calling 866-416-3470. (As of today, the Web site is not up yet.)

Sallie Mae Wrecks Credit Scores of One Million Loan Holders

2008-05-28T09:14:00.001-04:00

A glitch in the way Sallie Mae – one of the nation's largest student loan firms – reported information to the credit bureaus last week caused the credit scores of approximately one million loan holders to plummet – some by as much as 150 points.

According to an article on msbnc.com, the borrowers affected by the glitch were the ones who used graduated payment plans. These plans assume that former students will make more income as they progress in their careers, and thus allow them to pay back less in the early years of their loan, and more in the later years.

FICO, however, interpreted the new reporting as "arrangements made with credit grantor to make partial payments." This made it seem as though the borrower had negotiated for a reduced payment plan after being delinquent – a big black mark on a credit report. And FICO's scoring algorithms penalize those with top credit scores more than those who are consistently delinquent.

According to Sallie Mae, the glitch affected "roughly 10 percent of our 10 million customers," and only impacted Equifax credit reports and scores. (The reporting error was fixed before TransUnion and Experian updated their files.)

For any affected consumers who were in the process of getting a loan, insurance or a job, this would have had a devastating impact on the rate and terms they were able to get. While Sallie Mae says the problem has been corrected and scores returned to what they should have been prior to the glitch, the only way for borrowers to know for sure is to purchase a copy of their credit report.

Given that credit scores control so much of our lives, this situation exemplifies the concern that a simple error can wreak havoc on the financial health of millions… and reinforces why you should always keep an eye on your credit.

Texas Man Successfully Uses LifeLock CEO's Identity to Get $500

2008-05-22T10:34:00.002-04:00

From the annals of "I could have seen that coming" come reports that LifeLock CEO Todd Davis' widely publicized Social Security number has been successfully used by a man in Texas to trick an online payday lender into giving him $500. Davis learned about the fraud when the lender called him to collect.

This was not the first time people have tried to steal Davis' identity. According to a story today on Yahoo news, Davis reported that at least 87 unsuccessful attempts have been made. Of course, Davis pretty much asked for it by plastering his Social Security number on billboards, television ads and in print, practically daring would-be identity thieves and hackers to test his company's ability to prevent identity fraud.

LifeLock, already facing a lawsuit by credit bureau giant Experian, is now facing lawsuits from consumers in Maryland, West Virginia and New Jersey contending that the service did not work as promised. The lead attorney in these cases, David Paris, is trying to obtain class-action status, and claims he uncovered records of other people applying for or receiving driver's licenses at least 20 times using Davis' Social Security number.

Davis stands by his stunt. He told reporters, "There's nothing on my actual credit report about uncollected funds, no outstanding tickets or warrants or anything… There's nothing to indicate my identity has been successfully compromised other than the one instance. I know I'm taking a slightly higher risk. But I'll take my risk for the tremendous benefit we're bringing to society and to consumers."

LifeLock's services include helping consumers set up fraud alerts with the major credit bureaus, which inform them when someone tries to tap into their credit. The fraud in Texas occurred because the payday lender did not go through one of the three major credit bureaus before approving the transaction.

The services, however, can't completely immunize a consumer from identity theft. If a stolen Social Security number is used on a job application, on a form submitted for medical services or during an arrest, the lack of reporting requirements make it impossible for any company to know with certainty that someone's identity has been compromised.

That's not the end of LifeLock's headaches, however. The company is also being sued in Arizona over its $1 million service guarantee. The plaintiffs in the case claim that the guarantee is misleading because it only covers a defect in LifeLock's service.

The question that remains unanswered: when will tighter mechanisms be put in place to deter and report fraud?

Senate Passes "Common Sense Legislation" Regarding Credit Card Receipts

2008-05-21T09:33:00.003-04:00

The Credit and Debit Receipt Clarification Act – a bill that says a business that printed an expiration date on a receipt over the past 18 months cannot be found in violation of the Fair Credit Reporting Act as long as the merchant truncated the customer's credit card to no more than the last five digits (and complied with other FCRA requirements) – has passed in the U.S. Senate.

The bill was sponsored as H.R. 4008 in the House by Financial Services Committee member Representative Tim Mahoney, D-Fla., and as S. 2978 in the Senate by Banking, Housing and Urban Affairs Committee member Senator Charles Schumer, D-N.Y.

The decision was hailed by businesses and restaurants and is expected to nullify the more than 300 class action lawsuits that contended that FACTA required merchants to both truncate the credit card number and leave off the expiration date. The lawsuits sought fines as high as $1,000 for each non-compliant receipt and were so potentially damaging that a number of retailers threatened to file bankruptcy. Plaintiffs did not need to demonstrate any real or actual damage caused by the violation or even that the companies had willful intent to cause harm.

Merchants said their interpretation of the law was that they needed to do one or the other, but were not mandated to do both. Most reasoned (and some experts concurred) that the expiration date was of little value without a full credit card number.

According to a release issued by the National Retail Federation and the National Council of Chain Restaurants, the new legislation would protect merchants from lawsuits for expiration dates printed between the time the FACTA rule went into effect and the time the measure is signed into law. But merchants will still be required to both truncate card numbers and leave off expiration dates going forward.

“The continued proliferation of these lawsuits is an unnecessary drain on resources during a time of financial uncertainty in the nation’s economy,” NCCR Vice President Scott Vinson said. “Experts have said truncation of credit card numbers by itself is sufficient to prevent credit card fraud or identity theft regardless of whether the expiration date is printed on a receipt. Retailers and restaurant owners nationwide are delighted that Congress has passed this common sense legislation and look forward to seeing it signed into law as soon as possible.”

President Bush is expected to sign the measure shortly.

Your Turn: FTC Seeks Comments on Credit-Based Insurance Scores

2008-05-19T17:35:00.001-04:00

As part of its efforts to fulfill its obligations under the Fair and Accurate Credit Transactions Act of 2003 (FACTA), the Federal Trade Commission and the Federal Reserve Board have been conducting ongoing studies on the effects of credit-based insurance scores on the availability and affordability of financial products such as credit cards, auto loans, mortgages and property insurance.

With the completion of its study on the effects of credit-based insurance scores on consumers of auto insurance, the Federal Trade Commission now is focusing its attention on the effects of credit-based insurance scores on homeowners insurance. A press release issued today seeks public comment on any evidence the FTC and Board should consider in conducting the study.

It's no secret that credit scores have long been used by the insurance industry to calculate what your premiums are for auto or property insurance. Consumer advocates have argued that basing premium costs on credit scores disproportionately affects minorities in a negative way. According to the FTC, the results of their investigation into the use of credit scores in underwriting auto insurance policies showed a correlation between insurance scores and the likelihood of filing an insurance claim. The FTC also stated that the use of credit information did not result in racial or ethnic discrimination. Insurers claim that more than 50 percent of policyholders have a lower premium because of good credit.

A number of states, however, have introduced legislation to ban the use of credit in homeowners and auto insurance underwriting. Rep. Luis Gutierrez (D- IL) introduced a bill in Congress (H.B. 5633) that would amend the Fair Credit Reporting Act (FCRA) to prohibit auto and homeowners insurance companies from using credit information for underwriting if the FTC concludes insurers’ use of credit information results in racial or ethnic discrimination or represents a proxy for race or ethnicity.

If you would like to comment, click here for instructions. The deadline for comment is June 18, 2008.

Capital One Under Fire in California

2008-05-13T10:05:00.000-04:00

The credit card giant Capital One, which has been in the crosshairs of consumer advocates for years, is mired in more lawsuits.

Lawsuit #1:

California Attorney General Jerry Brown has been eyeing Capital One for nearly two years, investigating the company for possible violations of the state's unfair business practices and false advertising laws. In November 2006, Brown first requested "books and records… and interviews with employees" due to "substantial concerns about the credit card practices of Capital One," including solicitations for credit card applications mentioning balance transfers and accounting closing practices.

The attorney general made subsequent requests for information as part of its ongoing investigation – to no avail. Capital One's response? They filed a lawsuit this month claiming that as a national bank, only the U.S. Office of the Comptroller of the Currency can examine its records or take any enforcement actions. Never mind the fact that when Brown made his requests, Capital One was NOT a national bank. In fact, according to Reuters, it wasn't until March 2008 – 18 months after the attorney general made his first request - that Capital One converted its Virginia charter to that of a national banking association.

Lawsuit #2:

Former Capital One cardholder James Krider has filed suit in the U.S. District Court, Central District in downtown Los Angeles, against Capital One and the three major credit bureaus over post-bankruptcy false credit reporting. Seems that Capital One continued to report three credit cards that had been discharged in his bankruptcy filings. After months of disputes, Capital One insisted it had the right to continue to report his discharged accounts as "delinquent" on his credit reports even though the debts had been discharged through the bankruptcy.

According to Krider's attorney, Robert Brennan (Brennan, Wiener & Assoc.), "a growing number of banks and credit card companies have quietly been 'pushing the envelope' on credit reporting of bankruptcy-discharged debt, hoping to pressure consumers who have recently been through bankruptcy to pay these debts.

"I admit, I am not proud of having to declare bankruptcy, but the bankruptcy notation on my credit reports is bad enough and that will be there for 10 years," Krider said in a press release issued by his attorney. "Having the credit card companies continue to report my old credit cards as still delinquent is doubly bad and makes it that much tougher for me to get back on my feet."

Krider is seeking money damages as well as a permanent deletion from his credit reports of any delinquent reporting of any accounts included in his bankruptcies.

The case is expected to go to trial in February 2009.

Banks Are Putting Credit Cards on Ice, Too

2008-05-09T14:46:00.002-04:00

If you've got a credit card "just for emergencies" that hasn't been used for an extended period of time, you may find that when that emergency does come, your card is no longer good.

According to a report by Smart Money, the soaring number of credit card delinquencies has banks trying to reduce their exposure to risky or unprofitable accounts. And it's been suggested that the Fed's proposed new rules restricting the banks' ability to arbitrarily raise interest rates and give consumers more time to make payments may be triggering an increasing number of credit card closures.

Even if you don't rely financially on your credit cards, closing credit lines can hurt your credit score. That's because your FICO score depends in part on your credit history and the amount of available credit you have compared to the amount of debt. If the card that is closed is the one you have had the longest, your score will certainly drop. And reducing the amount of available credit you have will have a negative impact on your debt-to-available credit ratio, which will decrease your score.

So... use your backup credit cards occasionally. If you've had a card issuer close your account, and you want to keep it open, contact the company and ask them to reconsider.

Warning: Frozen HELOCs Ahead

2008-05-08T10:43:00.003-04:00

I recently read about a Hollywood Hills homeowner who had a $60,000 home equity line of credit (HELOC) that he was going to use to remodel his kitchen. He had already begun ripping out the cabinets and appliances when he discovered that his bank had frozen access to his HELOC, citing falling home prices in California. Not only was the remodel work delayed until the homeowner found other bank financing, but he was dismayed that the new interest rate was higher than his approved HELOC rate by more than three percentage points.

Thousands of consumers are receiving notice that their HELOCs are being cancelled. According to Bankrate.com, Countrywide, Bank of America, Washington Mutual and IndyMac Bancorp have frozen about 600,000 equity credit lines nationwide since January. Countrywide alone has already suspended an estimated 122,000 lines of credit where homes fell below appraised values; USAA has frozen or reduced 15,000 accounts. Other big lenders, including Chase and Citibank, are doing the same in an effort to quell the rising number of delinquencies on HELOCs. Economy.com pointed to a 47 percent increase in delinquencies on HELOCs as of September 2007, and predicted that the numbers would be even worse in 2008.

Areas of the country where home values have plummeted by 10 percent or more are at greatest risk for HELOC cancellations, especially affecting those who purchased homes in the past few years with little money down. These cities include Los Angeles, Chicago and Las Vegas. Homeowners in Las Vegas are being hit especially hard - it is estimated that 15,000 people (5 percent of the total homeowner population) have had credit lines suspended.

Missed payments or a decrease in credit score can also trigger a HELOC freeze, although homeowners with credit scores in the upper 700s and lower 800s - considered a very good score - are being affected as well.

If you are in the middle of renovations or are counting on having access to the funds for bills, college tuition, or as an emergency account and you think your line of credit may be at risk because you are in a troubled market, you may want to draw a lump sum and put it into a high-yield savings account. While you will be decreasing your equity and will have to begin paying interest, you will guarantee that the money will be there when you need it.

If your HELOC has already been cancelled, you can try to fight it. A realtor or appraiser can help you bolster your case by showing what houses have been selling for in your neighborhood. Be aware of how the tighter lending standards may affect you – in the hardest hit markets, homeowners can only borrow 60 percent of a home's value. If a drop in credit score is the reason for the cancellation, be sure to pull a copy of your credit reports and review them carefully.

Banks may be willing to compromise by giving you a lower credit line rather than cutting off your funds completely. And you can always shop around with other lenders if you have at least 10 percent equity.

The Fed Proposes Aggressive Restrictions on Abusive Credit Card Practices

2008-05-02T14:18:00.002-04:00

In a move that is stunningly pro-consumer, the Federal Reserve Board has proposed tough new policies to curtail the types of abusive credit card practices that have been the subject of recent Congressional hearings.

These practices, which include arbitrary increases in credit card interest rates for existing balances, applying payments only to balances with the lowest interest rate rather than the highest rates and double-cycle billing (charging interest on debt that has already been paid), would be changed under the new, stricter policies. In addition, banks may also be required to give customers advance notices as well as the ability to opt out of overdraft programs.

The rules could go into effect by the end of this year.

The banks are already in an uproar over the proposed rules, which could affect more than 10,000 financial institutions. Industry representatives have begun threatening exhorbitant annual fees, elimination of balance transfers and increased interest rates. According to lobbyists, the restrictions would eliminate credit or make it more expensive to get credit.

The biggest source of angst for banks is the issue of universal default, which allows banks to increase a customer's interest rate for any reason, including defaults on other credit cards or loans, slight drops in credit scores or an increase in banks' cost of funds.

Eliminating universal default, known in bank lingo as "risk-based repricing," is a key component of a number of bills on Capitol Hill. The Fed's proposal would allow banks to raise rates when a consumer defaults on that account, and to consider "outside factors" to raise rates for new transactions. However, banks would not be allowed to use such factors to raise rates on existing balances.

