Credit Card Blog and Articles

Credit Cards and Mortgages
Big-picture statistics relating to the real estate industry are notoriously hard to pin down. However, according to several sources of mortgage-related statistics, about one-sixth of all homes in the U.S. are currently worth less than their mortgages. This is about 12 million homes. Broad-brush estimates of mortgage delinquencies suggest that as many as one in eleven homes in the U.S. is currently either in default or in foreclosure.

The Intersection of Credit Card Highway and Mortgage Lane
The real estate market is under water, unemployment is rising, and many homeowners are under pressure to find a way to make a mortgage payment. Debt management under these conditions can force consumers to take a hard look at whatever options might be available. One of those options is using a credit card to make a mortgage payment.

Should I Pay My Mortgage With My Credit Card?
This is a tough question, and the answer is usually “no.” It is generally not a good idea to use a credit card to make a home payment. However before addressing the “no” part of this issue, let’s look at the “yes” part.

The Rare “Yes” Case
Let’s assume that you happen to have enough money in your bank account to cover your mortgage payment. Let’s assume that your business travel schedule has kept you on the road unexpectedly for a few days longer than expected. Your mortgage payment is due, and circumstances force you to make the payment with your credit card. This exception to the rule makes sense for two reasons: 1) it is unavoidable, and 2) you have the funds required to cover the payment. One other point needs to be made here: you should only do this with a credit card that does not charge you interest on a carried balance and you should pay it off immediately with the funds in your bank account.

The More Common “No” Case
Mortgage payments are normally large. They represent a significant portion of the normal monthly household budget. They consist of principle and interest payments. Early on in the life of a mortgage loan, most of the payment is interest. If you pay your mortgage with a credit card, you will basically be charged interest to pay interest. This is a poor business practice.

Credit-Card Interest Is About 2.4 Times Mortgage Interest
For the sake of argument, let’s say credit-card APRs run about 15% on average (this is actually a reasonable approximation of the current average). Let’s also say that the average 15-year fixed-rate mortgage is about 6.25% (also a reasonable guess). If you pay your mortgage with your credit card at these rates and are unable to pay off the credit card immediately, you are effectively paying about 2.4 times more interest that if you had not used a credit card.

The End Result Is Financial Disaster
This leverage is unsustainable for any extended period of time and is almost certain to end with both foreclosure of the home and revocation of the credit card. These events will hammer your credit score and scar your credit report, making it difficult (if not impossible) to get credit in the future.

The bottom line? Keep mortgage debt and credit-card debt separate.

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Identity Theft and Credit-Card Fraud 101 – An Introduction
This complex subject will require a number of postings. Identity theft and credit-card fraud are opposite side of the same coin, and both are high-growth industries of global scope. This particular post will deal in a broad-brush way with these interconnected topics, and how to handle the fallout of being victimized.

Most Consumers Will Experience Identity Theft Sooner or Later
ID theft has become a fact of life. There are predators out there who seek every possible opportunity to steal critical personal information and put it use opening fraudulent accounts and buying goods and services in your name.

The Identity Theft Process – Obtaining Personal Information
Important bits of personal information can be obtained in a number of places. Wallets get lost, receipts with important information get misplaced, account statements get found in the trash, sensitive conversations are overheard, and hackers break into computers.

A seasoned scam artist can take a single bit of information and build on it. For instance, a name and an address found on a scrap of paper can lead a thief to your home where he or she might steal your mail. A lost wallet with a social security card or a driver’s license in the parking lot of your grocery store can lead a thief to a clerk who might know you and provide a telephone number that can be used in a Phishing scam to extract a credit-card number from an unwary elderly person.

There are thousands of ways for scam artists to assemble a vulnerable identity. They specialize in doing this, and the internet is a valuable source of collateral information once a thief has a starting point. For instance, a birth date can be found to match a social security number by searching the net for public records in which a social security number might have been disclosed. Many legal documents that are public record have this information in them.

Opening Fraudulent Accounts
Once key identity information has been stolen, new credit-card accounts can be opened using almost any personal information. The thief simply creates his or her own passwords and security codes and proceeds the same way any other consumer might. Credit-card issuers are in the business of issuing cards. Their business models have allowances for fraud, so you personal credit history is not their primary concern.

Using Fraudulent Accounts
Internet shopping has made the use of fraudulent credit card easy. A thief logs on to a web site from anywhere – an internet café, say. He or she places an order for expensive clothing or a piece of jewelry and has it sent to an address owned by people known to be on vacation. Signature is waived. The delivery service leaves the package on the doorstep, and the thief drops by to pick it up, remaining anonymous throughout the process.

