You may be surprised to learn that most banks don’t report your mortgage balance or repayment history to a credit bureau agency. When you review your report your mortgage will not appear on it. There is no mistake here. This also means, similar to overdrafts and private loans, a lender reviewing your application for credit has no way of knowing unless you tell them that you have a mortgage that’s using up cash each month from your income by reviewing only your credit report. There are ways they can find out if you have a mortgage, though it is usually not done these days. Lenders usually don’t have the time available to verify such data. It is very common for them to take a client’s word for it when they say they are owners of their own home, clear-and-free, if they are also able to explain how they did it (i.e., their parents gave them an earlier inheritance; it was a wedding gift; the house was passed down to them through an inheritance from a grandparent – perhaps they did very well on the stock market, etc.).

It is prudent to tell the truth early on in your discussions with banks, to establish trust in your relationship with them. Revealing all unknowns in your relationship upfront provides continual comfort going forward for financial institutions, referred to as “knowing” their client. Small details, later on at times, can be overlooked when they know you. (There is a great disadvantage to revealing all, which we will discuss later on in this series).

When you are offering your home as collateral security there is a title search performed. If you have lied about not having a mortgage (or bent the truth in any way if that sounds any better to you) it will be discovered and your relationship with the bank will be permanently compromised. You likely will be asked to find another bank for all of your needs. When trust has been compromised, they likely will not do business with you again.

Bnaks are not allowed to share what they know about you to other banks, or lending institutions. Your file is confidential to them, as they report your repayment history to the credit bureaus only. Many people don’t fully understand this, and will complain that the banks act as a collective “big brother” who is watching everyone – this is not true and the only information they share is with the credit bureaus regarding your credit limits and your repayment history.

This means that if you have a poor relationship with one lending institution, they will not be allowed to spread this information and share it with other banks to warn them of a possible high risk client walking through their doors. This also provides a second chance for you to start fresh with a new bank if you’ve had some problems with the one you are dealing with now.

I don’t recommend anyone lie, or distort the facts. That doesn’t do anybody any good. I share these uncommon facts to illustrate that while most banks rely heavily on information your credit report file contains about you, sometimes it works against them through its incompleteness as much as it works against you when the information on your file is false. Though credit report information is weak at times, they are still the only regulated financial repayment history that modern banking systems have to rely on, that is arbitrarily collected from various sources.

The credit bureau was not designed to be a summary of all of your loans, credit cards or bank accounts. It was designed to simply act as a reference for would-be creditors to review what other lenders have experienced with you as their client. Banks still depend on their own ability to encourage you to “spill the beans” on all of the remaining details regarding your financial status, as they can’t review a complete picture solely from the credit agency reports. They need to get behind the information on the credit bureau agencies reports, while discovering the reasons behind the numbers that are only available through you, and what you say about them.

In a sales environment within a bank, it is also likely that they would not perform any extra diligence to search the title of your property to support your comments that you own it clear-in-free. They would simply make a note in your credit application that it was an earlier inheritance gift from your baby boomer parents (or whatever reason you could think of) and it is likely not to receive further attention so long as you don’t attempt to use the real estate as collateral.

Credit Agencies are Evolving in Modern Times

Records from a variety of businesses and their information are gathered by credit agencies. Financial institutions, retailers, and other credit issuers pay fees to belong to a credit bureau. They supply information about consumers as well as consult records of the bureau when considering their own applications for credit.

Credit bureaus such as Experian, Equifax, and TransUnion do not make the decision about whether a consumer receives credit of course. That’s up to the lender. Credit agencies only provide a historical picture, organizing all of the reported repayment history available on individuals, which has been collected over the years. Information can remain up to 20 years depending on what kind of information it is.

Their systems have evolved to include unbiased predictive scores to project a client’s future credit risk, or potential fraud. These predictions are driven by the information their file(s) contains on you. It also considers the number of times your file has been requested by creditors, how often your address has changed, your employment history, and any formal credit collection, judgment, or bankruptcy issues. They do not collect or exchange information regarding criminal records or charges (just in case you were wondering).

