Archive for February, 2011

Understanding the FICO Score Model

Thursday, February 24th, 2011

Acquiring good credit is a balancing act. If you have too much debt then your scores will suffer. If you have no credit then your credit scores will suffer as well. There are 5 factors that determine you’re over all creditworthiness. Any of these five factors will dictate your score either in a positive way or a negative way.

Your credit report will show all 5 of these factors in what is called a tri-merge report. This report is produced by each of the National Credit Bureaus. TransUnion, Equifax and Experian all basically use the Fair Isaac Scoring Model to determine your score in this report. Most banks use this risk model for determining approvals.  Now there are other score models out there, but FICO is pretty much the standard with most creditors. Keep in mind that each bureau will have a different credit score because each bureau is reported to independent of each other.

FICO Score Model

•    Payment history 35%
•    Amounts owed 30%
•    Length of credit history 15%
•    New credit 10%
•    Types of credit used 10%

Based on the model above you can see than your credit scores are determined by credit history and your credit utilization. This basically means you need credit cards with a low balance and a good payment history.

If you don’t have any credit cards or loans on your credit report then you are considered a higher risk in the eyes of most creditors. Having no credit may result in no credit scores or low credit scores if you have some past credit history.

The whole point of a credit score is to determine your personal credit risk. The higher your credit score the lower your risk is to creditors.

In order to have good credit you must have credit reporting to all 3 national credit bureaus. This is typically done in the form of a credit card, installment loan, or a mortgage.

Fair Isaac’s score model will look at your length of history which accounts for 15% of your overall credit score. This model also looks at the types of credit used. There should be a mix of credit like listed above which accounts for 10% of your credit score.

You can see how different factors in the Score Model will affect your overall FICO score aka (Credit Score).

Remember too much credit owed which accounts for 30% of your overall credit score will affect you greatly. A late payment which accounts for 35% of your credit score is a score killer as well.

While working on keeping your credit squeaky clean you to can reference this score model as a tool to keep your creditworthiness in check.

Author: Mike Clover

Identity Theft Numbers Are Down, But Don’t Relax!

Saturday, February 12th, 2011

According to Javelin Strategy & Research, the number of people victimized by identity theft in 2010 is down 28% from the 2009 numbers. That means “only” 8.1 million people became victims last year.

But the reason for the drop really has nothing to do with how you should continue to protect your own identity.

In fact, the big difference is that banks and other institutions are taking stronger measures to protect customer data. So the “mass market” identity thieves were less successful in 2010. There are still too many data breaches, however. 2010 saw 407 incidents, with 26 million records exposed. That’s down from 604 breaches with 221 million records exposed in 2009.

That means you must not relax. The “garden variety” identity thief who may be stalking your individual identity is still out there working – and as long as the economy stays down, his numbers may increase.

After all, with a new identity, thieves can buy cars, open new credit card accounts, rent homes or apartments, get cell phones, and even get jobs they could not qualify for under their own identity.

If you’re dead broke and possess a criminal mentality, why not use someone else’s identity to get the things you want?

Friends aren’t always friendly…

Javelin, who has been tracking trends in identity theft since 2003, reported another disturbing fact. “Friendly fraud” grew by 7% in 2010.

Friendly fraud is the term used to describe identity theft committed by a friend or an acquaintance. Consumers in the 25 to 34 year old age group are the most frequent victims of this kind of fraud. Perhaps this age group is a little too trusting?

Another bit of unhappy news is that the cost of identity theft has increased. The out of pocket expense to victims increased from $387 per incident to $631 in 2010.

While consumers are generally not held liable for fraudulent debt, legal fees can add up quickly, and some consumers decide to just pay the bills rather than go through the hassle of dealing with the situation.

Add time lost from work and mental stress, and a stolen identity can become very expensive.

Remain vigilant…

Keep on protecting your personal data. Never, ever, toss something in the trash that contains any of your personal information. A shredder costs very little, so get one and use it.

