Credit Scoring Fun

This week the Consumer Federation of America and VantageScore Solutions released their 7th annual credit score survey results.

When you have a few minutes for fun, take the Credit Score Quiz and see how you do; then read the survey press release.

Here is the link to the PDF quiz and answer key, in case you’d like quiz someone else (take the quiz yourself before you see the answers on page 2).

ID Theft

In  2002 Walter Kevin Scott worked as benefits manager for the Indiana Public Employees’ Retirement Fund (PERF).  Mr. Scott had used a false Social Security number in the hiring process, and the State of Indiana had hired him unaware that he had served time in a federal penitentiary -  for identity theft!

During his trial it was disclosed that from November 2001 to August 2002, Scott had unlimited access to the Social Security numbers of 1.2 million current and former public employees and their families  -  the equivalent of nearly one in every six Hoosiers.  Investigators found personal information and pension fund balances of 750 people during a search of Scott's home after he quit working at the fund. 

A few years later we began to hear more about breaches, most notably in universities.  In May of 2005, the Lafayette Journal and Courier listed ten universities that had already reported breaches in that year, including Purdue and IU.  Also in 2005 it was reported that identity thieves set up fake businesses and gained access to up to 160,000 consumer records from data broker ChoicePoint.

Heartland Payment Systems Inc. - one of the largest processors of credit and debit card transactions in the U.S – was hacked in 2009.  With vague explanation, one local bank sent new debit cards to replace ones that were not even near expiration.  When the Target and Home Depot names appeared in the news we all noticed, but how many of us would even recognize the name Heartland Payment Systems or ChoicePoint?

In 2014 Krebs on Security reported that a nationwide beauty products chain discovered a breach in its payment systems and a fresh batch of 282,000 stolen credit and debit cards reportedly went on sale in a popular underground crime store.  That same month, Indiana University reported that information including names, addresses and Social Security numbers of those who attended any of the university’s campuses from 2011 to 2014 was unsecured for more than 11 months because security protections weren’t working correctly.

Purdue associate professor of communication Josh Boyd stated, “The recent security breaches . . .  are a good reminder that the online environment involves no guarantees.  If you put information online and somebody really wants it, it’s vulnerable.”

The use of a credit monitoring service cannot prevent ID theft, but it may help you to discover fraud.  About the well-publicized Target security breach during the 2013 Christmas shopping season, Purdue professor of cyber forensics Marcus Rogers warned, "People have to be vigilant for the next six months, year, even up to two years.”

The ProtectMyID credit montoring service offered by Target is a product of Experian, a credit reporting agency, and monitors changes only to a consumer's Experian credit report.

According to Consumer Reports, “The service can give consumers a false sense of security, and Consumer Reports can recommend this deal in its present form only as being better than nothing, and only for consumers who understand its significant shortcomings.”

In 2014, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray warns, "your information is always at risk, every day."

Credit Karma is a popular service that provides no-cost (“free”) credit scores, credit reports, and credit monitoring from TransUnion.  In 2014, Credit Karma settled with the Federal Trade commission on charges that the company “failed to take reasonable steps to secure” its mobile apps, ‘leaving consumers’ sensitive personal information at risk.”

A 2012 BankRate.com article  explains that paying with a credit card or debit card makes you vulnerable, and mobile phone users are also a target.  The founder and president of Javelin Strategy & Research, a company mentioned in a popular 2012 Identity Theft Video, has warned that social media users are a growing target for identity theft.   Below is a report about the company's 2016 identity fraud study.

Javelin’s 2017 study reveals that the incidence of identity fraud increased by 16% from the previous year, a record high since the company began tracking identity fraud in 2003.  There were two million more victims and the amount rose by nearly one billion dollars, to $16 billion.

Considering the outrageous number of major breaches reported during the past few years I’ve just been unable to keep up with tracking.  Nevertheless, quite some time ago I reached the same conclusion as Lafayette editorial cartoonist Dave Sattler following Jimmy John’s September 2014 breach, “The recent security breach by Jimmy John’s as well as Target, eBay, and Home Depot has many wondering How do we protect our identity . . .  One way is to bring back an old friend . . ."  (i.e., cash).

