Personal Banking E-Newsletter - May 2012
Common Scams on the Elderly
According to a 2009 study by MetLife, the elderly get scammed out of roughly $2.6 billion every year, and that's just the losses that are reported. Many elder fraud victims never report the crime. Scammers often rely on similar tactics to commit fraud. A few of the most popular techniques are:
Grandma Scams - "Hi Grandma! It's your favorite grandkid calling, and I need your help." Many seniors find it difficult to resist pleas like this and are more than willing to immediately wire money to their "grandchild" in need. The most important thing to do in this scenario is to verify the caller. Most scammers will plead with their "grandparent" not to tell anyone, but if you receive a call like this the fastest way to determine if the request is real is to contact another family member. Do not wire money or provide a credit card number until you've verified the identity of the caller.
"Free" Prize or Cruise Calls - Scammers call to inform an elderly consumer that they've won a sweepstakes prize or free cruise, they just need to send a "processing fee" or "cover shipping costs" to collect their winnings or tickets. Sometimes, these callers go straight to asking for credit card or bank account numbers. The best way to avoid this scam is to simply hang up. It is illegal to charge a fee to enter a sweepstakes. If the caller says you've won a cruise, ask what cruise line is involved and then verify the contest.
Fake Charities or Startup Companies - The "fake charity" is especially popular after a well-publicized natural disaster, such as the earthquake in Haiti or the tsunami in Japan. The scammer solicits "donations" and sometimes provides official-looking documents to prove the charity exists. Other scammers will offer wealthier elderly persons the "opportunity of a lifetime" to invest in a groundbreaking startup company. To donate or invest, go through a well-known company and verify the organization or charity through the Better Business Bureau.
If you or someone you know has fallen victim to a scam, report it! You can call your local police department or contact the National Telemarketing Victim Call Center (NTVCC). The NTVCC also has resources for detecting and preventing scams before you become a victim. You can contact them or find out more at NTVCC.org.
Source: WBA Consumer Columns
How to Get the Best Deals on Renovating Your Home
Do your remodeling in the off season - Like accountants and farmers, home-improvement pros have a slow season when they may slash prices to grab business.
Redoing your bathroom in January, replacing a furnace in July, or installing a patio in November could yield 5% to 15% savings.
Buy online - Everything - including the kitchen sink - is sold online these days, often for 10% to 25% less than at local shops.
But since a delayed, damaged, or disappointing product can derail a project, go see the item at a store first so you know what you're getting, order early enough so there's time for an exchange if there's a problem, and buy only from authorized resellers (you can verify this at the manufacturers' sites).
Combine small tasks and save - Handymen and specialists typically impose a minimum charge (often two hours at $50 to $100 an hour) just to come to the house.
Bundling small jobs could get you two to three times the results for roughly the same cost.
Hiring a contractor? Negotiate! - If you're getting a contractor to do the work, learn the right way to negotiate.
First, let the contractor know he has competition, says Russell Korobkin, professor of negotiation at the UCLA School of Law.
Hardball haggling won't work - even if you win a discount, the pro might cut corners to make up the difference.
But the remodeling market is still in the dumps, so if he hears you're considering a few contractors, he's going to give you his best price.
Set a low bar - Then, before the contractor bids, name your ballpark budget -- about 20% under what you really expect to spend, advises Korobkin.
He'll scoff, but you're setting an anchor that's going to be in his mind as he puts together his price.
Take a collaborative approach - Ask the contractor to suggest painless ways you could alter the project plan to save money, says Korobkin.
Give the silent treatment - Once you have his final number in hand, let him stew, says Korobkin.
If he has any wiggle room left and he's hungry for work, he'll reach out with a sweeter offer.
Frequently Asked Questions about Credit and Debt
Financial literacy is sort of like the weather: everybody talks about it. But are we becoming smarter about our money? Recent surveys suggest that we're not: Young adults fare poorly on financial literacy tests, and their parents don't do very well, either. As Financial Literacy Month comes to a close, USA TODAY teamed up with members of the National Foundation for Credit Counseling to answer some frequently asked questions about credit cards, credit scores, student loans and other types of debt.
