Abusive practice by some credit card companies and banks

In the month of May 2008 Americans put another 8 billion dollars on their credit cards. This is an increase of 7% of credit card usage.

Banks and companies offering credit cards are becoming more and more wary of the recent meltdown in the mortgage market and are looking for additional indicators when monitoring credit risk. Another factor that worry’s the consumer credit market is that consumer bankruptcies are predicted to double this year

So now instead of just watching the paying habits of their customers some Credit Cards companies and Banks have started to pry into the buying habits of their customers to comb for any future warning bells of financial stress. For example if a person starts using his credit card to pay off utilities, food or doctor’s bills the credit card company may see this as a red-flag. The credit card companies are setting up codes for these potentially troubling danger signals of financial difficulty in order to trigger a reduced line of credit and or even raise the interest rates offered on future credit-card borrowing.

The Consumer Federation of America dubbed this practice is wrong as it too believes that is not what the consumer buys but how the customer pays coupled with their history of credit to determine credit worthiness.

So watch out the next time you buy cheap or refurbished stuff and pay for it by a credit card, as your credit card company may deem it to be a sign of financial trouble and penalize you…. when actually you may be exercising financial prudence!

Indymac Bank Collapses - A Sub Prime Victim

Pasadena, California based Indymac Bank the 9th largest mortgage lender in the country with 33 branch locations in Southern California has gone bust. On Friday customers of the Bank were met with closed doors and a notice announcing the collapse of the institution. This is the second largest financial institution ever to go insolvent in the history of the United States.

The financial position of the Bank has been deteriorating since last quarter. The bank lost over 900mn dollars when home owners defaulted on their mortgages. Their “Alt-A” lending practice is blamed for their demise. “Alt-A” loans are loans with relaxed scrutiny where little or no evidence of assets or income is required for getting a loan.

Last month when the liquidity problem of the bank was made public there was a run on the bank and depositors in the past two weeks ended up withdrawing close to $1.3 Billion. This further worsened the liquidity of the bank.

The regulators, Federal Deposit Insurance Corporation (FDIC) have seized the bank and placed John Bovenzi in charge as the CEO. Before the appointment Mr Bovenzi served as the Chief Operating Officer of FDIC.

The FDIC maintains a list of “problem banks” and Indymac was on the list. It was made public that currently there are about 90 banks on the list.

The federal regulators are now trying to market Indymac and put it back the bank in to private hands. They expect this to be done within the next three months. FDIC wants to prevent customer panic and is assuring customers with under $100,000 in deposits that for them it will be business as usual. But, customers with deposits over $100,000 would have to wait and see how much they'd be able to realize as it will depends on what the Bank can fetch on its sale.

Friday also brought in bad news as shares of Fannie Mae and Freddie Mac slumped further. This is particularly concerning as between these two giant almost half of America's mortgage debt is either owned or guaranteed.

The government is now attempting to avert a crisis of confidence. The Treasury Secretary, Henry Paulson, in trying to calm fears on Wall Street said that the government is trying to give more credit to Fannie Mae and Freddie Mac and the treasury may even buy stock in them. The President's office has also voiced concern as the collapse of any one of these institutions will cause recession in the US and will also have a significant cascading impact globally. The statement issued by the White House read “It is crucial that Congress quickly works to enact this legislation as a complete package along with the strong oversight reform legislation recently passed in the senate.”

These are signs of the times and the seriousness of the sub prime and credit crisis in the US.

Link: What Is and Is Not Protected by FDIC Insurance

International Financial Reporting Standards and Canada

Canada and International Financial Reporting Standards

Canadian GAAP and IFRS

Globalization of Capital markets has spurred the acceptance of International Financial Reporting Standards. The term “IFRSs” refers to standards approved by the International Accounting Standards Board (IASB) or its predecessor body, the International Accounting Standards Committee, as well as interpretations originated by the IASB’s interpretations committee, the International Financial Reporting Interpretations Committee (IFRIC) or its predecessor body, the Standing Interpretations Committee. In essence a global set of accounting standards facilitates international commerce and transactions around the world.

