In four years, Medicare cards will no longer have Social Security numbers on them. This change is a provision under the Medicare Access and CHIP Reauthorization Act of 2015, which President Barack Obama signed into law April 16. It’s a noteworthy change: A Social Security number is an identity thief’s holy grail, allowing them to commit numerous kinds of fraud and severely damage the victim’s credit and finances.
The law gives Medicare officials up to four years from the date the law was enacted to issue Medicare cards with a new, randomly generated identification number. Congress allocated $320 million to pay for the change.
About 52.3 million people are enrolled in Medicare, according to July 2013 data from the Centers for Medicare & Medicaid Services, the most recent available. More than 4,500 people enroll in Medicare daily, and enrollment is expected to grow to 74 million by 2025, The New York Times reports. To put that in perspective, that’s 74 million people whose Social Security numbers won’t be displayed on the cards they need to secure health care services under Medicare.
Social Security numbers have been at the center of Americans’ increasing concern over identity theft in the past few years, as numerous databases containing sensitive consumer information are infiltrated by hackers or discovered to have been exposed to the public for a period of time. This leaves people unsure of who has access to their personal data and what they could be doing with it.
Checking your credit reports and credit scores can help you spot credit fraud, but there’s also the potential a thief could be using your identity to access health care or as an alias under which they commit various crimes. Consumer advocates have underscored the importance for organizations to secure this information as best as possible and for consumers to watch out for signs of fraud. You can get your credit report summary, updated every month on Credit.com, to look for any problems that you need to address.
The last time I got up in front of a group to talk about my job, no one had questions for me. It was a high school career day a few weeks ago, and the students stared at me blankly as I dropped words like “personal finance,” “credit scores” and “debt.” I could tell they thought my work wasn’t exciting, that the topics I write about are boring. Everyone was happy when the bell rang to end my session.
This week, I spoke to a group of college students and community members, and the atmosphere couldn’t have been more different. I went into the talk with a list of things I thought they’d want to hear about — the event was called “10 Things Everyone Should Know About Credit Scores” — but as people trickled into the auditorium, I thought I’d gauge their interest in certain topics. The idea was to make people feel comfortable talking to me about credit.
I tried to be casual: “Does anyone have anything specific they’d like me to talk about?” I asked with a smile, hoping maybe one person might say something.
The reaction surprised me: People immediately started blurting out questions, and I hadn’t even introduced myself yet.
“How do you build credit? I mean, how does it work?”
“Is it ever too late to build credit?”
“How do student loans impact your credit?”
“How do you get credit when no one wants to give it to you?”
I was happy to hear their questions, but I thought back to those high schoolers and got a little sad: My group at the college asked a lot of questions about the basics of personal finance and recovering from bad credit — perhaps if they’d had conversations about these things earlier, things would be different.
There are way more than just 10 things you should know about credit scores, but here’s what I told that group.
1. Credit Reports Are Different From Credit Scores
Credit scores are calculated using the information on your credit reports, which includes details of your credit accounts, how often you apply for credit, debt collection accounts and some public records, among other things.
Only hard inquiries (aka when a lender looks at your credit when you apply for a loan or credit card) have a negative impact on your scores, and the effect is small and temporary.
5. There Are Many Different Scores & There Are Different Credit Score Ranges, Too
When you’re trying to figure out where you stand or if your credit is improving, make sure you are comparing the exact same score and that you know the range — wherever you’re getting the score from should tell you that information. For example, a 750 FICO score is not necessarily equivalent to a 750 in another scoring model.
6. Your Credit Can Help You Spot Fraud
If someone runs up a large credit card bill or takes out credit in your name, it will show up on your credit report and affect your credit score. Watch your score for changes you did not anticipate.
7. Your Credit Score Can Cost You Thousands Over a Lifetime
A low credit score means you’ll probably have to pay higher interest rates on things like credit card balances and mortgages. You can see an estimate of how much your credit will cost you using the Lifetime Cost of Debt Calculator.
8. Joint Accounts Affect Your Credit Scores, But There Aren’t Joint Scores
If you open a loan or credit card with a partner, the account activity will be reflected on both your credit reports. Joint accounts are different than authorized users, but whenever you share credit, make sure you’re aware of who will be responsible and who will be affected if a payment is missed.
