Category: Credit

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Do It Yourself Credit Card Fraud Detection

It Pays to Be Obsessive About Your Finances

One lesson I have learned over the years that has served me well on multiple occasions is that you really cannot be too obsessive about keeping a watchful eye on your finances. In today’s world, with all of our online and automated activity, it is easier than ever for criminals to get a hold of our personal and credit card information. In a matter of minutes, a thief can wrack up thousands of dollars in online purchases on your credit card, before you even know it is happening. Back in the 1990s when I had my first credit card, this was not a well-known phenomenon. Neither was identity theft. That is not to say that it didn’t happen, because it did. In fact, my identity was first stolen when I worked at a manufacturing plant and left my wallet with my license and social security card in the bathroom by mistake. A woman took it, and promptly went to the mall, where she bought $2000 worth of items on my credit card. She later opened up utility accounts in my name, and continues to occasionally try to open up various new accounts using my information. If I was not diligent in checking both my credit reports and my daily finances, I would not even know what she has been up to, and I could be liable for many accounts that are not my own. It is important to create a do it yourself credit card detection process. I share mine below.

Credit Card Fraud and All Its Implications

My credit card information has been stolen so many times online that I find it difficult to say exactly how many. Sometimes, the credit card company flags a suspicious purchase, and asks me to verify if it was me. There have been numerous occasions when I have seen a fraudulent charge before the credit card company has, and I have contacted them. All of my credit card companies offer no liability for fraudulent charges, which means that I don’t have to pay for whatever the thief has stolen. They remove the charges and issue me a new card. This is nice, and a definite relief, but it does not mean that I let down my guard. Often, a thief will buy something that costs very little as a way of testing the card, to see if anyone is paying attention. If it goes through undetected, they will then purchase more expensive things. What is particularly worrisome, though, is that there is no way to tell what information a thief has gotten access to. If they have your credit card number, they may also have your online passwords. They know your name. They could know your birthday. If they are savvy enough, they may find your social security number. When that happens, it becomes extremely difficult to protect yourself. Trust me, I know. You cannot get a new social security number just because yours has been stolen. You will have to go through a lengthy process of putting a credit alert on your credit bureau files, so that every time a new account is being opened it will be held until you can verify it was you. You will have to contest each and every thing on your credit report that is not yours, and prove it. You will need to do this repeatedly, perhaps for the rest of your life.

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I use several different apps every single day to watch my finances. I want to know every transaction that occurs on my credit card accounts or in my checking and savings as soon as they happen. It seems obsessive, and maybe it is, but it has saved me a lot of time, money, and hassle since I started doing it. Just this past week, I noticed a $35 charge on my Visa for Pizza Hut that was not mine. The credit card company didn’t catch it, because I have bought Pizza Hut before. I contacted them, and after an investigation, they removed the charge and issued a new card. I have the apps that my bank offers, the credit card company apps, and third party financial apps, Mint.com and Personal Capital. I check them all frequently. I also check my credit at least once a year through www.annualcreditreport.com. If you take nothing else away from this website, I hope you do this. I am sure you will be happy you did.

Take Aways

Number 1: Never keep your social security card or number in your wallet!

Be your own credit champion by regularly monitoring your account activity. Set up alerts on your credit cards so you are notified whenever a purchase is made. Check your bank balances regularly. Be sure to check your credit reports from all three credit bureaus at least once a year. You are your own best advocate. If it isn’t yours, fight for your right to have it removed. Don’t let your credit suffer because of some thief who is out there using your good name and credit.

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Introduction to Credit

What is Credit?

Credit is a measure of how trustworthy you are with your money. It shows a record over time of how well you meet your financial obligations. This is reflected in a credit score. The better your credit score, the more likely a company will see you as an acceptable risk to take, and will lend you money. A company, say a loan company or a credit card company, extends you the privilege of using money you do not have. In exchange, they charge you extra each month in the form of interest. Then, you make payments that are designed to pay off the interest, then the original loan amount, over a set period of time.

