Don’t Fall a Victim to Identity Theft

What if you wake up one morning to find that someone has intruded into your e-mail account and sent phishing mails to all your contacts? Or, you get a phone call from your banker that the whole money in your account is wiped out? Or worse, what if somebody steals your social security number and opens many financial accounts and grabs heavy loans under your name?

These are all the types of identity theft. It is a criminal activity when someone steals your personal information, such as credit card number, bank ID and password, Social Security Number, to commit fraud or other crime at your expense. Many a times, months or years pass before people realize that they have fallen victims to identity theft.

It’s simply your routine habits that make you more vulnerable to identity theft. If you shop online, use mobile banking, social networking sites, hand off your credit card at a hotel or discard sensitive documents carelessly, the thieves have enough opportunities to grab your personal information and damage your whole life or put you in trouble. Weird it may sound, but this is how we consumers are suffering.

You can avoid the risk of identity theft if you are well aware of the common and advanced ways the thieves use to commit the felony .

Workplace Scams

Many people generally overlook this issue. A dishonest co-worker of yours can easily slip your records from the company database. Sometimes the thieves bribe a company employee who has direct access to employees records.

The modern day criminals use social engineering tools to gain entry into a company’s internal network. Social engineering is when a criminal tricks you to give them your password. A common example is someone calls you to convince that they are from technical support and they need password to correct a network problem. They may give you false assurance that your password is in safe hands.

Solution

Never ever give your password to anybody, not even your friends, especially over the telephone. Many of us feel proud and glad giving password to a stranger because we think we are helping the organization or a co-worker.

Stealing the Wallet and Mails

A quite old-fashioned method used by criminals is to steal your wallet. It may contain important documents like the Social Security Card, insurance card or driver’s license.

Sometimes they steal mails directly from your mailbox to acquire your personal information. You shouldn’t dump your sensitive documents without shredding, because you think those documents are useless, others don’t.

Solution

You are recommended not to carry Social Security Card in your wallet. Shred all the papers containing your personal and financial information before throwing them in the garbage. To make things more secure, consider keeping track of your credit report because any financial transaction from your accounts will reflect in credit score.

Your Dear Ones

It’s sad but true that even your family members, relatives, friends, household workers or spouse willing to divorce can perpetrate identity theft if they have a grudge. They can obtain your social security number, driver’s license number or any other personal document because they have direct access into your life.

Solution

Since these people are too close to ignore, simply keep your documents away from anybody you doubt or someone who has conflict with you.

Shoulder Surfing

Beware the next time you go to ATM and find someone standing a little closer than they should be. They can be looking at the sensitive information. Worse, sometimes they stealthily take an image of your debit/credit card or record a video in their mobile when you are entering the ATM pin number. If you must use an ATM where there is a long queue behind you, just block others’ view with your body.

Hacking

The advanced technology has made criminals lazy and you more worried. Now they can steal your information without ever leaving their comfort zone. There are several ways your personal information can be hacked or stolen using Internet.

• There are websites that sell your personal information including Social Security Number for as little as $20. Therefore do not give your personal information over Internet until absolutely necessary.
• Hackers can access into the database of a merchant website to obtain your information. So, it’s wise to deal only with the reputed websites and not give your credit card number to purchase something from just any sales page.
• Sometimes the hackers put a ‘mirror’ website, which appears exactly similar to a merchant website. They gain your credit card number along with the password when you try to log in or  place an order. To avoid such incidences, always enter the original website by typing the web address manually.
• If your computer system doesn’t have a firewall, you are more vulnerable to hacking. Get a firewall.

Spyware

Corporations spend hundreds of thousands of dollar to identify and understand the spending habits of the consumers as a part of market research. These companies generally install spyware software in your system in exchange for a free software tool. It gives them easy access to all that you surf or purchase, including the personal information.

Once installed, the spywares automatically change the internet setting on your computer by bringing in their own drivers.

First, don’t ever install any program that comes with a spyware. And if you have already installed, run a spyware removal program several times to remove it from the computer.

