How to Establish Credit When You Can’t Get Credit

Getting Credit for the First Time

One reader asked, “I just got turned down for a credit card. How am I supposed to establish credit, if I can’t get a credit card?” Great question!

Yes, that is a real problem. It’s very hard to get credit today with our ecomony the way it is. First I would start with your own personal bank, the one where you keep your checking and savings accounts. If they have their own credit card division you stand a great chance of getting a credit card through them because you have a relationship there. 

If your bank doesn’t have a credit card division (yes, that is possible). Then you need to get a secured credit card. A secured credit card is one that is secured or guaranteed by your bank account. For example, if you have a savings account with $1,000 in it, then you can get a credit card with a $1,000 limit. The bank is comfortable doing this because they have your savings account as collateral to guarantee your credit card. As time goes by, and they see you are responsible with your credit card (making your payments on time and not going over your limit), they will increase your credit limit, and you may be able to apply for other cards or loans. 

You must ask your bank this one very important question before you apply for a secured credit card: Does the Lender report the secured credit card information to EquiFax, Experian and Trans Union, the three major credit reporting agencies? If they don’t, you’ll want to get a secured card at a different bank. You won’t “establish credit” unless your credit habits are reported to the right agencies.

Credit Report: How, Why and When

Credit Report Error

Looking at your credit report could be the most important financial thing you do this month.

How: To order a free credit report online go to www.AnnualCreditReport.com. To order by phone call 877-322-8228. To order by mail, send your request to Annual Credit Report, Request Services, P O Box 105281, Atlanta, GA 30348-5281. It’s that easy. You don’t have to pay a service to do it for you.

Why: Your credit report is so important to your financial life that I feel strongly that you should use your credit report as a tool to make your life better. What can it tell you?

• Find out if your accounts are considered paid “on time” by your creditors.
• Find out who has requested your credit history.
• Find out if your personal information matches your real circumstances.
• Find out if someone else has created an account in your name.

Once you have read the report, correct any errors by following the instructions there. Errors can keep you from getting good deals on loans, credit, insurance and even employment.

Make sure that you order a credit report for every person in your immediate family, including the children, because children’s ID theft is becoming common. We are given a social security number at birth, but it shouldn’t be used until we are old enough to apply for credit or benefits. Surprise, some young people are finding out that they have been the victims of ID theft when they apply for credit for the first time. Don’t let your child be one of these.

When: You can order a free credit report three times a year because each of the three major credit reporting agencies (EquiFax, Experian and Trans Union) have to give you one annually if your ask for it. Take advantage of this. I personally order a free copy through EquiFax in January, Experian in May and Trans Union in September. I figure that I owe it to myself to protect my finances, don’t you?

Join our Free Credit Report Reminder Program by emailing emailing us using the contact information on the right. You won’t have to remember when or how to order your credit report with this program. A reminder with instructions will be sent to you three times per year.

Fewer Distractions Equals More Time

Does this sound familiar? You come home from a long day and decide to pay bills. You sit down and find that you have to shred 20 credit card offers before you can find your actual credit card bills. While you’re shredding, the phone begins to ring with unsolicited calls. Then you check your fax machine and find pages of unwanted offers. You didn’t ask for any of this stuff. How can you make it stop?

Many choose to simply ignore the problem by hanging up on solicitors and throwing away junk mail and faxes. However, you can eliminate the problem altogether. If you haven’t heard the phrase before, it’s time to opt-out.

Opt-Out from Junk Mail. Following these steps will eliminate a good portion of your junk mail. First, go to http://opt-out.cdt.org/ and follow the directions there. This should stop most mailings. Next, pay attention to those annoying extra fliers and forms that come in your bill envelopes. When you enter a billing agreement with some companies, they take your contact information and share or sell it so that other companies can send you junk mail offers. Most of these accounts should include an “opt-out notice” form with your bill. By completing and mailing the form, you’re telling the company that they can no longer share your information.

