Wednesday, November 19, 2008


1. The Scam: Free Credit Reports That Aren't Free:

You've seen the come-ons online : GET YOUR FREE CREDIT REPORT! Click Here!

And they are come-ons. The credit report is not "free" - you have to give them a credit card number and you are signed up for a "credit protection service" for $9.95 a month with a "negative option" cancellation.

Negative Option is a term that describes any service where are signed up for free initially (usually requiring a credit card number), and then have to actively cancel the plan if you don't want it. Otherwise they keep charging your credit card indefinately. The trick is, most "negative option" places make it hard, if not impossible, to cancel (i.e., requiring written cancellation request 6 weeks in advance, and then saying they never received it, etc.)

NEVER sign up for anything that has a "negative option" cancellation plan.

(And NEVER click on the first hit on GOOGLE as it usually is a con-job!).

2. The OTHER Scam: Credit Monitoring Services:

You do not need a "credit monitoring service" to obtain your free credit report. And so-called "credit protection services" are totally unnecessary. The media loves to hype stories of "identity theft" in order to sell these services (sometimes offered by subsidary companies). However, you do not need to spend $29 a month to "protect" your credit.

The idea that you need to "monitor" your credit or credit score on a monthly basis is bogus. If having credit is that important, perhaps you need to rethink your priorities. Beyond a certain age (30-40) a person should start thinking about borrowing less and OWNING more. After all, it won't be long (sooner than you think) that your ability to earn disappears all together. At that point, you should be debt-free or very close to it.

Your credit card company or bank may offer you these services, usually each time you call them. Be careful, as the telephone operators are on a commission basis, and you should make clear that you are refusing this "service". Yet many folks have been "signed up" against their will. You should check your Statements every month (more often, online) to make sure these junk services are not added to your account.

3. The Real Deal: Really FREE Credit Reports:

The truth of the matter is that you CAN get a free credit report, and the credit reporting agencies are REQUIRED BY LAW to provide them in many circumstances.

For example, if you access the EQUIFAX site, they have lots of links to sign up for various services to monitor your credit for $7 to $14 a month. Not worth it!

However, in a small part of the "contact us" link, you'll find this link:

to obtain a REALLY free copy of your credit report.

Or, you can go to this link:

To obtain copies of all your credit reports.

You are entitled to a FREE copy of your credit report under several circumstances, depending upon the State you live in:

State First Copy
California $8.00*
Colorado Free
Connecticut $5.00*
Georgia Free(2 per calendar year)
Maine Free
Maryland Free
Massachusetts Free
Minnesota $3.00*
Montana $8.50*
New Jersey Free
US Virgin Islands $1.00*
Vermont Free
All other states $10.00*

Note also that you can obtain a FREE copy of your credit report on that link if you have been denied credit, are unemployed, or believe you may have been a victim of fraud. So there are a lot of circumstances where you can get this service for free.

4. Should You Worry About Your Credit?

Obsessing about your credit score is much hyped in the media. While it is true you need a decent credit score to get a mortgage or other loan, you are far better off not having any debt at all. So while it is important to have good credit, it also important not to need it badly. The old saying is true - the banks will only loan money to you once you can prove you don't really need it.

If you desperately need to borrow money, chances are, your credit score will reflect this, and you will be charged the higest interest rates. The best way to get a good credit score is to not borrow so much and not be in such desperate straits to borrow.

Bear in mind that most of the money people borrow is not really necessary to live - only necessary to live a more comfortable life. So while you may view a car as a "necessity", a brand new car is certainly a luxury, and it is possible to drive a "paid for" car for years and years, without having to be constantly borrowing money to make car payments.

The "great deals" on car loans and leases that are touted to people with "good credit" still pale in comparison to the much, much lower cost (nearly half, in most instances) of paying cash for a decent car and driving it forever. Again, you cannot spend your way to wealth, just as you cannot eat your way to slimness.

5. Gaming the Scoring System:

Oftentimes financial articles about credit reports and scores will give nonsensical advice, such as saying you should borrow more money to improve your score, or leave old credit cards or accounts active to improve the "age" of your score. While this may help one "game" the credit scoring system, the reality is, having a lot of open accounts is probably not a good idea in general. They are harder to keep track of, tempting to charge on, and make you more likely to be targeted as the subject of fraud.