In the News

Half of Non-Homeowners Expect to Buy Homes in Five Years (Gallup)

Highlights:

• 49% of non-homeowners expect to buy a home in the next five years;
• An additional 20% expect to buy a home in the next 10 years;
• One in five homeowners plan to sell in the next five years.

US Consumer Spending Up in April, at $107 (Gallup)

Highlights:

• April average up $7 from March;
• Exceeds December 2016 holiday spending average;
• Highest spending average since May 2008.

Most U.S. Employed Adults Plan to Work Past Retirement Age (Gallup)

Highlights:

• 63% say they will continue to work, but work part time;
• 25% say they will stop working altogether;
• More Americans say they will retire after, rather than before, age 65.

Economic Security for Seniors Facts (National Institute of Senior Centers)

Highlights:

• Nearly half a million older adults aged 55-64, and 168,000 aged 65+ who wanted to work were unemployed 27 weeks or longer in 2014;
• 21% of married Social Security recipients and 43% of single recipients aged 65+ depend on Social Security for 90% or more of their income;
• In 2013, 61.3% of households headed by an adult aged 60+ had some form of debt. Among senior households with debt, the median total debt was $40,900;
• In 2013, 33.8% of senior households owed money on a mortgage, home equity line of credit, or both;
• Approximately 3.5 million older homeowners are underwater on their loans and have no home equity.

2017 PwC Employee Financial Wellness Survey (PwC)

Employees who are stressed about their finances are both less productive and in worse financial shape than other employees.  They are:

• Nearly five times more likely to be distracted by their finances at work (48% vs. 10%);
• Twice as likely to spend three hours or more at work dealing with financial matters (50% vs. 26%) and three times more likely to spend five hours or more (20% vs. 7%);
• Twice as likely to miss work on account of their personal financial issues (16% vs. 8%);
• More inclined to cite health issues caused by financial stress (35% vs. 20%).

Those impacted by student loans are more likely to be stressed about their finances, have difficulty meeting household expenses each month, and use credit cards to pay for monthly necessities they can’t otherwise afford.  They are also more likely to be distracted by their finances at work and to withdraw money from their retirement plans.

Only 42% of Millennials feel that they should have primary responsibility for supporting themselves in retirement, down from 60% in 2016.  40% now say that their employers should have that responsibility (up from 24%), and 19% the government (up from 16%).  Click here for the 50-page report.

How I learned to read — and trade stocks — in prison   (11:03 TED video)

Financial illiteracy is a disease that has crippled minorities and the lower class in our society for generations and generations, and we should be furious about that.”

“ . . .  I discovered that according to MarketWatch, over 60 percent of the American population has under 1,000 dollars in savings.  Sports Illustrated said that over 60 percent of NBA players and NFL players go broke.  40 percent of marital problems derive from financial issues.”

“How in the world were members of society going to help incarcerated individuals back into society if they couldn't manage they own stuff?”

“. . . Financial Empowerment Emotional Literacy (FEEL) . . . teaches how do you separate your emotional decisions from your financial decisions, and the four timeless rules to personal finance: the proper way to save, control your cost of living, borrow money effectively, and diversify . . .”

Live like no one else

Dave Ramsey said, “Live like no one else so later you can live and give like no one else.”

A man who was a great inspiration to me was a college professor who saved 50% of his income since he first began teaching in the 1970s.

Yes, over the years his income finally grew to become higher than average for our area, but throughout it all he maintained relatively simple needs and wants.  He could have lived far more lavishly than he did, but he was a hard worker, lived comfortably enough to suit him, and never felt denied of anything really important in life.

When he died he left a great deal to his loved ones, plus a substantial amount to student scholarships and to other charities that were dear to him.

High income or not, if every one of us could find some level of contentment and live even a bit below our means, our lives would be far less stressful and worrisome.

And at the end, there just might be something left to pass along.