In Canada the Accounting Standards Board (AcSB) has recently confirmed January 1, 2011 as the changeover date (i.e., the date IFRSs will replace current Canadian standards and interpretations as GAAP for this category of reporting entity). As a result, except as noted in “Scope” below, publicly accountable enterprises are required to prepare their financial statements in accordance with IFRSs for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Some may choose to adopt IFRSs earlier.

Scope
The AcSB (Accounting Standards Board) proposes that all Canadian reporting entities, except the following, be required to apply IFRSs after January 1, 2011:
Private enterprises, that is, profit-oriented entities that:(a)
(i) have not issued (and are not in the process of issuing) debt or equity instruments in a public market; and
(ii) do not hold assets in a fiduciary capacity for a broad group of outsiders. Entities with fiduciary responsibility, such as banks, credit unions, insurance companies, securities brokers/dealers, mutual funds, and investment banks, stand ready to hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity.
Not-for-profit organizations, as defined in (b) FINANCIAL STATEMENT PRESENTATION BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4400.
Public sector entities to which the standards contained in the CICA Public (c) Sector Accounting Handbook apply. The Introduction to the CICA Public Sector Accounting Handbook states that for purposes of their financial reporting, government business enterprises and government business-type organizations are deemed to be publicly accountable enterprises and should adhere to the standards applicable to publicly accountable enterprises in the CICA Handbook – Accounting, unless otherwise directed to specific public sector standards. Accordingly, the changeover to IFRSs applies to these two categories of public sector entity.

Entities required to apply IFRSs after January 1, 2011 are collectively referred to as “publicly accountable enterprises.”

IFRS is big, but it’s not a revolution. The fundamental financial reporting premise is the same and the standards cover almost identical areas. There’s no difference in the basic concepts, the difference is in the details.

The three important and widely applicable differences between IFRS and Canadian GAAP are the treatment of i) impairment, ii) securitization and iii) revaluations.

The following are only a few significant differences between Canadian GAAP and IFRS and does not include all of the differences that might arise in a particular entity’s circumstances.

Historical Costs Principle: Historical cost is the main accounting convention. Under GAAP items are usually accounted for at their historical cost. However, the IFRS permits the revaluation of intangible assets, property, plant and equipment, and investment property to fair value. IFRS also requires certain categories of financial instrument and other biological assets to be valued at fair value. All items, other than those carried at fair value through profit or loss, are subject to impairment. The best evidence of fair value is a quoted price in an active market (also termed ‘mark to market’). It is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
IFRSs provide guidance on determining when the economy of an entity’s functional currency is hyperinflationary. When an entity’s functional currency becomes hyperinflationary, it makes price-level adjustments retrospectively. The financial statements of a foreign operation whose functional currency is hyperinflationary are adjusted before being translated for consolidation purposes.

Going Concern Assumption: General Standards on Financial Statement Presentation has been amended to include requirements to assess an entity’s ability to continue as a going concern and disclose any material uncertainties that cast doubt on its ability to continue as a going concern.

The Statements: IFRS does not require a statement of retained earnings. If an entity chooses the same can be incorporated as a part of the income statement. In IFRS financial statements a 'Statement of Changes in Equity' is now required. The statement of changes in equity presents a reconciliation of equity items between the beginning and end of the period.
The following items are presented on the face of the statement of changes in equity:
(a) profit or loss for the period;
(b) each item of income or expense recognized directly in equity (for example, revaluation gains on PPE, currency translation differences arising on the translation of the financial statements from the functional to the presentation currency) and their total;
(c) total income and expense for the period (the sum of (a) and (b)), showing separately the total amounts attributable to equity holders of the parent and to minority interest; and
(d) for each component of equity, the effects of changes in accounting policies and corrections of material prior-period errors. Details of distributions, the balance of retained earnings and a reconciliation of the carrying amount of each class of equity and each item recognized directly in equity are presented either on the face of the statement of changes in equity or in the notes to the financial statements. (review sample following this article)

Inventory Evaluation Methods: The cost of inventories used is assigned by using either the first-in, first-out (FIFO) or weighted average cost formula. Last-in, first-out (LIFO) is not permitted. The same cost formula is used for all inventories that have a similar nature and use to the entity. Where inventories have a different nature or use, different cost formulas may be justified.

Sample Reports of Independent Audit and Review under IFRS

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the accompanying financial statements of Good Group (International) Limited and its subsidiaries (‘the Group’), which comprise the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Chartered Accountants & Co.
Date City:

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION.

