Credit card fraud soars despite 'chip and pin'

Fraud on credit and debit cards rose by a quarter last year to reach a record high despite the introduction of the "chip and pin" security system.

The cost of fraud on cards issued in Britain totalled £535.2 million during 2007, with losses rising for the first time since 2004, according to the payments body Apacs.

The group said the rise was largely driven by a 77 per cent jump in fraud carried out abroad, with criminals using stolen British card details overseas, typically in countries that have not yet upgraded to chip and pin.

Overseas card fraud was worth £207.6 million, or 39 per cent of the total lost.

But there was also a six per cent increase in card fraud losses in Britain, which was largely driven by fraudsters using stolen details to make purchases over the telephone or internet, or by mail order.

This "card not present" fraud soared by 37 per cent to £290.5 million, possibly as criminals frustrated by chip and pin security looked for alternative scams.

Chip and pin does seem to have had an impact - fraudulent use of credit and debit cards on the high street has dropped by two thirds in the past three years, from £218.8 million in 2004 to £73 million last year.

There was, however, a 46 per cent rise in fraud using cloned cards, although most of this was thought to have happened overseas.

[Source: http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/03/12/nfraud112.xml]

Credit Card Companies Can Stop ID Fraud

A relatively simple bit of computer programming at America's three nationwide credit bureaus could create an early-warning system that would significantly deter the $50 billion identity theft problem plaguing America's consumers and the financial services industry serving them.

The Better Business Bureau estimates that 10 million people are affected by identity theft every year. One of the most common forms of this is the hijacking of good credit. If an identity thief gets personally identifiable information such as a Social Security or credit card number of an individual with a high credit score, the thief can apply for a loan or use credit available in the name of his victim. Until collection agencies show up at the victim's door, the target of identity theft may have no idea what has been happening with a criminal taking advantage of his good name and hard-earned good credit.

The same technology that enables credit reporting agencies to keep constant track of our individual borrowing and payment histories — so that banks, finance companies and retailers can make instant credit decisions — can also alert individual consumers by e-mail when there is a new credit application in their name. It would be technologically feasible to provide these alerts to all consumers as a matter of course, and it would go a long way toward preventing data hijacking. When there are credit applications made without consumers' knowledge, that's a problem the victims need to know about at the earliest possible moment, to protect their interests and their good credit standing.

Credit companies do make forms of e-mail alerts available to consumers, but this is a paid service. Those who make money marketing our credit information should be required to provide immediate notice to us for free when a potential credit fraud in our name is being detected.

These e-mail alerts could readily be programmed into the databases of each of the three major credit reporting bureaus, at a minimal cost and to immediate effect. Sharing this data with consumers by an e-mail alert would warn us whenever someone else might be hijacking our credit. If an individual didn't apply for the credit being taken in his name, this early warning would be a red flag to potential victims of identity theft to alert the authorities and the creditor being defrauded.

Credit reporting bureaus are in the business of trading information on our credit. In a national credit market, this system means that the financial services industry can package and trade our debts, because financing taken anywhere in the country can be compared directly with financing taken anywhere else based on credit scores.

Our personal information is the commodity of the credit report industry, which gains from packaging and trading our personal information. The credit report companies would like to treat the potential to warn consumers and minimize abuse of the credit bureau system as one more profit center.

Those who grant credit based on credit reports, as well as those consumers whose credit is hijacked, are all victims of identity theft. Charging consumers for monitoring alerts that are sold as a premium service and only reach a small fraction of the consumers who are at risk is not serving our interest in protecting against this abuse.

This $50 billion financial fraud is susceptible to a quick technology fix by the credit bureaus that act as trustees of our sensitive financial information. We should expect the scandal of identity theft, aided by misuse of credit reports, be put to a quick end by those who profit from trading in our personally identifiable information. By taking a simple step using technology, credit bureaus could help every consumer ensure their credit information is accurate and protected.

Mark A. Shiffrin, a lawyer, is a former Connecticut state consumer protection commissioner. Avi Silberschatz is Sidney J. Weinberg Professor and chairman of computer science at Yale.

[Source: http://www.courant.com/news/opinion/op_ed/hc-shiffrin0312.artmar12,0,1627129.story]

Think before you swipe credit card for cash

What’s the worst thing to do with your credit card? Use it to withdraw cash from the ATM, says a financial expert. In your monthly credit card statement, there is a mention of cash limit.

That is the extent to which one could withdraw cash using a credit card. But the googly is the interest rates. It’s actually a very expensive proposition to withdraw cash as the interest rates on such withdrawals fall in the range of 40% on an annual basis.

Usually, the credit card company mentions the interest rate as a percentage per month which typically varies from 2.7-2.85% per month.

And since this interest is compounded monthly, the effective annual rate of interest tends to be anywhere from 38 to 40% per annum.

Essentially, credit card companies charge the same interest rates for cash withdrawals made through credit cards and for rolling over credit card balances.

But if one pays the entire amount on due date, one gets around 30-45 days of interest free credit.

But what is important to know is that rule doesn’t apply in case of cash withdrawals; the credit card company levies the interest rate the moment you withdraw the cash.

