Category: Credit

How to protect yourself after the Equifax data breach

equifax data breachFollowing the news of the hurricanes, news of the Equifax security breach has been all over the news. Financial data of 143 million Americans has been stolen, and in many cases it means that the victims are at-risk of becoming victims of identity theft for the remainder of their lives. That’s right, you, and if you have them, your children, could be at risk for the rest of your life. The hackers got names, Social Security numbers, birth dates, addresses, credit card numbers, and some driver’s license numbers.

The breach ticks me off – this never should have happened. Clearly Equifax has some major vulnerability in their system which they should have known about and protected. A credit bureau should be utilizing the highest level of security at every level. Your information with them should be as secure as a vault. On top of that, to add insult to injury, three of Equifax’s executives (including the CFO) sold nearly $2 million worth of stock after the breach, but before they told the public about it. That’s right – here’s a timeline for you:

  • Between mid-May and July, 2017 – breach happens
  • July 29, 2017 – the hack was discovered
  • Aug 1-2, 2017 – executives sell almost $2 million worth of stock
  • Sept 7, 2017 – the public is informed of the breach (thank you, Equifax, for waiting more than a month before letting us know)
  • Sept 8, 2017 – Equifax stock drops by double-digits

Equifax cliams that these executives had no knowledge of the hack when they sold their shares, but I don’t buy it. You’re telling me the CFO didn’t know about this? If he didn’t know, then who did? I’m sure that the timing of the sale will be part of any investigation.

The breach has happened, though, and you need to take specific steps to be sure you protect yourself. Let me warn you now, the few hours you spend on this are not going to be the most fun, but it is critical you take care of it now. It will be much, much worse if you wait and are a victim of identity theft.

I’ll try to make it as easy as possible for you with links and instructions.

  • First, don’t sign up for the protection that Equifax is offering. It only lasts a year, and, unless you opt-out of it, means you can’t be part of suing Equifax later on. I also don’t trust the company that just had the biggest data breach in history to be able to protect my data. Pass. Due to the severity of the breach, they should offer identity theft protection for life.
  • Sign up for Credit Karma (https://www.creditkarma.com/). You will get free credit scores and free monitoring of your credit reports. If anything unusual happens, they will contact you. It’s a free service and you should sign up for all adult members of your family.
  • Credit Karma logo

  • Place a credit freeze on all three of your credit bureau files. A credit freeze is THE SINGLE MOST IMPORTANT THING YOU CAN DO TO PROTECT YOURSELF. It literally locks your credit bureau files so NO ONE, including you, will be approved for new credit. A thief could have your information and they will apply rapidly for credit, all of which will be denied. They will eventually move on. Depending on the state you live in, there will be a $0-$15 fee to set this up, and you need to do this for each adult member of your family.Here are the links:
    https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp
    https://www.transunion.com/credit-freeze/place-credit-freeze
    https://www.experian.com/freeze/center.html

    Because millions of people are setting these up the systems are not all working. I was able to set up Equifax and Experian, but not TransUnion. I will keep trying throughout the next day or so, and if it doesn’t work I will take care of it via mail.If you need to apply for credit later, you can un-freeze your reports for a limited period of time, after which it will re-freeze.

  • Place a fraud alert on your accounts. This is simply an extra step that puts an alert on your credit report that you might be a victim of identity theft, and that creditors need to call you before any credit application can be approved. It only lasts 90 days, but you can put the alert on there repeatedly. I already have a note on my calendar 90 days from today to renew the alert. You only need to place the alert with one company then they will place the alert with the other two. I recommend you use TransUnions fraud alert system – I found it to be the easiest one: https://www.transunion.com/fraud-victim-resource/place-fraud-alert
  • fraud alert

  • Sign up for Zander Insurance identity theft insurance. For $145 a year it protects your entire family, including your children. They have a 100% recovery success rate and protect you against all types of ID theft, including tax fraud, medical ID theft, and, of course, financial fraud. If your identity is stolen as a result of the Equifax, or any other breach or identity theft, they will take over and fix everything. It is well worth every penny. You can sign up for that here: https://www.zanderins.com/idtheft2
  • logo_zander

  • Speaking of children, does it make sense to freeze their reports? The credit bureaus don’t want you to be able to do that, but some states have made it mandatory. All three bureaus are falling in line, but none will allow you to do it online. TransUnion will do a search, for free, to see if your children have credit reports. You can find that here: https://www.transunion.com/credit-disputes/child-identity-theft-inquiry-form.
  • Utah is taking things one step further – they have set up a Child Identity Protection Program through the Attorney General’s office that registers your children’s Social Security numbers as a number belonging to a minor, which will help protect their data. You can find that program here: https://cip.utah.gov/cip/SessionInit.action. If you live in a different state encourage your attorney general to create a similar program. Because I live in Utah and have this option, along with the Zander protection, I don’t feel that I need to freeze their credit, but if I lived outside of Utah I would absolutely take that step.
  • utah cip

  • Because credit card numbers were stolen, I recommend calling the toll-free number on the back of each credit card you have and requesting a new number. It’s a pro-active step you can take to prevent unauthorized charges in the future.

