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.
Thursday, December 27, 2007
Thursday, December 20, 2007
One Late Car Loan Payment = 98 Points
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.
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.
Wednesday, December 19, 2007
Put a Freeze on Identity Thieves
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 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.
Tuesday, December 18, 2007
The Not-So-Free Credit Report
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.
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.
Wednesday, December 5, 2007
Equifax Must Pay $2.9 Million for Destroying Woman's Credit
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.
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.
Tuesday, December 4, 2007
When Good Payers Get Screwed
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.
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.
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