Cash withdrawals can also attract an additional withdrawal fee. This charge falls in the range of 3-3.5% of the withdrawn amount.

That will be added along with the interest rate to your bill. Therefore, unless you have emergency needs, do not withdraw cash on your credit card.
The better option though is to go for a personal loan.

Says RL Prasad, general manager and head of cards and personal loans at Standard Chartered Bank, “You should look at this option as the last resort. If it’s a planned expenditure and you don’t have sufficient liquidity then a personal loan is be a viable option.”

Credit card cash withdrawals vs personal loan

Personal loan is a better option as the average interest rate on personal loans is between 15-20% per annum. The only handicap however, is that it takes around 7-10 working days for the banks to process personal loans.

For the uninitiated, every credit card statement has a billing date. For example, if your credit card payment is due on March 15 then the bill would have been dated around February 27.

So if you purchase anything on February 28 or later, that payment would be due only on April 15. So you get some time to cough up that money to pay off the dues.

If you are unable to pay the outstanding amount, then the credit card company charges a month rate of 2.95% of the total amount. But this breather doesn’t exist on these cash withdrawals.

The Top 10 Credit Mistakes

1. Closing Credit Cards Accounts

Some of you may wonder why Closing Credit Cards is number one on this list as the biggest credit mistake even above Missing Payments. In fact, closing credit cards is almost as bad of an idea to increase your credit scores as missing payments, but it is also a clear number one on the list of credit myths. It is perhaps the most common piece of advice that consumers are given when they ask,” How can I increase my credit scores?”. If there were ever a wolf in sheep’s closing as far as credit mistakes go, it’s this one. Closing credit card accounts will not increase your credit scores. So called “industry experts” such as mortgage lenders suggest that you close credit cards as a strategy to increase your credit scores to qualify for home loans. However, there are two huge reasons not to close credit cards that you no longer use. They are:

• They will eventually fall off your credit reports – Information on your credit reports has to follow certain rules as far as how long it can remain on the report. In most cases credit information will remain on your credit files for no longer than seven years from the account’s Date of Last Activity or “DLA.” Your DLA will continue to update each month so long as the account remains open. So, an open account will never reach the seven-year mark because each month your DLA updates to the current month. However, once you close the account your DLA will cease to update and the clock begins ticking. Eventually the account will be removed permanently from your credit reports.

  Why is this a bad thing? The answer to this one is very simple. It’s all about your impressive past. Here’s an analogy that might make this easier to understand. Let’s say hypothetically that you made straight A’s in high school. What if the record of that perfect scholastic accomplishment were permanently deleted seven years after you graduated? Would you ever want that history deleted? Of course you wouldn’t. This also applies in the credit reporting environment. If you have a perfect record of making your payments on time then this significantly helps your credit scores so why would you ever want that history to disappear? You wouldn’t.

  What should you do with old credit cards that you don’t use any longer? The problem with inactive credit cards is that you are not generating any revenue for the credit card company. Eventually they will proactively close the unused account because you are a liability, not an asset. Prevent this from happening by using the card once every few months for dinner or a low dollar item like socks or a new belt. Once the bill comes, pay it in full. Doing this will ensure that the account will never be closed and you’ll always get credit for your good payment history.

• You will hurt your “utilization” measurements – This is significantly more important than your closed accounts eventually falling off your credit reports. Revolving Utilization is the amount of your revolving credit card limits that you are currently making use of. For example, if you have an open credit card with a $2,000 credit limit and a $1,000 balance then you are 50% “utilized” on that account because you’re using half of the credit limit. This measurement is almost as important to your credit scores as making your payments on time. If you had a second open, but unused, credit card with a $2000 credit limit and a $0 balance then your aggregate revolving utilization is 25% because you have $4000 in credit limits and $1000 in balances. $1000 divided by $4000 is .25 or 25%.

  How will closing an unused credit card hurt your credit score? Let’s say that you closed that second unused credit card from the above example. Once you do so then you remove it from any utilization calculation and now you’re stuck with one open card with a $2000 credit limit and a $1000 balance. Now your utilization has gone from 25% to 50% (divide $1000 by $2000 and you get .50 or 50%). As this percentage increases, your credit score decreases.

2. Missing Payments

The reason missing payments is number two on the list instead of number one is that it doesn’t take a credit scoring expert to tell you that missing payments is a bad thing. It’s common sense, unlike Closing Credit Card Accounts. The explanation why missing payments is a huge mistake is also fairly obvious. Credit scores look at your credit history to see how you have managed your current and past credit obligations in an effort to predict how likely you are to miss payments in the future. The most powerful “predictor” of future late payments is having missed payments in your past. There are three ways that missing payments will hurt your credit scores. They are:

• How Frequent are Your Late Payments? – If you miss payments frequently then you will be penalized much more severely than someone who misses payments infrequently. Missing payments every once in a while indicates that you are a responsible consumer but you may have problems with finding the time to make your payments. Or, perhaps the bill was lost in the mail or you were out of town on travel when the bill came due. The point is that you are not making a habit of missing payments. Don’t start.
• How Recent are Your Late Payments? – Since scoring models are designed to predict how you are going to pay your bills in the subsequent 24 months, it’s very common that they assign more value to how you’ve managed your credit in the most recent two years. If you have late payments that have occurred in the most recent two years then you are more likely to miss more payments in the next two years. As such, your score will suffer.
• How Severe are Your Late Payments? – The severity of your late payment also plays a big part in your credit scores. This not only makes statistical sense but also common sense. Consumers who have missed payments by only a few weeks and then bring their payments up to date are going to score better than consumers who have payments that are 90 days past due or worse. If you have late payments it is in your best interest to do all that you can to bring them up to date.