According to On Wall Street, Citigroup and JPMorgan Chase & Co. announced they would no longer do universal default; however, Bank of America still uses risk-based repricing, and Capital One reprices its customers when their cost of funds rate increases.

Consumer advocates are applauding the Fed's aggressive stance. A vote is expected today.

"Arbitration Coalition" Heads Back to Court

2008-05-01T12:42:00.002-04:00

Last Friday, the U.S. Court of Appeals in New York breathed new life into a class action lawsuit that has been languishing since 2005. At issue: alleged anti-competitive practices involving mandatory arbitration clauses in credit card agreements.

The lawsuit claims that banking giants Bank of America Corp. Capital One, Discover, Citigroup and Washington Mutual worked together to draft and institute mandatory arbitration clauses, which would ensure that customers that have a dispute with them could not take them to court to resolve their issues – they would have to file claims with an arbitration board instead.

The suit alleges that this "Arbitration Coalition" successfully eliminated all non-arbitration credit cards from the market, and as a result, hurt consumers by limiting their rights. The plaintiffs tried to show that the banks colluded by sharing tips on how to write enforceable agreements and agreeing to impose the same terms in each of their credit card contracts… all of which deprived "the cardholders of meaningful choice in the area of credit card services, and [diminished] the overall quality of credit services offered to consumers."

The case seemed to die in the U.S. District Court for the Southern District of New York when the court ruled that because the plaintiffs could not prove they had suffered actual harm, there was no case.

But the U.S. Court of Appeals in New York agreed that cardholders could have been harmed through a lack of competition and sent the case back to the lower court. After all, if all credit cards require mandatory arbitration, then consumers do not have a choice of using a credit card that does not mandate it – they only have the choice not to use credit cards at all.

While this matter is likely to be debated for a while, it is just one more credit card-related issue that is raising the ire of consumers and capturing the attention of legislators.

Fannie and Freddie are Looking at Your Credit Score

2008-04-29T09:56:00.003-04:00

The latest numbers released by RealtyTrac, a realty research group, show that more than twice as many homes were headed into foreclosure in the first quarter of 2008 – that's one in every 194 households nationwide. In some states, the numbers are even higher – for example, in Nevada, one in 54 homes received a foreclosure notice.

That trend is expected to continue throughout the year as mortgages continue to adjust throughout the summer and fall. The continued pressure has Fannie Mae and Freddie Mac – who purchase mortgages and bundle them into securities to sell to investors – looking for ways to mitigate their risk.

Once upon a time, just about anyone with a 620 score or better could get a loan with minimal down payment. But new fees are now being imposed on buyers – fees that directly correlate with the buyers' credit score and the amount of money being put down.

These "Loan Level Price Adjustments" (LLPAs) are upfront penalties that cannot be negotiated away by your lender. (They do not impact FHA or VA loans.)

In order to escape these additional upfront costs, your credit score will need to be 720 or better if you are putting down less than a 30 percent deposit on the home.

Here's an example:

If you buy a $250,000 house, putting down $50,000 and borrowing $200,000:

If your credit score is 720 or higher, there's no fee.
If your credit score is 680 to 719, you pay 0.5 percent, or $1,000.
If your credit score is 660 to 679, you pay 1.25 percent, or $2,500.
If your credit score is 619 or lower, you pay 2.75 percent, or $5,500.

The FICO credit score used by Fannie and Freddie is the middle score generated by the three national credit bureaus. If there is more than one borrower, they will look at the middle score of the borrower that earns the highest income.

The stricter requirements have mortgage lenders calling this the new "predatory lending" formula that will escalate the number of deals that fall through in today's shaky market. Sal Bernadas, president of the Louisiana Mortgage Lenders Association, told the New Orleans Business Journal, "The fact that they're charging new fees to people with 20 percent down and a 680 credit score – there is no statistical reason they need to do that to protect that particular loan from losses."

Bankrate.com says that lenders have the option of converting the fees into higher rates for customers who don't want to pay the cash upfront; however, the end result could mean significantly higher monthly payments.

If you are thinking about getting a mortgage in the upcoming year, you will want to order your FICO credit report and review it carefully. Even small changes can make a big impact on the amount of mandatory fees you will be required to pay. And whether you decide to repair your credit yourself or use a professional agency to optimize your credit, keep in mind that it may take six months or more to get your credit score to the point where you don't have to pay the expensive fees.

View the LLPAs for loans issued after June 1, 2008 with terms of more than 15 years (based on loan-to-value and credit score)

LendingTree.com: "When Banks Compete, Your Identity May Be at Risk…"

2008-04-25T10:29:00.005-04:00

LendingTree, an online leads company that purports to help consumers shop around for the best mortgage deals, recently admitted in a letter to customers that some of their former employees helped unauthorized mortgage lenders hack into their databases. Customer information collected between 2006 and 2008 – including personal data often used to conduct identity theft, such as name, address, Social Security number, income and employment information – was stolen.

While they say the information was merely used to market mortgage loans, not to commit identity theft, the fact remains that LendingTree's lax security measures contributed to a significant data breach that may very well increase the likelihood that their customers will become identity theft victims.

According to the letter, LendingTree did not disable the passwords of their former employees, some of whom shared the confidential login information with unauthorized lenders who then tapped into the databases to "access LendingTree's customer loan request forms."

LendingTree's Response

LendingTree would not confirm the number of customers affected, and is not offering much in the way of compensation or solutions. They recommended that their customers use their "free annual credit report" benefit to check their credit report for any suspicious activity and monitor their credit reports for the next 24 months.

LendingTree also has filed lawsuits against three small home loan companies based in California in connection with the data breach.

Criticism of LendingTree Practices

Much criticism has been leveled against the leads company for the way it conducts business. Some customers claim that when they selected to have four lenders review their application, LendingTree actually sent it to 10… or more.

Other consumers reported that they started the application process, but changed their minds mid-way. Yet LendingTree sold their incomplete applications – and they started getting bombarded with calls.

"I have worked for 2 big mortgage companies and a broker," wrote one mortgage broker. "I've learned that LendingTree not only sells your information to 2 or 3 lenders, they sell it to other small lenders and broker shops. And then after a while, they resell your information again so they can have continuous profit. If you ever applied with LendingTree, make sure that you have read the Terms & Agreement. They sell it to anyone that can possibly help you."

Some complained that they had so many inquiries generated on their credit reports that their credit score dropped by 60-100 points. Hard inquiries are inquiries where a potential lender is reviewing your credit because you've applied for credit with them. These include credit checks when you've applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single inquiry. One exception occurs when you are "rate shopping". That's a smart thing to do, and your FICO score considers all inquiries within a 2 week period for an auto or mortgage as a single inquiry.

However, because LendingTree doesn't just sell information to a handful of lenders one time – they sell them repeatedly over a long period of time – this can, in fact, contribute to a decreased credit score.

Jackie Story – Are You Out There?

For four years, your Credit Mama has fielded phone calls from mortgage brokers and call centers all over the world looking for "Jackie Story." Apparently Jackie Story used to have my cell phone number. It didn't take long for me to figure out that she used LendingTree to apply for a mortgage or refinance. What did surprise me, though, was the sheer number of phone calls I received long after the first few rolled in.

At some point I finally started telling the callers that they had wasted their money by purchasing very old, very useless leads. I still wonder, though, if Jackie Story ever got that low interest rate she was looking for, and if her credit has been negatively impacted by all of the people who received her original application and tried to process it.

It's Not Just LendingTree

What many people don't know is that your information can also be purchased from the credit bureaus. "Trigger leads" – leads generated when you apply for a mortgage – plague mortgage brokers. When you apply for a mortgage, your phone number and address are sold by the credit bureaus to other mortgage companies. That's why many applicants begin receiving volumes of solicitations from companies they have never heard of.

Be wary of any lead company, such as LendingTree.com or LowerMyBills.com. And if you do not wish to receive pre-approved or pre-screened offers for credit or insurance, the Fair Credit Reporting Act allows you to "opt out" of receiving them. To opt-out, call toll free to 1-888-567-8688 or visit optoutprescreen.com.

Beware of Advance Fee Loan Scams

2008-04-22T15:08:00.006-04:00

The increasing number of unsolicited e-mails ("spam") advertising mortgage refinancing, debt consolidation and limitation, small business loans, and special loan programs for veterans and minorities has caught the watchful eye of the Federal Deposit Insurance Corporation (FDIC), which has issued a special alert about advance fee loan scams.

While some of these e-mails may advertise legitimate loan programs and lenders, advance fee loan scams are becoming more prevalent as the credit crunch squeezes consumers.

According to the FDIC, advance fee loan scams prey on consumers who may be under financial duress and may be seeking quick and easy loan approval and funding. The scam typically involves the lender making false promises to arrange for a loan in return for fees paid upfront by the loan applicant. Scam artists may even design Web sites and online loan applications giving the appearance that the company is legitimate.

Fraudulent logos and letterhead of legitimate financial institutions or government agencies may also appear on documents that are faxed to the loan applicant. Potential borrowers may be asked to provide information through a Web site or be contacted by phone or e-mail by a "representative" who guarantees loan approval as soon as the borrower pays a required fee. The loan applicant may be told that the fees will be used to pay a third party for loan insurance or application processing, or to make the first month's loan payment. The loan applicant may also be told to send or wire transfer money to an individual overseas before receiving the loan proceeds.

In some cases, the loan applicant has been falsely directed to a legitimate financial institution with no knowledge of the transaction. In other cases, the loan applicant is told that the loan request was declined and is asked to forward additional money to qualify for a different loan program.

Warning Signs
The following are warning signs that may indicate a loan offer is not legitimate:

The loan approval is "guaranteed." Lenders do not typically guarantee loans before analyzing the applicant's financial condition, credit history and ability to repay. Ads that say “Bad credit? No problem” or “We don’t care about your past. You deserve a loan” or “Get money fast” or even “No hassle — guaranteed” often indicate a scam.
The loan applicant is required to pay upfront fees to a third party or individual. Loan fees are normally paid to a business after the loan has been approved. Any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, especially if you’re told it’s for “insurance,” “processing,” or just “paperwork.” Legitimate lenders often charge application, appraisal, or credit report fees. The difference is that they disclose their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.
They don't want to check your credit history, but they ask for personal information. It’s a warning sign if a lender asks for your personal information, such as your Social Security number or bank account number, especially if they aren't checking your credit history. They may use your information to debit your bank account to pay a fee they’re hiding.
The lender or loan processor may be located outside of the United States.
Fees are requested using a retail wire transfer system. A password is sometimes used by the overseas receiver to pick up the funds in an attempt to hide the true identity of the criminals and make funds more difficult to trace.

Victims of online advance loan fee scams should report the crimes to the Internet Crime Complaint Center at http://www.ic3.gov/.

Consumers Silenced in Testimony on Unfair Credit Card Practices

2008-04-21T10:03:00.004-04:00

On March 13, registered Republican Steven Autry had planned to share his experience with Capital One before the House Financial Services Committee's hearings on H.R. 5244, a proposal to ban unfair and deceptive credit card practices:

"My relationship with Capital One goes back to 1999, when I was solicited with an offer for a Visa card with a "fixed" 9.9% rate card. I applied over the phone, and was approved. The card was used for both purchases and balance transfers in a positive relationship with Capital One for eight years until July, 2007. That's when Capital One advised me in a billing insert that my "fixed" rate of 9.9% was being raised to 16.9%. No reason or explanation was given – I was not late on payment, and had not utilized the entire credit limit. This was a unilateral change to the terms of our agreement.
"In August, of 2007, I wrote a letter to Mr. Richard D. Fairbank, Chairman, President, and CEO of Capital One, at the McLean, Virginia home office. My written statement will contain a copy of Capital One's response which includes the line, 'Unfortunately, changes in the interest-rate environment or other business circumstances may require us to increase rates, even for fixed-rate accounts in good standing.'"

Neither Steven nor the other three credit card victims who were invited to testify actually did. Congressman Spencer Bauchus (R-AL) and the credit card companies led the rally to muzzle the consumers by demanding they agree to publicly release all of their private financial records – or not be able to testify. (Bauchus, not surprisingly, has been generously funded by the financial services industry.)

The bully tactic worked. Representatives from Capital One, Chase and Bank of America spoke for hours about how fair and consumer-friendly their practices were, citing "facts" without any supporting data. Yet the consumers who flew in to testify were silenced by the threat of the financial institutions being able to expose anything they wanted about the consumers or smear them after the hearings were over.

Rep. Mark Udall (D-CO) railed on behalf of his constituent Susan Wones, who traveled to D.C. to tell lawmakers about how her credit card company doubled her interest rate to 25 percent without notice and despite her record of paying her bills on time. Susan holds a high credit score rating, pays her bills on time and doesn't exceed her credit card limit.

"None of the consumer witnesses objected to signing releases that would allow the committee to verify the facts concerning their individual stories, and I must say that I found the Financial Services Committee’s insistence on a broad waiver of privacy rights to be both unnecessary and counter-productive," Udall said in a release. "Narrowly drawn waivers could have been drafted by Committee staff weeks ago, instead of waiting until the eleventh hour to prevent consumer testimony. What happened today is emblematic of why so many Americans are fed up with Washington."

Rep. Maloney has promised to hear the voices of these consumers. Time will tell if that does indeed happen.

For now, we have Steven's written testimony, which holds this analogy:

"The NFL does not allow one team, in the midst of the fourth quarter, to unilaterally move their end zone 20 yards in their favor just because they don't like the point spread. The rules are laid out before the kickoff, and the umpires enforce the same rules for both home and visiting teams for the whole contest. It's time for legislation at the federal level that tells the credit card industry, 'Game Over' to unilateral, one-sided, rule changes."

View the archived webcast and read the prepared testimony of the witnesses who appeared before the Subcommittee on Financial Institutions and Consumer Credit.

Should I Pay Off My Car Loan or Credit Cards First?

2008-04-18T10:39:00.005-04:00

I had a reader write in to tell me he was going to use his economic stimulous tax rebate check to pay down some of his debt. As a married father of four, he is expecting to receive a fairly sizeable rebate.

