Author: Bev O'Shea

How to Score Points in the Credit Game

Posted on by Bev O'Shea

Credit scoring can feel like a frustrating game — falls can be sudden and swift, and climbing is a slow slog.

In reality, “all scoring models and lenders are aiming to do the same thing, which is to minimize risk,” says Jeff Richardson, senior vice president of marketing and communications for VantageScore, one of the two leading credit scoring companies. He says creditors see things like missing payments and high balances as indicators of risk.

The traditional advice of paying on time and keeping balances low will eventually result in decent credit. But you can speed it up.

Check your credit

To start, take a look at your credit reports by using AnnualCreditReport.com. Check to see that the information is accurate, especially for addresses you don’t recognize, since that can suggest fraudulent accounts or same-name mix-ups. Also make sure account numbers and activity are what you expect. You can dispute errors, and the change in score after a successful dispute could be significant.

Avoid costly missteps

Next, avoid doing things that work against building your credit. These include:

  • Paying late — the impact is large and lasting.
  • Closing credit cards — it can reduce your overall credit limit and the length of your credit history.
  • Applying for a lot of credit at once — credit checks can nick your score.
  • Letting card balances stay above 30% of the limit — credit utilization, or the portion of your limit you have in use, has a major impact on scores.

While paying down balances is a good idea, it’s not always realistic.

Be strategic

If you’re whittling down credit card balances, be strategic. The number of cards with balances influences credit scores, says credit expert John Ulzheimer. The “snowball method” of debt repayment focuses on wiping out your smallest balances first.

Relatedly, if you have only one credit card, Ulzheimer says adding a card or two could be useful. Assuming your spending stays about the same, the credit limits on the new cards will reduce your overall credit utilization. And if your card is lost or stolen, you still have access to credit.

You can move credit card debt to a personal loan or even a 401(k) loan, essentially making it disappear from credit utilization calculations. But if you have not addressed the circumstances that led to the high balances, a new loan could be a step deeper into debt.

Add positive information

Credit slip-ups can hurt, but adding positive information to your credit reports can help counteract the damage. There are at least five ways to get on the credit radar or to rehabilitate a damaged score.

Authorized user: If you have a friend or relative with a long credit history, a high score and relatively high credit limits, ask if they are willing to add you as an authorized user. Authorized user status allows additional good data to your credit history, such as on-time payments, credit age and low credit utilization. Authorized user status is most powerful for people who have no credit report or a thin file. Its impact can be felt as soon as it’s reported to the credit bureaus.

Store credit card: Retail credit cards typically have more flexibility in approving applications, says Max Axler, deputy chief credit officer of Synchrony, a consumer finance company that issues credit cards across a variety of industries. He says Synchrony uses VantageScore 4.0 as part of its decision making and may also consider other factors, such as banking activity, customer history and cell phone payments. Store credit cards tend to carry high interest rates, so try to pay in full every month or finish a 0% promotion plan well before it ends.

Secured credit cards: As their name implies, secured credit cards are secured by a deposit with the issuing bank. Your credit limit is typically equal to your deposit. As with any other credit card, it’s best to keep your balance well under 30% of the limit.

Credit-builder loans: These turn traditional loans upside down. Instead of getting a lump sum at the beginning and then paying it back, you make payments and get the lump sum at the end of the loan term.

Co-signed credit: Some lenders will approve you for a loan if someone with stronger credit co-signs the loan. It can help credit even if the primary borrower was never expected to pay (as with parents buying their child a car). However, both signers are fully on the hook for the loan, and the loan could limit the co-signer’s borrowing power. If the primary borrower doesn’t pay or pays late, the co-signer’s credit is on the line.

This article was written by NerdWallet and was originally published by The Associated Press. 

Bev O’Shea writes for NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article How to Score Points in the Credit Game originally appeared on NerdWallet.

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Scam Alert: How to Spot a Bogus Job

Posted on by Bev O'Shea

Lots of us grew accustomed to commute-free jobs during the pandemic and are hoping to find a way to continue to work from home. Scammers hoping to capitalize on that are taking elaborate measures — as far as fake interviews and background checks — to get people’s personal data and/or money.

Lilly Gallaher of Pleasant Valley, New York, applied for several jobs online last year. After a brief online interview process, she appeared to land a position with McKesson, a large distributor of pharmaceuticals and medical supplies. Gallaher was told she’d receive a check to cover her purchase of a computer workstation from its Venmo store. The procedure seemed odd, but she was reassured by the company’s size and reputation. Then the check bounced.

Another Venmo user noticed the transaction and let her know they’d been similarly scammed. When “McKesson” asked for her Social Security number, she refused to give it and reported the scam. Gallaher estimates she lost about $850.

According to the FBI, 16,879 people reported being victims of employment scams in 2020. Looking back, Gallaher says she ignored red flags because she felt assured by a known name and reputation. McKesson now has a “recruitment fraud alert” webpage warning about the scam.

How work-from-home interview scams hook victims

According to the FBI, the newest scams typically work like this:

  • Criminals create a domain name similar in appearance to a legitimate company. They may add a space or flip a digit in the URL — a change so small it’s likely to be overlooked.
  • Next they post job openings on job boards, directing applicants to the spoofed sites.
  • People applying either on job boards or the fake sites get an email requesting an interview, which is conducted remotely.
  • Applicants are told they got the job or are finalists.