3. Settling With Your Lender on a Past due Account

“Settling” is a term used in the consumer credit industry that means accepting less than the amount you owe on an account. For example, if you owe a credit card company $10,000 but you can’t pay them the full amount then they will likely make you a deal for less than that full amount. They have “settled” for less than the full amount, which is likely much less than you contractually owe them. This may seem like a good idea because you are happy that you didn’t have to pay the full amount. However, the lender will report that remaining amount to the credit bureaus as a negative item. This remaining amount is called the “deficiency balance”. A deficiency balance is considered just as negatively by credit scoring models as any other severe late payments. If you can arrange a deal with your lender so that they will NOT report the deficiency balance then that will be your best course of action. If they will not agree to this then you have to figure out a way to pay them in full or your credit will suffer for 7 years.

4. Over Utilization of Your Available Credit Card Limits

Having high balances on your credit cards will undoubtedly cause your credit scores to go down, and in most cases, in a big way. The mistake you are making is called “over utilization.” Over utilization is the practice of running up balances too close to your credit card limits. For example, if you have a Visa card with a credit limit of $10,000 and a $5,000 balance you have a utilization percentage of 50% because you are using 50% of your credit limit. The higher that percentage the fewer points you will earn for your credit scores. If your balance is $9,500 then you will be 95% utilized and in big trouble. Your best bet would be to use your cards sparingly and pay them down as much as possible each month. If paying your cards off every month is unrealistic then try your best to keep that percentage as low as possible. There is no magic target to shoot at, but it’s safe to say that the lower the percentage the better.

5. Excessively Shopping for Credit

Every time you fill out a credit application you are giving the lender permission to access your credit reports. When they access your credit reports they automatically post what is called an “inquiry”. The inquiry is a record of who pulled your credit report and on what date. Federal law requires that the lender post the inquiry. It also requires that the inquiry remain on the report for 24 months.

Inquiries are used by credit scoring models to determine whether or not someone is shopping for credit. It is a statistical fact that consumers who have more inquiries are higher credit risks than consumers with fewer inquiries. As such, the more inquiries you have the more points you will lose in your credit scores. While the exact point value is a closely guarded secret by the credit scoring companies you should assume that your scores would suffer if you have an excessive amount of inquiries.

Probably the most troublesome byproduct of holiday shopping is the collection of inquiries that consumers end up with. Think about this scene: you go to the mall to go shopping and are enticed by offers of “10% off today’s purchase” in exchange for applying for a store credit card. This sounds like a great idea because you are saving a few bucks on your purchases. But if you look at the big picture you will see that this is a horrible idea with dire consequences. If those excessive inquiries cost your credit score 10, 20 or 30 points you could expect to pay higher interest rates on either a future home or car loan. Either way, the thousands of additional dollars that you will spend in interest far outweigh the $20 you saved at the mall.

Think twice about applying for a store card simply to save a few dollars. It’s a better idea to pay for the product with cash, a check or a credit card you already have.

6. Thinking that all Credit Scores are the Same

Credit Scoring is already a confusing enough topic to understand. Add to the mix that there are as many different types of credit scores as there are soft drinks and it gets really confusing. The most commonly used credit score is a credit risk score. A credit risk score is designed to assist lenders by predicting whether or not a consumer will pay their bills on time in the future. The most common credit risk score is designed and developed by a company called Fair Isaac Corporation. This Minneapolis based company builds the industry standard “FICO” score. FICO is an acronym for Fair Isaac Corporation. The vast majority of lenders use their scoring models as part of their standard lending procedures.

There are many different places where consumers can purchase their credit reports and credit scores however not all of the scores being sold are, in fact, the authentic FICO score. On the surface this might not seem like a big deal but it certainly can be. For example, if you are in the market for a new car and you purchase a credit score from a web site that no lender uses then you are really no better prepared to go car shopping. If, however, you purchase the authentic FICO scores then you will have the same exact score that the car dealers will eventually see when they run your application for credit. This can be incredibly empowering for the shopper because you’ll know what your credit situation is before the dealer does. Given that there is a general distrust of car dealerships this will ensure a fair negotiation process when it comes to dealer financing. It will be more difficult to be taken advantage of by an unscrupulous dealership.

When you are shopping online for your credit reports and credit scores be sure that the score you are buying is branded as the authentic FICO® Credit Score. These can be purchased through various reputable web sites such as www.myfico.com and www.equifax.com.

