Beating Broke

Personal Finance from the Broke Perspective

Your Credit Score Is Your Responsibility, Here’s How to Take Care of It

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Your credit score is somewhat of a black box. It is difficult to know exactly how it is calculated, when it is calculated, who sees it, and what decisions they make as a result of it. No one consults you about your credit score. They don’t ask your opinion. They do nothing to seek clarifications. It is extremely one sided and you have no part in the process. That is about as unfair as it gets.

With so little input on the matter, it stands to reason that you have nothing to do with your credit score. But that isn’t true at all. You are ultimately the only person responsible for your credit score. You are the only one to fix it when it is broken. If it is telling a story about you that is misleading and defamatory, you are the one who has to do something about it. No one else is going to unilaterally intervene on your behalf if things are misreported. If you tried to sue a reporting agency for defamation, you would probably lose. Even so, it is still your responsibility. Here are a few things you can do to protect it:

Get the Right Loan at the Right Time for the Right Reasons

Which is worse? Is it getting a temporary loan to keep the lights on, or skipping out on all your creditors? To be clear, it is better to take out a loan to get you through the lean times. Look for one of those good credit union loans to help get you back on your feet. Bills don’t have to go into collection before they start weighing negatively against your credit. Late and slow payments will also leave a mark.

Everything about your financial situation gets worse as your credit score plummets. If your credit score drops too low, you will not be able to get a loan at all. Any loan you manage to get will be a bad one that will cause more problems than it solves. When your credit has suffered injury, you need to take proactive measures to stop the bleeding. One of those measures is to get the money to, quite literally, keep the lights on. You are going to borrow that money from someone, make sure it is a good source that helps you solve your financial woes rather than contribute to them.

Get Control of Your Spending

One of the sure-fire ways to go broke is to buy things you really can’t afford. This is a calculus that most people are pretty bad at making. How much house can you really afford? Can you make the monthly payment five years from now? What if you are laid off? Just how much house can you really afford?

In some ways, all purchases are emotional purchases. You can survive that with small items in moderation. But as the price tag goes up, the emotional temperature has to come down. It is a short step from wise purchase to foolishly setting your money on fire. You credit score suffers every time you misjudge the distance between the two.

Fight Back When They Get It Wrong

You are not totally helpless with regard to your credit score. You can fight back. Before you start fighting, be sure they actually have the wrong information. Keep an eye on your credit report. There are many services that will show you your report for free. You would be surprised at how many times the information is inaccurate. You can usually dispute those details for free right from your service of choice.

Come Clean with Your Creditors

Even if you really are drowning in debt, you can still throw yourself at the mercy of your creditors. They actually want to make a deal with you. The calculus is simple: They can get something if they make a deal or get nothing if they don’t. You can also make a payment arrangement that is surprisingly agreeable. Just address it head on and it will go better than if you ignore the problem. Ignored problems always get worse.

Your credit score is mostly a black box that cannot be deciphered. Once it starts going in the wrong direction, it is easy to feel helpless and defeated. Fight that feeling by getting a timely loan to stop the bleeding. Get control of your spending. Fight back when they get it wrong. And call your creditors before they start calling you.

Help Your College Student By Adding Them as an Authorized User to Your Credit Card

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I got my first credit card when I was in college.  At first I was responsible, but then I began to charge more than I could afford on my meager student salary.  I still remember the first purchase I made on my credit card that I knew I could not pay off immediately—a $37 tennis racket because my friend and I wanted to play tennis that summer.

Unfortunately, that lead to a habit of over charging because I had very little income coming in.  My experience is not unique.  Approximately 90% of undergraduate and graduate students who have credit cards carry a balance each month (Debt.org).

Boost a Student's Credit Score
Boost Student’s Credit Score

If you’d like to help your teen or college student develop a responsible credit pattern as well as a good credit score, the secret may not be to get him his own credit card, but instead to make him an authorized user on your account.

As an authorized user, she’ll be able to use your card.  You can either pay what she charges or have her pay what she charges.  In addition, you’ll be able to keep an eye on her purchases and make sure she is using her privileges responsibly.  This can get her into the habit of responsible credit card use so she can avoid debt in the future when she has her own card.

