By Randy Diamond | MainStreet.com

The economic downturn is bringing attention to a little known practice by auto insurers that targets consumers with blemished credit histories. Insurers can charge higher rates, decline to renew coverage or deny coverage to these customers.

A task force of state insurance commissioners is examining the issue. They’re expected to make recommendations by August as to whether auto insurers’ use of credit reports should be more tightly monitored, or even outlawed.

“We are trying to cut through the rhetoric and get the facts to make an informed decision,” says Michael T. McRaith, an Illinois insurance regulator who chairs the task force.

Three states currently ban auto insurers from using credit reports: California, Hawaii and Massachusetts.

The insurance industry argues that studies correlate poorer credit with an increased likelihood of filing an accident claim. Consumer advocates, on the other hand, question the fairness and ethics of using credit reports to rate auto insurance customers. They are also concerned that consumers already affected by the current economic crisis may get a double whammy when they see their auto insurance rates go up.

“I don’t understand why someone who lost their job because of the poor economy is suddenly a worse auto insurance risk,’’ says Robert Hunter, insurance director of the Consumer Federation of America.

The insurance industry has statistical correlations but can only theorize about the reason for the connection between credit scores and a higher claim frequency.

“If you’re particular about managing your finances, then that same personality may make you a more attentive driver,” says Alex Hageli, of the Property Casualty Insurers Association of America.

Credit-based insurance scoring has been used since 1993 and is now used by 95% of auto insurers. Insurance representatives insist the current financial crisis hasn’t meant the sky is falling in for auto insurance customers. Rates haven’t risen in general, they say, because insurance scores derived from credit reports have remained flat on average through the financial crisis.

But Lamont Boyd, a project manager for FICO, which sells the most widely used industry model for credit scores, said scores have declined for those directly impacted by the economy.

“As a small but growing number of consumers have experienced recent financial hardships, it is impossible to generalize about the impact of such an event on an individual’s credit-based insurance score,” Boyd says.

The nation’s biggest auto insurer, State Farm Mutual Auto Insurance Company, says it has not seen a spike in higher insurance rates.

Regardless of whether motorists are paying higher rates due to the impact of the poor economy, opponents of insurance scoring say the practice is wrong.

Florida Insurance Commissioner Kevin McCarty says studies have shown that scoring has a disproportionate effect on minority groups. “The industry’s attempt to ignore this issue shows a failure to treat its consumers fairly and equitably” he says.

Hunter, with the Consumer Federation, says another big issue is that the information in credit reports is not always accurate, leading to inaccurate scores. (Which is why you should check your credit report regularly and correct any mistakes.) Scores can also vary, depending on which of the three credit reporting bureaus an insurer is using, he says.

What You Can Do Now to Save
Consumers are advised to shop around for auto insurance. Among companies that do factor in credit, different auto insurers assign different weights to it. Having poor credit could account for 30% of the total premium for one insurer and only 5% for another, says Boyd.

It may even pay to talk to more than one insurance agent because different agents represent different insurers, Hunter says.

He also says under federal law insurers must inform consumers who don’t get the best rates because of their credit history the reasons their insurance score was less than perfect. Consumers are then entitled to a free credit report from the credit agency used by the insurer.

By Karen M. Kroll | MainStreet.com

For most small business owners, dealing with deadbeat customers comes with the territory.

You want every sale you can get. However, a sale isn’t much good if you’re not paid. Given the sputtering economy, a growing number of clients or customers may decide to either delay payment or skip it altogether. However, there are ways you can cut the risk of getting stuck with deadbeat clients.

What to Do Before a Sale

1. Check out potential customers. Do a quick Google (Stock Quote: GOOG) search of their name, and see if any red flags, such as lawsuits, come up.

If the potential order is a large one – say, it would represent more than ten percent of your annual sales – it probably makes sense to spring for a business credit report, says Sam Thacker, a partner with Business Finance Solutions in Austin, Texas. These are available online through firms like Experian and Dun & Bradstreet, at fees starting at about $25. The more you pay, the more information you’ll receive.

Members of the National Association of Credit Management (NACM) can purchase business credit reports for about $15, says Toni Drake, a member of the NACM board of directors and president of TRM Financial Services, Inc., in Midland, Texas.

2. Request a portion up front. A good rule of thumb is to ask for enough to cover out-of-pocket costs directly associated with the order. To avoid generating hard feelings, Drake says, frame your request along these lines: “Our firm can do great work for you. Let’s structure the deal like this…”

3. Have new clients fill out credit applications. These should provide the company’s legal name and contact information – critical info if you later need to take legal action. The application should also give you permission to talk with several of the company’s vendors and its bankers. You’ll want to ask whether the firm has fallen behind in its payments or written non-sufficient funds (NSF) checks over the past year.

