Archive for September, 2008

Finally — at a time when everything else seems to be increasing in price and becoming more difficult to pay, there is some relief in sight — for students, anyway. While the cost of higher education certainly hasn’t decreased, the cost of repaying loans for school is becoming just a little more affordable for college students. The changes will impact students in lower- and middle-income families the most, as these are the families hit most by the increasing costs of living.

As of August 5, 2008, subsidized Stafford loans for students originating for the 2008-2009 school year will experience interest-rate declines from 6.8% down to 6%. It’s expected the interest rate will drop to 3.4% for 2011-2012 school year.

According to U.S. Public Interest Research Group, the average four-year student taking out subsidized Stafford loans who starts their college career in the 2008-2009 school year will save around $2,570.

Considering that over 5.5 million students rely on Stafford loans each year to help finance the cost of higher education, the savings are substantial. Interest doesn’t start accruing on subsidized Stafford loans until the student has graduated or left college.

Lower interest rates on Stafford student loans is part of the College Cost Reduction and Access Act of 2007. In addition to providing lower interest rates, the act is also helping students in other ways, including:

Increasing Borrowing Limits

Undergraduates can borrow an extra $2,000 per year through unsubsidized Stafford loans, making the amount available to freshman up to $5,500 in federally funded loans, sophomores up to $6,500 and upperclassmen up to $7,500.

Tuition Assistance to Teachers

For students who commit to teaching in high-poverty communities or subjects that are considered “high-need,” there will be tuition assistance provided to undergraduates.

Complete Loan Forgiveness for Public Servants

Students who work over 10 years as public servants will be given loan forgiveness.

Increased Pell Grant Scholarships

Starting in 2008-2009, the maximum Pell Grant scholarship limit will be $4,731, which is $490 more than previous years.

A "pull" on your credit report is when someone looks at your credit history and views your credit score. There are two types of pulls, or inquiries, that can be made on your credit — a hard pull and a soft pull, and there is a major difference between the two.

What difference does it make whether you have a hard pull or a soft pull on your credit, and why should you care? A hard pull will actually reduce your credit score, while a soft pull will not.

Hard Credit Inquiries

Hard pulls on your credit report are the inquiries you want to keep track of and be aware of. They reduce your credit score. When you apply for credit, you give permission to the lender to pull a copy of your credit history and/or credit score, in order to determine whether or not you qualify for credit. When a company checks your credit, the hard-pull inquiry will remain on the report issued through all three credit bureaus for other potential lenders to see for a period of one to two years. Each hard pull will also lower your credit score up to five points and keep it lowered for six months or so! Think about this the next time you apply for credit.

The following situations result in a hard inquiry to your credit report:

• Applications for any new credit; credit cards, loans, mortgages, etc.
• Opening a bank account
• Activation of pre-approved credit card offers

Soft Credit Inquiries

Any inquiry made to your credit report that doesn’t affect your credit score is considered a soft pull. Most of the time, when your credit is looked at, you aren’t even aware that it’s happened! Every time a company reviews your credit history, a notation is made in the file that you can see (but other lenders viewing your credit history or score would not see the soft inquiries made to your credit).

There are a number of situations that would result in a soft pull, including:

• Credit card lenders who make initial credit report checks in order to send out pre-approved credit offers
• Pre-approvals for mortgages and loans
• Any credit report or credit score you request on your own
• Background investigations by potential employers or landlords
• Credit report checks by companies you already have accounts with, including credit card or insurance firms

Simply stated, medical identity theft occurs when someone obtains medical services or goods (or compensation for those medical services or goods) in your precious name. Medical identity theft is a growing problem that accounts for just over three percent of identity theft cases.

Though not as prevalent as other types of fraud, medical identity theft can have significant, even deadly, consequences. Victims of medical identity theft not only suffer from the potential financial implications present in the more typical types of identity theft, such as having unpaid bills that are in their name and damaged credit to go along with it, but perhaps even inaccurate details in their medical records.

Imagine for a moment having medications listed in your medical records that you’re allergic to. Or how about having your blood type changed or other information that might lead to treatments that you should never have? Certainly, victims of medical identity theft have more to worry about than just the financial implications — their health, even their life is at risk.

Victims of medical identity theft often find it a difficult mess to clean up. The doctors who provided treatment to the impostor continue to want to get paid. They can institute collection efforts and levy judgments against the victim and even refuse to treat the victim in the future. And since there is no well-established process to deal with medical identity theft, as there might be in other types of fraud, the victims have a difficult time knowing where to turn and how to clean up their medical records.

While medical identity theft indeed presents some challenges to the victim, medical providers can also be victimized. They suffer the loss of reimbursement for provided services, which can be in the tens of thousands of dollars, as well as damage to the reputation of their organization or practice.

To make matters worse, it might not be just that medical service that the identity crook is looking for. Protected Health Information (PHI) has become a hot commodity, and a name attached to medical and insurance information can yield as much as $60 per record on the black market. Crooks that obtain hundreds or even thousands of records can make a fortune in a short period of time by selling these records on the black market to those who are uninsured and desperately looking for medical treatment. There is no doubt that medical identity theft is a growing problem that is costing its victims not only their financial future, but perhaps also their future physical well-being.

