GUIDE TO USING C R E D I T wisely At Discover®, we believe that consumers should be armed with the information they need to help them make wise credit decisions. We understand our role in the education process, and are committed to providing information that’s simple and easy to understand. So let’s start at the beginning. ©2012 Discover Bank, Member FDIC USECREDITWISELY 2 Page 3 Understanding Credit Page 6 What Is My Credit Score? (And How Can I Raise It?) Table of Contents Page 8 How to Establish and Maintain Good Credit Page 11 Understanding Your Credit Card’s Terms and Conditions Page 15 Tips on How to Avoid Identity Theft and Credit Card Fraud Page 19 Common Identity Theft Scams Page 22 Take Control What to Do if You Are a Victim of Identity Theft and Credit Card Fraud Page 25 Frequently Asked Questions: Online Tools for Managing Your Credit Page 27 Credit Glossary 3 credit U N D E RS TA N D I N G 4 A CREDIT HISTORY IS A COLLECTION OF all of the pieces of ﬁnancial information that relate to your life. It contains information on how long you’ve had your individual credit accounts, the account limits, balances and your payment history. Current and future creditors only want to know one thing: If they loan you money, what are the odds that you’ll repay it? The reason creditors are so concerned about how risky you are as a borrower is because when you buy something on your credit card, you’re essentially taking out an unsecured loan. The loan is unsecured because you haven’t put up any collateral in case you don’t make payments, which means increased liability for credit card issuers. Contrast that with a mortgage, where you’ve pledged your house as collateral to the lender in case you default on the loan. Because how you’ve handled bills in the past has been proven to be a good indication of how you’ll handle credit in the future, lenders obtain a copy of your credit history to take a look at this snapshot of your ﬁnancial life. This gives them the information they need to decide whether to lend you money or extend credit to you. Information in Your Credit History But not everything goes into a credit report. Some creditors, like landlords, many apartment complexes, some utilities and even certain lenders, don’t report your payment history to the major credit bureaus (Equifax, ExperianSM and TransUnion®). So even if you have a good record of on-time payments, it won’t necessarily show up on your report. If you want to build a solid credit history, you’ll want to make sure your on-time payments are reported. If the company only reports late payments and other negative information, but doesn’t report on-time payments, that account may not help improve your credit history or credit score. Negative information, including any late payments, judgments, foreclosures and bankruptcies, is also typically reported to the credit bureaus. Information that seems neutral, such as what percentage of your maximum credit limit you’re using, is also reported. Your Credit Score Each of the major credit bureaus has developed its own credit scoring system, and the three together have created VantageScore— a score which runs from 501 to 990, with 990 being the top score. However, the FICO score, developed by Fair Isaac, is used by almost 90 percent of all lenders. In addition to listing each of your credit and loan accounts, your credit history also includes information that will identify you personally including your name, address, birth date and Social Security number. Inquiries and How They Affect Your Credit History Each time you apply for a credit card or a loan, the creditor may obtain a copy of your history. This action is called an inquiry and it will be recorded on your credit history. Too many inquiries within a short period of time may have a negative affect on your credit history and score. Lenders will assume you’re trying to get as much credit as possible because your spending is out of control. (Even if it isn’t.) Rest assured, when you request a copy of your credit report (which you should do periodically), it will not negatively affect your score. You are entitled to at least one free copy from each of the three bureaus every year. Your credit history and score determine how much it costs for you to borrow money. If your credit history shows that you pay on time and have a high credit score, you should be able to borrow at low rates. If your record is not as good and you have a lower score, you may not be able to borrow at all or you may have to pay higher rates. 5 The FICO score runs from 300 (poor) to 850 (perfect) and the higher the score, the better your credit. According to Fair Isaac, the median FICO score is 723, meaning half of consumers fall above that and half below. Having any negative information on your credit history will lower your credit score, but there is a statute of limitations on how long credit bureaus may keep negative 0 t Perfec 850 50 75 0 Poor 450 650 70 0 80 0 0 55 600 information on your credit history. After either seven or ten years (the rule varies depending on the item), negative information like late payments, charged-off accounts or a bankruptcy is supposed to “fall off” your credit report. If that doesn’t happen automatically, you have the right to make the bureaus remove it. Even so, as information ages on your credit history, newer information is weighed more heavily in your credit score. That’s why you can raise your credit score over time if you begin to practice good credit habits. While the report is free, there is a charge to see your credit score. If you’ve applied for credit and were turned down, federal law says you’re entitled to see that score for free. Or you can buy it at any time from any of the three national credit bureaus—Equifax (equifax.com), Experian (experian.com) and TransUnion (transunion.com). When you receive your credit report, go through each line to make sure the information is right. Are these your accounts? Are the balances the same as those you’re seeing on your monthly bills? Does the report reﬂect your account history accurately (paying off balances, paying on time)? Check the personal information, too. Is that your current address? Do they have your name and Social Security number exactly right? If you ﬁnd an item that isn’t yours or isn’t being reported correctly, contact the bureau by phone and in writing, or go online and dispute it. The Fair Credit Reporting Act gives you the right to have incorrect information removed from your report. Be prepared to follow up until you see that the information has been removed. Credit bureaus have 30 days in which to conﬁrm disputed information, or it must be removed from your credit history. You also may notify the creditor of any information you believe may be inaccurate or incomplete by writing to them at the address As information ages on your credit history, newer information is weighed more heavily in your credit score. That’s why you can Check Your Credit History and Credit Score Often raise your credit score over time if you begin Along with paying off balances and making payments on time, one of the best things you can do to protect your credit is to read your report. You’re entitled to at least one free copy from each of the three bureaus every year (available at annualcreditreport.com.) Some states allow additional free reports. Obtain one copy of your credit history every four months and you should be able to keep up with your history for free. to practice good credit habits. provided by the creditor. This address may be found on the back of your statement or in other documents. Be sure to follow up and check your credit history again to ensure the ﬁx is permanent. Credit bureaus will often remove disputed information temporarily while they investigate your complaint. By checking back, you’ll ensure that the negative information or errors on your report are permanently removed. 