After that, what happens can vary, but it tends to involve victims unwittingly revealing their Social Security and bank account numbers to criminals, losing money or unknowingly becoming involved in money laundering.

Know the signs

Job scams have long been a problem, but cloning websites and conducting fake online interviews is newer, says FBI Special Agent Jeanette Harper of El Paso, Texas.

Harper says college students and others with little experience with job interviews and offers are especially at risk.

To them, it may not seem odd to be asked for a driver’s license number early in the employment process or to be asked to pay for a background check. Other signs that could suggest a scam:

  • Interviews conducted by teleconference using email addresses rather than phone numbers.
  • Requirements that applicants purchase startup equipment from the company, sometimes specifying payment in the form of gift cards.
  • Requests for bank or credit card information, or other sensitive personal information.
  • Job postings that do not also appear on genuine company websites (type in the company URL yourself; don’t follow a link).
  • Requests that you pay for lists of job openings before they are published.
  • A request that you send money or packages overseas (it may be money laundering).

Even if you don’t hand over your Social Security number, your resume and list of references have value to an identity thief, says cybersecurity expert Adam Levin, host of the “What the Hack?” podcast and author of “Swiped: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves.”

Bits of information are “tiles in the mosaic of your life that an identity thief needs to effectively present themselves as you.” Even if you figure out it’s a scam and don’t lose a penny, you can’t retrieve the information, Levin says.

Another hallmark of a scam is a higher-than-expected salary for a relatively low-skill job. Recently, a Reddit poster warned about a Facebook ad for “ramp attendant jobs” paying $40 an hour. The ad assures would-be applicants that the messages being exchanged are encrypted and 100% safe. The employer is supposedly “Breez Airlines.” (Breeze Airways actually does exist.)

“Bad actors have scoped out these companies,” Levin says. “So many companies make available who works there and the kind of employees they are looking for.” That means the name of the person sending you an email may well match an actual person at the company. A cloned website can make it even harder to tell if a job is legit. Your best bet is to call the company, using contact information you looked up yourself and were not provided, and ask HR to confirm the opening you are applying for before you share any information.

Getting an offer quickly should also make you suspicious, Levin says. An on-the-spot offer might mean you are a target, not a potential employee.

Finally: “Trust your gut and ask questions,” Harper advises. Don’t ignore the feeling that something’s not right.

What to do if you think you were scammed

Whether you are applying for online jobs or not, your best protection against identity theft is a credit freeze. If someone has your Social Security number, a credit freeze can help keep them from opening new credit accounts using your personal data.

If you have given out credit card or bank account information, contact the issuer or financial institution as quickly as you can. Ask how you can limit the danger, whether that’s getting an updated credit card number or opening a different bank account.

You should also report an online job scam to the FBI’s Internet Crime Complaint Center at ic3.gov. The more information you are able to provide, in terms of names, emails, texts and the like, the better.

The article Scam Alert: How to Spot a Bogus Job originally appeared on NerdWallet.

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How to Fill In Your Financial Blind Spots

Posted on by Bev O'Shea

Knowing enough about money to cover your bills is a start, but it’s not enough financial literacy to provide long-term security. Most of us eventually wonder what else we should be doing — and whether what we don’t know could hurt us.

“When you have a blind spot, you don’t realize until something blindsides you,” says Mark DiGiovanni, a certified financial planner in Grayson, Georgia.

Identifying the gaps

Self-assessments, like this quiz adapted from the Financial Health Network, as well as personal finance books and websites can help shine a light on what you don’t know.

Accredited financial counselor Bret Anderson of Morrison, Colorado, has spent much of his career helping incarcerated veterans get back on their feet and has also advised high-wealth clients. He says five things frequently predict who will manage money successfully.

Two habits — saving and investing — are crucial, he says. Good money managers also:

  • Know how credit works.
  • Have a plan to build wealth and pay off debt.
  • Know what passive income is and how to create it.

If anything on that list is unfamiliar to you, that suggests a starting point for research. “There are plenty of resources just a Google search away,” says Heather Winston, assistant director of advice and financial planning at Principal Financial Group.

Nail the basics, then keep learning

Before you add complexities, be sure you are:

  • Saving. It’s an essential habit.
  • Budgeting. If you don’t have a formal budget, check online for help creating one.
  • Planning for emergencies. You can’t prevent unexpected expenses. But an emergency fund, excellent credit, insurance — or all of those — can keep them from devastating your finances.

Next, protect your money and access to credit. Here’s how:

Check your credit scores and reports, Anderson suggests. Lenders and potential landlords or employers may see those, so it’s smart to know what’s there. In addition, a big swing in your score or an account on your credit reports you don’t recognize could suggest identity theft.

You can check your credit reports for free by using AnnualCreditReport.com. Many personal finance sites and credit card issuers provide access to free credit scores.

Keep your identifying information safe and practice good cyber hygiene. That means avoiding public Wi-Fi, being careful about what you post on social media, not opening email attachments or links you weren’t expecting, and using strong passwords. Consider freezing your credit — and that of your child — to reduce the likelihood that you’ll be victims of identity theft. Setting alerts on your credit card accounts can also let you know when they’re used.