Credit Reporting and Scoring: Part 1

Lenders use credit reports and/or scores to make the decision whether to lend and, if so, at what rates.  Today, prospective landlords, insurance companies, and even employers may make decisions about us based on this information.

Fair or unfair, right or wrong, that’s the way it is for now.

I remember when I first checked my own reports with Equifax, Experian, and TransUnion.  Among all three there were 23 errors!  Though there was nothing on any of them that jumped out to me as derogatory, the one with the most errors issued a score 100 points lower than the one with the fewest.

In February 2013 CBS 60 Minutes ran an eye-opening segment about credit reporting; according to Steve Kroft, "The problem is that it's not really within the power of the average person using this system to fix the mistakes.  You feel like you're up against this machine, and there's no way to break through."  Ohio Attorney General Mike DeWine alleges criminal conduct by the credit reporting agencies.

Later that year the U.S. Senate held a hearing about industry practices and writer Jennifer Streisand interviewed a few local experts (including yours truly) for a Credit Monitoring Tips article in Lafayette Magazine.

In 2015 the three agencies settled with 31 states and agreed that they would make it easier for consumers to get errors corrected.

Have the agencies finally cleaned up their acts?  Well, maybe you can help me decide.

In January of this year, the Consumer Financial Protection Bureau (CFPB) found that TransUnion and Equifax “deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises.”  The two companies are ordered to pay $17.6 million in restitution to consumers and fines totaling $5.5 million to the CFPB.  

Let’s see, $17.6 million + $5.5 million . . . as near as I can tell that’s less than 1% of a single year’s gross.

Credit reporting agencies never did have the “Plays well with others” box checked off on their report cards.

Will they ever?

60 Minutes links:

• 40 Million Mistakes: Is your credit report accurate?  February 10, 2013 (13:14)
• The ONE thing to know about your credit report August 25, 2013, (4:04)
• How to dispute errors on your report August 25, 2013 (1:43)
• How mistakes can harm your credit August 25, 2013 (2:11)

America Saves Week 2017

America Saves Week starts this Monday, February 27^th, and runs through Saturday March 4^th; Clearpoint, a division of Money Management International is sponsoring a video and photo contest.

 

Here's how to participate in the contest:

 

1) Create a short video featuring your savings story by answering at least one of these questions:

• What are you saving for?
• What is your savings story and how can it help other people?
• What is your favorite savings tip?

2) If you can’t (or don’t want to) create a video, then take a picture illustrating your savings goal.

 

3) Enter at americasavesweek.org/imsavingfor.

 

4) Share your video or photo on social media with the hashtag #ImSavingFor.

 

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HR People, Credit Counselors, and Bankruptcy Attorneys – Am I Correct about Emergency 401(k) Withdrawals?

One of my (many) favorite quotes is, “Learn from the mistakes of others. You can’t live long enough to make them all yourself.” [1]

Over the decades I’ve certainly made my share of mistakes!  But during five years as a community college personal finance instructor, and as counselor with several thousand in-person sessions under my belt (including 1,000 or so for bankruptcy), I’ve also had uncommon opportunities to learn from the mistakes of others.

Certainly there are health emergencies or sudden and extreme reductions in income (sometimes both) that necessitate an in-service hardship withdrawal from a defined contribution plan.

My observation is that a more common scenario involves not an isolated financial event, rather a multi-year pattern of deficit spending.  In other words, Americans - month after month and year after year - spend more than they earn.

Let’s say that you have 200 employees participating in a retirement plan, and over a 12-month period eight of them make an emergency withdrawal of, say, $10,000.  Two of these individuals later learn that the cash influx provided emotional relief only for the moment, but the core financial behaviors were unchanged and later file for bankruptcy protection.

So $20,000 that might have been protected in bankruptcy is gone forever.

SHRM, NFCC, FCAA, NACBA members – has this been your experience?  How much does this affect the future value of an individual's savings?

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[1] Contributed anonymously to a 1948 The Weekly Underwriter; later attributed to Martin Vanbee, Eleanor Roosevelt, and others.