Introduction
We have reviewed the accompanying consolidated condensed balance sheet of ABC Corporation as of 31 May 2006 and the related consolidated condensed statements of income, changes in equity and cash flows for the six-month period then ended. Management is responsible for the preparation and presentation of this consolidated condensed interim financial information in accordance with International Accounting Standard 34, ‘Interim financial reporting’3. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial information is not prepared, in all material respects, in accordance with IAS 34.

[Accounting Firm]
Date
City

Sample ‘Statement of Changes in Shareholders’ Equity

Adapted from an article written by:

Puru Grover

General Manager

Credit Guru Inc

Website: http://www.creditguru.com/education

Financial Statement Analysis Course: http://www.creditguru.com/education/seminar-UFS.html

Protecting and Fighting against Identity Theft

The biggest and fastest growing crime today is the crime of Identity theft. It happens when someone steals your personal information and then commits fraud assuming your identity without you being aware of it.

One person every four seconds is being ripped off somewhere in the world. These Id thieves can take away your information with the blink of an eye and then destroy your credit history in a snap that you perhaps have toiled for years in the past to build upon. It is bit of an unnerving thought that someone is pretending to be you and doing things in your name that may eventually cost you money and your good name. Last year identity theft victims spent over $5billion to rectify the harm caused by stolen identity. It affected more than 10 million individuals globally with about $50 billion in losses to businesses worldwide. On an average a victim of identity theft could end up sending up to $1,200 in repairing the damage and that does not include the countless hours that get spent in un doing the harm.

Most of the stolen information gets traded on online chat rooms where the profile of these thieves is male 18-25 years old. The information is traded like a commodity and there is so much of information available that a full profile of an individual can be bought for as little as $20. This profile includes information like name, address, phone, credit card number, PIN, mother's maiden name, date of birth, social security/insurance number etc..
Just by getting your credit card information most of these crooks can drill down to obtaining your entire profile.

FBI agents, crime prevention cops and others that monitor these chat rooms find it virtually impossible to nab these crooks a) as there is no point-of-origin for these chat facilities and b) the chats rooms surfs over thousands of servers globally. Knocking down one server does nothing as the threads get picked up on thousands of other servers. The problem is global and what compounds the problem is there is no global jurisdiction to curb the crime. Then there are countries (like Iran) that will not cooperate with any US crime prevention authorities. This gives the crooks save heaven to operate from.

There are several ways that your personal information could get into the hands of these rogues:

• They send tricky emails that get you to believe that it is from your financial institution and there is a problem with your account and that you need to click on a link to rectify your personal information or resubmit it. This type of impersonation of your financial institution is called Phishing.
• Telemarketers who call and do the same as above
• Stealing mail from your mailbox or picking financial and personal information from your discarded garbage
• Employees may copy or sell your personal information at work or a hotel you stayed at; a hospital you were admitted; or a restaurant you ate at; a store you bought at; a gas station you filled gas at etc…
• Online shopping on non-secure or dubious sites
• Eavesdropping on ATM, debit card and other public transactions
• Unattended briefcases, purses, wallets
• Today thieves that break into homes are also seeking personal information to rob.
• Stolen wallets, purses, PDA (Palm, Treo, Blackberry etc.), computers/laptops
• Viruses that can record your keystrokes while making online transactions like banking or purchases
• Surfing social networking sites (e.g. FaceBook, MySpace) and Googling
• Hackers. A couple of years ago hackers hacked into T.J. Maxx/Winners store online and stole millions of credit card numbers and personal information of shoppers.
  
  From the above it is evident that no one is immune to identity theft. It is a matter of someone in the chain where your personal information resides compromising the information. The idea here is not be scared of identity theft but be aware that it can happen to anyone and that everyone can do something to safeguard themselves against this rampant crime.

