Credit Card Insurance - Is it worth it?

Be careful when you apply for credit with a credit card company. Consider this.
A customer applied for credit at Best Buy on Black Friday (day after Thanksgiving) because there were some very interesting interest free purchases that interested her. The provider of the credit card was HSBC (Household-Beneficial Corporation) on behalf of Best Buy. A camera was purchased for 6 months free interest. The Best Buy clerk took the filled-out application from the applicant, Sue and completed it online for her. Sue, being familiar with financial consumer issues and consumer applications was very careful not to fall into the "extra" trap on the application that she filled out. When the clerk used that application to complete it on their register, he didn't tell Sue about the "extra" that was automatic when he submitted her application. That "extra" is particularly a product most credit card issuers are now calling "unemployment credit card insurance". For a monthly fee based on the amount of debt on the card, the card holder is supposedly covered for a period of time indicating that the insurance company will make your monthly payments due to a lay-off or perhaps a disability. This policy will NOT forgive your debt should you experience a lay-off or a disability but merely make the monthly minimum payment over a specified period of time.

What did Sue do or not do when she purchased her camera? She made sure that no box was checked that indicated a subscription to anything additional other than her direct purchase of her camera on her credit application at Best Buy. She made sure the Best Buy associate understood this and made him uncheck that option box. Extras such as "credit protection enrollment" or "credit insurance" are sometimes by default (automatic) check marked and billed to you. By the time you get your first statement and in some cases a few months down the road depending on how closely you check your finances, you find that you might have been unaware of the new monthly premium charges on your statements. It's credit insurance and you didn't look closely enough when you applied if this has happened to you. Calling and cancelling does not refund for the time you didn't catch this and were covered. Like most insurance policies your fees only stop the day you cancel.

You may ask, why is this something I should watch when I apply for any type of credit card? The answer is simple. This is an insurance product and in and of itself it does not do what you think it will do. The best way to illustrate this is to understand what this product is. When you apply for a credit card you are becoming a financial customer to a card issuing bank agreeing that you will pay certain fees (finance charges) for the extension of credit over a period of time. You are given a credit limit at the time they accept you as their customer and give you a credit limit they believe you can handle. You may charge up to this limit but if you don't pay it off in total within 25-30 days (read the contract and fine print) you will be charged an agreed upon interest rate (finance charge) as indicated by the issuing bank. That is the way credit card issuers make their money. Along with that interest they collect, the credit issuers also believe (especially in this economy) that they can sell you another product that will net them a commission for selling it to you. That product is an small insurance policy (agreement) that will cover your monthly payments with this credit card company if you should be unable to pay due to unemployment or diability. This policy is said to make your payments and maintain your account while you are unable. Some conservative consumers might find this a good move to protect themselves and their credit but it actually is a very bad decision in most cases. It doesn't work. Why?There are so many requirements and exceptions that you will virtually be throwing your money away on this so-called protection. The outcome, should you become unemployed or disabled and unable to pay your obligations will be the same with or without this protection. You will still have late payments on your credit record that can't be erased and the bill will still not be paid. So don't let yourself fall into this trap.

Take, for instance a client of mine who needed help with his credit. He was a recovering credit client trying to improve his credit after a period of employment. He brought two credit cards he was approved for and allowed them to talk him into "credit protection". He was being charged $4.95 each month on each account for this protection. While unemployed he called these two credit card companies to take advantage of his "credit protection" policy he knew he was paying for. He was sent paperwork to work directly with the company who held the policy. He had to provide documentation and after months of application and clarification he was denied due to a clause cleverly crafted that keep the insurance companies covered. Not only was he out the $4.95/month he had been paying for the last year and a half, 6 of those months spent working back and forth with the insurance company got him 30, 60 and 90 day late dings on his credit, a cancellation of his credit cards and the remaining obligation plus interest demanded to be paid in full under the terms of the credit card agreement.

Before you sign up you have to decide whether the fees would be better spent on a life and disability insurance policy that would encompass all aspects of your life.
Specific policies such as these are typically more expensive, restrictive and rarely pay out.

