One of the reasons why we are urged to monitor our credit reports is because of the huge amount of credit card fraud that has been plaguing consumers around the world. Recent research has indicated that banks are among the easiest to infiltrate simply because their automated tellers on the phone require so little information before giving the caller access to your accounts. New technology which rolled out last month is an effort to ensure the identity of the person using the credit card in an effort to prevent fraudulent use of other people’s credit information.
What many people might not understand is that the thief doesn’t actually need to have possession of your card. Yes, there are times when your credit cards are lost or stolen, but credit card fraud is most often the case of someone gaining access to your account number and your personal identifying information such as your address and/or phone number and sometimes even the three digit security code on the back of the card.
New technology is rolling out almost by the day to help prevent identity theft and the newest ‘gadget’ is something called Netswipe which made its debut in August of 2011. There is also a plug in for Word Press that does much the same thing. The principal behind both innovations is that the person ordering online is able to ‘swipe’ their card with a web cam and the merchant is then able to verify that the person ordering a product or service is actually holding the card and entitled to use it. Remember, the bulk of credit card fraud is the result of unsavory characters getting hold of your credit card info but not actually having the card itself.
For the consumer, this is good news because it is another mode of identity protection that can help them keep their credit score in good standing. For merchants, it could be a good thing as well because the cost of such innovations as Netswipe is significantly lower than traditional card swipe systems merchants currently employ. The developer of Netswipe, Daniel Mattes, is going to charge 2.75% for processing fees which in reality is perhaps less than half what most merchants are currently paying.
The bottom line for consumers is the fact that greater care is being taken to protect their identities. There has been so much identity theft over the past couple of decades that many consumers have unsatisfactory credit scores as a result. It will still be necessary to monitor your credit report from each of the three credit scoring companies (TransUnion, Equifax and Experian) because there still isn’t a foolproof way of protecting your identity 100% of the time.
Some consumers choose to order one report every 4 months so that they can have an idea of what is going on with their report throughout the year, but this may present some inherent problems. One thing which many people aren’t aware of is the fact that companies and lenders do not all report to the same agencies. For example, your mortgage holder may report to Experian whereas your credit card company may report to TransUnion and so on.
In order to monitor your credit report throughout the year, it may be better to contract with a credit monitoring company that charges a monthly fee. These companies notify you by email, text message and sometimes even by phone whenever a change is made to any of the reports they are monitoring. If you didn’t make a recent purchase then you can immediately dispute charges before the damage is done. Until such time as a foolproof identity protection system is in place, take the time to monitor your credit report.
Although we have heard it over and over and over again just how important it is to have a good credit score, somehow we just never seem to take it to heart. If you could count all the opportunities in life that pass you by because you have a less than perfect credit score, you just might be motivated to do something about improving it.
Credit Scores – the Good, the Bad and the Ugly
So then, what is a good credit score and how high does it need to be in order to get the best interest rates on loans, the lowest premiums on insurance and a good chance of getting that apartment rental or job you are applying for. Actually, you should always shoot for a credit score which is above 700, the higher the better. If your score falls below 620 you will be considered a poor credit risk and if you get any credit at all it will be at sub-prime rates. Any score above 760 is considered to be the upper echelon and will qualify you for almost anything.
As noted above, most people are looking to improve their credit score because they are looking to have credit extended to them. This could be credit cards (revolving lines of credit), mortgages, car loans, personal loans and even installment plans on dental or medical bills. Any time you want credit extended to you, it is imperative that you have a score well above 620 points, over 700 if possible, or you may be denied or subject to extremely high interest rates.
Lower Insurance Payments
Then there is automobile insurance to consider. That auto you are driving is extremely expensive and insurance companies look at your credit rating as a risk factor. Other types of insurance underwriters also base premiums on creditworthiness. If you are looking for private health insurance, for example, your credit score will certainly factor into rates as well as the condition of your health and any preexisting conditions you may have. The lowest possible premiums on any kind of insurance, including homeowners’ insurance, are always offered to those with excellent credit scores.
This is another area where people get into difficulties if their credit score is less than perfect. Apartments, houses and any type of property that is for rent is an investment for the landlord and he/she will want to make money on renting the unit. If you expect to find decent housing, you will need to have a good credit score in order to show that you can afford to pay the rent and that making timely payments is important to you.
Finally, a good percentage of Americans just don’t realize how many employers run your credit before they even call you in for an interview. Along with your work history and criminal records, your creditworthiness indicates what kind of moral character you display. Whether or not you will be handling money or other valuables, your creditworthiness is a reflection of who you are.
It is about time we realized that having a good credit score is of vital importance in almost every area of your life. From applying for loans to getting good premiums on automobile insurance, your credit score will impact how much you pay, and whether or not you are even eligible for credit. Take the time to learn what you can do to improve your score if it is below 700 and also get a free copy of your credit report and score to make sure there are no errors or cases of identity theft. Your whole way of living will improve by building good, solid credit.