Opt-Out from Phone Calls. Your telephone numbers (including your cell phone) can be added to the Do Not Call List. This should eliminate most sales calls. Unfortunately, this does not apply to non-profits and political campaigns. A few of the so-called “non-profits’ that call your home regularly asking for donations are barely legitimate, but that’s a story for another Quick Tips. Go to www.DoNotCall.gov, or call 800-382-1222, to join the Do Not Call list.

Opt-Out from Faxes. The Junk Fax Protection Act of 2005 worked to stop unwanted faxes from being sent to private fax numbers. If you do get unwanted faxes, the fax must include an opt-out option

Credit Card Shaving is Cut & Paste Fraud

Credit Card Shaving – it sounds like what you would say if you were cutting back on your credit cards, but that’s not what it means. This is the latest credit card scam and there is nothing you can do to prevent it. Isn’t that scary? 

Q & A on Credit Card Shaving:

How do they get your credit card number? The thief makes a random list of 16 digit numbers. Then he starts trying to make purchases online with different combinations. If one works, then he knows he has a legitimate account. He doesn’t need to steal your card, or go through your trash. You still have your card and have no idea that someone is using your card numbers.

Why is it called “Credit Card Shaving?” The thief literally shaves the raised numbers off of other credit cards (usually cheap gift cards) and glues them onto a new card in the correct order. He now has a legitimate-looking card with your number. He can even use his own ID with the fake card to charge everything to you.

What about the magnetic strip on the back? The thief doesn’t need to change the magnetic strip, he just “scores” or scratches it so it can’t be used in the automated stripe reader at the check-out counter. Whenever a magnetic strip is damaged, the cashier simply enters it manually using the numbers on the front of the card. We’ve all had this happen with worn out debit cards or poorly working stripe readers.

What can you do about it?  Since you can’t do anything to prevent it, the only thing you can do is monitor your accounts. Check your credit card statements for unusual purchases as soon as they arrive. If you check your accounts online, you can check anytime during the month for new charges.

Too much work? We use credit cards for convenience. We treat them like pre-approved micro-loans, or feel they’re safer than carrying cash because they can be canceled if stolen. In reality, the more cards and accounts you have, the more work is required to watch over them. Unfortunately, many people only learn that after it’s too late. Don’t be one of them.

My Friend, My Co-Signer

Have you ever loaned a friend money? If you’re like many people, you found out that he wasn’t planning on paying you back anytime soon. Not before buying himself Guitar Hero, that new graphic novel, and definitely not before his big vacation. But loaning cash isn’t the worst financial mistake you could make with a friend or relative. There is one big mistake that I never want you to make: Never co-sign a loan for a friend or relative. Okay, you may think I just don’t care about other people, but I am looking out for you.

Who has to make the payments? When you co-sign a loan, you’re telling the bank (Lender) that you are responsible if your friend (the borrower) doesn’t make his payments. That doesn’t mean they expect you to nag your friend for them until he agrees to pay. It means they expect you to pay the loan off. Anytime he doesn’t pay, you have to pay.

What’s the worst that could happen? That would be when your friend doesn’t tell you he’s not making payments. You won’t know the loan is past due until the Lender contacts you, and your credit report is already damaged. You not only have to come up with two or three payments right away, but your other loans (Creditors) may already know that you (not your friend) are late on your obligation to pay off a debt. See, your creditors don’t care about your deal with your friend, they just see your name and a past due loan. That means that all of your creditors could increase your interest rates on totally unrelated accounts. Can they do this? Oh, yes. Your credit card could go from an affordable interest rate of 10% to over 30%, making it nearly impossible to pay off.

That’s why you should never co-sign a loan. It’s better to help a friend learn how to fix his credit so he doesn’t need a co-signer than to drown in debt along with him.

I had a great time at the Queens Book Fair!

