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Wednesday, March 13, 2013

Credit Scores and Their Impact While Traveling


You probably use credit cards when traveling.  Who does not use them...right? They are convenient, safe, and save money when it comes to exchange rates.  Exchange rates at currency exchanges and foreign banks are NOTORIOUSLY BAD with those on credit and debit cards very close to the great rates the banks get.  Credit card and ATM fees can eat into your savings, but you will still save money when compared to foreign currency exchanges.

The other consideration, when using credit cards, is your interest rate.  Most people do not pay their balances in-full every month, so those charges incurred while on vacation are multiplied exponentially based on how long you carry a balance and HOW HIGH YOUR INTEREST RATE IS!  Your credit card interest rate, whether very high, very low, or somewhere in between, is based almost solely on your CREDIT SCORE.  FICO, previous known as Fair Isaac Corporation, has been providing credit scores for years, but many people do not know that the VantageScore may soon replace your "FICO" score.


I was watching 60 Minutes on CBS recently and there was a story on the three national credit bureaus, Trans Union, Equifax, and Experian, and the fact that ten percent (10%) of Americans, one in every 10, have errors on their credit reports.  I was even more shocked to learn that one out of five of us, five percent (5%), have errors on our credit reports BAD ENOUGH TO HURT OUR CREDIT SCORES!  I will get back to these problems, huge problems in-fact, a little later, but first I want to understand the credit reporting process a little better.


I am one of a minority of Americans who check their credit reports and FICO scores regularly.  I visit one of the “BIG 3” every four months for a free credit check through AnnualCreditReport.com. DO NOT CONFUSE AnnualCredit Report.com, where you can get a FREE credit report once a year from each of the BIG 3 credit reporting agencies, with FreeCreditReport.com, a website that will charge you for services and mimics the free site in order to sway you into purchasing “credit monitoring”.  

Most people do not need credit monitoring and can monitor their own credit by doing what I do, checking my credit on one of the BIG 3’s websites every four months, in doing so, checking three times a year FOR FREE and ensuring there are no errors or identity theft occurring.  For example, I will check Experian in March, Trans Union in July, and Equifax in November each year.  I normally enter a recurring reminder on my Microsoft Outlook calendar or Google Calendar, making it easier to remember.  The only problem you may encounter is trying to check a report to soon and wasting a little time, so make sure you wait at least a year before trying to check your credit with each agency.


There is a new rating system replacing the old “FICO” score, which ranged from 300 to 850, called the “VantageScore”, which is based on information from your credit report.  Your credit information may differ among the BIG 3 national credit reporting agencies and, as a result, your VantageScore based on each of those reports may vary.  A VantageScore ranges from 501 (being very bad) to 990 (being very good) and, from Experian at least, you also receive a RISK GRADE in the following ranges:
A: 900–990
B: 800–899
C: 700–799
D: 600–699
F: 501–599
You are also assigned one of five applicable CREDIT CATEGORIES based on your risk grade, including “High Risk” (F); “Non-Prime” (D); “Prime” (C); “Prime Plus” (B); and “Super Prime” (A) and given a percentile score, indicating where your credit rating ranks, on a scale of 1 to 100 among U.S. consumers.  According to Experian:
“VantageScore is the credit industry’s first credit score developed jointly by the three national credit bureaus. This innovative new approach to credit scoring simplifies the credit granting process for consumers and creditors by providing a consistent, objective score to the marketplace. Credit scoring is used to help potential lenders and users of credit reports quickly measure your credit worthiness and decide the type of risk they are taking by doing business with you. In addition to your credit score, lenders may also consider other factors such as your income, assets, length at current residence and employment history. There are many different scoring models used in today’s marketplace and different criteria used by different lenders. Regardless of what scoring model is used, they all have one purpose: to summarize your credit worthiness.”
Your credit score, now called VantageScore, is used for a variety of things, things you may not be aware of.  Most of us know that your score not only influences, it determines whether or not you will get a loan (home mortgage, car/consumer loan, etc.) and the interest rate that goes along with it.  The better your VantageScore, the lower the interest rate.  With the “prime” interest rate hovering around 3.25% for the past year, one of the lowest in history, those with the best credit will normally be able to get a loan with an interest rate close to prime.  If you have negative entries (late payments, loan defaults/collections, bankruptcy, or foreclosure) on your report, your Vantage Score will drop and the interest rate you receive on your loan will rise exponentially depending on how bad your score is.

Other things affect your VantageScore beside poor payment history and bankruptcy, including how long your credit history is, how many credit accounts you have, the credit limits on those accounts, and the debt to credit limit ratio.  Other things affecting your score negatively are closing accounts and having too many accounts at any given time.  The logarithm used by the BIG 3 to determine your score is a closely held secret and trying to figure it out is not an exact science, but some things you can do to maintain a good credit score are:
1. Make payments on-time
2. Keep a good balance of accounts and credit limits (higher is better)
3. Maintain a reasonable debt to credit limit ratio (not too high and not to low)
4. Use your accounts and credit cards regularly (at least once a year)
5. DON'T close accounts if possible, particularly before shopping for a loan!
Many people do not understand that your VantageScore also influences other areas of your life.  According to Forbes magazine, things, other than loan interest rates, that can be affected by your credit score include your home and car insurance rates, renting a home, getting hired or not, getting utilities for your new home, professional licensing, and even whether or not you will be investigated as a possible TERRORIST … seriously!

Now that you understand the system we are working with, I would now like to get back to the problems with the credit scoring process reported by 60 Minutes and discussed earlier.  Because your credit score has such a large and significant impact on your life in so many areas, there is a failure in the system when five to ten percent of citizens are affected negatively because of errors that ARE NOT THEIR FAULT!  