"I am so close to paying off my car loan, but I have some debt on my credit cards, too," he wrote. "I was fortunate to get a fairly low interest rate on my credit cards, so I'm torn between trying to pay off my car loan or pay down my credit card debt."

Your Credit Mama recommends paying down your credit card debt first, for a couple of reasons.

1. First, we all know how capricious credit card lenders are. Just look at Bank of America's recent move to increase interest rates on credit cardholders for no apparent reason. Because so many credit card agreements contain clauses such as any time-any reason rate changes and universal default (where a drop in credit score - even if inaccurate and/or unrelated to the account - will trigger a rate increase), carrying balances on credit cards is becoming a dangerous gamble.

2. Paying off credit cards improves your score more than paying off the other loans. The FICO scoring algorithm places a higher importance on your credit card balances. Your score will increase as your debt ratio on your credit cards decreases, while your score may not increase much at all by paying off your car loan, or student loan, or other type of installment loan.

Your goal should be to get your credit card balances to less than 30 percent of your total credit limits. So if you have a $1,000 credit limit, you should charge no more than $300. If you have several credit cards with balances, rather than paying off one card entirely, you may want to pay enough toward each card in order to get all of the balances down to 30 percent or less.

Get a CLUE About Your Insurance Score

2008-04-16T09:10:00.005-04:00

A reader e-mailed me to voice her distress over her auto insurance rates. Prior to her divorce, she and her husband had been able to obtain reasonable rates for their two cars. But the divorce was messy. Their house fell into foreclosure as it languished in the stagnant real estate market. Bills that were supposed to be paid by her (now ex-) husband went into collections. Her credit score began dive. She eventually filed for bankruptcy. As things went from bad to worse, she was stunned to learn that her application for new auto insurance coverage was denied.

"I've never filed a claim or gotten a ticket for anything!" she wailed. "My husband and I always paid our insurance on time, and my driving record is totally clean!"

One thing that may have impacted her ability to get insurance for her car is her credit history and public records information. Insurance rates for homes and cars are often linked to credit scores. Insurers justify increased rates by relying on statistical analyses that purportedly show a correlation between an insured's credit history and likelihood of filing a claim.

This means if your credit file shows a history of late payments, foreclosure, tax liens, garnishments, bankruptcies, lawsuits and judgments, you may be smacked with high insurance rates or even be denied coverage.

This data - plus any information on claims you have filed (and sometimes even inquiries about your coverage that do NOT result in a claim) - is entered into a little-known database called CLUE (Comprehensive Loss Underwriting Exchange) or its smaller competitor, A-Plus. These national databases are used by insurers to determine whether you get new insurance. Insurers may also look at your claims history and "insurance score" when deciding whether to renew your coverage or how much to charge for your premiums. Because it is a national database, other insurance companies can review your claims history for five years. This may include losses for a property before you even owned it.

Some home buyers learned this the hard way, with deals falling through because of inquiries - not necessarily claims - that cause the property to be "blacklisted." The previous owner may have inquired about coverage for water damage; even though the owner may never have filed a claim, the information is posted into the database, and insurers will assume that there is a problem.

Consumer advocates have been pushing hard for reforms. As a result, some states have passed legislation to prohibit the inclusion of inquiries that did not result in a paid claim. Other states have begun passing laws to limit or prohibit the use of credit scores as the sole determining factor in deciding insurability or rates (see if your state has such laws); however, many insurance companies still rely on them to some degree.

Given the fact that 79% of credit reports contain errors, it may be concluded that rates may be artificially inflated or insurance unfairly denied when determined - in whole or in part - by credit history.

The good news is that this specialty report is governed by FCRA. Under the FACT act, you have the right to obtain a copy of your CLUE or A-Plus report each year, and the right to dispute inaccurate or incomplete information on those reports. If you have been denied coverage, had your policy cancelled or your premiums have increased, the insurer must notify you in writing; in addition, you are entitled to a free copy of your report (in addition to the free report you are allowed each year).

To get a copy of your CLUE report, visit ChoicePoint's Web site or call toll free: 1-866-312-8076. To get a copy of your A-Plus report, call toll free: 800-627-3487.

You will not get your actual insurance "score" - just the history of claims. Because your credit score is factored into whether you are insurable and what your rate will be, you should also purchase your credit score as well in order to get a complete picture of what your insurance company is seeing.

You May "Discover" New Fees in Your Credit Card Bills

2008-04-11T11:04:00.003-04:00

Discover is introducing another way to enforce fiscal responsibility – or, as others may see it, another way to collect additional fees from its customers.

Beginning May 1, Discover will penalize its card holders for exceeding their credit limit twice by imposing the "penalty interest rate" (which, not surprisingly, is being raised from 29% to 31%). This action is in addition to the $39 over-the-limit fee Discover already charges.

Discover is not the only card issuer that is instituting rate increases for exceeding credit lines – Chase and Bank of America are including similar clauses in their member agreements.

According to calculations by The Red Tape Chronicles, affected customers will pay heavily for going over their limit:

A consumer with a $10,000 balance and a 15 percent interest rate who pays the minimum payment each month would pay $2,800 in a year and still owe $8,598 on that balance.

A consumer with a $10,000 balance and a 31 percent interest rate who pays the minimum payment each month would pay $4,047 in a year and still owe $8,891.54 on that balance.

If you are a regular user of credit cards, you should know that credit card issuers generally allow you to exceed your credit limit by 10 percent or more without warning. Credit card companies say they do this to prevent embarrassment or inconvenience in the check-out line. But with these stiff new penalties in place, you will pay for years for the privilege of using more credit than you have.

To maximize your credit score, you should not be charging more than 10 percent of your credit limit anyway, because of the negative impact of a debt utilization ratio. Know your credit limit. Stay below 50 percent of your limit (10 percent if possible). And if your credit card company offers e-mail warnings to let you know that you are approaching your credit limit, sign up today.

Identity Theft Protection or Legal Extortion?

2008-04-08T09:41:00.002-04:00

If you've ever examined your credit card receipts, you've probably noticed that your credit card number has been reduced to a series of Xs with no more than four or five digits visible, and no other identifying information, such as expiration date.

That is, unless you've shopped at Costco, FedEx Kinko's, Toys 'R Us, IKEA, StubHub, Coffee Bean Tea & Leaf, or Jewell Food Stores, eaten at big Burrito Group eateries such as Mad Mex, purchased flowers at 1-800-FLOWERS or watched a movie at AMC Theaters.

These companies, among many others, have been targeted with class action lawsuits for violating a 16-month federal law designed to protect consumers' credit card information. The Fair and Accurate Credit Transaction Act (FACTA) prohibits companies from printing more than five digits of a credit card number or the expiration date on receipts to reduce the threat of identity theft.

Lawsuits have been flooding the legal system as consumers strike back against what they say is flagrant unresponsiveness to the FACTA statute. More than 300 class actions have been filed since the law went into effect in December 2006.

At stake is the livelihood of businesses across the country, from big box retailers and restaurants to small businesses such as parking garages and newsstands. With every noncompliant receipt assessed at anywhere from $100 to $1,000, companies are facing potential damages in the billions of dollars. The lawsuits are so financially damaging that retailers are threatening to file bankruptcy.

At issue is the fact that the plaintiffs don't need to demonstrate any real or actual damage caused by the violation or even that the companies had willful intent to cause harm. All they need is a receipt to claim statutory damages because a company has "flouted the law." Warehouse-club giant Costco is liable for as much as $17 billion – 15 times the company's 2007 profit – despite the fact that there are no claims of actual harm.

"In 22 years, I have never had a plaintiff sit across the table from me and say, 'I have no damages. My identity hasn't been stolen. I'm just bringing this lawsuit because I can,'" said David Block, a lawyer with Jackson Lewis, in a recent Law.com article. "There's something inherently wrong with a lawsuit where the plaintiff has no injury."

Defense lawyers are characterizing the lawsuits as "legal extortion," since the defendants did not profit from the infraction and plaintiffs have not shown evidence of actual harm. And some judges are paying attention – 12 have refused to certify some of these cases as class actions.

Many companies facing massive damage claims are quietly settling. Earlier this year, a class action lawsuit against big Burrito Group eateries was settled for FACTA violations. According to the settlement, customers who used a credit or debit card at various times at various big Burrito Group eateries last year are entitled to a $7 "settlement relief card." The cards can be used only at the company's Mad Mex restaurants under various restrictions. The settlement also calls for the company to pay for $105,000 in legal fees. Coffee Bean Tea & Leaf agreed to give customers free drinks and pay plaintiffs' lawyer fees. StubHub settled for undisclosed terms.

Should companies be compliant with the law? Heck yes. Should they be punished to the full extent of the law? Well, that depends. Bankrupting businesses or imposing maximum financial penalties will ultimately have a lasting negative impact on the quality and price of retail and online services. What price are we willing to pay to punish companies that were slow to comply with the law?

Thin is In with Experian's New Credit Scoring Tool

2008-04-07T11:36:00.002-04:00

According the Federal Deposit Insurance Corp., there are nearly 73 million consumers in the United States with "thin" or no credit files – that is, they have little or no credit in their name. This segment of the population – typically students, young people, minorities, recent immigrants and those with low incomes – is traditionally underserved because lenders favor borrowers with more "meat" in their credit files, which allows them to better assess loan risks.

As a result, most "unscoreable" consumers pay bills and make purchases using cash, checks or debit cards – none of which is tracked by credit reporting agencies. And as the housing market continues to implode, more people will continue to rent instead of purchase, which means they won't have an established mortgage loan history for lenders to evaluate.

With profit margins eroding, financial institutions are looking to create new revenue opportunities by tapping into the billions of dollars in annual income represented by this currently underserved population.

Experian has launched a new credit scoring tool called Emerging Credit Score to help lenders "capitalize on missed opportunities" to "create new revenue opportunities" by factoring more than 25,000 attributes to measure thin or no-file consumers. It uses data from eBureau to track:

Demographics
Internet, catalog and direct-marketing purchases and payments
Trades, inquiries and public records
Property and asset records
Telecommunications and utility data
Industry specific and custom scores

Do Lenders Really Care?

While innovative ways of creating credit scores appear to be a boon for thin- or no-file consumers and financial institutions alike, the difficulty lies in having such scoring tools adopted by the banking industry. There already are a number of scoring models that purport to open the doors to this target population, including FICO's Expansion Score (released in 2004) and PBRC. Until banks use these tools on a regular basis to evaluate their prospects – something that has not been done industry-wide – the underserved population will not see much of a change. And if you have a traditional credit score from the Big 3, an expansion score will not be used in its place, which may seem particularly unfair if your credit history is rife with errors due to reporting mistakes or identity theft.

FICO Says… You Can't Have Too Much Credit

2008-04-01T10:28:00.003-04:00

Once upon a time, not so long ago, having lots of available credit meant that you were "inevitably" doomed to go on a massive spending spree of epic proportions. Each unused dollar was a ticking debt time bomb, because even responsible users of credit would surely be lured into the vortex of temptation caused by those shiny cards with winking holographs.

But while conventional wisdom held that excessive credit – even unused – was a liability, Fair Isaac says there is no such thing as too much available credit when it comes to how they score credit. In fact, Fair Isaac's Barry Paperno states, "There really is never any good reason to close an account."

Three reasons why NOT to close an account:

1. The FICO score does not penalize you for having too much available credit. (Opening a bunch of new accounts may be a problem, but by itself, available credit is not a factor.)

2. While closing an account does not immediately eliminate all of the history associated for that account, the bureaus will automatically remove a closed account in 10 years (or less, if the credit card issuer decides to remove it). History – or how long you've had credit – accounts for 15% of your score. If you close an account that you've had for a long time, and your only remaining credit history is from credit cards or loans that were opened recently, it will negatively impact your score once that account falls off your report.

3. Closing an open account with a good history may negatively impact your ratio of balances-to-limits. Say, for example, that you have four cards with credit limits of $2,000 each, for a total available credit limit of $8,000. If you owe $1,000 on three cards, and you close the fourth, your debt ratio will increase from $3,000:$8,000 (37.5%) to $3,000:$6,000 (50%). This ratio accounts for 30% of your credit score. The higher the debt ratio, the lower your score.

Lenders Begin Revoking Home Equity Lines of Credit

2008-03-28T10:14:00.002-04:00

On the heels of Bank of America's eyebrow-raising mass mailing telling thousands of customers that their credit card interest rates were jumping by as much as 100%, Countrywide has informed 122,000 customers that their home equity lines of credit (HELOC) have been suspended due to falling home values.

A HELOC is a revolving credit line with a limit proportionate to the homeowner’s equity in their property. They typically offer much lower interest rates than regular credit cards because they are issued against a “secured asset” — a home.

Other lenders, including Bank of America, Wells Fargo and Chase have acknowledged that they, too, will be following in Countrywide's footsteps by reviewing customer credit lines and lowering limits or suspending credit lines.

During the housing boom, as property values soared, so too did the number of homeowners who tapped into their equity to fund remodeling projects, cars, vacations and other luxuries. Lenders were writing loans for 120% of a home's value – 100% for the primary mortgage and another 20% for a HELOC. Now that the pendulum is swinging the other way, and properties are losing value at a double-digit rate with no bottom in sight, the line of credit soon may no longer be covered by the value of the home. Nervous lenders are pulling back the reins, even on good customers who may not have used much of their HELOC and have made timely payments.

Many affected customers are expressing outrage, particularly those with high credit scores and stellar repayment histories. The lenders, they say, are miscalculating the value of their homes in an effort to be uber-conservative, and punishing them even though they have been good customers.

Countrywide has reportedly advised some irate customers that they can get another appraisal (at a cost of more than $400) if they want to appeal the closure of their HELOC. But given the fact that consumers may already have paid $2,000 or more in non-refundable fees just to open the HELOC – some just a year or two ago – the idea of paying for another appraisal for the mere "possibility" that the HELOC will be reinstated is a bitter pill to swallow.

What is my REAL credit score?