6 What Is My Credit Score? (And How Can I Raise It?) What is a credit score? Who invented credit scoring? designed to predict how risky Fair Isaac was the ﬁrst company to start using credit scoring on a national scale and its model, the FICO score, is the most widely used version. The scale runs from 300 (poor) to 850 (perfect), and the median score is about 723, meaning that half of consumers fall above and half fall below that mark. you will be as a borrower and How is a credit score calculated? what your chances are of making Different companies use different formulas to come up with a credit score. While all the formulas look at roughly the same information (things like your outstanding debts, whether you pay on time, whether you carry a balance), one formula may give more weight to certain factors than others, so different companies could assign you different credit scores. A credit score is a three-digit number that represents your entire credit history. Credit scores are good on loans and other ﬁnancial obligations. The scoring system analyzes how you manage each piece of credit (such as credit card accounts, mortgages or home equity loans, car loans, school loans and other debt), and then calculates your credit score based on how you’ve handled your debts over time. With a FICO score, the most widely used model, these are the components that go into the calculation of your credit score: Payment history: 35% Amounts owed: 30% Length of credit history: 15% New credit: 10% Types of credit used: 10% Source: MyFICO.com Federal law requires that these scoring models be “empirically derived and statistically sound.” So, when calculating your credit score, companies are not permitted to use certain factors, such as your marital status, religion, sex, address, health information or race to compute your credit score. 7 How high does my credit score need to be for me to buy a house or get a loan? Generally speaking, the lower your credit score, the higher the interest rate you’ll have to pay to borrow money. The point at which a lender simply won’t make a home loan varies from lender to lender. To get a loan at going market rates (dubbed a “prime rate” loan), you want to have a score in the high 600s or above. The higher your score, the more lenders you’ll have competing for your business—and the more likely it is that you’ll be offered better rates and terms. If your score falls below the high 600s, you end up in what lenders call the “sub-prime” category. You can still get a loan, but as a sub-prime borrower, you will be offered higher interest rates and will probably see less favorable terms on your loan. In addition, not every lender will make sub-prime loans, so you may have a smaller pool of choices. How can I raise my score (and keep it high)? When it comes to raising or maintaining your credit score, the most important thing you can do is pay all your bills on time. If you can pay your bills in full and avoid carrying balances on your credit cards, your credit score is likely to increase. But there are a couple of little-known “secrets” that can trip people up: Inquiries: When you apply for credit, the lender pulls your ﬁle. That’s called an inquiry and it will be recorded on your credit history. Too many inquiries within a short period of time may have a negative affect on your credit history and score. The reason: If you’re applying for credit, it means you could be accumulating more debt. And from a payback standpoint, taking on more debt could mean that you’ll be less able to make your other payments on time. So if you’re planning for a big purchase (like a home or a car), keep excess inquiries off your credit history by not applying for other loans or opening up credit accounts while you’re in the process of shopping for the loan for that purchase. And when you’re shopping for that home or car loan, make all your applications within a two-week period. Then all the inquiries will count as one (as opposed to multiple inquiries), with only a ﬁve-point hit to your credit score. “ When it comes to raising or maintaining your credit score, the most important thing you can do is pay all your bills on time. ” Due dates: The “pay by” date is the date by which your payment must be received. When you’re paying your bills, be sure to allow sufﬁcient time for mailing to avoid a late fee. You may want to consider other payment options, such as online payments or pre-authorized debit, which are fast and free. Plus, you save money on postage. Credit balances: High balances are bad for your credit score. If you’re carrying debt, creditors reason that you can’t pay it (otherwise, you would have). And the closer you come to that credit limit, the more it appears that you’re struggling ﬁnancially. So if you’re looking to raise your credit score, keep your balances to just a small amount of your available credit. 8 YOUR CREDIT HISTORY IS A list of all the pieces of your ﬁnancial life. It includes every credit card account you’ve opened and any other loans you’ve taken out. It also includes your debt repayment history. Many factors can affect your credit score, including whether you’ve paid on time or late, been foreclosed upon or ﬁled for bankruptcy. If a court has ordered you to repay a loan or your debt has been deemed uncollectible— these, too, affect your score. All of this information stays on your credit history. How to Establish and Maintain Lenders look at your credit history to assess your ability to pay back their money. If you are having money problems, you represent greater risk to a lender. The basic principle with credit is this: use credit wisely and spend within your means. Good Credit 9 Establishing Credit If you don’t have credit (or much credit), the key is to start small. One credit card or small loan can get the ball rolling. But make sure your lender reports your on-time payments to one of the three credit bureaus— ExperianSM (experian.com), Equifax (equifax.com) or TransUnion® (transunion.com)—and preferably to all three. • Pay on time. One of the most important steps in building and maintaining a solid credit history is to pay all of your bills on time each month. By paying on time, you’re showing the lender or creditor that you’ve got enough cash flow to cover your expenses. If you pay late and the creditor reports your late payment to the credit bureaus, it may damage your credit history, and lower your credit score. • Keep your total charges well within your credit limit. If you want to boost your credit history and credit score, you’ll want to keep your total monthly charges well within your credit limit. Why? In calculating your credit score, you’ll take a hit if your balance is above that limit because it signals to creditors that you may be having financial difficulties and thus are a riskier borrower. • Regularly read your credit report. One way to building a positive credit history is to make sure you know what information is being reported. Errors and negative information can damage your credit history and your credit score, so you’ll want to regularly check your credit report to see what’s there. • Understand what debit cards can do for you. While they look like credit cards, debit cards actually function more like a checkbook. They provide direct access to the cash in your bank account. So you can pay for items and services with a debit card instead of writing If your on-time payments don’t get reported, you’re accumulating debt but not building credit. Only credit accounts that report your borrowing and repayment activity will count toward your credit history. Here are some tips to help you establish a good credit history: • When establishing credit, pay off your charges in full at the end of the month. When you get a card, always pay off the balance in full when the statement arrives. Paying off your balance in full shows the card company that you’re fiscally responsible. You’re using credit as it was intended: as a short-term loan. a check. What debit cards don’t do is help you build your credit history. That’s because you’re not using credit to buy these items—you’re using something that’s treated like cash. Because you’re using a cash substitute instead of credit, your debit card activity isn’t reported to the credit bureaus and won’t help you establish good credit. 