As credit bureau systems and filters continue to evolve, lending institutions depend on them more and more when making decisions in their own lending processes. Also, keep in mind that it doesn’t matter what state you live in, or move to. There is only one file with each credit bureau agency that contains your personal information. Any address changes you have made will be immediately be noted on their reports for all lending institutions to see next time you request more credit.

Credit agencies provide information to qualifying companies after being paid their fee. In some states auto insurance companies that request a copy of your credit bureau report to determine if they should raise your premiums or not each year, or even keep you as an insured driver. By doing this they are making the assumption that if you poorly manage your credit rating, something extremely valuable to the health of your financial future, then perhaps you are an irresponsible driver and are at greater risk of causing an accident. If the information was incorrect on your credit report, or out of date, your auto insurance rates could increase because of it. You must remain remain on guard that this type of financial profiling is not detrimental to you.

How to Get a Copy of Your Credit File (Report)

Unless you request your own credit file report and verify each trade line how can you be sure your credit history is accurate? A great question, is it not. Now I would like to speak a little bit about how to get a copy of your credit report from the agencies we have been discussing.

To obtain a copy of your credit file place a call to the primary bureaus or visit their webpage for further information on your file. In some states, your credit file information can be given out over the phone or received by mail. The local bureau’s telephone number is usually listed in the white pages of the telephone book. You will need proper identification and may be required to make your request in writing to assure your file is kept confidential. In most cases a copy of your credit report is available free of charge. If you’re not comfortable understanding how to read the information it contains, call to arrange an appointment by phone to review your credit file with a representative of that bureau. It is important to review and proof the information it contains regularly. This helps prevent people with similar spellings to your name having their credit information mixed in with yours. Believe it or not, this does happen from time to time.

Personally, I would stay away from companies who advertise their services as Internet-based credit report trackings which supposedly monitor your credit rating for you. These services charge a fee for them to access and monitor your credit report for changes. If a change occurs you are notified by e-mail. You are able to monitor your report personally for changes any time you want during the period of time you have paid for through their website.

I prefer to call the credit agencies myself, and monitor from the source. This way, I’m not completing personal information on the web site of a service provider I know nothing about. It would be hard to prove if these are legitimate companies. Inaccurate information collected from creditors will not be corrected on your file until you initiate the investigation – that is something you need to understand – fully and completely.

Continued in the Carol’s Borrowing Series Category of Clf.

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There is a lot said regarding credit agencies on the television, the radio, and anywhere else where there is advertising, because there is a big business in providing people information about their credit scores. If you don’t understand this already there are three major credit scoring agencies – Equifax, Experian, and TransUnion. And today I want to discuss how to avoid getting in the dog house with these credit agencies due to no fault of your own. We’re talking about identity theft here.

Your credit rating is likely the single most influential factor in the lending process over which you actually have a large degree of control. I know that most people believe it to be the other way around and that their fate is intrinsically tied to these mysterious bureaus of financial data. It is the cumulative result of your borrowing decisions and past history of debt repayment, reflecting the degree of responsibility you have placed on your commitments. A credit file is a portrait of a consumer’s financial history with virtually every blemished exposed. Your credit rating is yours and yours alone, and must be guarded as the valuable commodity that it is.

Credit nowadays is a necessity, carrying with it the shadow of your past behavior. It is a necessary tool when trying to get a cell phone activated, new loan advanced, credit increased, car rented, flights books, or hotel rooms reserved, so it should be monitored closely.

10 Tips to Avoid Identity Theft

Now is a good time to discuss a growing and widespread fraud that is affecting many individuals personal security and destroying their credit reputation. Be aware that it could impact your life and your credit one day, and guard against it. It’s called “identity theft”.

This kind of fraud involves someone changing your mailing address to receive the credit card applications you normally receive in the mail. Once they have these mailings, they are able (over time with the following specific steps) to pretend they are you. With a credit card in their hands with your name on it, they can do many things, including destroying your credit rating in the process. If any statements stop arriving in your snail mail box, look into it right away!

Some people have experienced this type of identity theft so harshly that they have had to change their names to start a new credit history. Do not become naïve about crooked people out there who chose to earn a living stealing other people’s identity. They are using your stolen credit rating for the purpose of maximizing borrowing to the hilt, and then leaving you to deal with the problem (or bankruptcy).