7. Thinking that all Credit Scores Predict the Same Thing

Adding to the confusion in number six above is the fact that there are models that predict other things than general credit risk. Scoring models can be built to predict almost anything including:

• Insurance Risk – That’s right. Insurance companies use credit scoring models to predict whether or not you are likely to file an auto or homeowner’s insurance claim. A poor insurance score will mean that you will pay higher premiums or be declined coverage outright.
• Response Rates – Raise your hand if you receive pre-approved offers of credit in the mail everyday. There is an incredible amount of science behind those offers and why you get them. It’s not random. You have been selected from hundreds of millions of other consumers to receive that offer because you have a “Response Score” that indicates you are more likely to respond to that offer than someone else who didn’t get it.
• Revenue Potential – Credit card companies also use revenue scoring models to predict whether or not you will use their credit card and, therefore, generate revenue for them.
• Collect Ability – For those of you who have collections on your credit reports you can feel certain that the collection agencies assigned to collect those past due debts are also scoring you to determine whether or not you are likely to repay your collections.
• Bankruptcy Potential – Bankruptcy scores predict the likelihood that you will file for personal bankruptcy. You can assume that if you have a poor bankruptcy score that your credit applications will likely be declined.
• Attrition Potential – These scores predict whether or not you will stop using one card in lieu of another. This is called attrition and it is considered the cancer of the credit card industry. If you have a score that indicates that you are likely to attrite and start using another lender’s credit card then you should expect to begin receiving special bonus offers as an effort by your current credit card company to dissuade you from moving on to another card.
• Fraud Potential – Amazingly sophisticated, these models actually can predict whether or not a purchase you are trying to make with a credit card is fraudulent or not. What’s even more amazing is that it takes about 2 minutes to complete your check out at a store and in this short amount of time you have been scored to see whether or not the retailer will accept your credit card.

8. Not Understanding Your Rights Under The Fair Credit Reporting Act

This act, commonly referred to as the “FCRA”, is a list of the rules and regulations that govern lenders and the credit reporting agencies. You should become familiar with your rights under this act which can be accessed at no cost at the Federal Trade Commissions web site. The address is www.ftc.gov. Some highlights are:

• Permissible Purpose – There are only eight legal reasons why your credit reports can be accessed. These are called “Permissible Purposes.” Some of the more obvious reasons are:
  Consumer Disclosure – If you ask for a copy of your own credit report then this is a permissible purpose.
  As Part of a Legitimate Business Transaction – If you fill out an application for credit then this gives the lender permissible purpose to pull your credit reports.
• Your Right to Dispute Your Credit Information – Every consumer in the U.S who has a credit report also has the right to dispute the information in that report if they feel it is incorrect, outdated or unverifiable. The FCRA lays out the process and requirements on how to file a dispute and what kind of turnaround time your lenders and the credit reporting agencies have to complete their investigation.
• Your Right to a Free Copy of all Three of Your Credit Reports – Recently the FCRA was amended by an act called FACTA also known as the Fair and Accurate Credit Transactions Act. FACTA calls for national disclosure of credit reports for free. By September 2005 every person in the U.S can get a free copy of his or her three credit reports. Requesting your free copies if very easy. Go to www.annualcreditreport.com to verify your eligibility.

9. Not Knowing that you Have Three Credit Reports and Three Credit Scores

Most consumers understand that they have a credit report. However, most consumers do not know that they have three credit reports compiled and maintained by three separate and competing companies called “Credit Reporting Agencies.” These companies are essentially warehouses that store your credit history and sell it to lenders who want to grant you credit. These companies are:

• Equifax – Equifax (NYSE: EFX) is based in Georgia. Their web address is www.equifax.com
• Experian – Experian is a division of an English based company called GUS (Great Universal Stores). Several years ago Experian purchased the credit database that was formerly known as TRW Credit Services. Their web address is www.experian.com and they have U.S corporate offices in California.
• TransUnion – Based in Illinois, TransUnion is privately held. Their web address is www.transunion.com.

Each of these companies maintains credit files on over 250,000,000 consumers, which they sell to lenders. They do not share credit information with each other since they are competitors. As such, you will likely have a unique credit report and credit score at each of these companies. Do not assume that your credit reports and scores are all the same.

10. Not Having Credit (or a Credit Score)

That’s right. Not using credit is a huge mistake. The way the credit system in this country works is that it rewards consumers who manage credit responsibly. The reward is in the form of easy access to inexpensive loans. However, choosing to not use credit will prevent you from building a solid credit history and score and will subsequently make it very difficult to secure home or auto loans when the time comes.

Secondly, not having a credit history will result in you not having a credit score. Credit scoring models depend on your previous credit history from which to generate a score. Not having a credit score will make it more difficult to apply for and obtain credit because most lenders use automated systems in order to process your applications. A lack of a credit score will make it more difficult for lenders to process your applications. Some will simply chose to decline your applications rather than manually process them.

Do-it-Yourself Debt Reduction

With a little dedication and prior planning, it is possible to reduce your debts on your own. Why pay debt counselors and consolidation agencies fees for things you can do yourself? Credit.com shows you the tricks of the trade and the fastest way to reduce your debts on your own.