Learn to recognize scams. Scammers try to create a sense of urgency so that you pay first and think later. They know how to make phone, email or text communications seem real. Pause before acting, independently confirm the contact information and initiate communication yourself. And remember that no one legit asks for payment by gift card or prepaid debit card.

Set goals for yourself and remember that those are individual. “One of the most critical lessons to learn is to stay focused on your needs, not on what someone who doesn’t know you, your goals or your life is saying,” Winston says. Consider working with a fee-only, fiduciary financial planner or a financial coach for help with identifying your own goals and path.

Avoid overconfidence. If you’ve had some success investing in a bull market, for example, you might not be an investing genius. Feedback from a professional may help you decide whether you were smart or just lucky, DiGiovanni says.

Help your children become financially literate. And put guidance in language they understand, Anderson says. He recalls his mother putting money aside in a “rainy-day fund,” which made no sense to him because where they lived, it seldom rained. Help children see how money is relevant, he suggests. Let them see how you make financial decisions, then let them make a few of their own.

Learn as needed

You don’t need to become a walking financial encyclopedia. There are things you may never need to know or that you can learn when they become relevant. Examples include:

  • Financial consequences of big life changes, such as marriage, divorce, parenthood or retirement.
  • Refinancing a mortgage.
  • Rent vs. buy decisions.
  • Saving for college.
  • Mandatory retirement withdrawals.
  • Income tax implications of side jobs.

Don’t wait

While no one wants to make a mistake, the costliest one may be waiting until you have “extra money” or feel more confident about financial decisions. The sooner you start saving and investing, the more compound interest can grow your wealth.

“People don’t understand the time value of money,” DiGiovanni says. “Every day you postpone is another day you will have to work.”

Bev O’Shea writes for NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article How to Fill In Your Financial Blind Spots originally appeared on NerdWallet.

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Jump-Start Your Credit: Find and Fix Errors on Your Credit Report

Posted on by Bev O'Shea

Checking your credit reports can help you ensure that the information being used to calculate your credit scores is accurate and up to date. That’s valuable when you’re working on building credit. It’s also good to see what potential creditors see when they check your credit.

Once you’ve used AnnualCreditReport.com to get your reports from the three major credit bureaus, here’s what to look for and what to do if you find errors.

Skim through your reports

Here’s what you need to check when reading your credit reports:

Personal information

This includes your name, Social Security number, birthdate, past addresses and phone numbers, employers and other information that is used to verify your identity.

An employer you don’t recognize, a wrong birthdate or a place you’ve never lived won’t affect your score. But it could suggest your credit information has been mixed together with someone else’s or that someone else is using your personal data.

Why it’s important: Catching errors here can keep you from being penalized for someone else’s mistakes, if someone else’s credit information is showing up on your report. Errors can also alert you to identity theft, letting you quickly work to stop the damage.

Credit history

Unless you are brand-new to credit, this will be the lengthiest part of your credit reports. It will include a list of accounts, open and closed, along with credit limits and payment records.

Scan your list of accounts for any that you don’t recognize. Keep in mind that some accounts might be listed under a creditor name you don’t expect, for example a department store credit card that is reported by the bank that issued it.

There could be negative information, such as a payment that was 30 or more days overdue. But negative marks on your credit reports must come off after a set time, usually seven years, so check that outdated information isn’t included.

Common errors include:

  • Accounts listed more than once.
  • Accounts belonging to a former spouse.
  • Being reported as an account owner when you are an authorized user.
  • Being reported as late when you paid on time.
  • An incorrect credit limit or loan amount.
  • Accounts belonging to a person with the same or similar name.
  • A debt listed more than once (this is particularly likely if the debt went to collections).

Why it’s important: Inaccuracies could make it seem that you have more debt or lower credit limits than you actually do, or that you paid late when you did not. That’s a problem because on-time payments and how much of your available credit you’re using make up roughly two-thirds of your credit score.

Credit inquiries

A credit inquiry is recorded when anyone — including you — checks your credit. When the check happens because you applied for credit, it’s called a hard inquiry. Each one can shave a few points off your score, but the damage tends to last less than a year, and hard inquiries fall off your reports after two years.

A soft inquiry happens when your credit report is accessed but you have not applied for credit. A common example is when you check your own credit. You may also find inquiries from landlords, utilities, marketing companies, debt collectors, current creditors and insurance agencies.

If you don’t recognize the hard inquiries, you can dispute them.

Why it’s important: Multiple recent hard inquiries could suggest to potential creditors that you’re in financial distress. They also may indicate that someone is using your personal data to apply for credit in your name, so act quickly. Consider freezing your credit to make it harder for fraudulent accounts to be opened.

Public records and collections accounts

Public records on your credit reports are negative. They may include bankruptcies, foreclosures, property liens and judgments. These should fall off your credit report after seven years in most cases, or 10 years for Chapter 7 bankruptcy.

If one of your accounts has been sold to a debt collection agency, it should not become a “new” debt on your credit report.

Why it’s important: Negative marks will lower your credit score, so you want to remove inaccurate ones. You can’t remove negative data that is accurate; only time will erase it. But its impact will fade as new, positive information is added to your reports.