Although the laws are changing, there was a time when the only thing consumers were entitled to for free was a copy of their credit report once each year from each of the three major credit reporting agencies. However, as reported by Bloomberg Business Week, now recent legislation is making it possible for consumers to get a free copy of their credit score if they have been denied credit based on that score. As laws continue to change, one thing remains constant and that is our inability to understand just how we are graded in terms of creditworthiness.
One of the first things that confront us is in understanding just what a credit bureau is. There are local credit bureaus that call us whenever we become delinquent in payments but there are also the national credit bureaus (Equifax, Experian and TransUnion) that keep tabs on anything and everything related to what we have and what we owe. Sometimes these credit bureaus are referred to as credit reporting agencies, which is actually a much better name for them. They are not the folks who call us when we are in arrears on payments but they are the ones who tell potential lenders, landlords and employers whether or not we deserve whatever it is we are applying for.
Credit Score, Credit History & Credit Report
Another area which is oftentimes confusing to the average consumer is the difference between a credit score, a credit report and a credit history. Actually, they are all related but a simple way of looking at it is that the credit report details your credit history. Think of it like a report card when you were in school. Your history is all the tests you took, the assignments you handed in and whether or not you were absent or late on any given days. That is all tallied up to give you a ‘report card’ which is your credit report. Based on the history detailed in your credit report, each of the three reporting agencies have some fairly complex mathematical formulas to come up with your credit score. This would be like your final grade at the end of the year.
Benefit of Checking Your Credit Report
Unlike your report card in school, at least you have the option to dispute any errors or fraudulent entries on your credit report. Students usually don’t question the grades their teachers give them. They may complain, but rarely dispute those grades. However, you are given the legal right to dispute any entries on your credit report if you feel they were made in error or that it could be a case of identity theft. In fact, you are encouraged to get a free copy of your credit report from each of the three reporting agencies once a year for just this purpose. If something is not right you can take steps to have it corrected.
The language of credit may be confusing but there are plenty of resources out there to help you have a better understanding of what it all means. Whether you are looking at ways to improve your credit score or are simply looking at how to correct an erroneous entry, help is available. Understanding your credit score may be another matter altogether as each agency calculates your score a bit differently. Even so, if you find a way to keep your payments current, don’t spend more than you make and can show that you use the money you earn wisely, your credit score should not be a problem. The real problem is understanding the language, but have no fear – there are plenty of interpreters out there who are willing to help!
Anyone who spends any amount of time at all on the internet has probably seen a million and one ads and telling them that they can save thousands of dollars each and every year by refinancing their homes. Be careful since this may or may not be the case.
So many times we take what we are told as gospel truth, but in reality it is just a sales ploy to drum up business for lenders. In a recent Wall Street Journal article posted on Yahoo! Finance, it was made clear that many of those ads are posted by lead generating brokers who make it their business to match lenders with potential borrowers. As a result, it is not uncommon to find information on their websites that is either erroneous or incomplete.
For example, when you plug your data into their ‘calculators’ to get a rough estimate on what you would be saving by refinancing, there are several key factors which aren’t taken into consideration. First of all, there are origination fees, closing costs, title searches and a myriad of other oftentimes hidden upfront fees that can significantly reduce the amount of savings you would realize.
Then, of course, there is your credit history and credit score. Most consumers have absolutely no idea what the exact status is of their personal credit rating which is why those calculators often only ask you very broad questions. You won’t typically be asked for your exact score; rather, you will be asked if your credit is excellent, good, fair or poor. This tells them nothing and has no effect on the rate you will be expected to pay! Remember, even those with less than perfect credit can qualify for a mortgage loan but they often pay double (and sometimes more!) the interest than someone with a great credit score.
As a rule of thumb, refinancing your home can cost you anywhere from 3% of your unpaid balance to 6% or more. The point is, you will not be told that after paying these refinance charges you are saving little, if anything. In fact, there have been cases where refinancing actually cost borrowers rather than providing a savings. The ‘rule’ many people go by is called the 1% rule or the 2% rule. You will be told that if the interest rate you are being charged is at least 1% less than what you are currently paying you will save money. Beware! This is not always the case.
Again, the bottom line is your credit score and credit history which combined will be analyzed by a lender to predict your creditworthiness. Also, keep in mind that every time a lender runs your credit history it will automatically result in losing a few points on your credit score. It would be far wiser to get a free annual credit report from each of the three credit bureaus in order to know exactly where you stand. Actually, you can go one step further as there are credit monitoring companies that will also keep you informed of any changes as they occur. This helps to prevent identity theft as well as giving you the heads-up that there may be an error which has been entered to your history.
Nevertheless, there also may be times when refinancing your mortgage could indeed save you a bit of money each year. The point is, talk to a disinterested third party such as a consumer advocacy group prior to finalizing a new mortgage. If you will realize a savings even after all those hidden refinancing charges, then this may actually be a great plan. Just make sure to look before you leap.