Again, I realize this isn’t fun – it’s a lot of work to set these things up, but I wouldn’t delay. Take a couple of hours today and get all of this done. Taking these steps is like building a brick wall between you and identity thieves.

Are Credit Cards Evil?

If you listen to certain radio talk-show hosts you might think that credit cards are evil. Credit cards are NOT evil. They are a tool, but just like with any other tool, they need to be used responsibly. If you can’t handle a tool you shouldn’t use it.

I think you should have one or even several credit cards. I have one main one that I use for cash back, a Delta card that I used to get a free flight, an Amazon card that gives me 5% cash back on Amazon and the Costco credit card that I use to get 4% cash back on gas.

But what about all the credit cards versus cash spending studies?

No doubt you’ve heard studies that prove that we spend more with credit than we do with cash. It is very possible that these are myths.

The most popular is the study that Dun & Bradstreet supposedly did where they found that people spend 12-18% more when using credit cards instead of cash. However, no one can seem to find that study. Everyone cites it, but no one cites the source.

There is also a study that McDonald’s reports that the average ticket price is $7 when people pay with credit and $4.50 when they pay with cash. Again, though, no one can find the original source (1).

Mark Wells, CFO of the payment processing company for McDonald’s reports that, “When an establishment accepts credit cards, the average ticket size goes up. We anticipate a 40 percent increase in the average ticket size for those franchises implementing credit card processing for the first time” (2). Again, though, Wells doesn’t provide any supporting data for this statistic.

While those studies might be made up, it is important that you practice responsible spending when using credit cards.

  • If you can’t pay the full balance off each month, don’t use credit cards.
  • If you think you will spend more with cards than cash, use cash.
  • Whenever you use your card you should immediately transfer money from a category in your budget and move it to the credit card category. For example, when I buy gas at Costco I immediately enter the transaction in my budgeting software. It records it as a credit card transaction and moves the amount I spent from the gas category to the Costco credit card category.

You’re better off not using credit cards if you can’t pay them off during the billing cycle. If you’re paying 12.9% interest and getting 1.5% cashback, you’re clearly not coming out ahead.

If, however, you can use them wisely, and you pay them off in full before any interest is charged, why not take advantage of the rewards?

  1. Most websites that talk about these two studies cite this article on NerdWallet as their source: https://www.nerdwallet.com/blog/credit-cards/credit-cards-make-you-spend-more/. Citing a website that didn’t do the original study, and doesn’t cite their source, is not a proper citation and proves nothing.
  2. http://www.businesswire.com/news/home/20031021005628/en/Credit-Cards-Process-Faster-Cash-McDonalds-Franchises

Identity Theft Monitoring and Insurance Plans

In my last post I discussed identity theft – what it is and how to prevent it.

What about identity theft monitoring or insurance? Does it make sense to purchase it?

An important note up front – no product or company can protect you from having your information stolen. The most common way your data is stolen is through data breaches. If you have a Yahoo account, for example, some of your data has already been stolen and, as we have learned recently, it has probably been sold several times over.

That doesn’t mean there aren’t steps you can take to secure your information better (see last post for ideas), but having identity theft “insurance” doesn’t prevent your data from being stolen any more than having auto insurance keeps you from being involved in an accident.

Let’s take a look at each of the various types of identity theft protection – monitoring, insurance and recovery.

MONITORING SERVICES

Monitoring services alert you when someone else might be using your information. Services generally include:

  • Tracking activity on your credit report
  • Sending you an alert when your personal information (bank account, Social Security number, driver’s license number, passport or medical ID) is being used
  • Access to credit reports and/or scores

No company or service can monitor all activity on all websites and merchants, but most of these companies do their best to monitor your personal information at as many places as possible.