9. Negative Information Eventually Ages Off
Different kinds of negative information will remain on your credit report for different periods of time (bankruptcy is an exception to this, for example), but generally, negative information ages off your report and no longer affects your score after seven years.
10. Credit Scores Aren’t the Only Things That Matter for Lending Decisions
A credit score isn’t the only thing lenders consider when reviewing applicants. If you have no credit or poor credit, you may be able to secure a loan through an alternative lender, and in some situations, making a personal appeal or giving a lender more context to your credit report can help you access financial products.
The Questions I Was Asked
As far as the other things the group wanted to know about, here are some answers.
“How do you build credit? I mean, how does it work?”
Focus on those five fundamentals that determine your credit score; mostly, use credit sparingly and make payments on time. It takes years to build good credit, but it’s worthwhile to be patient.
“Is it ever too late to build credit?”
No. Your credit score can affect you for a lifetime, so it’s always worth trying to improve.
“How do student loans impact your credit?”
Making payments on time is good. Not doing that is very bad.
“How do you get credit when no one wants to give it to you?”
There are a few options: See if you can get a secured card or other credit card designed for people with bad or no credit. Then, spend very little money on it and make the payments on time. You can try piggybacking on someone else’s credit by becoming an authorized user, but that’s a lot to ask of a friend or family member since they’ll be ultimately responsible for any debts you incur. There are also some companies that will help you get loans based on your payment history of rent or utility bills, if that shows a pattern of responsibility.
What questions about credit or credit scores do you have? Share them in the comments and I may write an article to answer them.
One of the many decisions consumers must make when buying a car is whether to get a new vehicle or a used one. Even though a used car is generally cheaper than a new one, it makes the car-buying process much more complicated, especially if you need to finance it.
Some people argue that taking out a loan for a used car isn’t worth it, because the loans are more expensive, and by the time you pay off the loan, the car you own isn’t going to be worth much. There’s truth to that argument: Interest rates on used auto loans are higher, because the vehicle is collateral for that loan, but if it’s not worth as much as a new car, the lender will charge a higher rate.
“If you default on the loan, they can take it back, and they want to have something of value to that,” said Philip Reed, senior consumer advice editor for car-buying marketplace Edmunds.com.
On top of that, the borrower’s credit score will affect the interest rate, so financing a used car can get pricey.
Reed said the keys to taking out an affordable used car loan are the condition of the car and the length of the loan. For new-vehicle loans, a five-year term is common, but for used cars, a three-year term makes more financial sense.
“There’s also a psychological component that you will find it easier to pay for something that you think of as valuable,” Reed said. In other words: You’re not going to enjoy making loan payments on a vehicle with little value, so consider how that will feel when deciding on a car to buy and how long you’ll be paying for it.
If you can buy the car with cash, that’s likely the best financial decision (assuming you’re not depleting an emergency fund or jeopardizing your financial stability). Oftentimes, people don’t have that kind of money lying around, so if you must finance a used car, shop around for the best deal.
Reed said one of the biggest mistakes a buyer can make is to walk into a dealership and take the first thing they’re offered — dealers call them “get me done” customers, he said. They’re usually people who think their credit will prevent them from getting a good deal and think their best option is to approach a dealer and say, “I’ll take whatever you can get me.”
“There are options for that person, even if they feel that here are no options,” Reed said. “The solution is to find out where you stand — it may not be as bad as you think.”
“You don’t want to go into a dealer not knowing what your credit score is, or what your situation is, because there are situations in which the loan could be marked up,” Reed said. Getting pre-approved by other lenders will give you negotiating power, as well. “There is a human factor to financing, so if you have the opportunity to meet face-to-face with somebody … it will make a difference. Bring records, and make a presentation.”
The cost of attending college increases every year, and that probably isn’t going to change anytime soon. The best way for students to reduce what they’ll be spending is to apply for college scholarships. Everyone knows that good grades and test scores will help, but there are a few other ways to increase the chances of receiving free financial aid.
