Archive for the ‘Credit Problems’ Category

We’ve all seen the news about all the foreclosures happening all over the country, and, worse, some of us have first-hand experience in our own neighborhood. Homes that were once occupied by our friends, neighbors, perhaps even family, now stand empty. The banks aren’t getting paid, and the properties aren’t getting taken care of. It not only affects those who once lived in these houses, but the neighborhood too, by driving down property values of those homes around foreclosed properties.

Certainly, given all these foreclosures, we’ve also heard about — or have first-hand experience with — the occasional squatters, perhaps a homeless person finding some solace in some nice temporary shelter, or even some kids getting a bit carried away and finding a new party house. But there’s a new kind of squatter in town. These squatters are likely to scare away not only looters and thieves looking for their next empty target but perhaps even those looking for that bargain home to buy.

Who might these squatters be? How about a pack of mountain lions that decided to park themselves in an empty home in Lake Elsinore, California? Perhaps they figured that no one else was using the home, so they would. Maybe their thinking was much more devious: They decided that it was about time that they do something about the ever-encroaching human population that keeps pushing them farther and farther away from their habitat. Whatever the reason, they’re there, and it looks like they’re staying a while. They’re not making payments or even getting nasty phone calls and letters from the creditors, but authorities hope that, once the litter grows up a bit, they might move on.

Don’t be so sure, though. In this economy, even a bunch of cats can figure out when they’re living the high-life — and free of charge to boot.

A mountain lion roams a foreclosed home in California.

Back in April, voters in my hometown approved a $39 million construction budget to expand the high school. The architects told us that’s what it would cost to add more classrooms, redesign the gym and add an artificial turf stadium, among other things. But when actual project bids came in $6 million over budget, project managers blamed the rapidly rising costs of building materials for the shortfall.

So, in a special referendum last week, taxpayers were asked whether we should ante up the $6 million. The $6 million add-on was defeated by 26 votes (one vote in excess of what would trigger an automatic recount, according to state law).

So the school board is busily weighing its options and trying to figure out if it should rebid the whole project, rebid part of it or just eliminate certain aspects of the expansion.

It’s been a pretty contentious issue for my town, with seniors living on fixed incomes saying it’s not fair to burden taxpayers with such a substantial project during unsettled economic times, while parents plead for taxpayer support, claiming that severe overcrowding is hampering their children’s ability to learn.

The whole thing could just be a moot point. Even though voters approved the $39 million expansion, trying to move forward could be futile, considering the current national/global liquidity crisis.

“This is a complete game-changer,” the town finance board chairman said. “Even the triple-A rated municipalities can’t get money.”

So regardless of what the final version of the school expansion project looks like, there’s no guarantee the town will be able to fund the project. If the town somehow manages to borrow the money, the cost of the loan could be much, much higher.

As the credit crisis hits close to home, there’s already news of major cities and even states that are putting major infrastructure improvements on hold. What’s happening in your hometown?

People are hurting these days, that we know.

You’ve probably heard about some homeowners literally walking away from their properties because they’re “upside down” on their mortgages, meaning their homes are now worth less than the balance they owe. Similar things have happened with some motor vehicles that are now worth less than the balance of the loan, most especially those once-popular, gas-guzzling behemoths like the Chevy Suburban or GMC Yukon.

When money gets tight, some drivers are willing to try almost anything ⎯ even driving their vehicle into a lake ⎯ to try to get out from under that debt. Flood the car, report the vehicle as stolen, and hope to collect a quick insurance settlement.

Is today’s deteriorating economy creating a boom time for the car insurance fraud business? Or is the rate of insurance fraud one of those sure bets in life you can count on, like death and taxes? I checked in with the good folks at the National Insurance Crime Bureau to ask those very questions. You may be surprised by the answer.

Topsy-turvy financial markets. Bank bailouts, industry bailouts and at least one nation ⎯ Iceland ⎯ on the verge of national bankruptcy. We’re all caught in the middle, watching prices rise on everything from groceries and gas to common petroleum-based household products. Amidst all the turmoil, there was, of late, one small silver lining since July’s record-high oil prices ⎯ crude oil dipped to $78 a barrel today, offering drivers some relief at the pumps. That price is 41% off the July record high of $147 a barrel.

As the recession appears more global than local, most of us have made abrupt lifestyle changes in response to high prices and the uncertainties raised by the global liquidity crisis.

OPEC members announced they would meet November 18 to discuss cutting output. The oil cartel’s president, Chakib Khelil, said OPEC was “very likely” to cut oil production, Bloomberg reported. Most members of the cartel want to see prices remain in the $80 to $100 a barrel range. Iran and Venezuela, it’s been said, would like to see production cuts so as to raise prices while Saudi Arabia has resisted doing so. OPEC controls about 40% of the world’s oil output.

So, come November, will they be kicking us when we’re down?

One has to wonder what Henry Ford would think if he were around today. When it was introduced on October 1, 1908, the Model T was affordable ($825) and was soon mass-produced; Americans weren’t just buying an automobile, they were buying freedom and independence. Today, the gas-powered, internal combustion engine may be approaching the end of its useful life, and continued dependence on oil to run our cars, and much of our country, seems more like a ball-and-chain than freedom.

What does energy independence mean to you?

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.

The title alone might surprise some people who mistakenly believe that a person’s credit score and also their credit reports are something issued by the government like birth certificates and Social Security cards.
It’s easy to understand the mistake — your credit report and credit score have almost as much impact on the lives of an American citizen as a government-issued document: Your credit report may make or break you in the job world, help or hamper you in your dream of attaining a home or auto.

