Friday, August 10, 2007

College Students Beware

What are the two most common pieces of mail that fill up college students’ campus mailboxes across the country?

Or a better question for readers of this blog: What does that have to do with credit scores?

Well, the first answer — for the luckier, well-loved college students out there, at least — shouldn’t be a surprise — letters from Mom (hopefully jam-packed with endearing words and, more importantly, a fat check).

But college students also receive a plethora of other incoming envelopes: credit card applications. And for most students, a pre-approved credit card proves to be a very tempting offer. However, college students need to be very conservative when it comes to applying for credit cards without a steady income. Recovering from a poor credit past — stemming from a careless approach to credit in college or not — is a difficult challenge. You don’t want to put yourself in a credit hole as a student.

Michelle Felter, a columnist for the Standard Democrat, dives into this topic in great detail in a recent column. As well as the negative aspects of applying for a credit card during college, though, Ms. Felter thinks that there are some positives to students’ establishing a credit history during college. In the article, she states, “Sometimes, however, credit is a good thing to have, especially for students about to graduate and buy items such as vehicles and houses.” But according to Terry Williams, who is the community bank president at Southern Missouri State Bank, students need to be extremely careful throughout the entire process.

More from Ms. Felter:

Taylor Allen, who will begin college at the University of Missouri-Columbia this month, said she has received about two credit card applications a week since early this spring.

Despite the temptations of pre-approved cards, she will not get one before college.

“I had a banking class and the teacher said ‘hold off on the credit card as long as you can,’ and I’ve always remembered that,” Allen said.

She’ll use her debit card. “It’s about the same thing, but you can’t overspend,” Allen said.

Anna Ferrell, marketing director at Focus Bank, said that seems to be a trend. “If the money is not there, you can’t spend it,” she said. “It actually will help you to establish good spending habits and stay within your budget.”

She continues:

Williams compared the significance of a credit score to that of the SAT or ACT score of getting into college. “Your credit score is going to be looked at for the rest of your life,” he said.

There are some tips to follow if you do obtain a card. Justin Taylor, a financial advisor at Edward Jones in Sikeston, said to just open one line of credit, as multiple cards can make someone a credit risk.

Also take a look at the annual percentage rate. “The lower the better,” Wooden said.

Adams suggested using credit cards like a bank account, or just for necessary items. And if one will be making Internet purchases, he advised a card with a limit below $500. “You can have ID theft with those purchases,” he said.

I particularly like Mr. Williams’s analogy (in bold) above — where he compares the importance of establishing a high credit score to achieving exemplary results on standardized college admission tests.

Unfortunately, though, unlike an SAT score, which does little for students — other than something to brag about (if high) — following graduation, a credit score will measure your credit-worthiness for the rest of your entire life, which is why it’s so important to be careful when applying for pre-approved credit cards during college.

To check your credit report instantly, click here.

And if you're scoring at home, there's now less than a year (364 days to be exact) to vote in our credit poll. Don't waste another second, vote now!

Great Article From FoxNews

There was an outstanding credit-related article that appeared on the FoxNews website this morning. The article, titled Cardholders Caught In Credit Trap Report, is definitely worth reading. I will analyze the article in further detail in a future post.

Thursday, August 09, 2007

Credit Scores and Car Insurance

In a previous post, I discussed how credit scores dramatically affect — negatively or positively — people’s car insurance bills. Although it’s a common misconception, car insurance companies do not use credit scores to predict payment behavior. However, insurance companies do use credit scores to estimate the number of claims that potential customers will make in the future. In an article from today’s issue of the Florida Sun-Sentinel, Dan Thanh Dang, a popular columnist who focuses on consumer interests, analyzes this topic in extensive detail.

Using the first-hand account of John Rogers — a 43-year-old salesman from Baltimore with a past clouded by financial struggles — Ms. Dang thoroughly discusses the tremendous dangers, insurance-related or not, of having a poor credit score.