How To Prevent Identity Theft and Credit-Card Fraud
Identity theft is a shadow crime. When done by a professional, it takes place without the victim being aware of any of the several steps that precede use of a stolen account. The best way to prevent identity theft (aside from protecting your wallet and shredding your account statements) is to monitor your credit report. Watch it like a hawk. Address any strange or unexpected activity immediately.

Click here to apply online for a credit card securely

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Can Consumer Credit Counseling Help Me?
Consumer credit counseling refers to the process of consulting with someone who offers advice about how to deal with credit problems. Some counselors charge fees, and some offer their services as part of community outreach programs or not-for-profit organizations. Consumer credit counseling can be a great help in many instances. However, as with most items that involve money, credit counseling has a good side and a bad side.

What Do Fee-Based Credit Counselors Do?
Fee-based credit counselors offer their services to distressed individuals in return for compensation. This compensation can be in the form of an up-front cash fee, a commission on a debt-consolidation event (such as a loan or the opening of a debt-consolidation credit card). Part of the service offered by most fee-based credit counselors involves negotiating with creditors for relief. This relief can involve limiting telephone calls, limiting mail, negotiating lower APRs, negotiating lower payments, adjusting balances, and all related issues.

A Note About Predatory Fee-Based Credit Counselors
Some fee-based counselors have given the field of debt assistance a bad name by misrepresenting what they can do, how they do it, what it will cost, who will pay the bill, and what sort of damage their actions might do to your credit report. Ask the following question: “What do your services cost and who, specifically, will be paying them?” Get the answer in writing. Have the counselor sign the document.

Community Outreach Credit Counselors and Volunteers
Counselors in this category are usually volunteer professionals or professionals working for a charitable organization funded by grants, donations, and related sources. They almost never have a financial interest in the outcome of your situation. For this reason, they can offer objective advice based upon (usually) experience specific to the financial industry. Not-for-profit credit counselors will usually not negotiate on your behalf, but they will commonly coach you with respect to how to approach a credit-card issuer or a mortgage company about the thorny issue of asking for help.

How To Find Credit Counselors
Typing “Free Consumer Credit Counseling,” “Debt Assistance,” or Consumer Credit Help” into a search engine is likely to direct you to fee-based credit counselors because they invest money in attracting internet hits. The Federal Government has an arm called the Federal Trade Commission that is charged with protecting America’s consumers. Type “Credit Repair” into the search engine and start by educating yourself about what resources are available for free.

Initially Limit All Searches to .Org and .Gov Sites
Self education it the first step in the credit-counseling process. An ignorant consumer is a vulnerable consumer. After you have taken some time to familiarize yourself with your rights and responsibilities, seek out referrals to agencies or organization in your area. Use the telephone and the internet to seek out organizations that suits your needs. A list of useful credit-counseling links will follow in a separate post.

To apply for a credit card to consolidate your debt click here.

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Credit Scores and APRs – Joined At The Hip
The interest rates charged on credit-card balances are known as Annual Percentage Rates (APRs). These rates reflect the perceived creditworthiness of credit-card holders. Generally speaking, consumers perceived to be good credit risks can expect to pay lower rates. Conversely, consumers that are perceived to be worse credit risks can expect to pay higher rates.

The Four Horsemen of Credit: Bureaus, Reports, Scores, and Cards
Credit bureaus are companies that stockpile credit data and sell it to qualified firms engaged in issuing credit to consumers. These credit bureaus assemble the available data, analyze it, and create credit reports. These reports are then sold to credit issuers both in a raw format and in an analyzed format.

The raw credit report is complex and will be the subject of another blog post. The analyzed form of a credit report is a credit score. This score is usually a number. Higher credit scores reflect better credit risk. Lower credit scores reflect worse credit risk. Consumers who want to own credit cards need good credit histories and high credit scores.

Credit Scores and APRs – An Example
Let’s assume that a credit bureau creates scores that range from 1 to 10, with 1 being the worst and 10 being the best. Assume further that credit-card issuers analyze the market for credit cards, and decide that they can make money if their average cardholder has a score of 6 or higher. Under these circumstances they turn down all applications they receive from consumers with scores of 5 or less.

