A lot of my friends are thinking about buying, or have already bought, a home this summer. If you’re planning on buying a house in the next year, check your credit history right now for inaccuracies (it’s free!). According to Consumer Reports, about 13 million inaccuracies are discovered each year, which means there’s a uncomfortable chance your credit report will have something wrong on it. Hopefully it’s something harmless, but if it isn’t then you’ll want to correct it asap.

Not buying a house for several months? This is actually the perfect time to check because it can take as many as 90 days to correct error (yeah, ninety days) because the bureaus need to research your claim.

Check your credit history for free at the government mandated AnnualCreditReport website. You can get a copy of your report once every year from each of the three bureaus. If you’re buying a house, I’d get all three at the same time to verify accuracy. If you aren’t and just want to use it, I’d stagger them out a few months so you can get a rolling 3-month old view of your credit history.

Happy house hunting!

If you had a credit card, loan or credit account between January 1987 and May 28th, 2008, you are eligible to file a claim in a preliminary settlement of a class-action lawsuit (though not slated to be approved until September, though it’s probably going to happen). That’s a whole lot of people. The lawsuit was filed eight years ago in Chicago and alleges that TransUnion sold consumer profile information to businesses, which is a violation of federal law. What started in Chicago certainly didn’t stay there, eventually there were 14 federal lawsuits. Yikes!

(Thanks to Cap, if you used TransUnion or TrueLink between December 1, 1999 and April 16, 2007, you can get three months of credit monitoring through a settlement in the Robert V. Townes, IV v. TransUnion, LLC and TrueLink, Inc. case, deadline for that settlement is July 22, 2008)

What Do You Get?

You may be eligible for one of two options:

(1) Basic relief. Free credit monitoring for six months, which gives you daily access to your credit report and credit score and 24-hour credit-monitoring service. This normally costs $59.75. Those who elect this option may get a cash payment if there’s money left from the $75 million settlement fund.

(2) Enhanced relief. An alternative enhanced set of services” in exchange for a full release of claims. This options includes nine months credit monitoring, a suite of insurance scores and TransUnion’s mortgage simulator service. This option normally would cost $115.50. You won’t be entitled to any cash payment under this option. [Source: Phuong Cat Le of SeattlePI.com]

What Are My Option?

Option 1, basic relief, is the only one where you could potentially get money (if there’s any left over). If you elect basic relief you can get the free credit monitoring for 6 months or a $59.75 cash payment. I don’t think there will be any cash left over in the $75 million settlement fund (there never seems to be, plus you figure with the internet and how fast information spreads, you’ll get a pretty high percentage of the estimated 160 million eligible Americans registering for this).

Option 2, enhanced relief, has no cash out option and comes with three aditional months of credit monitoring, and a “suite of insurance scores.” There’s conflicting interpretation of “suite of insurance scores.” Some news outlets are reporting that it’s your credit score, others call it a different score that insurance companies use to determine your rates. I didn’t know that there were even separate scores (there may not be) in the first place. Bottom line, you will get a credit related number for free that you otherwise would’ve had to pay for.

My Thoughts

1. All the estimates put the settlement cost in the billions, yet TransUnion said they’d earmarked $75 million (this could always go up). They must not think people are going to sign up for this.
2. Option 1 seems more like a waste of time for the consumer and a boon for TransUnion. Getting credit monitoring for six months and then not renewing is like getting life insurance for six months and then canceling. Sure, you’re protected for six months but then what? Maybe you forget to cancel something or end up renewing the service, both earn money for TransUnion (turn a big long lawsuit in a money making venture, brilliant!). I wonder if we’ll hear complaints in six months (maybe I’m just cynical) about it. Nix that, no credit card will be required.
3. Option 2 seems a little better, though it still has the failings of Option 1, but you get to see some credit related score for free.
4. If you aren’t interested in either option, I’d register for Option 1 and see if you can get cash; that’s likely what I’ll be doing. I think we need to see the options all spelled out and finalized before reserving judgment.

How To Participate

First, you’ll have to register. After June 16th, 2008, you can register online at www.listclassaction.com or by calling them up at 1-866-416-3470. As of May 31st, the website doesn’t work yet.