There are some general rules on gaming the system, but they basically are the rules that apply if your financial house is in order. If you have a long credit history, that helps. So an account that has been open for years and years is a plus. Not having too many open credit lines helps as well. And having balances on your credit lines less than half helps as well.

Like buying your way to wealth, you cannot borrow your way to good credit (or eat your way to slimness). You are generally better off not to borrow at all, than to borrow just to try to enhance your credit history.

6. No Credit History At All:

The only exception to this rule, of course, is that if you have NO CREDIT HISTORY whatsoever, you will find it hard to even rent an apartment or find a job. I once interviewed a tenant for an apartment I was renting and I ran their credit history. The fellow at Equifax told me they came back "clean". I said "That's good, right?"

"Heck no!" he said, "According to the computer, these people don't exist, other than as a name and social security number. Think about it, how can you live any length of time in the USA and not have ANY credit history?" He had a point.

So it is often good advice to have SOME credit history, even if it means buying something on time and then paying it off in full. I did this as a youth, buying a waterbed. The salesman talked me into a "90 days same as cash" deal with Household Finance Corp. (HFC). I signed the papers, and on the 89th day, walked into HFC and paid the balance in full. They were NOT HAPPY with me, and offered to "roll over" the amount to a new loan (with the 90 days original interest now due, of course). I said "no thanks" and started my credit history off on the right foot.

By the way, I am not recommending or endorsing consumer lending agencies such as HFC. Their interest rates are far too high. If you really must borrow, join a Credit Union.

7. Credit Repair Scams:

Note also that advertisements to "repair" your credit are often bogus. Many are merely come-ons to high interest "consolidation loans" or home equity loans. If you find yourself in credit trouble, there are legions of folks willing to "help" you out by victimizing you further.
Most credit cannot be "repaired" and any REAL "repair" that CAN be done, you can do yourself with a few phone calls or letters.

For example, my mortgage (on a previous home) was sold to KeyBank in the 1980's. I had just signed up for automatic payments on the mortgage and a payment was taken out of my checking account. I assumed the money would be forwarded by the bank to the new mortgage company, but it wasn't and the next month I get a deliquent notice from Key Bank. I take a trip down to my old bank, explain the problem, and it gets straigtened out. No problem, right?

Wrong. Being "late" on a mortgage payment is one of the big hits your credit report (and score) can take. I called Key Bank and explained the situation to the person on the phone. They could see in their records that the payment was made (transferred from the other bank) and it was in the first month after the mortgage was sold to them. So they gladly wrote to the credit bureaus to have the information corrected and updated.

Total cost? A phone call. No big mystery, and you don't need some "Credit Repair Agency" to "fix" anything.

In reviewing the credit history, I noticed some other items that I felt were inaccurate - minor dings for late payments on department store accounts, for example. I've found that creditors who have been paid regularly will remove reports of late payments, provided your payments are up to date. All it takes is a phone call to the credit department and acting nice. Total cost: $0.

And bear in mind that eventually, late payments and such will "fall off" your report over time. Of course, some things fall off faster than others. Bankruptcy and late mortgage payments and uncollected debts can linger quite a while.

You can also DISPUTE items in your credit history, and I have done this and found the data later corrected. Again, no money or special agents are required.

The funny thing I see about these "Credit Repair" agencies is that they advertise on carboard signs nailed to utility poles. Would you really trust your credit history to someone who advertises this way? Apparently some do.

You can correct misinformation on your report simply by writing a letter to the credit reporting agency, or by writing to the company making the report (or both). Note that some items will eventually "fall off" your report over time, so if you can be patient, your score will eventually go up.

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Keeping track of your credit history is not a bad idea. You can do so for free, online, without having to pay for some "credit monitoring service". Obsessing about yoru credit history is not necessary, though. Not borrowing money is far better than having "good credit". And if you don't borrow much, and you pay your bills on time, you'll automatically have good credit.