Prevention is better than cure:

• Some of the very basic question that you need to ask yourself is:
  Do you know what information you carry on you personally?
  What is in your wallet/purse?
  Do you have a log of your credit/debit cards and a telephone number of the provider lest you lose them?
  If you do then why do you carry your Social security or Social Insurance card on you?
• Getting hold of a social security or social insurance number is a gold mine for an Id bandit. Even with a mismatched name and date of birth a social security number a crook can establish credit. This number should be either in your head or with your valuable and not where it can be easily misplaced, stolen or lost. When applying for a product or service if someone asks for this number, ask them why they need it and if it is mandatory. If it is mandatory then you have the right to know as to how they would be safeguarding it.
• Do not give out any personal credit or financial information on the phone, online or even in person to anyone that you don’t know or suspect.
• Make sure that you clear your mail regularly from your mail box. There are thieves that scour though apartment buildings to collect any un forwarded mail of residents that have left or are on vacation.
• Shred any documents that contain vital personal or financial information before discarding it onto your garbage.
• Limit the use of your debit card. (Canadians are known to use their debit cards liberally.) Keep in mind that a debit card gives direct access to your financial institution/bank account.
• Change your passwords often. Do not use simple or easy to guess passwords especially of loved ones with the family! Choose password that have a combination of numbers, alphabets and upper/lowercase.
• Ask your credit card company to change your credit card number often
• Use a specially designated credit card for online shopping with a very low limit to reduce your exposure in case of fraud.
• Monitor your credit card and financial statements for any unusual charges
• Re-Pin your credit card, bank card and debit card at least once every year. Although, it is recommended that you re-pin it more often.
• Some places now you can ask your financial institution to prompt the retailer to check your ID instead of just your signature when paying by credit card.
• On your computer keep all the patches offered by the operating system current. Use three levels of internet protection by having i) Antivirus, ii) Anti Spy ware and iii) Firewall ‘on’ when surfing the net.
• Check your credit report at least once every six months to detect any unusual activity on your credit file. It is important to do so because if a thief uses your social security/social insurance number to apply for new credit you will have no way of knowing it unless you monitor your credit report regularly. According to Federal laws you have the right to a free credit report from each of the three major consumer reporting agencies (also called credit bureaus) namely, Equifax, Experian and TransUnion. [US Tel Nos: Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) Canada Tel Nos: Equifax (1-800-465-7166), Transunion (1-800-663-9980)] In the US visit http://www.annualcreditreport.com/

What to do if you become a victim:

• If you lose a credit card apart from just calling the credit card company and canceling that card and requesting a new one you must also call the credit bureaus ( listed above) and ask them to put a ‘Fraud Alert’ on your credit report immediately. If you don’t do this it is quite easy for the crook to reopen the card and order new ones! Time is critical and this must be done immediately.
• Contact all your creditors, in writing, explaining what happened where you find that the information has been misused and get an acknowledgement of these disputed and fraudulent transactions. Have them resolved.
• Contact your local police and report the fraud. This establishes that a crime occurred and is a serious and punishable office.
• Call and immediately close any accounts that were opened fraudulently or you feel have been compromised due to the identity theft.
• If a collector is attempting to collect on such a fraudulent transaction you may want to submit your explanation on an affidavit along with the police report.
• Also report the fraud so that it can be investigated by authorities and prevent others from becoming victims of the same crime:
  In the US: Contact the Federal Trade Commission www.ftc.gov/idtheft (Toll free 877-ID-THEFT and report it. This information helps the federal enforcement officials to fight Id theft in the States.
  In Canada: Report the crime to RCOL (the RCMP-led Reporting Economic Crime Online) and PNCC (PhoneBusters National Call Centre)
  RECOL: (http://www.recol.ca/) is a web-based initiative that involves an integrated partnership between international, federal and provincial law enforcement agencies, as well as regulators and private commercial organizations that have a legitimate investigative interest in receiving a copy of complaints of economic crime, including identity theft.
  PNCC: (http://www.phonebusters.com/) is the Canadian anti-fraud call centre, jointly operated by the Ontario Provincial Police and the Royal Canadian Mounted Police that collects information on telemarketing fraud, advanced fee fraud letters and identity theft complaints.

Your identity is part of your net worth do not compromise it. Be proactive and help fight this rapidly growing crime.

