So how can you take advantage of PYIW this year?

• There will be more than 150 free events in communities across the country offering educational workshops, credit report reviews, and paper shredding.  You can find an event using this event map!
• Easy to follow tips, resources and a self-assessment quiz to determine your own personal risk of identity theft are all available at the Protect Your ID Now website as well.
• Daily blogs will be available from nationally known ID theft expert and McAfee consultant, Robert Siciliano, which can be read here: www.protectyouridnow.org/R_Siciliano.cfm
• And excitingly this year, Cintas Corporation is providing free paper shredding at events nationwide with the goal of making the Guinness Book of World Records for the most paper collected in a 24-hour period!
• Finally, be sure to get involved with PYIW on Facebook and Twitter, where NFCC will provide daily tips and PYIW articles all throughout the month.

I generally check my credit reports at least once  a year.  Some might think it’s unnecessary but there have been a few times I found an incorrect entry.  Once there was a bill from a city I hadn’t lived in years that was shown as in collections.  Never mind that I had never been contacted even once!  What are you doing to protect your credit?

In 2008, many credit card holders were shocked to find their credit limits getting slashed so dramatically and that trend has only continued into 2009. There is a variety of reasons why credit limits have been getting reduced, including account inactivity but also because of changes to the credit risk profiles of so many cardholders that have changed as the direct result of the dramatic downturn in the economy.

Cards that have remained inactive for long periods of time were the first to go. Michael Riley, a software engineer from Denver and a long time customer of J.P. Morgan Chase, just received his second cancellation notice. “I just got a notice from Chase last week that my platinum card was being closed because of inactivity.” Riley hadn’t used the card for over a year but was miffed at the thought of losing an account that he had held for so long. “That was one of the first credit cards that I ever got right after college.” Many cardholders have shrugged off these account closures because most people don’t believe they will be affected by a card that they never use. Out of sight, out of mind, right? But another problem has emerged from these account closures that many people are unaware of.

These sudden account closures are also negatively affecting FICO scores for countless numbers of cardholders. FICO scores are computed utilizing several factors, including payment history, credit utilization, new credit accounts, types of credit being used, as well as the length of the credit histories. When an account is closed, it can dramatically affect the credit utilization score of a user. For instance, a cardholder with a $5,000 card balance on a $12,000 card limit and a zero balance on a $13,000 card limit has a total credit utilization ratio of 20%. But if the card issuer decides to close the account with the $13,000 limit because of “account inactivity”, that cardholder’s utilization ratio will jump up to 40% – in an instant. Credit utilization accounts for roughly 30% of the total FICO score so a jump in utilization from 20% to 40% can have a devastating impact on a credit score in a very short period of time.

“My credit score went from 785 to 668 in less than 90 days and I’ve never been late with a payment,” said Craig Woodside, a plumbing contractor in Trenton, New Jersey. “The only thing that changed in those 90 days was Citibank closing one of my old credit card accounts.” Another credit scoring factor that is negatively impacted by an account closure is the length of your credit history. Cardholders with accounts they have held since college, which are being closed for inactivity, wind up losing the entire credit history on that account. Some cardholders have had accounts closed with more than 20 years of credit history. With length of credit history accounting for about 15% of a total FICO score, these types of account closures, seemingly harmless at first glance, are really hurting people’s credit scores in a big way.

So, faced with the prospect of a drastic drop in credit scores, what can you do about this particular problem?

There are a few things that you can be proactive about in order to keep your account off of a card issuer’s chopping block. First, make sure that you maintain activity on the card, even if it’s just the bare minimum. You might consider setting up an auto-payment with the card for a utility bill, magazine or newspaper subscription that you know you’re going to have to pay each and every month. You don’t have to go out and overspend frivolously with the card (like so many people do with their rewards cards) – just keep the card active.

Next, make a preemptive call to your card issuer. Be sure to indicate your desire to maintain the account and ask if there’s anything that you need to be aware of (besides making your payments on time) or other things that you should be doing to keep your account in good standing. Make sure that the customer service representative notates your desire to keep the account in your file and be sure to indicate to the representative that you will maintain activity on the card.

And finally, if you haven’t started paying down those card balances just yet, now is the time to do it. Cardholders should aim for a credit utilization ratio of no greater than 30% on any individual card and in total. Paying down those card balances aggressively and driving your utilization ratios downward will have a significantly positive effect on your credit score in a short amount of time.

photo credit: TheTruthAboutMortgage.com

Bankrate has another good article about the worst ways to borrow.