IDENTITY THEFT INSURANCE

Identity theft insurance pays for out-of-pocket expenses incurred for recovery, which may include:

  • Postage, copying and notary fees
  • Less often, lost wages and legal fees

A few important notes about identity theft insurance:

  • This type of insurance almost never covers stolen money or other financial losses
  • There is generally a deductible
  • There is no payout if the loss is covered by any other types of insurance, such as homeowner’s or renter’s insurance
  • The majority of people who are involved in identity theft have almost no out-of-pocket losses. Most people pay little to nothing to copy or print things at home, postage is cheap and notary services are usually free at your bank. By the time your deductible kicks in you are unlikely to gain anything.

RECOVERY SERVICES

Recovery services help you deal with the effects of identity theft after it happens. Services generally include:

  • Assigning a case manager to help you work through the process
    • With some plans you actually grant authority for the case manager to act in your name, with others they guide you through the process
  • Placing a fraud alert on your credit file
  • Placing a security freeze on your credit file
  • Helping you prepare letters to send to collectors
  • Closing any tampered or fake accounts and opening new ones

Let’s take a look at two specific companies – LifeLock and Zander Insurance.

LifeLock[i]

Standard protection is $10 a month or $109 annually. Prices go up to $29.95 a month for premium services.

Basic services include:

  • Website surveillance
  • Cancel credit cards if stolen
  • Send alerts when your information is being used
  • Replace stolen funds up to $250,000 (only what the bank won’t replace)
  • Spend up to $1,000,000 on lawyers, accountants or others to restore your previous status

Zander Insurance

Zander is $75 year ($6.76 a month) for an individual or $145 a year ($13 a month) for family protection.

Zander operates their protection plan on the premise that financial identity theft is only one of more than 15 types of identity theft. There is also Social Security, criminal, employment, medical, tax refund and other types of fraud, many of which won’t be discovered by monitoring. In many cases you won’t know you have been a victim until you get a letter from the IRS or a doctor bill or even a warrant for your arrest.

Their focus is on identity theft recovery. Services provided include:

  • Up to $1,000,000 reimbursement for any stolen bank funds or unauthorized electronic funds transfer (only what the bank won’t replace)
  • Unlimited legal fees if needed
  • $0 deductible
  • Contact banks, bureaus, insurance companies and doctors for you

What I Recommend

No strategy is perfect, but this is my plan:

  • Use CreditKarma.com for monitoring (they send me an e-mail anytime something changes on my credit report)
  • Use YNAB (youneedabudget.com) to review my bank and credit card transactions daily
  • Shred any documents with financial or personal information
  • Use https://www.optoutprescreen.com/ to stop receiving most pre-screened credit card offers
  • Put a security freeze on my credit bureau reports
  • Check one credit report every 4 months on annualcreditreport.com
  • Copy the front and back of all cards in my wallet
  • Use a service such as LastPass.com to manage and use different, secure passwords on each website
  • If my wallet is stolen or I am a victim of a breach place a 90-day fraud alert on my credit bureau accounts
  • Sign up for Zander’s plan for recovery services (I believe it is worth the $145 a year for the services they will provide)

If you have taken all of these steps but choose not to sign up for recovery services, the FTC has created a new website that will help you recover. It generates pre-filled letters and walks you through exactly what you need to do to recover. You can find the website at http://www.identitytheft.gov.

 

 

Identity Theft Protection

[i] For both LifeLock and Zander be sure to review their services before signing up. Services may have changed since this article was written.

How We Almost Lost a Home

by Ryan H. Law

About 15 years ago my wife and I moved to Indiana, excited to start a new adventure far from where we both grew up. We rented a great apartment that fit our needs and expenses. It was close to the library and shopping, not too far from my work and it had a nice pool. It was perfect.

build a homeHowever, after a while, we got restless. We wanted to own a home. After all, that is the American Dream, right? So we started looking for homes. We found a brand new community that was being built, and they offered 100% financing. We picked out a home we liked and put down some earnest money, then they started building it. What an exciting time!

There were some red flags, though. The first one was that we couldn’t actually qualify for the loan on our own. We didn’t have enough income or credit history. The sellers used some “creative financing strategies” to get us qualified, which involved using a tax credit that would bring our income up. We also had to get a co-signer.

Red-FlagAnother red flag was that we had no money for a down payment or closing costs. Of course, to the seller, that was no problem. They could just roll it all in to the loan.

We really couldn’t afford the payment, either, but we were excited about the home and figured if we qualified, that things would work out. We drove out nearly every day to see the progress on our home.

At some point, though, reality set in. We really couldn’t afford this home. We panicked and contacted the seller, asking to be released from our contract. Of course, they said no. We were committed. We explained that we couldn’t really afford it, but that didn’t deter them. We had a real estate lawyer look over our contract. He said he couldn’t see a way out. We weren’t sure what to do.