Consumers who have scores of 6 or higher who want credit cards can apply, but the issuer uses APRs to reflect the risk each cardholder represents. Depending upon the state of the economy, the credit-card issuer might offer APRs ranging from, say, 10% to 15% (these numbers have been selected to make this example easy to understand). The credit-card issuer might assign cardholders with credit scores of 6 an APR of 15% to reflect the higher risk associated with a lower credit score. Cardholders with credit scores of 10 under this scenario would receive the best APR – 10%.

Higher Credit Scores Mean Lower APRs
Here’s the key point: a high credit score indicates a good credit history – and lower financial risk to a credit-card issuer. If you have good credit, you can expect to receive a better APR. You can also expect to have a larger credit limit, but that topic will be the subject of another post.

Protecting A High Credit Score
The simplest way to protect your credit score is to monitor your credit report closely to make certain that it is accurate and complete. Most credit bureaus compile the following information: all current credit accounts, all current loans (including mortgage loans), all closed accounts, all retired loans, and a continuous history of your home addresses. Your credit score might change modestly from month to month; however, if you note a significant change (and particularly a change for the worse), question it immediately.

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Debt is a fact of life. Well-managed debt makes life easier. Poorly managed debt can create serious and lasting problems. Because of the potentially high Annual Percentage Rates (APRs) that credit cards can carry, credit-card debt is potentially much harder to manage than, for instance, mortgage debt.

My Debt Load Has Become Unmanageable – What Should I Do?
Effective debt management basically boils down to two key strategies:

• Debt consolidation, and
• Negotiated debt work-out

Debt Consolidation – The Concept
Debt consolidation involves taking out a loan or establishing a credit line and using funds from either source to (hopefully) pay off all outstanding debts. This is an attractive strategy for many consumers because it reduces the number of stressful telephone calls and letters they receive. It also replaces debt at several APR rates with a single rate.

Debt Consolidation – The Reality
The debt-consolidation industry is littered with predators and scam artists who make money – one way or the other – by convincing consumers that one payment is better than 8 or 10 payments. This debt “solution” frequently carries an APR roughly similar to that of a standard credit card, and it might involve unexpected fees as well. Hidden or misrepresented fees are another potential problem with respect to this debt-management strategy. Tread carefully here, and insist that all rates and fees are disclosed in writing before proceeding down this path.

Debt Work-out – The Concept
Credit card and mortgage companies basically want existing clients to retire their existing debts in a responsible manner. Debt work-out strategies essentially call for those who owe money to contact the firms to which they owe it and offer to work diligently at paying down the balance.

Debt Work-out – The Reality
Credit-card and mortgage companies are sometimes willing to negotiate payment schedules and possibly lower rates for consumers who show good-faith efforts to retire their debts. Not all companies do this, however. Credit counselors make a living handling these negotiations. Generally speaking, they simply offer what a debt-strapped consumer would offer: an effort to retire debt in return for concessions on APRs, due dates, or balances. Tread carefully here also. Make certain you understand the fee structure and who is paying the fees. Get everything in writing.

Is a Credit Card a Good Debt-Consolidation Tool?
The goal of debt consolidation for most consumers is to replace, say, 10 payments and 10 APRs with one payment and one APR. Using a credit card as a debt-management tool is usually not a good idea for the following reasons:

1. Credit-card APRs are commonly higher than APRs for other types of debt,
2. Credit-reporting agencies document activity of this nature, and (depending upon specifically what you do) it might adversely affect your credit score

Diligence and Communication are The Best Debt-Management Tools
Good-faith negotiation is generally the best way to deal with difficult debt situations. Take actions that do not increase your debt load or force you to pay fees or exorbitant APRs. Be cautious about offers of free assistance.

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In my last post, I described the top 5 types of credit-card fraud (phishing, minting, skimming, shaving, and cramming), and offered specific techniques that can be used to spot or prevent these scams. The field of credit-card theft and prevention is a broad one. The following 10 general tips are important for all consumers to bear in mind as well:

