Most people with low credit scores do not believe that they need to be concerned with identity theft. This is a huge misconception. In February, the Federal Trade Commission released its annual report. Identity theft was the number one consumer complaint. Last year 9.9 million adults in the United States were victims of identity theft, costing consumers approximately $48 billion over last year.
What many do not realize that Identity Theft is not just a financial crime. In fact, only about 20 percent is related to financial transactions. There is in fact five other forms of identity theft that can affect anyone no matter what their credit rating may be. ID thieves aren’t limited by your credit. ID thieves can obtain your social security number and gain employment and not pay taxes. Who do you thing the IRS will come looking for? This is just one example of the damage an ID thief can do, there are many more.
In 1956, Bill Fair and Earl Isaac devised analytical tools that attempted to quantify the risk of loaning an individual money and launched a company based on this scoring system. Their company was called Fair Isaac & Co., better known by the acronym FICO. Fair Issac & Company had several decades of success in Europe before coming to America. FICO’s system caught on in the United States beginning with Equifax in 1989 and followed by Experian and TransUnion in 1991.
I have always advocated that consumers take an active role in understanding the often confusing and difficult credit scoring model. Just when you thought credit scoring scoring couldn’t get more confusing for consumers, FICO roles out a new model – FICO 08.
Per Fair Isaac, here are the key changes in the new model:
The new model will still allow legitimate authorized users such as a spouse and/or family member. This credit building technique still works for spouses and children who have the same last name as the credit card owner. To maximize the benefit of this option, you should make sure that the account you are being added to belongs to someone you trust, has NO negative history reporting at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old.
Having just one big black mark on your credit, like a repossession, will matter less than it used to if your report demonstrates responsibility overall.
Collection accounts with balances less than $100 will not impact the credit score any longer.
Maxing out those credit cards will drag your score down even more than it used to! FICO 08 increases the emphasis on having available credit.
Having a mix of credit is also more important in FICO 08. This means you MUST have at least 1-2 active major credit card accounts.
There are three basic things you can do to help your score:
Accuracy: Make sure that what is reported on your credit report is accurate.
Credit Utilization: Keep credit card balance below 50% of credit limit at all times – 30% is better. DO NOT max out credit your credit cards. NEVER go over your limit.
Pay your bills on time: There are TWO important DON’Ts when it comes to late pays:
DON’T underestimate the affect that late pays have on your credit.
DON’T overestimate the kindness of creditors to remove late pays just because you have a good payment history with them.
In conclusion, no matter what happens with credit scoring, you must remain proactive. Ultimately, you are the only one who can ensure your credit is as good as it can be.
I was talking to a realtor friend today who lives in Atlanta. We were reminiscing about the days when real estate was a stable, viable commodity. You could have never told us five years ago that the housing market would be in the mess it is in today. But as always, one’s loss is another’s gain.
I just received an email today notifying me that foreclosed homes offered by the Housing and Urban Development Department (HUD) are selling for $100.00 down. This is bittersweet because it is a great deal for someone. But, on the flip side, some family has lost their home.
The wonderful thing about America is that we can always rebuild. If you have lost your home, be encouraged because there is help available. If you have managed to survive “ the credit crunch”, and can buy a home in this economy, it is important that you work with a professional that specializes in foreclosed homes.
Whenever I mention keeping credit separate from your spouse to my clients, I often get a deer in the headlight stare. You too may be thinking that this is a bold statement, but consider the following:
Joint accounts affect you equally. If one spouse spends more than the other. Both scores are affected.
If there is an emergency and you need to apply for credit, it may not be available.
A divorce decree does NOT take prescedent over creditor agreement. Creditors will collect from whomever they can.
Now, don’t panic and close out your joint accounts. This too can hurt your credit score. Fifteen percent of your credit score is based upon credit history. My advise is that if you have joint accounts, make sure you both monitor the accounts.
On March 22, 2009 President Barack Obama signed into law the Credit Card Accountability and Responsibility Act of 2009. The new legislation aims to increase the transparency and fairness of credit card companies’ dealings with their cardholders.
. Here is a breakdown of what it means for consumers:
Consumer Protection
Retroactive interest rate increase are banned except when a cardholder is more than 60 days late paying a credit card bill.
Credit card issuer must review the cardholder’s account six months after increasing the interest rate, and return the APR to the previous lower level if the cardholder has been on-time with payment.
Interest rate cannot be increased within the first 12 months, and promotional rates must have a minimum of 6 months in duration.
Advance notice of 45 days prior to significant changes in credit card terms: this includes the benefits and reward structure of a credit card.
The practice of universal default and double-cycle billing are no longer allowed.
Over credit limit fees are now prohibited unless consumers specifically agree to allow transaction to go through instead of being denied.
Bills must be sent out no later than 21 days before the due date.
Payments cardholder makes must be credited as on-time if the payment is received by 5 P.M. on the due date.
Enhanced Consumer Disclosures
Clear disclosure on how long it would take to pay off a credit card balance if cardholder makes only the minimum payment each month.
Clear disclosure on the total cost in interest and principal payments if a cardholder makes only the minimum payment each month.
Late payment deadline and postmark date are required to be clearly shown and disclosed to cardholders.
Protection of Young Consumers
Credit cards cannot be issued to people under the age of 21 unless they have an adult co-signer or show proof that they have the means to repay the debt (proof of reasonable income).
College students will be required to receive permission from parents or guardians in order to increase credit limit on joint accounts they hold with those adults.
People under the age of 21 will now be protected from pre-screened credit card offers unless they specifically opt-in for offers.
Gift Cards
Gift cards are now required to remain active for at least five years from the day of their activation.
Dormancy or inactivity fees on gift cards can no longer be imposed unless there have been no activity in a 12-month period.
Dormancy or inactivity fees must be clearly disclosed to gift card buyers.
If the gift card expires after 5 years, the terms of expiration needs to be clearly disclosed to gift card buyers.
Effective Date
The majority of the new rules will be taken into effect 9 months after the signing of the bill, which puts the effective date on Feburary 2010.
The rule on 45 days advance notice of major changes in account terms will take effect 90 days after the bill’s enactment, beginning September 2009.