Does a credit bearing have any impact on how people drive? This question, one of the most frequently asked regarding the impact of credit scores on insurance rates, doesn’t really have a definitive answer.

In the article, Mr. Rogers wonders the same thing: “I'm not the worst-credit person in the world and I'm not the best. But I don't see how it has any bearing on how I drive, though."

A credit score certainly won’t directly influence the way people drive, but in essence — at least in the eyes of insurance companies — it can.

In response to this question, Ms. Dang says, “Well, it doesn't — not technically, anyway. It does, however, play a role in how much you pay for your auto insurance. Insurance companies don't use your credit score to predict payment behavior. Some use the scores as a factor when estimating the number of, or total cost of, claims that customers are likely to make.”

Unfortunately for some, including Mr. Rogers, this can be quite a wake-up call for people who have low credit scores.

Per Ms. Dang:

Rogers found that out the hard way. When he recently opened his Erie Insurance renewal statement, Rogers was gobsmacked to find that his auto insurance premium had jumped by 12 percent.

Instead of the $7,400 he was paying for three cars (a 1999 Nissan Sentra, a 2000 Chevy Cavalier and a 2005 Chevy Trailblazer) and four drivers (himself, his 42-year-old wife, 20-year-old daughter and 18-year-old son), Rogers would now have to pay $900 more. "No one has had any accidents in the last five years," Rogers said. "The only claim we filed was from two years ago when someone kicked the side of my son's car door in while he was downtown. That was filed under an uninsured motorists claim. But that's it."

If you’re in a similar situation as Mr. Rogers — with a flawless driving record and exorbitant insurance rates — you need to find out why. More than likely, your high rates are due to a low credit score.

Do you know where your credit history stands right now? If not, then you need to check your credit report immediately because you need to know where your credit stands at all times. Click here to do so instantly. But also make sure to carefully look for any errors in the report, which can have detrimental effects on your credit score — thus costing you dearly, possibly thousands of dollars annually, through higher credit card, insurance, and mortgage rates.

For tips on how to improve a poor credit score, scroll down to view several of the previous posts on this blog. And for even more credit insight, click here.

Wednesday, August 08, 2007

Can Closing a Credit Card Account Hurt Your Credit Score?

According to financial guru Stephen Snyder, “closing credit card accounts is a fast track to lowering your FICO credit score.” And as usual when it comes to credit, Mr. Snyder is exactly right.

He even offers a personal experience of how a bad encounter with a customer service employee at American Express led him to cancel a card — a decision he profoundly regrets.

Snyder recalls, “I was in a rare fit of anger. Last summer I got so mad at American Express, I closed a personal credit card account that I had just opened with them. The lady I spoke with at Amex was a complete idiot...and clearly working in the wrong department. I thought I was talking to a person in customer service...she obviously worked for the sales prevention unit. It felt empowering when I told her to, ‘close the account,’ and promptly hung up the phone. Then I realized what I had just done...”

As he frequently discusses in his columns and on television appearances — in media outlets such as CBS, CNN, Newsweek, Smart Money, The Wall Street Journal, and The Washington Post, among others — canceling a credit card is a serial credit score killer.

Why is closing a credit card bad for your credit score?

I’ll let the expert explain it to you.

Per Mr. Snyder.

“Here's why...one of the categories that makes up your FICO credit scores is called "time in file."

In English, "time in file" translates to:

- How old the oldest account on your credit report is, and
- The average age of all the accounts on your credit report

The longer you have the same accounts the better it will be for your FICO credit scores. (And it is in your favor if those accounts are in good standing.)

I've had the opportunity to study a few credit reports where the consumer obtained FICO credit scores of over 800.

These folks are like the white buffalo. They're very rare and rank in the top 5.85% nationally. This means their credit scores are higher than 94.15% of the rest of the people in the country.

One thing the "800 Club" members all have in common are several old accounts appearing on their credit reports. When I say "old," I mean really old...decades in some cases.

