April 19, 2024

You are here: Home / Archives for credit reports

Your Money: Suze Orman to Offer Her Own Prepaid Debit Card

January 9, 2012 by Leave a Comment

Never before, however, has she built a financial product from scratch and urged her considerable number of fans to use it frequently. That changes with the introduction on Monday of her Approved card, which works a lot like a bank debit card but does not come with a checking account. It is a prepaid debit card, and companies that offer similar cards have drawn criticism for sky-high fees and poor disclosure.

The hip-hop mogul Russell Simmons, American Express and the Kardashian sisters are among those who have piled in with their own cards, and they are nearly ubiquitous at drugstores and other retailers. The target customers are most often people who have little credit history — or credit so bad that banks will not come near them.

Ms. Orman seeks to broaden the debit card market by charging low fees and offering new services, including unlimited access to credit reports. She has put more than $1 million of her own money into the venture and is prepared to add more, since the product may not break even right away. But her move also raises so many questions that it is hard to even know where to start.

How can the Approved card make money charging fees on par with those on Walmart’s cut-rate MoneyCard, while also paying a credit bureau for access to its services? Also, can it really be just fine with CNBC, where Ms. Orman has a weekly show, that her card will compete with products from companies she discusses frequently with viewers? And will her followers care that she is pushing purple pieces of plastic that will help her make money from their everyday spending?

“I couldn’t be more proud of this card if I tried,” she said. “And it doesn’t really matter what I say. It matters what happens when somebody uses this baby.”

Their choice to use it may be colored by the opportune moment in which Ms. Orman finds herself. Big banks have offended scores of consumers with new fees and account balance minimums. People seeking alternatives may well find what they are looking for in prepaid cards.

That might not have been the case several years ago, when most prepaid card issuers marketed them to teenagers, or as gifts, or to people with poor credit who needed a way to make online purchases or visit a merchant without wads of cash.

More recently, companies like Green Dot (a partner with Walmart) and NetSpend have emerged. They persuade consumers to buy the cards first, in part through their availability in 300,000 locations, including grocery and convenience stores, according to the Mercator Advisory Group. Then, they try to persuade people to reuse them. Services like direct deposit and online bill payment have helped some. Still, 43 percent of the cards are never reloaded or are reloaded only once, according to Mercator.

These cards differ from checking accounts in other ways. There is no checkbook, nor do they have their own network of A.T.M.’s, though some prepaid card issuers have agreements with networks to offer free withdrawals. And different regulators govern them, which can mean fewer consumer protections under certain circumstances. (It could also mean that the new Consumer Financial Protection Bureau will swoop in and make tougher rules.)

The biggest difference from a regular bank account, however, is the fee structure on the debit cards. Prepaid-card holders must often pay to buy the card and put money on it. There is often a monthly fee. Bill paying, phone help — even making a purchase can cost a dollar or two.

Ms. Orman watched this unfold and vowed to build something better. Her fees for the Approved card for things like A.T.M. withdrawals are about as low as they come, though she was not able to fulfill her goal of avoiding a $3 monthly fee, which is deducted from the remaining balance.

Whether consumers could do better with a free checking account (and yes, plenty still exist) would depend on whether they value paper checks and in-person service. Financially, they would most likely do worse if they bounced those checks or used overdraft services and paid $20 or $30 for each transaction.

The Approved card, like most leading prepaid cards, generally does not let people spend more than they have.

But the most noteworthy part of the Approved card is Ms. Orman’s efforts to make her customers more aware of their credit histories. All users get unlimited access to their credit reports and credit scores from TransUnion, though not the more widely used FICO scores. They will also get free credit monitoring and identity theft protection. (Ms. Orman is quick to point out how much these services would cost if her customers bought them separately. But most wouldn’t do that, and you shouldn’t either, since they are generally overpriced and often unnecessary.)

The real question is whether any debit card can help a cardholder become more creditworthy. The three major credit bureaus — TransUnion, Equifax and Experian — generally do not use debit card spending data to determine whether someone is qualified for loans.

“There is something radically wrong here,” Ms. Orman said. “We are rewarding people for having credit and punishing people who pay in cash. I want to change that paradigm.”

So she has persuaded TransUnion to collect spending data from Approved card customers. Perhaps it will look at other companies’ data too. And in a few years, it will see whether there is any proof that prepaid debit users deserve recognition for good behavior.

Until then, this is mere vaporware. The data may prove meaningless, and even if there are patterns, TransUnion probably would not give people more than a handful of points’ worth of credit on their scores.

Article source: http://feeds.nytimes.com/click.phdo?i=87c65820d0f19c3cc4efd4b3e4b678b6

Filed Under: Your Money Tagged With: , ,

Bucks: Are Serious Errors Lurking in Your Credit Report?

June 7, 2011 by Leave a Comment

How accurate is the all-important data in your credit report? It depends on whom you ask.