Telephone Scams

You pick up a phone and someone surprises you by announcing that you have won a big fat prize. You simply need to make a small payment as shipping fee through your credit card. Do not ever give your financial information to any such person. If you are really a winner, you never have to pay anything to get your prize.

Get your phone number registered to the ‘National Do Not Call Registry‘ (1-888-382-1222).

Phishing

Our favorite official as well as unofficial mode of communication is e-mail. You may get a fake e-mail that looks exactly similar to a real merchant website’s (say PayPal) e-mail. It contains a direct link to the website that is also fake, but looks like the real one. The e-mail will persuade you to log in and take some action. If you click on the link to log in, the criminal will obtain you ID and password for the real merchant.

Make sure that you never click on any link mentioned in an e-mail, especially when it asks for your personal information. Always enter the web address manually to visit that website.

Synthetic Identity Theft

It’s an advanced technique that has gained immense popularity among thieves in the past few years. We know that the first three digits of Social Security Number refers to the birthplace of a person, next two digits are assigned based on the time of birth, and the last four digits can be guessed using advanced statistical techniques.

Problem arises when the SSN decoded by thieves happen to be yours. They can then match up a new but fake name with your SSN to create a new ID. He can then borrow as much money as possible under your SSN with a different name.

The credit rating agencies give creditors your main file with the original name, so it doesn’t display any alternate name associated with your SSN. But the debt collectors generally search a person using Social Security Number, regardless of the name. That’s when you will be in trouble. There could be a heavy debt connected with your SSN, though not with your name. But the debt collectors are likely to force you to pay the debt under your SSN, which you are not responsible for.

You have to be vigilant that your SSN isn’t connected with any other name, so check your credit score exclusively using your SSN.

Trojans

Trojans are the malicious programs that can make a deceptive way into your computer system. Once installed, they open a back door for hackers and all your files and personal information stored in the computer are now at the mercy of hackers.

They can also track whatever you are typing on the keyboard to obtain your password and account numbers. You should use specifically designed tools to protect you from Trojans.

Skimming

How confidently and willingly we hand over our credit/debit cards at restaurants or other shopping places without having any idea of that employee’s character. The ill-minded employees can either memorize the card number or take a photo of the card. We then sign the credit card receipt without giving a second thought that we have already given them our signature and credit card number.

Always try to hand over the credit card directly in the hands of cashier to make payments. Another way is to keep a disposable credit card having a limited spending amount. It is useful only till you reach the limit. Once the limit is over, it’s useless. This method prevents the thieves from gaining access to your credit or back accounts.

Empower – Educate – Take Action

H & I Credit Solutions

Financing your dream home has become way too expensive these days. Adding to that, lenders have tightened the underwriting standards, making home loans unaffordable for most Americans. Be wise in picking up the right mortgage plan, so that you don’t have to regret it later.

When you analyze your financial position, income and contingencies, oftentimes it becomes quite confusing to select a mortgage suitable to your needs. Comparing the three most popular home loans should help you better assess your expectations, budget and choose the right home loan.

Conventional Loans

Conventional loan is one of the most popular mortgage types in the US. You have to pay the principal loan and interest in fixed monthly installments over an agreed period of time, usually 30 years. The government neither makes nor insures conventional loans, instead they fall into the guidelines of government sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac.

A good thing about conventional loan is that you have to pay a fixed amount of money every month from the beginning to the end, irrespective of future economic scenario. It is best suited for those willing to stay in the house for a long time. You can obtain the conventional mortgage loan from a bank,  a credit union, a savings and loan or even through a mortgage broker. Loan-to-value ratio and the term of the loan are two very crucial points. Loan-to-value (LTV) ratio shows what percentage of the total house value will the financer be putting. For example, if a cost of a house is $100,000. Let’s say, you pay $5000 upfront and ask the bank to pay $95,000 over 30 years, then the LTV ratio is 95%.

Interest rates vary depending upon your credit score. Though the average American FICO score is 620, the higher the score the lower your interest rate. To keep the transactions on safer side, ensure than all your monthly mortgage expenses (the principal and interest, insurance and property taxes) should not be higher than a specified percentage of your monthly income (usually 28% ratio).