1. Start Researching Early
Some students start researching scholarships during their junior or senior years of high school, but starting a few years earlier can be beneficial. Beginning the research phase in their freshman year gives applicants the advantage of designing their high school experiences to match the desired attributes of a scholarship. For example, if a scholarship requires three years of volunteer work in a certain sector, there’s still plenty of time to get involved. While many scholarships require involvement in an extracurricular activity, others prefer to see students take on leadership roles. It can be difficult to acquire those types of experiences during the last year of high school.
2. Keep Looking
One of the biggest mistakes families can make is to stop looking for scholarships after the first year of college. The price can still go up, so keep looking for ways to fill that gap so you can minimize – or even eliminate – the need to take out student loans.
Aside from the fact that new scholarships are created each year, students might also have new interests or skills that might make them eligible for scholarships that they weren’t eligible for in the past. There’s also so much information out there; it would be easy to miss something. Lori Kleppe, who is a military widow, didn’t learn about our organization until her second son was halfway through college. The scholarship she obtained through our organization helped her pay off loans she had to take on as well as reimburse her for previous costs for both children.
Family and friends can be very powerful resources when it comes to scholarships. They don’t always advertise, but some companies offer college scholarships to employees’ family members. These types of scholarships can be a great opportunity, and the field of applicants is usually much narrower than those found online.
A family member or friend might also be able to provide the opportunity for an internship that might make an applicant more appealing. Many scholarships also require letters of recommendation and this is a great place for friends or family to step in. Who better to make a personal recommendation than someone who has known the applicant for a long time? Family and friends are much more likely to make a heartfelt effort in helping an applicant achieve their goals.
Patience Is Key
One thing is certain, applying for scholarships takes time and patience. Finding the right scholarship isn’t easy and definitely won’t happen overnight. Taking the above into consideration can help increase your chances of success in receiving scholarship money to support your education.
How long does it take for the average rich person to become rich? Ten years, 20 years? How about 32 years. That’s how long it took the average self-made millionaire, according to my data.
In my Rich Habits Study, 76% of those who were wealthy were self-made millionaires. They came from non-wealthy households: 31% of these millionaires came from poor households, while 45% came from middle-class households. What’s more compelling about the data I gathered is the age in which these self-made millionaires actually struck it rich. Here’s the breakdown:
1% (2 out of 233) became wealthy before the age of 40
3% (6 out of 233) became wealthy between age 40 and 45
16% (38 out of 233) became wealthy between age 46 and 50
28% (66 out of 233) became wealthy between age 51 and 55
31% (73 out of 233) became wealthy between age 56 and 60
21% (48 out of 233) became wealthy after the age of 60
The romanticized notion of getting rich quick always finds an eager audience. We are stimulated by stories about the young and the wealthy. The immediate success of youthful billionaires like Facebook’s Mark Zuckerberg or Google founders Larry Page and Sergey Brin play to our get-rich-quick desires. We obsess over stories about lottery winners. And the lottery organizations know it. California’s lottery catchphrase is Imagine What a Buck Could Do. New York’s lottery catchphrase is Dollar and a Dream. Australia’s got a dandy: Live a Lotto Life. There is even a popular reality TV show called Lottery Changed My Life about how the lives of lottery winners were changed. Immediate gratification, especially when it comes to wealth accumulation, is the rallying cry of many in the modern world these days.
Unfortunately, getting rich quickly is a rare phenomenon. It’s clear from the above data that accumulating wealth takes a very long time. It just doesn’t happen overnight. In fact, 80% of the self-made millionaire in the Rich Habits Study did not become wealthy until after age 50. Furthermore, 27% of these self-made millionaires tried and failed at least once in business.
The path to riches is a long, lonely one, paved with many potholes and numerous dead ends. Those few who do make it are seasoned veterans in the world of entrepreneurs, deserving of their own, hard-earned status: Self-Made Millionaire.
With Earth Day right around the corner, it’s a perfect time to ask ourselves if we’re doing enough to help the planet. While it might be difficult at times to discover new ways to be environmentally friendly while on a budget, doing so could actually save you a decent amount of money. So to help incentivize some of you to be a little greener, here are some great ways to keep the planet healthy and your wallet full.
