Homeowners facing foreclosure undoubtedly wonder whether there are options less severe to their credit scores. For example, will a short sale or deed-in-lieu of foreclosure be less damaging to your credit score? Unfortunately, the answer may not be very encouraging, but knowing the credit score consequences helps homeowners weigh their options.

Four foreclosure options

1. Foreclosure can cause you to lose as many as 140 points if you start out with a 780 FICO score. Your credit score could fall because of the unpaid mortgage payments that are reported to the credit bureau in the months before your home is actually foreclosed.
2. A deed-in-lieu of foreclosure is when you voluntarily give your house back to the bank in exchange for cancellation of your mortgage loan. You’ll see your credit score drop about as much as if you’d gone through foreclosure. But, you may save some of the damage from late mortgage payments if you turn in your home sooner rather than later.
3. In a short sale, the lender agrees to let a buyer purchase your home for less than your unpaid mortgage balance. A short sale will also affect your credit score similar to foreclosure. Again, you can lessen the damage on your credit score by short-selling your home before you’re ever late on a mortgage payment. That’s if your lender agrees to the short sale while your account is current.
4. Loan modification will also impact your credit score similar to a foreclosure (100 to 150 points lost), even if your payments are current when you make the modification application. 

Default on a second mortgage

Defaulting on your second mortgage hurts your credit score, but it won’t hurt as much as a foreclosure on your primary mortgage.

Mortgage deferral

A yet-to-be-announced government mortgage deferral program may allow unemployed homeowners to reduce or even skip their mortgage payments for a period of time. If you’ve been approved for a deferral, your credit score won’t be affected by the missed payment.

Credit score consequences will vary

The higher your credit score, the more points you stand to lose from any type of foreclosure action. Homeowners with low credit scores will lose fewer points, but their credit scores may fall lower. For example, a homeowner with a 680 credit score might lose between 85 and 105 points after foreclosure, ending up with a 575 to 595 credit score.

How a foreclosure action affects you depends on how your lender reports it. A short sale might have a less significant impact if your lender only reports the unpaid mortgage balance as a default (versus the full mortgage amount).

Want to win a $1,000 Ikea gift card? Last week, 37,000 Facebook users wanted one, too. Only, there wasn’t really a gift card, just several screens that capture personal information and coax victims into signing up for a marketing offer. These marketing offers usually ask users to enter their credit card number to sign up for a product or service. After all that hoop jumping, there was no Ikea gift card. Victims may end up having to cancel the service they signed up for to prevent future credit card charges.

According to MacWorld, Facebook users were "fanning" the Ikea gift card page at a rate of 5,000 per hour before the page was shut down. A spokesperson said Facebook was working on a way to remove these types of scam fan pages.

Anyone who fell prey to the same gave up a lot of personal information. They’re lucky to get away with a little email spam. It’s likely that those "required" marketing offers will result in a credit card charge. The worst-case scenario: the gift card offers are a phishing scam used to get enough information to steal an identity. (I’m thinking the scammers make money by selling personal information and for getting users to sign up for marketing offers.)

How to avoid gift card scams on Facebook (and elsewhere)

Don’t be gullible. These gift cards are too good to be true because they aren’t true. No store is going to give away $500 or $1,000 gift cards to tens of thousands of people. If you see a gift card offer like this online, Facebook or anywhere else, avoid it.

Be smart about what information you give out. Legitimate gift cards are sometimes given away by individual blogs and websites, but in limited quantities and smaller denominations (like $25 or $100). They don’t require you to make a purchase, sign up for an offer, and only need enough information to send your card after you’ve won.

What to do if you’ve been scammed

Watch your credit card statement. If you signed up for a marketing offer, your credit card will probably get charged for the product or service you signed up for. Depending on the offer, you may be able to avoid credit card charges if you cancel the service within a certain amount of time. You can dispute fraudulent charges with your credit card issuer.

Monitor your credit report. You can keep an eye on your credit report for free by ordering one of your annual credit reports every four months. Just make sure you rotate credit bureaus. For example, order Equifax first, then Experian, and TransUnion last. You might also consider signing up for a credit monitoring service. These services range from $10 to $30 a month.

Consider adding a fraud alert to your credit report. A fraud alert informs any business who’s checking your credit report to approve a new application that you may have been a victim of identity theft. These businesses should take additional steps to confirm your identity before granting credit.