We got lucky, though. They had committed to have it done by a certain date, but they got behind on construction. We were able to argue that they had broken the contract, and we were therefore no longer bound by it.  They let us get out of the contract and sent our earnest money back.

Perhaps they also realized that if they had forced us to follow through, we might have lost the home in a foreclosure or short sale, which would have looked bad in this brand new community.

We ended up moving shortly after that, and have been very cautious about home buying since that time. In fact, we waited more than 7 years before we actually purchased our first home.

Along the way we have learned some important lessons. Before you buy a home, I recommend you consider the following:

  1. Make sure your income is stable.
  2. Have 3-6 months’ worth of expenses in an emergency funds in the bank.
  3. Pay off ALL high interest debt (credit cards, vehicles, student loans, etc).
  4. Save up 20% for a down payment. If you put down at least 20%, you don’t have to pay Private Mortgage Insurance (PMI). PMI is generally 1% of the loan annually. On a $200,000 home that will be $2,000 per year, or $166 a month. That’s a lot to be adding to a mortgage payment each month.
  5. Make sure your TOTAL home cost (Principal, Interest, Taxes, Insurance, HOA fees) is no more than 25% of your take home pay. The lender will likely qualify you for much more than you can afford, but stick with your price range. Let your Real Estate agent know exactly the price range you are looking at, and stick with it. We were fortunate to find a great Realtor® in Missouri[1] who helped us find exactly what we were looking for in the price range we were comfortable with. Find someone you trust who will help you do what is best for you, not their commission.
  6. Remember that homes come with extra expenses. For example, if the water heater goes out in your home, you have to pay for a new one. Experts recommend that you save anywhere from 1-4% of your home’s value per year for maintenance and repairs. On a $200,000 home that is $2,000 – $8,000. While $8,000 is probably a bit high, the reality is that you will have to pay for repairs.
  7. I recommend that, on top of repair money, you have enough saved up to pay your insurance deductible. After all, if the roof gets destroyed in a hail storm, the insurance company will pay most of the repairs, but you have to pay your deductible first. That can be anywhere from $1,000 – $5,000.

Buying a home can be a great decision. In general, homes appreciate in value, meaning that you should be able to sell it in the future for more than you bought it for. Even that isn’t always true, though. Remember 2008? Some markets have yet to fully recover from that housing crash. Go slowly and buy what you can afford when you are ready.


 

[1] A shout-out to our friend and Realtor® Ted Webber: http://www.tedwebber.com/.

Financial Planning Tool: Credit Karma

Good Credit Score

Your credit score plays a larger factor in your life than you might realize. For example, your credit score is a factor in:

  • The rate you pay for loans
  • The deposit you pay for utilities and your cell phone
  • Your auto insurance
  • Getting the job you want
  • Getting into the apartment you want

In addition to all of these benefits of having a good score, monitoring your score regularly can also alert you to potential problems. If an account was opened in your name that you are not aware of, you could be a victim of identity theft.

There are several ways to monitor your score, but one method stands out due to its ease of use, how comprehensive it is, and the price (it’s free). That tool is Credit Karma.

Here is how Credit Karma describes their services:

Our goal is to help you understand your credit and get more out of it. Along with providing free credit scores, reports and monitoring, we offer insight into what it all means and show you product recommendations, like credit cards and loans, based on your credit profile.

Basically they pull a copy of your credit report and scores from TransUnion and Equifax, and you can check it as often as you want (the website recommends weekly). You can then go in to detail about the six factors that determine your score (credit card utilization, payment history, derogatory remarks, age of credit history, total accounts and credit inquiries), along with recommendations for how to improve in that area.

For example, if the website shows that you have a poor ranking in credit card utilization you can click on that area and it will show how utilization is calculated, how much of a balance you are carrying on each card and several tips for improving in that area.

You can also run simulations to see how different scenarios would affect your score. For example, you can simulate what will happen to your score if you close a particular card, or pay your balances down or make a late payment.

Questions about Credit Karma

Is it secure?

Yes, it is secure. You do have to enter your social security number for them to be able to pull your report, but they take your data security very seriously. You can read about their security practices here: https://www.creditkarma.com/about/security.

Doesn’t pulling my credit hurt my score?

Yes and no. A hard inquiry (such as applying for a loan) does affect your score (only to a small degree, though). However, a soft inquiry does not. A soft inquiry is when you pull your own report, or your employer does, or a company like Credit Karma does. Reviewing your report and score on Credit Karma will have no effect on your score.