10 UÊ ÃÊvÀÊ>ÊVÀi`ÌÊiÊVÀi>Ãi°ÊAfter you’ve had your ﬁrst credit card for a while (six months to a year), call the issuer and ask to increase your credit limit. The idea is to raise the credit limit on the card, not your debt load. If you’re carrying a balance, raising your limit will help keep your debt-to-credit-limit ratio low. That’s an important factor when calculating a credit score. UÊ VÕÃÊÊÜ >ÌÊÞÕÊÜ>Ì°ÊYour credit history becomes critical when it’s time to make those big purchases, like a home or a car. At that point, a one percent difference in the interest on a loan will either cost you or save you thousands of dollars over the life of the loan. By keeping your eye on the goal—establishing and maintaining a good credit history—you’ll be able UÊ Ã`iÀÊ}iÌÌ}Ê>ÊÃiVÕÀi`ÊVÀi`ÌÊV>À`° A secured credit card is tied to an account. You deposit a certain to borrow that money when you want it, at the most favorable terms and conditions being offered. amount of money into the account and then you can charge up to that amount. If you default on your payment, the bank can tap into the account to get repaid. After six to 12 months of on-time payments, you may feel you’re ready to graduate to a regular credit card or a store card. However, resist the urge to open too many store card accounts to take advantage of discounts. Every time you open one, it results in a credit report inquiry, which may affect your score. [ ] One of the most important steps in building and maintaining a solid credit history is to pay all of your bills on time each month. 11 Understanding Your Credit Card’s Terms and Conditions WHEN YOU SIGN YOUR APPLICATION FOR Here are some of the most common terms and a credit card, you’re agreeing to the terms and conditions you’ll ﬁnd in most credit card contracts. conditions of the contract, which is often referred to as the cardholder agreement. This generally Õ>Ê*iÀViÌ>}iÊ,>ÌiÊ*,®ÊvÀÊ*ÕÀV >ÃiÃ includes important information about your card, The annual percentage rate (APR) is the yearly such as the interest rate you’ll be charged on a interest rate charged for purchases that are not balance and how that balance is calculated, which paid off by the due date. The APR may be ﬁxed or fees you may be charged and the cost of a balance variable, and will vary by credit card. transfer, as well as products or other perks you’ll be offered. A ﬁxed rate will remain the same and does not ﬂuctuate with market conditions. On the other hand, You will receive the full terms and conditions when if the APR is variable, it will change depending you get a new card. Be sure to keep this document on the interest rate index to which it’s linked. For in a safe place, as it contains everything you need example, if the APR is tied to the U.S. prime rate, to know about your credit card account. If you can’t the APR will change when the prime rate changes. ﬁnd your agreement or want another one, call your card’s toll-free number and ask to have it sent. 12 "Ì iÀÊ*,Ã Some credit cards charge different annual percentage rates depending on the type of transaction. APRs may The terms and conditions generally be higher for cash advances and convenience checks include important information than for purchases. APRs may be different for balance about your card, including the transfers. A low balance transfer rate may last until you pay off the transferred balance or it may apply to the transferred balance for a speciﬁc period of time. You may ﬁnd a higher APR applied to your account interest rate you’ll be charged on a balance and how that balance if you make late payments or miss payments on your is calculated, which fees you may credit card. You may even have your APR increased if be charged and the cost of a you are late paying on a different account—one that has no relationship to this account—because the lender balance transfer, as well as any deems you to be a greater risk. This practice is referred types of insurance or other perks to as universal default, but it’s rarely used today. Finally, some cards offer low introductory APRs that you’ll be offered. expire after a certain amount of time, such as six months or a year. Balance Transfer A balance transfer is when you pay off the balance on one credit card by using the credit you have on another account. In some cases, you may be charged a fee to complete the balance transfer. The fee is typically a percentage of the balance you are transferring. You can only transfer an amount up to your credit limit on the new card. So if your credit limit is $5,000 on the new card and you try to transfer a balance of $6,000, you will only be able to transfer $5,000 of that old balance. Balance transfers by themselves do not automatically close an account. You can continue to use the card or you can close the account. Claims and Disputes If you ﬁnd a discrepancy on your statement, contact the merchant ﬁrst to discuss the charge. If the merchant is not responsive to your claim, contact your credit card company. Credit card companies provide an address for billing error disputes, or you may call their dispute department. Claims and disputes might include incorrect charges, unauthorized charges and charges made to your card by an unauthorized person, as in the case of identity theft or fraud. 13 Fees Most credit cards do not provide a grace period on You may encounter several different types of fees with cash advances or balance transfers, so interest is your credit card account: assessed from the date of each of these transactions. UÊÕ>ÊiiÊ Some credit card companies charge an Method of Computing the Balance for Purchases annual fee to use their credit card. The cards that usually charge an annual fee offer beneﬁts such as cash rewards, airline miles or points toward merchandise. The terms and conditions brochure or invitation letter will tell you whether there’s an annual fee and how much it is. UÊ>ÌiÊiiÊ This is the fee charged by a credit card company if a cardholder with a balance does not make at least the minimum payment by the due date. Some cards also increase interest rates if cardholders miss payment deadlines. UÊ"ÛiÀÌ iÌÊiiÊ This is the fee charged by credit card companies when cardholders exceed their credit limit. For example, if your credit limit is $10,000 and you charge $11,000, you will be charged a fee. UÊ*>ÞLÞ* iÊiiÊ This fee may be charged by a credit This is how transactions are added to calculate a cardholder’s monthly