Previous estimates of credit reports with serious errors vary widely, anywhere from 3 to 25 percent. But according to a recent study paid for by the Consumer Data Industry Association, the trade group for the credit bureaus that assemble and sell credit reports, that rate is much lower. Consumer advocates, meanwhile, were skeptical of those results.

The study, conducted by the Policy and Economic Research Council, found potential errors in 19.2 percent of credit reports examined. But once consumers disputed potentially problematic errors and got the bureaus to fix them, less than 1 percent of these corrected reports led to meaningful increases in credit scores.

And what is meaningful in the credit score context? Well, very few of the corrections led to a big enough credit score gain to push those consumers into a better “credit risk tier,” where they would have access to cheaper loans and such.

But that’s a pretty narrow way to view the results. Consumers typically want to hang on to every last point they can — especially at a time when lenders are reluctant to extend credit.

Score wise, the report found that less than 1 percent of all credit reports examined, or 0.93 percent, prompted a dispute that resulted in a correction that boosted scores by 25 points or more. About 1.2 percent of reports resulted in a score increase of 20 points or more; nearly 1.8 percent of reports saw scores climb 10 points or more; and slightly more than 3 percent had an increase of 1 point or more.

Keep in mind we are not speaking in FICO terms, or the popularly known credit score scale that most lenders use. Instead, the study measured scores using the bureaus’ VantageScore credit score, whose scale ranges from 501 to 990. The higher the score, the better the credit rating.

Consumer advocates pointed out that even seemingly low error rates can affect millions of consumers because each of the big three credit bureaus — Equifax, Experian and TransUnion — have at least 200 million credit files. So a 1 percent error rate would translates into two million consumers per bureau, noted Chi Chi Wu, a staff attorney at the National Consumer Law Center. For those consumers, “the credit bureaus should conduct real and meaningful investigations of disputes, which they do not,” she said.

Here’s how the researchers arrived at their numbers: Over all, the study, which included 2,338 consumers, found that 19.2 percent of credit reports had one or more pieces of information that a consumer believed could be inaccurate and disputed. Of those reports, 63 percent, or 12.1 percent of all reports examined, were found to contain errors that could potentially have “material impacts” that could lead to “possible adverse consequences.” Ultimately, 7 percent of reports in the study were disputed.

Consumers received their credit reports from one or all of the three bureaus, along with a credit score. They were instructed to identify any errors and then to file disputes with the relevant bureau, which then calculated scores based on the corrected report too. The study found that most changes were consistent with the consumers’ requests and that 95 percent of participants who lodged disputes were satisfied with the outcomes.

But satisfaction is almost certainly easier to achieve when you have a dedicated phone line for the participants making disputes — and one of the big bureaus did. Michael Turner, president and chief executive of PERC, said there wasn’t a meaningful difference in the results from the bureau that had the special phone number versus those that did not.

Experts also questioned the way the study participants were found. Instead of being randomly selected from the population at large, they were recruited through the Synovate Global Opinion Panels, where one million consumer members are compensated to complete an average of 12 to 14 surveys annually. But Mr. Turner said that the study’s sample “looks very much like an adult population on every sociodemographic metric.”

“We are transparent and are making available to academics and regulators the underlying data and the results from our independent peer review,” he added.

Still, it wasn’t enough to completely quiet the study’s critics. “To claim less than 1 percent have meaningful errors is kind of like trying to change an “F” to an “A” on you report card,” said John Ulzheimer, president of consumer education at SmartCredit.com, who also pointed out that the study thanks the three credit bureaus for providing “numerous insights, guidance, and invaluable assistance with the implementation of the research.”

The Federal Trade Commission is conducting a nationwide study of its own that also examines the accuracy of credit reports. It’s expected to deliver its results next year, and, it may include recommendations for legislative action. Perhaps that study will provide more clarity.

Have you discovered any serious errors in your credit report? What did you do to fix them? And what do you think of the study?

Article source: http://feeds.nytimes.com/click.phdo?i=fa66464dabf62c18291aa29eb7ee8e10

Filed Under: Your Money Tagged With: , ,

Your Money: ID Theft Tool That Sony Isn’t Using

May 7, 2011 by Leave a Comment

And more than a week after the company first warned its customers about the possibility of identity theft, it at last provided details about the protection it was now offering them: a free one-year subscription to a surveillance service that searches for evidence that they may have become victims of identity theft and alerts them if anything turns up.  

Here’s what Sony is not doing, though: offering to pay for something called a security freeze for any customer who wants one.

A surveillance service is reactive. By the time you get an alert from one, thieves may have already done a lot of damage.

A security freeze, also known as a credit freeze, is proactive. Once you put your credit reports on ice at the three major credit bureaus — Equifax, Experian and TransUnion — no company (other than ones you already do business with) can look at your credit report. Creditors generally won’t open a new account if they don’t have access to the report, so a freeze offers the best protection there is against someone opening an account in your name.