Lastly, you can always get a free copy of your credit report, thanks to Federal Law, through AnnualCreditReport.com.

This morning the CEO of LifeLock, Todd Davis, was on the Today Show with Matt Lauer to defend his company’s service. He was there to answer a few pending lawsuits about how the LifeLock service doesn’t work and that its claims to protect and prevent identity theft are fraudulent claims. Lauer really hammered Davis (as hard hitting as the Today Show can possibly be) but there were some pretty interesting statistics Davis brought up:

• Only a 105 out of a million customers have been victims of identity theft.
• Todd Davis, advertising his SSN for the last two years, has had 87 attempts with only one successful hit in Texas where someone was able to get $500.

My opinion of LifeLock has always been that the $10 you pay each month is essentially insurance on your time. Becoming a victim of identity theft, even if you are diligent in every single possible way, is like winning the lottery (a small firehouse charity one).

Just to give you a basis for comparison, the Privacy Clearinghouse 2007 Identity Fraud Survey reported that there were 8.4M cases of identity fraud in 2007. If there are 304M potential targets (that’s the census estimate and it does include children and babies, but they can be victims too) and a 2.73% chance of becoming a victim. With LifeLock’s measures (many of which you can implement yourself such as opting out of junk mail and freezing your credit reports), you have a 0.01% chance of becoming a victim.

So, going back to the Privacy Clearinghouse’s data, the mean fraud amount was $5720 in 2007 and the mean resolution time was 25 hours per victim; so your $10 a month is buying you insurance against that < 2.73% chance (that’s if you did the average to protect yourself) of losing 25 hours. To calculate what that’s worth, you look at how valuable you think your time is and whether the $10 a month is worth it.

LifeLock shouldn’t be considered bullet proof protection against identity theft, it should be considered time insurance against dealing with it.

When you’re young, have little or no income, and want to build a credit history, it’s really difficult. The current credit environment has made it much more difficult so here are a few methods I’ve used, or have seen recommended, in the past in order to build your credit history.

One tip that has been removed from lists like these is the Authorized User tip. In the past, a parent could add a child onto one of their accounts as an authorized user and the child would see credit history benefits. Many people took advantage of that by “renting” out these authorized user slots and so FICO responded by cutting that link. Now, it appears, that authorized users have no bearing. This is the case of people trying to subvert the system for profit and the system, rightfully, punishing everyone. You can read more about the whole authorized user practice here.

Store-Branded Credit Cards

Stores love to push their store branded credit cards because the bean-counters know that people spend more on credit than they do with cash. Those same bean-counters also know that less than 100% of store branded credit card holders will pay off the bill in full, so the store can develop another revenue stream by offering a store branded card. Their greed is your benefit because they are willing to extend a little bit of credit to people with no history. One of my first credit cards was from American Eagle Outfitters (it was a cool looking card with half of it being transparent/clear) with a piddly little $500 limit. The size of the limit was irrelevant, I merely wanted another line of credit on my nascent credit report to help build it out.

College Signup Tables

Many people have written many articles about how those credit card peddlers on college campuses will be the downfall of humanity but those peddlers gave me my very first credit card, an AT&T Universal Card, and sent me on my way to building my credit history. They also gave me a t-shirt, which extended the time between laundry room visits! On the credit card application, the guy told me to put my income as my college tuition, which may have been disingenuous, and I was approved a few weeks later.

I believe many college campuses have made this illegal, but you can still see these types of tables at sports arenas, airports, and other high traffic areas. In fact, given the stories I’ve read about these tables potentially stealing identity information (can you really trust a random guy who just set up a plastic table?), I’d be more trusting of tables at sports arenas and airports because they are vetted. For example, you know the person behind the Southwest table at the airport is a Southwest employee… otherwise they would’ve been booted by now.

Co-sign A Loan

Even though the authorized user hack has been made moot, you can still have the no credit history person co-sign a loan with a good credit history person. A prime example of this is a car loan, where the bank won’t approve the loan unless someone with good credit is willing to vouch for the no credit person and put themselves on the hook in the event of non-payment. This isn’t a tactic that one would generally use as a means of building credit, though I suppose a child could always piggyback on a loan ultimately designed for the parent, but it’s certainly a way to get a revolving account on one’s history. An account like this one, large balance with a history of on-time payment, is exactly what lenders and credit bureaus like to see. Oftentimes though, this co-signing is out of necessity.