Interest and the 0% Interest Trap

Credit isn’t free, unless there is a 0% interest rate. In fact, any time you use credit with interest above 0%, you will ultimately pay much more for whatever it is that you are buying. Even if the interest rate is 0%, beware of fine print. Often these are introductory offers that come with stipulations. Many times, the stipulations include having to pay in a specific amount of time, and if that doesn’t happen, then a lump interest sum is added to the amount you owe from that point on. So, say you had a 0% interest loan on a $1,000 mattress. The fine print shows that you have 6 months to pay for that 0% interest, but if your payments extend longer, the rate reverts to 22%. They would add $220 to your balance at 6 months, and from then on, whatever your balance was at the end of the month would also have 22% added to it. It would be extremely easy to get behind if you could not afford to pay the extra each month, or were unable to pay in the allotted 6 month initial period.

Credit cards work similarly, and are an easy way to get yourself in over your head. Many come with the introductory low interest rate. Wracking up a huge balance for that rate, though, is a dangerous game. You will have to pay it off in the specified period of time, or the debt snowballs as it did in the mattress example. After the introductory period, any remaining balance is usually subject to a pretty hefty interest rate, that compounds, or gets charged based on the amount you owe, plus any interest owed, each month. The minimum payment that the credit card company requires will never cover all of the interest and the amount you owe. They are in it to make money. In fact, paying the minimum could make your total debt grow. If at all possible, never carry a balance from one month to the next. If you pay a credit card off every month, you will not be charged interest, and your credit rating will improve over time.

What is Credit Utilization?

Credit utilization can be a term that refers to how much of your credit limit you are actually using, or utilizing. In other words, your current balance relative to the amount you could charge. A credit scoring company, such as FICO, looks negatively on someone who utilizes a high proportion of their credit line and keeps a balance. Credit utilization could also define how you are using your credit to increase your credit score. Utilizing credit in a way that it helps you and does not hurt you could be termed credit utilization. Using credit to pay other long term debts off, such as student loans and mortgage payments increases your credit score. It is improved by having accounts of different types, and paying each as agreed. Be careful that your total debt, both overall (excluding mortgage generally) and monthly does not exceed 1/3 of your income. This is called the debt to income ratio, and plays a large factor in your score. The lower your debt in relation to your income the better. There is a balancing act in how many accounts in good standing is too many or not enough. You want a mix of account types, but be sure your balances on rolling credit, such as credit cards, remains very low. Ideally, 0 each month. On regular loans, paying on time every month and a little extra each payment will add to your credit score.

A Warning from My Own Story

Credit allows you to buy things that you could otherwise not afford to pay for all at once. It should be seen as a tool and a privilege. Good credit can help you to get things such as nice cars and a nice home. Bad credit can affect nearly every aspect of your life. A person with bad credit can lose job opportunities, or be denied housing. In my life, I have been in a predicament where I did not have good credit, because I had let my student loan payments lapse. My partner at the time also had a rental eviction on her record. We could not find a single person to rent to us, and we ended up homeless briefly until a friend took us in. I never want that to happen to you, so please heed my advise. Protect your credit!

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Easy Ways to Build Credit

 

What is Credit?

Credit, and the credit score that goes with it, is a measure of how well you meet your financial obligations. You gain credit by having things like loans and credit cards (which really are a type of loan with a rolling or changing balance), and paying those off as agreed. The longer you have an account that remains in good standing, the better your credit will become over time. Factors that go into your score look at your overall financial health, including your total debt amount related to how much money you make and how much debt you have access to (your credit limit). The amount of time you have had credit and used it wisely, as well as the different types of accounts that you maintain also affect your score. There are some easy ways to build credit, but overall it takes time and careful money management.

Ways to Build Credit With No Credit History

When you are first starting out, it can feel like a catch 22. No one wants to give you credit, because you don’t yet have any. There are some ways around this. One of these is to get a loan, be it for a car or a small personal loan for something else, with someone else that already has established credit as your co-signer. This means that if you were to not make the payments, that person would then be responsible. Usually, it is a parent that will do this for you. Then, make sure to make the payments each and every time, on time. Your credit will slowly improve.