2008-03-25T10:30:00.003-04:00

Dear Credit Mama,

I've been working hard to pay all of my bills on time and have almost paid off my credit cards. I want to see if my efforts have made my credit score go up. I've looked into buying my credit score online, but it's confusing because different companies have different ranges for what your credit score could be – some have scores that go to 850, some go to 990. What's the deal? And which one should I believe?

--Angie, St. Louis, MO

Dear Angie,

Very astute of you to notice this! You are right – not all credit scores are the same.

The "FICO" score was invented by Minneapolis-based Fair Isaac Corp. in 1988 as an attempt to quantify the odds that borrowers will repay loans on time. The company’s name is derived from those of Bill Fair and Earl Isaac, an engineer and a mathematician, who created the credit scoring concept and founded Fair Isaac in the 1950s.

FICO scores range from 300-850. FICO calculates your score using the following factors:

35% payment history
30% amount owed
10% tpes of credit in use
15% length of credit history
10% new credit

"Vantage" scores, dubbed "FAKO" scores, were developed by the three credit bureaus and introduced in 2006 to compete with FICO scores. Because they do not have the actual FICO formula (a secret as closely guarded as Coca Cola's recipe), they are only approximations of the FICO score.

Vantage credit scores range from 501-990. Each 100-point interval corresponds to a letter grade, in ascending order. A score of 501 to 600, for example, would translate into a grade of "F", while someone with a score greater than 900 would receive an "A." Vantage calculates your score using the following factors:

32% payment history
23% utilization of available credit
15% credit balances
13% length and depth of credit history
10% recently opened credit accounts
7% available credit

FICO Vs. FAKO

Consumers usually buy their credit scores from the credit bureaus – the VantageScore. However, Fair Isaac states that most lenders (90% of the 100 largest banks) use the FICO score. (To complicate matters, some lenders create their own variation on a FICO score, adding in their own criteria.) Your "FAKO" scores can differ from your FICO scores by as much as 50 points.

More than two-thirds of all consumers qualify for a grade of "C" or higher. FICO scores, by contrast, range from 300 to 850, with 85 percent of Americans coming in at higher than 600. If you found a score of higher than 850 then you are "buying" one of the other scores - not the FICO score that lenders use.

Fair Isaac has filed a federal antitrust lawsuit against the nation's three credit bureaus, alleging they are "misleading and confusing consumers" when selling their own version of the credit score. They contend that since Equifax, Experian and TransUnion own the consumer data it uses to create the FICO scores, they could "unfairly manipulate the credit score price, sales and distribution process" to promote VantageScore.

The bureaus claim that the new scoring model increases competition, giving more choices to credit grantors and consumers.

Having more scoring options is good for lenders, but not necessarily good for consumers. With multiple scoring models, the odds increase that a lender can find a score to use to declare you a subprime candidate and increase your rates.

If you are trying to qualify for a mortgage or other major loan, you will want to access the real FICO, not the FAKO. Our friends at mycreditroadmap.com can link to you a FICO credit reporting product that will give you reports and scores for each of the three national credit bureaus.

Sweetbay Supermarket Latest Data Breach Victim

2008-03-19T09:12:00.005-04:00

Another day, another data breach. This one affects more than 4 million Sweetbay/Hannaford customers in New England, New York and Florida who used their credit or debit cards between Dec. 7, 2007 and March 10, 2008.

The breach was discovered in late February when a payment card clearinghouse notified Hannaford of an unusual number of payment card transactions. Hannaford transmits its data over phone lines and uses encrypted wireless communications to transmit numbers inside its stores. The hackers snatched the credit/debit card data sometime between when the customers swiped their cards in the reader at the register and when those transactions were approved.

According to news reports, Hannford's security measures met industry standards with regard to how data is stored and maintained (unlike the TJX breach, which was blamed on lax security). Experts are anticipating that this may be just the first of many cases to surface this year wherein the affected retailer was hacked even though it appeared to be following all of the security rules laid out by the credit card associations.

Cybertrust's Bryan Sartin said,

"[We have] found with a number of very recent compromises that attackers have seized control over the very terminals that control cash registers or point-of-sale systems within a retail store, or the server through which all registers connect to pass transaction data out across the Internet to the store's payment processor." Once these systems have been compromised, the attackers typically eavesdrop on the network using "sniffer" programs that can extract credit and debit card data as it moves across the wire, before it even leaves the store's network.

Kevin Mandia, president of Mandiant Corp., a company that specializes in investigating data breaches, said, "We're seeing at least two new companies a week discovering that they've lost credit card numbers, and at the rate we're going [the criminals] are going to exhaust U.S. retailers as targets.."

To date, about 2,000 cases of fraud have been reported in the Hannaford/Sweetbay breach. The company is asking that consumers contact them with questions or information about their data being used fraudently at 866-591-4580.

Each of you should be regularly reviewing your financial institution and credit card statements, and immediately contacting your credit card company or issuing bank with any questions or concerns about individual charges. If you are concerned that your credit/debit card data has been compromised, you may file a fraud alert on your credit report by calling one (just one) of the three major credit bureaus:

Equifax: 1-800-525-6285
Experian: 1-888-397-3742
TransUnion: 1-800-680-7289

The fraud alert is good for 90 days. Once you place a fraud alert on your credit report, you will receive information via mail about ordering one free credit report from each of the companies. You may want to wait a month before ordering the report as it may take some time for suspicious activity to appear on the report.

Another Victim of the Housing Market Meltdown: Your Privacy

2008-03-13T10:05:00.002-04:00

During the recent housing bubble, millions of Americans purchased or refinanced their homes with mortgage lenders throughout the country. With the implosion of the housing market, many of these mortgage shops closed their doors permanently.

It probably occurred to very few applicants that their files -- loaded with all kinds of personal data, from Social Security numbers and bank statements to tax returns, retirement accounts and credit reports -- would ever be in danger. Yet the records of thousands have been compromised - and not from a gang of thieves breaking into these offices. It seems that once the business is shut down, some mortgage lenders are simply disposing of all these paper records in public dumpsters. According to MSNBC:

First Magnus Financial Corp., one of the nation’s largest mortgage lenders whose headquarters was one of the biggest employers in Tucson, Ariz., threw away thousands of mortgage loan records in an unlocked trash dumpster in Ft. Lauderdale, Fla.

The records of hundreds of former customers of the defunct Alpha Mortgage Services were left in a recycling bin behind a grocery store in Toledo.

After Union Mortgage Services of Ohio shut down last month, confidential files on hundreds of people were thrown out in a dumpster behind a pizza shop in Cleveland.

American United Mortgage Co. of Northbrook, Ill., left hundreds of borrowers’ financial documents in an unlocked dumpster, many of them in open trash bags.

Sheriff’s deputies in DeKalb County, Ga., outside Atlanta, found the mortgage records of at least 1,200 former customers of Ameriquest Mortgage Co. in a dumpster behind an apartment complex in October, two years after the company, once one of the nation’s biggest subprime lenders, went out of business.

In Honolulu last year, a handyman hired by the former president of the defunct Fidelity Escrow Services dumped 39 boxes of financial records in a recycling bin.

While the Fair and Accurate Credit Transactions Act, or FACTA, requires businesses to dispose of sensitive financial documents in a way that protects against “unauthorized access to or use of the information,” it doesn't actually require the physical destruction of the data. To date, only one case has been brought against a company by the FTC (American United Mortgage was fined $50,000 after continuing to violate FACTA after receiving a warning). The challenge is pursuing action against companies that no longer exist.

The breaches leave thousands of consumers at risk for identity theft. For former customers of now-defunct lenders, there isn't much recourse. The best safeguard is vigilant monitoring of your credit report.

So What IS the Average Credit Score, Really?

2008-03-11T08:51:00.009-04:00

I was reading an article today posted by BusinessWeek called "Buying a Franchise with Bad Credit." One of the first things that struck me was the reference to average credit scores. A nonprofit contractor for the SBA microloan program says,

"Usually they have what I'd call an average credit score—in the mid 500s or 600s—but not a high credit score."

But hold on a minute! The credit bureaus say that the average credit score in the U.S. is 692. (In case you didn't know, FICO scores range from 300-850, although other credit bureaus use different scales.) In fact, Fair Isaac says on their Web site (myfico.com):

"About 40% of credit card holders carry a balance of less than $1,000. About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 48% of consumers carry less than $5,000 of debt. This includes all credit cards, lines of credit, and loans-everything but mortgages. Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus. " They report that 58% of consumers have a credit score of 700 or more.

Yet the data from Federal Reserve says something very different:

"The average household has $11,000 to $12,000 in credit card debt... Those figures are diluted by those who don't hold any debt. Households that carry debt from month to month carry close to $17,000 of unsecured debt on average. One out of every five households is either behind on payments or over the limit on at least one account."

To make matters worse, not only is the rate of foreclosures at an all-time high, but it is projected that 10% of home owners (approximately 8.8 million people) will have negative equity by month's end.

Hmm. According to the bureaus, 30% of your score is determined by your debt ratio: how much money you owe, divided by the amount of available credit you have. Thirty-five percent of your score is based on payment history. In total, that's 65% of your score - and the data shows that the majority of American households are not doing so well in these two areas.

Now factor in the sneaky credit industry tricks -- universal default (where credit card issuers can raise your interest rates should your credit falter - even if you have never made a late payment), interest rate increases for no reason, not reporting your true credit limit on cards, "chasing balances" (where credit card companies reduce your credit limit as you pay down the card) -- and it's clear that the average consumer's credit score is being attacked from so many angles that an "average" credit score of nearly 700 is improbable.

Ask any residential mortgage broker or loan officer if their average applicant's credit score is 692. Just be prepared for the snickers or guffaws.

My business partner was speaking with a mother of three the other day. As she was talking about her credit, her demeanor completely changed - her shoulders slumped forward, head hung low, voice full of apology. She truly believed that she "deserved" to pay higher interest rates because of her "poor credit." Yet if she knew that the majority of people had credit scores in the same range as hers, would she be so accepting?

Bank Fees Go Up As Interest Rates Go Down

2008-03-07T08:55:00.006-05:00

In a recent study conducted by the Government Accountability Office, an interesting trend was discovered. Over the past six years, as interest rates set by the Federal Reserve decreased, the amount of fees charged by banks increased. The report suggests that because banks don't make as much money on interest rate 'spreads' they try to generate revenue by raising fees.

These fees include overdraft fees, increases in credit card interest rates with no apparent explanation, ATM fees, and fees associated with changes to account status.

By law, fee schedules are supposed to be "clearly and conspicuously posted" at every bank. Those that don't are in violation of the 1991 Truth in Savings Act and Federal Reserve Regulation DD. Yet in 22% of the visits that GAO surveyors made to banks across the country, they were unable to find the fee schedules. One-third of banks had no information at all on overdraft fees and policies. More than half had no fee information on their Web sites.

One would imagine that being in violation of a federal law should yield some fairly stiff penalties. But not surprisingly, the consequences suffered by banks has been minimal. In fact, there have been just two times when regulators took formal enforcement actions. And consumers have no recourse except to file a complaint with regulators - which are generally ignored.

Meanwhile, bank fees are up 11% since 2000. The GAO study reported that last year banks grabbed $36 million out of depositors' accounts in fees, accounting for 27% of banks "non-interest income." Lack of fee information hinders consumers who try to comparison shop between banks.

While some attribute the fees to poor banking by consumers, the truth is that banks collect far more than just overdraft fees. And policies regarding when banks post deposits vs. when they deduct charges has impacted thousands of banking customers.

"The due date on my Bank of America credit card was on a Sunday. I paid the balance in full on the preceeding Friday in the 4:00 hour at BOA. BOA charged me a $40 late fee ... for paying two days early. Apparently, in the world of banking reality, anything paid after 4:00 counts on the next business day, which in my case was Monday. If I hadn't have been paying attention, taken the time from my schedule to go to the bank and complain, BOA would have stolen $40 from me. And the really sad part was that the bank stood by their practice. I told the bank manager that if BOA wanted the bill paid by 4:00 Friday, then put BY 4:00 FRIDAY on the bill. Then, he had the gall to ask me if I wanted to open an account with them. All I could do was walk off." (Texas consumer)

"What concerns me about banks the most, is their practice of re-organizing transaction amounts from greatest to least (AKA posting highest to lowest). This practice maximizes the instances of overdraft fees. How is it legal for banks to post transactions outside of the order they are authorized? A ledger showing one instance deserving a $35 overdraft fee results in a bank statement boasting $300 in overdraft fees made possible by this method of organzing posts. I am very committed to bringing federal attention to this unethical banking practice." (Vanessa, South Carolina)

Then there is the issue of "holds." Using your debit card can screw you up even if you do keep a detailed register of your account. One example: gas stations can place a hold on funds when you use your card at the pump. Some hold $1 just to make sure its a valid account, some hold $50 or more and release the hold when they process the actual amount you spent. These holds may cause your bank account to go into the red, even if there is money in the account.

Other fees include changes imposed on long-standing accounts without disclosure to the consumer:

"Years prior, I had set up two IRA bank CD accounts with MBNA whereby there were no fees, just like a non-IRA CD account. However, after the merge with Bank of America, suddenly an annual $30 maintenance fee is applied to each account. I called BofA to complain and found that I am now stuck with these fees. I cannot transfer these IRAs to another bank (without penalty) until the CDs mature." (KW in Las Vegas)

"I signed up for a free checking account at my local bank a number of years ago. After I refinanced my home and took out $50K in equity, I deposited this into my free checking account, I then began to spend this equity on home improvements to my house. Without my knowledge the bank changed my account type to one that provided free checking for accounts with balances in excess of $20K. As soon as my account balance went below the $20K amount, they started taking $20.00 a month as the fee for this account. Shame on me that I didn't catch it
until the end of the year, which was 10 months and $200.00 later. I went down to the bank and had the account switched back. The bank played stupid, wouldn't refund the money and wouldn't even pretend to investigate who had changed the account." (Bob, Massachusetts)

"Just last week my bank sent me a notice advising me that my interest rate on my bank credit card has risen from 20% to 25% with no justification what so ever. My credit is outstanding, my accounts are on point and I have never been late on a payment or switched any of my previous accounts." (Anonymous)

To all the people who just say 'don't overdraft your account and you won't get fees' - it's not that simple. Most banks have a policy of posting withdrawals before posting deposits - meaning if you deposit a check in the morning and write a check in the afternoon - at midnight when the bank posts the transactions, they will post the withdrawal first, even though the money should have been there.

