Last Friday I discussed the CEO of LifeLock’s appearance on the Today Show and how many of the services they offer are things you can do yourself. So, rather than leave it all vague, here’s what you can do for a do it yourself solution.

AnnualCreditReport.com

Through AnnualCreditReport.com, you can request a copy of your credit report from each bureau once a year. I generally like to stagger it every 4 months so you can keep up to date absolutely free. For example, get your Experian in January, then your TransUnion in May, then your Equifax in September, then Experian again the following January.

OptOutPrescreen.com

Visit OptOutPrescreen.com and sign up. This will significantly reduce the amount of junk mail, including credit card offers, you will receive. One of the biggest ways for your identity to be stolen is by stealing your mail and applying for all those “pre-approved” credit card offers out there. By reducing the number of mailings you get, you close off this leak.

Opt Out Of Internal Marketing Lists

One loophole in the OptOutPrescreen system is that companies with an existing relationship are still permitted to contact you - which makes sense. However, that means that if you have a Discover card, Discover will send you those convenience checks. If you have a Citi card, they’ll send you convenience checks.

I called up Citi and asked them how I could stop receiving those convenience checks. As it turns out, Citi has a central ‘Citibank Marketing List’ and you just have to ask to be removed from that. It takes 30 days to take effect but that will stop those mailings from appearing. Simply ask to do the same at all your financial institutions and they should be able to take you off. Scratch another headache off the list (you shouldn’t be using those checks anyway, so it’s a total waste of paper too).

Fraud Alert

Anyone can call up each of the credit bureaus (TransUnion, Experian, Equifax) and ask that they put a fraud alert on your account. This is a notation on your account that tells the creditor requesting your report to do additional due diligence. These are absolutely free but expire after 90 days, so remember to call back (set it on your calendar). The creditor is not required to do any additional verification, but they don’t want to get screwed so it’s better than nothing.

Freeze Your Credit

If the fraud alert isn’t hardcore enough for you, you can also put a total freeze on your account. Freezing and unfreezing generally costs in the $10 range, though it varies with your state.A credit freeze will stop the credit bureau from releasing your report without your consent. There are a few loopholes though, so it’s not 100% bulletproof. In certain circumstances, an existing creditor can still request your report so who knows. Perhaps if a scammer gets the stars aligned (or the creditor doesn’t care), they can still bust through this.

Here is what you need to do to place a freeze:

• Placing an Equifax Credit Freeze
• Placing a TransUnion Credit Freeze
• Placing an Experian Credit Freeze

Defending Yourself

To be honest, defending yourself requires time and that’s really the only thing companies like LifeLock can offer that you can’t get on your own. You can lay the groundwork but it’s a numbers game, if your number gets called then you have to deal with the estimated 25 hours worth of work required to fix things. One great resources it the Identity Theft Resource Center, staffed with volunteers to help you resolve your identity theft issues.

So, is $10 a month worth them dealing with the headache? That’s up to you.

Update: Sounds like LifeLock’s protection only applies to their own screw-ups… so it’s not even an insurance! You’re paying $10 a month for something you can do yourself.

(Photo: JJ & Special K)

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?

Bankrate has an excellent article about the 12 myths of credit reports and does a pretty good job at explaining most of them. It’s always difficult to know what is truth and what is fiction, especially when you’re under duress and forced to make a decision (such as with #3, credit counseling). Also, a lot of these myths come with caveats and not all of the myths have been proven entirely false.

1. Paying my debts will make my credit report instantly pristine.
Your credit score is generated based on your history, so paying off your debts won’t make it instantly pristine. It will improve your score dramatically though, but all the nicks and dents of past discretions will still be visible.

2. I must give permission for a company to see my credit report.
You don’t actually need to give permission unless it’s for a job.

3. Credit counseling always destroys my credit score.
Bankrate acknowledges that the jury is out on this one with some guessing counseling is like filing for bankruptcy. If you have no choice, you have no choice. Think about it from the creditor’s perspective, if you saw someone sought counseling in the past and now wanted to borrow $100 from you - would you lend it to him or her?

4. Canceling credit cards boosts my score.
You want to look like a responsible borrower so you want a bunch of older lines of credit that shows a history of responsibility. If you cancel a lot of cards, you’ll have fewer older lines of credit which makes you appear less favorable.