1. Create a master list of your credit card numbers. Include all particulars such as expiration dates and verification numbers or passwords and keep this list in a safe. Do not keep this list on your computer unless you encrypt or password-protect it.
2. Create a master list of your identification cards (driver’s license, passport, social security card, Green card, visa, etc.). Include photocopies of all essential information with this list. Keep this information is a secure place as well.
3. Sign all credit cards. This practice keeps potential credit-card thieves from signing stolen credit cards in their own handwriting.
4. Keep the credit cards and identity cards you carry on your person separate if possible. This is usually easier for women to do than for men. If these items are all kept together in the same wallet, the loss of the wallet provides thieves with basically everything they need to make money.
5. Save all receipts and reconcile them against your statements as they arrive each month. Pay particular attention to returns and credits. Make certain that each item listed on a bill is confirmed by a receipt that you have saved for this purpose. Do not discard receipts until they have been reconciled.
6. Never let your credit card out of your sight. Period.
7. Question all attempts to photocopy your identity cards, and refuse to allow this practice unless you know the vendor well. Treat all people who ask you for these highly sensitive items as the strangers they are. Insist that they show compelling cause for asking for such documents.
8. Shred all receipts and account statements after reconciling them.
9. Place a lock on your mailbox and open your mail promptly.
10. Never leave blank spaces on a receipt. Place a line through any places on a receipt where additional charges could possibly be added after you have left the premises.

General Security Practices To Bear In Mind

Take ownership of your receipts. Scam artists are creative and resourceful. They might be able to use, for instance, a gasoline receipt that you have forgotten at the pump to extract information about your account (or your identity) from an unwitting clerk.

Notify your credit-card issuers of planned changes of address in advance of the move. This precaution keeps potentially sensitive mail from being delivered to your old address after you have moved.

Do not lend credit cards. Parents occasionally find it either necessary or useful to lend a credit card to a child. If you allow this practice in your home, make certain that the person to whom you lend the charge plate is aware of the risks losing a credit card can pose.

Do not discuss sensitive account information over the telephone with unsolicited callers. If you know the individual or firm, proceed as your judgment dictates. However, if someone calls you and asks for sensitive information, write down his or her telephone number and any information you deem pertinent. Then consult a website or a telephone book for an official phone number for the firm in question and call it directly. Do not return the call on a telephone number provided by the inquiring party.

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Generally speaking, the only way to combat these scams is to maintain constant attentiveness:

Skimming
Keep your eye on your credit card at all times — especially in restaurants and retail establishments, and especially while traveling. Pay attention to the ATMs your use. If an ATM machine looks odd or if the card-reading device seems loose or unstable, go to a different machine.

Minting
Watch all accounts closely for unauthorized activity. Bank accounts can now be monitored via the internet, and a daily account check might stop this type of theft before it gets out of hand. Companies also exist that will monitor account activity in your name for a fee.

Shaving
Shaving victimizes all consumers, but this scam must be caught at the cash register. All charge plates that look altered or damaged should be scrutinized closely.

Cramming
Carefully review every bill that comes your way. Question any item that you do not understand on each bill. Insist upon the removal of all items that are either unexplained or unauthorized. Document all such requests in writing.

Phishing/Toll-Free Trolling
Never call the telephone number found in an e-mail or a voice mail. If you are concerned about the subject of the e-mail or telephone call, then proceed to the company’s official website, call the help line number usually found there, and proceed as indicated. (By the way, “phishing” is pronounced “fishing.”)

A combination of suspicion and attentiveness goes a long way in keeping your credit card secure. To apply for a credit card securely, click here.

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The five most common credit-card scams at the moment are:

Skimming
The use of an unauthorized electronic reader to capture credit card information. This can be done by, for instance, a waiter, with a small portable device – or it can be done at an ATM with a device designed to look like a part of the normal machinery.

Shaving
This technique involves testing number sequences until scammers find one that works to validate a gift card, for instance. Once an authorization number has been determined scammers then carefully shave the embossed numbers off of one or more cards and glue them to a master card. The magnetic strip on this card is then damaged so that a clerk must enter the number on the card manually.

Minting
Hackers (or scammers with inside connections) gain access to corporate debit-card files, create new cards, and proceed to access and empty accounts of their contents. Because a third-party databank is breached, your computer’s security software never senses an intruder. Dormant accounts are commonly chosen for this scam because cardholders are not paying attention to them.

Cramming
Scammers create bogus companies and add unauthorized billing items to the statement of, say, your telephone company. These bills are now usually handled by third-party agents that simply pass the charges along. Careful consumers catch unauthorized charges and have them removed. Less watchful consumers miss the unauthorized charges and simply pay them.

Phishing/Toll-free Trolling
Scammers either call or e-mail targets and claim that they need to verify account information. A toll-free telephone number is provided for so-called clients to use. When concerned clients call, scammers extract accounts numbers and/or social security numbers and use them for unauthorized account access. They also open new credit-card accounts and go on spending sprees.

Stay tuned for ways to combat these scams in our next post.

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