Step 1: Evaluate your debts

Collect all your financial documents and print out your credit reports to see exactly where you stand. This is an important step toward debt recovery and one that people are often scared to take. On a piece of paper, write down the balances, interest rates, and monthly amount due for each of your debts. Include your auto loans, personal loans, payday loans, credit cards, and other debts. You should also make note of any annual fees on your credit cards. You don't need to include your mortgage loan or student loans at this time. These loans have relatively long terms and low APRs so it is better to focus on paying off your other debts first. If you have an overwhelming amount of debt, you may want to request a free professional debt help consultation.

Step 2: Look at your budget

After you have collected the information about your debts, you should take a look at your monthly budget. Write down your monthly income after taxes and subtract your rent/mortgage payment from this amount and other monthly expenses such as childcare, student loan payments, insurance, utilities, and groceries. Once you have subtracted all of your expenses, calculate how much you have left to pay off your debts. If this amount is too small, look for ways to reduce your spending. Consider turning off your cable subscription or carpooling as ways to cut back temporarily. The more you can pay towards your debts each month, the sooner you will be debt free.

Step 3: Make a plan

Now that you know all about your financial situation, it's time to create a plan for reducing your debts. Use your information from Step 1 and 2 to fill in the following chart. Subtract your minimum debt payments (Step 1) and monthly expenses (Step 2) from your monthly income after taxes. The remaining amount should be used to pay off the debt with the highest interest rate and the highest balance.

	Example	Your Plan
Monthly income after taxes	$2,800	$
Minimum debt payments (1)	- $1,800	- $
Monthly expenses (2)	- $400	- $
Remaining amount goes to the debt with the highest rate and balance	= $600	= $

Continue this cycle each month until the debt is paid off and then move on to the next highest rate/balance account. This may seem like an odd process, but it is the fastest way to reduce your debts. During this time, you should not add any new charges to your credit cards. Also, try to increase the amount you pay toward the most expensive debt each month. Track your progress with a chart like this:

	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6
Payment Goal	$600	$600	$625	$625	$650	$650
Actual Payment	$625

Step 4: Start negotiations

While you are starting to follow your repayment plan from Step 3, you should contact your creditors and lenders to see if you can improve the terms on your debts. You may be able to lower your interest rates or negotiate a reduced settlement on some debts by speaking with the customer service department. It is especially easy to negotiate the terms of debts that are charged off (dismissed) by the creditor or in collections already. Also think about moving some of your credit card debts to new accounts with lower interest rates. Moving a balance to a credit card with a 0% introductory rate for 6-12 months can help you save a lot on interest. Just be sure to keep each of your credit card balances below 35% of the credit limits to avoid damaging your credit score. During this time, investigate if consolidating your debts into a personal loan or home equity loan could help too.

Step 5: Follow-through

Do your best to meet your payment goals each month. It's okay if the amount you put toward your most expensive debt each month varies. Just try to consistently put as much as possible toward your debts. Signing up for an automated payment system and keeping a chart of your progress on the refrigerator can help you stay on track. When you reach major milestones, be sure to celebrate your success. Before you know it, you'll be debt free!

Five Steps for Improving Your Credit Rating

by John Ulzheimer

Blemishes on your credit report can cost you, but don't despair. It's never too late to become credit worthy. You just need to get started, using our five steps for improving your credit rating, and remember that results won't happen overnight.

1. Order you credit reports

Find out what the top three credit bureaus (Equifax, TransUnion and Experian) are saying about you. And remember that your information on file is likely to be at least slightly different at each one. Since credit reporting is voluntary, creditors aren't required to report to all three bureaus, but most large national lenders do. However, smaller lenders will typically report only to the one to which they also subscribe for pulling reports. Therefore, it is preferable to order a three-bureau, merged credit report or all three individually from www.annualcreditreport.com. Credit reports should be reviewed at least twice a year for accuracy.

If you've been denied credit, insurance or employment because of your credit report, you are entitled to a free copy of your report from the reporting agency the lender/insurance company used. The company you applied to must supply the credit bureau's name, address and telephone number. You have 60 days after receiving the denial notice to request your copy.

2. Examine your reports carefully

Nearly one-third of credit reports contain serious errors that could cause consumers to be denied access to mortgages, car loans and credit cards. That's because credit bureaus don't verify the information they receive from your creditors. Like it or not, keeping your credit report clean and true is your job. Once you get your three reports, look carefully for everything from typing errors to outdated and incomplete information. Make a thorough list of items you dispute and why.

If the negative information in your report is true, only time and improved habits can change that for the better. Late payments and charged-off accounts remain on your report for seven years, bankruptcies for 10 years. Most creditors, however, look for a steady pattern of payments rather than focusing on one-time or rare occurrences, so consistent on-time bill payments will improve those blemishes.

3. Dispute and document

Since a bad report can cost you money, it pays to be thorough. You can either complete the dispute form provided with your credit report or write a letter. Clearly identify each mistake and state why it's wrong. One recommendation is to send a photocopy of your credit report with the mistakes circled to the reporting credit bureau with copies of your supporting documents.