• Payday loans – This is one of the worst of the worst.  The interest rates are exorbitant (often in the triple digits) and this makes it very hard to pay these off.  Of course, the loan company will keep rolling the old loans into new loans in order to separate you from more of your hard-earned money.  I would advise against these at all costs.
• Car title loans - Similar to payday  loans, these loans usually come with high interest rates.   And even worse than the payday loans, if you don’t pay, they can and will repossess your car.  What’s more, after they sell your car to pay off your loan, they are not obligated to give you any money earned over your loan amount.  Let’s say you default on a title loan for $1000 on a car worth $4000.  They will repossess your car, pay the loan and leave you with nothing.  No car or the money the car was worth.  And how will you get to work?
• Refund anticipation loans - Now that the IRS will direct deposit your refund, this is even more of a ripoff.  You pay a sizeable fee for the ‘privilege’ of getting your money a week sooner.  It’s just not worth it.  Start planning ahead now so that you won’t get a large refund.  You can have that money in hand now.  There’s no point in giving the government an interest-free loan.

These are just the first three on Bankrate’s list of bad borrowing.  Read the article for the rest.  Have you fallen prey to any of these loans?  If so , what are you doing to pay them off?
 

photo credit: TheTruthAboutMortgage.com

Bankrate published a good article on the do’s and don’ts of borrowing.  Below are their tips along with my thoughts on each.

• Save money while repaying debt – I agree with this one.  I believe it’s important to build or maintain a mini emergency fund of at least $1000 while in debt.  This way, you can deal with unexpected expenses without having to incur more debt.
• Find the best interest rate – Just like all money isn’t good money, all loans aren’t good loans.  Paying high interest rates can double or even triple the amount you spend to pay off your debt.  While you should avoid debt as much as possible, seek out the lowest interest rates if you do take on debt.
• Read the fine print – Many people complain about the ‘tricks’ or dirty tactics that credit card companies employ.  However, all the details are right there in the fine print that you signed when you made the credit application.  If you can’t be troubled to read, or if you don’t understand, the details, perhaps you should reconsider applying for credit.
• Pay on time every time – It’s very important to make all your payments and on time.  If not, those low interest rates you searched for can go out the door.  Now many credit cards have ‘universal default’ stipulations.  This means you can be penalized by Card A for making a late payment on Card B.  If you don’t think you’ll be able to make the payments, avoid the debt!
• Borrowed money is not free money – ‘Available credit’ isn’t a license to spend.  Just because a company is willing to LOAN (not give) you money doesn’t mean you have to take it.  Remember, creditors are willing to loan you money for their own benefit, not yours.
• Don’t borrow frivilously – If it isn’t a house, perhaps an education or a car or some other DIRE need (like emergency medical care, not shopping, not dining out), then you shouldn’t borrow for it.  Having to borrow is a sign that you can’t afford it.

These are just a few of the tips in the Bankrate article.  Be sure to check out the article for the rest.  How are you doing in regard to making good decisions when it comes to borrowing?

To register, go to http://www.ListClassAction.com or call 1-866-416-3470. You will need to choose from one of the following options -

• Six months of credit monitoring
• A cash payment (if money is available for distribution)
• Six months of credit monitoring and a potential cash payment
• Nine months of enhanced monitoring service (if you select this option, you can’t get any cash)

photo credit: Casey Serin

A lot of people neglect their credit scores, citing your score is just a ’stay in debt’ score. Some say it doesn’t matter because they’re not applying for credit anytime soon. Well, your credit score can affect much more than just the interest rates you get on loans or credit cards. MarketWatch recently published an article on who else watches your credit.

• Employers – Many employers now do a credit check as a condition of employment, particularly if you work in the financial industry. Bad credit or too much debt can equal no job.
• Insurance companies – Those with good credit are often rewarded with lower premiums. My car insurance company recently requested that I provide my SSN and allow them to do a credit check. Both Mr. Savvy and I obliged and our rates were decreased as a result of our good scores.
• Landlords – It goes without saying that the vast majority of landlords will check your credit, as well as any criminal record. A landlord wants to know that you will pay your rent on time, each and every month. The best indicator of this is whether or not you pay your other bills on time.
• Utility companies – It’s become the norm for utility companies to request your SSN when you initiate new service. If your credit is good, you will rarely have to pay a deposit. However, those with less than stellar credit often have to pay substantial deposits. This ensures the company will get at least some of what is owed if you skip out on them. However, for those whose finances are already tenuous, having to pay a large deposit can set them back even further. All the more reason to keep your credit in order.
• Cellphone providers – Just like utility companies, cellphone companies want to know that you won’t incur a large bill and leave it unpaid. While they can disconnect your service, the threat of a loss of cell service doesn’t carry the same weight as the threat of no power or water. Therefore, cellphone bills aren’t high on a lot of people’s lists.

