The Importance of Parental Influence

This is kind of weird to admit, but I didn't know that you can OWE money on your credit card for more than a month at a time until I was a teenager. Before that point, I always thought you spend what you can afford and pay it back in full at the end of the month (I guess you would call this a charge card). Okay, now that I've admitted that, you may think I'm not too bright. Or you may think that our educational system should focus more on personal finance. One of those statements is true. Yeah yeah, take it however you want, but I insist my thoughts were heavily influenced by my parental unit. So forget what it says about me. The real question should be what's that say about my parents? It could mean a few things:

1. They're extremely responsible credit card users.
2. They wanted me to understand the value of hard-earned money before I learn about debt.
3. They didn't tell me the whole story by explaining to me more clearly the full purpose and intention of credit cards. (Euphemism for the lying, I suppose) 

How to Deal with Credit Card Fraud - Part 2

I finally got a replacement credit card today! If you didn't know, I got a credit card fraud alert call from Bank of America more than a week ago telling me that they had declined a charge for a purchase in New Jersey due to suspicious activity (I was home in California when the card was charged). I called the activation number thinking that it would be a 2 minute process of pressing buttons, but i was dead wrong.

After typing in the last four digits of my new card, the robot directed to wait to “speak to the next available representative” who’ll be right with me. Right…I waited for almost 10 minutes. Either they're trying to vamp up their customer service, push new "promotions," or get market research data, I got a live person on the other side of the line. Bank of America, if you plan on starting to charge fees to customers, you should really think about cutting down on live person credit card activation. The rep. chatted me up on the benefits of the card (which I’m well aware of) and tried to dig deeper into my spending habits.

How to Deal with Credit Card Fraud - Part 1

I received a "Fraud Alert" email from Bank of America on Saturday night, letting me know that my credit card was declined at a Bed Bath & Beyond for a $25 charge. Hmmmmmmm...interesting. I was near a BB&B earlier that afternoon, but I sure as heck did not go into the store, nor did I attempt to make a $25 purchase. My card hasn't left my wallet in a week, so this is a little absurd. Okay, can i go back to the Bed Bath & Beyond thing? I mean seriously? That's what they stole my credit card information for? I'm kind of insulted! Anyways, stuff happens, so I figured it's a a great opportunity to blog about what to do in situations like this one.

1. Check the validity of the email/call: You don't want to compromise your accounts because you thought a fake fraud alert was real. There are scams where an email with a false link or phone number is sent out to alert people of suspicious activities on their credit card accounts. Then, when you use the contact information given to confirm this, the con artists will ask for sensitive information such as your social security number, account number, and date of birth in order to steal your identity. Don't let this happen!

Why Cash Still Reigns as King

Okay, I have to admit, I used to be one of those people who roll their eyes when someone fumbles through their wallet to count their cash so they can pay with exact change. Wouldn't it be easier if everyone just swipe their card? As an engineer, the question of efficiency constantly lingers my mind. In this case, card swiping wins against cash, especially when there are 7 other people standing in line behind me and we’re all waiting for the person in front of me to finish paying.

Well, efficiency often comes at a price. In this case, the tradeoff presents itself in the form of interchange fees and wasteful spending.

Interchange Fee
If you’ve ever gone to a store that tells you it doesn't accept credit cards or that there’s a baseline spending you must reach before you can swipe, you probably have the interchange fee to thank for your inconvenience.

Credit Score Calculation

These past few years, due to the financial crisis caused by subprime loans, mortgage lenders have tightened  their standards. Now it is hard to find someone who will loan you money for a house if your FICO credit score is below 620. Even if you do find a lender, your interest rate will be significantly higher than someone with an excellent score of 760. For a 30 year mortgage you may be paying tens or hundreds of thousands more in interest.

This means it's time to pay attention to your credit score!

I remember going to the bank with my mother right before I headed off to college to apply for a credit card. She told me it was time for me to build a credit history. I happily obliged. When I received my card in the mail, she reminded me time and time again that I must use it responsibly. Building a credit history is important, but you don't want to build a bad history. Mistakes can stay with you for 7 years!

FICO Score
The FICO score was developed by the Fair Isaac Corporation in the 1980s. Not only is it the original credit score, most companies still base their evaluation of creditworthiness on it.

Credit Score Basics

Your credit score is a way for lenders to assess your creditworthiness and how much risk will be involved in lending money to you. It basically quantifies your financial life by putting a grade on it. Like the credit report, the same 3 major credit agencies (Equifax, Experian, and TransUnion) provide the score, and depending on the information given, each score will vary slightly from one another.

When you apply for a credit card, for example, the card company can request a "hard pull" of your credit report and credit score to decide: 1. whether they want to issue you a card and 2. what credit limit to put on the card, and 3. at what interest rate to lend you the money.

As I mentioned earlier, once you send in an application to borrow money, lenders will be authorized to do a "hard pull" of your credit score. For the most part, hard pulls are voluntary.

Credit Report Basics

According to the Federal Trade Commission, everyone is entitled, by law, to one free credit report from each credit bureau per year. You may have heard advertisements on TV for free credit reports on websites such as freecreditreport.com or creditreport.com, but the only real free website provided by the government is AnnualCreditReport.com. The rest only provide you with free credit reports after you sign up for paid services. I highly suggest you check your report every year. It won't take you that long, but it'll give you peace of mind that the information used to determined your credit score is correct. There are 3 national credit reporting agencies: Equifax, Experian, and TransUnion.

Just after graduating from college, I applied for a new credit card in hopes of more rewards and a higher credit line than my Bank of America Student Visa Card (this was recently upgraded to a Platinum Plus Visa). Not long after, I received a letter informing me that I was rejected. I knew my credit history was short, but I had never made a late payment, carried a balance, or gone over the limit. Out of curiosity, I checked my report.

My Disappearing Credit Limit

Wrapping up my finances in 2010 turned out to be more difficult than it was supposed to be. There was the Merrill Lynch trading account I mentioned earlier, and then came this other incident with my credit report. About 3 weeks ago, I checked my credit report to make sure that there were no mistakes and everything was up to date, as I always do at the end of the year. Sure enough, I discovered something very odd. My credit utilization was a whopping 44 percent. What? How did this happen? I've been very careful about keeping my utilization below 15%.

Credit Utilization
Credit utilization is the ratio of the total amount of credit used over the total amount of credit given.