Dispute errors to get them removed

Every credit report contains instructions for disputing information that you believe is incorrect.

Credit bureaus operate independently of one another, so if you find an error on one credit report, you will need to check the other two. Report an error to every credit bureau that has it. Once you alert a credit bureau about incorrect information, it has 30 days to investigate. It will notify you of the outcome.

Another way to get inaccurate information removed is to go directly to the source of the data. For example, you could call your credit card issuer if it’s reporting a late payment when you paid on time.

After mistakes are corrected, it’s smart to continue checking periodically — sometimes mistakes reappear. If that happens, dispute the item again. You can report recurring problems to the Consumer Financial Protection Bureau.

Bev O’Shea writes for NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article Jump-Start Your Credit: Find and Fix Errors on Your Credit Report originally appeared on NerdWallet.

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Take These Cards Out of Your Wallet Right Now

Posted on by Bev O'Shea

Decluttering your wallet can give you a quick sense of accomplishment in the new year. You can check a task off your list and feel more organized and safer. A lost or stolen wallet holding too much personal and financial information puts you at risk of identity theft and fraud.

Experts don’t always agree on what you absolutely must keep in your wallet, but there’s wide agreement on cards that do not belong there. It might be simplest to start the task by taking everything out and returning only those things you actually need.

What to take out

Focus on minimizing the danger that a stolen or lost wallet would put you at risk of identity theft. Here’s what definitely should come out:

  • Social Security card. This represents a high risk because the number can be used by scammers to file a tax return to hijack your refund, to collect benefits and to access or open new accounts.
  • Debit card attached to a bank account (plus checks and deposit slips). Unlike with credit cards, where the cardholder is not out any money while fraud is being investigated, debit cards take the money from your account immediately.
  • Gift or prepaid debit cards you do not plan to use today. A lost gift card may be impossible to cancel and replace.
  • ATM and gas station receipts. These may contain up to five digits of your credit card number and the expiration date. For identity thieves, those can be puzzle pieces.
  • Any paper with PINs or passwords. It’s especially risky to carry them with the associated cards.

And yes, people discover they have these things in their wallets, even if they know better. Identity theft consultant and author Carrie Kerskie says Social Security cards can end up in wallets because they were put in for a specific purpose — say, when starting a new job — and just never removed. Receipts, passwords and other items may have gone in your wallet “temporarily.”

In addition, the AARP recommends you take out:

  • Medicare and health insurance cards. Scammers may be able to use the info to get benefits using your data.
  • Employee badge when not needed for workplace access.
  • Birth certificate.

What to keep in your wallet

There are some things that belong in your wallet or car all the time. Those are the first things that you return to it when doing your clean-out:

  • Driver’s license or some other form of government-issued identification.
  • Student ID, if applicable.
  • Proof of auto insurance (could also be kept in your car’s glove box).
  • At least two general-use credit cards if you have them.
  • A medical alert card, if applicable.

What to carry only occasionally

Some cards you need only sometimes, such as:

  • Medical debit card for a flexible spending account.
  • Credit cards for specific retailers.
  • Health, dental or prescription insurance cards.
  • Membership cards.
  • Gift cards.

There’s no time like a new year to establish new habits. Eva Velasquez, president and CEO of the nonprofit Identity Theft Resource Center, recommends relying on tools you already use — phone alarms, calendars, journals or refrigerator notes — to remind you to add cards when needed and remove them afterward. For example, add a note saying “take insurance and prescription cards” to the reminder about your doctor appointment. Set a reminder to remove them, too.

While there’s no limit to how many credit cards you can have, there is a limit to how many you should carry, Kerskie says. If you carry 25, and one is stolen, how soon will you notice? Carrying just a few is safer and lets you use an “autopay and everyday” approach to reducing fraud risk.

Avoid the dangerous workaround of taking photographs of all your cards, front and back, and storing them on your phone as photos, Kerskie says. If you want to store photos of your cards on your phone, put them in an encrypted, password-protected file.

Should your phone be your wallet?

Even identity theft experts differ on exactly which cards they carry, and in what format — physical or virtual wallet in a smartphone.

“I prefer tangible over digital any day,” Kerskie says. “You have a better chance of getting your phone stolen than your wallet. You could also leave your phone behind, or drop it or it malfunctions and stops working. Now, what do you do?”

Velasquez tends to favor digital, but that comes with a lot of habits to increase cybersecurity, including treating your phone as the small computer that it is:

  • Having a phone passcode of at least six digits.
  • Updating and backing up the device regularly.
  • Using antivirus software.
  • Signing out of every app after use.
  • Not using “remember me” when signing into apps and websites.
  • Using unique, complex passwords.
  • Having a remote “wiping” program in case it is lost or stolen.

But it’s not for everyone. “I have a high degree of confidence not just in the technology itself, but my ability to manage it properly,” Velasquez says. “I choose security over convenience.”

If that sounds just a little too inconvenient, you can simply “be a good steward” of your cards, taking them out of your wallet when they are not needed, she says.

Bev O’Shea writes for NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article Take These Cards Out of Your Wallet Right Now originally appeared on NerdWallet.