Will Credit Karma sell my information?

No. Their privacy policy restricts them from selling your information.

How is it free?

Credit card and loan companies pay for targeted advertising on the site. You will see recommendations specific to your situation and score. For example, when I logged in today it showed my four recommendations for credit cards, based on my credit score. I find their advertising very unobtrusive.

Check out Credit Karma today at https://www.creditkarma.com/.

Credit Karma logo

If you are looking for a post about how your credit score is calculated you can find it here:

NOTE: This will be the first in a series of articles about financial planning tools. I will review the tools that I have researched and use for my personal finances. If you have other tools you use to manage your money, please share them in the comments or in an e-mail.

Know Your Score

by Ryan H. Law

If you want to achieve any goal you need to where you are now, what your desired result is and the steps you need to take to get you there. For example, if a person wants to lose weight they would need to weigh themselves, set a target goal for what they want to weigh, and set up steps to get there (exercise, diet, etc.).

Knowing your numbers is important – the only way we can improve is knowing where we are today! Many of us get annual health screenings – you check your cholesterol level, blood pressure, and other health measures. If you play a sport regularly you know your speed, handicap or other important stats.

There is another number that you may not have thought a lot about but it plays a major role in your life. Here are some benefits of having a high score:

  • You pay less for your car insurance
  • You may get that coveted job
  • You will be able to get in to the apartment you want to live in
  • You will pay less (sometimes substantially less) for loans (including your mortgage, auto loans, personal loans and others)

If you haven’t figured it out already – I’m talking about your credit score. In this post I would like to discuss your credit score and why it is important for you to understand this number and how to improve it.

If you have loans of any kind in your name (personal loans, student loans, car loans, credit cards, etc.) then you have a credit file with one or more of the major credit bureaus – TransUnion, Equifax and Experian.

This file contains information about how you have repaid your loans. For each loan they show if you paid on-time or if you paid late each month (30, 60 or 90+ days late). It also shows how much of each trade line you are using (i.e. you have a credit card with a $1000 limit and you are carrying a balance of $400). If you have had more serious money problems it shows that as well – bankruptcy, accounts that have gone to collections, and unpaid liens. Finally it shows how many times you have authorized financial institutions to access your credit report (also called inquiries).

Your credit score is based off information in your credit report. Your score ranges from 300-850 (higher is better). The following graph shows how your credit score is determined:

FICO score

Payment History (35%): Because this is the biggest piece of your credit score you should definitely pay attention to it. If you pay late, declare bankruptcy or have a bill go to collections you are going to see your score drop. Paying your bills on time (even if you have had problems in the past) will increase your score.

Amounts Owed (30%): This category is sometimes called your capacity – or how much open credit you have on your revolving credit lines (typically credit cards). If you have three credit cards with a total credit limit of $2500, and you carry a monthly balance of $1000, you are using 40% of your available credit. The lower that percentage, the better.

Length of Credit History (15%): This category takes into account both your oldest reporting trade line and the average age of all your accounts. Only time can improve this section, but closing old credit cards can harm your score in this section, so unless you are paying an annual fee on a card you aren’t using anymore, keep those old accounts open.

New Credit (10%): The biggest part of this is inquiries. If you are credit active (apply for a lot of credit) you are going to see a drop in your score.

Types of Credit Used (10%): Lenders like to see that you can handle a variety of loans – credit cards, student loans, car payments, a mortgage, etc.

This short video will review all five areas:

Tips for Increasing Your Credit Score

  • Pay your bills on time
  • If you need to be late, don’t hit the 30 day late mark
  • Decrease the balance carried on credit cards and/or increase your credit limit
  • Don’t close old credit accounts
  • If you are rate-shopping (which is a good idea), rate shop in a 45-day window. As long as you are applying for the same time of loan at each place (i.e. a car loan) it will only count as one inquiry
  • Check your credit report regularly (annualcreditreport.com) and fix any errors
  • Build credit in your own name

How to Find out Your Credit Score

Unfortunately you can’t get your credit score for free through the credit bureaus. However, if you plan to apply for a loan or are applying for jobs or an apartment, it is worthwhile to pay to find out your score ahead of time.

Your banker will often pull your report for you (it will count as an inquiry on your report) but you can also purchase it directly from www.MyFico.com.  There are other places (www.CreditKarma.com and www.CreditSesame.com, for example) that offer you free credit score monitoring services and are supported by ads.

In conclusion – you know your blood pressure, your golf handicap and other important numbers, but if you aren’t familiar with your credit score yet it’s time to get to know that number.