Be very aware that you must closely inspect every line of all your monthly statements and that they arrive on time each month, or be suspicious. I recently learned of an unfortunate experience an individual had when they lost (or had stolen) their wallet. This US attorney experienced first hand how swiftly identity thieves actually are able to infiltrate personal information, obtain credit, and an identity. Within a week, the thieves ordered an expensive monthly cell phone package, applied for a visa credit card, and had a credit line approved to purchase a Sony computer, received a pin number from the Department of Motor Vehicles (DMV) to change his driving record information online, and much more.

10 Protective Measures Against Identity Theft

Here are 10 protective measures you can take to help secure your personal identity, and information, from these types of ruthless criminals.

1) The next time you order checks have only your initials, not your first and middle name, put on them. If someone steals your checkbook they will not know if you sign your checks with just your initials or your first name, but your bank will. Put your work phone number on your checks (not your home phone number) to further secure your personal life from someone using a reverse phone directory (a phonebook which is organized by phone numbers, and not last names) to learn your address. If you have a P.O. Box number, use it instead of your home address. Never have your social insurance number (SIN) printed on your checks.

2) Photocopy all the contents of your wallet, and keep this record in a safe place. If your wallet is ever stolen you will know exactly what was in it, including all your card and account numbers. Include a photocopy of your passport to this file for when you travel. Keep this file in a very safe place in your home, or safety deposit box at your bank.

3) Keep a list of all the phone numbers needed to call each card company in the event you need to call them to cancel their card. It is a common error that most people make, then find themselves fumbling through phonebooks and 1-800 numbers to cancel credit cards where they also have not kept a record of contact numbers, and account numbers. The sooner you cancel your cards the less time these theives have to drill into your personal affairs. Request your replacement card(s) be sent to your bank branch for your pickup. Don’t have them mailed.

4) If you experience missing statements in your mail, visit the post office outlet that services your community to ensure your address has not been forwarded to somewhere else without your knowledge. If it has been, notify the authorities immediately.

5) Try canceling your credit cards once a year and have a replacement card issued to you. This will prevent old credit card information from being used by thieves, or protect you from a thief who already has your credit card information but hasn’t used it yet. I know this sounds extreme but if you take extra steps like this, it’s very difficult for thieves and identity theft criminals to ever take advantage of you.

6) Make sure you file a Police report immediately in the community where your wallet was lost or stolen. This proves to credit providers you were diligent and is the first step toward an investigation should one be launched.

7) Call the main credit bureaus in your country (i.e., Trans Union, Experian, and Equifax) to have a fraud alert placed on your credit Bureau report. The alert means any company checking your credit Bureau report knows your information was stolen and they have to contact you personally to authorize any new credit. This prevents the identity thief from completing online credit applications in your name, as the adjudicator reviewing the application would review your credit report as part of their process and observe the alert. This step alone could save your identity, and stop the thieves in their tracks.

Change your pin and passwords regularly. Try to stay away from using numbers that a thief could easily try that they found in your wallet, i.e., your social insurance number, or birth date. If possible, incorporate combinations of letters and numbers into your passwords, especially for Internet banking. Identity thieves have also been known to transfer entire bank balances to other accounts, withdraw the cash, and then close the account to avoid detection. Don’t keep a copy of your pins or passwords in your wallet or purse – ever!

9) Buy a personal office paper shredder. They are not expensive and in your humble narrator’s opinion are necessary personal devices. Any document that contains personal information should be shredded before you throw it into the trash. This includes utility bills, bank statements, and other invoices you don’t retain your files. Identity thieves are not below stealing your trash if you put it out the night before. They may even steal it in broad daylight. Don’t make their job easy, because these bottom feeding dirt bags will go to any length to steal your identity. I remember back in the 1970s when my parents would do their tax return every year by themselves to save money, and they were burning all of their garbage that had any of their personal information written on it. They were way ahead of the curve on the identity theft problems.

Another thing you can do, if you have a fireplace, or firepit, you can go one step better by burning any papers that have your personal information on them. This is the ultimate “in your face” to identity thieves.