One example is from a guy from Georgia who had a Sears credit card on his credit file that was opened in 1954. It actually said that on his credit report...opened in 1954. (That means that his credit report is 52 years old.) His lowest FICO score was 809.

Bottom line: an old credit history is good for your credit scores. And you can't achieve an old history if you close your accounts.”

I would highly recommend reading the entire article and several of Mr. Snyder’s other columns for more reasons on why you should think twice before canceling a credit card.

Monday, August 06, 2007

A Big Day in the World of Credit Scores


Capital One does more than provide television viewers with funny commercials.

On Saturday, Capital One Financial, one of the leading credit card companies in the United States (What’s in your wallet?), announced that they will start reporting cardholder’s credit limits to all three national credit bureaus — TransUnion, Equifax, and Experian. The move, which has been praised by several pundits in the world of credit, could potentially raise the FICO credit scores of over 50 million consumers across the country.

In recent months, Capital One has come under intense criticism from consumer and lending industry groups for withholding its customers’ credit limits in regular reports released to each bureau — a method which has lowered consumers’ credit scores for years. This is one of the many reasons that led to a change in the system.

Why is this headline news?

According to Washington Post financial columnist Kenneth Harney, “Higher FICO scores, in turn, will allow Capital One cardholders to qualify for lower mortgage interest rates when they buy or refinance homes. An increase from 659 to 700 would have cut an applicant's mortgage rate quote last week from 7.68 percent to 6.59 percent on a 30-year fixed-rate mortgage of $300,000, according to Fair Isaac, the developer of the widely used scoring system.”

He continues, “Although most consumers are unaware of it, their credit scores can be artificially depressed if creditors do not report their credit limits. That's because Fair Isaac assigns a heavy weight -- 30 percent of a person's score -- to what is known as "utilization" of available credit. Utilization basically boils down to this: If you've got a card with a $5,000 credit limit and you're carrying a $4,750 balance, you've got a 95 percent utilization rate. FICO's scoring system -- which runs from 300 to about 850 -- subtracts points for high ratios. The rationale is that people who are maxing out their cards are perceived as riskier and more likely to fall behind on payments.”

This is great news for all consumers with an established credit history everywhere. However, even with a boost to your FICO credit score resulting from the end of Captial One’s long-standing practice, you still need to take the appropriate steps to continuously improve and maintain a strong credit history. One of the best ways to do this — signing up for a credit monitoring service — is as easy as sinking a three-foot putt. Credit monitoring services, like he one provided by Privacy Matters, provide instant alerts to any changes in your credit report — some of which even offer constant access to all three leading credit bureaus. Not only will instant credit alerts allow you to easily detect and quickly respond to identity theft, you will also have the opportunity to fight any discrepancies in your credit report — which could potentially lower your credit score —immediately.

I must say, the Washington Post is consistently one of the best sources to go to for credit-related news. I would recommend checking out the financial section on the Post’s website on a regular basis.

Other news from the world of credit report and credit scores:

“Bad Credit, good business,” The Kalamazoo Gazette

From the article:

Subprime credit: People with subprime credit have low credit scores because of their spotty credit histories or because they lack credit histories. Lenders consider loans to them high-risk.

The costs: Subprime borrowers can expect to pay high interest rates. Most banks don't deal with subprime borrowers, which limits these borrowers' choices. And the companies that do extend loans to people with poor credit will charge a high rate to compensate for the risk.

How it works: In auto financing, subprime customers get chances to improve their credit scores by paying off loans. The auto dealer finances the deal or works with a loan company to finance the deals and then reports positive payment records to credit agencies.”

Again, in this article, another reliable source stresses the importance of owning a high credit score. Check out the full article for more information.

In another interesting column that filled up the pages of the Money sections of your newspaper this weekend, journalist Humberto Cruz discusses the recent credit study — which produced staggering statistics about the general lack of knowledge among Americans when it comes to their credit score — conducted by the Consumer Federation of American in association with Washington Mutual.