The credit bureaus depict freezes as a last resort, something that will cause consumers great inconvenience because they need to temporarily thaw their accounts whenever they want to apply for new credit. And it gums up the works for the bureaus, that’s for sure.

But as someone who has had his files frozen for several years, I can personally attest to the fact that the inconvenience is fairly mild. Credit freezes are the best defense mechanism available for people whose data may have fallen into the wrong hands, and it’s a shame that Sony executives don’t seem to have realized this.

Sony’s actions are all the more surprising given its various units in California. That is where security freezes first hit the radar more than a decade ago, thanks to a bill sponsored by Debra Bowen, then a state senator.

“Knowing that lenders would not grant credit to people if they were unable to check those peoples’ credit reports, her bill gave consumers the power to freeze access to their reports,” said Shannan Velayas, a spokeswoman for Ms. Bowen, who is now California’s secretary of state.

Eventually, enough states followed suit with their own laws forcing the three credit bureaus to give consumers this option that the bureaus threw up their hands and decided to offer it to everyone.

They didn’t make it easy, though. I have distinct memories of standing in the post office filling out registered mail forms since that was the only way some of the companies would accept a request to freeze a file.

Today, things are less complicated. All three bureaus will let you put an initial freeze in place on their Web sites. I’ve posted links to Equifax’s page, Experian’s site and TransUnion’s starting point in the online version of this column. Still, fewer than 500,000 people have frozen their Experian files; Equifax and TransUnion would not provide numbers but they are probably similar.

Once you’ve put a freeze in place, you can thaw your files temporarily if someone needs to examine your credit report. The bureaus also let you do this on the Web and supply you with personal identification numbers for the purpose. The cost for the initial freeze and the thaw will run anywhere from nothing to $20 or so per bureau, depending on the maximum price, if any, that a law in your state has set and whether you are a recent identity theft victim.

The bureaus’ Web sites offer plenty of reasons for pause, noting that a freeze may interfere with applications for jobs, credit cards, mortgages, insurance, rental apartments and cellphone accounts. And it is true that all sorts of entities want to check your credit before doing business with you or hiring you.

That is what the thawing process is for, though. I’ve refinanced my mortgage twice, changed jobs once and applied for a couple of credit cards since I put security freezes into place, and it’s never taken me more than 10 or 15 minutes total to temporarily thaw all three frozen files. The thaws generally go into effect instantly, so the whole process is really no big deal, as long as you keep those PINs together in one (secure) place where you can find them easily.

One hiccup that’s worth noting here, though. While I was able to get my free Equifax and TransUnion credit reports this week through annualcreditreport.com, Experian would not give it to me. Instead, it served up a form with my Social Security number and other personal information that it wanted me to put in the mail before it would hand over my credit report. Um, no thanks. An Experian spokeswoman was unable to explain why this had happened.

A freeze may also make it harder to take advantage of those instant credit offers at department and other stores or sites. But opening lots of new lines of credit isn’t wise anyway, since that can hurt your credit score.

If you don’t want to deal with any hassle, there is a company, TrustedID, with a product called Credit Lock that will handle the freezing and thawing for you. You’ll pay $14.95 for the initial freeze, plus whatever the bureau charges in your state. Then, you’ll pay $9.95 plus the state charges for each bureau when you want to thaw. You also have to sign a limited power of attorney form for TrustedID to act on your behalf and turn your PINs over to the company as well.

However you set it up, a credit freeze is a no-brainer for people who are no longer applying for much credit. Millions of older adults fall into this category. It’s also a good backstop for any friends or relatives with questionable judgment or impairments that may make them vulnerable to scams.

As for everyone else, it’s hard to see why a small occasional hassle and a bit of expense should get in the way of locking down your credit report. It’s certainly better than having to spend months or years trying to scrub your credit history clean of the work of a rampaging identity thief.

Yes, it is infuriating that this burden should be on you. In an ideal world, a credit freeze would be the default setting and you’d have some kind of supersecure smartphone mobile app that could thaw your credit report. Maybe someday we’ll get to live in that world.

Security freezes are not bulletproof, alas. You’re still vulnerable to a thief taking over an existing credit card account and, say, redirecting e-mails or paper bills to a different address. So you need to keep checking your account statements.

This is a theoretical vulnerability in a situation like Sony’s, where a thief could use a stolen Sony user name and password that a customer also uses on other sites to try to take over, say, a checking account. The company isn’t aware of anything like this happening or use of any credit card numbers from Sony accounts. Even if either one were to happen to you, you might never know whether the thief got your data from Sony or someplace else.

In fact, it is precisely because so much personal data is floating around out there in the ether that security freezes are such a good idea. They are the best tool consumers have to keep crooks out of their credit files, and Sony ought to offer to pay to put the freezes in place for any customer who wants one.

Article source: http://feeds.nytimes.com/click.phdo?i=bfbc505a9fb1563c0c254b4d3acaca88

Filed Under: Business News Tagged With: , ,