Keep copies and records of all the forms, letters and documentation that you send the credit bureaus, plus dates sent. In short, document, document, document. The credit bureau must investigate any relevant dispute within 30 days of receiving your letter. Any item that is not verified as accurate by a creditor is removed. If the credit bureau makes any changes to your credit file, it will send you the results along with a free, updated copy of your credit report. Once a negative item is removed from your report, the credit bureau cannot put it back on unless a creditor verifies its accuracy and completeness after the fact -- and sends you written notice.

4. Dissolve your debt

The next task is to devise a spending plan that reduces your debt and allows you to pay on time, all the time. If you're having difficulty making payments, be proactive. Call your creditors and negotiate with them to keep your accounts current and not be reported as delinquent or "bad debt." You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills. The same strategy can be used for fixed-loan payments, but it should only be used for the short-term. You'll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.

Slowly phase out the use of unneeded credit card accounts. But remember to NOT CLOSE THE ACCOUNT. Simply stop using it and pay it off. If you make the very common mistake of closing accounts you will almost certainly negatively impact your credit scores, which strongly considers the ratio of total credit card debt to total available credit or credit limits. A good rule of thumb is to keep your revolving credit card debt to less than 10 percent of your available credit. However, it’s optimal if you keep your balances low so you can avoid revolving balances. This will save you the interest charges

5. Add stability to your credit file

You can also work to add positive information to your credit file. You may have been denied credit because of an insufficient credit file, even though you do have credit. That's because some creditors (local banks, credit unions, and travel, entertainment and gasoline card companies) may not report your credit history to the bureaus. Try asking the credit grantors to report your account information and monthly payment history to a credit-reporting agency. This is not a requirement and you will not be able to force them to do so. In the future, before opening a new account, ask if your on-time payments will be reported monthly to all three credit-reporting agencies. If the answer is “no” then think about using another lender who will.

If you have really bad credit or even filed for bankruptcy, don't let your credit status go dormant. The faster you jump back in and begin to re-establish good credit by paying regularly on time, the faster you'll improve your credit scores. A secured credit card offers those with no credit and those rebuilding their credit an opportunity to start over and establish a new and solid credit history. Shop around for the best deal available, but limit your applications. Credit scoring models look at how many new accounts you've opened, as well as the number of "inquiries" for those new accounts. A sudden flurry of inquiries can result in a lower score.

Feeling blue? You may want to leave the credit card at home

If you're sad and shopping, watch your wallet: A new American study shows people's spending judgment goes out the window when they're feeling blue, especially if they're a bit self-absorbed.

Study participants who watched a sadness-inducing video clip offered to pay nearly four times as much to buy a water bottle than a group that watched an emotionally neutral clip.

Those in the sad group typically insisted the video's emotional content didn't affect their willingness to spend more - an incorrect assumption, said one of the study's co-authors.

The so-called "misery is not miserly" phenomenon is well-known to psychologists, advertisers and personal shoppers alike, and has been documented in a similar study in 2004.

Credit Card Follies

By Kevin Drum

(Political Animal) CREDIT CARD FOLLIES....What's a bank to do when its profits fall thanks to the subprime debacle and a slowdown in consumer borrowing? You guessed it:

Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up — in some cases to as much as 28% — even though they haven't been missing payments.

...."They need to raise rates because they can't raise fees anymore," [David] Robertson said. "It's politically untenable."

Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.

Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions." Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change." More broadly, BofA declares that credit card rates could increase due to "market conditions, business strategies or for any reason." [Italics mine.]

...."The card issuers are moving from a risk-management strategy to a revenue-generating strategy," [Robertson] said. "Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."

The net result of this, of course, will be to scare the crap out of every credit card owner in the country, which will lead to even less consumer borrowing, which in turn will lead to even bigger problems for the banks. In other words, credit card issuers aren't just evil, they're stupid too. If Democrats in Congress had any guts at all (I know, I know), they would have long since introduced legislation to put an end to this and dared Republicans to vote against it. The campaign ads practically write themselves, don't they?

Egg, Citigroup could face probe over credit card claims - report

LONDON, Feb. 11, 2008 (Thomson Financial delivered by Newstex) -- Egg and its owner Citigroup (NYSE:C) Inc could face an investigation over allegations that the UK internet bank cancelled credit cards because holders consistently paid up in time, according to a report.

The UK's Financial Services Authority has referred a British lawmaker's complaint about the issue to the Office of Fair Trading, The Guardian reported.

Last month, Egg said it planned to end the customer agreements of a proportion of its credit card portfolio.

It said the 161,000 card holders affected had a 'higher than acceptable risk profile', according to The Guardian.

However, many of those said they paid their bills in full every month, never went over their limit and had excellent credit ratings.

Egg denies the claims alleging that it made the move because the customers were not making it enough money, the newspaper said.

The Labour Party lawmaker who made the complaint, Nigel Griffiths MP, said he was 'very pleased' about the FSA's action.

Citigroup acquired Egg from UK insurer Prudential PLC (NYSE:PUK PR) (NYSE:PUK PRA) (NYSE:PUK) for 1.13 bln usd in cash last year.

Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

Credit Card Safety Measures

1. Surprisingly, the most common place where credit cards are skimmed (that is: their details are duplicated in order to make further copies of your card) are restaurants, coffee shops, cafés etc. Criminal syndicates employ ' runners ', usually restaurant staff, to skim these cards and these runners are paid for their efforts.