Pros

Since conventional loans require a higher down payment, you have the opportunity to build up home loan equity pretty fast. On the other hand, there is always a stability because you very well know what your monthly mortgage payments will be for years to come. So you can plan your finances accordingly.

Cons

If you want the best interest rates, you’ll have to have a great credit score. Otherwise the interest rates would be high making it difficult to afford the payments every month for thirty years.

Who Should Go for Conventional Loans?

It is best suited for people with excellent credit score and able to put 5 percent or more in down payments.

Interest-Only Mortgages

The homeowners’ addiction to anxiously look for new and better ways of purchasing a home gave rise to interest-only home loans. For the first few years, your monthly payments will consist of only the interest, and no payment of the principal is made. For example, if you take out a 10/20-year interest-only mortgage, for the first 10 years you’ll be paying a small amount consisting of only interest. From 11^th year the payment of principal sum begins which would obviously be higher.

Of course, you do have the right to pay more than the interest during initial years if you want to. You are likely to qualify for a bigger home loan because of the lower monthly payments.

Benefits

People are attracted to interest-only mortgages because they can buy more than one house or an expensive one at relatively lower monthly payments. It gives you the opportunity to  invest the free up money for better returns. As lenders expect you to pay only the interest, you can pay the principal whenever convenient to lessen the burden in future.

Pitfalls of Interest-only Mortgages

Though they seem pretty attractive, there are certain pitfalls of interest-only loans that you should be aware of.

v  There is always an uncertainty whether your income will increase enough to make increased monthly payments for the principal amount.

v  You can’t be sure that the free up money invested in some other property or financial market would fetch superior returns.

v  Since you pay only interest for the first few years, you don’t actually reduce the loan. If unfortunately the value of home falls over the years, you’ll still owe the principal amount to the bank. When you sell such a house at decreased price, you have to pay the difference from your pocket, apart from the interest you paid for years. For example, you purchase a home for $200,000 where the lender pays 80% (160,000) of this value. If the price of this home comes down to $150,000 after ten years, you have to pay the difference ($10,000) from your own pocket to the bank when selling the house, no matter you paid interest on this money for a decade.

Who Should Take out an Interest-only Mortgage?

The first time homebuyers are highly encouraged to go for this type of loan. New homeowners generally struggle to make monthly payments because they are not accustomed to paying mortgage which is slightly higher than renting a house. A lower monthly payment scheme helps them adapt to the situation.

Investors prefer this over other mortgages to increase their property by paying the minimum possible installments.

Adjustable Rate Mortgages (ARM)

As the name itself suggests, ARM is the loan in which interest rate becomes adjustable after a specified period of time. In the beginning, the interest rate is fixed for certain period like 2, 3, 5, 7 or 10 years. At the end of this term, the mortgage rate is adjusted up or down based on the changes in economic index over time.

Though the interest rate changes periodically, the time span established to pay off the complete loan is not altered.

Basic Terminologies You Must Know

Index

It is an interest rate derived from a number of averaged returns. They are generally published in various newspapers and lenders use them to adjust the borrowing rates monthly, quarterly, half-yearly or annually. The four most common indices are:

1. Monthly Treasury Average
2. Cost of Savings Index
3. London InterBank Offered Rate (LIBOR)
4. 11^th District Cost of Funds

Ask the lenders to show how each of these indices has performed over the years. You are encouraged to choose an ARM in which the index used has been closest to stable over the years.

Margin

It is the percentage point added to index to determine the actual interest rate you have to pay. In simple terms, margin indicates the lender’s cost of doing business and the profit he will make in the transaction. It always remains the same for entire life of your mortgage loan.

Interest Rate = Index + Margin

Adjustment Period

It’s the time period for which interest rate remains unchanged and the changes will take place only after that period is over. For example, you might have noticed that ARMs are generally attached with figures like 5-2 ARM mortgage. Here the first figure (5 in this case) tells that the initial interest rate will remain unchanged for five years from the day you signed the mortgage loan.