So you see, credit scores are about more than just obtaining credit. It’s increasingly affecting other areas of your life. If you haven’t done so already, take the time soon to pull your credit reports and score. Be sure to verify all information and correct any errors. If the adverse information IS correct, start today on working to improve your score. It may save you hassle and money in the long run.

1. Your credit score is below 600 – If this is the case, the first step is to pull a copy of all three of your credit reports.  If you have accounts in collections, you need to resolve that first.  Many creditors will allow you to go on a payment plan.  However, you MUST pay them according to that plan.  Don’t make promises you can’t keep.  Next, bring any past due bills current.  Those two things will have the greatest impact on your credit score.  After that, only time will improve your score as the negative items fall off.
2. You are saving less than 5% – I recommend saving 10% for retirement as the bare minimum.  You also need to have an emergency fund of at least three months’ expenses.  If that’s not possible at this time, establish a mini-fund of $1000.  That amount will allow you to stop using credit to cover unplanned expenses.
3. Your credit card balances are rising – If this is happening, you are spending more than you make and it needs to stop NOW.  Take a long, hard look at your spending and see where you can cut expenses.  Reduce your cable package, lower your cell phone bill, stop buying clothes, stop eating out, etc. until you take control of your debt.  The first step is getting out of a hole is to stop digging.
4. More than 28% of your income goes to your house – This issue is not as easy to resolve but it still needs to be considered.  First consider increasing your income.  Then consider decreasing your housing costs.  If you’re not renting, that may be hard but you need to evaluate what steps you’re willing to take to improve your financial situation.  The economy will probably get worse before it gets better so why live on the financial edge if you don’t have to?
5. Your bills are spiraling out of control – Lay out all your bills and start cutting things.  Eliminate the fancy cable, the home phone, any non-essentials.  Get a roommate (if possible) if you have to.  Extreme times call for extreme measures.

photo credit: tompagenet

Part of keeping your financial house in order is preventive maintenance / nipping things in the bud.  Small issues, left unchecked, can turn into big problems.  Case in point,  I spoke with an acquaintance over the weekend who wanted to pay me to ‘fix’ his credit.  Of course I declined because there’s no need to pay anyone to fix your credit.  There’s only so much ‘fixing’ that can be done and you can do that yourself, for free.

That said, I asked him what the problem was.  He let a number of small bills (under $100) go to collections.  They were all medical bills.  When I asked how the accounts went to collections, he stated that the insurance company had notified him that they didn’t cover the full cost of the procedures but he simply ignored all those notifications.  He felt the insurance company was in the wrong and should have covered the total costs.  However, he never bothered to communicate that to them or make arrangements with the doctor’s office.

As a result of failing to make a few phone calls, now he has several collection accounts on his credit report.  So now, his credit score has dropped and it’s going to take more than a few calls to get the issue resolved.   He’s found himself in a predicament that could have been very easily avoided.  Simply put, he let a molehill turn into a mountain.

photo credit: »Philo

Consumer Reports published an article on the eight benchmarks of borrowing.  I must say that I don’t agree with all of their benchmarks.  For example, they state that non-mortgage debt (i.e. auto loans, credit cards, etc.) shouldn’t be more than 20% of your gross income.  If a person has a gross income of $45K (close to the US median), that’s $750/mo.  That’s definitely a bit bunch and an indicator that you’re probably living above your means.

The article also lists 28% for mortgage payments (PITI) which I feel is reasonable.  However if you’re spending 20% on non-mortgage debt, 28% on your mortgage, 25% on income tax, you can see where this is headed.  Not much left to pay other bills or save.

Last but not least, they give a benchmark of 650-700 for your FICO.  I consider 650 average at best.  700 is a much better bar to set.  Once you reach that level, you’ll be able to obtain the best rates for loans and credit cards (though I hope you won’t carry a balance).

How do you compare to Consumer Reports’ benchmarks?

Oftentimes, when you receive your credit report, there will be ‘reason codes’ or ‘action codes’ that define your risk factor. The following site explains the codes as well as what you can do to improve your credit rating for each of the codes received.

http://scottsecor.com/credit/pages/MC_reasons.html