Christmas Is A Coming - What to Do?

First, whatever you do, think twice about buying a "store specific cash card" to give as gifts. Whether it be to Gap, American Eagle, A & E, etc etc there is a better option. It seems this Christmas season the great doubt about the economy, the tremendous layoffs and the shrinking consumer dollar has all fueled fear of many store closings. What to do for those who like to shop and for those who like to spend their own cash, you can get Visa Gift Cards at almost any bank. You won't pay a fee if you already bank where you buy them. You simply give the cash to the bank and they activate a VISA card with that amount on it to be used wherever VISA is accepted. They usually have gift envelopes as well. The person you give the VISA card to will have a full year to use the funds on the card. Always ask about any extra charges should your gift receivers forget their balances and have to call a special number to receive their balance of funds left to spend. For most though, there are no extra charges. As with everything in life, never assume, always ask.

Are "Free Credit Reports" REALLY Free?

You've seen the ads on TV and heard it on the radio. You've seen it countless times everywhere you travel on the internet.

Get your FREE credit report! NOW!

In fact, sometimes it sounds a little like you can always get a free credit report anytime you want it. Great! But are those ads entirely correct in the way that you maybe understand them? Yes you CAN get a free credit report and yes you should know your scores BUT you can only get a free credit report in one of four ways.

1. According to the FTC The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. During the year you must pay for any additional reports you request from these agencies. Remember, credit reporting agencies are "for-profit" companies, most publicly traded and trying to make income in various ways which include selling you your own report. You can order your free annual credit report online at annualcreditreport.com, by calling 1-877-322-8228, or by completing the Annual Credit Report Request Form and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The website is managed by Central Source LLC on behalf of Experian, Transunion and Equifax. Remember, you are entitled to one report per agency per year without any other products being offered to you.

2. Under federal law, you’re entitled to a free report if a company takes adverse action against you such as denying your application for credit, insurance, or employment and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company that reported the harmful information on you. You have the opportunity to ask them why your were turned down for credit by asking for a free copy of the report your creditor received when you applied for credit.

3. If you have filed an investigation of items on your existing credit report, the credit reporting agency has 30 days through federal law to investigate your challenges and respond with the results with a revised report. Again according to the FTC "when the investigation is complete, the consumer reporting company must give you the written results and a free copy of your report if the dispute results in a change. (This free report does not count as your annual free report under the FACT Act.) If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider."

4. Finally and most importantly you can obtain a free credit report as a condition for signing up for other private services with free trial offers. Be aware that the free trial offers and your report remain free IF you remember to cancel BEFORE the trial offer is over, otherwise you will start being charged for the membership service. You may also be limited to only one of the reporting agencies when you might want all three. Look closely at the offer you receive.
Not all offers are bad but some offers are better than others for your situation. These can be good information for you, the consumer. We are not advocating that any offer is without merit or a good investment of what is charged for the advertised service but we are wanting to make you aware that the old axiom is ever present, there are no entirely free rides or products and a free credit report is one of those in some cases. You are, in effect through purchasing an attached membership or product, paying for a credit report.

Credit Reports are a product to sell just like furniture, cars, office supplies, etc. It's one of the many revenue streams to keep the reporting agencies in business. YOU and information about you are someone's revenue stream. Most everything you do financially is being sold at one time or another. Your personal financial information is sold sometimes with your permission as in the case of financial applications you fill out and sometimes without your knowledge and permission, as in the case of marketing companies buying your information for the purposes of selling you products or services in which you may be interested. This is merely the American way of sales and marketing, also known as free enterprise. The key to coping in this free enterprise world is to be a discriminating and informed consumer making all your decisions good for YOU.

