Fraud Alerts, Hacks, and Insider Trading

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You’d have to be under a rock to not have heard of the Equifax hack that exposed the personal information of millions of customers (143 millions to be exact) that amount to essentially 1/2 of the entire U.S. population. It’s alarming and frustrating because the nature of their organization does not allow us to opt out of their business model. If a hack of that magnitude occurred at my financial institution, I would simply take my business elsewhere. But, the way our credit system works, we do not get a say as consumers. If you have a pulse and you have any credit history, at least one, if not all three credit bureaus, will have a lot of personal information about you.

If you ever looked at your credit report, you’ll see that almost everything except your medical history is included (past and current addresses, employers, account balances, payment history, phone numbers, etc.) If you think that’s alarming, I’ve got news for you that should make it worse: honestly, there is nothing you can do about those organizations having your information other than living off the grid like those crazy cult people (who may be on to something) who shun the use of credit, social security numbers, and civilization altogether.

While you can’t keep the information from getting out, you can prevent someone from using it for nefarious purposes. After thinking it over, I decided that the 7 year credit freeze was overkill and instead opted for a 90-day fraud alert. The fraud alert allows me to block any attempt at applying for credit without the potential lender first calling me on the phone to verify that I am indeed the one applying. It is free, fast and convenient to do, and best of all, you only have to contact one of the three agencies as they are required to notify the other three. The alert lasts 90 days and you can keep renewing it every 3 months. You can do it over the phone or on any of the three reporting bureaus’ website (phone numbers and links below).

See below for their contact information and good luck! If you’re concerned about your information being in the hands of criminals, just think of it that way, at least you have it better than the three Equifax executives who will probably end up in jail for insider trading. I hear prison food is terrible.

TransUnion
1-800-680-7289

Experian
1-888-397-3742

Equifax
1-888-766-0008

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The 7-Step Guide to Healing Your Credit

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Before you read this post, I encourage you to take a look at the previous blog that talks about what makes up a credit score. You will have a better understanding of how the steps that I am recommending will impact your score every step of the way.

Welcome back! Now that you know what makes up a credit score, I hope you’re ready to fix yours.

A capitalist society is a consumer driven society. Few people are as consumption driven as Americans. Unfortunately, many of us aren’t patient enough to wait until we can afford the luxuries of life before we decide to indulge. As a result, we overextend ourselves, borrowing our lives away to keep up with the Jones’. However, as various entities we do business with begin to put increasing value on credit history, we are starting to wake up to the fact that things need to change.

But before they change, we must right the wrongs of the past. So it is no surprise that credit repair has become big business. The other fact about the credit repair industry is that they are preying on low-income consumers. What if I told you that with a little bit of guidance, patience and a whole lot of discipline you could repair your own credit score for free? Well you can and I will outline all the steps below.

The following list is a guide for how you can repair your credit or keep your credit score high if you already have good credit.

  1. Pay on time – Pay all of your bills on time, every time. Verizon, T-Mobile, Comcast can all send you to collection and ruin your credit. While you want to prioritize things like your mortgage so you aren’t homeless, don’t think there is a company out there that you owe money to that doesn’t have the ability to report you to all 3 credit bureaus.
  2. Pay down your balances aggressively – Your outstanding debt balance, especially on revolving lines of credit (i.e. credit cards) negatively impact your debt usage ratio (how much of your available credit line that you are using). Therefore, your score will benefit  greatly from you paying off your balance due and not just the minimum payment.
  3. Do not apply for credit – If you read the previous article that I linked above, you will know that hard inquiries (shopping for credit vs. “soft” inquiries marketing/promotional inquiries) on your report adversely affect your score. Additionally, those inquiries remain on your report for about 2 years.
  4. Pay, don’t shift– Do not move your debt around. I know someone who spent nearly 3 years moving their credit card balances to 0% interest promotional cards until she was no longer getting those offers. This does not eliminate your debt. It just helps you avoid interest for a period of time while you’re paying a balance transfer fee as a percentage of your owed amount. It is costing you money to still carry the debt. Ignore those promotional offers as they only benefit the company that you’re moving to, while you continue to be in debt and your score continues to suffer.
  5. Don’t close good accounts – If you have accounts in good standing with little or no balances, especially if they are aged, keep them open. They help establish your history and offset negative information on your credit. However, you have to be able to resist the urge of using the card or credit line. You are NOT required to use your account to have good credit.
  6. Be patient – Time heals all wounds. Inquiry “wounds” 2 years. Delinquency “wounds” 7 years. Bankruptcy “wounds” 10 years. As you work your tail off to show improve the data that shows up on your credit report going forward, there is not much you can do about ACCURATE adverse information. However, all information, good or bad goes away eventually. This is why it is important to remain consistent once you decide to make a change. Once the bad information falls off, you want to make sure that new bad information doesn’t rear its ugly head as it has a 7 year shelf-life.
  7. Fight – Remember how I said you can’t do anything about accurate information? That is not the case for incorrect information. If someone has the same name as you, or their social security number is 1 digit off from yours, or if you were the victim of identity theft, you don’t have to be punished for an error or a thief. The law says that you have the right to fix errors on your credit report and you should absolutely exercise that right.

These are all steps you can take on your own, for free. I hope you find the information useful and that the credit repair business has just lost another customer.

The Anatomy of a Credit Score

What makes up a credit score?