AnnualCreditReport.com

You can get a copy of your credit report from each of the credit bureaus each year, meaning you can get three total (TransUnion, Experian, Equifax). This is a good practice regardless of how good, bad, or non-existent your credit history may be. Keeping tabs on your score and the accuracy of your report is paramount. AnnualCreditReport.com is a program run by the government, don’t go anywhere else for a free copy of your report (they will provide no actual “score” though).

Does anyone have any good tips to help someone starting out with no credit history?

When the Federal Reserve lowered the target federal funds rate last week, lots of people started inquiring about refinancing options to see if they could get a better loan. I was among the crowd. I requested refinancing information through LendingTree and fielded a few offers before deciding that refinancing was not a viable option for me at the moment. One of the lenders pulled my credit and Equifax was obligated to tell me about it.

I learned that my score was a 643, not surprising that it’s not an awesome score because I recently closed out some balance transfer arbitrages, but the listing of items that adversely affected my score did concern me:

1. 78 - Serious delinqncy, derog, public recd or collection with balance
2. 58 - Insufficient length or lack of credit history
3. L - Length of time since legal item filed or collection item reported
4. F - Prop. of bal. to high cr. on bk rvlvng or all rvlvng accts
5. Y - Inquiries impacted the score but not significantly

Items 2 isn’t much of a concern overall and items 4 and 5 are certainly related to my balance transfer arbitrage days, but what about Items 1 and 3? Legal item? Collection item? Delinquency? This calls for a trip to the Equifax for a copy of my credit report (my one freebie each year) and a side trip to their Equifax Online Dispute page.

After reviewing my account, there was one entry in the Collections category for an account with “PPL ELECTRIC UTILITIES,” a power company that appears to be located in Pennsylvania. About a year ago I cleared up some errors on my credit report from another bureau for a cell phone that wasn’t mine, an social security number linked to my account plus some address history; could this be a leftover from that account? It appears so.

What’s infuriating is that the other SSN was identical except a six was replaced with a zero and Equifax felt it was “close enough” to link to my account! I don’t understand why it didn’t have to be an exact match. Anyway, I submitted a dispute and we’ll how quickly they can get that resolved.

It’s a widely believed fact that your credit score can be improved if you keep your unused credit cards (rather than cancel them). By keeping these cards, you are increasing the average age of your lines of credit, increasing the total amount of credit, and decreasing your credit utilization - all good things when it comes to computing your score. So, why do I always advocate canceling unused cards? I advocate that because I believe it is the safest thing for you to do and is better than keeping unused cards for the credit score benefit.

Security Breaches

GE Money USA, a branch of GE that manages the in-store credit card programs of many retailers, recently reported that one of the nine back-up tapes put into storage at Iron Mountain had gone missing. After a search of the facility, they were unable to locate the missing tape. What was on it? It is supposed to contain the personal details of approximately 650,000 people. Think you are safe because you have nothing to do with GE Money USA? Unfortunately, you’re probably wrong because GE Money USA handles retailer credit cards for over 230 retailers, one of which is the ubiquitous JC Penney company. But look on the bright side, you might be getting free credit monitoring for a year! In all seriousness, while the actual probability you will be affected by data breaches such as this one will be relatively low, wouldn’t you be kicking yourself for keeping around an unused JC Penney card when you could’ve canceled it?

Promotional Offers

If you have a card and the credit card company starts offering hot new promotions for it, then you won’t be eligible for these new offers since you’ve already own the card. So, I’ve signed up for a lot of cards because they offered free promotions (I compiled a list of credit cards that offer $100 gift cards after you first purchase) and then didn’t use them much after the promotion (mostly because cards with better cashback came along), so why not cancel them so you can take advantage of newer promotions? There is generally a period after which the card no longer considers you a customer, usually six months, but after that you are like every other Joe (or Janet) on the street.