For more information on how to improve your credit score, click here.

And in case you missed it — possibly because you were stressing out about a poor credit score — San Francisco Giants slugger Barry Bonds belted his 755th career home run on Saturday to tie Hank Aaron for first place on the career home run list. In the opinion of this blog, the blast, an opposite-field shot to left field in the second inning of the Giants’ extra-inning loss to the San Diego Padres, although a major story, pales in comparison to Capital One’s record-breaking practice change. The same could be said about Alex Rodriguez’s 500th home run, which was hit just hours before Bonds’ historic long ball. Rodriguez, who became the youngest player in Major League Baseball history to reach the 500 home run plateau, may not have to worry about his credit score as baseball’s $250 million man (this number will grow considerably this off-season), but the rest of us need to monitor our credit score at all times. So if you’re not in the 500 home run club, click here to get your FREE Triple Credit Report.

Controversy or not, the Credit Report and Scores blog would like to congratulate both players for their monumental achievements, landmarks in the history of the game. For the record — and you probably didn’t hear it first — Rodriguez will end his career as baseball’s home run king in the opinion of the writers of this blog.

We would also like to give a shout out to Tom Glavine for picking up the 300th win of his career in the New York Mets 8-3 victory over the Chicago Cubs last night.

On a side note, please check out our new video.

Credit Report and Scores Joins YouTube



We are pleased to announce that the Credit Report and Scores blog team is now officially a member of the YouTube community. Please let us know what you think of our first video (above) -- either by leaving us a comment on the blog or underneath the video on the YouTube website. And don't forget to check out our YouTube profile and add us as a friend. We hope to post more videos in the very near future. To contact the team at any time, send us an email at creditreportandscores@gmail.com.

Thursday, August 02, 2007

Critics Question the Practice of Using Credit Scores to Set Auto Premiums

In today’s issue of The Boston Globe, columnist Michelle Singletary, a regular contributor to the Washington Post, chimes in on the current controversy making headlines in the insurance industry. In the aftermath of a high-profile report recently released by the Federal Trade Commission — which many critics feel sides with the insurance industry — numerous consumer groups have loudly voiced their concerns with the way insurance companies use credit scores to determine whether — and how frequently — someone will file a claim. The consumer groups think that this process unfairly hurts African-Americans and Hispanics.

After extensive research using industry data and public comment, the FTC report concluded that “credit scores accurately predict the number of claims consumers file and the cost of these claims.” However, several prominent consumer interest groups — including the Center for Economic Justice, the Consumer Federation of America, and the National Fair Housing Alliance — strongly disagree.

From Ms. Singletary’s article:

"The FTC's approach to collecting data for the analysis is like the federal government trying to do a study on the health impacts of tobacco use with data selected by tobacco companies for the study," said Allen Fishbein of the Consumer Federation of America.

Commissioner Jon Leibowitz, who voted to release the report, said that although the analysis appears to find insurance scoring does predict the risk of insurance claims, "the differences in credit-based insurance scores across racial and ethnic groups are a disturbing reminder that our society is still not race blind, and that vestiges of our history of discrimination remain ever-present."

The insurance industry, however, was pleased with the FTC report.

"We believe scores reduce subsidization of bad risks by good ones, meaning most consumers pay less for insurance," said David Snyder, vice president and assistant general counsel for the American Insurance Association.”

For the time being, insurance companies will continue to monitor your credit score as a way to predict your future liability. Unless you take the appropriate measures to establish and maintain a high credit score, you will be forced to pay higher insurance rates, period! This is one of the many reasons why having a strong credit history is so important. A high credit score, which will help you lower your insurance rates dramatically, will save you thousands of dollars in the long run.

Where does your credit score stand right now? Click here to find out. You should definitely know where your credit stands before you apply for a credit card, loan, or mortgage, but in all honesty, you need to know what your credit score is at all times. By frequently monitoring your credit, you can help fix a poor credit score and keep an eye on potential threats of identity theft at the same time.