Photo courtesy of http://www.flickr.com/photos/slimjim/ / CC BY-NC-ND 2.0

Learning about credit and credit cards often takes trial and error. Unfortunately, those errors can ruin an 18-year-old’s credit score early on and follow him or her around for seven years, or as many as 10 years if that error happens to be bankruptcy.

There’s an easier way for kids to gain experience with credit cards before they actually use a credit card – by playing games that simulate credit card usage. 

Four games that teach kids about credit

Beat Debt is a financial strategy game that lets players choose between investing their money and using it to pay down debt. The winner of the game is the first player

to pay off their credit card balance and earn $5,000 in investment balances. As players move around the board, they land on spaces that allow them to purchase land, earn money from their investments (or pay administrative fees for those investments), and pay on their credit card balances.

Charge Large is a board game by Hasbro, the makers of Monopoly and Scrabble. In Charge Large, players ‘travel around the board using cash and a gold credit card to scoop up prime properties." The winner is the first person to have cash, a zero credit card balance, and the coveted black card.

In Celebrity Calamity, a free online game, your job is to manage a celebrity’s finances. You must sign them up for job, collect their money, pay their expenses, manage their credit card bill, and make sure their checking account balance says positive. If you fail, your celebrity will get angry and fire you. Look for credit lessons along the way, like the importance of paying your credit card balance in full to avoid interest charges.

Thrive Time for Teens is a board game that helps teens learn to make the right financial decisions. Players pull cards from a stack and make a decision based on the information. Decisions include how to pay for college, when to start a business, using cash vs. credit, or giving to charity. Positive decisions allow the player to move forward on the board, while negative decisions lead to a step back. The first player to reach the end of the board and "thrive," wins.

Traditional board games that use credit cards

At least some of the older board games have updated versions that use a debit card rather than paper cash. Life Twists and Turns and Monopoly Electronic Banking both give players cards to house their money. The banker uses a computerized disc to transfer money to and between players. While some may criticize the games for encouraging credit card use, kids may come to realize that credit and debit cards aren’t magic – there’s actually money tied to the card and that money can be spent just like cash.

Yep…the library. Borrowing instead of buying books is one of the most obvious, painless ways to save a ton of money.

It pains me a little to say this, because I used to be in the book publishing industry and made my living from people buying books. Plus, I was an English major in college and have always thought of books as sacred, special things to be protected and collected at all costs. But the truth is, those costs add up.

The fact that books are made from a precious natural resource (trees) doesn’t help their cause either. Way too many books are read once and then sent to their final resting place—the bookshelf—to gather dust and never be touched by human hands again.

Now I love the idea of book collections, in theory. Mahogany-paneled libraries filled to the ceiling with leather-bound tombs (some of which you need one of those cool rolling ladders to reach). Or even a sparse apartment featuring nothing but bookshelves made from plywood and cinderblocks, filled to the brim with poetry and obscure, contemporary fiction. A unique or sprawling collection of books says something about its owner: that he or she values the written word immensely, perhaps at the expense of comfortable furniture. You have to respect someone who builds up a home library and actually uses it (instead of, say, flicking on the television each night).

But I’ve always been way too much of a clutter-control freak to have disheveled stacks of books lying around. And being in the book publishing industry, I ironically couldn’t afford loads of books. So now, I’m left with a couple of shelves lined with classics I read in high school and college, and the occasional purchase of a popular book I know I’ll want to pass around to friends (like the Twilight series hardcover box set…don’t judge). Outside of these exceptions, I almost always borrow instead of buy.

I love the library because:

1. It’s free. The only plastic needed here is a library card.
2. You can view your account online. Most library systems have an easy online interface that allows you to place a request for almost any book out there (though expect a wait for the current popular reads).
3. More than just books. The library offers other media, too, like audiobooks, DVDs, and magazines. I’ve recently gotten into the habit of checking out Books on DVD to listen to in my car. Way better than mindless radio that’s riddled with annoying ads. 
4. It’s close. My local branch is closer to my house than a bookstore, and also easier to park at.

I also love that the library is all about community, not consumerism. All kinds of people are inside, whether it’s the kids not quite adhering to the "silence is golden" rule, the homeless guy who needs a warm, dry place to sit for awhile, or those who come in solely for the free internet.