Please don’t read this to mean that I think someone should apply for the card for the promotional offer, cancel, then repeat. I’m not advocating that, in fact I think it’s stupid. The frequent applications for credit will destroy your credit score. I just mean to say you want to keep flexible, especially if you aren’t even using the card.

Out of Sight, Out of Mind

If you never use the credit card and never receive a bill, would you check your account for fraudulent activity? I’d say there’s a 99.9% chance you wouldn’t because you wouldn’t think to. You never used it so how could someone else have gotten access to it? However, it’s entirely possible that someone got access to your card and began using it without your knowledge. When thieves steal card information, it’s not uncommon for them to wait a few months before using it. Why do they wait? It’s harder to pinpoint when the loss occurred if it happened months prior to actual fraudulent activity.

Keeps Things Organized

You can’t lose a card if you cancel it! Let’s say you put all of your unused cards into your desk drawer. Six months later, someone breaks into your home and steals all of your cards (or just one, it’s actually worse if they only take one!), how can you possibly remember which cards to cancel? (you would know if you had a personal finance user’s guide!) Let’s say no one steals it but one of them expires and they send you a new one, only to have it intercepted at the mail box by an enterprising identity thief. Let’s say no one does anything bad and you have the card in your desk without incident, what’s the benefit? You have some extra clutter sitting around, extremely expensive clutter if it gets into the wrong hands.

May Not Actually Help Score

One of the main points behind keeping a card is that it improves your average credit line age but that may not be true. If you cancel a recently issued card, it could be possible that the new card is negatively affecting your credit line age metric. While it’s difficult to calculate and probably a waste of time, the credit score boost you are trying to get with the unused card may not be as good as you thought it was.

Ultimately, I think that keeping unused cards lying around is a recipe for disaster. I cancel cards that I don’t use, what do you do?

Look! It’s a new credit scoring system for the credit bureaus! Isn’t that great!? It is, except it doesn’t address any of the problems I see with the credit reporting industry. In my mind I have a set of features I think all the credit bureaus should institute if they want to clean things up and make life easier for everyone. As great as that sounds in principle, the problem is that consumers aren’t the primary customers of credit bureaus; banks, credit cards, and other lenders are. All the features I’m about to list are ultimately great for both parties but I think the bureaus are too short sighted to realize this, but I’ll scream into the abyss and ask for these things. Maybe Congress can do something useful and force them offer these. (some of these features may or may not be already available, I haven’t checked, so let me know it’s already available!)

Easily Freezing and Unfreezing Your Account

This is one feature that companies offer nowadays and some states require it, but ultimately it’s very difficult to do. The bureaus should offer online account access that lets you freeze and unfreeze your account with the click of a button. You don’t want credit, tell them to freeze your account and not to let any requests through. If you want credit, log in, unfreeze it, apply for credit, when you’re granted it, freeze your account again. Yes, I understand that that credit bureaus want you to pay for this service but when they’re giving away your information for a fee, it’s not unfair for them to offer this simple service to you.

Email Notification of Inquiries

At a minimum, set up a service in which credit history requests trigger an email that gets sent to an email account of your choosing. Again, I realize that this has costs associated with it but roll that into the cost of a credit inquiry in the first place. It can’t possibly be all that expensive, per inquiry, to set up a system in which an email can be sent out.

Option To Accept or Deny Inquiries

Now, let’s say you opted to keep your account unfrozen, you get email notifications, what if you could accept or deny inquiries? You could deny all those unsolicited credit requests but keep all the legitimate ones, hopefully you can keep them straight in your head.

Reject Non-Perfect Inquiries

When I reviewed my credit recently, I had an incorrect address and two social security numbers listed on my account. I thought to myself - “how could I possibly have two social security numbers!?” When I asked the bureau, they said that sometimes that happens and that errors often result in inaccuracies in one’s history. The social security number was close but one number was wrong, isn’t that grounds to deny a request? Apparently not! Apparently, according to the CSR, it happens all the time. Well, I think it shouldn’t happen all the time and that it should happen, um, never.