You need to be aware of the merit of the product you are buying. Don't buy the product just because you get a free credit report. Buy it because it is something you feel is worth the investment with an added value. For instance, if you sign up for a "trial" credit monitoring annual subscription such as the Triple AdvantageSM Credit Monitoring program from Experian® shown below, you are receiving a free Experian Credit report and score and a trial credit monitoring membership for 30 days, but at the end of 30 days, IF you do not cancel the membership you will begin to be charged $12.95/month for this Experian based service. What you do get is unlimited free access to your Experian ONLY credit reports and scores as long as you keep paying the $12.95/month. In addition you also will be sent alerts which tell you when someone has accessed your report, updated or changed.

For those who are looking for the best monthly monitoring program ,the best buy seems to be the Free 3 in 1 Credit Report and Score with a free trial to the Equifax Credit Watch™ Gold with 3-in-1 Monitoring and Score Power®. While only giving you one score based on your Equifax report it will monitor all three reports on a monthly basis.

Get Your FICO® credit score (one score based on Equifax), a FREE 3-in-1 Credit Report, plus unlimited access to your Equifax Credit Report™
30 day free trial of three credit bureau monitoring
Alerts you within 24 hours of key changes to your 3 nationwide credit reports
Interactive Score Simulator to show you how your actions may change your score.

For those who want one time credit scores based on each of the three credit agencies we suggest My FICO Deluxe. you can also save an additional 20% if you type in the letters "CPPSAVINGS" in the promo code when checking out. Click the "Shop" link and fins the MY FICO Deluxe package.

For those who want to start off with three scores and continue with monthly monitoring of activity of all three reports we suggest you get the initial reports through My Fico and then supplement the monthly reporting of all three reports through the Equifax report.Currently there is no ONE source for both these needs.

So the answer to whether credit reports are REALLY free is yes AND no. Once a year you can get a report at each reporting agency entirely free without any strings attached, you can get a free report if you are turned down for credit and you can get a free report after you have requested an investigation. After that, we haven't found an offer yet that didn't have another "paid" required purchase attached to it. The value of the purchase for you personally will determine whether the added investment is truly worth the cost.

Getting a Loan in this Economy

What a major mess. Regardless of how we got here in the first place as a country each of us wonders, what's in it for me and how does this affect me? That answer depends on a large part defining who "me" is and how you are sitting financially at this minute.

We hear about the Federal Government giving the big banks a stimulous infusion of cash so that they can lend more to each of us. That doesn't mean that tomorrow you will be able to head out to Wachovia, Bank of American, Wells Fargo, US Bank or Chase just to mention a few and expect a loan officer to welcome you with open arms just waiting to dole out his cash to you for any one of your needs. In fact, unless Congress becomes more vigilant in specifying that goverment money is specifically for lending, we are not entirely sure banks will do just that. Moreover, the credit requirements to get a loan in any of these major banks are tightening in an atmosphere where the average consumer's credit scores are suffering for any meriad of reasons such as unemployment, mortgage issues, bankruptcies and the list goes on.

So where do you go? Right now the best bet is the Credit Union. I have always extolled the virtues of the Credit Union because they carry better loaning interest rates, have cash rich reserves, are run by all of its customers who are its members, like banks are insured in deposit accounts to $250,000, don't have absorbitant compensation for its officers and tend to have that smaller home town releationship with its customers. There is a credit union available to just about everyone, either on-line or in a physical location close to you. Some have membership requirements such as living, working or going to school in a specific community, membership in specific organizations such as the armed forces or job specific industries, and referrals from existing members through a family relationship. However, more and more Credit Unions are open membership oriented where anyone can join.

Consider going to a Credit Union for your next loan.

Six Warning Signs You May Have a Financial Problem

1. You're working overtime or have a second job just to cover your monthly expenses.
2. You are borrowing more money just to make your monthly debt payments.
3. You are able to budget only the required MINIMUM monthly payments on your credit cards.
4. Over 20% of your total mnthly income goes to payments on credit cards, loans and debts other than your mortgage.
5. You constantly are at the limit for your credit cards.
6. You may be paying bills late or using the "grace period" after the due dates on your debts.

We need to plan and to save. That involves buying what you "need" and discerning "needs" from "wants". In the final analysis, it is up to each of us to manage our finances ourselves or collect more information on how to do that. No one is going to do that for us.

