THE NEGATIVE EFFECTS OF CERTAIN ACTIONS ON YOUR CREDIT

THE NEGATIVE EFFECTS OF CERTAIN ACTIONS ON YOUR CREDIT

Among the questions I am asked a great deal about concerning credit scores is how particular actions, like late payments, bankruptcies, foreclosures and other derogatory items affect credit scoring.

Until recently, nobody really understood. The company that created the leading credit score, FICO, has been very defensive about releasing details regarding their proprietary information. Well that has changed, to some degree. FICO has unveiled information about how specific actions, from filing a bankruptcy to maxing out a credit card, can affect individuals with different credit scores.

FICO was asked to calculate the effects of those actions for two examples: A person with a 780 score on the FICO 300-850 scales, and someone with a 680 score. Here are the results.

The outcomes are shown in a range because FICO is still reticent in disclosing too much about its proprietary system. However, the range is fairly tight and you can clearly see the incongruent impacts of the different actions.

	EFFECT ON 680 SCORE	EFFECT ON 780 SCORE
MAXED OUT CARD	10-30 POINTS	25-45 POINTS
30 DAY LATE PAYMENT	60-80 POINTS	90-110 POINTS
DEBT SETTLEMENT	45 - 65 POINTS	105-125 POINTS
FORECLOSURE	85-105 POINTS	140-160 POINTS
BANKRUPTCY	130-150 POINTS	220-240 POINTS

Let's make this clear: Your own outcomes may vary.
People with a similar credit score can have very different credit user profiles: more or fewer accounts, a different combination of accounts, a longer or shorter credit history, use of more or less of their available credit, etc.
Because of those differences, the same action -- maxing out a credit card, say -- is capable of having diverse outcomes on people with the same score, with regards to the details of their individual credit user profiles.

FICO assumed both people had a number of active main cards as well as a mortgage, an auto loan and student loans.

The person with the 780 score:
A. Has at least 10 credit accounts as a whole and a 15-year credit history.
B. Utilizes 15% to 25% of her credit card limits.
C. Has no past due payments on their credit reports.


The person with the 680 score:
A. Has six credit accounts as well as an eight-year credit history.
B. Uses 40% to 50% of her credit card limits.
C. Was 90 days late on an account two years ago.
D. Was 30 days late on another account one year ago.


MAXING OUT YOUR CARD
Using 100% of your limit on any credit card puts you at risk of over-limit fees. It also takes a bite out of your credit score. Our person with the 680 score might lose 10 to 30 points from this one action, while the 780 scorer could shed 25 to 45 points.

The difference points up an important fact: The higher your score, the more points you tend to lose from "bad" actions. That's because the scoring formula is sensitive to any sign you're getting in over your head. Maxing out a credit card is considered one of those signs.


You also should know that it typically doesn't matter to the formula if you carry a balance or pay off that maxed-out card as soon as you get your statement. What's usually reported to the credit bureaus is the balance on your last statement. Even if you pay the debt in full before the due date, the maxed-out card will hurt your score.


LATE PAYMENTS

Sending a check a few days past due usually won't hurt your score, although you may incur late fees and induce higher rates of interest. The big hurt comes when you miss a payment period entirely.
A 30-day-late report would cut 60 to 80 points from our lower-scoring person and 90 to 110 points from our higher scorer. Quite simply, one lapse of attention could drop the 680-scorer into subprime credit terrain, and our 780-scorer could find credit much harder to obtain and more costly.
This is why it is so vital that you set up automated payments to ensure your bills get paid promptly, all the time. Together with credit cards, you can set up automatic payments that make minimum payments from your checking account to protect against a late payment. You can always make a second transaction that decreases your debt or pay it off entirely. You can subscribe to automated payments on the Web site of your card issuer.


SETTLEMENTS
All the commercials about "settling your debt for cents on the dollar" make debt consolidation sound like a great solution. But failing to pay what you owe to a creditor will take a serious toll on your score.
The 680 scorer would lose 45 to 65 points with this option, while the 780 scorer could shed 105 to 125 points.


I hope this clears up some of the questions regarding credit scoring.

CREDIT CARD FRAUD

MASSIVE PROBLEM
Credit card fraud has been a massive problem since the credit card was first introduced in the 1950's.

Prior to the internet, the main method in which this type of theft was committed had been by taking and using the physical card.

Today, this type of robbery has grown to become a lot more complex.

Structured hacking groups strike websites exclusively to steal individual and credit card data.
Illegal websites which are hosted in foreign countries, are used to sell this data to the highest bidder all over the world. These activities generate huge profits for anyone carrying out theft and huge headaches for those that have their data stolen.


Credit card and I.D. fraud has turned into a billion dollar per year dilemma that law enforcement, credit card companies, and consumer groups cannot manage to get a handle on.
It is extremely common for people to have experienced this type of fraud, typically multiple times in their life. Theft can result in loss to finances, decrease in good credit score numbers, and stress from getting through this difficult predicament. Fraudulent charges are usually taken care of by credit card issuers fairly quickly, but consumers always wind up paying for them in the end with higher fees.