If Nothing Else, How About A Password

So you apply for a credit card, enter in your credit bureau password. If nothing else, this is the easiest way to ensure that the request legitimately originated from you in the first place. This seems so simple to me that it should’ve already been implemented.

How This Helps Banks, Lenders, Credit Card Companies

Financial institutions shouldn’t be trying to deluge every single person in the world with credit card offers, they should be deluging those people who want to be deluged. It’s called targeted advertising, it’s why beer commercials are shown during football games, it’s why jewelry commercials are shown during the holidays and Valentine’s Day, and it’s why you see clothing and fragrance ads in men’s and women’s magazines. You might get a few errant signups by shotgunning the masses but it’s far more effective to send offers to those who are interested.

Lenders may complain that this will slow the credit process down (and these will), but if you’ve been reading the news, don’t you think it the market could’ve used some slowing down? Credit was flowing too fast for too long and now the likes of Citi, HSBC, Bank of America, Countrywide, and company are feeling the pinch. Slowing down isn’t necessarily a bad thing, unless you’re the one waiting to be bailed out. How is this related? Sometimes what you expect to be bad, in this case a slowdown in the credit approval process, might actually be good.

It’s been a while since I’ve written a Devil’s Advocate post and my recent article about five accounts you should have (and four you should skip) listed a store-branded credit card as one of the cards you should skip, much to the chagrin of commenters. So, below are some excellent reasons why you would want to have a store branded credit card.

Special Offers and Coupons:
This is the number one reason why you should get a store-branded credit card - the special offers and mailings you get for being a card holder. If you loyally shop at one store, say a Macy’s or a JC Penney’s, it would make sense for you to get the credit card because they do frequently (not just occasionally, they frequently) send you coupons for percents off (10-20%) as a way of drawing you back into the store. If you love shopping at Victoria’s Secret, getting their card also gets you coupons for great discounts as well (sign up for their catalog too, they send coupons for free underwear from time to time).

Are these special offers worth getting the card? If you don’t go on a credit application binge, you’ll likely be alright and the added credit line will boost your score as well in the long run. Also, is the card worth giving up the reward points? Not if you only spend it at the store and not if you use it only for special sales, 10% off is better than 1% cashback anyday.

Easier Credit To Obtain:
If you have absolutely no credit history, it’ll be tough to get an unsecured credit card. Your only two choices are to try a student card (if you’re a student) like a Citi mtvU card, where they have no expectation of a credit history, or start with a store-branded credit card. Store-branded credit cards generally are easier on their credit history requirements because they offer lower limits and they want to make it easier for you to get the card (and spend money at their stores). So, if you have no credit and haven’t had success being approved for it with conventional unsecured credit cards, a store-branded card is your best alternative.

Immediate Discount:
I’m talking about the “10% or 15% off your purchase today” offers you see in practically every store. 10% off is still 10% off, while you might take a small credit score ding for the credit pull, money in your pocket now is better than an illusory money maybe taken out of your pocket sometime in the future. If you’re making a $1,000 purchase, 10% is a healthy $100 difference and that’s not trivial.

Are there any other good reasons for signing up for a store-branded credit card that I may have missed?

Payday loans have been in the news a lot lately, for bad reasons, but they need not be always cast in a bad light. Payday loans have also gone by other names like check advance loan, quick cash loan, post-dated check loan, deferred-deposit check loan, etc. but ultimately it comes down to any loan where you can get cash immediately at a higher interest cost in return for that speed and flexibility. Here are some reasons why a payday loan may be right for you:

Get Cash Quickly, Now, and Only What You Need

Where can you turn to if you need a few hundred dollars right now? Your family? Your friends? In that whole group there are probably going to be very few people who can get you that kind of money right this very moment. Also, try to get a short term, small dollar amount loan from your bank. Good luck. They’ll force you through their application process, do all the necessary checks (which invariably will take forever), and by the time they approve it, if they approve it, you’ll likely be in bigger trouble than when you started.