Dealing with Bill Collectors and Illegal Parking Tickets in Ontario

Lately in Toronto Collection agencies have been relentless in collecting Parking Tickets that are illegally issued by private parking lot owners. They are illegal because an Ontario court ruling prohibits private property owners or their agents from issuing parking tickets/notices demanding payment for parking on private property. As a result of the decision, the only document that may be issued for parking on private property without the property owner's consent is a City parking infraction notice (parking ticket) issued under the Provincial Offences Act. The Toronto City Council addressed the issue because of complaints to City officials and the police.

The agency that is issuing these collection notices is issuing on the letterhead 'Municipal Parking Corporation'. It is issued form its Collection Department that reads 'Notice of Default'. Municipal Parking Corporation (MPC) is a private company that offers parking enforcement with their private ticket programs that use 'Trespassing laws' to issue tickets on behalf of their clients that are commercial, institutional or residential property owners. (Website http://www.municipalparking.ca/)These private parking lots have access to license plate information through the ministry which enables The collection agencies to get the personal information to issue these notices. CityTV in Toronto has already brought this to light and has approached both the Transportation Minister- Mr. Jim Bradley and Mr. Ted McMeekin the Minister Government and Consumer Services to take the necessary actions to protect the consumer a) by halting these fake tickets and bogus fines and b) protect the consumer's personal information that can be easily stripped by using the license plate numbers database that is in the domain of the Ministry of Transportation.

There are two issues here
1) Identifying a bogus v. the one actually issued by the City of Toronto under the Provincial Offences Act
The fundamental difference is that the legit parking ticket issued by the cops in the City of Toronto is yellow in colour with the City of Toronto's logo on it. (Click on the image to see a sample) The ones issued by MPC tend to be white or off-white with the logo somewhat mimicking the city's logo.

2) Dealing with an aggressive and relentless Bill Collector from a Collection Agency
As a consumer if you are faced with very pushy and sometimes obnoxious bill collector from a collection agency and you feel that you are being treated unfairly, keep in mind that debt collectors are governed by the Ontario Collection Agencies Act. (Web Link: http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c14_e.htm )The Collectors and Collection Agencies are regulated by the Ontario Ministry of Government and Consumer Services
As starters you may want to first speak with the manager of the collector and then if necessary lodge a formal complaint with the Ministry's Consumer Protection Branch.

As an ‘FYI’ the regulations coded in Ontario Collection Agencies Act forbid collection agencies from:

• contacting you until six days have passed from sending you written notice of the following:
  • the name of the creditor
  • the balance owing
  • the name of the agency and its authority to demand payment


• continuing to contact you if you did not receive the notice unless a second copy of the written notice is sent to an address provided by you, and then contact may only be made six days after sending notice;


• contacting you if you send a registered letter to the agency saying that you dispute the debt and suggest the matter be taken to court;


• contacting you if you or your lawyer notify the agency by registered mail to communicate only with your lawyer, and you provide the lawyer's name, address and telephone number;


• contacting you on Sunday, except between the hours of 1 p.m. and 5 p.m., and on a holiday;


• contacting you other than by ordinary mail more than three times in a seven-day period without your consent, once the agency has actually spoken with you;


• using threatening, profane, intimidating or coercive language, or using undue, excessive or unreasonable pressure;


• continuing to contact you if you have told them that you are not the person they are looking for unless they take reasonable precautions to ensure you are that person;


• giving false or misleading information to any person;


• recommending to a creditor that a legal action be commenced against you without first sending you notice;


• contacting your employer except on one occasion to obtain your employment information, unless your employer has guaranteed the debt, the call is in respect of a court order or wage assignment or if you have provided written authorization to contact your employer;


• contacting your spouse, a member of your family or household, or a relative, neighbour or acquaintance except to obtain your address and telephone number unless the person contacted has guaranteed the debt or you have given permission for the person to be contacted.
  

The Consumer Protection Branch of the Ontario Ministry of Government and Consumer Services can be contacted at:
Toll Free: 1-800-889-9768Toronto: (416) 326-8800Web Link: http://www.gov.on.ca/mgs/en/Contact/STEL01_045739.html

Your FICO Score is Changing in 2008

In order to reduce the potential risk of lending money to an individual, lenders evaluate the creditworthiness of the borrower by looking at various variables which influence the likelyhood of a person's ability to pay back his or her debt is a timely manner. These variables and statistics are then run through a mathematical model to arrive at a number (score) that is called a credit score. This numerical credit score represents the creditworthiness of an individual and is utilized by by all kinds of institutions like Banks, credit card companies, phone companies, insurance companies etc. The Banks and lending institutions are of particular importance as credit scores are used by them to determine who gets to borrow, how much and at what rate of interest.

