My best friend had her bank account hacked last week. It was likely a skimmer that got her debit card number. They managed to drain her of over $1,000 before the bank caught it and shut down the card and the account.
On the surface this isn’t a huge deal. Her credit union is going to make it right and restore all of her funds. But in the short term it’s turned into a bit of a nightmare for her. There is a bit of a process involved in getting the funds back and getting a new bank account, new debit card, and new checks. In the meantime, there are bills to be paid. She can’t access cash through an ATM. She can’t write a check. And the money she had in her savings (thank goodness!) is having to cover her for the time being. If that little bit of savings weren’t there she would be in an even bigger mess.
I like to protect myself against situations like this by using a credit card rather than a debit card for everyday purchases. When a credit card is compromised (which has happened to me several times), they shut off the card, refund the fraudulent charges, and send a replacement card. Not a big deal. I just have to use a different card in the meantime. And I do have a backup card, so not a problem.
I asked my friend why she was using debit instead of credit, and she said she doesn’t trust herself not to charge up a credit card. She budgets best by using debit. And it’s great that she knows that about herself. But she left herself with very little protection for this situation. She doesn’t have a backup plan. She has her savings, but no easy way to make payments on bills that are coming due this week. She may have to lean on her friends to make payments for her by check or by card until she is able to get herself restored.
What would you do if you didn’t have access to your checking account and bills were coming due? Do you have a backup plan? A second checking account? (Yes…I have one of those, too). A credit card you can turn to in emergencies? It’s worth thinking about. Hacks and fraudulent charges happen. And banks protect you from them. But you should always be prepared just in case.
The giant financial story in the news the last couple of weeks is one that should concern you. Equifax, one of the major credit bureaus suffered a significant data hack. Why is this a big deal? In addition to having all of your credit account numbers, Equifax also has your personal information. Your address. Your driver’s license number. Your Social Security number. Basically, the hackers may have access to everything they need to apply for credit in your name. And Equifax isn’t something you needed to opt into to potentially be victimized. If you’ve ever applied for credit of any sort—including utility accounts and student loans—you likely have a credit record with Equifax. And you should definitely check to see if you may have been included in the hacked data.
Equifax has set up a site here where you can enter your information and find out if your data was included in the breach. If it was, you can get a year of free credit monitoring by signing up with Trusted ID Premiere through the Equifax-provided link. But I’ll be honest with you…I signed up a week ago and haven’t received any confirmation that this went through. The reality is that Equifax is overwhelmed and can’t keep up with the requests. And I’m not sure that I want to depend on Equifax, the company that leaked my data, to turn around and protect that same data. I’m actually considering signing up for a paid credit monitoring service for myself. Somehow it seems worthwhile at this point to have the equivalent of an insurance policy on my credit.
There are some things you can do on your own to secure your data. The free credit monitoring offered by Equifax is one option. But you can also add a credit freeze to your credit reports. The freeze would make it so no requests for credit for you can go through without your unlocking the freeze with that credit bureau. And it’s also a good idea for you to check your credit reports at least once a year. You can get a free copy from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year at http://www.annualcreditreport.com.
But please be aware that checking up on your credit is not a “once and done” kind of thing. In data breach situations like this, the hackers are likely to sit on your data for a few years before actually using it to their benefit (and your detriment). So now is the time for you to make a habit of looking at your credit with some regularity. I’m sure this data breach will not be the last. And it seems each one is more horrifying than the previous one. Take care of your financial health. Watch (or insure) your credit!
Lately I’ve been seeing TV commercials for the Discover card, boasting that they now provide the card-holder’s credit score right on the monthly statement. What a great idea!!! And apparently Richard Cordray, Director of the U.S. Consumer Financial Protection Bureau, agrees.
Most people don’t seem to worry about their credit report/credit score until they are trying to borrow money…when it may be too late to do anything about it. But it’s something that can affect you all the time. Did you know that car insurance companies may factor in your credit history when determining the rate you pay? Seems they’ve made the connection that risky behavior in your finances may be indicative of risky behavior on the roads. Not to mention all the bad things you could be missing on your credit in the case of identity theft. You just really need to keep an eye on things.
Several years ago it became a lot easier for Americans to check in on their credit. A free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, TransUnion) is available to you each year through the website http://www.annualcreditreport.com. But these reports do not include the elusive credit score. That will cost you a fee of about $8 per bureau.
The credit score is a method of translating a whole credit report, which includes listings of every credit account you have and what your payment history is like on those accounts, into one easy number that is indicative of your financial behavior. It’s kind of like translating your whole college transcript into a simple grade point average number. It gives a quick and dirty picture of what is typical financial behavior for you.
So if it’s the best quick measure of your financial performance, why can’t you get the credit score for free? I wish I knew. But Discover has taken a step toward rectifying that situation, and I’m hopeful that other credit card providers will follow suit in the near future. In the meantime, you can get a reasonable credit score estimate (as well as a lot of really good information) through http://www.creditkarma.com. It’s worth checking out.
Do you remember your first loan you borrowed? Perhaps it was a student loan. Maybe it was a department store credit card. But more likely it was a loan from your parents.
My first loan from my parents is still amazingly vivid in my mind. My sister and I shared a bedroom and we really wanted to have a small black and white television in our room. (It was the 1970’s. TV technology has come a long way since then!) I think I was about eight years old and my sister was about eleven. My parents agreed that we could have the TV, but we had to pay for it ourselves. It was my very first purchase on credit. I don’t remember exactly how much the TV cost, but I think I had to repay somewhere in the neighborhood of $30 for my half of the TV. Quite a lot for an eight year old in the 1970’s. My father was very legitimate about the whole thing. He had ledger sheets where he tracked the balance due. I would save my change and make payments from my allowance and birthday and Christmas gifts. And within a year I had paid my debt.
While my father did not charge me interest on this loan, he did teach me some very valuable lessons about purchasing on credit. I learned the importance of making regular payments. I learned the joy of watching my debt amount decrease. I learned the pride of having successfully made a fairly major purchase. I learned that sometimes you have to sacrifice the things you want to make payments on debt. Debt is an obligation. Credit allows you to buy things without having the money on hand in advance, which is very helpful for expensive things like houses and cars and higher education. But paying it off…that’s freedom!
Do you pay your bills on time? Every time? If not, you really should. Not just because it’s the right thing to do. Pay your bills on time every time because that is the easiest way to establish good credit. And good credit not only makes your life easier…it makes things less expensive.
For example, Sally and Betty are each buying a new (to them) used car. Sally has great credit. She heads off to the dealership pre-approved for a loan at 4% interest. She borrows $15,000 at 4% and will pay $276.25 a month for 5 years for a total of $16,574.87 for that loan. Total interest paid=$1,574.87. Betty, on the other hand has bad credit. She is lucky that the dealership is able to offer her financing at all, since she doesn’t have a co-signer. But she is thankful to get the loan at 8% interest. She borrows $15,000 at 8% and will pay $304.15 a month for 5 years for a total of $18,248.75. Total interest paid=$3,248.75. Betty will pay more than twice as much for the convenience of financing her used car because she has bad credit.
The cost of credit is only one of the many ways that bad credit will cost you more. Want a cell phone? You may have to pay a security deposit to get a contract. Need to set up utilities in a new apartment? You’ll likely have to pay a security deposit. Need to find a new apartment? You may need a cosigner to get a lease. Have a car? You’ll likely pay more for your insurance premiums.
Do you pay your bills on time? Every time? You really should!