The more your read, the more you save

While I don’t want the book publishing industry to suffer anymore, and I don’t want to see more bookstores go out of business, I personally don’t spend my money on books. By borrowing from the library, I calculate that I save around $430 a year. This is in addition to the square footage I save by not having to find a spot to store the books once I’m done reading them. True, electronic devices like the Kindle solve the physical storage problem, but they’re expensive. I don’t want to buy one for $299 just to have the technology skip ahead, quickly rendering my model obsolete. Call me old-fashioned, but I like to turn actual paper pages, not digitally simulated ones.

The more time you spend as a bookworm, the more money you save. Think of the cost of some other popular forms of entertainment: movie tickets, premium cable stations, Netflix, etc. While I’m not suggesting giving up all of these, choosing to read a book instead of going out to the movies every once in awhile can save big bucks. Getting lost in a good read you borrowed from the library costs you nothing, and can be far more enjoyable / life-changing / mind-opening than watching the latest episode of a favorite reality TV show.

The library and your credit

In my opinion, the library is still the best, most frugal way to enjoy books. Just take care to return what you borrow to avoid a collection account from popping up on your credit report (check out #4 on the Obscure Credit Facts list from Liz Pulliam Weston). The good news is that the new FICO scoring model won’t ding you for collections under $100 (like unpaid library fines). So borrow fearlessly and borrow often from your local library, and give your credit card a much-needed break!
 

If you think locking your car would keep your belongings on the inside safe, you are wrong. A thief who wants to break into your car can break the window or punch out the key hold on the door to gain entry to your vehicle and everything inside.

As a Bakersfield, California news site points out, car thieves aren’t just interested in taking your stereo anymore. They’re looking for something more valuable – your identity. That’s why it’s becoming more important that you think twice about what you leave in your car, locked or unlocked.

Credit cards and debit cards

Most people realize a thief can steal a credit card and rack up credit card charges. Fortunately, you won’t be responsible for any of these charges if you report the stolen credit card before any fraudulent charges are made. The most you’ll ever be liable for is $50.

Your checkbook

Thieves can steal your checks and use them to make purchases or siphon money from your bank account. They can even use your bank account information, which is printed at the bottom of the check, to create fake checks in their own names.

Your mail

A few unopened envelopes might seem harmless, but stolen mail could lead to more serious problems. For example, some credit card issuers print the full credit card number on your billing statement. Your bank statement could include copies of cancelled checks, which could be used in checking account fraud.

Bills you intend to mail

Your unmailed bills probably contain checks. Thieves can use chemicals to wash the ink from your fill-in checks and write whatever they want in the blanks. Or, they can just use your checking account and routing number to create an unlimited number of checks in their own name. 

Your Social Security number

Your Social Security number is a goldmine to identity thieves. With your Social Security number, a thief can open a slew of new credit cards and loans in your name and even pretend to be you. It could take years (or even longer) to get rid of the consequences of a stolen Social Security number. Don’t leave your Social Security card or anything with your SSN on it in your car.

Your laptop, phone, and other gadgets

Your electronic devices hold more of your personal information than you realize. You might have usernames and passwords stored or "remembered" on your laptop. A thief could use your cell phone to contact your family or friends to get your personal information. It’s wise to protect your devices with a PIN or password, but a determined hacker can get around these walls and get to the information they need.

Preventing and responding to ID theft

When it comes to identity theft, prevention is the best option. You can best protect your identity by keeping all your personal information safe and secure. If your car is broken into, consider placing a fraud alert or security freeze on your credit report, even if you don’t immediately notice anything missing.

A survey done by Compete.com revealed that even though the average credit card owner carries 4.4 credit cards, only two of them are used on a regular basis. The remaining cards are either used rarely or not used at all. If you have several credit cards in your wallet, why would you use just two of them and leave the other two untouched?

Survey results

• Most survey respondents (36%) say they use a particular card because they get a deal on the purchase. For example, they may earn reward points.
• 29% have a credit card that they use regularly and only use a different card if that primary card doesn’t work. People use a certain credit card out of habit.
• 18% don’t have a specific reason for using a credit card. Maybe they just couldn’t think of the reason, but there has to be something that makes them choose a particular credit card, even if it’s as simple as liking the color of the card.
• 10% use a certain card for a specific purpose like shopping for groceries.
• 2% use one credit card for personal reasons and the other for business.