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13 Ways to Leave Scammers Empty-Handed This Holiday Season

Posted on by Bev O'Shea

We’re primed to get suckered this holiday season. Tight budgets, wishful thinking that we can get a screaming deal if we hurry, and plain old impulsive spending are a dangerous mix. Scammers know this.

One example: Clicking an online ad, maybe for an ornament featuring a Santa with twinkling eyes and a smile hidden under a cloth mask, may put you at risk for identity theft — or maybe just for a bad deal.

Kathy Stokes, AARP’s director of fraud prevention programs, says she once bought “the funniest T-shirt from a Facebook ad. It never came.” That was before Stokes began working in fraud prevention.

So how do we prepare for battle? Three ways: Protect our mobile devices, recognize and avoid risks, and guard against identity theft.

Make your mobile device safer

Your device is only as safe as you make it. Avoiding free Wi-Fi at coffee shops and other public places is a good first step, but also:

1. Secure devices with a difficult-to-guess password and/or biometrics. If you can use a fingerprint or facial recognition to sign in, that’s best. If two-factor authentication is available, use it.

2. Heed notifications to update your software. Many times, updates improve security. This is true whether it’s your operating system, virus protection or an app.

3. Use a virtual private network. A VPN gives you an encrypted “tunnel” when you use public Wi-Fi. Protecting a device isn’t expensive — you can protect several devices for less than $10 a month. There are also free VPNs offered online. But Adam Levin, the author of “Swiped: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves,” recommends sticking with the ones that charge, because of the risk that free ones will collect your data. Failing that, he recommends using your phone as a hot spot or using your provider’s closed cellular network.

Be careful when shopping online

Stokes and Levin agree that using a credit card is essential when shopping online. A debit card withdraws your money immediately. But you can dispute a credit card charge and not have to pay while it’s being investigated.

Slow down and be careful. Stokes says duplicated or spoofed websites can take advantage “when you get a text or you get an email and you get excited because it’s this thing you really wanted to buy and you can get it really cheap — and you just click and go and you don’t look for any red flags.”

Other safeguards:

4. Use a virtual wallet if the site allows it. Card numbers are encrypted, meaning your actual card number is not shared when you make a purchase.

5. Go to the source. Don’t click on ads on social media or even in texts or emails. Some are scams. If the retailer is new to you, Stokes recommends checking carefully for contact information and for return and refund policies.

6. Be cautious. When going to a site, type the URL carefully, then double-check, advises Levin. “Typo-squatters” have sites that are almost indistinguishable from the real ones.

7. Don’t open attachments. The exception is if you are expecting an attachment from someone you know. Spoofing is sophisticated; the sender may not be who you think it is.

8. Use retailer apps. Your payment information is better protected that way. If you regularly buy from a particular retailer — or will this holiday season — go ahead and download the app, Stokes advises.

9. Use strong passwords. Using a password manager app can set complex passwords and remember them for you. If a retailer website offers to store your payment information, decline. The less information you rely on others to protect, the better.

Guard against identity theft

Holidays are big for identity thieves because criminals “are geniuses when it comes to taking a situation and radically turning it to their benefit,” says Levin, who is also the founder of CyberScout, a company that offers identity protection and fraud resolution services.

Add to that the loneliness of the pandemic. “People are desperate to get a phone call from anyone,” Levin says, and may be more willing to talk.

Protect yourself from identity theft with these tips:

10. Don’t give your card number if you get a call or email to “confirm a purchase.” Real credit card issuers do not need it. If you think a retailer might be trying to contact you, initiate the call or send the email using contact information that you look up yourself.

11. Don’t respond to an email “double-checking your address” for a package delivery. That may be a scam, Levin says.

12. Sign up for text alerts when your credit card is used. Levin advises setting the purchase amount very low; identity thieves may test a stolen card number with small purchases.

13. Check to see if you have free or discounted ID theft insurance available. You can’t entirely eliminate your risk, and it’s easier to recover from identity theft with help. An organization you belong to, your employer or your insurer may offer free or deeply discounted protection. Failing that, you can consider buying some.

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article 13 Ways to Leave Scammers Empty-Handed This Holiday Season originally appeared on NerdWallet.

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How to Protect Your Credit When Shopping for the Holidays

Posted on by Bev O'Shea

The rules for protecting credit during the holidays usually don’t vary much from year to year, but in 2020, COVID-19 has changed where and how we shop. And money’s tight for a lot of people. About 40% of Americans said they plan to spend less on holidays this year due to the pandemic, according to a recent NerdWallet survey.

On the other hand, some may be tempted to overspend if mortgage forbearance, loan deferrals or credit card concessions have helped them build savings. But if holiday purchases leave shoppers unable to cover even minimum payments when those other bills resume, their credit will be badly damaged, says Jeff Richardson, senior vice president for marketing and communications at VantageScore, a credit scoring company.

Whether you’re being more generous or watching every penny, chances are you’re shopping online. Tom Quinn, vice president of FICO Scores, a credit scoring and data company, warns that consumers may be at higher risk of identity theft this year. It’s all too easy to go for deals we hope are real or fall victim to increasingly sophisticated phishing messages.

Here’s how experts recommend guarding your credit.