The prime reason why card skimming occurs at these venues is that very often your card has to leave your sight so that the waitron can process your bill at the credit card terminal while you wait at your table. It is during these few minutes that the skimming occurs.

A way of ensuring that this does not happen is to accompany your card and the waitron to the credit card terminal, where you yourself can supervise the transaction and safely retain your card.

Do not be embarrassed to do this, remember this is your money after all and escorting your card to the terminal is a small price to pay compared to the financial trauma you will experience after your card is duplicated.

2. All retail outfits employ a ' floor limit ' for your credit card. Floor limits vary from store to store. Depending on the status of your card and the store in question, these limits can vary from R 5000.00 to greater amounts. Any amount over that limit will result in the retailer having to gain authorisation for the transaction from the relevant card division.

When criminals steal your card, they are very careful to make illegal purchases within these floor limits and thereby not draw attention to themselves. The goods that they buy using your card are thereafter sold to fences and even ordinary people, resulting in a one hundred percent profit for the criminal.

One way of ensuring that you are never a victim of this practice, is obviously to safeguard your card in such a manner so that it remains very difficult for it to be stolen.

Secondly, one should always be vigilant and check that your cards are always safe and in your possession.

Thirdly, in the event that your card is stolen please report the theft to the relevant card division immediately. All the credit card providers provide 24-hour customer helplines where your card can be immediately blacklisted and criminals are thus unable to make use of your credit facilities. Failure to report the theft of your card timeously can result in the cardholder being financially liable for any transactions effected by the criminal. Remember that criminals can only profit from these kinds of practices by selling these illegally obtained goods.

Ordinary individuals such as you and many others should therefore make a determined effort to only buy goods through channels that are legal and above board. No matter how attractive the prices may seem or how persuasive the seller of these goods, please retain your sense of morality by realising that these goods are tainted.In a very significant sense, by being party to such illegal transactions the ordinary individual is actually contributing to criminal activity.

3. Crooked employees of the companies that process credit card transactions telephonically commit another manner of using your card details illegally. When you do call in to make a credit card purchase over the phone, the crooked employee records your details not only for the company in question, but for also for himself/herself and their criminal cronies.

Later, when receiving your statement you discover that there have been numerous other purchases credited to your card at stores or companies that effect telephonic credit card transactions. A sure way of putting a halt to such illegal purchases is to NEVER attempt credit card transactions over the phone.

Credit cards, however, are designed to make our lives far more convenient and if you absolutely HAVE to make purchases over the phone ensure that you are dealing with a highly respected and legitimate company.

4. The Internet is another hotbed of illegal credit card activity. Certain unscrupulous agents ' hijack ' the payment pages of certain websites and the electronic ' money ' from your transaction is diverted to the criminal's account.

Most websites employ highly detailed and sophisticated encryption measures that ensure that their pages can neither be hijacked nor hacked by criminal agencies. You can determine the safety of your online transaction by checking to see whether the secure icon (a little padlock) is visible at the bottom right hand corner of the webpage. The website in question will also inform you via a pop up window that you are now entering a secure page.

Is Your Credit Card Safe?

It’s as safe to use your credit card online, as it is otherwise, but take a few precautions

Let’s skip the introduction and go straight to the question—Is it safe to use your credit card number online?

Credit card fraud is not limited to the online world. It’s existed for as long as credit cards have been around, and it’ll exist for as long as credit cards do, in their current form. So, our question should be—Is it more dangerous to use a credit card online?

Available evidence says it isn’t. Or if there’s evidence to the contrary, card issuers are not yet talking about it. After all, bankers are a secretive lot.

There’s no reason for us not to use credit cards online, provided we take a few steps to ensure the security of our transaction. All that’s needed online is the credit card number and date of birth. The online vendor needs neither your signature nor physical access to the card. Your date of birth could generally be known. So, you need to be doubly careful to ensure that your credit card number doesn’t fall into the hands of unscrupulous elements.

Credit card details could potentially be stolen from you, your computer, or from vendors with whom you’ve used the credit card. Let’s take these one by one.

Don’t let your credit card lie around so that someone can pick up the number. Also, don’t give the number out to anyone other than a vendor.

Don’t put your credit card details in e-mail or generally store it in documents on your computer, particularly if it’s a shared or an office machine.

While entering your credit card number at an online store, ensure that you do so only on a secure page. If you’re asking for clarifications or help from the sites, you don’t have to give them your credit card number. If they ask for it, there’s something fishy. Stop all transactions at the site immediately and inform the Webmaster. Don’t enter your credit card number or date of birth as part of the information you give while registering at any site.

Online, the third instance—of the numbers being stolen from the vendor— could happen if someone hacks into an e-commerce server. Frankly speaking, you have no control over this, except hoping that the vendor takes enough care to ensure that his servers are not open to hackers.

The law is not very clear on your liability if someone uses your credit card fraudulently online. But check out with the bank that issued your credit card on their policies and guidelines for the same.

During our reviews in this issue, we were using my Citibank credit card to make purchases online. About half-way through, Citibank called me up to inform that these flurry of transactions were happening on my card and wanted to ensure that they were legitimate.