1. Save Those Bottles & Cans
This may not be something you do on the regular, but recycling your aluminum cans, plastic bottles and glass at a bottle return center could net you some extra cash. Although the return isn’t huge, taking a trip every month or so to the recycling machine is an easy way to make a little extra cash. Just think of it as, you’re going to the store to buy food anyway so returning the bottles isn’t an extra trip but one that actually gives you money back. Keep in mind you paid for the bottle deposit so you’re wasting money by not returning the bottles. Not only that, but you’ll also be cutting down on pollution caused by waste.
A great way to spend that little extra windfall each month is to put the money towards your grocery budget (but don’t make this an excuse to go over budget).
2. Consider Solar Panels
Maybe they look a little funky on your roof like you’re looking for aliens, but your wallet will love how much they help you save. Many companies will now install the panels free of charge, though make sure you read through the contract and make sure you understand what you’re giving up to get the panels. You can then sit back and let Mother Nature help you rack in the savings as you use less and less paid electricity and more of the sun’s natural, and free, energy.
The savings don’t have to stop there though. Take the money you’ve saved and look into investing in some other energy-conscious products for your home. Energy Star appliances, LED lightbulbs, and low-flow sink fixtures are just a couple of examples of things that can keep both your wallet and the environment a little bit cleaner. The savings you see on your utility bills can be placed toward savings for future home improvement projects and sometimes, if you have a lot of extra energy you can sell that back to the energy company.
3. Make Your Own Cleaning Products
Green cleaning products are all the rage, but they can come with a bigger price tag than normal cleaning products. The good thing is, they are so simple to make yourself at home and you most likely already have all the ingredients in your kitchen. Better yet, making these products at home can help cut down on the environmental pollution caused by their manufacture and disposal. Eartheasy.com has some great examples of non-toxic home-cleaning formulas. Just take a moment to add up cleaning supplies each month and see your savings from making it yourself.
4. Carpool or Take Public Transportation
Wouldn’t it be nice to not have to deal with traffic or gas prices? Public transportation and carpooling is a great way to save some money and reduce your carbon footprint. The savings don’t just end with gas though. Fewer miles on your car will save you money on maintenance and repairs, and ditching a vehicle altogether (if you can manage it) will keep you from having to pay money on car insurance and registration fees.
With all that extra money, you can start saving up for an emergency fund or bolster the savings you already have. Of course, if you think you might need a car again someday in the future, you can put a little portion of that money towards the down payment on a new car or lease. Also, consider an alternative earth-friendly car to cut costs on gas and even service for that car. You should always take the future and the unexpected into consideration when planning your savings.
Also, if you have debt, the extra savings can be added to your monthly payments to pay down your debts faster. Your debt load can have an impact on your credit scores, which in turn have an impact on your access to credit in the future. The better your credit, the better chances you have of getting lower interest rates, which saves you money over the lifetime of the loans. You can see how your debts are affecting your credit by getting your free credit report summary on Credit.com.
So take some time this Earth Day and see if there is anything you can do to help the environment. Chances are, doing so could actually save you, or make you, a decent amount of money in the long run. In addition to saving money, your actions can help make this planet a healthier, safer place to live for all of us.
If you have old unpaid debts, it can be helpful to know the statute of limitation that applies to those debts. If the statute of limitation (SOL) has expired, a debt is said to be “time-barred,” and a creditor or debt collector is not supposed to sue you to collect.
Here are the seven most common questions we’ve received from readers about this topic.
1. How long is the statute of limitation for my debt?
The time period typically either starts when you fall behind on a debt, or from the date of your last payment, and the length of time depends on state law for that type of debt. This chart is a guide to state statutes of limitation. Unfortunately, it is not always clear-cut. So it’s a good idea to check with your state attorney general’s office, a consumer law attorney or legal aid, especially if you are being threatened with legal action.
2. Can a debt collector try to collect after the SOL has expired?
In many cases, yes. However if you tell the debt collector not to contact you again, they must stop. It’s a good idea to put your request in writing. Once they’ve received it, they can contact you only to confirm that they have received your request or to notify you of legal action they are taking to collect. In some states, however, trying to collect a time-barred debt is illegal and a creditor who attempts to do so is breaking the law.