Jill at the Book Fair

I had a new experience this past weekend. I participated in my first book fair. On Saturday, I had a booth at the Fourth Annual Queens Book Fair in New York and was a featured Author on their Author’s Panel. I spoke to the attendees about teens and how to introduce teenagers to the concept of managing their own money. I was able to sell books to a market that had never met me before, as well as talk to people about future speaking engagements. So stay tuned. I’ll keep you posted on where I’ll be next.

You CAN Fight Mother Nature

August is here, do you know what that means? No, I’m not talking about back-to-school shopping. No, I’m not talking about taking the last vacation of the summer.  I’m talking about hurricanes!  According to the AOML, August, September and October are the peak months for hurricane activity on the Atlantic.

The AOML has predicted that 2008 will be an above average year. But even if you choose to ignore predictions, remember that a single hurricane is all it takes to endanger your family or rob you of your investments. 

Are you prepared? Think you don’t have to worry about hurricanes? Read and find out!

Who is affected by hurricanes? You don’t have to live in Florida or New Orleans to be affected by hurricanes. Did you know that in 1938 there was a hurricane that struck in the Northeast that left 600 dead? And, we don’t have to have a direct hit by a hurricane to suffer tremendous damage. The storm systems caused by hurricanes often cause power outages, flooding and wind damage for inland states. Don’t assume you won’t be affected. These tips will prepare you for other disasters as well, so read on.

Do you have proper insurance coverage? When was the last time you discussed your policies or updated them with your insurance company/agent? It could be well worth your time to do this in the next couple of weeks. While you’re there, you should also ask about umbrella coverage if you don’t have it already.  As the name implies, this is a general purpose policy which provides additional protection above and beyond your existing policies. It is a relatively low cost insurance that can make a huge difference, if you have to file a claim.

Do you have a well thought-out evacuation plan? You can’t use a general plan created by someone else. Personalize yours to fit your needs. Here are some things to consider :

• Exit Strategy: Make sure everyone knows the quickest way to get out of the house in case of fire or other natural disaster. Seconds really do count!
• Meeting Place: Have an agreed-upon meeting place. The quicker you can do a headcount, the quicker you can move to locate anyone who didn’t make it out. Have 2 meeting place locations – one right outside your home (sidewalk or driveway) and the other off your property (friend’s house, library, or school)
• Contact Person: Specify one person to be the “caller”. If your family gets separated, and cannot get to one of those locations, have one person be the one communicator between the groups to save confusion and missed calls.  Make sure everyone knows the contact person’s phone number!

Do You Know How to Prepare for a Storm? Here are a few other general tips for you to think about.  If a storm is forecast, make sure you:

• Have a full tank of gas — gas stations can’t pump gas if the power is out.
• Secure your outdoor items so that they will not become airborne and injure you or someone else.
• Stock your disaster supply kit. In a serious storm, this could be well worth the effort. Include drinking water (at least one gallon of drinking water per person per day), food (canned, dry and other non-perishables which don’t require cooking, water or special preparation – and don’t forget a manual can opener), prescriptions and medications (three day supply recommended), first aid kit, flashlights, battery-powered lanterns, and AM/FM radio plus extra batteries.
• Prepare a pet supplies bag. Don’t forget your petsl – they’ll need food, water, medications, and leashes.

It doesn’t look like the peak hurricane season will just “blow by us” without incident, so it won’t hurt to be prepared for whatever may be ahead.

How to Choose a Bank

How do you know if your bank is right for you? If you have been a subscriber to my blog, then you know the first questions that must be answered: Is the bank an FDIC member and FDIC insured? The answer should be “yes.”

What other questions should you ask?

Location. Does the bank have branches or ATM machines that are close to your home, work, favorite stores, or activities? Remember that most banks charge a fee for using another bank’s ATM machines. You’ll also want to deposit any checks or cash quickly. Choose someplace close where it’s easy to make your transactions.

