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

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.

I Never Said You Could Pull My Credit!

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.

What is my REAL credit score?

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.

Did You Really Think Your Salary Was Confidential?

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!

650,000 Affected in Latest Credit Data Breach

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.

It's Good to Have Limits

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.

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.

Warning! Potential Identity Theft Scam

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.