The other day I was talking to a friend in the loan/credit department of the credit union that so graciously pays my salary and the topic of conversation turned to a member who had applied for our best fixed-rate credit card. He had a strong enough credit score and made plenty of money but he was denied. Why? Lack of overall credit history. And here I thought all you needed was a good score to get a credit card. So I added that to my running list of credit score myths, which includes the following five…

1. There is only one credit score out there

Wrongamundo.There are three major credit bureaus, Experian, Equifax, and TransUnion, each with multiple scoring models, including FICO and others. Also, all three bureaus may not receive exactly the same data in you credit report-the number of accounts you have open, the current balance of those accounts, whether or not you’ve defaulted on any of the terms and conditions of those accounts, and so on. So in all actuality there are lots of different scores out there, although all of them will be highly correlated.

2. Checking your score will make it lower

Negative, ghost-rider. You can check your credit score all you want; it won’t do a darn thing to it. And you know those pre-approval notices you get for credit cards and auto loans every now and again? Those won’t affect your score either, despite the fact that the lender is obviously pinging your score to se if you qualify. If that type of action did affect scores we’d have a whole lot of angry callers at the credit union.

3. Your income can change your score

Bzzzz, sorry, but thanks for playing. You could go from making 10 bucks an hour to a bazillion dollars a year (a number so high it doesn’t even exist) and it won’t affect your score. Of course, having a bunch of money will likely make it easier to qualify for certain loans and pay them on time, hence allowing you to build credit you might not have otherwise received, but on a very basic level your income does nothing to your credit score.

4. Shopping for a loan will hurt your score

If this were a math problem, you’d get partial credit. It’s not a good idea to shop around for several different types of loans at a time because that says to the credit bureaus, “Mr. Smith (that’s you) is frantically looking for money wherever he can get it, something must be wrong!” But let’s say you are looking for a home loan and you apply at four different banks within a 14-day period. That would only be considered a single inquiry on your credit report and your score will not be affected. Beware of applying for too many credit cards at one time, however, as those do not fit into the 14-day rule and will all be counted as separate inquiries.

5. Closing some accounts will improve your score

For the love of no and all that is wrongy (I’m totally reaching on that one), please don’t go closing out accounts because you think it will help your score. It might end up doing just the opposite for two main reasons:

One, your total credit limit vs. your total debt. For example, if you have three credit cards with $5,000 limits each and you carry a total balance of $4,000 on two of them, you’re using approximately 27% of your total credit. Close the card with no balance and you’re down to a limit of $10,000 with the same $4,000 outstanding, meaning you’re now using 40% of your available credit. That may lower your score.

The other possible problem would occur if that card you closed was the oldest form of credit you had, because then your credit history would appear shorter and that too could negatively affect your score.

So hopefully this list has cleared up a few of the misconceptions you may have had about credit scores. I too used to think several of them true just because someone, somewhere, had been given the wrong information and was passing it along. Glad I’m now able to pass on the right information to you instead.

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You’ve got your fees for overdraft protection, fees for using an ATM that doesn’t have your bank’s name on it, fees for going under your minimum balance or over your allotted number of withdrawals each month… the list is seemingly endless. And especially in this time of financial woe, when people are defaulting on loans left and right, you can be sure most banks are looking to squeeze whatever they can out of you.

So here are a few simple ways to avoid paying fees:

1. First off, you need to grab a “fee disclosure” from your bank or CU, which they should have at any branch. This will list out absolutely every fee they can stick you with. Once you know what to watch out for you will be much better equipped to sidestep those fees. This will also help you pick the right checking, savings, or credit card account based on your spending and savings habits; no need to get hit with low balance fees or to choose an account that doesn’t give you enough withdrawals each month.
2. Join up with a financial institution that has ATMs near your house or office and don’t be afraid to take your money elsewhere if you move. If you don’t use your own bank’s ATMs, fees are typically around $2 at the ATM and then your bank will stick you with another charge of around $2. That’s $4 to take your own money out! Obviously the major banks have a good amount of machines in bigger cities, but ATMs are one place you might not have seen the little credit unions coming—most CUs are part of a network of ATMs that will not charge you a fee. The CU CO-OP Network, for example, gives you access to over 25,000 ATMs in the US, including other credit union’s ATMs and those you’ll find at all 7-Eleven and Costco stores. Either way, if you do have to use a machine that charges you a fee, take out a little more cash than you might need at that moment, because paying $4 for $100 rather than for $40 will at least keep you from having to go back to that ATM as much in the future. Getting cash back at the supermarket is always an option too.
3. Avoid overdrafting your account or, worse, getting slammed by a non-sufficient funds fee (NSF). This one just takes paying attention on your part (or not spending money you don’t have, but no one needs to tell you that). A great new feature of most banks’ online banking system is that you can sign up for account alerts, which will be delivered to you via e-mail or even text message. You can set the alerts up to warn you when you balance gets to a certain minimum level, saving yourself a lot of hassle and a lot of money in fees.
4. Get to know the people at your branch. Seriously. Because if you do get hit with a big fee, like an overdraft fee or a late payment on a credit card, often if you talk to a real, live person (and you don’t have a history of account abuse) you’ll be able to get your fee waived or at least reduced. In this age of doing everything online there is still something to be said for the personal touch.