Credit scores are the most popular mysteries. We know they’re important and we know that we all have one. Furthermore, people and organizations who are not lenders that we interact with (landlords, insurance companies, employers) are placing increase value on the credit score as they evaluate us in all aspect of our lives, making it some type of character evaluation tool. But most of the time, we don’t know the most important thing we should know about our credit score: what it consists of, what influences it. Below, you’ll see a graph of your credit score and a written breakdown of the various components.

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  1. Payment History – 35%: For obvious reasons, this is the most important and largest component of your credit score. It tells anyone who reviews your credit report how likely you are to pay your debts based on your payment history. Are you chronically late? Do you have 7 accounts in collection? Are you consistently on time? Lenders want their payments on time every time. That is the most important thing when anyone gives you a loan. Both parties agree on a payment date and the lender is counting on getting that money on the date specified.
    • How it affects your score: If you don’t have a good history of making payments, that is the biggest risk for a lender and report reflects that poor history, your score will suffer.
  2. Amount of Debts – 30%: This one is a little tricky. While it tells the story of how much debt you have outstanding, all debts are not equally weighted in this category. Revolving lines of credit impact that area more than an installment loan would. This is because the principal balance of an installment loan can only go down while a revolving line tells them how likely you are to borrow up to or close to your limit. To a lender, anyone who continually maxes out a card or gets close to doing so is someone who is not able to manage their debt responsibly.
    • How it affects your score: Maxing out your cards or even using more than 30% of your credit line will negatively affect you.
  3. Length of Credit History – 15%: This one is pretty intuitive. It’s much harder to “fake the funk” over a long period of time. If you’ve had a credit card for 10 months, it’s much easier to have a positive history. However, if you’ve had it for 10 years, chances are you have gone through some major changes both positive and negative and you have managed your finances a certain way throughout it all. Creditors can best evaluate your long-term financial behavior when you’re past the honeymoon phase.
    • How it affects your score:  The older your accounts are, the better your score.
  4. New Credit – 10%: This component tells creditors if you’re out here seeking to borrow money from anyone who will lend it to you. It also give them an idea if you’ve been denied by other lenders as they can see when you had an inquiry but no new account has been reported opened.
    • How it affects your score: The more new inquiries you have on your report, the lower your score.
  5. Other Factors/Types of Credit – 10%: This is the variety or diversity of credit you use and how well you manage them all. If you only have student loans, it doesn’t mean that you won’t have a good score but your score may not be as high as someone with a variety of credit types, all else being equal. However, it is not very heavily weighted and there are enough points in the other categories to allow younger borrowers to still have an excellent score.
    • How it affects your score: The most varied your credit types, the more experience it shows you have managing different types of lenders and credits.

Now that you know the anatomy of a credit score, hopefully you have all the necessary tools to heal it.

Why You Should Check Your Credit Report

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If you have not figured it out by now, your credit history is extremely important. Credit has transformed from something financial institutions used to determine if you can be trusted with their money, into something everyone else uses to assess your character. Here are some (unexpected) uses of your credit report:

  • Insurance Companies: They are now checking your credit report to determine what your risk appetite is. They’re also using it as a character assessment tool which they use to influence your premiums, however small. While the use of this varies from company to company, chances are you won’t know until it’s too late.
  • Current Creditors: We expect people we are requesting loans from to check our credit reports. What we don’t anticipate is someone who already claimed to have trusted us to check in after a financial commitment has been made. However, they’re definitely looking in on us. They use information to determine if there have been any additional debt added and what our behavior has been (i.e. delinquency at other financial institutions). The uses of this information will depend on what they find. It could be used as a marketing tool (additional offers) for good behavior or a punitive tool (credit card interest rate goes up or credit limit gets inexplicably reduced) when they detect potential issues.
  • Jobs: I don’t know if this is a product of the millennial generation being over educated for open positions, or a result of the recession that flooded the market with unemployed people looking to fill very few slots, but it appears that companies are really going out of their way to reduce the pool of candidates. In the 9 years I’ve been out of college I have never been a candidate for a position that did not require a credit check, other than retail. The requirements were always: background check, references, credit check and drug test. References and drug testing were not always required, but background checks and credit checks were always consistent.

With all these parties reviewing or requesting your credit report for purposes other than borrowing and/or large purchases, why would you want to risk not being fully aware of any adverse information that might show up? The sooner you find something negative, the better you can respond, either to defend yourself or to take corrective action. Here are the reasons why you should check your credit report regularly:

  • Time sensitive: Changes to your credit report happen relatively quickly. All it takes is 30 days for a bad payment to show up on your account and it’s there for 7 years. Your score, your history and your risk profile can change very fast as a result of 1 negative data. The sooner you are aware, the faster you can address it.
  • Mistakes: Some of us have common names, others are simply victims of a fast typist who transposed a few digits on the social security section of a form. Either way, errors on your credit reports are actually not rare and can lead to having your character brought into question, while it’s really the OTHER Erica Smith who is a total crook and won’t pay her credit card bills.
  • Identity Theft: How would you feel if you worked really hard to build your credit for 3 years to buy a car only to realize you’re already overdue a very expensive car loan but you don’t have a fancy ride? Picture this… someone steals your identity, takes a loan under your name, rerouting the mail to a different address so you never got the mail. They have also conveniently not made a single payment since they drove off the lot. This is the worst kind of mistake you can have on your report. Because you’re not just proving they have the wrong social security number, which is easily verifiable. You have to prove that someone who tried really hard to pretend they are you, were not actually you. You’re stuck clearing your name, proving that you are not responsible for these purchases or credits and you aren’t a con artist looking to get one over on your creditors.