Just like the mortgage mess we are in, true there were less than scrupulous mortgage brokers and bank lenders who saw the uninformed coming but if we are in an ARM with a balloon or an interest only loan (both equally undesirable) then we have only ourselves to blame. If one can't afford a loan that is payable and constant over time then perhaps buying a house is not within our immediate means.

Its time each if us attempts to understand our own financial situation, seek more information to manage it and become responsible for all the times we've said yes when we might have restrained ourselves and known that when something is too good to be true, it normally is.

The Credit Crunch

Chances are you are trying to make the most of your credit score but "the faster you go the behinder you get". Not to mention that there are so many variables that even if it LOOKS like you have stellar credit your score does not reflect it. Think about this. What incentive does any credit bureau have by helping you improve your score? It seems there is always something keeping you back from breaking the 650-700 mark. In fact, your score goes down faster than you can ever rebuild it.

Case in point. One missed or late payment may drag your score down 15-25 points in an instant but those points may take 6-12 months to recoup. As you make your payments on time the next 12 months you may be allotted a few points every month until you've made up the instant 15-25 points you've lost. That is if all remains the same.

While there are so many factors in your credit score we can't measure because we don't have the formulas, there's no sure fire guarantee that losing that 15-25 points won't occur again for another reason, say, you borrow up to the limit of your credit card and boom you are back 15-25 points again.

Monitoring your own credit is a daunting task but necessary if you are looking for any type of credit in the future. Where a score of 650 and above seemed sure of approval, credit has been tightening so securely in the banking industry that it's not enough to have less than 700. Life is not completely over under 700 but it sure is more difficult. Much higher interest rates must be swallowed and more hoops in the application process must be navigated.

In the next few posts I'll discuss some ways to build your credit score. Keep in mind, its like keeping all the balls in the air. If you just drop one you have to kind of start over.

Have a Student without a Clue?

Ok we like to think we need to give our kids a boost on their own and continue to help them along the road to financial independence in their early adult years. That's all well and good but I'm a firm believer that our young adults need to learn financial responsibility as soon as possible. So many young people have credit cards given to them by their parents. Still others get cash handed to them whenever they ask. And many have not had to manage their need for credit to continue education beyond high school without the help of their parents. For those reasons its important that our young people need to realize that a credit report, one way or another, WILL be created and remain with them throughout their lifetime. Better they create their own report on good terms than having one created by a creditor they owe and are delinquent with. So many times, our young people and some older adults also, realize they have a credit report and its got the wrong information on it. Its much harder to correct a report than it is to have one created with positive information.

One example is Tom who got a cell phone in high school on his parents account. Upon graduation with a job he was able to transfer his cell phone into his own name under his own social security number and address. As with most young people, Tom's cell phone was his life blood. He fell behind in his payments to the cell phone company and they shut off his cell phone. Now what? Well Tom went to another cell phone company. As time went, the original cell phone company kept sending collection notices to Tom who ignored them. Finally Tom decided to go to college and he needed to get a student loan for the first semester's charges. He was denied for a loan. In the letter of rejection, the student loan company told Tom he had a credit report with information that was bad. Tom had no clue he had a credit report or how important it would be to his future. When he got his report, the only piece of information was from his first cell phone company saying he owed money to them and was a bad risk. This is exactly how NOT to start a credit report.

On the other hand, Tera got a job in the summer of her Junior year in high school. That job enabled her to get her own cell phone. She paid it on time but waited until she graduated from high school to apply for her first credit card which she would only use in emergencies. She charged various small things on her card over the summer and paid the bills in full each month.
When she applied for a student loan, she was instantly approved because she had a positive report showing that she was able to meet her credit obligations on time and with care. Tera would make sure that she never paid her obligation late. She never had to clean up a negative mess but moved forward with positive information from the beginning of her credit report.

Moral of the story is for young people to start their own credit report on a positive note with a positive reference. Don't allow someone else to start your credit report on a negative note. It takes over 7-10 years to clear it up.