Check your credit score

Many credit cards and personal finance websites offer free credit scores, Quinn says. Choose one that offers a clear explainer of why your score is what it is. Understanding the factors that hold you back — for example, too many cards with high balances — can help you make spending decisions.

How to do it: Pick a source you like and stick with it. Free scores vary in the credit bureau data and scoring model used.

And look ahead, Richardson suggests. If you’re planning to shop for a car or home loan next year, start thinking about your credit health now, he says.

Track how much of your credit limits you use

One of the things that matter most to your score is how much of your credit limits you’re using. That’s called “credit utilization,” and it’s best to stay under 30%. If you can, aiming even lower is better.

How to do it: Many credit cards offer account alerts to help you keep track. Sign up for those, and use your free credit score source to track credit utilization as well.

When you make a list, set a spending limit

According to NerdWallet’s holiday shopping survey, about a third of those who used credit cards to buy gifts were still paying for the 2019 holidays when surveyed in September 2020. Adding to existing balances means higher credit utilization, which can hurt credit scores. Richardson cautions against taking out a loan to “make room” on cards for holiday spending.

How to do it: Find gift ideas that will bring joy without costing much — purchases made using credit card points, framed original art from your child, sharing skills you have. The internet is full of good suggestions. And if money’s tight all around; a suggestion to skip exchanging gifts this year could be welcome.

Think twice about applying for retailer-specific credit

Retailers may offer a discount if you open a credit card with them at checkout. But applying for new credit can ding your score in a few ways. You could lose a few points when the application triggers a credit check called a “hard inquiry.” If you’re approved, a new account will lower the average age of your credit. And cards tied to a specific retailer can hurt your credit utilization because they often have low limits. So make sure it’s worth it.

Quinn says a credit card tied to a specific retailer can be a good idea if it offers a meaningful discount on a big purchase. “That can be enticing,” he says. Beverly Anderson, president of Global Consumer Solutions at the credit bureau Equifax, says a card at a retailer where you frequently shop may also get you early access to sales.

How to do it: Plan ahead; don’t decide at checkout. That gives you time to investigate your odds of being approved. You don’t want to potentially lose credit score points for applying only to be denied. If you’re approved, make a plan to avoid carrying a balance because paying interest will cut into your savings.

Be skeptical, and freeze your credit

Being suspicious can keep you from becoming a victim of identity theft or fraud. Consumers may get phone calls, texts or emails requesting personal data from scammers pretending to be card issuers or retailers. Quinn says when he got a recent email with a subject line “re: your recent Amazon purchase,” his first instinct was to try to recall what he had bought. Then, he looked closer and noticed the sender’s email address wasn’t the official address for the company.

How to do it: Be leery of any communication that asks for sensitive data, such as a card or account number. Don’t click on attachments. If you think a message may be legit, independently verify contact information and initiate a call or email yourself.

Check statements carefully for purchases you didn’t make and report them to your card issuer promptly.

Freeze your credit. It’s free and you can do it by phone or online at the three major credit bureaus: Equifax, Experian and TransUnion. You can still use your credit cards, but criminals should be unable to use your personal data to open an account. Unfreezing is easy when you want to apply for credit.

Don’t let up after the holidays

When holiday bills start to arrive, pay at least the minimum on time. A payment that’s 30 days or more past due can devastate your credit score and linger on your credit report for seven years.

Consider setting up autopay to cover at least the minimum payment, Anderson says. That ensures you don’t overlook a bill, and you can always make an additional payment to wipe out more than the minimum.

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article How to Protect Your Credit When Shopping for the Holidays originally appeared on NerdWallet.

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5 Credit Mistakes That Can Haunt You

Posted on by Bev O'Shea

Some credit mistakes are a lot worse than others. Little ones, like paying a credit card bill a day late, may cost you a penalty fee, but that’s a relatively minor irritation — it’s not going to stand between you and a mortgage. Other seemingly small slip-ups can lead to full-fledged disasters.

What makes a credit mistake haunt you?

Some things can be reversed quickly. Running up credit card bills can tank your credit score, for instance, because the portion of your credit limits you’re using is weighed heavily in credit scoring. But when you pay down the debt, the damage disappears as lower balances get reported to the three major credit bureaus, Equifax, Experian and TransUnion.

Mistakes that have long-running ripple effects hurt the most, says credit expert John Ulzheimer. A late payment, for example, can get sent to a collection agency, then perhaps grow into a repossession or bankruptcy. Those batter your credit and stay on your credit record for years. Likewise, co-signing a loan for someone who is later unable to pay can hamstring your finances for a long time.

Common mistakes that can hurt your finances

Missing a payment: A payment that’s a little late might cost you a penalty fee, but your credit score won’t suffer because creditors can’t report your account as delinquent until it’s 30 days past due. If you have a high score, going 30 days late can knock as much as 100 points off your score — and it stays on your credit report for seven years. The damage gets worse if you let the account slide to 60 days past due, 90 days past due or more. Your score can recover, but it will take time. Catching up on that account, and keeping all other payments up to date and balances low, can help.