Q: I have some retail store credit cards I haven't used for years. Is it better to close the account with the store or simply cut up the card?
A: This is a quite common question, especially among consumers who do not carry a balance on their retail cards. It's natural to want to close an account that is no longer in use. However, if you close an account, you may temporarily damage your credit score.
A credit score is commonly based upon five categories: payment history, amount owed, length of credit history, pursuit of new credit, and the types of credit in use. Not all categories are weighted the same; however, all categories affect how your score is calculated. When you close an account, even one that is not in use, you are losing some of the credit available to you. This could increase your debt-to-credit ratio, which might hurt your score.
Further, if you close all of your retail credit accounts, you are eliminating a particular type of credit. Since the scoring model values having varying types of credit, this could marginally affect your score.
Q: I have student loans totaling over $80,000. I am a full-time public school teacher and can't afford my monthly payments. What should I do?
A: Depending on who is subsidizing your student loans and where you teach, there could be several options available to you in order to reduce your monthly payment.
There is a new federal program called Income Based Repayment (IBR) that adjusts your monthly student loan payment relative to your current income level and family size. Also, there is a provision that if you are working as a teacher, at a non-profit, or as a public service employee, you could be eligible for the loan to be forgiven in full after 10 years of qualified payments. Learn more at www.ibrinfo.org.
Stafford Loans have a specific program for teachers, in which up to $17,500 in principal and interest can be forgiven after five years of teaching in a low-income area or other districts that meet specific requirements. A call to your student loan lender can help you find out if you are eligible for this.
Since not all student loans participate in IBR or loan forgiveness, you could certainly ask your lender about a graduated payment. Graduated payments result in a lower payment for a pre-determined amount of time, but the payments will eventually increase. This could make sense if you felt something will change in your financial situation. Make sure to ask the lender in advance what your payment will be when it increases, because it will be necessary to have the income to meet this payment further down the road.
If you're experiencing a short-term hardship, it could make sense to contact your lender about a deferment or forbearance plan. This could mean that your lender will not require payments for a period of time. Make sure to ask your lender if it will continue to charge interest, or if the interest will be stopped during this hardship.
Q: My adult child is interested in buying a home but doesn't have good credit. He has asked me to co-sign for the mortgage. Is that a good idea?
A: All of us want the best for our children, and with mortgage interest rates low and housing inventory high, it looks like the ideal time to buy. However, you should carefully consider the ramifications of co-signing on the mortgage.
There are reasons your adult child has poor credit, and if those are not remedied, that poor credit can ultimately affect you . Remember that when you co-sign any loan, you are ultimately responsible for the full amount of the debt should the primary borrower default.
Further, the loan along with all payment activity will be reported on your credit report and will affect your credit score. This is fine as long as the payments are consistently made, but what if they're not? Can you afford to put your financial dreams on hold due to a less-than-ideal credit report and score?
Speaking of the credit score, adding such a large amount of debt could automatically lower your score, particularly if you're currently servicing your own mortgage.
Q: I'm thinking of buying a new car, but will need to take out a loan. What types of loans are available and what should I look out for?
A: A new car is often second only to a home as the most expensive purchase many consumers make. You will need to consider the purchase price, how much you can put down, your monthly payment, the length of the loan and the annual percentage rate (APR). Many consumers are tempted to focus only on the monthly payment. Instead, look at the total cost of the loan over time. That can be a real eye-opener.
Another consideration is whether the loan is calculated as simple interest or add-on interest. With a simple interest loan, the interest is calculated on the balance of the loan, which is reduced with each payment. With an add-on interest loan, the interest is calculated on the full amount of the loan for the entire loan period and is more costly to a borrower.
A dealer may be able to obtain financing for you, but it may not be the best deal you can get. Contact a variety of lenders before you begin shopping for the car. That will allow you to compare the financing offers you've obtained against what the dealers offer.