How does a credit card become the preferred credit card anyway? The survey says the most appealing feature of a cardholder’s preferred credit card is no annual fee (31%). The next most appealing feature is reward points (20%), followed by low interest rate (12%).

Compete.com surveyed 1,300 consumers for this survey.

Inactivity fees

There are consequences to not using the other two credit cards. You might have to pay an annual fee if your credit card has an annual fee based on the amount of charges you make on the credit card. Some credit cards waive your annual fee if you charge a certain amount during the year. For now, inactivity fees are legal and your card issuer could charge a fee if your credit card remains dormant for a certain period of time. Your card issuer may go so far as to close your credit card for inactivity. This could hurt your credit score.

Surprisingly, amount of credit limit or type of card didn’t make the list of preferred credit card features. For example, you might choose to use a credit card with a higher credit limit, especially if you’re making a large purchase. You might use a revolving credit card over a charge card, like American Express, if you don’t plan to pay off your balance in full at the end of the month.

It’s Friday again, and that means it’s time for the weekly SpendOnLife grab bag! Here we share some of the week’s more interesting tidbits from the world of identity theft and credit. Enjoy!

What happens to your online accounts when you die?

If you were to die tomorrow, would anyone know how to access your online accounts? Creditbloggers recently asked this very question in Who Gets Your Bits? While this might not be nearly as important as, say, who inherits your home or other major assets, you can make it easier for others sorting through your affairs after you’re gone. The best solution I’ve heard is to simply keep a list of your online accounts and passwords in a safe deposit box next to other important documents. 

How to own a car for less

I was shocked to learn that the average person only owns their car for 5.5 years. I’ve owned mine for nearly 8 and have no intention of giving it up anytime soon (not because I love it, but rather because I don’t want a new, expensive car payment). Wisebread does the math on how to get the most out of your set of wheels for the least amount of money. I would add one thing to the list: maintain good credit to get a better deal on your auto loan!

Who shares your name?

Identity thieves don’t necessarily need to take on the identity of someone with a different name. It’s much easier just to impersonate someone who shares your name, such as Michael Nelson of Atlanta who pretended to be successful lawyer Michael Nelson of New York. The fraudster succeeded in taking money from two people who were in need of legal counsel.

Identity-stealing Romeo

To all the single ladies, watch out for fraudsters on dating sites who prey on women looking for companionship. Jaitass Dhanoa, for instance, wooed multiple women through sites like Match.com and IndianDating.com, then open credit cards in their names (making himself an authorized user, of course). All in all, Dhanoa racked up tens of thousands of dollars through the cons.  

According to the Dallas Morning News, the Texas Department of Public Safety is in the business of selling Texas drivers’ information to private companies. 

The DMN article reports that "private companies spent nearly $50 million during the last fiscal year buying the data, including dates of birth, from the Texas Department of Public Safety. In some cases, companies buy the data for all 21 million Texas drivers at once and receive weekly updates. Buyers include insurance companies, country clubs, pizza delivery companies, collection agencies, utilities and driving schools."

Apparently, Texas isn’t alone. I did a little research and see that Missouri, Minnesota, Iowa and others all sell resident drivers’ license information to the private sector. I found an article from 2006 in which Minnesota Attorney General Mike Hatch was aiming to stop the sale of driver’s license information. But I couldn’t find any follow-up to it.

Those in favor say…

Proponents of this practice cite the benefits of having access to this private data: Car insurance companies can process claims more efficiently; car companies can contact people about a recall fix using the data. They argue that the problem isn’t that the DPS is legally allowed to sell the data to certain groups who use it legitimately, it’s that the information gets leaked and resold to identity thieves and other fraudsters. 

What law allows this practice?

Did anyone know this was happening? Under what law is this okay? And more importantly, is there some way to opt out of this?

This issue came up in the news because there is currently a law on the table seeking to keep the birthdates of state workers private. So on one hand, the government is selling our information to private companies, and on the other, Texas lawmakers want to pass legislation that keeps government worker information, such as date of birth, off public records. A major double standard. 

There’s a right and a wrong way to do just about anything – including improving your credit score. Credit improvement mistakes hurt your credit score instead of helping it. Don’t make credit repair harder than it needs to be! Here are some things you should avoid when you’re improving your credit score.