60 Minutes highlighted the story of one woman who attempted to fix errors on her reports with the BIG 3 for SEVERAL YEARS.  A person with bad credit, with a name and social security number totally unlike hers, was mistakenly being included on HER CREDIT REPORTS!  When she tried to fix the problem, the BIG 3 ignored her request or refused to believe her, EVEN AFTER THE OTHER WOMAN AND HER CREDITORS SIGNED AFFADAVITS SUPPORTING HER CLAIMS!  People lose jobs and houses over things like this and the BIG 3 were totally unresponsive.  60 Minutes indicated that this was not an isolated incident and reported that it appears to be a systemic problem, a problem the BIG 3 refuse to address or fix … another example of Institutional Terrorism ™ at work in America.


My own credit history was flawless, without a late payment or other blemish for over 30 years and a FICO Score very close to a perfect score of 850.  We regularly shopped at Kohl’s, a discount department store chain, for clothes and household items three or four times a year.  Kohl’s offers special discounts for the credit card customers, so we applied for a card and used it every few months.  We have most of our credit card, utility, and other recurring payment accounts on “auto pay”, having the statement balance taken out of our bank account automatically every month.  Because we only shopped at Kohl’s every few months, that option was not possible, so I relied on their email “payment due” reminders and, as a backup, statements mailed to our home to remind me to make a payment.

While paying our bills one weekend, I suddenly remembered that we had shopped at Kohl’s a while back and I had not received an email or statement, so I logged in to their website to see when the payment was due.  I do not know about you, but time flies by and when I saw that our account was over 60 days past due, I was flabbergasted!  I knew it had been a while, but did not realize it had been 60 days.  


I immediately called Kohl’s and told them I was sorry for the late payment, asking to make a payment immediately over the phone.  After doing so, I asked the woman if Kohl’s had reported our late payments to the BIG 3 and she indicated that they had.  I told her that I had not received a reminder email or statement in the 60 days since making the purchases and asked her if she could PLEASE remedy the discrepancy with the credit bureaus, having had “golden” credit for 30 years.  She rudely told me “I guess you are the only customer out of thousands of Kohl’s customers not to receive a statement!”  I told her “yes, I guess I am” and asked her again, very nicely, if she could help us out.  She told me, in no uncertain terms, that I was a liar and that she would do nothing to help me, so I asked her to close our account.  She told me that Kohl’s had already closed our account, again without even notifying us!  

What kind of business reports negative information to the BIG 3 and closes a (very good) customer’s account without ever sending an email, statement, late notice, or calling to find out what was going on?  We shopped almost exclusively at Kohl’s, spending from $2,000 to $3,000 a year at their stores and had a perfect payment history, 53 straight months without a late or missing payment, a pretty good customer by most standards, and Kohl’s closes my account for a simple oversight?  I admitted and continue to assert that, in the end, I AM RESPONSIBLE and should have paid much closer attention to our obligations, but Kohl’s not only failed to help us succeed, THEY INSULTED MY CHARACTER!

As a retired Air Force lieutenant colonel, I take great pride in my core values and character, so if you really want to upset me, question my character!  Kohl’s has lost two very good customers, customers who spent in excess of $10,000 over a 5-year period, paying on time in all but the last two months.  So who is the loser here?  Kohl’s and their shareholders … NOT US … we still buy clothes, from J.C.Penney!

The moral of this story is that a small error, particularly one you caused yourself, can cost you BIG TIME when it comes to your credit score.  After Kohl’s reported our two late payments to the BIG 3, our FICO scores dropped from the low to mid-800s to 620!  Thankfully, we were not refinancing our mortgage or buying a car at the time because we would have been turned down or forced to pay an interest rate far above prime … all for a simple mistake and two late payments in 30 plus years.

Because credit scores play such a significant role in our everyday lives, making the difference between success and failure, owning a home or living on the street in some cases, it is critical that the BIG 3 get it right and when they do not, they need to respond quickly and with compassion … but they do not and probably will not UNLESS FORCED TO DO SO.


If my constituents decide to support me for political office, I will go after the BIG 3 and ensure that no more citizens are terrorized by ignorance, incompetence, or lack of concern for customers.  I will fight Institutional Terrorism, as my family experienced with Kohl’s (and other large companies/organizations) and like the poor woman in the 60 Minutes story experienced with the BIG 3.  Why? Because it is the right thing to do and because American citizens deserve to be treated with dignity and respect.   Citizens in general and customers in particular should be given the benefit of the doubt instead of automatically being assumed a liar or con artist.  Innocent until proven guilty?  Maybe in the courts, but not by large organizations like Kohl’s, Experian, Trans Union, Equifax, and others, perpetrating Institutional Terrorism on innocent Americans.


Americans are all struggling financially in this economy, even the richest of the rich have suffered losses ... not that we feel too sorry for the millionaires and billionaires who are "suffering" out there. Financial problems invade many if not most homes across the country, so it is important to communicate effectively with your partner about financial issues, ensuring that both parties are at least informed about the current situation, even if it happens to be bleak.  Relationship success is based on communication and teamwork, particularly when it comes to finances. Four eyes are much better than two are, especially when large organizations, like the BIG 3, think they can act with impunity, ruining lives without a thought about it.  So keep a regular eye on your credit reports by visiting either Experian, Trans Union, or Equifax once every four months at this FREE SITE: 

AnnualCreditReport.com


Key WordsTrans Union, Equifax, Experian, Kohl’s, credit reports, FICO, VantageScore, credit, score, bureau, consumers, creditors, lenders, risk, business, payment, bankruptcy, history, accounts, limits, debt, payments, balance, credit card, blemish

Copyright 2013 – C.T. Sorrentino and 3rd Wave Media Group, LLC – All Rights Reserved

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