Sometimes dealers may tempt you with very low financing rates for specific cars or models, but may not be willing to negotiate on the price of these cars. Or, to qualify for the special rates, you may be required to make a large down payment. With these conditions, you may find that it's sometimes more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment. Be prepared to sharpen your pencil in order to evaluate all options.
Q: What is a debt management plan? Will it hurt my credit score?
A: A debt management plan (DMP) is a program designed to help consumers pay back their unsecured debt in approximately three to five years, and is typically offered through a credit counseling agency. An unsecured debt is an account that doesn't have any collateral, such as a credit card or personal loan.
A DMP is an effective way to help a consumer eliminate debt, because credit counseling agencies have pre-arranged reduced interest rates and lower payments with each creditor. Often, over-limit and late fees are also reduced or waived. By obtaining a lower rate, the consumer is able to pay down their debt faster, since more of the payment is going towards the principal, and less toward the interest .
A DMP does not directly affect your credit score, even though there may be a notation indicating enrollment. Many clients actually see an increase in their credit score over the span of the program. It is important to remember that your credit score is fluid, and when you improve your financial situation, your credit score will likely mirror that.
Q: I have a large credit card balance with a high interest rate. I've received an offer from another credit card company for a balance transfer with a lower rate. Should I take advantage of it?
A: It's always good to look for ways to keep your credit card interest rates as low as possible, particularly if you carry a balance, but there are other things to consider with this type of transaction.
If the credit limit on your new card is less than your current account's limit, it will create a higher debt-to-credit ratio once the debt is moved to the new card.
On top of that, if you close your old credit card, your debt-to-credit ratio could be even higher, possibly lowering your credit score. Therefore, if you elect to use the balance transfer, consider keeping your old account open to maintain a more favorable debt-to-credit ratio.
It's also important to consider the balance transfer fee. These fees currently average about 3% to 4%, so you'll have to calculate if the cost of the balance transfer is worth the potential savings through the lower interest rate.
If the interest rate is significantly lower on the offer you received, it may be worth considering the new card. If not, you can try contacting your current creditor to see if they are willing to reduce your interest rate on the card you have with them.
Either way, it is critical to stop charging, as adding to your existing debt load is counter to your objective of paying off your debt.
Q: I'm behind on my debts and have been receiving threatening calls from a collection agency. What should I do?
A: Receiving a call from a collection agency can be an intimidating experience. It is important for all consumers to know their rights under the Fair Debt Collection Practices Act (FDCPA).
The FDCPA ensures that the consumer is being treated fairly in the attempts to collect a debt. Under the act, the collection agency cannot make threatening or harassing phone calls, must stop contacting you regarding the debt if you send them written notification, and cannot threaten legal action unless there is immediate intention to do so. A debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree to it. Collectors may not contact you at work if they're told (orally or in writing) that you're not allowed to get calls there. Resources on the FDCPA are available on Federal Trade Commission's website (www.ftc.gov).
Always keep a record of the name, date, time and specifics of your conversations with the collector. If you have made payment or settlement arrangements, get it in writing before you send any money. Review your income and expenses to make sure that any payment you agree to is one that you can actually make. Broken arrangements make it more difficult to establish another payment plan in the future.
Keep copies of any payments you send or statements you receive. If there is ever any question as to your intentions of paying the debt, these records will help support your case.
If you feel a collector is breaking the law, contact the attorney general's office in your state and the Federal Trade Commission to file a complaint.
Q: My credit is great but my fiance's is terrible. Will getting married hurt my credit score?
A: Getting married has no impact on your credit score. That's because the scoring model doesn't consider marital status. Further, individuals, not couples, have credit reports, and since the credit score is based on the information in the credit report, the score reflects an individual's record.
However, any debts incurred jointly after you are married will have an impact on both of your credit scores, since the activity will be reflected on both credit reports.
Q: I ordered my credit scores from the three credit bureaus, and there area some significant differences. Why aren't they the same?