Trust me, this fee trend in banking isn’t going anywhere and it’s not even exclusive to the financial industry. It’s happening among a lot of service-based organizations that have hit hard times. Just look at the airline industry. Now you have to pay a fee to have a decent snack!

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So although my paycheck comes from a credit union, and I will occasionally sing the praises of the not-for-profit side of banking, I’m here because I very much appreciate the trend towards transparency that CK, and the internet as a whole, has provided. After all, our financial system is set up in a way that you’d have a pretty tough time avoiding loans, credit, and accounts, so instead of fighting that system, the best thing to do is learn how to take advantage of it. Sure beats stuffing your cash in a mattress anyway (is that even something people still do?).

As time goes on, I’ll be adding my little insights into the financial world alongside the other informative posts on this blog, so if you have any questions for me feel free to ask them in the comments section of this entry. I’ll give you straight answers about what goes on inside the corporate offices of your local banks and credit unions, give you tips on how to get the most from your accounts and credit, and will also let you know when some good promotions come around. Hey, I know you might think you’re sick of being marketed to, but the truth is that you can benefit greatly by keeping your fingers on the pulse of the banking industry because there’s still plenty of money being spent out there to get you to become a customer/member.

Case in point; banks and credit unions are giving away money for everything from opening a checking account with direct deposit to using the bill pay feature of their online banking systems.

I’ll keep an eye out for you, and again, post those questions if you have them.

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It is not good news that identity theft is the fastest growing crime in the USA today. And over 20% of the cases are directly related to increased use of the internet and email. How can you increase your awareness in all situations and keep yourself clear of ID theft situations? According to the non-profit Identity Theft Resource Center, here are some scams to be aware of…

The Basics

Mail theft, dumpster diving and even overheard cellphone conversations are low tech ways of providing vital information for potential ID theft. The shredder, once only used by the Enrons and Nixon White Houses, now is as necessary as a toaster in most households. Make sure your paper trail and conversations remain private by being conscious of the environment around you.

Email Cons

Phishing is still out there, beyond the OPEN THIS IMMEDIATELY and made-up names that look like friendly emails, beware official looking notes from cyber-services you use (ebay, paypal, any on-line bank, for example), especially when the note directs you to a link and asks for personal information. Other potential mine fields include jury notices, money transfer indication and sadly during the time of Katrina some disaster relief scams.

What You Can Do

The Identity Theft Resource Center has these tips if you think you have been a victim of ID larceny…

• Contact any company or organization that may be a part of the situation.
• Contact authorities such as the FBI and the Federal Trade Commission.
• Type personal information only on web sites that provide security (easy tip: the http indication in your URL should have an “s” at end — https — to denote a secure web site).
• Look up telephone area codes in any phone situation, deceptively simple with on-line resources. Any off-shore code should alert you to a scam.
• Be like Enron/Nixon and keep on shredding those documents, especially those with Social Security or account numbers.

It’s a Brave New World and you must have courage to interact with it.

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Assuming a $250,000 mortgage and using our mortgage calculator, you will see that the 600 borrower will pay over  $93,000 more over the life of the loan in interest and will have to pay an additional $7,500 in closing costs. That means, a mere 50 point difference in credit score can cost upwards of $100,000. The difference is obviously higher if you have a larger mortgage assuming you can get the loan. To me, this makes credit the most important number in your financial health more than your SSN, credit card number, or even the balance in your bank account.

With this in mind, I suggest that you keep an eye on your credit score. You know better than anyone when you will have a major purchase. So when you plan your next big purchase (mortgage, car, etc.) , be diligent about knowing your score. Check it once a month and make sure you know the factors that make it go up and down. Remember that good credit takes years to build only only a few missed payments to destroy. Given the costs associated with credit, it can be the most expensive mistake of your life.

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However upon further investigation, it appears these programs are legitimate. These savings and checking programs hope to build a more loyal and profitable customer.  The small banks and credit unions that participate hope to compete with the big banks by providing a better rate. In exchange, these programs require you to actively use their product. Some requirements are using their check card, registering for direct deposit, and receiving electronic statements.