balance. If the method is “average daily balance,” that means that each day’s transactions are added to a running total, which is then divided by the total number of days in the billing cycle. Monthly Minimum Payment The monthly minimum payment is the minimum amount that a cardholder with a balance has to pay each month to avoid default. Many cards charge two percent of the outstanding balance, although some charge as much as ﬁve percent. If possible, you should try to pay more than the minimum amount in order to pay down your debt faster. Transaction Fee This term is used to describe the fee charged for certain card company if a cardholder chooses to pay his or her types of transactions, such as a balance transfer, cash balance over the phone as opposed to online or through advance and purchase made in a foreign country. This the mail. The fee covers customer service costs. is usually a ﬁxed percentage of the total amount of Finance Charge the transaction. A ﬁnance charge is the amount of interest charged on Universal Default a credit card balance based on the annual percentage Some ﬁnancial institutions reserve the right to change your rate for that type of transaction (purchase, balance rates if you have defaulted on an account or loan with transfer, convenience check, cash advance). In short, another lender. For example, a cardholder who carries a it’s a charge for the loan you’ve taken out on the card. balance on one card may have his rates increased on that Grace Period A grace period is the amount of time from the date of card if he has missed a payment on one of his credit cards issued by another bank. This practice is rarely used today. the purchase to the date payment in full is due, during 6>À>LiÊ,>ÌiÃ which you will not incur ﬁnance charges on your Variable rates are tied to an index, such as LIBOR (the purchases. The length of a grace period varies from London Interbank Offered Rate) or an interest rate, such as card to card, but it is commonly about 20 days. If you the U.S. prime rate. When the index changes, the rate on do not pay your bill in full, then you will not receive an the credit card changes. interest-free grace period on future purchases. 14 Don’t throw away that agreement! Some credit card companies offer extra features such as travel beneﬁts, which are detailed after the cardholder agreement. In addition to the fees and charges listed in the cardholder agreement, you also may ﬁnd extra beneﬁts. In many cases, these include free beneﬁts for those who are traveling within the U.S. or abroad. UÊ/À>ÛiÊÃÃÃÌ>Vi°ÊThis is an emergency number available to cardholders when they travel within the U.S. or abroad. Depending on the card, hotline staff can arrange for a replacement passport, emergency cash, medical care and assistance with lost luggage. UÊ >ÀÊÀiÌ>ÊÃÕÀ>Vi°ÊIf you rent a car using a credit card and decline insurance coverage offered by the rental agency, you may be covered for collision damage at no additional cost. UÊ} ÌÊVV`iÌÊÃÕÀ>Vi° If you purchase your plane ticket with your credit card, you may receive ﬂight accident insurance at no additional cost. UÊiÀ}iVÞÊ/À>ÛiÊ>`ÊiÀ}iVÞÊi`V>Ê Insurance. Your credit card may provide you with a free travel insurance policy that covers emergency travel and any emergency medical care you need while traveling. 15 TIPS ON HOW TO AVOID IDENTITY THEFT AND ,/Ê ,Ê,1 Identity theft happens when someone steals your personal information, such as your Social Security number, address, phone number or ﬁnancial account information, and uses it to open up lines of credit in your name. Then the thief can take out a mortgage, buy a car or obtain credit cards to use on a shopping spree. Credit card fraud happens when someone gains access to an individual’s legitimately opened credit card account and uses it to buy items, take out cash advances and create other illegal schemes. Credit card fraud costs credit card companies millions of dollars per year. But the consumer isn’t generally responsible for any of it, as many companies have zero dollar fraud liability guarantees. Identity theft poses a longer-term risk, since basic personal information rarely changes. Once personal information is stolen, it can be used to open up new lines of credit for months and years to come. Unwinding Identity Theft and Credit Card Fraud Approximately a quarter of a million Americans ﬁle a complaint of identity theft with the Federal Trade Commission every year. Since not everyone who is a victim ﬁles a report, experts believe the actual number is higher. You can unwind the fraudulent activity that led to identity theft, but it may take a tremendous amount of time to clean up your credit history and restore your credit score. Once you’ve gone through the paperwork, you will need to check back to make sure that nothing new turns up on your credit history. 16 When it comes to credit card fraud, your involvement will generally end once you report the fraud to your credit card company. You should do that as soon as you discover your credit card number or information has been stolen or that there are charges on a bill that you didn’t make. fraud and verify that the order is being placed by the real cardholder, especially when the actual card is not present. If you know you are dealing with a trusted merchant, you should feel comfortable providing this code. Your best bet is a cross-cut shredder, which turns paper into confetti. Clever con artists can take strips from a stripcut shredder (shredders that slice paper into long, thin strips) and put them back together. But once you’ve While the number of identity theft cases has grown over the past ﬁve years, the good news is that there are ways you can reduce the chance that your personal information will be stolen. Here are some tips for avoiding identity theft and credit card fraud: Protect Your Personal Information Pay attention whenever you are asked to provide your address, phone number, date of birth, Social Security number or account numbers. Consider who is asking for the information and what they are going to do with it. SHREDDING DOCUMENTS IS ONE OF THE BEST WAYS TO PROTECT YOURSELF AGAINST IDENTITY THEFT AND FRAUD. If you haven’t initiated the interaction, be extra careful. Con artists can be extremely persuasive and will say almost anything to get you to divulge your personal information. Keep in mind if you’re placing an Internet, phone or catalog order, merchants may ask you to conﬁrm the three digit code in the signature block on the back of your credit card. Asking for this three-digit code, sometimes referred to as a “CID” (cardmember identiﬁcation) code, is one in a series of steps merchants can take to prevent Shred Everything If you’ve always thought about buying a shredder but haven’t yet, you should make that purchase today. Shredding documents is one of the best ways to protect yourself against identity theft and fraud. By shredding all documents that contain any personal information (including your address, telephone numbers and other, more sensitive data), you make it a lot harder for someone to ﬁnd any sort of useful information to use against you. created confetti, it’s impossible to put back together. Use a Secured Mailbox Thieves will go to great lengths to steal your personal information and may even go as far as your front door. Letting checks or other sensitive information sit in an unlocked mailbox can put you at risk. When sending or receiving information that contains personal or ﬁnancial information, consider using a secured mailbox or dropping it off in a locked mailbox at the post ofﬁce. 