A credit score named 'FICO' is a commonly heard credit score that is used by banks and other lending institutions for mortgage lending. FICO is a trademark of Fair Isaac & Co. as this credit scoring system was developed by them. In the United States and Canada FICO scores are available through the three major consumer reporting agencies (also called credit bureaus) namely, Equifax, Experian and TransUnion. [US Tel Nos: Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) Canada Tel Nos: Equifax (1-800-465-7166), Transunion (1-800-663-9980)]

While there are other factors the key factors that can adversely effect your score are:

• Not having sufficient credit history of credit
• Late payments of bills
• Placed for collections with a collection agency for an upaid bill
• Having a large number of inquiries on your credit report
• Having high credit-card balances that are nearing your credit limit

What goes in to your FICO score (With their relative weights):

• Payment History 35%
• Types of Credit Used 30%
• Amounts Owed 15%
• Length of Credit History 10%
• New Credit 10%

It was just announced by Fair Isaac & Co. that in 2008 your FICO scores are changing. FICO announced that it will be tweaking its current model of calculating your credit scores using some new mathematics and statistical models. The good news is that your current FICO score is anticipated to move up a bit when the new math models are applied and your score recalculated for 2008.

The new provisions that are coming into force in 2008 now:

a) Stops authorized users from using your Card
b) There are higher penalties for not paying your bills on-time
c) There are more rewards on your score for paying bills on-time
d) There are additional points for carrying different types of debt

This above translates in to the following:

a) If you are someone who does not have your own credit card and have been authorized by some one else (like a parent or spouse) to use their card then it is time for you to apply for your own. Lenders want to know you directly and want you to establish your own credit history. Also in the past authorizing someone else to use your card has encouraged unnecessary scams and fraud that creditors (or lenders)wish to curb.

b) It is imperative that you pay your bills on time as deliquency will now cause increased damages to your FICO-score and timely payment will reap richer rewards to your score.

c) Having different kinds of debts like a mortgage, credit card debt, a student loan etc, now will now positively impact your FICO-score.

Although carrying too many credit cards under the new calculations does not impact your credit score that much it is nevertheless still recommended that you do not carry more than two or three credit cards. Carry the ones that are have cash rewards or cash value. Specially during the holiday season stores lure you with significant discounts on your initial purchase. They carry a significantly higher APRs and the history of these cards most of the time sits unnecessarily for perpetuity on your credit history. So look beyond just the initial purchase from these cards. If the initial offfer is too hard to resist then you may want to avail of the offer and subsequently have the card cancelled. So Pick cards judicially and the ones that you will use.

If you are in the market for a mortgage then here is an example that should drive home the point of having a good FICO-credit score that ends up in saving thousands of dollars in interest payments.

Based on a $200,000 mortgage, spread over 20 years the above table reflects how much you would be paying each month with different FICO-Scores. The difference between the best and the worst is $125,000 in interest payments over this period!

A FICO Score is your personal financial health barometer indicative of your credit risk- Score Well!

Puru Grover / MD / Credit Guru Inc.

Applying for Credit?

*Discrimination *What Laws Apply? *What
Creditors Look For *Information the Creditor Can't Use
*Special Rules *Discrimination Against
Women *If You're Turned Down

Discrimination

When you're ready to apply for credit, you should know what factors creditors think are important in deciding whether you're creditworthy. You should also know what factors they cannot legally consider in their decisions.

What Law Applies?

The Equal Credit Opportunity Act requires that all credit applicants be considered on the basis of their actual qualifications for credit and not be rejected because of certain personal characteristics.

What Creditors Look For

The Three Cs. Creditors look for an ability to repay debt and a willingness to do so--and sometimes for a little extra security to protect their loans. They speak of the three Cs of credit: capacity, character, and collateral.

Capacity

Can you repay the debt? Creditors ask for employment information: your occupation, how long you've worked, and how much you earn. They also want to know your expenses: how many dependents you have, whether you pay alimony or child support, and the amount of your other obligations.