Along with bank statements and tax returns, the papers you should protect include all paid bills, old checkbooks, insurance forms, job applications, W-2 forms, paycheck stubs,  and the credit card offers you receive in the mail.

Never reveal your true information on social networking sites. One bit of information thieves find handy to have is your date and place of birth – and thousands of people put that information out there for anyone to find. They also reveal other useful tidbits – like home addresses and the hours they’re away from home at work.

Just don’t do it! Your real friends already know – and the rest of the world doesn’t need to know.

Don’t let credit cards out of your site when paying for meals. Take your bill to the counter yourself and watch while your charge is processed.

Don’t write your credit card numbers on a mail order form and then drop it in your unlocked mailbox on your way out to work in the morning.

Don’t leave credit cards laying around your house or on your desk in plain view. Don’t leave your wallet or purse in an unlocked area when you’re at work – or in plain view in a locked car.

Keep a close eye on bank accounts and credit cards. You can check status any time you want on line. Do it every week or two.

Read your mail. If your bank or other institution suffers a data breach, they’ll let you know. But don’t assume that they’re protecting you because they told you it happened. It’s up to you to keep a close eye on your credit report and all your accounts, so that you can stop identity theft as soon as it happens.

If you’re offered free credit monitoring as a result of the breach, take it, and use it diligently. And do keep that letter. If you become a victim, you may need it to use as proof that you aren’t the one who spent $1,500 at the shopping channel – or somewhere worse.

Identity theft is still a very real threat. So if you haven’t checked your credit report lately, you really should. You may be shocked to learn that you’re living in a new city, working for a new employer, and have many thousands of dollars in new debt.

If you’re lucky, you’ll find that all is well. To keep it that way, sign up for credit monitoring, and pay attention when you get a notice of activity on your account.

Why are so many turning to Prepaid Cards?

Friday, February 11th, 2011

Prepaid cards are a growing business, with the Federal Reserve estimating that 17% of Americans using them – and the number is growing.

But why?

Convenience, combined with a desire to get out of debt, is the driving force behind the move from credit cards to prepaid debit cards.

Over the years, Americans have shifted more and more toward the use of plastic for everyday purchases, and for many, the result has been staggering debt. The ease of use, combined with rising interest rates and the add-on fees from late charges, over-limit charges, etc. could turn a $50 purchase into a $250 burden.

Now Americans are trying to get out from under all that debt, and one way is to limit their spending through the use of prepaid cards. Yes, there may be a fee for using the card, but there are no interest payments and no late charges. You can’t sink farther into debt using a prepaid card.

For some, checking accounts were just as dangerous as credit cards, and they ended up paying overdraft fees – and often lost the right to have a checking account at all. For them, the only way to shop or pay bills on line, reserve a room, or fill up at a late-night gas station is with a prepaid card.

The cost is less, as well. Consumers can sign up for direct deposit, eliminating the cost of check cashing services while at the same time reducing or eliminating the fees on the prepaid card.

But even financially secure consumers are turning to prepaid cards for the convenience and perceived safety.

These consumers see prepaid cards as a safer way to pay bills or shop on line, since there is no worry of identity theft. Even a stolen card number can only cause a loss up to the amount on the card – it can’t overdraw a bank account or run up huge credit card bills.

They also see prepaid cards as a safer alternative to carrying cash. Cash, once lost, is gone. But consumers who have carefully chosen their prepaid cards have a reduced risk of loss.

It IS important to read all the fine print before choosing a prepaid card. Prepaid cards were left out of the Credit Card Accountability Responsibility and Disclosure Act regulations, so issuers are pretty much at liberty to make up their own rules.

Government entities are also turning to prepaid cards.

Government entities are beginning to use prepaid cards to disperse wages or funds such as unemployment benefits and food stamps. The cost to recharge a card is much less than the cost of printing and mailing checks, and there is no danger of funds being lost in the mail or stolen from mailboxes.

Recently, Veterans receiving disability benefits were given the option to switch to pre-paid cards in place of direct deposit or mailed checks. Social Security and Medicare will probably be next.

Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.