10) When you travel anywhere away from home (and this includes locally when you go shopping etc.) keep your credit cards and debit cards in different places and it’s a great idea to have a credit card with a very low limit on it when you are out and about. Always use the safe services in Hotel Rooms when you can, and hide all your important cards, and passports, etc., from the hotel staff (chamber maids and the like) when you are out of the room. I know it sounds ugly to suspect good and decent hard working people, but when it comes to identity theft and strangers you can’t be too careful. Don’t leave important cards and information in your car for passersby to see. If you can avoid it, don’t leave any credit cards, passports, and debit cards in your car at all. I have one credit card just for traveling, and hide my high credit cards at home in a safety deposit box, or a safe inside the house. A very big and heavy safe.

Continued in the Carol’s Borrowing Series Category of Clf.

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At one time people were able to walk into a bank with $1000 in cash to secure their first $1000 credit card. Their new card was 100% cash secured which removes most risk from the bank to help someone establish themselves within the financial sector. This seems simple enough right? Today however, times have changed somewhat.

For many reasons this is no longer widely accepted, and I would be surprised if hundreds of major American banks still advertise and promote this type of product. I know there are some banks that do supply and provide a 100% secured credit card, but there isn’t a large profit margin in this kind of financial product.

Student credit cards are sometimes easier to get, as it is understood this age group is attempting to establish their initial credit. If you are a student, I recommend you apply for this type of credit to help establish your credit history early on. If you are not a student, unfortunately you won’t qualify.

For most people it is easier to obtain credit from a department store, or retail outlet your first time, versus applying with your bank. Buying a piece of furniture from one of the stores that doesn’t need to be paid for a year is a good way to establishing credit. Though this type of buying can be expensive, it is an easier credit the most obtain. Financing for these promotions will usually be at higher interest rates than banks, and carry penalty charges should you not meet your commitments and make your payments on time. You are in effect establishing a good credit reference by using this type of financing so the next time someone looks at your credit file they will be able to see your furniture debt paid in full. (Continued)

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Your monthly budget likely accounts for every dollar coming into your home. Perhaps detailing each payment and expense you’ll be required to pay for that month while the amount of cash left over you designate toward savings. When you’re sitting at your kitchen table trying to calculate if you can afford another loan, I bet you review that cash that you are currently putting toward savings to cover your new loan payment. This may reduce the amount left over for savings at the end of each month, but all your bills will be paid. Surely a bank understands this, and will make that new loan to you – right?

Well, it really isn’t that simple as it depends on how much of your cash income goes towards covering principal and interest (P&I) payments each month. Mortgage and housing financial entities define gross debt servicing (GDS) and total debt servicing (TDS) ratios and provides acceptable levels in all of their outlines and guidelines for lending criteria. We’re assuming that we are talking about a legitimate and sound banking institution with acceptable ethical practices and procedures in place. We are not talking about these derivative swap morons and leveraging idiots we have come to know so well in 2008 and 2009. I am talking about REAL bankers and REAL professionals.

What Is Your GDS Ratio?

The borrower should not commit more than 32% of their gross household income toward the payment of the principal + interest + property taxes + heat and utilities. (For condominiums, this formula can also include 50% of condominium fees. For Chattel Loans / Mortgages, it must include site rent).

What Is Your TDS Ratio?

The borrower should not commit more than 40% of their gross household income toward housing obligations and all other debts. (total principal and interest payments + payments on all other debts X 100).

Self-employed individuals may find it a challenge when borrowing funds as they usually position their lifestyle around their business expenses. This reduces the amount of income they report to the IRS and the tax they are required to pay. Although this is a good way to reduce taxable income, it adversely affects GDS and TDS ratios. In most cases self-employed people need to review their tax returns with the lender when applying for credit. Usually they are able to add items back into income that were declared expenses such as: depreciation, amortization, capital cost allowance is, interest, and one-time expenses to name a few. It is most likely lenders will only add back depreciation, and authorization and capital cost allowance in when lending to a sole owner using their tax return as evidence of income. If they need to add back many small items in order to prove GDS and TDS your request may be reviewed as being too risky and declined out right. (Continued)

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There will come a time when you apply for a loan and your spouse’s credit bureau report will also be reviewed. The benefit of two incomes also carries with it the prior repayment history of each applicant. Challenge your individual rights to privacy based on marital status, sexual orientation, religion, and other personal information. Question how anyone knowing this (any particular data requests) helps determine the bank’s risk of your repayment. It would be interesting to see what the loan officer would say in response. Having said that, don’t offer additional information unless you determine it is necessary.