Close credit cards

Closing a credit card will rarely boost your credit score. In fact, it’s more likely to slow down your credit repair progress since closing a credit card affects your credit utilization (which is 30% of your credit score). Leaving credit cards open will help boost your credit score, especially when any of your credit cards still has a balance.

Open new credit cards

When you open a new credit card, you lose points for three reasons: you’ve added another credit inquiry to your credit report (10% of your score), your average credit age is lowered (15% of your score), and your credit utilization goes up, assuming you make a new charge on the card. Opening a new credit card might only help you improve your credit score when your other credit cards are either closed or not in good standing.

Pay off high balances first

If your highest balances happen to have the highest interest rate, you might pay those off first to save money on interest. Knocking out those small balances will help your credit score in terms of credit utilization though. For example, if you have a credit card with a $250 balance and $500 credit limit versus a $500 balance and a $1000 limit, pay off the $250 credit card first. You’ll take that credit card to a 0% utilization sooner and bring your average utilization down to 33%.

Shuffle balances around use balance transfer deals

Transferring too many balances onto a single credit card raises your credit utilization and lowers your credit score. Not only that, if you open a new credit card to get a balance transfer deal, you’ll lose points because of the credit report inquiry and lower credit age. Apply for new balance transfer credit cards sparingly and don’t transfer more than 30% of the new card’s credit limit.

Overlook your credit report

If you want to improve your credit score, your credit report is the first place to start. After all, that’s the information used to generate your credit score. You can get a quick boost by disputing inaccurate, negative information that’s on your credit report. But, you’ll never know these errors are there if you don’t check your report.

The right way to improve your credit score

The best way to boost your credit score is to pay your bills on time. Pay off past due bills like charge-offs and debt collections since payment history is 35% of your credit score. Pay down your credit card balances to lower your credit utilization and raise your credit score. Remember that a higher credit score doesn’t come overnight. Keep paying your accounts, make reasonable credit card charges, and you’ll see your credit score increase over time.

As the U.S. economic recession drags on, millions of Americans continue to struggle with managing debt and paying off debt. Unfortunately, during these troubled times there are those who seek to take advantage of those in need. If you or someone you know is knee-deep in debt, here is what to avoid as well as what to look for when it comes to legitimate debt relief programs vs. debt relief scams.

If it sounds too good to be true…

The first word of advice on debt relief scams is this: If it sounds too good to be true, it probably is. Debt does not happen overnight. Debt tends to build and snowball overtime until suddenly a person finds that they are unable to successfully manage their debt and continue to meet their monthly debt obligations.

Any person or company that promises instant and overnight debt elimination should be avoided like the plague. It’s simply not possible to eliminate debt overnight. Legitimate debt relief programs involve analyzing one’s financial condition for strengths and weaknesses and then developing and implementing a plan to get out of debt. Even the best debt relief programs, such as debt settlement, can take one to three years to complete, at which point one becomes completely debt free.

Beware debt consolidation loans

Another somewhat unscrupulous debt relief program to be wary of is debt consolidation loans/home equity loans. These are new loans which are taken out to pay off existing loans. This strategy is both risky and in most cases simply does not make good sense. In the case of taking out a home equity loan to pay off credit card debt for example, is the exchanging of unsecured debt (credit card debt) for new debt that is secured by one’s home. If the consumer is unable to make their home equity loan at sometime in the future, they would be at serious risk for losing their home.

Another telltale sign of a scam is if a supposed debt relief company asks you to pay them for their services in advance – long before they have obtained any measure of debt relief for you. It’s possible you could never see your money again and receive no amount of debt relief help.

Legitimate debt relief companies, however, do provide a valuable service to consumers who are in debt. Legitimate debt relief companies typically act as a consumer’s advocate, and negotiate between the debtor and their creditors to obtain concessions in the amount of debt that is owed. For these debt negotiation and debt arbitration services, legitimate debt relief companies typically receive their fee as a percentage of the savings realized. This is the only way in which debt relief programs should be paid for – never up front.

Using this advice will help you navigate the debt management maze so that you can get the real debt relief that you deserve.

John Chase works in the finance field and writes about issues concerning credit and debt. To learn more about legitimate debt relief, please visit Total Debt Relief at www.totaldebtrelief.net/.