Banks are for profit entities, and their primary existence is to maximize profits for their share holders. Credit unions are not-for-profits whose primary mission is to offer the lowest loan rates and fess and the highest savings rates to its member owners. If you are frustrated or overwhelmed by the fees charged by national banks, you may want to investigate switching to a local bank or credit union.

Attention TJ Maxx and Marshall's Shoppers!

2008-03-04T09:18:00.004-05:00

If you made purchases or returned items at TJX Cos. such as T.J. Maxx, Marshalls, HomeGoods, A.J. Wright, Winners and HomeSense, you may be entitled to compensation.

Notices are just now beginning to go out to millions of customers who may have been affected by the largest data breach in history. Last year, TJX disclosed that information from nearly 46 million debit and credit cards was stolen by hackers, and that nearly a half million people who returned items without their receipts may have had personal data (such as driver's license numbers) stolen. Court filings by banks that are suing TJX indicate a much bigger breach, saying that more than 100 million cards may have been compromised.

The breach is believed to have begun in mid-2005 but wasn't detected until December 2006. The stolen information covers transactions dating as far back as December 2002.

Customers who believe their personal financial data was stolen or put at risk, and believe they were harmed, can join the class action lawsuit. They can send in a claim form to ask for benefits if they are eligble, ask to be excluded from the settlement (if they provide notice by June 24) or object to the terms.

Terms of the proposed settlement

TJX will offer vouchers to customers who show they shopped at TJX stores in the U.S., Canada and Puerto Rico — except Bob's Stores — during the breach and incurred costs.

TJX also will provide three years of credit monitoring and identity theft insurance to certain customers who returned merchandise without a receipt and were sent letters notifying them that their driver's license or other identification information may have been compromised.

For more information, call toll-free to 1-866-523-6770 or visit http://www.tjxsettlement.com/.

AmEx Artificially Deflates Credit Scores

2008-02-28T10:21:00.011-05:00

As you may recall from previous posts, 30% of your credit score is based on your debt ratio. The Big Three credit reporting agencies – that's Experian, TransUnion, and Equifax - use special software to calculate this ratio.

We've already discussed the Sneaky Credit Industry Trick where some credit card companies do not report the actual credit limit, which causes the software to use the highest reported balance as the "credit limit," biasing debt utilization calculations against the consumer. This was one way to artificially deflate their customers' credit scores, making them unattractive to their competitors.

According to SmartMoney, American Express is among a number of credit card companies that are now employing another Sneaky Credit Industry Trick: chasing balances. Consumers are reporting that as they pay down their credit card balances, the credit card company is penalizing them by lowering their available credit limit.

They tell the story of Trent Charlton, who paid off more than $8,000 in credit card debt in the last six months, with the goal of paying off an additional $10,000 in the coming weeks.

Six months ago, Charlton paid his American Express credit-card balance down to $14,000, AmEx decreased his limit from $20,000 to $14,300. Another payment several weeks ago brought his balance down to $10,000 — AmEx then cut his limit to $10,300. AmEx has also slashed the $2,000 limit on a card he rarely uses down to $500, barely above his $300 balance. And the limit on his GE Money Card (issued by General Electric Money Bank) where he owes $7,000, was recently cut from $15,000 to $7,500.

With an increasing number of delinquencies, credit card companies are doing everything they can to tighten lending standards and reduce the risk of default. CNN's latest statistics show the percentage of people who are late on their credit card payments is the highest it's been in three years.

Looking at the subprime crisis and weakening economy, this would be a logical rationale - except they are not targeting just high-risk customers. Lenders now are including customers that - not that long ago - would have been considered good customers, even considering factors such as where the customer lives (ie: in an area of high foreclosures) or where he or she works (mortgage companies, construction-related businesses and home builders).

Trent's credit score SHOULD have increased significantly based on his repayments. His original credit limit was $20,000. After paying the balance down to $10,000, he should have a 50% debt utilization ratio. Instead, by dropping his credit limit to $10,300, the scoring algorithm calculates his debt utilization ratio to nearly 100% - making him a "bad" candidate for credit.

The same goes for the GE Money credit line. With a credit limit of $15,000, his debt ratio SHOULD be just under 47% after paying down his balance to $7,000. Instead, by dropping his limit to $7,500, his debt ratio is over 93%.

According to Craig Watts of Fair Isaac (the company that created the FICO score), if your credit utilization is 50% or more of your credit limit, "you are doing some real damage to your credit score." And when the new FICO scoring model is released in May, "if you have a utilization of over 50%, you'll be penalized even more heavily."

Clearly, the system is flawed as it is not accurately representing the borrower's willingness or ability to pay. And with such high debt ratio calculations, other lenders will probably think twice before issuing Trent more credit - keeping him locked in with American Express and GE Money Bank until his debt is completely paid off.

A Credit Check for the Lunch Lady

2008-02-27T12:44:00.005-05:00

Current and prospective school employees in Bentonville, Arkansas, may soon find their credit histories under the spotlight if a proposed policy requiring every district employee or applicant who handles money or uses a credit card to consent to a personal credit check is passed.

That includes everyone from top executives managing the district's budget to the cafeteria manager to "department heads who reserve conference and hotel rooms with district credit cards, bookkeepers, all employees who process paychecks and perhaps even district employees who volunteer in their off-hours to work at school concession stands."

It's becoming more common for employers to run credit checks on prospective employees. There is the belief that a person's credit history can indicate how he or she handles money, which translates into how he or she would handle the company's money. In this situation, the policy would also apply to existing employees.

But credit scores can be negatively impacted in a number of ways that may not necessarily show willingness or ability to pay, or indicate that the person would misuse their position to steal or embezzle funds. If they recently applied for credit, if they have fully paid off an old collection account, if they are young and haven't established a lengthy credit history, or if they use a credit card from a company that doesn't report their actual credit limit, their score will be lower. Identity theft victims may not even be aware that their credit file has been hijacked until an employer runs a check.

According to The Morning News, committee members questioned whether someone with an unfavorable credit score still could be hired or allowed to continue working for the district. Steve Potts, the executive director of Human Resources, confirmed that credit scores would be part of the hiring process and would also be considered when allowing an employee to continue in a job.

Superintendent Gary Compton stated he believed that by conducting credit checks, administrators might more easily spot mishandling of taxpayer money, or those prone to do so.

But your Credit Mama believes that credit scores are an increasingly unreliable predictor of future performance - that is clearly apparent with the current subprime meltdown. Eight out of 10 credit reports contain errors. Imagine if your work product was only correct 20% of the time! Yet our society is using this seriously flawed data to make major decisions that impact our lives.

The Bentonville School Board Policy Committee is due to review this measure at next month's meeting.

Experian Sues LifeLock

2008-02-21T16:55:00.008-05:00

Experian is really mad at Todd Davis.

You may not know Todd Davis, but you probably have seen his Social Security number plastered all over magazines, newspapers, television - even wrapped around public buses. (457-55-5462)

Davis is the CEO of LifeLock, a company that focuses on identity theft prevention. Their advertising has been hugely successful, with 700,000 customers each paying $10 per month for the service.

The service essentially consists of continuous fraud alerts being placed on your credit report, to be renewed automatically every 90 days. LifeLock's services also include stopping junk mail and the mailing of pre-approved credit card offers, and a copy of their credit report. The company offers a $1 million guarantee that it will help restore customers’ credit reports if they suffer an identity theft.

Experian says that LifeLock's practices are costing them "millions of dollars." Some of this is due to the thousands of calls funneling through various phone banks from LifeLock, resulting in "excessive phone charges." And, since the credit bureaus make a lot of money by selling consumer data to potential creditors, fraud alerts drastically limit their revenue capabilities.

The Lawsuit

Experian contends that the placing of continuous fraud alerts is illegal - that the Fair Credit Reporting Act only allows the consumer or a person acting on behalf of the consumer to place fraud alerts - and that LifeLock is intentionally deceiving the bureaus by posing as customers.

Experian also says that the fraud alerts can only be placed when the consumer believes that fraudulent activities are imminent, and not just for anyone who wants one.

Pot, Meet Kettle

Experian is bent out of shape that LifeLock would charge consumers a fee to do what they can do legally for free. For example:

You can call any of the Big 3 credit bureaus to request an initial fraud alert if you suspect that you have been, or are about to be, a victim of identity theft. Once the alert is in place, potential creditors must use "reasonable policies and procedures" to verify your identity before issuing credit in your name. You do not need to call each of the three credit bureaus - they are required to report this to the other bureaus.
In addition, when you place an initial fraud alert on your credit report, you can order one free credit report from each of the three nationwide consumer reporting agencies. You also can request that only the last four digits of your Social Security number appear on your credit report. You also can order a free credit report from annualcreditreport.com.
You can stop junk mail and remove yourself from pre-screened offers by visiting http://www.optoutprescreen.com/ or call toll-free to 1-888-567-8688. You can choose to opt-out of offers for five years or permanently. (You also can add yourself back onto the list.)

Experian really has no room to talk, having been the target of criticism that it charges customers for a service that is free through its freecreditreport.com site. The FTC has expressed concern that the site could be confused with annualcreditreport.com, which is the only site mandated by federal law that permits consumers to obtain a credit report for free each year.

With credit monitoring as the centerpiece of Experian's freecreditreport.com service, it's easy to see why Experian is attacking its new competitor.

The Truth Is....

Experian, no stranger to misleading and deceptive advertising, also claims that LifeLock is engaging in misrepresenting the effectiveness of its service. In one ad, LifeLock says, "You’ll find out how to lock down your identity, making it virtually impossible for identity thieves to wreak havoc on your good name."

Fraud alerts, however, don't prevent fraud from happening. It simply makes it harder for identity thieves to open up credit in your name. If an identity thief already has your credit card or Social Security number, a fraud alert won't stop the misuse of those items. Even Davis admitted in an interview that if an undocumented worker is using your Social Security number to obtain employment (a very common form of identity theft), there isn't much that LifeLock can do to stop it.

Is Your Grocer A Crook?

Beyond the legal issues Experian is jawing about, the hot issue seems to be whether LifeLock is a scam for charging consumers to do things they can do themselves for free, or if they simply are providing a convenience at a low monthly cost. LifeLock customers appear to be happy with the service. Yes, you can do these things for free. LifeLock clearly states this on their Web site. But every day, we pay for convenience. After all, you could grow your own food - does this make your grocer a crook?

More and more, people are finding that dealing with the Big 3 is a time-wasting hassle. If you don't want to pay for the service, you've now got the tools to do it yourself. If you want someone else to do it for you, $10 a month is not unreasonable.

One thing to be aware of: Experian states in its lawsuit that LifeLock uses annualcreditreport.com to order the customer's credit report. Customers who are unaware of this practice may try to use their once-a-year benefit and get turned down because LifeLock has already tapped the free report for the year.

Debit Card Traps - Part II

2008-02-19T11:44:00.000-05:00

Susan, a good friend of mine, recently called me in tears. She and her family had planned a getaway to Disney World for a long holiday weekend - the first "vacation" they had taken in years. The kids had already planned out which rides they were going to go on, and Susan and her husband were eager to get away from it all for a few days.

Always the conscientious one, Susan made it a point to pay her bills online the evening before heading off for vacation. She booked her hotel online as well, using her debit card. But on the second day of the vacation, she was shocked to learn that her checking account was overdrawn, and that overdraft fees were piling up daily.

Susan learned that the hotel had put a "hold" on her debit card for the entire amount of the hotel bill - effectively blocking all of her available funds in her bank account. This caused her other bill payments to be returned for insufficient funds, adding more fees to the total. And, she had no access to the money in her bank account for purchases until the hold was lifted - after her stay was over.

Whether reserving a hotel room, renting a car, starting a tab at a bar or even purchasing gas, many retailers are using holds to ensure patrons pay their bills. While these holds are usually lifted within five business days or less, being unable to access the funds in your account due to these types of blocks can be stressful and expensive.

The lesson? If you are traveling, use a credit card to reserve hotel rooms, rent cars or make dinner reservations at restaurants. If you must use your debit card at places such as a gas station pump, enter in your PIN number - doing so eliminates the hold.

Debit Card Traps - Part I

2008-02-15T12:09:00.004-05:00

According to a recent article in Reader's Digest, debit cards have replaced credit cards as the "plastic of choice," with debit cards used for 33 percent of in-store transactions compared to 19 percent with credit cards. That number is expected to jump to more than 50 percent in the next three years.

The increase in the use of debit cards has translated into an increase in debit card fraud. In 2007, hundreds of visitors to a national chain restaurant in Sioux City, Iowa, learned that thieves had stolen their debit card numbers by swiping them through a "skimmer" device, and made cloned cards. These cloned cards were then used to make purchases in California and Mexico. This came on the heels of the massive data breach reported by TJX Companies.

One of the biggest misconceptions about debit cards is that they offer the same protection against fraud as credit cards... probably because they both have the familiar Visa or Mastercard logo stamped on the front of the card.

When you make a purchase with a credit card, and the service or product is not delivered or is not what was promised, you can dispute the charge with your credit card company. Under the terms of the federal Fair Credit Billing Act, the credit card company must remove the charge while it investigates your dispute.

There is no such grace period with debit cards. Once the money is pulled out of your account, it's gone - and under the terms of the Electronic Fund Transfer Act, the issuer of your debit card is not legally required to investigate or help you with your dispute.

While federal law generally limits your liability on both credit and debit cards to $50 provided you report the crime within two days of receiving your statement, recouping your cash is not a sure thing. And if you fail to notice the suspicious activity right away, you may be liable for up to $500 or more.

How to Protect Yourself

Don't ever hand over your debit card at a place where they process the card out of your sight, such as a restaurant.
Don't use debit cards for online purchases or big-ticket items.
If a store's card reader prompts for your PIN, override the sale by pressing Credit/Other or ask the cashier to process the transaction as credit.
Gas stations are notorious for being "hot spots" for skimming. If you must use a debit card at a gas station, use your PIN and don't let the card out of your hand.
Take advantage of your bank's online banking system and check your statements frequently.