When you tell them that you have a spouse, you also present the risk that you have dependents (however in today’s world this should be a poor conclusion). Children are a risk only so far as they represent an additional commitment for cash each month while you meet the increased needs of your family. In banking terms this is know as your personal inflation rate. Not only do dependents and a spouse (that doesn’t earn money) cost you a lot of money now, they will cost you a lot of money later, and even more money as time goes on. Plainly put, you are likely to feed them before paying your bills. Also, if you identify that you have two children, then complete another application later on and advise that you have only one child living with you requiring your assistance. Of course the first thing the bank will ask, is if you are paying child support to a guardian or an ex-spouse.

You have revealed how long you’ve worked for your present employer, your salary, and your position with your company. This information can be compared against the last time you applied for credit and entered similar details. Someone reviewing your bureau report can identify how transient your employment is, and when completing a future application, are able to determine your employment tendencies. How long do you stay at one job? Are you unemployed regularly in the same industry? Did your employment or salary change from the last time you applied for credit?

There are many things kept on a database for all to see and use. Each time you apply for credit you are also giving written consent for someone to review your credit bureau report. You are also updating the information in more detail each time you apply for credit. The more information on a person’s credit bureau report, the more complete a lender’s perception becomes, the scoring models (which we will review later on) become more refined.

But don’t get me wrong – look on the bright side; after completing the in-store bank’s credit application you did get a free pen set. Did you know that the more credit cards you have, the less borrowing power you have readily available?

It’s great when you may belong to the population of people that can actually pay their credit cards to zero each month (which is 55% of all borrowers), but all that shows is that you are not comfortable with debt. Don’t misunderstand this statement – nominal debt does minimize the risk in lending to you but each card you carry has its own limit. Even though you pay your cards to zero each month you have the choice to max them all out, and at any time. With this in mind banks calculate about 2 to 5% of the limit that needs to be paid. This reduces the amount of cash you have each month to service debt on paper, even though you pay your cards monthly. I know that this sounds ridiculous, but you do have the option to maximize the amount of debt on your cards at any time, and your bank will take that into consideration when lending to you.

All Too Common Example/Scenario of a Marriage Breakdown and Personal Financial Devastation

Let us use an example which is a very typical scenario for people going through divorce. Let’s just say that Mark and Mary are both married, have three children, and they both work full time. For 10 years they have been married with squeaky clean credit ratings because they always make their payments on time, and in fact, make their payments long before their due dates.

They both have three credit cards each (MasterCard, American Express card, and a Visa). They have a credit limit of $10,000 on each card which totals $60,000 in possible credit available to them at any time. During their happier years of non-addiction and frugal spending habits, when they were working as a team, they always made their payments on time, and their financial house was in perfect order.

Then Mark became addicted to drugs and alcohol. He became very reckless with his money, and began spending thousands of dollars a month (more like a week) on his addictions, and began gambling as well. With his losses gaining dramatically, his debt went into a nasty spiral. Soon enough he was having affairs with other women due to his lack of control under his addiction, and Mary found out about it. She filed for divorce.

Mark and Mary spent an extremely stressful year during their bitter divorce and during that time both of them went completely out of control with their spending. Mary spend money traveling and putting money away for security by taking cash withdrawals from all of her Visa cards and stuffing that cash away in a safe place (not in a bank, but in her mattress). Mark continued with his poor choices and dangerous lifestyle spending even more money than Mary from his Visa cards and credit line. Within eight months their $60,000 credit on their credit cards was completely maxed out, their savings were gone, and their joint line of credit of $50,000 was maxed out. In short – they were screwed. This is what the banks look at when they see statistics of divorce in America. Just because you have been behaving like responsible adults all your life (and still are) doesn’t mean they assume you will continue to do the same in the future.