The second digit (2) refers to how frequently the interest rates will be adjusted after the initial period is over. In the above example, the mortgage rate will be adjusted every two years after the initial period of 5 years.

Adjustment Cap

An adjustment cap is a limit of percentage points by which your monthly payments can either increase or decrease at each adjustment period.

ARM is easily affordable, especially at a time when the interest rates and housing prices are skyrocketing. But there are a few problems associated with it. First, people find is hard to understand how the index works because there are many variables considered to calculate the monthly payments. Second, unlike conventional payments, there always looms uncertainly over what the future payments would be.

Don’t hesitate to acquire information from lenders on each of home loans to compare and choose the right mortgage type for you.

Do you lend someone money without considering his ability/records to repay the debt? Absolutely not. If you ever did so, let me tell you that you really risked your cash. But the banks, companies, insurance companies and landlords are more conscious about their money when they take the same risk (probably with bigger sum of money) when providing loans to people for financing cars, purchasing house or paying for the education. Therefore, they meticulously examine the financial history of every borrower.

Though there are many credit rating agencies (CRAs), more than 90% of lenders consider the credit reports by big three – Experian, TransUnion and Equifax. They collect your financial information from banks, credit card companies, companies and other lenders to prepare a credit report which assigns you a three digits credit score. According to Fair Credit Reporting Act, 1971, consumers in the United States have free access to their credit reports once a year from all the three credit bureaus. These three are the fierce competitors and they never share any information with each other.

Let’s get into details of how each one of them works.

Experian

It is Ireland-based credit bureau with strong foothold in 36 countries. It was founded in Nottingham as CCN Systems in 1980. Experian has two divisions – personal credit and business credit. All the lending institutions and other creditors send a monthly report about every individual consumer to Experian. It also scours every possible public record, payment history, bankruptcy, foreclosure, etc.

Experian database maintains credit information of 220 million Americans. In June 2010, it purchased RentBureau and merged its rental payment records of 7 million US people with Experian US consumer credit.

Though the Fair Credit Reporting Act, 1971 has entitled consumers to receive their credit report once a year without any fee, Experian leaves no stone unturned to promote FreeCreditReport. com, its for-profit credit reporting arm.

Equifax

Equifax is an international credit information supplier headquartered in Atlanta, Georgia. It is the oldest of the top three credit bureaus and has information about a large number of credit holders – 400 million people around the world.

It was earlier known as Retail Credit Company, which had every information about people including facts, jobs, financial status, sex life, marital troubles, childhood, political activities and almost every phase of an individual’s life. Retail Credit Company was heavily criticized for openly selling the personal information of people to anyone for money. It was due to the misdeeds of Retail Credit Company that US Congress decided to enact Fair Credit Reporting Act in 1971. Then, the RCC changed its name to Equifax in 1975 in a hope to improve its public image.

Equifax, like Experian, operates in personal as well as business credit. Since both the divisions are independent of each other, there is no possibility of cross-referencing between your personal and business credit profile. It sells consumer credit, insurance reports, business credit reports, software and analytics to a wide range of buyers.

TransUnion

TransUnion is one of the top three credit bureaus in the United States. It was established in 1968 and today the company has 250 offices globally with headquarters in Chicago, Illinois. In July 2011, TransUnion filed an Initial Public Offering to raise $325 million to expand its operations.

It has strong capabilities in fraud management, preventing identity theft, collections management and risk management. TransUnion directly sells consumer credit information.

In 2003, TransUnion had to pay $5.3 million to Judy Thomas, a resident of Oregon, in a suit that it took her six years to get an erroneous credit report corrected.

These agencies set a benchmark of credit reporting and over 90% of all the American creditors use their reports to make important decisions. If you notice any error on your credit report, contact them in a friendly manner, screaming through mobile phone may result into your account being flagged. They are also concerned about correct reporting because that’s their only way to maintain trust of creditors.

How Do They Earn Revenues?