How can Fraudsters Get Your Credit Card Details?

One way that credit card thieves can get private information is via a process called phishing. Fraudsters and identity thieves send millions of junk emails under the guise they are from a financial institution or credit card company. The emails make a consumer believe that their is “trouble with their account”. They are then prompted to enter their C.C. number, pin, and/or social security number. Sometimes a link in these phishing emails will redirect users to a site that replicates the exact look of their bank or Credit Card Company. The purpose of these “fake” sites is only to gather usernames and passwords. If you think maybe that you have accidentally entered your username and password into a website that is not genuine, you should contact the fraud department immediately .It is usually very confusing when banks and credit card companies send out genuine emails.

Just how can you tell the difference between a “phishing” site and the real site? One way that you can tell a fake site, is to check the root of the domain.
• For example, the genuine website for American Express is www.americanexpress.com. A phishing site attempting to steal your details might appear to be this: americanexpress.xyz.com.
• Notice how the root domain for the fraudulent website is “xyz.com”, not “americanexpress.com”.

One more indication that you are on the genuine site, is that the url should start with “https://, not http://”. HTTPS (Hyper Text Transfer Protocol Secure) signifies that the site has a security seal. Phishing sites will most likely not have a legitimate security seal. Most browsers will also show a “green lock” to the left of the url, showing that you are on a secure site.

Another way that hackers could possibly get passwords and credit card data is via computer viruses. Viruses known as “keyloggers” track the keystrokes entered into infected computers. If your computer is corrupted from this type of computer virus, passwords and credit card details are recorded and transmitted to some perpetrators via the internet. To stop keyloggers or other types of malware from infecting a computer, it is important to regularly run anti-virus software. The one most recommended is http://www.malwarebytes.com/. You should also try to avoid contamination by not downloading (or executing) email attachments from unknown senders.

How to Spot Scams or Theft
If fraud is caught in its early stages, major problems and damage can mostly be avoided. Keeping track of bank and credit card statements carefully will help you find any fraudulent charges that you did not make. If you notice payments you do not recognize, contact your company’s fraud department immediately.


Another important thing you must do is maintain close track of your credit history. You can monitor this history by obtaining a credit history annually from AnnualCreditReport.com. This website is run by the 3 main credit bureaus (Equifax, Transunion, Experian) in order to comply with the Fair Credit Reporting Act. This act enables all consumers to have access to their credit information and facts totally free, once each year. By going to this website, you can check your reports at all 3 bureaus and ensure no fraudulent accounts have been opened under your name. Checking this information at least each year is advised to look for fraud.

CREDIT CARD PROTECTION

Credit Card Protection

The next time when you pay with your credit card at check-out, think about this: It is a ritual the rest of the world deems outdated and hazardous. America could be the only developed country still clinging to credit and debit cards with those black magnetic stripes, the kind you swipe through retail terminals. The rest of the developed world has changed -or is in the process of changing- to "smart" chip-based cards.


The problem with that black magnetic stripe on the back of the credit card is that it's about as secure as writing your account information on a postcard: everything is in the clear and may be copied. Card fraud, and the actions taken to prevent it, costs U.S. merchants, banks and consumers billions each year.


The smart cards can't be replicated, which greatly cuts down on the potential for fraud. Smart cards with built-in chips are the equivalent of a safe: they can conceal details so it can only be unlocked using the right key. Since the important information is hidden, the cards can't be duplicated.


But the stripes have been so established within the vast U.S. payment system that banks, payment processors and retailers have failed to attain consensus on how to update it, leaving the U.S. behind the rest of the world. Are you really serious? Retailers, banks and payment processors could make a significant dent in the fraud industry? And they will not. Obviously, there must be monetary gain there for them, somewhere, somehow. Otherwise, they would switch - and fast!!! It is kind of like the petroleum industry - they will switch to an alternative source when they have control of alternative fuels!


There are now significant moves to swap conventional cards for smart cards in a few years. Recently, Visa announced new policies that should give U.S. banks a reason to issue smart cards and stores several reasons to accept them, starting in 2015.


Here's how a smart card works in practice: When it's time to settle the bill at “Billy Joe Bob’s Road Kill Restaurant”, a tiny restaurant just off Hwy 92A in Argentina (go ahead and find it - it is fictitious) the waiter brings to the table a wireless payment terminal. The customer inserts his chip-equipped "smart" credit card and enters his code on the keypad.


Voila! The bill is paid for without the card leaving the customer's sight, and the combination of chip and PIN code kept the transaction protected from fraud.



Research puts the amount of fraud based on stolen card numbers in the U.S. at $14 billion. Fraud based on new card accounts created using stolen identities adds billions more - the total cost of identity fraud in the country is $37 billion.


In an even more momentous shift, in 2015 Visa is shifting the liability for a certain kind of fraud from the banks to stores.