Help! The Collectors Won't Stop Calling Me!

2008-02-14T09:12:00.003-05:00

Not that long ago, collection tactics were horrifyingly sleazy. Collection agencies would focus on collecting money by humilating the debtor, from sending postcards in the mail or printing information on the outside of envelopes regarding the debt, to printing names of debtors in large publications, to harassing employers, friends, neighbors and family members about the debtor. Abusive practices also included calling at all hours of the day and night, threats of lawsuit or bodily harm, depositing of post-dated checks, and threatening to report a financed vehicle as "stolen" because of a few missed payments.

The passage of the Fair Debt Collection Practices Act (FDCPA) has put regulations in place to govern the behavior of debt collectors. But harassment is still part of debt collection. Collectors assume that most people don't know their rights, and persist in harassing and making false threats.

One Pittsburgh woman reported that a collector called her 5-year-old daughter and told her that she'd better get her "deadbeat mommy to pay her credit card bills." Another woman's young daughter was tricked into giving the collector her mother's work number. One man's supervisor was constantly called out of important meetings to deal with collectors calling to let her know of his debt and demand payment.

You CAN stop the harassing calls. Under the FDCPA, you are allowed to tell the debt collector to stop calling you or contacting you. There is no law that says you must communicate with a debt collector on the phone. If you hang up on them, and they continue to call you, they are in violation of the FDCPA.

What to do:

1. In any phone conversation with a debt collector, ask for and write down the name of the agency, the caller and the phone number. Keep a log of contacts, recording the date and time of the call, the collector's name and agency, and a summary of the conversation.

2. Insist on specific information about the debt. Tell the collector you will not discuss the debt until you receive the documents and review them. That is the law -- within five days after you are first contacted, the collector must send you a written notice detailing the amount of money you owe, the name of the creditor and what action you should take if you believe you do not owe the money. If after a validation request under the FDCPA, the creditor refuses to cooperate, then the creditor may not legally collect the debt.

3. Do not give out any personal information, such as Social Security Number, the name of your employer, or banking information.

4. There is no reason you need to acknowledge that you owe the money! This is very important if the debt is old. By acknowledging the debt, you may actually extend the time the creditor can sue on it. All states have statutes of limitations on debt collecting. Few states are more than six years. Many are less. You can extend this limitation by acknowledge the debt or even by making a partial payment!

4. Tell the debt collector that you prefer to communicate with them in writing. Debt collectors would rather call because they are hoping that you are ignorant of the laws, and they can say whatever they want without any record of what was said. Do not put up with harassment or verbal abuse.

5. If they are calling you at work, advise the collector that your employer does not permit you to receive these calls.

6. Follow up with a cease-and-desist letter to the debt collector, stating that the debt collector is to cease further communication with you. Send it certified mail, return receipt requested.

7. The debt collector may contact you one more time, but only by mail, to tell you that further efforts to collect the debt are terminated, that certain actions may be taken by the debt collector, or that the debt collector is definitely going to take certain actions.

8. Debt collectors may NOT contact you at unreasonable times; harass, oppress or abuse you; threaten violence or harm; use obscene language; or repeatedly annoy you by phone. They cannot make false statements, such as implying they are attorneys or government representatives, or claim that you will be arrested if you don't pay your debt. They also cannot collect an amount greater than your debt, unless state law permits.

9. If you believe you don't owe the money - the collector is in error, the debt is so old that the statute of limitations has run out, or you have been a victim of identity theft - send the collection agency a letter stating that you do not owe the debt. You must do so within 30 days after receiving written notice. But if the collector sends you proof that you owe the money, he can resume contacting you.

10. If you believe a debt collector has violated the law, you have the right to sue him in state or federal court within one year of the date of the violation.

11. Report problems with debt collectors to your state attorney general's office and the Federal Trade Commission.

CapOne and BOA Credit Card Ripoff

2008-02-12T09:17:00.001-05:00

If you have a Capital One or Bank of America credit card, you may be in for a surprise when your monthly bill arrives.

Hundreds of thousands of credit card holders - many of whom have never missed a credit card payment and were in good standing - have been informed that their interest rates will be doubled - some to as much as 28 percent - without any explanation of the increase.

The big banks have been sending notices to consumers advising them of this change over the past month. In fine print, Bank of America has offered customers the option of not using their cards any longer and paying off their existing debt at the current interest rate - but in order to take advantage of this option, customers must "opt out" of the change by writing to Bank of America. There is no opt-out telephone number, nor does Bank of America provide a form or a return envelope. And consumers don't have much time to respond. Letters received in late January had deadline dates of Feb. 19 or Feb. 29. Those who threw away the notice thinking it was junk mail or who fail to respond by the due dates will see their rates automatically rise on existing and new balances.

It's a legal - but sneaky - trick, as many of the big credit card issuers have provisions in the fine print that they can raise rates for any reason at any time. And with losses piling up in the subprime mortgage sector and increasing credit card chargeoffs, it's an easy way for banks to generate revenue.

But most people don't have a secret stockpile of money laying around that they can use to pay off their credit card balances - which means that once again, the credit card companies will win big at their customers' expense.

All this is happening despite the continued cuts in the Federal funds rate, which influences the interest that consumers pay for credit cards, home equity lines and car loans. The rate was reduced this year by 1.25 percentage points and currently stands at 3 percent.

Look for continued legislative efforts this year by Congress to curb these unfriendly practices.

Rep. Maloney Introduces Credit Cardholders' Bill of Rights

2008-02-08T08:15:00.001-05:00

The wave of legislation designed to protect consumers from unfair credit practices continues in the House of Representatives. Yesterday, Rep. Carolyn Maloney (D-NY) introduced the "Credit Cardholders' Bill of Rights Act of 2008" (H.R. 5244), which aims to amend the Truth in Lending Act and abolish predatory lending practices and abuses.

The Bill of Rights includes provisions that:

protect cardholders against arbitrary interest rate increases (such as universal default and "any time any reason" price hikes) and require a 45-day notice of any interest rate increases
prevent cardholders who pay on time from being unfairly penalized (eliminating double-cycle billing and fees on interest-only balances)
protect cardholders from due date gimmicks (requiring card companies to mail statements 25 days before the due date - 14 days is the current minimum - and prohibits charging late fees if provided with proof of mailing the bill within 7 days of the due date)
shield cardholders from misleading terms (such as "fixed rate" vs. "prime rate")
empower cardholders to set limits on their credit (creating a self-selected credit limit that cannot be exceeded, thereby eliminating over-the-limit fees)
require card companies to fairly credit and allocate payments (many card companies require that payments be allocated to lower interest rate balances first)
prohibit card companies from imposing excessive fees on cardholders (limits the number of over-the-limit fees to 3)
prevent card companies from giving subprime credit cards to people who can't afford them (requiring that fees for subprime cards whose total fixed fees over a year exceed 25% of the credit limit be paid upfront before the card is issued)
require Congress to provide better oversight of the credit card industry (improves data collection on industry profits and fees, and provide an annual accounting to Congress)
contain NO rate caps, fee setting or price controls (a concession to the card companies)

Maloney, who chairs the House Financial Institutions and Consumer Credit Subcommittee, said, "A credit card agreement is supposed to be a contract, but in recent years cardholders have lost the ability to say no to unfair interest rates hikes and fees." The bill "levels the playing field between card companies and cardholders while fostering fair competition and free market values. It sets no rate caps, fees or price controls, nor does it dictate any business models to card companies."

How to Choose a Credit Repair Company

2008-02-04T08:34:00.000-05:00

Dear Credit Mama,

I've been trying for several years now to fix my credit. I have tried contacting the three credit bureaus over and over about inaccuracies on my credit report, but they keep telling me that they have "verified" the information and then do nothing to correct it. This has cost me the ability to refinance my home (which has just adjusted up by 2%) and has made my credit card interest rates jump, too. At this point, there are so many mistakes on my report that I am afraid to even apply for any credit because I don't want to be embarrassed when the clerk tells me I don't qualify for a store credit card.

I have been looking into having a professional company repair my credit, but there seems to be a lot of conflicting information online. Can you give me some advice on how to choose a credit repair company?

Sincerely, Sue

Dear Sue,

As you've already experienced, trying to fix the errors on your credit report can be a daunting and frustrating task. While there have been changes in legislation that should provide greater protection for consumers, the credit system does not operate the same way as our criminal system... that is, with credit, you are guilty until you find a way to prove your innocence.

What most people do not understand is that credit bureaus are NOT government agencies. They are for-profit, multimillion dollar corporations that gather and sell your private personal information to creditors, insurers, employers, landlords, telemarking companies and mailing list companies. Those with lower credit scores statistically apply more frequently for credit, which generates more revenues for credit bureaus. So if you feel they don't have your best interests in mind by refusing to correct credit-score-lowering mistakes, you are probably right.

That said, there are some good credit repair companies with a proven track record of legitimately helping people like you. And they are not all law firms, nor are they required to be (contrary to what some firms are advertising). Here's what you should look for when choosing a credit repair company:

The company needs to follow the provisions in the Credit Repair Organizations Act, which was implemented by the government to protect consumers from scam artists.

The company is not allowed to charge you in advance. They must provide a service before billing you. Look for a company that will do an evaluation and audit of your credit report before taking your money.

The company must tell you upfront what the costs are for its services. Be wary of endless "low monthly payments." In the end, you will usually pay as much or more than a company that charges a fixed fee for a year. Think about it: what is the incentive for a law firm or company to finish your credit restoration as quickly possible if they only charge a small amount each month? And do you really think a lawyer is sitting at a computer spending hours each month to repair your credit for $40? I can't name one legitimate lawyer who charges less than $75/hour for legal services. Also look for hidden add-ons - for example, charging extra for different types of disputes, charging for each dispute individually, or adding fees for sending letters by certified mail.

The total cost for credit repair services generally ranges between $600-800, even for firms that tout low monthly fees. You may pay a set-up fee and low monthly fee of $50, but in order to take advantage of their money-back guarantee, in most cases you need to be a customer for a minimum of one year. $50/month x 12 months = $600 (not including the set-up fee).

Any guarantee must be clear and it must be in writing. Many firms will tout a money-back guarantee but hide how they will reimburse you if they don't perform as expected. Most require that you remain a customer for a minimum of one year before you can apply for any refund. Because credit repair can be difficult and time-consuming, this is a fair policy... but the company should say so upfront.

Avoid companies that advise you to dispute all of the information in your report. Disputing all of the information in your report may cause the bureaus to tag your disputes as frivolous. You want a company that understands how to interpret credit reports and provides a strong strategy for what items to dispute and how best to do it.

It goes without saying that creating a new credit identity by obtaining a federal employer identification number to use instead of a Social Security number is illegal. Run, don't walk, away from a credit repair company that suggests this tactic.

The credit repair company should tell you what you can and can't do legally for free. You CAN fix your own credit, just like you can fix your own car transmission. If you have the time and knowledge, your Credit Mama encourages you to do so. Credit bureaus are required by law to investigate disputes and remove or correct inaccurate or unverifiable information. However, they are also legally allowed to ignore disputes under a variety of conditions. If you've had difficulty getting the bureaus to respond, or simply want the help of an expert, hiring a credit repair company may be the right decision for you.

Credit & Predatory Lending: Hillary's Plan

2008-02-01T10:09:00.000-05:00

Did you know:

Americans have a record $940 billion in revolving debt, and the average person carries up to nine different credit cards. (Federal Reserve, 2007)
The average family carries thousands in credit card debt; over 10% of credit card users carry a balance of $10,000 or more. (Fair Isaac, 2007)
Low-income credit card holders pay (on average) the highest starting interest rates - and are more than twice as likely to pay penalty interest rates than those with the highest incomes. (Demos, 2007)

With the current economic pressures causing rising foreclosure rates due to resetting mortgages and increasing costs for essentials - food, health care, education and energy- credit health is becoming a hot election issue.

On the heels of Barack Obama's Five Star Plan, Hillary Clinton unveiled a Fair Credit for Families Agenda, which seeks to address predatory lending and expand access to fair credit. The plan includes measures to:

Impose a 30% cap on annual interest rates for credit cards and work toward a lower cap. (A GAO survey found that up to 25% of credit cards issued by banks charged penalty rates over 30%.)
Prevent credit card companies from unfairly increasing interest rates or charging interest in unfair or unreasonable ways, such as universal default clauses, applying new interest rates to old transactions, and collecting interest on late penalties. Credit card companies would have to apply payments to the portion of the outstanding balance with the highest interest rate, and only be allowed to collect interest on the unpaid portion of the previous month's bill (for example, if you pay off a $500 balance, you should not have to pay interest on that $500 balance the following month).
Require that credit card companies provide clear, easy-to-understand information about credit card terms and fees. In 2006, the credit card industry collected $97 billion in interest charges and $18 billion in penalty fees. (CardTrak, 2008)
Create a new Financial Product Safety Commission to police credit products in the wake of declining regulation for credit card companies and banks.
Crack down on abusive payday lenders and refund anticipation loan providers, many of whom charge excessive fees.

Your Credit Mama is not here to stump for any political candidate. But she does urge you, her family of readers, to look at your own credit situation and hold your elected leaders - whoever they are - accountable for making sure all Americans have fair access to credit on reasonable terms.

Tricky Thieves Preparing for Tax Refund Heists

2008-01-31T09:04:00.000-05:00

Seems that identity thieves are quite entrepreneurial these days. With tax filing season underway, and with some type of economic stimulus package sure to be approved - which would send rebate checks to most U.S. households in May and June of this year - scammers are already attempting to trick people into divulging their personal and financial information.

Among the new scams:

The Rebate Phone Call: Posing as an IRS employee, scammers are calling people and advising them that they are due for a large refund if they file their taxes early. The catch: they can only get the refund by direct deposit - if they don't disclose their bank account information, they don't get the rebate. But the IRS doesn't gather bank routing and account numbers by telephone. And, the IRS doesn't provide advance payments to taxpayers.

The Refund e-Mail: Scammers are sending bogus e-mails to people that appear to come from the IRS. Recipients are advised they are eligible for a tax refund and instructed to click on a link to complete a claim form that asks for personal and financial data. Another version of this scam targets tax-exempt organizations. The IRS does NOT send unsolicited e-mails, and there is only one way to apply for a tax refund - by filing a tax return.