3. If the SOL has expired can I still be sued?
It is not uncommon at all for consumers to be sued for time-barred debts. If you are sued for an old debt and the statute of limitation has expired, you can raise the expired statute of limitation as a defense against the lawsuit (here are some other debt collection defenses you can use, too).However, many consumers do not appear in court and therefore the creditor or collector gets a judgment against them. That is why you should not ignore a legal notice about a debt, even if you think the debt is too old. A consumer law attorney or bankruptcy attorney can help you figure out how to respond.
4. Should I pay an old debt?
That’s something only you can decide. However, keep in mind that if you pay anything — even a small amount — on an old debt, you may restart the statute of limitation. That’s why it can be risky to pay an old debt if you can’t afford to pay it in full. You could open yourself up to collection efforts, or even a lawsuit, for the entire amount the collector says you owe.
5. Can a debt still appear on my credit reports after the SOL has expired?
In many cases, the answer is yes. The length of time that negative information may be reported is governed by the federal Fair Credit Reporting Act. Most negative information can be reported for seven years. The statutes of limitation for most consumer debts, on the other hand, is four to six years. So you could have a situation, for example, where the statute of limitation expired on a debt in four years but the related collection account still appears on your credit reports for another three years after that. Collection accounts can do serious damage to your credit scores. You can get a free credit report summary on Credit.com to see if an old debt is affecting you.
6. I took out a debt in one state but then moved. Which state’s SOL applies?
That can be a difficult question to answer. Consumers can generally be sued in the state where they took out the loan or the state where they currently live. Sometimes the statute of limitation will be based on the laws of the state described in the contract (in the case of credit cards, that will be spelled out in the credit card agreement).
When it’s not clear which state’s SOL applies, it is often up to the court to decide. In a number of court cases, the statute of limitation that was shortest was applied. But that’s not true in all cases. That’s why it is helpful, if you are being sued for a debt, to consult with a consumer law attorney who can help you understand whether the statute of limitation has likely expired.
7. What is the SOL for court judgments?
If a creditor or collector has obtained a court judgment there is often a separate statute of limitation that applies to judgments. (Tip: If you have unresolved debts, be sure to at least get your free annual credit reports to see if any judgments are listed.) In many states, that time period is 10 years or longer, and judgments may be renewed. Learn more about how about judgments work here.
We all get emotional – it’s human nature. The trouble sometimes comes when our emotional side overrules our rational side for money matters. Check out some of the common ways emotions can hurt your finances, discover if you are an emotional spender and how to combat the problem.
It is easy to become bitter when we see other people (whether they are friends, family members, co-workers, old classmates, neighbors or even celebrities) make big purchases. Between Facebook, Twitter, Instagram, Snapchat and all of our social media options, it’s all too easy to compare our life to others. But trying to “keep up with the Joneses” can lead you to sabotage your own financial goals.
Instead of focusing on the jealousy or being embarrassed by your own means, try to use their success as a motivator. Think about what you have to be thankful for, evaluate your own finances, make a plan to forgo some expenses and save for what you really crave – whether that’s buying a home or paying off student loans.
If you are shocked when you check your bank account balance or get your credit card bill at the end of the month, you probably are not following a budget very well. You may look in your closet and find that you suddenly have a lot more clothes or shoes or have vague memories of eating out at fancy restaurants. It can be a good idea to pinpoint your triggers, start to weigh every financial decision carefully and track your spending.
3. Prone to Procrastination
It is easy to put things off for the future, but at some point that future comes around. If you tend to avoid responsibility for and procrastinate on activities like saving money, your future self may suffer. For example, your retirement can be in serious danger. If you don’t trust yourself to be proactive about putting money away, try to find ways to make it easier. It can be a good idea to set up automatic deposit to send some funds straight from your paycheck to savings, emergency or retirement accounts.
Sometimes when you come into a windfall or are making more money than friends and family members, you feel uncomfortable and think you need to share the wealth. This can lead to picking up the tab at dinner, for vacations or for other expenses. That money advantage can quickly disappear. To avoid this, it can be important to make a new financial plan and budget immediately. Then you can set up a section in your budget for spending that allows you to be generous with family and friends. You can also do things like invite friends to dinner in your home or choose a less expensive restaurant to visit.
Q: I’m buying a home and the seller has offered to personally give me a mortgage instead of me going through a bank. My credit is fine so it’s not like I need the help from the guy. I think he sees it as income to him on the interest payments. What are the positives and negatives of a deal like this?