There are two main reasons that scores may be different on credit reports. One is that there may be variations in the information included in the credit report. Not all lenders report to all three national credit reporting companies, thus causing different data to be reviewed for the purpose of scoring. Also, data may be reported and updated at different times, resulting in a temporary difference in the balance or payment record according to when the score is pulled.
The second is that different scoring models may have been used for each report. Even though many people think there is just one credit score, there are actually many different models, each with a unique score range. A specific number is only relevant for that specific model, so different numbers may reflect the same level of risk.
Consumers shouldn't focus on the number, but on where they fall in the range of risk for that model and what factors in their credit report most influenced that risk. The factors will be fairly consistent and will tell them where they might change their credit behavior to improve all their scores no matter which model is used.
Q: My credit is not very good, but I am getting lots of credit card offers in the mail. If my credit is so bad, why are the creditors sending me offers?
A: Credit card companies are easing back into the business of extending credit to those with below-average credit scores. The issuers know that some will default but that a large percentage will pay responsibly. Remember, if you accept the offer to open a new credit card account, you will likely be paying double-digit interest. Even so, obtaining a card and committing to charging only what you can repay in full each month could help you rebuild your credit. However, if you know that you are a spender, shred those offers.
Q: Will paying off old debt extend the amount time the debt is reported on my credit report? If so, why would I be penalized by trying do the right thing?
A: There is often confusion about whether paying old debts will keep them on your credit report for a longer period of time.
Under the Fair Credit Reporting Act, most debts can only be reported on your credit report for seven years and 180 days from the date the account became permanently past due (unpaid). This means making a payment on the debt or talking to the collection agency or creditor about payments will not restart the time. The debt being sold does not restart the time, either.
This is a completely different story when thinking about how long a creditor or collection agency has to sue you over a debt. This is called the statute of limitations, and it varies from state to state. In general, making a payment or discussing the debt with the collection agency or creditor can restart the amount of time they have to sue you over a debt.
Q: Is it important to review credit reports from all three of the major credit bureaus? Don't they all have the same information?
It is very important to review all three of your credit reports annually. While most major lenders and credit card companies report your credit history to all three credit bureaus (Transunion, Experian and Equifax), others may not. I recently had a client who had pulled one report that showed no adverse accounts, but he was receiving daily collection calls and had recently received a summons. After pulling the remaining two credit reports, he discovered nine adverse accounts of which he was unaware. Be sure to take advantage of the federal law that allows consumers to pull a free credit report each year from all three of the credit bureaus through www.annualcreditreport.com.
How to Improve Your Credit Score Before Applying for a Loan
It’s a great idea to start working on improving your credit score several months before you apply for a big loan, whether you are buying a house, refinancing or buying a car. Boosting your score could help you qualify for a lower loan rate and save you thousands of dollars over the life of the loan. Of course, paying your bills on time has a big impact on your credit score, so be particularly careful not to miss any deadlines before you apply for the mortgage. Here are other strategies (and a timeline for taking them) that aren’t as obvious but can also make a big difference.
Six Months Before You Apply
Don’t open or even apply for any credit cards. Lenders look at “credit inquiries,” which show that other lenders have asked for your credit record and indicate that you might be about to take out a lot of new debt, making it tough to pay your bills on time. Inquiries made within the past several months could mean you've taken on new debt that hasn't yet been reported, says Maxine Sweet, of the credit bureau Experian.
Don’t close any credit cards. Almost 30% of your FICO score, the one most lenders rely on, is based on the amounts you owe, including how much of your available credit you've used (called your "credit utilization ratio"). If you close a card that had a high credit limit but keep your balance the same on your other cards, it will look as if you’re maxing out your available credit, which can hurt your score. If you want to close credit card accounts you don’t use -- to avoid paying an annual fee, for example -- try to do it more than six months before you apply for a major loan. For more information, see Close a Credit-Card Account to Avoid Fees?