We called up Standard Chartered’s helpline and asked about the remedies available to a credit card holder in case of any misuse of the card online. Their answer was the card holder can complain about the transaction, but there was no way that the bank could stop the transaction. In fact, they went as far to state that they discourage the use of credit cards online.

The Amex helpline, when contacted said that in case someone else uses the card details online, then the card holder is liable to pay up.

Prepaid credit cards

A prepaid credit card is not a credit card,^[5] as no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (Visa, MasterCard, American Express or Discover) and can be used in similar ways just as if it were a regular credit card. ^{[5] [6]}

After purchasing the card, the cardholder loads it with any amount of money, up to the predetermined card limit ^[7] and then uses the card to make purchases the same way as a typical credit card. Prepaid cards can be issued to minors (above 13) since there is no credit line involved. The main advantage over secured credit cards (see above section) is that you are not required to come up with $500 or more to open an account. ^[8] With prepaid credit cards you are not charged any interest but you are often charged a purchasing fee plus monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.^[5]

Prepaid credit cards are sometimes marketed to teenagers^[5] for shopping online without having their parents complete the transaction.^{[9][10] [11][12]}

Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money"^[13]. The agency publishes a booklet, "Pre-paid cards"^[14], which explains the advantages and disadvantages of this type of prepaid card.

Secured credit cards

A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus if the cardholder puts down $1000, he or she will be given credit in the range of $500–$1000. In some cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases, the deposit required may be significantly less than the required credit limit, and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Credit card issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn't repay his balance.

The cardholder of a secured credit card is still expected to make regular payments, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows for building of positive credit history.

Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account which is less than 150 days delinquent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt.

Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened.

Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. They are often offered as a means of rebuilding one's credit. Secured credit cards are available with both Visa and MasterCard logos on them. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, however, for people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards can often be less expensive in total cost than unsecured credit cards, even including the security deposit.

Sometimes a credit card will be secured by the equity in the borrower's home.^[3][4] This is called a home equity line of credit (HELOC).

Transaction steps

Authorization: In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

Parties involved

• Cardholder: The owner of the card used to make a purchase; the consumer.
• Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case.
• Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder
• Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant.
• Independent sales organization: Resellers (to merchants) of the services of the acquiring bank.
• Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with.
• Credit Card association: An association of card-issuing banks such as Visa, MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.
• Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.^[2]
• Affinity partner: Some institutions lend their name to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. Examples of typical affinity partners are sports teams, universities and charities.

The flow of information and money between these parties — always through the card associations — is known as the interchange, and it consists of a few steps.

The merchant's side

An example of street markets accepting credit cards

For merchants, a credit card transaction is often more secure than other forms of payment, such as cheques, because the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on their credit card payment (except for legitimate disputes, which are discussed below, and can result in charge backs to the merchant). In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises.

For each purchase, the bank charges the merchant a commission (discount fee) for this service and there may be a certain delay before the agreed payment is received by the merchant. The commission is often a percentage of the transaction amount, plus a fixed fee. In addition, a merchant may be penalized or have their ability to receive payment using that credit card restricted if there are too many cancellations or reversals of charges as a result of disputes. Some small merchants require credit purchases to have a minimum amount (usually between $5 and $10) to compensate for the transaction costs, though this is not always allowed by the credit card consortium.

In some countries, like the Nordic countries, banks guarantee payment on stolen cards only if an ID card is checked and the ID card number/civic registration number is written down on the receipt together with the signature. In these countries merchants therefore usually ask for ID. Non-Nordic citizens, who are unlikely to possess a Nordic ID card or driving license, will instead have to show their passport, and the passport number will be written down on the receipt, sometimes together with other information. Some shops use the card's PIN code for identification, and in that case showing an ID card is not necessary.

Grace period

A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 30 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met. Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charge(s) incurred depends on the grace period and balance, with most credit cards there is no grace period if there's any outstanding balance from the previous billing cycle or statement (i.e. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.

How credit cards work

A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but sometimes a captive bank created to issue a particular brand of credit card, such as Chase, Wells Fargo or Bank of America, issues the credit.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a Card not present (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made that the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid...i.e. when the balance stopped revolving).^[1]

The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, either to encourage balance transfers from cards of other issuers, or to encourage more spending on the part of the customer. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances. Interest rates can vary considerably from card to card, and the interest rate on a particular card may jump dramatically if the card user is late with a payment on that card or any other credit instrument, or even if the issuing bank decides to raise its revenue. As the rates and terms vary, services have been set up allowing users to calculate savings available by switching cards, which can be considerable if there is a large outstanding balance (see external links for some on-line services).

Because of intense competition in the credit card industry, credit providers often offer incentives such as frequent flyer points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their program.

Low interest credit cards or even 0% interest credit cards are available. The only downside to consumers is that the period of low interest credit cards is limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. However, services are available which alert credit card holders when their low interest period is due to expire. Most such services charge a monthly or annual fee.

Credit card General info.

A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different to a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid to the merchant. It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard. The most common credit card size, known as ID-1, is 85.60 × 53.98 mm.