ID Theft Prevention and Basics - Lesson #7

This Lesson Addresses Fraud and Identity Theft

This is a big topic so we are going to split it up and we will cover the “definitions” and ID theft prevention in this lesson and how to “treat” an Identity theft in Lesson 8 and then in Lesson 9, we will address Fraud Freezes and Fraud Alerts and when to use each one.

There are generally 2 terms that are thrown around quite a bit so first we need to clarify…the difference between credit card theft and Identity theft.

I have a really smart, i.e. highly educated friend who thinks these are the same. Wrong! So here’s the difference. Existing Credit Card theft is one type of ID theft. Credit Card theft is when some one uses your card to make purchases. The other two types are New Accounts and Existing non credit card account fraud. These together make up the major categories of ID theft. One major difference, your credit card has a nice little law protecting it, so that you are only liable for $50 per card. But you have to dispute the charges within 60 days to get this protection.

So let’s start with Prevention

What’s the best way to protect yourself? Here’s our list of the best preventative tips.

Remember this Phrase: Protect, Detect, Resolve, Block

Okay, first, protect your personal information. Don’t give out your SSN or other personal information unless you know it’s a trusted source, and keep a list of account numbers in a safe place.
Next, manage your mail. Here’s the pattern we use at my house. I pick up the mail and walk to the recycle bin, I dump all the catalogs and non-personal junk and then walk to the shredder to put in my credit card/loan offers that keep coming. Yes, you need to shred these. Then I put the rest on my desk. Having a system will avoid large piles to sort through each month.

If you’re not already online, Get online. Online consumers check their accounts more frequently which mean less damage is done should a fraud occur. Note that in a Javelin study, the average was $551 in losses when detected online vs. average $4,543 when detected from paper statements. A Harris Interactive study says that 50% of all households pay some bills online. So, if you are online, your risk is a great loss would appear to be lessened.

We realize that the other 50% of you out there are saying ” I don’t shop online” or “I don’t do anything online” or that “the Internet is evil”. Saying you are going to stay offline is like saying I refuse to use an ATM or I refuse to use a cordless phone”, it’s simply not feasible. Look… we are not asking you to get a computer and internet access if you don’t have it. You can do this from your library as long as you are careful to log in and out of your accounts. Besides, online ID theft is just about 10% of all ID theft. The real common ways ID theft happens are stolen wallets, checkbooks and credit cards.

Next tip: Check your accounts regularly. One study suggests 40% of us don’t review our statements on a regular basis, or even at all. ID thieves are counting on this!! You should review your accounts online once a week. Or check into the email alert service many banks have so you can be alerted for large balance changes. Wamu’s credit card has numerous setting options for alerts, where you can set to be notified various ways. Here we are setting an alert to be notified when my balance goes over $500.

A new service called Mint.com sends out alerts for you if your bank doesn’t offer this service. Mint is neat as it consolidates all your cards in one place.

Start using a credit-monitoring product or at a minimum check your credit free once a year at annualcreditreport.com. The annualcreditreport.com site is just okay as you only get your free report 1 time per year. The monitoring products are the “”Set it and Forget it” approach. Since we realize that checking your accounts once/week is simply not ideal for most people on the go — we like monitoring products as a simple alternative.

The good news, it that most of the monitoring products do ID theft protection - even if they are not marketed this way. Score Watch, while not marketed as an ID theft product, provides great monitoring. By the way, you may see ads for $1MM in id theft insurance included with some products. That’s no different than $20-25k in insurance as they only pay recovery fees i.e. it only covers your loss and legal and professional fees. And as you saw above, with an average fraud loss of $4543, much of this covered through your credit card’s $50 liability, $20K-$25K of insurance is just fine.

If you are past the stage of needing credit - for example, you own your house, own your car and don’t need any new cards, and not likely to need credit for anything– you may want to do a credit freeze. [We discuss Freezes in Lesson 9]. Okay this isn’t right for most of us, but what about your parents, or your aunt or uncle. The elderly are common targets of ID theft as they often have great credit scores and aren’t checking accounts as frequently. Yet, they often don’t ever need new credit.

We know this might seem like a lot to digest, but remember you have options, you can do much of the legwork yourself by disciplining yourself to check accounts regularly or you can pay a monitoring service to do it for you

In the next lesson, we’ll discuss how to deal with an ID theft if you get victimized.

Higher FICO Credit Scores - Lesson #6

This lesson covers some tips to get a better FICO credit score and reduce your personal debt.

See all the ads on TV that say – “we erase your bad credit” or “we can remove bankruptcies”? Notice your gut reaction is to not believe them. Trust your gut. There is no quick fix for a low credit score, but that doesn’t mean you are sunk. We’ve spoken to many people who have increased their scores by a 100 pts or more in less than a year.

So first things first, if you want to boost your score, first you need to know what it is. So find out. We’ve discussed various websites in previous lessons and you can help out our cause by connecting through the VideoCreditScore.com website.