Elsewhere in the world of credit: Arabia.com is reporting that a poor credit score could hurt your chances of landing a job. In fact, many employers are “now looking at an applicant’s credit report for hiring purposes.”

I will explore this topic in more detail in a future post.

On another note, you may have noticed a few changes to the blog over the past few days. Feel free to utilize several of the new content features on the right-hand side of the site — including a brand-new feature that provides you with all of the latest information on “credit scores” from Google News.

And please be sure to vote in our credit poll. After you vote, see if your assessment of your current credit standing is correct by viewing a FREE Triple Credit Report, courtesy of Privacy Matters.

To contact the blog, send an email to creditreportandscores@gmail.com.

Wednesday, August 01, 2007

How Credit Monitoring Can Add Money to Your Bank Account

As well as providing one of the best ways to detect identity theft, monitoring your credit will help you improve your credit score. Credit monitoring services instantly alert you of any changes to your credit report and take the necessary steps to address any negative changes to the report. To do this, most services provide an evaluation of your credit report and challenge or dispute any changes that negatively affect your credit score.

If you utilize the right credit monitoring service effectively, you can improve your credit score dramatically. In the long run, this will lead to improved (i.e., lower) rates on credit cards, car and home insurance, loans, and mortgages — saving you thousands of dollars in the process. As I frequently stress on this blog, maintaining a high credit score is crucial to reaching financial success. Monitoring your credit on a regular basis will make the amount of money in your bank account rise faster than an earned run average of a relief pitcher for the Tampa Bay Devil Rays.

For an excellent credit monitoring service that offers a Free Triple Credit Report and top-notch identity theft protection, click here.

What do credit monitoring services do exactly?

Brian Koerner, a finance expert from About.com, provides an excellent description of what credit monitoring services actually look for in a recent article. In great detail, Mr. Koerner provides consumers with insights on how services actually help prevent identity theft among other credit-related topics discussed in the article.

Per Mr. Koerner:

“Although you can purchase varying levels of service, generally, these services will monitor the following:

• Inquiries to your credit file. The service will monitor who is inquiring on your credit file. This information can be useful in detecting unauthorized activities.

• New account activity. The identity theft victims that suffer the most financial damage are those that a thief opens new accounts in their name. The service will monitor any new accounts that are opened in your name and report this activity to you.

• Address changes. Identity thieves have been known to change the address of a victim to their own, particularly when applying for credit. The monitoring will alert you to this activity so that if you didn't really move, you will know that a thief may be in your midst.

• Collection accounts. Unfortunately, many victims realize that their identity has been stolen when they can't get credit. If there is any activity on your credit report related to collection accounts, the monitoring service will notify you so that you can investigate it further.

• Changes to account information. The service will monitor any changes to account, which would include things like, if the account is refinanced, status, etc.

• Credit limit increases. Often one of the first things an identity thief will do is raise the credit limit on the victims accounts. The credit monitoring services will monitor this activity and notify you--you can then take action.

• Changes to public records. The service will monitor any changes to public records that would include, judgments, bankruptcies, etc.

• Changes to existing accounts. The service will monitor any negative changes to existing accounts such as delinquencies, etc.

• Closed accounts. Any accounts that have been recently closed will be flagged by the monitoring service and reported to you.”

News From the World of Credit Reports and Credit Scores:

In a column that appeared in the Dallas Morning News on Monday, financial columnist Pamela Yip discuses the latest developments in today’s insurance industry controversy — regarding a recent report released by the Federal Trade Commission that angered several civil rights organizations.

According to the FTC study, it would be impossible for the organization to come up with an alternative scoring model that would continue to predict risk effectively and decrease the differences in scoring among certain ethnic groups at the same time. Jerry Johns, who was interviewed by Ms. Yip for the column, agrees. Mr. Johns — president of Southwestern Insurance Information Systems, an industry organization located in Austin, Texas — says, “Race and ethic backgrounds have nothing to do with credit histories.”