If that is not an option, there are things called secured credit cards which may be available to you. These work by having you actually send the credit card company a certain amount of money which they hold and they issue a credit card with a limit of that same amount, or sometimes slightly higher. Essentially, they have no risk, and you then have a credit card that you can use to make purchases and pay them off, thus building your credit.

Pitfalls of Credit Cards

Beware when opening and using credit cards, as it can be quite easy to lose track of how high their balances get. The interest rate will also probably be extremely high for those just starting out, so if you get behind in your payments or do not pay your balance off each month, your bill could end up getting bigger every month instead of smaller. Many people ruin their credit and get in dire financial straits using credit cards. It is always a good idea to keep close track of your credit card balance, and pay it off every month. If you find you cannot pay it off every month, at least pay more than the minimum payment so the interest doesn’t make your balance skyrocket, and then pay it off as soon as possible.

Warning!
The thing to remember about credit is that it takes a long time to build it, and a second to ruin it. If, for instance, you did like I did and paid my student loans as agreed for a number of years and then ran into some difficulties and didn’t pay for a little, your credit would go straight down the tubes. The longer the debt isn’t paid, the lower your score goes. If a debt is actually so far behind that it gets sent to a collection agency or goes into default, it will take years and money for your credit to recover.

I will say it again-you want to avoid late payments and missed payments on any of your financial obligations if at all possible. A good idea is if you are having any kind of difficulty paying, you should immediately call the company that has your debt and ask them about what options they have to help. Often, they will offer a temporary waiver or forbearance. They might even cancel some of the debt or drop the interest rate for you. This goes for many types of debt, from credit card companies, to loan companies, and even the Internal Revenue Service for taxes. Communication can go a long way in saving your credit!

Takeaways

It is important to build credit, and to use credit wisely. It can be a double edged sword to have a loan or a credit card, because both charge interest on your purchases. This means you end up paying more for whatever you buy. Credit cards may have a period before interest starts accruing, usually 30 days, but loans usually do not. If you want to minimize the amount of interest you pay, you must pay extra on each payment for loans, and pay off your credit card balance every month.

Remember-it takes a long time to build credit, but only moments to ruin it. Think carefully and use it wisely.

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Personal Budget Tips

Budget isn’t a Bad Word

Does the word budget make you cringe? Maybe it brings up feelings of constraint, or even memories of past failures. Have you tried to set up a personal budget but then found you couldn’t stick to it? We have all been there. Maybe your past attempts at making a budget were actually just too strict. A workable budget shouldn’t feel like a shackle. It should feel like an accomplishment and a daily, reachable goal. Learning how to create a budget and make a financial plan should make you feel empowered and will help you reach your financial goals.

Start Small

When I was first learning how to budget my money, I started small. I knew how much I made each month, so I took the money I had and divided it up into envelopes. The first one was Rent. Then Groceries. Phone. Gas. Insurance. Household Items. It wasn’t a perfect system. I often had to move money from one envelope to the next. Really, though, isn’t that what budgeting boils down to? It is making a plan that shows you what money you have and where it is going. It is dynamic. You can change the categories and the amounts that go into each one to make it as comfortable as it can be, and according to your goals. Even in this simple manner, it taught me a lot about where my money went.

My next step was to keep a piece of paper in my wallet that kept a running checking account balance. It started at the beginning of the month, and subtracted and added in order all my bills and income, so I would have an idea of what my account should look like if I was on track. It also made sure I didn’t miss a bill. I actually still use this method because I find it is such a reassurance to be able to glance at a piece of paper and see that I am where I want to be each month. My categories have expanded to include savings for emergency and vacation and entertainment, as well as a lot more bills since I own a house now instead of renting an apartment that had all utilities included. I don’t have to use the envelope method anymore because I have a steady income and the amounts that come out of my checking account are pretty consistent.

Using Credit Cards Responsibly

Once I was able to have a credit card, I began to use it to help me budget. I paid all my recurring monthly bills directly out of my checking account, using the methods I above. The rest of my spending when on a credit card that I paid off at the end of each month. I still use this method today. I like this method because it means that I don’t have to carry cash or worry about not having enough at the grocery store, and it also automatically categorizes my spending. I can just go to my credit card company website and it will show me how each transaction was categorized and show me overall spending categories. This feeds right into my next topic, budgeting software.

