Author Tom Fragala Archive

Fair Isaac Corp., the company behind the FICO credit score, has launched a new product for banks and credit card companies that might make it easier (and cheaper) for you to get your credit score more regularly. It’s called FICO “Scores on Statements,” and it allows banks that pay for the service to offer monthly updated credit scores on their online bank statements — with some customers perhaps getting them for free (depending on the bank).

So far, Pennsylvania State Employees Credit Union, Washington Mutual (which is being acquired by J.P. Morgan Chase), and the Sears Solution MasterCard, issued by HSBC, are part of the program, and their customers can get their FICO score free. Also included with the score are the top reasons why the score is what it is, and how they may improve the scores (that’s Fair Isaac’s language, not ours).

This may be a service to look out for if you’re in the phase of life where you’ll be making a lot of major credit purchases, such as a home, auto, or large appliance. The higher your FICO credit score, the less you pay in interest. There is also plenty of information about credit scores online, if you want to learn more about credit.

When traveling with your laptop, be careful for a scam set up to steal it at airport security checkpoints.

Here’s how the con works:

A group of thieves try to get between you and your laptop at airport security — at the metal detector. One of the grifters will get in front of you, while another who has already passed through security waits on the inside. You put your laptop conveyor to pass it through the X-ray scanner, and the con man in front of you makes sure to set off the metal detector on purpose. He puts on a good show, making sure to take plenty of time and cause enough confusion to delay you and distract people. In the meantime, your laptop comes out of the conveyor, and it sits there untouched and probably out of your view.

The second thief is waiting for it to arrive and simply picks it up and walks away. No security person on the inside typically knows or cares who owns the items coming through. To make the scheme even harder to detect, the thief on the inside might even make a quiet hand-off, so a third grifter ends up with your laptop.

So be careful at airport security, and try to keep an eye on your laptop. Even the Federal Aviation Authority (FAA) has issued warnings about this.

Once they have your laptop, plus all the other goodies in your bag, not only can they resell the electronics, they, or whomever they sell it to, can hack into it and probably find loads of valuable personal information.

You should be aware that no-limit credit cards, like some American Express cards, may have a detrimental effect on your credit score. It may be counter-intuitive that people who have the credit standing to qualify for, let’s say, an Amex Gold or Platinum would ever see a credit score lowered simply for holding the card.

Here’s what can happen: Your credit score is determined in part by the difference between the credit limit on your cards and the balances you carry (also known as “credit utilization”). Virtually all credit card issuers report your credit limit to the credit bureaus, and this is used in the calculation of your score.

The problem is that a no-limit credit card company has to report some value as the “limit” to the credit reporting companies. If card issuer reports an arbitrary limit that happens to be low while also reporting what you spend (and you spend a lot), you could seeing a lower credit score because of it. The difference between your credit limit and the “balance” could be very small (which is bad for your credit score).

Many consumer advocates believe that the best thing for the no-limit card issuers to report is your highest-ever balance as your actual credit limit. Unfortunately, it seems like this doesn’t always happen, and the unsuspecting consumer may have a lower credit score than might otherwise seem fair.

The only thing you can do is get your credit report and see what the card issuer is reporting. If it looks like they’re doing this to you, call customer service to complain.

If someone steals or misuses your Social Security number (SSN), which is issued by the Social Security Administration (SSA), does the SSA ever get involved in investigating the crime?

The answer is no. The SSA does not investigate ID theft, and they have no authority or budget to do so. So it’s a waste of time to contact them (unless your card was stolen and you need a replacement).

Now, if you’re a victim of Social Security benefit fraud or benefit checks are being stolen, that is in their jurisdiction and they will likely investigate. The part of the SSA that would get involved in that is the Office of the Inspector General (OIG).

If your Social Security card was lost or stolen, you should get a replacement. It can take quite a bit of time, so don’t wait until you need the card to take the step. The SSA website has instructions to help you out.

Now you may be wondering who will or should investigate your identity theft. The answer is “it depends.” But you can and should report it to the local law enforcement authorities where you live or where the crime happened. The local police really should take a report and make at least an attempt to investigate. But if they don’t, you can try the sheriff or state police.

You’re certainly aware that your Social Security number (SSN) is one of the leading ways your identity can be stolen. If it is stolen, it can cause you enormous headaches. The thief can use the SSN to open new credit cards in your name, get mobile phones or utility service, or commit bank fraud.

Clearly, you should avoid giving out your SSN unless it is absolutely necessary. Think about how many people have your SSN or have access to it. Family, roommates, every doctor or dentist you have seen, every employer you have ever had, insurance companies — even video stores sometimes require it for membership.