Compare Costs, Payday Loan May Be Lower

So you have a debt that needs to be repaid, compare the cost of getting the short term loan versus the cost of missing a payment on that debt. Is it an auto note? Would you lose your car if you didn’t make the payment? Is it a mortgage payment? Would your lose your house if you didn’t make the payment? The cost of fees in a payday loan is probably lower than the cost of losing your car or your home, in which case the payday loan would make sense. Those are more extreme cases but what about if you mailed off a check and didn’t have the bank funds? Pay a little more in fees to the cash advance shop or get socked with a $45 overdraft fee?

It’s Strictly Business

It’s going to cost you some money at a payday loan store but it’ll cost you more in terms of emotional expenses if you borrow that kind of money from family and friends. With a payday loan company, it’s all business, zero emotion; when you borrow from friends and family, you tax the relationship.

No Credit Check

This is part of the reason why the application process is much shorter, no need to run your credit history and air out your dirty laundry. This also means that the loan won’t ever appear on your credit history unless you fail to pay back the loan. So the net result is that you get a loan, some short term help, and it never appears on your credit history - the best of both worlds.

Okay, Devil’s Advocate post over, I think payday loans are both inherently bad and they prey on unsuspecting customers. They’re bad in that they’re expensive, the fees for everything are exorbitant, and because they feed into the “instant gratification” phenomenon that is fueling a consumption driven country. Money now, responsibility later. Secondly, they prey on customers that are looking for a quick and dirty way out of a bad situation. Debt payment due? Snag a payday loan, no one will have to know, I can fix it next month… except they can’t fix it and then the debt snowball increases and now is rolling down the hill even faster. Do yourself a favor, don’t ever get into a situation where you’d consider a payday loan.

A lot of times we put something off because we think it will take a long time and be a lot of hassle and a lot of times those things happen to deal with money. Well, if you have ten minutes, you have enough time to do one of the things on this list that could change your life financially for the better (and ten minutes is a conservative estimate, you could finish most less). In less then 15 minutes, Jack Bauer can escape from the grasp of terrorists by biting into a man’s jugular, I’m just asking for ten and for you to check your credit report (#1) - sounds fair right?

1. Request Your Credit Report - If Congress can spend countless hours (and millions of taxpayer dollars) in debate to pass a law that gives consumers free credit credit reports each year (one from each of the three credit bureaus), the least you could do is spend the fifteen minutes it takes to request and scan over your report. Get your free credit report from the only officially sanctioned website - AnnualCreditReport.com. You could find a mistake that could cost you thousands of dollars in added interest or higher fees down the road. The request itself takes no more than ten minutes so request and print now, review later.
2. Open A Roth IRA - I wrote a post about opening up a Roth IRA that details every step and the financial impact of doing so. If you want this to truly be a 15 minute move, put the contribution into a Target Retirement/Lifecycle fund and let the brokerage worry about re-balancing it for you.
3. Participate in your 401K - It wasn’t until recently that folks were automatically enrolled into their company’s 401K plan by default so if you aren’t yet participating, do so and make enough of a contribution to get the maximum employer match. All it takes is a call to your HR department to make it happen - you wouldn’t pass on a twenty dollar bill sitting on the sidewalk, don’t pass it now.
4. Open a High Yield Savings Account - The typical savings account gives a piddly 1%, get five times that by opening a savings account at any number of FDIC insured online banks like ING Direct, Emigrant Direct, HSBC, Citi, the list goes on and on. As long as they’re FDIC insured (all those listed are), you don’t have to worry. Get the yield of a CD with the flexibility of a savings account.
5. Split Your Paycheck - Out of sight, out of mind. Have 10% of your paycheck deposited into that high yield savings account and think of it as an “automatic” savings (in the sense that this is one of the ideas from the Automatic Millionaire - set it and forget it Ronco style) and you’ll never know the difference.
6. Use 0% Balance Transfers - Use a 0% balance transfer (list of 0% bt cards) to pay off an existing credit card balance, it takes only a few minutes to apply for a card and a few minutes to do the transfer (I’ve found Citi has the easiest balance transfer process). The little brother to this tip is to just call up your credit card and asking them to lower your interest rate, saying that you could always just try a 0% balance transfer and leave them. Between 0% balance transfers and asking, Tricia from Blogging Away Debt went from $400/mo in interest to a mere $100 - that’s $300 that can go towards principal.

Don’t read anymore, go do!