Credit Karma has long had some of these offers available and judging by the comments and voting users really like concept. The big negatives from the comments has been the fact that the small credit unions are not accessible and very regional. I recently met the CEO of a new site, CheckingFinder, at Finovate. Their new service allows users to find these great programs based on your zip code. They recently launched the site and I’d like our readers to see if works for them.

Because of the requirements, its not the perfect product but for many looking to maximize their return this is definitely a good way. Give it a try and please share your experience.

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1. Missing a Payment
2. Applying for a New Loan or Credit Card
3. Changing Your Available Credit
4. Defaulting on a Loan or Charging Off
5. Bankruptcy
6. The List Goes On……

But some people have asked why their score has not changed in months. Well, my score hasn’t changed since we launched the service in Feb, 2008 until just this week. As background:

* I have a mortgage
* I don’t carry any balance on my credit cards
* I’ve had a good payment history for over 15 years
* I don’t apply for credit often

A few days ago, I decided to apply for one of the Gas credit cards I wrote about. I then updated my credit score the next day. My score dropped 6 points from the inquiry. I’m sure it will change again when the credit card provider reports my credit line and utilization to the bureaus. I suspect it will jump back up since I won’t carry a balance and it will increase my total available credit.

I’m writing this to let users know that your score shouldn’t be constantly changing if you are stable with your finances and credit. I’ve had the same score for over 3 months so don’t be concerned if your score isn’t jumping around. Part of the service is built to instill a sense of comfort and familiarity with your score.

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Discover Open Road(SM) Card - 5% Cashback bonus on gas and auto maintenance purchases up to $1200 in gas per year. 1% cash back everything as well. The intro APR of 0% and regular APR of 10.99% also makes the rates attractive. The card claims you can get 5% to 20% cashback at top online retailers as well. I didn’t see the list in the Terms and Disclosures.

Chase Perfectcard(TM) Mastercard - This card has 6% back on any gas purchase the first 90 days and then goes to 3% afterward. It also carries 1% cashback on all other purchases. The into rates are similar to the Discover Card above. I didn’t see any limits like the Discover card when I scanned the Terms and Disclosures.

Chase BP Visacard - This card is great if you live near BP. They are doubling the rebate amount on gas to 10% for the first 60 days. Nice if you plan on taking a long summer driving trip. This combined with the other rebates looks tempting. Their rates are not as good as the ones above, but if you pay your bills off every month and live near BP gas stations, this seems like a nice card.

I’ve listed some of the ones I could find. If you know of a better gas credit card, please leave a comment and update the post.

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1. There are three different credit bureau: Equifax, Experian, and TransUnion. Each credit score is developed with data from one of those bureaus, and each bureau may have slightly different information about a user.  A majority of the information will be consistent, but the bureau used can lead to differences in scores.
2. There are different brands of scores. FICO is probably the best known of the brands of scores, but FICO is analogous to Kleenex for tissue. It’s just the brand name; there are several other tissues that do the same thing. To say one is better to the average consumer is a function of their marketing and brand building. All credit scores are built from the same underlying bureau data using the same mathematical process.
3. There are hundreds of credit scoring algorithms (formulas). Some credit scores predict mortgage default, others auto loan default, and some are for people with short credit history. Even within FICO, there are several different scores for different purposes.
4. Credit Scores can change at any time. A score technically changes anytime the credit data files that drive it changes. Since a bureau can update your credit report at any time, your score can change at any given point.
5. All credit scores are highly correlated (related). A movement within one score or bureau will often be indicative of all other scores. It’s a natural behavior of statistics and how these credit scoring algorithms are built.

For our users, we recognized that all of this information is both confusing and annoying. If you take points 1-4, there are an infinite number scores for any given consumer. To address the problem, we decided to provide one consistent benchmark into user scores. That means we use the same bureau and same algorithm. Everything is the same but time and the information on your credit file. The idea is that if your Credit Karma score changes, it means something in your file changed and your other scores probably changed as well.

I hope this is useful for our users that ask why their scores are different. Let us know what you think with comments below.

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In case you haven’t seen one of our offers, we share several metrics based on how members view the various offers (for better or worse).

User Voting - The percent of users who voted that this is a good offer.

Exclusivity -Based on how many members are eligible for the offer. Higher exclusivity means fewer people are eligible.

Take Rate - Ranked against all offers, this measures the relative percentile of members who apply for an offer.

The common thread of all the metrics is that we hope the Credit Karma community will help others decide the good / bad offers. We don’t want to suggest what you should like, we want users like you to suggest what is interesting and what is not.

We are big fans of transparency. More sites are moving in this direction and we want to be supporters of the movement. We plan on adding more features along these lines. For now please continue to vote and add comments so we can all share our experiences and knowledge.

Let us know if you like the concept.

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