Credit bureaus compile consumer information and sell it to potential creditors. The lenders use this information to make decisions whether or not to lend you money based on your past financial records.

When these greedy agencies were not satisfied by selling your private information to just lenders, they wanted to expand their client base. They targeted potential employers. Now the credit bureaus began to earn money not only when you seek loan or credit cards, but also every time you apply for a job. The employers now purchase credit records of every job applicant.

The credit reporting agencies are private corporations. In order to please their shareholders and entice the investors, they need to increase revenues every year and earn more profits. So these agencies went to property management firms to woo them, now when you need to rent an apartment, the landlord will check your credit score.

The credit bureaus realized that they can fetch more cash by making credit report necessary in every aspect of people’s life. Hence, they went on to negotiating with the auto insurers to make credit reports necessary in auto insurance. Now the insurance premiums are not decided by how perfect and clean your driving record is, it has all become a game of credit score. The insurance companies pay credit bureaus to obtain your credit record, and charge you higher premium if your credit score happens to be low, no matter you are the safest driver in the world! It’s a win-win for both giants – the credit bureau and insurance company.

That’s not all. These firms also earn revenues by selling your personal information to solicitors who, by using this, send you different spammy offers. In short, credit reporting agencies earn revenues by selling your personal and financial information, no matter who the buyer is. Many times in the past all the three agencies have been dragged to court and fined heavily for selling the credit report to people instead of giving them free access to their credit report.

Empower – Educate – Take Action

H & I Credit Solutions

If you want credit and you do not want to visit a bank or any other lending institution on their premises, you should consider getting online credit. The greatest advantage of this type of credit is the convenience it offers. This convenience is because you can get credit from the comfort of your own office or home and because you can get credit when the bank and other lending institutions are closed such as at night, during holidays, and during weekends. Another advantage of online credit is the anonymity is gives you. No one will ever know that you have taken on a loan.

It is also important that you consider the demerits of online credit and possible remedies. There is a risk of getting scammed. This can be remedied by getting online credit from well-established lenders only and by insisting on a contract. There is also a risk of fluctuations in interest rates.

So, what options are available? You could get online credit from a mainstream lending institution such as a bank. Most banks today offer online banking. However, the only difference between this option and going to the bank is the fact that you do not need to visit the bank – all other considerations such as your FICO scores are made. A popular option for online credit today is peer lending. This is a flexible option where individuals with money to spare lend it away and get paid with an interest. Yet another popular option today is payday lending. With this option, you get money mid-month and it is deducted from your pay slip at the end of the month.

So, how do you qualify for online credit? Qualification for most types of online loans is not as strict as qualification from banks. Most options such as peer lending and payday loans do not consider your FICO score. This is an advantage because banks and other lending institutions will not give you a loan if you have a bad credit history and if they do, they usually do so at a very high interest rate. Another qualification is that you must give your physical address. This is important in that it protects the lender from possible defaulters. You must give proof of your physical address. You are also required to identify yourself. You can use your credit card information for this or your social security number. You must also proof that you are able to pay. This means you must give your pay slip or any other proof that you are able to pay. Some online credit lenders insist that you be introduced by someone. You will also need to give your account details where the money is to be deposited.

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H & I Credit Solutions

A distressed homeowner has many ways to sign away the ownership of his house and short sale has been a hot buzz in the real estate market for over a decade. Many people use short sale as an option to avoid foreclosure and get rid of the upside down . In a short sale, the lender allows you to sell the house for less than what you owe them. The deficiency (difference between debt owed and price of short sale) is generally forgiven by the lender or, if you have assets, the bank will require you to pay the shorted difference by selling off your personal assets.

However, the United States is not a fairy tale land, so short sale is not as easy as it seems in this country. Before anything else, you have to qualify for a short sale. The qualifications? You must be in financial trouble like unemployment, medical emergency, death or bankruptcy; you must have defaulted on payments or you are on the verge of default, you have no assets to sell off and pay the debt.