A Few Caveats

Before you pursue putting your child on your account as an authorized user, you’ll want to cover a few bases:

Have a Strong Credit Score

If you add your child as an authorized user to your account, she will “inherit” your credit score.  If you have a high credit score (generally 700 or above), you will be giving your child quite a gift.  With a high credit score, when she finishes college, she’ll more easily be able to rent an apartment and get her own credit card later in life.

If your credit score is low, you’ll be saddling her with an obstacle to overcome.  It’s better for her to have no credit score than to inherit your low credit score.

Choose a Card that Reports Authorized Users to the Credit Bureaus

Not all credit cards report authorized users to the credit bureaus, which means your child won’t get your credit score.  In general, the major credit cards do, while credit unions may not.  To be sure before you add your child, confirm with the credit card company that they will report authorized users.

Only Do This With Responsible Children

Since you are ultimately required to pay any expenses put on your credit card by your child, only put a child who is financially responsible on your card as an authorized user.  If your child has been irresponsible financially in the past, there is no use in tempting him with your line of credit.

See If There Is a Fee for Authorized Users

Finally, keep in mind that some credit cards charge a fee to add an authorized user.  You’ll want to verify this is not the case for your particular card before you add your child.

If you’d like to help your child develop financial maturity and secure a good credit score, consider adding him as an authorized user.

Have you added a child as an authorized user or were you added as one?  If so, what was your experience?  Would you recommend doing this?

 

The Argument for Freezing Credit: Is Your Social Security Number Easily Found on the Web?

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You’ve likely heard about the recent security breaches at popular stores like Target, Neiman Marcus and Michael’s.  While it’s bad enough that so many customers’ security was compromised, what’s even worse is the reports that these customers’ personal and credit information often ends up on a large database to be bought by criminals for as little as $40.

You might imagine some shady database that is hard to find unless you’re a criminal.

Unfortunately, the truth is that your personal information is surprisingly easy to find on the web.

Hiding in Plain Sight on the Internet

Freezing CreditMy husband and I are searching for a house.  Like any diligent buyer, I searched the Internet for the address of the house we’re interested in.  (I did this just to make sure it had not been the scene of a murder or crime or meth bust.  Every perspective home buyer does this, right?)

While I didn’t turn up anything amiss with the home, I was shocked when I happened upon a site that touted itself as a reverse social security number look up.  The address I was searching was there, complete with the owner’s social security number.  In fact, every social security number that was listed had either the number holder’s full name or address.

Scary stuff!

You Can’t Control What Happens to Your Personal Information

The simple truth is, no matter how cautious you are about not sharing your social security number or making sure to shred all documents containing your personal information, you can’t control all aspects of that information.

If you’re living a normal life and using a credit card or debit card, you might be the victim of a company’s security breach (even though you did everything right to protect your identity).  Your own information could very well end up on the web even if you’re diligent about not having a web footprint.

Consider Freezing Your Credit

My friend recently had her identity stolen.  She found out fairly quickly–within 3 days, but by then the thief had already charged over $20,000.  She’s spent hours trying to clear her name while also caring for her 5 young children during the day.  I can’t imagine the stress she’s under right now.

Truth is, that could happen to any of us, especially when our personal information is so freely available on the web.

If you want to protect your name, identity, and credit score, the best way to do so is to freeze your credit.

First, to clear up a misconception, if you freeze your credit, the credit lines you already have open will not be affected.  You can use your credit as normal with no inconvenience.

However, freezing credit does have a few inconveniences.  If you want to open a new line of credit or even apply for a new apartment, for instance, you’ll need to thaw your credit.  Depending on the state you live in, this can cost anywhere from $2 to $10.  Initially freezing your credit also costs about $10 per credit bureau.

My husband and I have had our credit frozen since 2009 when we had our eBay account hacked and $1,000 was purchased over night.  I plan to keep our credit frozen for the rest of our lifetimes, thawing only when needed (like we did a few weeks ago to pre-qualify for a home loan), especially now that I know social security numbers and other personal information are so easy to find on the web.

Have you frozen your credit?  If not, would you consider doing so?

(Editors note: Freezing your credit is the best way to stop a lot of this stuff from happening.  It’s what many of the services like LifeLock (not recommended) really do. Alternatively, there are ID theft protection services like Credit Karma that you can use that will monitor your credit and credit score without the freeze, or in coordination with a freeze.)