If you can limit the number of people who have your SSN, you can reduce your risk. The easiest way to protect your SSN is to never carry your card and to lock it away along with any papers that have your SSN printed on it.

You’re often asked for your SSN, but how do you know if it’s truly necessary to provide it? Well, outside of taxes or government benefits, it’s not always easy to know when providing a SSN is required rather than voluntary.

If someone asks for your Social Security number, pause for a moment to consider whether they really need it. Here are five questions you can ask the person who requested it.

1. Is my SSN absolutely necessary and, if so, why?
2. For what purpose will it be used?
3. Will you store it in a safe place?
4. Is there a law that requires you to get my SSN?
5. What happens if I don’t give it to you?

Something else to keep in mind: Often, when you’re told that your SSN is “required,” the business only wants it in case you don’t pay your bills. That makes it easy to track you down. They can provide it to a collection agency — which you want to avoid. They tend to not be very friendly.

You may be thinking that closing credit cards is a great idea: It will reduce the temptation of using them and “simplify” your life. And it will make you a lower credit risk if you have fewer cards, right? Well, before you take the plunge and cancel credit accounts you’ve had for a while, think twice — your credit score is what will take the plunge!

One of the most common misconceptions about personal credit is that closing credit cards, particularly accounts you don’t use, is a good idea. If you close an “established” account, especially if it has been a satisfactory (always paid) account for over two years, it will lower your credit scores. Why does this happen? The reason is that 15% of your credit score is computed from the “length of credit history,” which is the time since accounts were opened and the time since account activity. Hence, people with credit accounts in good standing for a long time typically have the highest credit scores.

If you close a seasoned credit account, you lose the ranking and value this account had in the calculation of your credit score. How much could it go down? Well, that depends. However, because the FICO credit score range is 550 points (300-850), the most it could reduce your score should be 82 points (15% of 550). That is a huge hit to take and would almost certainly bring your credit rating down so far that you would pay higher interest rates on any new accounts you open. If your credit issuer applies “universal default,” you could even find yourself paying a higher interest rate on existing accounts that are in good standing!

The only valid reason to close an unused account is risk: Either you’re worried about someone stealing the numbers and committing fraud, or you fear you’ll overspend if you have the card available. Well, your fraud protections on credit cards are actually quite good, as long as you check your statement and report acts of fraud quickly. As far as overspending goes, that’s a personal choice — just be aware of the negative impact of closing accounts.

The bottom line is, you want to avoid closing out older credit card accounts, since your credit score will go down.

Like most offers that sound too good to be true, be careful about credit card balance-transfer offers. You might end up paying a bunch of money in fees or even lower your credit score.

Millions of these pre-approved credit card offers are mailed out every month. Often they offer 0% interest on all transferred balances for a time period. These balance-transfer offers allow you to use available credit from one card to pay off balances due on one or more other credit cards. Usually the special low rates expire after a certain time period. Moving balances that are being charged a high interest rate to a credit card with a much lower rate seems to make perfect sense.

Credit Balance Transfers and Credit Score

But transferring can reduce your credit score, which could cost you far more in other ways than it will save you on interest charges. Your credit score could drop because:

• If you a close a long-standing account (the one you transfer from), especially if it has been in good standing for over two years, your score will fall drastically.
• When opening the new card, or even just transferring the balance to an existing card, a credit inquiry will likely occur, dropping your score around five points.
• Adding another new credit account may lower your credit score because of your increased debt exposure (it may help in the long term, however).

Another issue to be concerned about is hidden fees. Depending on your past history and credit score, most balance-transfer deals require you to pay a fee. This could be a flat rate or a percentage of the amount borrowed. You also need to understand what happens to your rate when the limited-time offer expires and you still carry a balance. You might find yourself with a very high interest rate again.

If you pay close attention to the fine print and pay off the balance transfer amount during the promotional interest rate period, you can have a good experience and cut your monthly expenses by reducing your interest payments. And remember to keep your old credit card account open, or your credit score may drop big-time.

Do you have “clean” credit but wonder if your credit score could be higher? Should you take out loans to help your credit score, and if so, how many?

You’ve probably heard how important it is to build a strong credit history. Unfortunately, there’s no way to get a “good” credit score just by paying cash. You need long-standing, satisfactory credit accounts on your credit report in order to have a hope of improving your credit score.

Why are your credit history and score so important? Your personal credit history is a measure of your financial trustworthiness. Good credit means it’ll be easier for you to get loans, credit cards, home mortgages and low interest rates. And low interest rates usually results in lower monthly payments — saving you lots of cash. So, clearly, having solid credit is a big deal, and having poor credit can be a costly problem.