17 Have Your Bills Sent to You Electronically It’s easy to throw away items that contain personal information without even thinking about it. But someone looking for this information would have no qualms about digging through a dumpster—or even the garbage can at your home—to ﬁnd an account number on a discarded bill or correspondence. Paper bills are a ready target for thieves. By having more of your bills and other sensitive information such as account statements sent to you electronically, you reduce the likelihood that you’ll throw something away that contains your personal information. When you sign up to receive your bills electronically, you may be able to opt into an electronic reminder system. This will let you know when a bill needs to be paid (and will typically thank you when you’ve made the payment). Pay Your Bills Electronically Paying bills electronically will eliminate some of the risk. If you pay your bills with a check through an unsecured mailbox, your personal ﬁnancial information could be compromised or stolen before it gets to the intended recipient. But if you pay your bills online, you reduce the number of opportunities for your personal information to disappear. Paying your bills online also saves you time and the cost of buying stamps. Just make sure the Web site is a secure, encrypted environment. To make sure that a Web site is secure, look for a closed lock symbol in the bottom right of the screen, which means the site should be encrypted. Web addresses that begin with “https” also indicate secure sites, and if you click on the lock symbol, it should display the same “https” address. When it comes to making your credit card payment each month, you can use the card’s electronic payment option. You’ll get to choose the date on which your payment will be made and how much will be electronically withdrawn from your checking account. Ài>ÌiÊ-ÌÀ}Ê*>ÃÃÜÀ`ÃÊ>`Êii«Ê Them Safe Passwords can be difﬁcult to remember, especially if you have different passwords for different sites. But it is important to create “strong” passwords and not just use your birth date, your address or another easy password that a con artist can guess. Strong passwords contain both letters and numbers, making them more difﬁcult for thieves to guess. The strongest passwords include a combination of upper- and lowercase letters. Some security experts suggest putting numbers in the middle of the password instead of at the beginning or end. Remember: The longer the password, the more secure it will be. When you create a password, make sure it is at least eight characters long. Finally, select passwords you can remember, but don’t use your birthday, your pet’s name, family names or your Social Security number. Protect Your PIN numbers PINs are becoming as prevalent as passwords and are no longer limited to use at automatic teller machines. Many Web sites now require entering a PIN as an added safeguard. Keeping your PINs a secret may mean the difference between having savings and having nothing. Don’t write PINs down, carry them in your wallet or save them on the computer. Do not e-mail passwords or PINs, and memorize both. 18 Check Your Credit History and Score Regularly It’s a good idea to check your credit history regularly, so you know that everything on it is accurate and legitimate. You can order your credit report from each of the three credit bureaus—Equifax, ExperianSM and TransUnion®— by visiting annualcreditreport.com. Federal law entitles you to one free credit report per year from each of these bureaus. (Some states require the credit bureaus to give you more than one free report per year.) Another way to protect yourself is to purchase a credit-monitoring service from one of the credit bureaus or credit card issuers, which provides you with access to your credit report and credit score. These services will alert you by phone, text or e-mail when there is a change to your credit history. Carry a Light Wallet Another way to prevent identity theft and credit card fraud is to minimize what you carry in your wallet. Only carry the credit cards you need and don’t keep your Social Security card in your wallet. If you have multiple forms of identification, such as a driver’s license, a student ID, a work ID and a passport, do not carry all of them with you all the time. Carry only what you need. Also, it’s a good idea to photocopy the entire contents of your wallet (the back and front of each card) so you’ll have it in case of theft. Watch What You Say on Your Cell Phone Be careful about what you talk about on your cell phone in public. You may think it’s no big deal to order a pizza and put it on your credit card over the phone, but an identity thief could be lurking nearby. He or she could take your number and start making online purchases. The same holds true for other personal information, such as a Social Security number. Take Action Remember, you can take action to protect yourself from identity theft by using the tips above. You may think you have better or more important things to do than stay on top of your personal information, but taking the time to protect yourself will save you time and money in the future. And you can go to bed at night feeling safer. 19 Common Identity Theft Scams These are some of the most common ways crooks and con artists will try to steal your personal ﬁnancial information: Phishing. This occurs when online scammers send you e-mails disguised as legitimate organizations in hopes that you will provide your personal information. The e-mail may warn you that access to [email protected] You’ve won BIG! Get your prize now! [email protected] Update your medical records Today [email protected] Please conﬁrm your account information Today IRS.gov.refunddepartment... Refund expiration notice Today your account will be terminated if you don’t conﬁrm your bank account number. Other scam e-mails offer you big riches if you provide your account information, while others will ask you to reconﬁrm your payment details for an order you may (or may not have) placed. Be very suspicious of these e-mails, as phishing crooks are clever and will often use the exact logos of big-name companies with which you may do business, such as a major retailer or ﬁnancial institution. Never click through a link on any e-mail unless you personally know the sender. ,-ÊÀivÕ`° Another popular phishing scheme has to do with the IRS. You receive an e-mail telling you that the IRS has a refund for you. All you have to do is click through the e-mail and provide your bank account information. The IRS reminds taxpayers that the only way it will contact you is by a letter sent to your home address. Foreign lottery scam. You may receive an e-mail, letter or check telling you that you’ve won a foreign lottery—even if you didn’t buy a ticket. All you have to do to collect the money is to provide your bank account number or deposit the check, so that the Today 20 funds can be deposited. Of course, this is a scam, and by providing information or depositing the check, you are giving access to sensitive ﬁnancial information. Fake caller ID. With today’s technology, it’s easy for someone to call your house and have a fake name or address pop up on your caller ID. Just because it looks like Hot tips from cold calls. While phony telemarketing someone from your credit card company offers have become less of a threat with the or bank calling, it may not be. government’s Do Not Call list, you may still get coldcalled. If someone