The Audit e-Mail: Some people are receiving personalized e-mail notices that their tax returns are being audited. They are instructed to click on a link to a form that captures personal information. Unlike most spam mails, this one often incorporates the recipient's name. But if you're really being audited, the IRS won't notify you by e-mail.

The Changes to Tax Law e-Mail: Businesses, accountants and "treasury" managers are the targets of this scam, which instructs recipients to download information on tax law changes by clicking on a series of links to various IRS publications. But the links are bogus. What the user downloads is not tax law updates, but malware, which infects computers and sends personal information back to the scammer or allows the scammer remote access to the files on the computer. If you want to download IRS publications, visit www.irs.gov.

The Paper Check Phone Call: Scammers posing as IRS employees are calling people to let them know that the paper check they received from the IRS was not cashed, and they need to confirm the individual's bank account number. But the IRS doesn't really care if you cash your check or not, and won't contact taxpayers to verify any bank information that was provided.

If you get a questionable e-mail:

Forward it to phishing@irs.gov
Visit www.irs.gov and enter search for additional information by typing in "suspicious e-mails", "phishing", "identity theft", or "e-mail scams" into the search box at the top right corner of the page.

Did You Really Think Your Salary Was Confidential?

2008-01-25T15:58:00.000-05:00

In every place I've worked, my paycheck was always delivered in packaging that defied wandering eyes... usually requiring the removal of three separate tear-off strips, a battle with a letter opener, and sometimes even a paper cut or two.

But like any other piece of identifying data that could be possibly be collected and sold for a profit, your salary information is a commodity. Each payday, The Work Number, a product of Equifax, collects, stores and re-sells salary data and job titles on 46 million Americans - one-third of the workforce.

If you've worked for Fortune 500 companies like American Airlines, Boeing, Cisco, Coca Cola, Fed Ex, Ford Motor, GE, Hewlett Packard, Intel, Kmart, Lockheed Martin, Marriott, Microsoft, Motorola, Nokia, Pepsi, Sony, Visa, Wal Mart, Westinghouse, or government employers like the Department of Defense, U.S. Department of Energy, The Coast Guard, State of California, State of Missouri, or the cities of Detroit, Fort Worth and Pasadena sometime during the last 10 years, you're in the database.

There are currently more than 1,700 employers contributing data. The Work Number has 165 million employment records for current and former employees on file. The data, which also includes Social Security numbers, is sold to lenders, employers, landlords, and government-sponsored social service programs (such as food stamps) that want to conduct background checks or verify incomes.

The Work Number claims that problems with the data are rare: just 150 disputes a month (compared with 1.1 million verifications) because the data is automatically updated by the employers each time a paycheck is issued.

If you have been denied a job or loan because of the data provided by this service, the company that bought the report is required by law to notify you. In order to be compliant with the federal Fair Credit Reporting Act (FCRA), consumers are allowed to review and dispute information in The Work Number's database.

With identity theft issues making headlines on a regular basis, some privacy experts view this collection of data as a troubling issue. According to Elizabeth De Armond, an expert on privacy law and assistant professor at Chicago-Kent College of Law, "Any collection of personally identifying information like that leads to the high potential for identity theft. It's sensitive data."

Your Credit Mama agrees... this is just one more reason to check your credit reports regularly!

Will the Doctor Still See You After Looking at Your Credit?

2008-01-22T16:38:00.000-05:00

Every 30 seconds in the United States, someone files for bankruptcy in the aftermath of a serious health problem. According to a Harvard study, illness and medical bills are the cause of half the personal bankruptcies filed in U.S. An estimated one million Americans are financially ruined by illness or medical bills each year - more than half of them are college educated, homeowners, with good jobs. Surprisingly, more than 75% were insured at the start of the bankrupting illness.

Now I'm going to throw another number at you: 80 percent. That's the number of hospital bills that contain multiple errors, according to the Medical Billing Advocates of America.

Here's one final stat: 250,000. That's the number of medical identity theft victims reported to the FTC each year.

Now there is talk of a medical FICO score being developed by a company called Healthcare Analytics. Like your credit score, which calculates the level of risk via algorithms and the consumers' credit history, the medical FICO score calculates which patients are more likely to pay their medical bills. Healthcare Analytics is already gathering payment information from large hospitals around the country.

Supposedly the benefit of a patient scoring system is to help hospitals decide whether to write off some delinquent bills as charity cases rather than report them as delinquent accounts. According to msbnc.com, American hospitals face $40 billion in unpaid bills every year.

But with so many people already uninsured (47 million in 2007), and with out-of-pocket costs rising, and two million people filing bankruptcy each year due to medically-related issues, this medFICO is a serious concern for consumers and privacy advocates.

Add to that the frustrations of inaccurate billing, and you've got the same headaches as with the credit bureaus - who also have a dismal 79% error rate (nearly 8 out of 10 credit reports contain serious errors).

Will the doctor or hospital decide not to perform certain services or provide inferior care (ie: reducing the length of stay) after looking at a patient's medFICO score? Will an employer decide not to hire someone because they are too expensive to insure? They SAY these things won't happen, but the risk assessment industry is too lucrative for this information NOT to be used in other ways.

Who is Healthcare Analytics? The investors include Fair Issac Corp. (founder of the FICO scoring model) and Tenet Healthcare Corp., one of the nation's biggest hospital operators. Former Tenet CFO Stephen Farber is its CEO.

The product is not expected to launch commercially until the end of this year.

Don't ever give your SSN to a healthcare provider. They do not need it. They need your member number from insurance, not your SSN. Furthermore, it's illegal for them to ask for your SSN unless they are going to lend you money or hire you.

650,000 Affected in Latest Credit Data Breach

2008-01-18T11:45:00.000-05:00

In yet another case of sensitive data becoming MIA (missing in action), the personal information of 650,000 people, including names, addresses, account numbers, Social Security numbers, and other information, was comprised when GE Money Americas and its backup storage vendor, Iron Mountain, lost an unencryted backup tape.

The backup tape contained data on customers for JC Penney and up to 100 other retail store customers.

GE Money alerted the New Hampshire Attorney General's office of this security breach on Dec. 28, 2007. According to their notice, the tape was checked into Iron Mountain's secure facility and never checked out, but a search of Iron Mountain's premises and theirs has been unable to locate it.

It is hard to assess if the information on the missing tape is being used inappropriately or whether it will be misused in the future. GE Money is offering 12 months of credit monitoring for those persons that had Social Security numbers on the lost tape.

As anyone familiar with the TJ Maxx data breach knows, 12 months is a short blip in the lifespan of sensitive personal data like Social Security numbers. It becomes the consumer's burden to regularly and consistently check his or her credit report for possible identity theft issues. If you fear that your personal identifiable information has been compromised, you can elect to implement a "freeze" on your credit.

To contact GE Money, call toll-free Monday through Friday, 9:00 am to 7:00 pm EST, at 1-866-913-6690.

A Five-Star Plan to Reduce Predatory Credit Cards

2008-01-17T14:10:00.001-05:00

On the campaign trail, Democratic presidential hopeful Barack Obama is attacking predatory credit cards.

Last month, Obama and fellow Senator Ron Wyden (D-RO) introduced legislation designed to educate and protect consumers from abusive lending practices, while providing incentives to credit card issuers to improve their practices.

The Credit Card Star Safety Act of 2007 (S. 2411) awards "stars" to each card based on a points system. Cards with fair and friendlier terms and conditions are awarded more stars, with five stars given to the safest cards. These star ratings would be required on all marketing pieces, agreements, statements and applications. The idea is that consumers would naturally gravitate toward using the cards with more stars, creating competition among credit card companies to keep and attract new customers by changing abusive practices.

The rating system doesn't measure how good the interest rate is, but rather the safety of the credit card agreement itself. For example, card issuers that state they can change the terms of the credit agreement "at any time" without notice or employ "fee harvesting" techniques would earn one star. Those that provide 90 days' notice to cardholders before changing their terms, or have agreements that are easy to understand, would earn more stars.

This program is based on the success of the five-star crash test ratings system for new cars. Initially, no car was given more than two stars; today, a number of vehicles are earning five stars. While most of the credit cards today would probably rate an average of one to two stars, Obama and Wyden expect this program will have a similar, positive impact on credit card practices.

It's a pressing issue that many voters can relate to. According to data from the Federal Reserve and the U.S. Census Bureau, in September 2007, U.S. consumers were carrying close to $880 billion in credit card debt – nearly $2,900 for every man, woman and child in the country. Credit card debt has increased by almost $163 billion since 2004, an increase of over $500 per person in the U.S., or 23% in just 3 years.

How Will FICO's New Scoring Model Affect You?

2008-01-14T09:15:00.000-05:00

Last summer, a little-known Internet-based company based in Florida was thrown into the national spotlight for its ability to "trick" the credit bureaus' credit scoring programs. Credit-challenged customers signed up with the company, who added them as authorized users on the credit cards of people with sterling credit. It seemed to be a win-win for everyone - the clients, who normally paid upwards of $1,000 for the service, got a boost of 30-200 points almost overnight; the original card holders were paid handsomely for allowing clients to piggyback on their good credit history. The losers? The credit bureaus and lenders.

As promised, Fair Isaac Corp., creators of the FICO credit score, will launch a new scoring model this spring. One of the major changes is the exclusion of these types of authorized user accounts from their credit score calculations.

According to Fair Isaac, 30% of the population has an authorized user account - approximately 60 to 75 million borrowers.

Since length of credit history accounts for 15% of one's total score, if the authorized account is the first (or only) type of account that the borrower has, then this new scoring model will have an immediate negative impact on the borrower's credit score by "shortening" the credit history.

This change is expected to have an especially dramatic - and negative - impact on teens and young adults who have been added by their parents as authorized users in an honest effort to help them establish credit.

One alternative to consider is making the borrower a joint cardholder instead of an authorized user, making each person equally responsible for the credit activity (payments and outstanding balance).

FICO is changing other scoring calculations as well. Points will be given for borrowers who have multiple types of credit (such as a mortgage, credit card and student loan). The thinking behind this is that borrowers who can manage various types of loans should be given greater consideration. Delinquencies also will be factored differently. The current scoring models lump in borrowers with one delinquent account with borrowers who are delinquent on multiple accounts. The new model separates these two groups.

It's Good to Have Limits

2007-12-27T09:51:00.000-05:00

A couple of years ago, Federal Reserve researchers reviewed 310,000 individual consumer credit files. Among their findings: nearly half (46%) were missing at least one credit limit on their report.

For anyone who is concerned about improving or maintaining their credit score, this is bad news... because when companies like Capital One do not report credit limits to the credit reporting agencies (Equifax, Experian and TransUnion), your credit score can drop significantly.

The first question: How does this happen?

Part of your credit score -- 30% -- is determined by how you use your credit. If you tend to maintain balances at or close to your credit limit, your score will not be as high.

Credit reporting agencies use special software to calculate your credit utilization ratios. Credit utilization refers to how much of your available credit you are using. If a company does NOT report your card limit, the software may substitute your highest balance in place of your actual limit to calculate your ratio.

So, for example, if you have a credit card with a $5,000 credit limit, and the highest monthly balance you've ever had on the card is $2,500, you have a 50% utilization ratio. However, if your most recent balance is $2,000, and the credit card company doesn't report your $5,000 limit, the scoring software may use the highest monthly balance ($2,500) to determine your limit. That would make it appear as though you are nearly maxxed out with a credit utilization ratio of 80% - which could drop your score 20 to 50 points or more.

Recent data from Experian revealed that those with the highest credit scores used only, on average, 17.8% of their available credit.

The next question - Why do companies withhold credit limits?

The answer: Competition and the almighty dollar.

With the average American carrying four credit cards with balances of $9,000-$13,000, it's becoming increasingly difficult for lenders to gain new customers. As a result, they are trying to lure existing cardholders with offers of low balance transfers, cash rebates and more.

Companies like Capital One hope to reduce "poaching" of customers by their competitors, who routinely sift through national credit bureau data looking for prospective customers. The practice of withholding credit limits artificially lowers the credit scores of their customers, theoretically making them less attractive to other lenders. And it might mean that consumers using Capital One cards are paying higher interest rates on their other credit accounts. This makes it more likely that you will remain a captive customer of Capital One and less likely to be offered the credit you deserve from other companies.

Those hurt the most by this practice are consumers with few credit accounts and those just beginning to build their credit history.

Class action lawsuits have been initiated, accusing the Big Three of deliberately shielding data despite knowing that this practice reflects negatively on credit score calculations.

Until the lawsuit is settled, consumers would be wise to review their credit files to see which companies are not reporting accurate credit limit data, and to be cautious about using these cards.

One Late Car Loan Payment = 98 Points

2007-12-20T08:55:00.000-05:00

How much does one late payment on a car loan cost you?

According to a recent study by credit bureau giant Experian, just one late payment could drop your credit score by 98 points or more. The average person with no late vehicle payments has a score of 703 - those with one late payment have a score averaging 605. Twelve percent of the people in their study have at least one late auto payment on file.

If you're behind on payments more than 90 days, your score could drop to 580 or even lower.

Because of differences in credit scoring models between credit bureaus, the actual drop in score may differ from one to the next. TransUnion says that generally, one late payment can drop a score between 25 and 75 points.

Since your credit history and credit score is one of the primary determining factors in getting good rates on loans, credit cards and insurance (and may even impact whether or not you get the job you're seeking), you want to be sure you make on-time payments.

Put a Freeze on Identity Thieves

2007-12-19T08:55:00.000-05:00

Earlier this year, the parent company of TJ Maxx disclosed that information from nearly 46 million credit and debit cards was stolen by hackers - the biggest data breach in history. The stolen information covers transactions dating as far back as December 2002.

The company, which also owns Marshall's and other stores in the U.S. and U.K., revealed that an additional 455,000 customers who returned merchandise without their receipts also had their personal data stolen, including driver's license numbers.