Next, in tackling a hard project of any kind, it’s nice to get a few easy victories. When you clean your house, sometimes its better to tackle the easy jobs first.

Question: in your case, what’s easier, paying of thousands of dollars in debt or removing incorrect items on your report that could be as detrimental to your score? Inaccuracies can be fixed in a few months so that’s the place to start. You want to read your report carefully and dispute any inaccuracies you have.

So, we talked about disputes in our myths lesson. 25% of you may have score impacting errors; so make sure you do this exercise, as it’s usually easier than some of the next steps.

Ok. You’ll need to build a “credit snapshot and we’ll show you an example. For all your cards, you need to collect the following info, your APR, or annual % rate or interest rate, your balances, your minimum payment, calculated as 2-4% of your balance and your credit limit so you can see your credit utilization ratio.

In our example, Jamie has 3 cards, yes we know that’s less than average, but we want to keep this simple. She’s collected all the info: the card, the APR, the balance, her minimum payment and her credit utilization.

Let’s take a look back at the credit score pie.

High scores are all about managing to the credit score factors or the credit score pie. We think it’s best to focus on the biggest pieces which are payment history and amounts owed. Impacting these is critical to a great score and here’s how.

In our example, Jamie has paid her cards late; this could mean not paying at all, or paying less than the minimum. First off, she must pay the min, on time, each month!!!

So if you’ve been late, for your sake, you’ve got to back on time and NOT be late again. If you don’t have a system for paying on time, get one. You’d be surprised how high a score someone can have if they just pay on time. I saw this first hand at a university where few students could pay more than the minimum yet they had decent scores. If you are late, your first goal is to be on time with the minimum payments, once you do this then it’s time to be on time with more than the minimum. If you can’t make your minimum payments each month, you may want to contact a non-for-profit credit counseling organization to assist you.

So let’s say Jamie has $500/mth to put towards her cards. Now that she’s disciplined, she pays the $308 in minimum fees, and then needs to apply the rest someplace else. In most cases, you want to pick the highest rate card first, and apply all of it until it’s paid off, then the next highest card and so on. Remember in some cases it helps a score more to payoff by how Maxed out the card is. But both strategies have long-term positive impacts.

The key is paying above your minimum payments. Okay, your kids beg you for a Playstation 3 for $499 or maybe you want one yourself. A $499 charge will take almost 8 years to pay off doing just the minimum payments, and less than 3 years if you pay double the minimum payment each month. By paying just the minimum you have almost doubled your total cash paid.

Let’s say your cc debt is now consolidated on to a few cards that have all the same rates.

Because we get tired of saying Credit Utilization Ratio we are going to use the Acronym C. U. R.

CUR stands for Credit Utilization Ratio and it’s the ratio of Credit Used to Credit Limits. People who max out their cards, tend to have lower credit scores because they are statistically more risky – i.e. likely to default.

Let’s go back to Jamie’s situation. Now, she’s done great and paid off her store card. And she’s managed to get her cc debt into cards with the same rates. She needs to work on her individual CUR and her aggregate CUR

For her $500 to use, she wants to make the minimum on both and then apply the rest to the more maxed out card, in this case example, the MasterCard. See how the MasterCard has a 66% CUR vs. the VISA at 50%? Making a bigger payment to MasterCard will allow her to lower her CUR. Once she gets these 2 CURs to be even, she will want to split the funds to lower them both simultaneously.

…You’ve got to start working on your credit utilization ratio or CUR. In addition to following Jamie’s example…here are some other things worth trying. Especially if you have gained a few score points as of late. You can apply goodwill tactics.

1. Call your credit card company and tell them you will switch providers unless they will raise your limits. This doesn’t always work, but it might, as they want your business. What does this do? A higher credit limit lowers your CUR and that will improve your score.
2. Also, ask your credit card company to lower your interest rate. This one is tougher, but again the threat of leaving them might help. Or you can ask to be converted to another of their cards with a lower rate. Note: this will lead to a hard inquiry. This won’t help your score so much as it will help you pay less in interest and more in principal!!! And that will lower your balances!
3. Make a pmt on your cards twice a month. Hey, you get paid 2x per month, so even if your monthly outlay is the same, it will help you as you will not incur as much interest expense. If you pay online many sites allow you to pay as often as EVERY DAY! If pay by mail, just write down the address and make your own envelopes.

We look at Goodwill tactics as your opportunity to reward yourself for good behavior. Look, behave badly and a credit issuer may lower your limit or raise your APR, so shouldn’t you get a limit raise or an APR decrease if you’ve been paying on time?

Let’s go back to the Credit Score Pie,

Ok, what about length of credit history? Not much you can do about that.
Ok mixture of credit? Not the best strategy to try to aim higher by getting a mixture. Leave this until your credit is more sound,
Inquires. Simple, no new cards/loans until you have a good score again.

« Previous Page — Next Page »