calls you with a hot investing tip and you don’t know who it is, it’s likely a scam. Calls to “conﬁrm” your personal information. Remember, your bank will never call and ask you for your full account numbers. And you should be wary of anyone calling to ask you to conﬁrm your PIN number or the three- or four-digit security code on the front or back of your credit card, unless you’re sure it’s a trusted source. Medical identity theft. Be careful about the people with whom you share your medical history. When you go to the doctor, keep an eye out that records are kept in a secure area. Don’t provide your Social Security number unless there is a good reason to do so. Ask your insurance company to give you a new card that doesn’t have your Social Security number on it. Fake jury duty. Someone calls to tell you that you missed jury duty and he or she needs to conﬁrm your personal information. Because you think it is the court calling, you may be more likely to conﬁrm your information and provide additional information. Child identity theft. One of the fastest growing segments of identity theft is the stealing of a child’s Social Security number, name and other “Phishing crooks are clever and will often use the exact logos of big-name companies with which you may do identifying information. Often, it is a relative or a close friend of the child’s parents who steals the information to set up new credit or bank accounts. You may not know there business, such as a major retailer is a problem until you try to get your child a or ﬁnancial institution. Never click driver’s license, open up a checking account through a link on any e-mail unless you personally know the sender.” for him or her, or apply for a student loan. You can pull a child’s credit history once he or she turns 13, and you should do that annually once your kids are teenagers. 21 7 >ÌÊ9ÕÊ >ÊÊÌÊ*ÀÌiVÌÊ9ÕÀÃivÊ>`ÊÛ`ÊiÌÌ}Ê,««i`Ê"vv The best way to avoid getting ripped off is to make sure you’re always in control of your money and personal ﬁnancial information. Here are some things you can do to protect yourself: UÊÃÊvÀÊ>ÊV>L>VÊÕLiÀ° If someone calls UÊ,i«ÀÌÊÌ iÊÃV>ÊÌÊÌ iÊ/ °ÊWhile the and says he or she is from your bank, credit Federal Trade Commission (FTC) won’t card company, doctor’s ofﬁce or another investigate individual complaints, it does place with which you do business, tell the catalog them and look for trends and person you’re too busy to talk and ask for a large-scale fraud. You can ﬁle a complaint at phone number to call him or her back. If the ftc.gov. If the fraud involves the IRS (such as individual says, “I’ll call you back at a more someone pretending to be from the IRS or if it convenient time,” then hangs up, you can involves children), you can call the Treasury then call the doctor’s ofﬁce, bank or credit Department directly to ﬁle a complaint. card company and ask if they are trying to reach you for any reason. sÊ,i«ÀÌÊÌ iÊÃV>ÊÌÊÌ iÊV«>ÞÊÊ UÊ>}ÊÕ«°ÊIf you don’t want to get ripped off, the easiest thing to do is to decline to give any personal information over the telephone question. If it turns out that no one at the to anyone. If someone hits you up for a bank, credit card company or doctor’s ofﬁce contribution to a charity, ask them to mail called you, you’ll know someone tried to you information instead. pull a fast one. Ask for the department that monitors fraud and tell them what happened. 22 /Ê " /," WHAT TO DO IF YOU ARE A VICTIM OF IDENTITY THEFT AND CREDIT CARD FRAUD WHAT IS IDENTITY THEFT AND CREDIT CARD FRAUD? WHAT SHOULD I DO IF I’M THE VICTIM OF CREDIT CARD FRAUD? Identity theft occurs when someone steals your personal information to acquire new bank or credit card accounts, establish phone service or even get a mortgage in the name of the victim. As soon as you become aware that there are unauthorized charges on your credit card account, you should contact the fraud department of the credit card company through their toll-free number on the back of the card. Credit card fraud happens when someone uses your established credit card accounts without authorization. Typically, someone will use your card to make unauthorized purchases or to take out cash advances. Credit card fraud disputes are handled by the card issuer and consumers are generally not liable for unauthorized transactions. WHAT DO I DO IF I SUSPECT I’VE BEEN THE VICTIM OF IDENTITY THEFT? Act immediately, especially because identity theft can occur as soon as, or years after, your personal information is obtained. If you believe the theft involves your current credit card accounts, call each company or go online to examine your charges one by one. If you discover charges you didn’t make, put them in dispute and have the company cancel your card and send a new one to your current address. 23 Next, add (or change) security passwords connected to your accounts. And contact the issuer’s fraud department immediately. You may want to follow up any phone conversations with a letter or keep a written record of your correspondence with the company for your ﬁles. Then contact the credit bureaus and follow the same procedures: follow up with letters and keep copies for your records. Quickly get copies of all three of your credit reports. Go through all the line items on the report, look for accounts that are not yours and contact the bureaus with that information by phone and in writing. When you write the credit bureaus, also ask them to remove from your record any inquiries resulting from the fraud. (Inquiries, or checks by creditors prior to issuing credit, can lower your credit score, so even if the thief hasn’t taken a dime, he or she could still damage your credit.) If you suspect that someone else has been opening accounts in your name, call one of the credit bureaus and put a “fraud alert” on your credit report. While not foolproof, this puts a ﬂag on your account and lets any potential creditor know that there may be a problem, while preventing further criminal activity. If credit is sought, the lender must take steps to verify the applicant’s identity, often by calling the applicant directly. The alert will stay in place for 90 days. If you suspect the thief has access to your checkbook, debit card or banking information, contact that institution (by phone and in writing). You may need to change account numbers and cancel your debit card. You also need to contact the card issuers and lenders for the bogus accounts. Have them closed, and make it clear that you never opened them and that this is a case of identity fraud. Follow up in writing and include a copy of the police report. ,Ê,Ê/Ê*" Ê 1,-Ê Ê7Ê-/-Ê"Ê/Ê/,Ê",Ê ,/Ê1,1-\ Equifax (equifax.com): (888) 766-0008 ExperianSM (experian.com): (888) 397-3742 TransUnion® (transunion.com): (800) 680-7289 24 IF YOU SUSPECT THAT SOMEONE ELSE HAS BEEN OPENING ACCOUNTS Ê9"1,Ê ]Ê Ê" Ê"Ê/Ê ,/Ê1,1-Ê Ê*1/ÊÊ º,1Ê,/»Ê" Ê9"1,Ê ,/Ê,*",/° DO I REALLY NEED TO FILE A POLICE REPORT? ONCE I NOTIFY EVERYONE, IS THAT IT? Yes. Your local police department may or may not work the case. Local policies differ when it comes to pursuing an identity theft case, but ﬁling an ofﬁcial complaint with the police, which you will typically sign “under penalty of perjury,” gives your case additional credence. Not only does it add to the ofﬁcial record of the theft (with a timeline and a succinct summary of the crime), but it also demonstrates that there was an actual crime and that you are taking ofﬁcial steps to clear up the problem. Unfortunately, no. Fraud alerts aren’t foolproof. You need