One word of caution before the software topic though, and that is that credit cards should only be used if you are able to pay them off every month, or for emergency purchases that you could not afford otherwise. They can help your credit if they are used wisely, but can be a black hole of debt if they are not paid off each month, as interest will accrue and your balance with skyrocket. Check out my pages on credit and debt to read more about this.

Budgeting Software

An invaluable tool for me once I could afford a computer and internet was budgeting software. There are a number of different ones out there, many of which are free. I personally love Quicken, Personal Capital and Mint. They take a little while to set up, maybe a couple hours depending on how many accounts you have, but they are an invaluable way to keep track of your money. The great thing is that you can see a snapshot of each account, the transactions that have come into and gone out of each one and their current balances. This includes your checking, savings, investment accounts if you have them, and credit cards. At any given moment you can look and see if you are spending more than you are making. It is also a great way to make sure no one has gotten a hold of your account information and is making unauthorized purchases, because you can see them all. I have caught many a fraudulent charge this way, and was able to call my credit card companies and get the charges written off and a new card sent to me.

One of my favorite features of Mint, other than it being a free app, is that there is a place in it where you can set up a goal. Say you want to save for a vacation, or pay off a debt. You can set up a goal in Mint, and each time you move money into an account set up for that purpose (a savings account usually), it will log it and keep a running total showing you how much progress you have made. There is also a lot of information on Mint.com about financially related topics. It has an area that shows you ways to save. You can see trends in your spending, like what categories you tend to spend the most in. There is a budget tab that allows for you to see if you are meeting your budget goals or adjust specific category amounts. You can even see your current credit score.

Quicken is a full service finance software. It isn’t free, but it is quite comprehensive. It has all the features of Mint, and more. It allows you to customize many of it’s features, including things like spending goals. It provides bill reminders and can forecast your account balances based on upcoming bills. It is also linked to TurboTax, so if you are using the two together, taxes become quite simple.  Quicken has different subscription options, including ones for small business and investing. I used Quicken to help me manage my money when I wanted to pay off my student loans, and I met my goal. I don’t think I could have done it without it.

Personal Capital is another free app that works similarly to Mint. It shows a snapshot of all your accounts, with the added ability to connect you directly with one of their financial advisors, if you so desire. I find that it synchronizes easier than Mint at times, as Mint seems to not always update each account when I sign in. It does not have a goal set-up feature, but is a nice, simple app for tracking your spending and cash flow.

Tips about Budgeting

One thing that I feel is important is a simple tip: Always budget based on less than what you actually make. Don’t try to budget every penny you make. This would set you up for failure. Some months you may not make as much money, or you may have an unexpected expense. If you had budgeted every bit of money you brought in, you would instantly be in a budget shortfall. That can lead to feelings of inadequacy or failure, even despair. Rather, by budgeting always for less than your actual expected income you give yourself a little buffer. Then, you are setting yourself up for success, because most likely you will find that you still have a little extra money at the end of the month, or at least didn’t fall short. Even if you end up spending every penny because you just don’t make much money in relation to your bills, budgeting this way sets the stage for savings later as your income increases.

On a similar note, it is a great idea to overestimate your spending as well. If a bill is not exactly the same every month, then try to put aside more than you think it will really cost for that category each month. If you find at the end of the month that you consistently have left over money you can adjust how much you put aside, or put it into savings. It is a lot better to expect a big bill and end up with a small one than the other way around. If your bills don’t equal your income, remember to account for Fun Money. It is important to feel like you have some money that is just for your own enjoyment. Once in a while it is ok to give yourself a little reward. Just be sure it doesn’t happen so often that it gets you off track.

Takeaways

Budgeting doesn’t have to be scary, or feel too restrictive. It should be a way for you to learn about yourself and your money habits. It is a tool to help you reach your financial goals. It is dynamic and changes as your needs change. A good budget is a way to invest in yourself, and it is an accomplishment in itself.

Set yourself up for success by setting your budget based on less money than you actually make, and higher bills than you actually pay. Save whatever is left after a little reward for yourself and you will meet your goals.

For helpful products and services, visit my Resources page.