If you think that your credit report can only be pulled with your permission, think again. Under many circumstances, your credit report can be pulled without you being asked beforehand or notified after. And to make it worse, such an inquiry just may drop your credit score.

The only time your permission is required in writing is when your employer, or potential employer, seeks to check your credit report. The following, however, are some instances where your credit report can be pulled without your permission.

• Application for insurance. If you apply for insurance, your credit report just might be pulled. More and more insurance companies are using a credit score to help them determine if an application is responsible and, ultimately, to assess their level of risk.
• Credit, business or collections inquiries. You don’t have to be applying for credit to have your credit report checked during a transaction. There are a variety of credit or business transactions that might result in your file getting checked. For example, if you use your ATM/debit card to rent a car, they’re likely to run a credit check in order to complete and approve the transaction. Additionally, as part of collection practices, the agency will often pull your credit report in order to obtain up-to-date information.
• License or benefit eligibility. Certain licenses or benefits that are issued by a state or federal government agency might require a credit check to determine eligibility.
• Account status. Credit cards or other credit accounts may have certain terms that the consumer is required to meet to receive a particular interest rate or perhaps qualify for the account itself. Therefore, the company may periodically pull your report to validate that you continue to meet such terms.
• Pre-screening efforts. Your credit may be pulled to qualify you for credit card offers.

In many of these instances, there will be some fine print or other type of notification alerting you that they will be pulling your credit file. However, to the surprise of many, neither your permission nor notification is actually required. Perhaps just as important is understanding that not all inquiries affect your credit file. A “soft” inquiry, which occurs with those unsolicited pre-screen offers or when you pull your own credit report, has no effect on your credit score. A “hard” inquiry does, however, so you should review your credit report for inaccuracies even as they relate to inquiries. The good news is that, like other inaccurate items on your credit report, you can dispute an inquiry and often succeed in having it removed.

What Can We Do About It?

Credit cards were once considered “easy money” by most people, and were used whenever they didn’t have the cash on hand to pay for their bills or make small or large purchases. Now, with consumer debt reaching all-time highs, the credit card companies are tightening the purse strings and reducing the credit limits on cards — often without so much as a warning to consumers about the changes.

The laws governing the notification policy may need to be looked at and revised, to say the least! Banks and mortgage companies are required to notify their customers within three days of making changes to the credit limits of their customers holding home equity lines of credit; credit card lenders, on the other hand, have up to 30 days after making the credit limit change to notify their cardholders of the change.

What happens when cardholders aren’t aware of their credit limit decrease and continue to use their card within that 30-day time period before they’re notified? Best-case scenario is that the cardholder experiences mild embarassment when their card is declined when they try to use it, but more commonly the purchase will go through and the cardholder ends up having to pay an over-the-limit fee for every month the balance of the account is over the new, lowered limit.

The lowered credit limits have long-term effects on consumers, as well. In addition to making it more difficult for a customer to pay bills or make purchases in an already difficult economic time, lowered credit limits can result in lower credit scores. Considering that the calculation of the FICO score takes into account how much of your available credit you’re currently using, lowered credit limits will have an unfavorable impact on the magic number that all lenders rely on to determine your creditworthiness — and the interest rate you’ll receive. As your credit limits are decreased, the percentage of available credit you’re using increases, which results in lowering your credit score by several points.

Lowered credit scores can affect the accounts you currently have — your existing creditors are likely to check your credit report on a regular basis to note any changes in your financial situation or level of assumed “risk.” If your credit score is lowered, chances are your existing accounts will start raising your interest rates on the money you already owe.

If you think having excellent credit and no late payments will save you from having your credit card limits lowered, think again. Individuals holding Visa, MasterCard and American Express cards can have their credit limits lowered simply for living in an area that’s being hit hard by what experts call the “housing crisis,” regardless of what your payment history or credit score looks like. In fact, the terms of the card you sign when applying clearly state that your credit limits can change at any time, and most include a statement about changing the limits based on “market conditions.” Also, individuals who are self-employed in industries considered to be high-risk — such as any business tied into the real estate industry — are prime targets for credit limit decreases.

Unfortunately, there doesn’t seem to be much consumers can do to prevent their credit limits from being lowered, but there are some steps you can take to reduce the impact that a lowered credit score can have on your financial situation:

1. If your card provides it, sign up and view your balance in your online account manager. If the available balance changes, you should pick up on it quickly if you’re regularly viewing your account information and can avoid spending over the limit, therefore avoiding over-the-limit fees and over-utilization of your available credit limit.
2. When your credit card statements come in, be sure to look them over carefully for any changes to your credit limit. Also open and read all documents from your credit card lenders, to see if any of the mailings are to notify you of a credit limit change.
3. Adjust your card use accordingly to ensure you’re using less of your available credit. This will lower the impact on your credit score. Try to keep your balances paid off each month; if that’s not possible, keep your balances under 30% of your available credit limit. As your credit limits are lowered, make larger payments on your credit cards to reduce the amount you’re utilizing and to keep your credit score from dropping along with the credit limits.