to regularly monitor your bills and your credit reports. And you may have to stay in touch with credit bureaus and card issuers to ensure that they permanently remove the fraudulent items from your accounts and your records. With a police report, you can also write the credit bureaus and request that the fraud alert be extended for seven years. If your local law enforcement doesn’t take police reports on identity theft (some don’t), you can make an ofﬁcial record of your ID theft by ﬁling a fraud afﬁdavit with the Federal Trade Commission. (Find the form at its “Tools for Victims” site, listed at the end of this page). You may also want to take additional steps, like placing a “freeze” on your credit history. Unlike a fraud alert, freezing your credit means that credit bureaus are not allowed to release your credit report without your consent. Only you can lift the freeze by providing a PIN number and other information to verify your identity. Each of the three credit bureaus will now allow identity theft victims to enact a freeze on their credit histories. Typically the cost for this service is $10, but the fee is waived if you are a victim of identity theft and submit a valid police report. For information and updates on credit freezes, visit the Consumers Union’s Financial Privacy Now site at consumersunion.org/campaigns/ learn_more/003484indiv.html. ARE THERE ORGANIZATIONS THAT CAN HELP ME SORT THROUGH THIS? Yes, there are a number of consumer groups that are helping people work through identity theft issues. Here are a few that you might ﬁnd helpful: s 4HE)DENTITY4HEFT2ESOURCE Center (IDTheftCenter.org): (858) 693-7935. This nonproﬁt is dedicated to the understanding and prevention of identity theft. s 4HE0RIVACY2IGHTS Clearinghouse (PrivacyRights.org): (619) 298-3396. This organization has some great information on effective steps to take. s 4HE&EDERAL4RADE#OMMISSION The FTC has complaint forms, afﬁdavits and sample letters you can use to notify creditors and credit bureaus. Check out “Tools for Victims” at ftc.gov/bcp/edu/microsites/ idtheft/tools.html. 25 What are the beneﬁts of accessing my credit card account online? ? FAQs Frequently Asked Questions About Online Tools for Managing Your Credit There are many reasons to create an online account for your credit card. First, you’ll save time. You’ll receive your statements on the day they’re issued. You can log on at any time, 24/7/365, to see your transactions. In a couple of clicks, you can pay your bill. You may also be able to download your transaction information directly into money-management software such as Quicken® or Microsoft ® Money. That will speed up your bookkeeping signiﬁcantly. If you have an online account, you’ll have an extraordinary amount of access and control to help you stay on top of your expenses. Not only will you be able to see your statement at any time, but you should be able to look back at any statement over the last 12 months, which is helpful if you’re trying to track expenses or if you’re submitting an expense report. Because you’re able to pay closer attention to your transactions, you’ll become aware sooner if something is amiss with your account. If your card has a rewards program, you also can see how much If you have an online account, you’ll have an extraordinary amount of access and control to help you stay on top of your expenses. cash, points or miles you have accumulated. You may also be able to more easily take advantage of any relationships the card issuer has for leveraging or spending your cash rebate or rewards points. You’ll also save money. You can pay your bills electronically by having an automatic withdrawal from your checking account set up. You’ll be able to decide exactly how much you want to pay and when. With some credit card issuers, you can even pay your bill up to the day it is due—without buying a stamp. Not only that, but your payment will be posted to your account almost immediately. Some companies offer online account preferences so that you can set up e-mail reminders when your statements become available and when your payment has been posted. You can change your address or other personal information without making a phone call or mailing it in. Some accounts provide cardholders with special deals from merchants or personal ﬁnance resources. How do I access my account online? You’ll ﬁrst need to set up your online account, which is secure and can only be accessed with a unique username and password. When you log in, you’ll be asked to select a username and password. In some cases, you may be able to start out with your 26 account number, but once you have activated online down or copy it into your electronic calendar in case there access, you should change your username to something is a problem with the payment. less identiﬁable. You may also be asked to provide the Also, paying your bill electronically means you don’t have answers to questions that will be used to verify your to buy stamps and you avoid any service charges for identity. These questions may include “What is your paying over the phone. Many consider it more secure than mother’s maiden name” or “What was the name of your sending a payment through the mail, which can put you at elementary school” risk of identity theft or ﬁnance charges if the mail is late When creating a password for your online credit card or lost. account, be sure to use a strong password—one that uses upper- and lowercase letters and numbers, and is not something that can be easily guessed. Once your online account is set up, all you need to do is log in from any computer—anywhere in the world—with an Internet connection. How do I pay my bill electronically? You will be asked to provide your bank account number and routing number. You can ﬁnd these numbers at the bottom of a check from your account. The bank’s routing number is the ﬁrst number in the bottom left-hand corner of the check. Your account number follows it in the middle of What account information can I ﬁnd online? the check. You can ﬁnd your current account balance, current ﬁnance Once your bank information is entered, you can click charges, past account statements, transaction details, through to your current statement. Click on the button that payment due date, minimum payment due, total amount says “Pay bill.” Most likely, you’ll be asked to enter the due and personal information, including your billing amount of the payment and the date you want the cash to address. Depending on the type of card you have, you also be withdrawn from your checking account. may be able to see how much cash or how many rewards Some online credit card accounts allow you to associate points you’ve accumulated based on transactions. You can several bank or money market accounts with your credit sort transactions by date range or search for a transaction card accounts. If yours does, be sure you choose the using keywords. correct account from which to make your payment. What information will I ﬁnd on my statement? After you have entered in the information, you’ll click a Your statement will show you the date of your transactions, button that submits the payment. You’ll be asked to conﬁrm where you made your purchase and how much money you your payment. Once you’ve clicked the conﬁrmation button, spent with that merchant. You’ll also ﬁnd your balance, the you’ll likely be issued a conﬁrmation number, which is total amount due, the minimum amount due and any fees your receipt of the transaction. Be sure to write down that or ﬁnance charges that have been assessed. The statement number in case something goes wrong with the payment. also will show the rewards you’ve accumulated in the How can I be sure my online activity is secure? past month. Credit card companies, banks and other ﬁnancial institutions What’s the beneﬁt of paying my bill electronically? have spent millions of dollars to secure their Web sites and You have much more control over your cash if you pay keep their customers’ transaction and personal information your bills electronically. Typically you can make a payment safe. Typically, these companies use highly complex the day it is due and the payment posts to your account encryption software. more quickly than if you mail it in. There is also less room Web sites that are secure have URLs that begin with for error. When you pay your bill, you’ll be given a “https.” The “s” at the end of the word signiﬁes that the site conﬁrmation number for the transaction. Write that number is secure. Secure Web sites will also often show a closed padlock icon at the bottom right-hand corner of the screen. 