Character

Will you repay the debt? Creditors will look at your credit history (see section on Credit Histories and Records): how much you owe, how often you borrow, whether you pay bills on time, and whether you live within your means. They also look for signs of stability: how long you've lived at your present address, whether you own or rent your home, and the length of your present employment.

Collateral

Is the creditor fully protected if you fail to repay? Creditors want to know what you may have that could be used to back up or secure your loan and other resources you have for repaying debt other than income, such as savings, investments, or property.

Creditors use different combinations of these facts to reach their decisions. Some set unusually high standards; others simply do not make certain kinds of loans. Creditors also use different rating systems. Some rely strictly on their own instinct and experience. Others use a "credit-scoring" or statistical system to predict whether you're a good credit risk. They assign a certain number of points to each of the various characteristics that have proved to be reliable signs that a borrower will repay. Then they rate you on this scale.

Different creditors may reach different conclusions based on the same set of facts. One may find you an acceptable risk, whereas another may deny you a loan.

Information the Creditor Can't Use

The Equal Credit Opportunity Act does not guarantee that you will get credit.
You must still pass the creditor's tests of creditworthiness. But the creditor must apply these tests fairly and impartially. The act bars discrimination based on age, gender, marital status, race, color, religion, and national origin. The act also bars discrimination because you receive public income, such as veterans benefits, welfare or social security, or because you exercise your rights under federal credit laws, such as filing a billing error notice with a creditor. This protection means that a creditor may not use any of these grounds as a reason to

• discourage you from applying for a loan
• refuse you a loan if you qualify
• lend you money on terms different from those granted another person with similar income, expenses, credit history, and collateral
• close an existing account because of age, gender, marital status, race,
  color, religion, national origin, receipt of public income or because you exercise your rights under federal credit laws.

Although creditors may not discriminate on the basis of national origin, they may consider your immigration status when making a loan decision.

Special Rules

Age

In the past, many older persons have complained about being denied credit because they were over a certain age. Or when they retired, they often found their credit suddenly cut off or reduced. So the law is very specific about how a person's age may be used in credit decisions.

A creditor may ask your age, but if you're old enough to sign a binding contract
(usually 18 or 21 years old depending on state law), a creditor may not:

• turn you down, offer you less credit, or offer you less favorable credit terms because of your age
• ignore your retirement income in evaluating your application
• close your credit account or require you to reapply for it because you reach a certain age or retire
• deny you credit or close your account because credit life insurance or other credit-related insurance is not available to a person your age.

Creditors may "score" your age in a credit-scoring system, but if you are 62 or older you must be given at least as many points for age as any person under 62.

Because individuals' financial situations can change at different ages, the law lets creditors consider certain information related to age, such as how long until you retire or how long your income will continue. An older applicant might not qualify for a large loan with a very low down payment and a long term, but might qualify for a smaller loan, with a larger down payment, and a shorter term. Remember that although declining income may be a handicap if you are older, you can usually offer a solid credit history to your advantage. The creditor has to consider all the facts and apply the usual standards of creditworthiness to your particular situation.

Public Assistance

You may not be denied credit just because you receive social security or public assistance, such as Temporary Assistance to Needy Families (TANF). But as is the case with age, certain information on this source of income could clearly affect creditworthiness. A creditor may consider such things as how old your dependents are (because you may lose benefits when they reach a certain age) or whether you will continue to meet the eligibility requirements for receiving benefits.

This information helps the creditor determine the likelihood that your public-assistance
income will continue.

Housing Loans

The Equal Credit Opportunity Act covers your application for a mortgage or home-improvement loan. The act bars discrimination because of characteristics such as your race,
color, gender or because of the race or national origin of the people in the neighborhood where you live or want to buy your home. Creditors may not use any appraisal of the value of the property that considers the race of the people in the neighborhood.

Also, you are entitled to receive a copy of an appraisal report that you paid for in connection with an application for credit, provided you make a written request for the report.

Discrimination against Gender or Marital Status

Both men and women are protected from discrimination based on gender or marital status. But many of the law's provisions were designed to stop particular abuses that generally made it difficult for women to get credit. For example, denying credit or offering less favorable credit terms based on the misperception that single women ignore their debts when they marry, or that a woman's income "doesn't count" because she'll stop work to have and raise children, is unlawful in credit transactions.