However, as I discussed in my previous two posts, consumer groups have strongly condemned the FTC study. In a joint statement, the groups said, “The relationship between insurance credit scores and race is so strong that even though the FTC used data handpicked by the industry, it found that credit scoring discriminates against low income and minority consumers, and that insurance scoring was a proxy for race."

What is your take on the situation? Leave a comment below.

For our British readers: In a column yesterday, Alan Tomlinson, a publisher for 24dash.com, talks about how Equifax — one of the three major credit bureaus — is warning that consumers “need to be careful that they aren’t still paying for their summer holiday well into the winter — hitting their credit rating.”

Do you have a credit-related question or a suggestion for the blog? Feel free to send us an email at creditreportandscores@gmail.com.

Monday, July 30, 2007

Credit Monitoring as Identity Theft Protection

Thanks in large part to technological innovations, the ability to access information, communicate, and enjoy multimedia has never been easier. But the advantages of the computer age can sometimes be outweighed by the downfalls of technology as well — particularly in the area of privacy. The meteoric rise in Internet traffic over the last ten years, for instance, has opened up a whole new galaxy of opportunities for identity thieves to steal other people’s private information. The influx in computer use — which has directly led to a vast increase in the number of reported identity theft cases in the United States — has put the issue on the front burner nationally.

Make no mistake about it; the perils of identity theft are high— from the headaches that come from fighting to restore your good name to tremendous financial woes. And unless you're prepared, you could become a victim of identity theft at any time. But, arguably, the biggest risk of identity theft is the detrimental effects that losing your identity will have on your credit history and credit score. As well as the costs from attempting to get your name back, you will lose a great deal of points on your credit score if you ever fall victim. Strictly from a credit standpoint, recovering from identify theft poses a difficult challenge. Think 12-year-old Little Leaguer stepping up to the plate to face Roger Clemens. For some people, it takes years to restore their credit in the aftermath of identity fraud.

Preventing identity theft could be the most important reason why you should frequently monitor your credit. Using a credit monitoring service, like the one provided by Privacy Matters, you can detect fraudulent activity in your name faster. As a member of a credit monitoring program, you will receive instant notifications of any change in your credit report. This will allow you to easily discover if someone is attempting to use your name to commit identity fraud. In fact, monitoring your credit is one of the best ways to protect your identity.

For more on the subject—from in-depth detail on how identity theft will negatively affect your credit score to new ideas on how to prevent identity fraud from ever happening to you — be sure to visit Neil O’Farrell’s blog. Mr. O’Farrell, your Identity Theft expert, consistently provides readers with excellent identity fraud analysis and insight. He also discusses the latest identity theft trends in his daily posts. And for even more ways to prevent identity theft, click here.

Think it doesn’t happen frequently? Well, think again! Today, an Oregon woman was arrested for allegedly stealing the identity of a woman in Rhode Island. It can happen to any person, in any location, at any time. Don’t be the next victim.

Other news from the world of credit reports and scores:

Heather Haddon of the Herald News in New Jersey says that “solid credit is the key to owning a home.” Personally, I couldn’t agree more. In her column, Ms. Haddon gives a personal account of a Patterson, NJ police officer, Ivan Hicks, who went through a painful ordeal shopping for a house. This is an interesting read and will resonate with anyone who has been in a similar situation.

Himanshu Joshi offers several tips for “recovering from bad credit” in a column that appeared in the American Chronicle on Sunday.

Paul Wenske of the Kansas-City Star has more information on the controversial report recently released by the Federal Trade Commission. The report, which I discussed in further detail in my previous post, found that “blacks and Hispanics consistently end up with lower scores and therefore pay higher insurance rates.” Soon after its release, several civil rights groups, who think that some insurance companies discriminate against low-income and minority consumers, publicly condemned the report. In this column, Mr. Wenske offers his opinion on the matter.