There are a multitude of consumer advocate groups up in arms about the way in which the three credit reporting agencies, TransUnion, Equifax and Experian are rating consumers’ ability to pay future debts. It all ties into the new laws pertaining to credit cards and the ways in which those agencies are allowed to rate your income.
According to Liz Weston writing for MSM Money, lenders are now using a new ‘secret’ way to evaluate your creditworthiness, the income estimation model. In fact, there are more than one model for estimating consumers’ incomes as all three of the credit reporting agencies use their own version. This is significant because lenders not only look at your credit history, but how you can be expected to pay further credit. In other words, they look at your income.
However, the problem with this is that the credit bureaus are not required to actually report your creditworthiness based on reported wages. They make their own models based on certain criteria such as how you have paid your bills in the past, the amount of outstanding credit and then they come up with some kind of calculation that will project how much more money you could feasibly borrow and still be able to make the payments on. In fact, you are not even required to report how much money you actually make.
Unless they can get this information from the Internal Revenue Service (you would need to give permission) they have no way of knowing what you make which is why many decisions are based on your history of making payments. Lenders figure if you have been paying your bills on time then obviously you are making enough money and if you have been paying them steadily, then you are probably creditworthy for future loans.
In addition to these unfair methods of evaluating your creditworthiness based on the amount of money the reporting agencies ‘feel’ you are making, they will not provide your actual wages to lenders unless they pay for them. Now consumers are getting what amounts to a double whammy because lenders are not apt to pay extra for the information on your actual income. Instead they will simply base their decision on what the reporting agencies tell them your creditworthiness is for future loans.
When it comes to your credit score, there are certain things which won’t actually count for or against you. While these things may matter to a lender, they are not allowed to base your score on the length of time you were on your job, how much money you make, whether you have been refused credit, how long you have lived at your current address, and whether or not you own your home.
It’s amazing how all this adds up to the fact that lenders can pretty much do what they want when it comes to approving new loans. You could have an exemplary credit history but if the reporting agencies say you are not creditworthy then you may lose the loan. You might only make $8 an hour and be in debt over your head but if you have found a way to pay your bills on time a lender might grant you a loan for $100k.
Because of all these inadequacies in the reporting and decision making processes, consumer advocate groups are calling for tighter reins on the ways in which consumers are evaluated. In the meantime, it is vitally important to monitor your credit report, get a copy of your credit score and make sure that all information is as accurate as possible. Since this is all that a lender has to go on, you want your credit report to shed the best possible light on your ability to pay a loan.
For two weeks the price of stocks has been plunging on Wall Street which is causing a great deal of anxiety among economists in the United States. There are growing concerns that we may be heading back into a recession of the enormity experienced in 2008, or worse.
Anyone who is just working their way out of the financial difficulties they experienced during that year and the year to follow will need to pay special attention to events as they continue to unfold. If you are just at the point of building up your credit score to a point where you may be ready to apply for credit, you may want to put a hold on that – at least temporarily.
What is causing so much concern is that lower stock prices indicate that many Americans’ wealth is shrinking as well. With lower confidence in the market they will be less likely to invest, less likely to spend and employers will certainly be less likely to take on new hires.
According to an article published in Yahoo! Finance, when the Dow’s average plummeted by 513 points, it is indicative of the fact that investors have growing concern over the European debt crisis and the problems we are having here at home with our own national economy.
When these types of drops in stock prices become evident, consumers will invariably spend less money which will further compound the problem. As we watch our bank accounts thinning down we are less likely to make major purchases and this fact alone places more strain on already endangered jobs. We saw this with the automobile industry at the height of the debt crisis in 2008-09.
New reports released by the government state that consumer spending was reduced for the first time in almost two years, 20 months to be exact. Retailers across the board from budget stores to high end luxury shops are seeing a drop in spending which is also an indicator that another recession just might be on the horizon. Whenever consumer spending drops significantly, it is a direct reflection of the uncertainty among consumers.
For those who have been struggling to pull themselves out of a financial hole they found themselves in within recent years, this news is all the more depressing. If it were not for the fact that we have just begun to see the light of day after our most recent depression and if it were not for the fears infiltrating the EU that Spain and Italy would soon default on debt, it might not be so bad.
However, if things continue as they are going at the moment, now is not the time to apply for any new credit if at all possible. What you may want to do is get a copy of your credit report, make sure everything is accurate, and then sit tight until you see which way the wind is blowing. If the economy rebounds then you may want to apply for credit, but if it continues to be uncertain, hold tight a bit longer.
The point is, you have already been victim of a poor credit score and are trying to rebuild it step by step. While times of economic crisis are not the best times to apply for credit, you may be forced to do so under certain conditions. If you have no other alternative than to purchase on credit, at least take the time to shop around a bit for the best loan at the lowest interest rate. In other words, if at all possible protect yourself from becoming a victim once again of a floundering national economy.