Raiding retirement funds to pay debt: Most people don’t want to file for bankruptcy. Almost half of Americans say they would not file no matter how much credit card debt they had, according to a recent study commissioned by NerdWallet. Bankruptcy attorney Roderick H. Martin of Marietta, Georgia, says some of his clients have tapped — or even emptied — retirement savings in a desperate attempt to stay afloat. That often just delays the inevitable — “then they turn around and file for bankruptcy,” he says. Retirement savings are typically protected in bankruptcy, but money already withdrawn cannot be recovered.

Co-signing a loan: Aaron Smith, a financial planner in Glen Allen, Virginia, says co-signing so a friend or relative can get credit is often a mistake. “My personal and professional opinion is if they can’t get it on their own, there must be a problem,” he says. If the primary borrower doesn’t pay as agreed, it can leave both your relationship and your credit in tatters. Even if the borrower repays as agreed, remaining on the loan can limit your borrowing capacity. Before you co-sign, ask if you can be taken off the loan at some point.

Sometimes doing nothing is the mistake

We may think we’re too busy to trouble ourselves with fine print or financial chores. Either can come back to bite us.

Not checking your credit: “I think checking your credit is like going to your dentist for a cleaning,” says Elaine King, a certified financial planner and founder of the Family and Money Matters Institute. “You need to make a habit of doing it. If you wait too long, there can be some rotten stuff there.”

A credit report isn’t exciting reading; it’s a summary of your past handling of credit. But “boring” is what you want — anything you didn’t expect to see is worth investigating in case it’s an error or a sign of fraud. Through April 2021, you can get a free credit report weekly from the three major credit bureaus by using AnnualCreditReport.com. Plan to check at least annually, and more often is better.

Ignoring the details: Not knowing your credit cards’ interest rates or when a 0% interest rate ends can cost you.

Knowing interest rates can tell you which card to use when you’re paying for a new transmission and need to carry that balance for a while, for instance. Knowing when a teaser rate ends can help you ensure you’ve paid off the balance by then. It’s important to read the fine print. Some cards — primarily store cards — charge deferred interest if there is still a balance at the end of the introductory period. That means the “savings” from the teaser rate are added to your balance, wiping out any benefit.

This article was written by NerdWallet and was originally published by The Associated Press.

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article 5 Credit Mistakes That Can Haunt You originally appeared on NerdWallet.

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Why Good Credit Matters — Even if You Don’t Plan to Borrow

Posted on by Bev O'Shea

Even if you don’t plan to borrow a dime, a good credit record is valuable. Think of it like a household fire extinguisher: It’s smart to have a good one even though you have no plans to use it.

And your credit can influence your life in ways beyond borrowing. Here’s why good credit is so valuable.

Flexibility in a crisis, more options in general

If the coronavirus pandemic has taught us nothing else, it’s that we cannot count on things going as planned. Flexibility is key.

A good credit score can help you borrow at a reasonable cost. That in turn could help you buy groceries and other necessities even as your emergency fund is dwindling.

If you use investments to help pay living expenses, as many retirees do, access to credit may help tide you over when the markets are down.

Good credit can also be useful in leasing a place to live, because landlords sometimes check credit to evaluate tenant applications. Similarly, some employers check credit reports during the hiring process (although some jurisdictions restrict using credit reports in this way.)

Savings you can put (or keep) in the bank

Good credit also can lower some bills. Nationally, a good driver with poor credit would pay an average of $2,506 annually for car insurance. With good credit, the same coverage would cost $1,427. Only California, Hawaii and Massachusetts prohibit credit data from being used in setting car insurance rates.

Credit-based insurance scores are also used to set homeowners insurance premiums in most states, except for California, Maryland and Massachusetts. Poor credit can increase the cost “10% to 15% typically,” says Robert Hunter, director of insurance at the Consumer Federation of America. That works out to between $50 and $100 a year for most people, he notes. Renters insurance may also be higher for those with poor credit.

Utility companies often use information from credit reports to set security deposits. Georgia Power, for example, uses credit scores to decide whether customers must pay a deposit, which can be up to two times the average monthly bill for the residence.

If you do borrow money, a higher credit score can earn you a lower interest rate, and thus, lower payments. And a cash-back credit card (typically available only to those with good credit) can give you money back without you paying a nickel of interest if you pay the full balance each month.

How to maintain good credit

You don’t have to go into debt to maintain good credit. The two biggest factors in your credit score, accounting for about two-thirds of it, are on-time payments and the amount of your available credit you use.

That means simply paying all your bills on time goes a long way toward protecting your credit. On the other hand, paying 30 days or more past the due date can devastate your score.

If you do use credit cards, paying the balance in full is the best way to manage those bills. Zeroing out the balance doesn’t hurt your credit score, saves you from paying interest and ensures you’re not using too much of your credit limit. If you can’t pay in full, try to stay below 30% of your limit.

Other strategies that may help:

  • Keep credit cards open unless you have a compelling reason to close them. Even unused credit cards help your score by raising your overall credit limit. The average age of your credit accounts also has a small effect on your credit score.
  • Ask a friend or relative with excellent credit to add you as an authorized user. That adds their credit history on the card to your credit profile. You don’t have to use or possess the credit card for this to help your score.
  • If you are uncomfortable with a credit card, consider using it like a debit card by paying the balance as soon as a charge posts. The account adds to your credit history but you prevent worries about balances piling up.