The general rule is that you may not be denied credit because you are a woman or because you are married, single, widowed, divorced, or separated. Here are some important protections:

Gender and Marital Status

Usually, creditors may not ask your gender on an application form (one exception is on a loan to buy or build a home). You do not have to use Miss, Mrs., or Ms. with your name on a credit application. But in some cases, a creditor may ask whether you are married, unmarried, or separated (unmarried includes single, divorced, and widowed).

Childbearing Plans

Creditors may not ask about your birth-control practices or your plans to have children, and they may not assume anything about those plans.

Income and Alimony

The creditor must count all of your income, even income from part-time employment. Child support and alimony payments are a source of income for many women. You don't have to disclose these kinds of income, but if you do, creditors must count them.

Telephones

Creditors may not consider whether you have a telephone listing in your name because this factor would discriminate against many married women. (However, you may be asked if there's a telephone in your home.)

A creditor may consider whether income is steady and reliable, so be prepared to show that you can count on uninterrupted income, particularly if the source is alimony payments or part-time wages.

Your Own Accounts

Many married women once were turned down for credit in their own name. Or a husband had to cosign an account--that is, agree to pay if the wife didn't--even when a wife made sufficient income to easily repay the loan. Single women couldn't get loans because they were thought to be somehow less reliable than other applicants.
You now have the right to your own credit, based on your own credit records and earnings. Your own credit means a separate account or loan in your own name, not a joint account with your husband or a duplicate card on his account. Here are the rules:

• Creditors may not refuse to open an account because of your gender or marital status.
• You can choose to use your first name and maiden name (Mary Smith), your first name and husband's last name (Mary Jones), or a combined last name (Mary
  Smith-Jones).
• If you're creditworthy, a creditor may not ask your husband to cosign your account, with certain exceptions when property rights are involved.
• Creditors may not ask for information about your husband or ex-husband when you apply for your own credit based on your own income unless that income is alimony, child support, or separate maintenance payments from your spouse or former spouse.

This last rule, of course, does not apply if your husband is going to use your account or be responsible for paying your debts on the account or if you live in a community property state. (Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.)

Change in Marital Status

Married women have sometimes faced severe hardships when cut off from credit after their husbands died. Single women have had accounts closed when they married, and married women have had accounts closed after a divorce. The law says that creditors may not make you reapply for credit because you marry or become widowed or divorced. Nor may they close your account or change the terms of your account on these grounds. There must be some sign that your creditworthiness has changed.
For example, creditors may ask you to reapply if you relied on your ex-husband's income to get credit in the first place.

Setting up your own account protects you by establishing your own history of how you handle debt. You can rely on this record if your financial situation changes if you become widowed or divorced. If you're getting married and plan to take your husband's surname, write to your creditors and tell them you want to keep a separate account.

If You're Turned Down

Remember, your gender or race may not be used to discourage you from applying for a loan. And creditors may not hold up or otherwise delay your application
on those grounds. Under the Equal Credit Opportunity Act, you must be notified within 30 days after your application has been completed whether your loan has been approved or not. If credit is denied, this notice must be in writing, and it must explain the specific reasons that you were denied credit or tell you of your right to ask for an explanation. You have the same rights if an account you have had is closed.

If you are denied credit, be sure to find out why. Remember, you may have to ask the creditors for this explanation. It may be that the creditor thinks you have requested more money than you can repay on your income. It may be that you have not been employed or lived long enough in the community. You can discuss terms with the creditor and ways to improve your creditworthiness. The next section explains how to improve your ability to get credit.

If you think you have been discriminated against, cite the law to the creditor.
If the creditor still says no without a satisfactory explanation, you may contact a federal enforcement agency for assistance (the federal agency you should contact should be included in the notice you receive from the creditor), or you may bring legal action, or submit your complaint to
Federal Reserve Consumer Help
PO Box 1200Minneapolis, MN 55480
888-851-1920 (Phone)877-766-8533 (TTY)877-888-2520 (Fax)Email:ConsumerHelp@FederalReserve.gov
http://www.federalreserveconsumerhelp.gov/

This article is an excerpt from the 'Consumer Handbook to Credit Protection Laws' published by the US Federal Reserve Board.