Most banks and other credit grantors use a credit score to predict whether you’re likely to repay a loan and make timely payments. This means they take your credit application and pull your credit report to learn things about you, like your annual income, overall debt, payment history, and the number and types of credit accounts.

Many people just have a chicken-or-egg problem: They have little or no credit history, but it’s difficult to get credit in order to build that history! Establishing a good credit history usually isn’t as difficult as it seems. Consider these options:

• Apply for a store or gas credit cards, since these retailers are usually more willing to issue credit to someone with no history. If you pay these bills on time, then major credit card companies will probably issue you a card down the road.
• Look for “secured” credit cards. Essentially, secured cards require you to put up cash that you borrow again. These are pretty easy to get, if you have the money, and will help you build a positive credit account.
• Find a co-signer. You can ask other people who have an established credit history to co-sign on an account. By co-signing, though, the other person agrees to pay back the loan if you fail to.

How many loans or credit cards should you take out to help your credit score? That’s a question that depends on a lot of factors, but most people should avoid opening more than a few accounts in a short period (within six months). Over time, you will want three or more long-term credit accounts in good standing on your credit report in order to have a chance at a good score.

Once you start to build your credit history, be patient, as it will take many months, even years, to get into the better credit brackets. Make sure you pay your bills on time, and don’t open too many accounts at once.

You just might be able to get a lower interest rate on your credit card by — believe it or not — calling and asking for it! Especially if you’re a loyal customer or have good credit.

It sounds too easy, but think about it: The interest rate on your credit card is, essentially, just an agreement between you and the issuer. That means it’s open to negotiation. So although the issuer has no legal obligation to lower it, you have no legal obligation to remain a customer either!

If you have a good credit score or your score has improved since you opened the account, you have a great shot at a lower annual percentage rate (APR). Long-standing customers and those who haven’t had recent unpaid bills (at least six months of on-time payments) also have a better chance.

Another point to consider: Your credit card company can borrow money at the federal fund rate, which is usually in low-single-digit percentage points. However, cardholders like you are borrowing from the issuer (if you carry a balance) at far higher rates — 16%, 18%, sometimes well over 20%. So there’s probably room for a compromise.

Also working in your favor is that there’s plenty of competition in the credit card market. The cost to acquire a new customer may be as high as $100 or $200, so it makes sense to keep a card customer in the fold.

The bottom line is your request for a lower APR has a pretty good chance of being accepted. And don’t be afraid to ask for a very steep drop. Depending on your current rate, start negotiations at a 5% or even 10% reduction.

What should you say when you call? I recommend you be polite and non-threatening, but firm. “Hi, I’ve been a customer for a while, I pay my bills and have good credit. I’ve gotten many offers from other credit card companies with lower interest rates. So I want a lower APR on my card with you, or I may consider switching. Can you help?”

If you pay off your balances every month, then you may think you don’t need a lower interest rate. That’s a fair point, but what happens if, just by accident, your monthly payment is received late? Then you’d pay a higher late fee than you would otherwise.

If you do order your credit score, make sure you get your three FICO scores. And if you do switch to a lower rate, don’t close a long-standing credit card account — your credit score will drop substantially.

You may have heard that credit card companies will “ding” your credit report if you pay off your balances, harming your credit rating. This is simply untrue. One of the best ways to improve your credit score over time is to keep your credit card balances low (this goes for other “revolving” credit accounts too).

What is Credit Utilization Ratio?

The reason for this is that 30% of your FICO credit score is calculated using the “amounts owed.” This makes it the second most important criteria after payment history. So keeping low balances helps because the credit score formulas use a “credit utilization ratio,” which is the current unpaid balance on your accounts divided by the credit limits on those accounts. In other words, credit utilization is simply how much of your credit limit you’re using. The higher your credit utilization, the lower your credit score. The opposite is also true — reducing your credit utilization ratio will eventually increase your credit score (everything else being equal).

Obviously, there are two ways to reduce your credit utilization: by paying off your balances or by increasing your credit limit (if you can do both, you’re even better off). Don’t be fooled into thinking that closing accounts will help; canceling established credit cards that are in good standing will hurt your credit score because it will decrease your overall credit limit.

Another very good — and obvious — reason to pay off your balances is that it’s the best way to live within your means and avoid paying high interest rates on balances that just eat up more of your hard-earned cash.

So, the lesson here is to pay off your credit card balances every month. It should help your credit score and keep more money in your pocket. And higher credit scores should result in lower interest rates for credit.