Credit scores could drop during the pandemic as people rely more heavily on their credit and increase their balances. Your score can rebound fairly quickly once you pay balances down, as long as you continue to pay at least the minimum on time. If you need help paying creditors, contact them, preferably before you miss a payment.

This article was written by NerdWallet and was originally published by The Associated Press. 

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article Why Good Credit Matters — Even if You Don’t Plan to Borrow originally appeared on NerdWallet.

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How to Manage Your Credit Score During a Crisis

Posted on by Bev O'Shea

Even in a financial crisis, credit scoring still works the same as it always has. But managing your credit may look a little different now as the coronavirus pandemic leads to widespread financial upheaval.

As money gets tighter, especially if you can’t pay every bill in full, you’ll need to be strategic — and perhaps accept a lower score temporarily. Understanding how credit works can help you minimize damage and position yourself for quicker recovery.

Using credit vs. emergency fund

If you have an emergency fund, should you tap it before using credit? “I think there are two schools of thought here,” certified financial planner Lynn Ballou of EP Wealth Advisors in Orinda, California, said in an email. “If not a global pandemic, then what in the blazes is an emergency fund for anyway?”

On the other hand, Bruce McClary, vice president for communications at the National Foundation for Credit Counseling, suggests proactively cutting costs first. Your landlord and utility companies, for instance, may be willing to make temporary arrangements, he says. “Have these conversations before you spend a dollar of your emergency fund.”

About 3 in 10 of us (30% of Americans) have tapped emergency funds due to the economic effects of the coronavirus pandemic, according to a NerdWallet survey conducted online by The Harris Poll from April 8-10. But almost 1 in 5 Americans (18%) had no emergency fund to tap.

Be strategic to limit score damage

You may be relying on your credit more than ever. Knowing how credit scoring works will help you pick actions that limit damage to your score. The two biggest factors affecting your credit scoreare:

  • Paying on time. A late payment — one that’s 30 days or more past the due date — can tank your score. The damage is lasting: It will linger on your credit reports for up to seven years.
  • How much of your credit limits you use. The less credit you use, the better it is for your score. When your credit utilization goes up, your credit score will likely go down, but the damage is quickly reversed once you can lower balances again.

Do everything you can to pay creditors on time so you avoid the biggest, longest-lasting score danger, which is paying late.

Paying minimums is fine. It’s much better for your credit to pay minimums on all of your cards than to pay one in full and not have enough to cover the minimum on another. While it’s true that paying minimums leads to rising balances, it’s quicker and easier to reverse the score damage from that.

Manage your balances

Even while you’re putting more on cards or paying minimums, you may still have some latitude to keep credit balances low relative to limits:

  • Ask for higher credit limits from your card issuers. If you qualify, getting a higher credit limit can help you keep credit utilization lower. The recent survey found that 17% of Americans have requested a higher credit card limit due to the economic effects of the coronavirus pandemic.
  • Become an authorized user. See if a friend or relative who has a credit card with a high limit and low balance will add you as an authorized user. The account holder is not required to actually give you a card or let you make purchases. Just being on the account benefits your score.
  • Keep credit cards open. Even old, unused cards may be helping your credit score by contributing to your overall credit limit. Use them occasionally to keep the issuer from closing them for inactivity.
  • Think beyond credit cards. An unsecured personal loan, sometimes called a signature loan, may be a better option, McClary says. The interest rate is likely to be much lower than credit card interest. You may be able to find a low-rate loan by searching online for “pandemic personal loan,” or contact your bank or credit union.

Minimize the costs of using credit

If you’re using credit cards to stay afloat, know how the cards operate, McClary advises. For example, taking out a cash advance will cost you far more in interest than a purchase of the same amount. You can find out by calling the customer service line or looking up the customer agreement online.

Also, don’t assume that the terms you have now are the best you can get. Rather than simply checking APRs, Ballou recommends reaching out to your current issuers to see if they will give you lower rates or lower minimum payments or eliminate fees. You might be able to move some debt from higher-interest to lower-interest cards, she said, adding that telling an issuer you are considering transferring your balance to a competitor can be a good negotiating tool.

If you apply for a credit card hardship program, it’s important to know the drawbacks and decide whether you want to apply for help from your card issuer now if you might need it later.

And if you have autopay in place for bills, adjust the payments or turn them off to avoid paying more than is required or overdrawing your account.

Monitor your credit reports

You are now entitled to one credit report every week from each of the three major credit bureaus, through April 2021. Check them to be sure:

  • You recognize every account and your identifying information is correct.
  • Any account in forbearance or deferment is being reported as current, as required by the CARES Act, if it was in good standing before any pandemic-related concessions were made.
  • A disaster code shows on your credit reports if you requested one. This can help a potential lender or landlord better understand changes in your credit behavior, McClary says. And it won’t hurt your credit scores.

If you see errors, you can dispute them. If an error suggests identity theft — such as addresses you’ve never lived at or accounts you don’t recognize — report it to IdentityTheft.gov.

Harris survey methodology

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from April 8-10, 2020, among 2,042 U.S. adults ages 18 and older. This online survey is not based on a probability sample, and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Madison Gouveia at mgouveia@nerdwallet.com.

The article How to Manage Your Credit Score During a Crisis originally appeared on NerdWallet.

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