The application should state payment terms, including due dates, and the interest or penalties charged on late payments. Review these with clients, and have them sign the document.

What to Do After a Sale

1. Follow up. If you’ve done the work, sent the invoice, and the payment deadline has come and gone, call – don’t email – after a few days have passed, says Michelle Dunn, author of Become the Squeaky Wheel, and other books on credit and collections. Politely remind the customer of the bill, and ask whether there were any issues with the invoice or your goods or services. Then, ask when you can expect payment.

2. Consider compromise. Set up a payment schedule, and accept future orders on a cash basis until the balance is paid down. If it’s apparent that even waiting won’t assure you of all you’re owed – if the company has publicly announced layoffs, for instance – consider accepting partial payment.

3. Bring in the big guns. If you’ve set a new deadline that’s come and gone with nothing more in your bank account, consider engaging a collection firm. You’ll generally want to take this step within 90 days of the invoice deadline, Drake says. The longer you wait, the less you’re likely to collect. Most firms take about 25 percent of the amount they collect. Check out the collection firm before hiring it, however. Some have been known to simply walk off with the money they get, Drake says.

4. Get legal. Consider filing a suit in small claims court or entering a lien on the property, if that’s an option. “Don’t think you’re too small to do this,” Drake says, adding that fees generally total several hundred dollars. Keep in mind, however, that even if you obtain a judgment against the firm, you still need to collect. If the customer has no assets, you’re unlikely to get anything. On the other hand, judgments are publicly available, and can impact defendants’ credit records.

Finances to some aren’t easy, but we like to keep things as simple as possible.  That is why we have been coming up with some easy ABC’s to remember when it comes to your finances.  Check out A-E and F-J.

K - Keep Yourself In Check! – When it comes to paying off debt, the initial payments can be exciting! For once you are seeing that balance go down, and it’s great! However, “things come up” (which is why we encourage an emergency fund!). So this could affect what you could pay towards your debt. Don’t let it continue once the “emergency” is over. Keep a check on where your money is going (always tracking your accounts) so that you can spot any mishaps in your plans. Don’t get in the habit of making up your own “emergencies” as well. Just because your friends suddenly decide to go out tonight, and you want to go, don’t sacrifice your goals for one night of fun. That’s not to say you can’t go. Just try to find a way to cut costs.

L - Live life.. for your future – Many people will tell you that you should live for today, because you just don’t know what will happen tomorrow, and you should have fun! Well, while that may be partially true, you can say the same about tomorrow. You don’t know if you will lose your job, or if your child will get sick. So the best thing you could do is “set yourself up for success” so that when these things come up, you are prepared. And keep in mind, there are still plenty of things you can do to enjoy today! You just have to be willing to think outside the box at times.

M - Make it possible – Whatever your goals are, you have the power to make them reality. Take a proactive role in your finances, and you will find ways to make this possible. Don’t make enough to put towards your debts? Find ways to create more income: second, part-time jobs (they only have to be temporary), a home-based business, try to move up in your current job, etc. If you simply don’t know what you owe, create a list of what you do know about. Think there are more to it? Check your credit report. (This is also beneficial for looking into possibly mistakes on your credit report.)

N - Never go to the grocery store hungry – Here’s a tip that pertains to savings money on an easy task that everyone has to do at some point: If you are going grocery shopping, try to eat at least a snack before you go. This will help curb the tendency to put whatever looks good in the moment into your cart. When you are hungry, and you are looking at an aisle of food, everything may look good and you won’t be saving money! (Remember to take your list with you to the store as well!)

O – Offer to take on extra shifts – We mentioned earlier about creating more income with work. An easier way to do this would be to simply take on extra shifts at work if you can. This will allow you to not have to add a new job, but will still create more income for you to put towards your debts. All you have to do is calculate how much extra you would have from the extra shift(s), and then apply that to a debt.

By Althea Chang | MainStreet.com

We’re in a recession, banks are under pressure and it’s getting harder for the average consumer to get a new credit card. So what’s going on here and, more importantly, what can you do about it?

Where Did All the Credit Go?
Because the economy is in rough shape, banks are worried that more people won’t be able to pay their credit card bills. In fact, statistics bear this fear out. The percentage of balances deemed by credit card companies as uncollectible reached a record high of 9.3% in March, a figure that’s expected to rise to 12% next year, according to Moody’s Investors Service (Stock Quote: MCO). As a result, credit cards are becoming tougher to get and more expensive. Fewer people are getting credit card solicitations in the mail, and those who do apply for cards are subject to increased scrutiny, says Stephanie Jacobson, a JPMorgan Chase Card Services spokesperson (Stock Quote: JPM).

