The Universal Default Clause and how it impacts your credit score is important. Let’s break this down. The word “universal” clearly implies some kind of wide scoping impact and here it means that your actions on one credit card can impact the policies on another card. What this does, at least for some folks, is accelerate the decline in their credit score. How?

Say you have two credit cards, Card A and Card B and you make the minimum payments on both but you miss a couple or you are late on Card A. Now, even if the interest rate on Card A stays unchanged, the card issuer of Card B gets this information on lates from your credit file and can use increase your rate on Card B. This makes it harder and harder for you to climb out of debt, and likely in this scenario, unless you find a way to pay down balances, your credit score will decline.

How can you stop this? If you are applying for new cards, check out the fine print before you agree to terms. According to Wikipedia, Citibank removed use of the universal default clause in 2007, but you will have to check with other credit card issuers to see their most up to date policy.

Remember, if you are married, you might have joint or authorized user accounts, so you have to remember to look at all of your cards to see if the universal default clause is impacting you.

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What’s a Universal Default Clause and How Does it Affect My Credit Score? – Episode #20

In this lesson we are going to discuss ID theft treatment or what to do if you become a victim with ID theft.

Identity Theft Treatment

We talked to someone the other day that thought he was victimized and he gave us his story

First off, he saw something on his credit file he simply couldn’t recognize and he had a credit report from his lender he was having trouble deciphering it. I know you want to save money, but the reports at myFICO, Equifax, TrueCredit and the other consumer websites are just easier to read.

He appeared to have a credit line or card that he didn’t recognize and he couldn’t easily tell. In his case the line item was an $18K credit line with $4K used. He really had no idea where he should start.

So here’s a good checklist of what to do

• Place a 90-day fraud alert on your credit file, by contacting any of the 3 bureaus. It’s free and it’s easy. Again, you don’t need to contact all 3 bureaus. Once, 1 knows they tell the other 2. To set this up call any of the 3 bureaus, Equifax’s is the one I recommend contacting.  You can do this online at fraudalerts.equifax.com.
• Ok, now you need an Identity Theft Report, which you can get by contacting the local authorities. What is this? An Identity theft Report is simply a police report that contains details of the ID theft. You need this report to dispute any fraudulent account behavior on your report.
• Contact your financial institutions by phone AND by certified mail to file an existing account dispute and/or a new account dispute. The FTC has nice forms for this, and you can get them from our website as well under credit resources. Include your Identity Theft Report with your dispute letters.

As an alternative, instead of using the FTC forms you can ask the representative to send you the company’s fraud dispute forms.

Send copies of these letters to the credit bureaus as well.

The companies have 15 days to ask for more info, and then 15 more days to ensure your Identity Theft Report contains everything they need.

• Send follow up letters to the credit bureaus detailing status with Credit/Financial Institution companies. While the bureaus should get an update anyway from the Credit Card Company, it’s a good idea to follow up on your own.
• Consider a 7-year alert or a Freeze on your account. More on this in Lesson 9 on Credit Freezes.
• Report the crime to the FTC

Ok, those are the major steps. Expect some back and forth on this. While the average ID theft resolution time is on the decline – it’s still a hefty chunk of time at 28 hours, so dig in and attack it.

If you are in the military…
When you are away from your usual duty station, you can place an active duty alert on your three credit reports as an extra protection against identity theft. The alert remains on your credit reports for 12 months. Contact the fraud departments for the three credit bureaus.

Wow, this is still a lot of work. Why bother? Well most people don’t report their fraud and that’s risky. For one, the Credit Bureaus are likely to think a new credit line is YOURS not FRAUD. So, your score will be on the hook.

Join us for Lesson 9 Where we will Discuss 90 day Fraud Alerts, 7-yr fraud alerts and Credit Freezes.

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Identity Theft Treatment for Victims – Lesson #8

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.

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ID Theft Prevention and Basics – Lesson #7

Credit Score Factors

Once people get their credit scores — and if you haven’t done this already you should – anyway, once they get their credit scores, they tend to look at their credit report and see that they may have a couple of items flagged for impacting their credit score. The gut reaction is to treat these all equally. Or, worse, focus on the easiest item. That’s a mistake.

The most commonly used credit score, the FICO score, is made up of 5 credit factors. Here are the 5 pieces and the percentage of the score each piece accounts for.

Payment History – 35%
Amounts Owed – 30%
Length of Credit – 15%
Credit Inquiries – 10%
Mix of Credit – 10%

The irony is that it’s really not all about the credit score pie, it’s mostly about the biggest pieces.

Payment History and Amounts Owed. These are the biggest credit score factors and nobody has a great credit score if these are out of sync. That’s because they represent nearly 2/3rds of your credit score.

Payment history is critical and as the name suggests time is your best ally to impacting this area. The key lesson is that a late payment in the recent past hurts more than one a few years ago. In fact, all your history is wiped clean after 7 years, unless you had a bankruptcy and then it’s 10 years. Net, net, if you aren’t paying on time, you have to figure out how to do this now. You can’t be late and still have a good score. Being late on payments a month before you hope to get a major loan is a no-no.

Amounts owed are all about Credit Utilization. What? A fancy term for the ratio of what you can charge – your credit limit – to what you do charge – how much of that credit limit you use. Let’s look at an example; Jack and Jill have the same credit limit on their cards, yet Jill uses her card less so she has a 25% ratio. It turns out that risk experts say people who use more of their limits are more risky. While many sources say a credit utilization ratio of 40% is fine. Someone with a 775 and higher scores tend to have about card utilization ratios in the 10% range. In short, don’t overuse your credit cards.

Mix of Credit. This wedge says that people with installment credit and revolving credit tend to be less risky than people with just one or the other and thus have higher credit scores. Installment credit examples are auto, home and personal loans. The most common revolving credit is credit cards.

Length of Credit. When it comes to length of credit just start early and stay on it. You can’t change time. If you are young, you want to start developing good habits now, so when you are ready to make a major purchase you have a few years of good credit history. Don’t cancel any credit cards with long credit histories.

There are 2 types of inquiries: Soft and Hard Inquiries. A soft inquiry is whenever you, for example, check your own credit score, or pull a credit report on your own. Soft inquiries are non-score impacting because they are not requests for new credit. Hard inquiries are requests for new credit. An example of a hard inquiry is applying for credit like getting a cell phone, or a credit card. So why do hard inquiries ding your score? It turns out that people who request credit more frequently are more risky, so the credit score reflects this.

Our experience is that most people love to focus on credit inquiries. While they shouldn’t be ignored, it’s only 10% of your score. When it comes to credit inquiries, timing is more the issue, don’t apply for credit at the same time when applying for a loan.

Also, don’t let credit inquiry fear stop you from shopping around for a loan, in most cases all credit inquiries in a 30 day window are considered as just 1 inquiry, and the industry to trying to move this to 45 days in the future. Note: this is true for home loans, but not for car loans and personal loans, so be cautious.

In summary, spend most of your effort around the biggest two credit score factors: Payment History and Amounts Owed, by paying on time and keeping your balances low.

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Credit Score Factors Pie – Lesson #2