The specific case is this fact: If a customer presents a smart card in a store that can't accept it, then it will fall back to using the backup magnetic stripe on the card. If that transaction turns out to be fraudulent, the payment processor will be liable, and in practice, results in the store taking the loss. Today, the bank would be liable for the fraud. The modification means that banks will have an incentive to put chip-based cards in their customers' hands, since their fraud liability will be reduced once the cards are used.



For their part, stores should have a reason to install smart card terminals, because otherwise, their fraud costs could increase. The price tag on moving to chip-based cards is at about $8 billion, mostly for upgrading payment terminals in stores, research indicates.


The retail federation trade group calls Visa's move a necessary step, however, not a fully satisfactory one. One of the shortcomings is that it doesn't mandate the use of PIN codes with smart cards, so even if the cards cannot be replicated, they could still be used on a signature basis if stolen. Why don’t they mandate a PIN code? Does this seem sensible to anybody?

DOES THIS MAKE CENTS???

DOES THIS MAKE CENTS?



In order to have a high credit score -- which can mean lower loan rates -- then you'll need to do things that don't sound quite right at first.

You pay your bills by the due date, so you expect a good credit score results, right? If only it were that simple.

In fact, your credit score is dependent upon a number of different things, not merely your payment history. Here's where it gets downright strange: A number of the ways to improve your credit rating don't even make sense financially.

Your score improves when you have a lot of loans. 10% of your score is dependent upon the types of credit used. That means that someone with car loans, education loans, and retail store accounts may possibly possess a better score than somebody who has just one type of loan, and way better than someone with none.

More credit cards often mean an improved score. Another 30% of your credit score is set, in part, by the quantity of credit you utilize. Although it makes sense that using less credit may help your score, it's the other part of the equation -- the amount of credit you have -- that leads to this strange impact.

By opening more than just one or two credit cards, you are able to raise your available credit and lower the percentage of credit used. In the same manner that obtaining more credit cards reduces your overall credit usage rate, asking for a higher limit will also achieve the same effect.

Pay off the Credit Card well before the due date. As someone who always pays his credit card balances promptly, I was astonished to see that my credit report demonstrated that I owed money on each of my cards.


The straightforward reason is that your balance on any given day can be reported to the credit bureaus as a debt. I'll still pay my balance only on the due date, but I might pay earlier or avoid credit cards if I was attempting to raise my score to obtain a home loan.

Don't cancel a credit card. Another 15% of your credit score is determined by the length of your credit history. Among the factors that's included in this calculation is the average age of your open accounts.

Shop fast. It's wise to take your time and research prices for the lowest mortgage, car, or student loan, right? Actually, FICO will count repeated inquiries for new credit as a single inquiry so long as they are all done within 30 days. Take more time to request competitive loan offers and you risk harming your credit score by having lots of inquiries.

While credit scores are determined by mysterious formulas which are never fully disclosed, FICO and others give us many clues about what elements are included. By focusing on how the credit agencies view your finances, you can make the best decisions to increase your credit scores.

Can A Ticket damage My Credit? Yep

Can A ticket damage my credit?

Your driving does not have anything to do with your creditworthiness, so just why should an unpaid ticket torpedo your credit scores? Just like medical bills, they do.

Norman Asks:
,
I got a photo radar ticket in a state besides the one in which I live. I have not yet paid the citation, which is labeled a civil penalty as opposed to a criminal penalty (since photo tickets apparently are difficult to prove beyond a reasonable doubt).
I have received a letter saying that if I do not pay the fees, the county will hire a collection agency, which will then affect my credit. Can my credit actually get dinged for this? What do traffic tickets and credit have to do with each other?


NORMAN, You should pay that traffic ticket. When an unpaid traffic ticket is given to a collection agency, the driver's credit scores could fall, perhaps considerably.


Traffic tickets and credit may not seem related (and really, they are not), but consider that ticket like a debt owed to the county that issued the citation. Even though they are not a lender, the county wants its money and definitely will take steps to collect. Unfortunately, should you not pay, the municipality appears ready to use a powerful technique to more emphatically urge you to do so -- one that isn't limited to traffic citations.

If a municipality turns a consumer debt, such as a moving violation, parking ticket or library fine, over to a collections firm, and the collections firm reports it as being a collection account to the credit reporting companies, it will have an effect on an individual's credit score.
Because lower credit scores make borrowing harder and costly, that risk makes for a more convincing argument for you to pay.
The situation isn't entirely unusual. I am seeing this more and more on credit reports - even library fines! Counties are hurting for funding so they are doing everything possible to capture some of that debt. In other words, receiving a ticket isn't what hurts your credit scores, but waiting such a long time to make a payment that it ends up in collections.
"While traffic citations aren't reported to credit reporting agencies, accounts in collection are often reported to bureaus in some jurisdictions.
Just how bad can the damage get? FICO states the effect varies, depending on such factors as the age of the collections account and other delinquent accounts, but indicates that debtors with high FICO scores (800 and over) could experience nearly 100-point declines.