Fees. Do they charge you to have an account? If so, is there something you can do to lessen the fee or avoid it all together? Some banks waive their fees if you agree to direct deposit your paychecks, keep a minimum balance in your account, or have more than one linked account. You should be able to avoid any bank fees.

How to avoid bank fees. Banks have to make money to stay in business. One way they do this is by lending out money and charging interest. The other way is by charging fees. You should be able to avoid fees with good record keeping. Keep your minimum balance and never use more money than you actually have (overdraft). Every bank charges for overdrafts. It’s not only inconvenient for them, it’s actually illegal if you do it on purpose. Keep accurate records with either a paper checkbook register, computer software, or handheld device. Your goal is to never have these fees charged to you.

The Bank Gave My Money Away

Do you ever get the feeling that you have lost some money? We’ve all lost money out of our wallets, our purses, behind our dressers, or under car seats. But, did you know that you can lose money in the bank? If you have a bank account that has not had any activity for three to five years, your bank has to turn the money over to the state. The same is true for payroll checks that haven’t been cashed, and for safety deposit boxes that haven’t been visited.

How do you avoid losing your money like this? Make a deposit or withdrawal on each and every bank account at least once per year (either online or at the physical branch). Interest going into a bank account is not considered activity. Deposit and/or cash your payroll and gift checks quickly before you have a chance to lose or forget about them. Use traveler’s checks as soon as possible. If you have a deposit box, visit it at least once a year.

Keep your contact information up to date. Make sure that you update your address on each and every bank account, so the bank can send you important notices and you have a reminder that your accounts exist.

Do you want to see if you have any unclaimed money? Go to www.unclaimed.org and look under all the states that you have lived in. You may find that it is worth the trip.

The FDIC: What You Need to Know

Did you see the gentleman on the news a few weeks ago who had $236,000 on deposit with Indy Mac Bank? He almost lost more than half of his money even though his bank was insured by the FDIC. That’s because the FDIC only insures deposit holder funds for up to $100,000. Lucky for him, the FDIC in Indy Mac’s case was paying an additional fifty cents on the dollar, so he got another $68,000 back. The bad news is that he lost $68,000. That’s a lot of money to lose.

If you want to protect your savings and deposits, the best way is to understand how the FDIC works and make it work to your advantage.

First make sure the bank you chose is FDIC insured. To verify, call 877-275-3342. If your bank isn’t FDIC insured, move your accounts to a bank that is FDIC insured.

The FDIC insures each account holder up to $100,000. Take a look at these examples to see how to protect your money:

Jane Smith
Checking Account $25,000.00
Savings Account $50,000.00
CD $50,000.00
Total Amount at Bank: $125,000.00

* Jane is only insured up to $100,000.00. She would lose $25,000.00 if her bank failed.

Greg and Sally Jones
Mutual Checking Account $15,000.00
Greg’s Savings Account $75,000.00
Sally’s Saving Account $30,000.00
Total Amount at Bank: $120.000.00

* Greg and Sally are insured up to $200,000.00. They are two different account holders. If they had a mutual savings account instead of two separate accounts, they would lose $20,000.00

Here are some other things that you need to be aware of:

• The FDIC insures $100,000 per account holder per bank, not per bank branch. Yes, some people have made that mistake. The branches aren’t separately owned. If you deposit money in the Springfield Bank – Centerville Branch and then open a new deposit account at the Springfield Bank – Mall Branch, that’s still the same bank, and the FDIC considers it to be all one pile of money. The same applies if you open one account at Springfield Bank – Online and one at a physical branch. If you have more than $100,000 to lose, use two or more separate banks.
• If you have a small business that uses your personal social security number as the tax identification number, Mary Brown, D/B/A Mary Brown Personal Chef, then that balance is part of your $100,000.
• If your bank is taken over by the FDIC, chances are that another bank will buy the accounts of the failed bank. When that happens, you have six months grace period under FDIC to reorganize your accounts if needed.

You work hard for your money, so keep it as safe as possible. Don’t lose money that you could have easily protected.