A: There can be benefits to taking a mortgage from the seller, but this kind of deal isn’t without downsides, too.
Let’s start with the positives.
With a direct loan from the home’s seller, your closing could be faster than with a traditional lender, said Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna.
“Prudent buyers and lenders will always use the closing period to perform their due diligence,” he said. “But with seller financing, the closing process can be faster.”
Meckler said the closing costs may also be lower because they won’t have to pay bank fees and appraisal costs.
“Instead of having to meet a bank or government-mandated minimum, the down payment amount can be whatever the seller and buyer agree to,” Meckler said. “This does not necessarily mean that the seller will accept a down payment that is lower than what the buyer would be required to pay elsewhere, but it’s always a possibility.”
Then there are the potential problems.
For starters, you’ll still have to prove you’re a worthy borrower.
You’ll still need to make sure the seller owns the house free and clear and that the seller’s lender, if there is one, agrees to the seller financing transaction.
You’ll also need to compare the interest rate offered by the seller to those offered by banks. Your seller may offer one that’s higher, or lower.
“It’s important to be sure that the interest rate is considered ‘reasonable,’” said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland. “If not, a portion of the house may be considered a gift and would reduce your cost basis as the buyer.”
Williams said when dealing with a private mortgage, you’ll need to hire a lawyer. Banks are thorough and sure to record/file everything securely. With an individual, there is a good chance all they’ve thought about is receiving interest payments.
“There will likely be additional work a bank would usually take care of,” she said. “All the normal tasks that come along with a home purchase — inspections, obtaining title insurance, etc. — will still need to be addressed, however they will be on your plate; not the bank’s.”
She recommends you do a side-by-side comparison. Obtain a quote and list of services to be performed from a bank, then compare the terms and amount of legwork to the private mortgage offering.
And finally, be aware that the seller could eventually sell the promissory note.
“It’s not really a big deal if this happens, but it means that the person the buyer thinks he will be making his payments to can change,” Meckler said. “The same thing happens all the time with traditional mortgages.”
Mortgage credit remains extremely tight, even as the economy continues to recover from the recent housing crisis and recession. About 90% of mortgages originated in 2013 went to borrowers with FICO credit scores of 660 or higher — about 60% of all mortgage borrowers had a credit score greater than 720, according to a recent report from the Urban Institute.
Most lenders aren’t considering consumers with FICO scores of 550, but Carrington Mortgage Services just announced a new loan program that caters to them. The California-based lender announced its FHA 203k Full renovation loan on April 14, which allows qualified borrowers with a minimum FICO score of 550 to take out a single loan to finance a home’s purchase and renovation costs.
The Full loan amount requires a professional appraisal of what the home will be worth after repairs (structural improvements, including room additions), and the maximum repair-cost part of the loan is limited to 50% of the appraisal.
“There’s a huge market there: 1 out of 3 prospective borrowers — U.S. citizens — has a FICO score that’s less than 650,” said Ray Brousseau, Carrington’s executive vice president of mortgage lending. According to FICO’s latest analysis of score distribution, about 20% of consumers fall in-between 550 and 650. Brousseau said a lot of the people in that third of sub-650 consumers are first-time homebuyers. “A lot of first-time homebuyers are looking for proverbial fixer-uppers.”
Brousseau said Carrington is able to serve this population by having a person underwrite the mortgages, rather than putting an application through an automatic underwriting process.
“You can have a history of having had problems, but we need to be able to see that these problems are largely behind you,” Brousseau said. “We have to understand what happened, and that the prognosis is good looking forward.”
The Carrington FHA 203k Full loans carry interest rates in the 4% to 6% range, depending on the applicant’s credit standing, Brousseau said. They’re all qualified mortgages, meaning there are many requirements for that loan, including a proven ability to repay the debt.
Carrington Mortgage Services is licensed to lend in 47 states. Before applying for any mortgage, it’s crucial to review your credit reports and scores. Even if your credit isn’t great, understanding your credit history and being able to explain it to a lender can go a long way in accelerating the loan-approval process. You can check two of your credit scores for free on Credit.com to see where you stand.