5. Too many inquiries hurt my score.
It depends on the inquiry. If you apply for a dozen credit cards, yes that will hurt your score. If you apply for a dozen mortgages, then it won’t. It is an understood practice that all mortgage applications within a 30 day window only count as a single inquiry. Since the application is necessary to shop around, it’s understood that you won’t sudden snatch up a dozen mortgages - you’d only be approved for one.

6. Checking my own credit report harms my standing.
A serious, or hard, pull is what creditor’s use, your own check is a soft pull and the two are treated differently. Now, if you have a lot of soft pulls then potential creditor’s will be curious why you are trying to bump things off the list of pulls. Don’t check your credit score a thousand times a month or someone will wonder. If you want to check your FICO score, my friend Cap keeps an updated list of myFICO promotional discount codes that can save you around 20%.

7. FICO scores are locked in for six months.
Your score changes once something is added or modified or removed from your report.

8. I don’t need to check my credit report if I pay my bills on time.
You make mistakes, I make mistakes, we all make mistakes - including the reporting agencies. It could be an error of omission (missing a nice revolving payment you’ve made, a score plus) or the addition of someone else’s derelict account. With free annual credit reports, there’s no reason why you should check them once a year.

9. All credit reports are the same.
Three agencies mean three databases and potentially three versions of you. While everyone reports to all three, based on their delays you might see differing reports.

10. A divorce decree automatically severs joint accounts.
Unfortunately you have to manually do this.

11. Bad news comes off in seven years.
Most bad news does. Chapter 13 falls off the table after 7 years but Chapter 7 takes ten.

12. I can always pay someone to fix or repair my credit.
From Bankrate:

“Virtually any time someone says that, they’re lying,” [says John Waskin, executive director of BillFree American Credit Counselors].

Ever wonder what dings up that you credit score? Credit bureaus don’t give out the equation they use to figure your FICO score but through varying sources such as mortgage agents, credit card schemers, and folks who just keep an eye out on their credit score and see how it reacts to their behavior; we’ve gleaned a few tidbits that will teach you how your score is derived.

First things first, after you request your credit score you’ll actually get three of them: a FICO II Score, a New EMPIRICA Score, and a BEACON Score. They correspond to the three credit bureaus and their scoring equations:

• Empirica Score credit score = Transunion credit bureau score
• Beacon Score credit score = Equifax credit bureau score
• Fair Issac / FICO Score = Experian credit bureau score

Hard Inquiries Vs. Soft Inquiries: Whenever you request credit (apply for a new credit card, try to get a mortgage or car loan, etc.), the institution extending you credit will want to get your score and assess your history in terms of risk. High score means safe and safe means low interest rate. They will pull a ‘hard inquiry’ that is recorded on your history and is ‘negative.’ A lot of hard inquiries means either you’re cavalier towards applying for credit or you’re trying to get a lot of credit very quickly, both cases are bad. A soft inquiry is the result of an informal look at your history, typically when you view your own credit or if someone else takes a peek. These aren’t as bad because they don’t mean that you’re looking for credit, it just means you or someone else just wants to know about your history to perhaps send you an offer. You can opt out of soft inquiries by telling each of the big three bureaus.

Lines of Credit History: History is only good if it’s old, we’re talking minimum 3+ years. Knowing you’ve been current on loans for three years is more meaningful than knowing you’ve been current for three months. Usually credit card companies won’t even give notice of late payment unless you’re 60 to 90 days late, that’s because they know someones people miss payments by accident.

Percent Utilization: “Keep it under 25%” is the maxim you should follow but if you let it slide to 50%, it’s not as bad as hitting 70%. If you have $10,000 of credit, keep your percent used under $5,000 or it looks like you’re in trouble. This is why requesting increases in your line of credit is key because it will decrease your utilization without dinging your history with a hard inquiry.

Types of Credit: Most college graduates will have large college loans outstanding, which appear on the record, and institutions know it. If you have a high utilization but it is predominately college loans, they’re typically okay with it so it won’t negatively impact your score as badly as if it were credit card debt. Part of the reason is the relatively low interest rate when you consider some people are paying over 25% interest on credit card debt.

Bottom Line: When making a financial decision, don’t base it on how it will affect your score, make it based on how it will affect your wallet/pocketbook but keeping in mind that your score may be affected. It’s like doing something for the tax break, it’s not worth it. Pay off your credit card debt because of the astronomical interest rate and don’t make that extra mortgage payment in lieu of it. And always stay current.

Update: (2/24) Added the three types of scores and which bureau they correspond to.