27 Annual Fee A yearly fee charged by some credit cards for use of the card. CREDIT GLOSSARY Õ>Ê*iÀViÌ>}iÊ,>ÌiÊ*,®Ê A periodic percentage rate that determines the ﬁnance charges you pay on your account. The term is also used in the purchase of a home and represents the total cost of your loan, shown as a percentage rate of interest. This rate not only includes the loan’s interest rate, but also factors in all the costs associated with making that loan, including closing costs and fees. The costs are then amortized over the life of the loan. Banks are required by the federal Truth-in-Lending statutes to disclose the APR of a loan, which allows borrowers a common ground for comparing various loans from different lenders. Balance Transfer Moving an unpaid balance from one open credit account to another. You will save money if you transfer balances to a credit account with a lower interest rate. Billing Cycle The length of time between your statements. Billing cycles are approximately one month in length. Cardholder Agreement A written document that provides details of your agreement with the credit card issuer. Cash Advance Using your credit card to get cash from a bank, from an ATM or by writing a convenience check. Typically, the card issuer charges a cash advance fee for the transaction and begins charging interest immediately. Charge Card A card that requires full payment of your balance with each billing cycle. Typically charge cards do not charge interest, but late fees can apply if full payment is not received by the due date. Credit Card A card that allows you to charge items and either pay your balance in full each month or carry it over time. If you choose to make monthly payments on the amount owed on the card, you will be charged interest on the outstanding balance until you pay the amount off in full. Credit History The history used to prepare a credit report. Your credit history includes a record of all of your ﬁnancial information, such as your credit cards, mortgages, car loans, and whether you’ve made any late payments. It should show whether you’ve ﬁled for bankruptcy or have any judgments or liens ﬁled against you. It is a ﬁnancial picture used by companies to evaluate where you have been ﬁnancially, where you are today and, with your credit score, where you might be in the future. Credit Limit The maximum amount that you can charge on your credit card. There is generally a fee if you exceed your credit limit. Ài`ÌÊ,i«ÀÌÊ A report about your credit history that lenders (credit card companies, mortgage companies, loan agents, etc.) consult to determine whether they should lend to you and how much money they should lend. Your payment history, outstanding debt and open lines of credit are all shown on your credit report. It is available from the three major credit bureaus, Equifax, ExperianSM and TransUnion®. 28 Credit Score A score generated by mathematical models using information from your credit history. Some of the information used relates to the length of time you have held credit cards (and the balances on those cards), the length of time you have had a mortgage, whether you have paid your bills on time, including utility bills, and other factors. Identity Theft The theft of your personal information, such as your Social Security number, address, phone number or financial account information, in order to open up lines of credit in your name. Once a thief establishes credit in your name, he or she can take out a mortgage, buy a car or obtain credit cards to use on a shopping spree. Debit Card A card issued by a bank that directly accesses available funds from a bank account, typically a savings or checking account. Interest Money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. Default When a customer doesn’t make a required payment to a credit card account, or otherwise violates the terms of the agreement with the credit card company. Interest Rate The rate at which a credit card company or other lender charges a customer for borrowing money. It is a percentage of the amount borrowed. Finance Charges Certain charges that can be incurred when using a credit card. Finance charges include interest costs. Introductory Rate A lower APR provided by a credit card company for a limited period of time. Fixed Interest Rate An interest rate that remains the same and does not fluctuate with market conditions. Late Fee A fee charged when at least the minimum payment has not been received by the specified due date. Fraud Alert If you have been a victim of identity theft, you have the right to ask that credit bureaus place a fraud alert on your file. This will let potential creditors and others know that you may have been a victim of identity theft. Minimum Payment The smallest payment a customer can make each billing period to keep a credit account in good standing. Grace Period A period of time between the transaction date and the payment due date when a transaction can be paid off without incurring an interest charge. Penalty Rate A higher APR that the credit card company charges under circumstances that are specified in the cardholder agreement, such as making late payments or exceeding credit limits. PIN (Personal Identification Number) A security code that a customer uses with debit and credit cards to authorize transactions such as cash advances. This PIN is different from the user ID and password customers use to access account information online. Point A point is one percent of the loan amount. Preapproved A potential customer who has satisfied certain credit criteria and has passed an initial credit bureau evaluation. Prime Rate An index rate that is used to determine the interest rate a bank will charge customers. It is one way that a credit card company determines APRs. Universal Default Some financial institutions reserve the right to change your rates if you have defaulted on an account or loan with another lender. For example, a cardholder who carries a balance on one card may have his rates increased on that card if he has missed a payment on one of his credit cards issued by another bank. This practice is rarely used today. Variable Interest Rate An interest rate that rises and falls according to a particular economic index, such as the U.S. prime rate. Zero Balance When your billing statement shows no outstanding balance and no new charges have been incurred. With a zero balance, the cardholder owes nothing.
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