If you are fortunate enough (or ruined enough?) to get qualified, you have to submit all your financial records including hardship letter, tax returns, proof of assets and annual income to assure the lenders that you are really in a big trouble. When the buyer purchases your house with consent of the creditor, you think everything is past now. But that past is going to trouble you for years to come, simply because it badly lowers your credit score which has become necessary for everything from job application to purchasing cars or financing a new house.

How Does Short Sale Affect Your Credit Score?

A popular misconception in our society is that short sale is less damaging to the credit score than foreclosure, therefore we interpret short sale as being less offensive. However, lending experts and Fair Isaac do not differentiate between short sale and foreclosure or deed-in-lieu. They all generally lower your credit score by 85 to 160 points.

What makes the fall more drastic is your degree of delinquency on payments before the derogatory event took place. If you stay current on payments or just slightly delinquent, expect the damage to be minimal on your credit score. Every time you miss a payment, the more negative impact on your credit score will be, no matter whether your house is foreclosed or sold in a short sale. Practically, if your payment is 120 days past due, even short sale is automatically displayed as foreclosure on your credit report.

How Can You Minimize the Impact on Your Credit Score?

Though completely avoiding the downfall is next to impossible, there are certain ways you can minimize the impact of short sale.

1- Negotiate with your lender for short sale when you foresee a possibility of default on mortgage payments in the coming months. Be proactive to find a buyer and contact the lender regarding the issue well before you miss the payments. Without a buyer, lenders are highly unlikely to entertain your proposal.

2- Credit bureaus evaluate your case based on how the lender or bank reports the short sale. So, negotiate with the lender to report it as “settled as agreed” or “paid in full.” It will lower your score by only 85-160 points.

Pros and Cons of Short Sale

Despite knowing that there is no basic difference between foreclosure and short sale as far as impact on credit score is concerned, why do people still prefer to go for a short sale? And if you happen to be one of them, you must know various pros and cons of short sale.

Pros

1- An escape from foreclosure. Foreclosure is a tedious and stressful process for the homeowner as well as the lender. The public announcements, events and auction notice on the front door of house, all drag your sense of pride and name to the streets. Nothing could be more embarrassing. Lenders have to pay for various costs without any surety that the auctions will fetch at least the invested amount.

2- In a short sale, you need not pay the transfer taxes, commission, sales fee, etc. that often adds up to 8% of the selling price. It all is paid by either buyer or the lender. More importantly, you are blessed with the right to negotiate with creditor and buyer on who pays for what and how the lender will report to credit bureaus.

3- The two largest mortgage investors in the United States – Fannie Mae and Freddie Mac – restrict themselves from lending you only for two years if you opt for short sale. A homeowner who suffers foreclosure cannot borrow for five years. That is, with a short sale you can re-qualify for a new loan to own a new house much sooner.

4- When your credit report shows a foreclosure, you’ll face trouble getting a loan from credit cards or to finance a car, etc. whereas people look favorably at short sale. There exists a disgrace for foreclosure in our society, which is not the case with short sale.

5- Creditor can forgive the difference between debt and selling price.

Cons

1- You have no guarantee that the creditor will approve your proposal for short sale. Everything remains uncertain until approval, and banks are notorious for not approving the short sale to the point it becomes only option except foreclosure.

2- If you have some property, jewelry or bank balance, the lenders are unlikely to forgive the loss (difference between debt owed and selling price). In that case, they can force you to compensate for the loss by selling your personal property.

3- Even if the bank somehow forgives the loss, it may issue a 1099 for the forgiven amount, which is sent to IRS. According to IRS, the forgiven amount is a taxable income so you have to pay taxes on that amount.

4- Short sale is absolutely not a short process. It consumes a lot of time to put together all the papers, financial proofs and other documents. The lender scrutinizes everything before giving a nod.

Short sale affects your FICO score as much as a foreclosure. The further fall in your credit score depends on how punctual you have been on your payments. It has its own pros and cons, and the process involves many details that an average homeowner is unaware of, so you are advised to consult a professional having successful track record with short sale.

Empower – Educate – Take Action

H & I Credit Solutions