How Many Credit Cards Do You Really Need?

Try getting a low interest charge card from your bank, or a line of credit linked to your account for point-of-sale purchases. And cancel unwanted cards in writing. Then keep the outdated copy. This decision carries with it a few other benefits other than simply having one card to worry about. Your bank now respects your decision to carry their card, and that adds value to your relationship when looking for additional credit at that bank later down the road. If you also have other cards with many other banks, your bank sees that you are sharing all of your information with other competing institutions, and no bank likes to share your wallet with another.

Sharing your banking relationships can become a yellow flag in the lending process as bankers see a risk for what is known as “kiting” (floating money between accounts to cover the same group of checks, where a fraudulent person has the ability to access cash that isn’t theirs until they are found out). Banks have very sophisticated systems in place that do nothing but track deposit behaviors of people and cross-check those behaviors against fraudulent profiles. Kiting is illegal in some countries, and is subject to prosecution. It is sort of like a personal Ponzi scheme using bank credits you have accumulated over the years.

Sharing bank relationships are viewed cautiously, where a single banking relationship adds strength to your application. Decide on a single credit card and perhaps one department store credit card to meet your needs. (If I had it my way you wouldn’t bother with a store credit card PERIOD) limits usually can be adjusted as well, depending on your needs, with a quick call to the bank in most cases.

How High Should Your Credit Limit Be?

What if you have only a few credit cards with high limits that you never use? This is not a very good idea. Make a request to the bank to have your limits reduced to a level that meets your needs, but doesn’t leave a vast amount of headroom. Of course this is different if you are running a business when you need to have a lot of headroom on your credit cards and your lines of credit. But in this scenario we are talking about personal banking. Each time you receive a letter or phone call advising you of your valued business, and your new limit, they have decreased your borrowing power in the hopes you’ll maximize your potential use of their card. If you don’t need, or use your maximum credit limit each month, reduce it to a level that’s right for you. Don’t let the card company arbitrarily increase your limits without first asking you, tying up your borrowing power on their share of your wallet.

Why Do Credit Card Companies Keep Raising My Limit When I Don’t Ask?

The credit card companies increase your spending limits arbitrarily without even calling you for many different reasons. You might have been identified as paying the credit card down regularly, and have a proven track record of being a nominal risk. This is of course bank speak when I mention “nominal risk”. Keep in mind it’s not an official increase unless you choose to use it. It is only a bank approved increase. This is why only the maximum amount of each card is reflected on the credit bureau report. Just because it’s approved for your usage, doesn’t mean you have accepted the liability. Using the increase is acceptance to the approval. You would be surprised at how many consumers – people just like yourself don’t know that. If you don’t want the credit increase, don’t use it. Better still, call the credit card company and ask them to reduce the limit to what it was before, so you are not tempted to use it impulsively.

Some credit cards have points that you collect while others offer discounts; but they all want you to carry a balance so they can earn interest revenue from you (18% a year is not unusual for CC APR). They also earn revenue from the businesses that accept your credit card as payment each time it is used whether you carry a balance or not. The business is charged a fee per transaction, often based on the dollar amount of your purchase. The larger your purchase, the larger the fee for that transaction charged to the merchant. It works on a percentage basis and that percentage varies from card to card, and year-to-year month-to-month and week to week. Raising your limit so often encourages these larger purchases, creating larger balances on your credit cards, so be very careful how you use your card.

Of course, if you are a small business owner and a particularly successful one, you can usually afford to pay off all your credit card expenditures without any problem at all, and most of the expenditures fall into the category of tax write-offs. This is a whole different scenario than we are talking about today – this is business banking 101. We will talk more about that later in this series.

Until next time, please read this information closely and then take a good look at your spending habits, your spouse’s spending habits, and the amount of available credit you both have on your cards and with your banks. Take a close look at when you make your payments for utilities, outstanding loans, and phone bills, etc.

We will see you next time on my series.

Continued in the Carol’s Borrowing Series Category of Clf.

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