Check your credit reports for errors. You can get free copies of your credit reports from each of the three credit bureaus every 12 months at www.annualcreditreport.com. If you’ve already received your free reports for the year, you can order your credit reports directly from the credit bureaus at Experian, TransUnion and Equifax. It’s important to check your report from all three bureaus because mortgage lenders usually pull credit scores based on each of these reports and base your rate on the median score. Errors on just one report can affect your interest rate even if the other two reports are accurate. Although disputes are generally resolved within 30 to 60 days, the process can take longer if, for instance, you have to mail documents back and forth. “It’s always better to have a little extra time in case you run into a particularly difficult scenario,” says John Ulzheimer, president of consumer education at SmartCredit.com.
Two Months Before You Apply
Start paying down your card balances, with the goal of getting to a zero balance. “Paying down your cards is by far the most actionable way to improve your scores quickly,” says Ulzheimer. Starting two months in advance is key, he says, because the low balances don’t always appear on your credit report right away. “It takes about that long for the credit reporting to truly update the accounts to show zero-dollar balances,” he says.
If you have to add new charges, keep them to 10% or less of your available credit, whether or not you pay off your credit card bill in full every month. “A low ratio is worth almost as much as paying your bills on time,” says Ulzheimer. The lower the utilization ratio, the better. “The people who have the highest FICO scores (760+) have average utilization of 7%,” he says.
Once you do start shopping for a mortgage, “rate shop for a given loan within a focused period of time,” says Anthony Sprauve, of FICO. Those credit inquiries can affect your score if it looks to prospective lenders as if you’re about to take on a lot of debt. The FICO score recognizes that you may be shopping around for rates before you take out a mortgage, which could cause several inquiries into your credit report but result in only one loan. As a result, all inquiries for a mortgage made within a limited time period only count as one inquiry. “Thirty days is a safe bet,” says Sprauve.
And don’t stop following these strategies just because you apply for a mortgage -- keep them up until you close on the house. “You’re not out of the woods until you have the keys in your hand,” says Ulzheimer. “Lenders can pull a new set of credit reports and scores as late as the day of closing.”
Can You Afford Early Retirement?
Early retirement is a phrase many Americans wish they could turn into a reality. While retiring in your 50s or early 60s sounds enticing, it typically requires years of planning to make sure you've accumulated enough retirement assets to last for 20 or 30 years or more. It's important to factor in how an early retirement could affect your Social Security benefits, options for health insurance, and the nest egg you plan to rely on for ongoing living expenses.
Social Security and Medicare
Those who collect Social Security at age 62, the earliest age when most retirees are eligible, face a permanent reduction in benefits. For example, if your full retirement age is 66, collecting benefits at age 62 will result in a 25% reduction in the monthly benefit you would have received by retiring at 66.1
Those born in 1960 or later will experience a permanent 30% benefit cut if they choose to begin collecting benefits at age 62 instead of their full retirement age of 67. In contrast, delaying benefits past full retirement age results in a higher benefit, with a maximum delayed retirement credit of 8% annually for those who were born in 1943 or later and wait until age 70 to retire.
Regardless of your age when you retire, Social Security is not likely to pay all of your living expenses. Social Security currently comprises 36% of the income of Americans aged 65 and older, with remaining income coming from employer-sponsored retirement plans, wages, and other sources.2
Finding health insurance is equally important if you plan to retire early. Eligibility for Medicare begins at age 65, and those who retire earlier typically must obtain health insurance on their own or through a former employer, which can cost thousands of dollars annually in premiums.
Saving and Budgeting
Early retirement typically requires a larger nest egg to finance living expenses over a longer period of time. Contributing as much as you can afford to qualified retirement accounts, such as an IRA or an employer-sponsored retirement plan, can help you build this nest egg.
Retiring early requires advance planning to make the situation work to your advantage. If you have the financial resources to do it, you may want to start the process at your earliest opportunity.
1Source: Social Security Administration.
2Source: Social Security Adminstration, Fast Facts & Figures About Social Security, August 2010.
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