Identity theft is one of the world's fastest growing crimes. A report issued in March by Gartner banking security analyst Avivah Litan estimates 15 million Americans will become victims of identity theft in 2007, up 50% from 2005. Average loss: $3,257 in 2006, up from $1,408 in 2005. With new state laws now requiring the reporting of data breaches, more than 500 incidents of such losses have been reported since February 2005 - losses involving more than 155 million records.

Fifteen percent of identity theft cases involve the opening of new accounts. Criminals use stolen information to open credit card and cell phone accounts, take out loans, and pay medical bills. The victims are left with a corrupted credit history that can take years to correct - and suffer with higher interest rates until their files are cleared.

Consumer advocates and even state governments have been advocating for greater consumer protection in the form of a credit "freeze." Put simply, a freeze prevents the credit bureaus (Experian, Equifax and TransUnion) from releasing your credit report to lenders. Because few lenders will issue credit without this information, it is a good deterrent.

Not surprisingly, this did not sit well with the bureaus, whose core business is making money by selling credit report data. The Big Three issue billions of credit reports each year, amounting to a combined annual revenue of more than $4 billion.

The Center for Responsive Politics reports that the Consumer Data Industry Association (which serves the interests of the credit bureaus) spent $1.4 million on federal lobbying in 2006, trying to fight consumer-ordered freezes and working hard to convince politicians that identity theft wasn't as big an issue as people thought. (Tell THAT to anyone who shopped at TJ Maxx!)

With growing pressure on legislators to enact consumer protection laws, TransUnion decided to offer a file freeze in all 50 states and D.C. this past October. The other two bureaus soon followed.

All three credit bureaus must be contacted for a full credit freeze. Costs are typically free for identity theft victims, and generally $10 or less for non-victims (depending on the state) each time you "freeze" or "unfreeze". This does mean that you will have to unfreeze your file each time you wish to apply for credit - but the increased protection from identity thieves is often worth it.

The Not-So-Free Credit Report

2007-12-18T16:57:00.000-05:00

If you're like me, the most annoying jingles get stuck in my head. For hours.

One of the most egregious offenders is the ubiquitous jingle "free credit report dot com." (If you know the jingle, it's probably stuck in YOUR head now. Apologies.)

FreeCreditReport.com is one of more than an estimated 100 domains that lure unsuspecting customers to Web sites that charge for the same service they advertise as free. Many of these sites are run by the big three credit reporting agencies: Experian, Equifax and TransUnion. (FreeCreditReport.com is an Experian site.)

What the chorus of women crooning those five simple words don't tell you is that ordering a "free" credit report from FreeCreditReport.com "enrolls" you in a free trial of their "Triple AdvantageSM Credit Monitoring"service. If you don't cancel the "free trial membership" within the 30-day trial period, the billing ($14.95 per month) commences. (The FTC agreed to settle charges of deceptive practices against FreeCreditReport.com for $1 million; the FTC went after them a second time, but the second fine was just $300,000.)

Then there's outright deception.

An investigation by the World Privacy Forum identified 96 known misspelled, registered domains designed to exploit typing errors to send people to different sites with fee-based services. Of these sites, 28 were identified as belonging to Experian and other credit services such as MyFico at FairIsaac.

While you can go to http://www.annualcreditreport.com/ to get your free credit reports, confusing menus and solicitations can give unwary consumers more than they bargained for in the way of e-mail spam and the selling of personal information to "affiliates." And some of these online report sites contain a mandatory arbitration agreement which prevents you from taking a case against the credit bureau to court.

Consumer advocates strongly recommend calling their toll-free number instead: 877-322-8228.

Here are some tips on ordering your credit report (courtesy of Bankrate.com):

Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.

No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.

Be secure: Always be sure you're on a secured Web site when entering your personal information.

Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.

Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.

Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.

Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.

Equifax Must Pay $2.9 Million for Destroying Woman's Credit

2007-12-05T11:54:00.000-05:00

Yes, Virginia, there is a Santa Claus.

This year he will be visiting Angela, an Orlando woman, with an extra special gift - $2.9 million - from Equifax, one of the big three credit reporting agencies.

Angela, a medical transcription worker, tried for over a decade to have erroneous information deleted from her credit file. Seems Equifax repeatedly confused her credit information with that of a deadbeat who had a similar name. Despite her continued attempts to dispute the information in her credit report, Equifax kept passing along the wrong information.

This led to Angela's inability to get student loans, credit cards, and even ATM cards. She couldn't apply for a mortgage. She finally sued in 2003.

The jury apparently thought Equifax deserved more than just a slap on the hand. They decided that Equifax must pay her $219,000 in actual damages and $2.7 million in punitive damages for "negligent violation of federal credit-reporting laws." (Two other companies named in the suit - Experian and American Recovery Systems - opted to settle the case out of court.)

According to one expert who testified in the trial, "people have been victimized by the companies' streamlined, automated process of 'investigating' alleged credit-file errors... the process is set up to save money and boost profits rather than protect consumers."

I guess Santa will be giving Equifax a great big lump of coal this year.

When Good Payers Get Screwed

2007-12-04T10:38:00.000-05:00

You are one of the "responsible" ones.

You have a few credit cards with decent rates. And you've always paid those bills on time.

So you don't think twice about that holiday discount offer - you know, the one where you can save an additional 10-15% on your purchase if you open up a department store credit card. Your credit is good - you are approved!

The next month, you get your credit card statements and fall out of your chair. Your credit card issuers have just raised your interest rates!

How could this happen when you've always paid your bills on time?

In yet another example of abusive credit card industry practices, big financial companies have adopted policies where they can bump up a consumer's interest rate for their credit card when their FICO score declines - even if they have never paid late on that card. Mind you, your FICO can decline when you do something as simple as open a department store credit card.

Members of Congress are currently investigating this and other abusive practices. The subcommittee found that in many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores "for reasons left unexplained."

Five big financial companies issue around 80% of credit cards in the U.S. -- Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services LLC, and JPMorgan Chase & Co.

One week prior to the Congressional subcommittee's hearing on the issue earlier this year, Citigroup suddenly announced that it would no longer make "any-time-for-any-reason" increases to interest rates and fees charged to customers, at least until a credit card expires and a new one is issued (usually in two years). JPMorgan Chase followed suit, saying they also will discontinue the practice.

But legislation may still be needed to get other companies to do the same - and at least mandate that credit card issuers give customers adequate notice (at least 45 days) of terms and rate increases in language that can be understood by a fifth-grader.

Consumers Slam Debt Firms with Lawsuits

2007-11-29T08:56:00.000-05:00

Not so very long ago, ruthless debt collectors used humiliating and harassing methods to try to squeeze payments out of consumers. Embarrassing post cards, abusive calls at all hours of the day and night, calls to the workplace, calls to friends and family members, and publicly published lists of debtors were among the tactics that collection agencies used to strongarm people into forking over money.

The Fair Debt Collection Practices Act, a statute added in 1978 as part of the Consumer Credit Protection Act to protect consumers from abusive, deceptive and unfair debt collection practices, is at the center of a wave of lawsuits by consumers that have been dragging debt collection lawyers into court for violating the law.

Among the reasons: mistakes in court filings made by those who purchase debt from creditors but frequently lack enough information to avoid making false statements in pleadings, and debt collectors that are filing cases with inaccurate information or filing after the debt's statute of limitations has expired.

There were more than 69,000 consumer complaints made to the FTC about debt collectors in 2006, which is more complaints than the FTC receives about any other specific industry. This was an overall increase of 3.8% over 2005.

How does this impact you - the consumer?

Recent court decisions in fair debt cases are causing a great deal of anxiety among debt collectors and creditors. Increasingly, debt-collection lawyers are relying on what's called the "bona fide error defense" - claims that the mistakes are unintentional and occurred in spite of the debt collector's best efforts to avoid them. But this defense is being successfully challenged in a number of cases. What exactly is a "bona fide error"? This remains unclear.

The National Law Journal reports that a recent federal court decision that denied litigation immunity to a debt-collection law firm creates more risk for debt-collection lawyers.

The FTC is currently examining the law, which hasn't had a major overhaul in its 30-year history, to see if it is out of step with industry developments. Stay tuned.

Warning! Potential Identity Theft Scam

2007-11-28T10:39:00.000-05:00

A colleague of mine received a telephone call last night from a person who asked for her by name, then told her that he was calling on behalf of Bank of America ("BOA"). The caller said that BOA was going to provide her with a "complimentary" copy of her credit report in the next 72 days. She told them she was not interested and did not authorize them to request her report. The caller persisted, saying, "But it is complimentary." She informed him that she didn't care and that they could pay her $100 and she still would not authorize them to send her report. The caller became agitated, said "whatever" and hung up.

She immediately called BOA to inquire whether they were actually offering this service. The customer service representative checked the bank's services to see if this was a legitimate offer, and then told her to file a complaint with the FTC because this is not a service being offered by BOA.

The caller I.D. number was "IC 307-737-9533." (She said she had been receiving telephone calls from the same or very similar number every day for the past few weeks, but no one was ever on the other end of the line until last night).

As part of the Fair and Accurate Credit Transactions Act (FACTA), everyone is entitled to obtain a free copy of his or her credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Experian, Equifax and TransUnion). Simply go to http://www.annualcreditreport.com/.

Remember, you should never provide your personal information to any other company or person for requesting free credit reports.

Beware of Predatory Credit Cards

2007-11-07T12:59:00.000-05:00

So let's say you're one of the millions of Americans with weak or non-existent credit. You're desperate to rebuild your credit history, since you know that poor credit leads to higher rates for mortgages, auto loans, insurance and can even affect whether or not you land that job you want. You've heard that one way to rebuild a weak or non-existent credit history is by signing up for a credit card and making small purchases, repaying the debt on time every month.

Somehow these banks seem to know that you want credit - you've received e-mails and offers in the mail. Lured in by promises of credit lines up to $2,000, you apply for a credit card. Congratulations- you're approved! You're a little disappointed that the limit they give you is just $250. It wasn't as much as you'd hoped for, but it's a start.

What you probably didn't do, though, is ask about the TERMS. And you soon discover that your $250 credit line is actually much less, because by merely signing up for the card, you incurred $178 of instant debt due to all those fees that you didn't know you'd be responsible for. There's a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee. If you didn't realize that your actual buying power was really just $72, you might buy something that causes you to go over your limit - which, of course, generates yet another fee.

This is just one example of "fee harvesting," a practice by which credit card companies pile on junk fees to unsuspecting consumers - typically low-income, fixed-income and minorities. It's a lucrative business, generating millions in fees for companies and billions of dollars of debt for consumers.

A report issued by the National Consumer Law Center details how banks and marketers take advantage of inadequate laws and weak oversight by regulators by selling these predatory cards. The biggest offenders named in the report include CompuCredit, Urban Trust Bank, South Dakota-based First Premier and First National of Pierre, and Delaware-based First Bank of Delaware and Applied Bank (formerly known as Cross Country Bank), Capital One and HSBC.

They'll tell you their mission is bringing affordable banking services to the underserved. But what they are really doing is profiting from the poor and desperate.

The root of the problem lies in regulatory and legal loopholes that allow this practice to continue. I don't advocate cutting off people's access to credit. Rather, we need tougher federal controls. Until Congress acts to protect consumers from fee harvesting and other predatory practices, you must protect yourself.

The smaller the print, the more important it is to read it. Before you agree to anything, ask to read the terms. If you don't understand the terms, ask someone you trust to explain them to you.

Remember, if it seems too good to be true, it probably is.

Listen to NPR's report: Low Wage America - Credit Card Companies Abuse the Unwitting.

$3,000 Credit Limit and No Job

2007-11-05T09:54:00.000-05:00

When I went to college, I was armed with a word processor (because I couldn't afford one of the newfangled computers), flannel jeans (I was a Florida girl who couldn't wait to experience her first Boston winter) and a toaster oven (for making toast and baking cookies). What I didn't bring, though, was any lick of common sense about credit or credit cards or interest rates. (Not entirely my fault - growing up, my parents were very hush-hush about finances. Talking about finances was like talking about that crazy mouthy aunt with chin hairs - you just didn't do it, but if you had to, it was always in a low voice and the topic was always dropped after a minute or two.)

So naturally, being a broke college student, I signed up for several credit cards. The credit card companies were everywhere on campus. What a deal! Not only did I get credit cards, I got some cool T-shirts and water bottles too.

I was thrilled when the credit cards came in the mail. I felt so "grown up." And the amount of money I could charge - one card had a $3,000 limit! - boggled my mind. Free money! I got my hair cut at a tony place on Newbury Street. I developed an obsession with expensive perfume. I treated my other broke college friends to dinner. I charged right up to my $3,000 limit.

When the bill came, it was all I could do to make the minimum payments. I had a job, but the majority of that had to go toward my work-study commitment. Long story short - I DID pay off the credit card - but it took YEARS to do so.

When I read "The dirty secret of campus credit cards" in BusinessWeek, it brought back a lot of memories and questions. Why in the world would a credit card company give a $3,000 limit to a college student who stated on her credit application that she had no job? But marketing to college students - easy targets because of their limited financial resources and naivete - has been part of campus culture for decades.

Why? Colleges and universities benefit from "sweetheart deal" kickbacks. We're not just talking free dinners. We're talking about secretive deals worth $20 million dollars per university. Schools earn "a set fee for each student, alumnus, or professor who signs up for a credit card, as well as a percentage of overall charges made on the cards." In exchange, the school gives credit card companies access to student lists and exclusive marketing privileges at school events.

Can you blame the schools? State schools are having an especially hard time as they deal with budget cuts. But in an era when more than 85 million people have joined the national Do Not Call list (and that figure is from 2005!), why are secret deals being made to release student information to the types of companies that many of us have chosen to avoid?

Well, that may stop. State legislatures in New York, Texas and Oklahoma voted earlier this year to clamp down on marketing credit cards to college students. And I understand that this is an issue that Congress will be examining in greater depth.

Don't get me wrong. I am not against issuing credit to college students or stifling capitalism. I do think, though, that college students - and many adults too - don't understand the increasingly complicated terms and conditions of credit cards, or even the basics of how they impact their credit and financial health. All I'm saying is - let's do this responsibly, and include in their education not just English, calculus and biology, but the ability to understand and manage credit cards wisely.