So why and for who was credit scoring first developed? Fair Isaac was started in 1956 as a way for businesses to make better credit-granting decisions and billing. In 1970, the company developed its first general credit card scoring system. In 1975, it introduced its first behavior scoring system to predict credit risk related to existing customers, and in 1981, Fair Isaac successfully marketed its scoring system to the existing credit bureaus: Equifax, TransUnion and TRW (now Experian).

When a consumer’s credit history became available through modems and then later the Internet, mortgage companies were able to pull a customer’s credit score, and it was sold to the banking industry as a way to save time in making credit decisions; indeed, a person’s credit score became the first line of defense for underwriters. In most cases, the data which produces the score, i.e., the credit report, is no longer reviewed.

Which would be better — government bureaucracy with all its red tape to handle your credit or private companies? The Fair Credit Reporting Act, which monitors the activities of credit reports and the scoring system, was implemented to protect consumer privacy from the lax approach of one credit bureau in particular. In the 1960s and early 1970s, Equifax was attacked by Columbia University Professor Alan Westin, who laid into the bureau for its cavalier attitude toward the accuracy of its information on consumers, and for giving out that information to practically anyone who asked for it.*

Currently, the specifics of what goes into the available scoring models is “classified” information — would the government be more transparent if it had been running the credit game? I would hazard a guess of “yes,” as this type of regulation would not be considered military secrets or national security. The developers of the credit scoring system argue that “transparency” would allow consumers to manipulate the scoring system and “render it useless.” I’m not sure I agree — a late paying record or bankruptcy cannot be “manipulated.”

I see far too many abuses of consumer data by the bureaus in the name of increasing profits by cutting corners; computer-automated error disputes, lack of staffing and minimal review (if any) of consumer-provided documentation. It’s common knowledge that fully 60%+ of consumer credit reports contain errors — if the government ran things, disputes might take weeks to resolve, but most likely a human being would be involved.

What’s your opinion on the effectiveness of our current credit reporting system?

Footnote

* Wired Magazine: http://www.wired.com/wired/archive/3.09/equifax.html

The title question may seem ridiculous on the surface — we’re all seeing prices in our everyday lives go up. But is one of the factors in the current rise in prices our own fear and uncertainty? The two biggest price increases in the news these days are food and gas. Are food producers and fuel companies taking advantage of this headline-grabbing information and increasing prices because in part because we expect things to cost more?

To answer this question, let’s look at some real data on exactly how much prices are going up. The Consumer Price Index (the U.S. Consumer Price Index is a time series measure of the price level of consumer goods and services, or basically — how far does your dollar go in the current economic environment) shows:

3-month comparison:

• Energy costs: 28.2% increase in the compound annual rate for the 3 months ended May 2008
• Food costs: 6.2% increase in the compound annual rate for the 3 months ended May 2008

1-year comparison:

• Energy costs: 17.4% increase in the compound annual rate for the 12 months ended May 2008
• Food costs: 5.1% increase in the compound annual rate for the 12 months ended May 2008

So for food, 5% over last year — not so bad, but energy, 17.4 % — ouch! Now let’s take a 10-year look:

• CPI food in May 1998: 160.3
• CPI Food in May 2008: 211.918

• CPI Fuel and Utilities May 1998 129.3
• CPI Fuel and Utilities May 2008 222.094

Over 10 years, food is up 25%, fuel 75%, again — ouch! However, the spike in fuel costs has happened all in the last year, and, many people feel, is due in large part to speculation. Will this trend continue? Oil will probably not go back down to $50/barrel, but the recent run-up in prices looks suspiciously like a bubble to me.

Panic in the stock market has reared its ugly head several times in the past — 1928, 1987, 2001 — and was always preceded by what Fed Chairman Greenspan famously labeled “irrational exuberance” in the stock markets. The current climate was definitely the irrationality of the real estate market. I submit that as fast as the real estate market zoomed inexplicably upwards, a frenzied “the sky is falling” climate can drive prices in an equally irrational direction.

Are you someone who does not believe in using credit cards? You’ve probably heard that it’s important to build a strong credit history. Is this true, or can you get a good credit score just by paying cash, building up a nice savings account and having no negative credit history?

Unfortunately, if you’ve paid cash your entire life or have no credit history, you may not have "good credit" in the eyes of lenders or banks.

Now, whether that matters depends on your life goals. But you need to have a substantial credit history if you ever want to buy a house or get a car loan. And even if you can get credit, a poor credit history will cost you thousands of dollars because you’ll be saddled with higher interest rates on your loans.

Even if you’re very responsible with your money, you could be surprised to discover that there’s little reward when it comes time to buy a home or lease a car. The reason is that lenders like banks make credit decisions — and determine your interest rate — after assessing your risk. They do so by examining your credit report or credit score. Your three-digit credit score is used to determine your credit worthiness for nearly all applications for credit, insurance, rental units, and even utility companies. Credit scores were designed to predict the chances that you won’t pay your bills in the future. Scores are based on payment history, amounts owed, length of credit history, mix of credit, and new credit.

So if you always pay cash and have no — or very few recent —credit accounts, you may have a lower credit rating than you imagine — even if you have a very high income and have never been late paying a bill. You’d think that paying cash for everything shows that you’re financially responsible, but the credit risk system doesn’t work that way.

Building Your Credit History

The good news? There are a number of legitimate ways to build up a solid credit history over time (none of them involve paying someone to "boost" your credit score or other such trickery). They include obtaining credit cards or store charge cards (there are "secured" cards for those who don’t qualify), getting listed as an authorized user on someone else’s card, getting a parent or guardian to co-sign, and getting utility service. There are also credit unions or banks that have programs to help people establish their credit.

When you’ve always paid cash, the best strategy to prepare for your long-term financial needs involves three basic steps: start building your credit history long before you need it; be patient; and, of course, pay your bills on time.