“As leading indicators began to change in early 2007, we adjusted our risk management policies and procedures to better manage potential losses, including raising the credit score threshold for direct-mail marketing,” Jacobson says. “And [we’re] increasing the number of applications that go through our internal judgmental review process.”

Your credit score often determines whether you qualify for a particular credit card and what your interest rate is if you do. If your credit score falls below a certain number, you could be denied a card, or be subject to interest rates as high as 30%.

“Credit score requirements have increased,” says Gerri Detweiler, credit advisor for Credit.com. Some time ago, “720 was considered prime. Now you may need a 750 or 760 score,” Detweiler says. “Lender requirements have gotten stricter.”

What to Do if You’re Denied
If you apply for a card and do get denied, don’t worry. It’s not the end of the world and you do have options.

1. Check your mail. You’ll receive what’s called an adverse action letter from the creditor denying your application for a new card. It should list the reasons why you haven’t been granted a new credit card, and if you’ve been denied credit because of your credit score, you’ll be able to get a free copy of your credit report, says Detweiler.

2. Contact the creditor. If your application was denied for a reason you don’t understand, or if their reason is wrong, contact the credit card issuer and ask for an explanation, Detweiler advises. If you’ve been denied due to a discrepancy on your credit report, ask the credit card company whether you can dispute a discrepancy directly with them. But even if you can, you’ll want to contact the credit reporting agency directly to make sure that any mistakes on your credit report are addressed. You’ll be less likely to have a problem next time you get a credit check.

Once a mistake on your credit report has been corrected, you can request that the revised version be sent to anyone who’s recently pulled your report. This could improve your chances of getting a new credit card after all.

3. If you don’t have it, build it. If you have bad credit, there are a few things you can do to raise your score:

* This one’s a no brainer, but if you’ve got lots of credit card debt, you need to work on paying that down. If you’re having trouble doing that, you may be able to negotiate lower APRs with your creditors.

* Often, people with bad credit don’t have enough credit history. If this is the case, you may be able to get a secured credit card. A secured credit card works like any major credit card except that you need to put down a deposit. The deposit isn’t used like it is with a debit card. You still make monthly payments. Your deposit, which equals your credit limit, is just there in case you default. You can get a secured credit card to establish credit with just a $200 deposit, but beware of steep fees, Detweiler warns.

* Another way to build your credit history is by being added as an authorized user on another person’s credit card account. You don’t even have to use the account to build that credit. But if the accountholder ends up making late payments and running up their bills, it could hurt you as well. You can also open a joint account, but you’ll be equally liable for any balance on the account, and it’s difficult to remove one accountholder without closing the account entirely, Detweiler says.

* Find a credit counselor through the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. The U.S. Department of Justice also has a list of approved credit counseling agencies. They’ll be able to help you find the best route to a higher credit score.

Prevention: Before You Apply
If you’re considering applying for a new credit card, first check your credit report and make sure there are no mistakes. Take a look at what the credit card requires for qualification, which can be found along with an application for a new card, on the company’s Web site or by calling a customer service line.

One common mistake people make is to assume that “as long as they’re paying bills on time that they have good credit,” Detweiler says. But about one-third of your credit score is actually determined by how much debt you carry. “The ideal ratio is 10% or less of available credit,” Detweiler says.

By Althea Chang | MainStreet.com

Getting laid off is hard enough, but when a loss of income means your emergency fund is being drained to pay rent, you may be forced to downsize.  And you’ll have to convince a landlord to rent to you, when you have no money coming in.

When you’re unemployed, you’ll have to look at your whole financial status, including how long you think you’ll be out of work and whether you’re getting help from your parents, says LaLa Wang, president of MLX, a real estate services company that provides no-fee rental listings. 

“You probably want to be conservative,” says Wang.  “Live at home. Live with friends. Roommating is probably a less costly alternative to taking on the whole rent yourself.”

Broker

If you’re considering using a broker to find a cheaper apartment, find out what kind of background checks they do.  The main consideration will probably be your credit history, so know what’s on your credit report.

Many brokers work with large building management companies, which can have stricter credit score credit score, income and employment requirements. These days it’s doubtful you’ll find a broker who won’t ask for some proof of income. 

If you plan to live with a roommate or significant other who is employed, they should be the one getting their credit checked and income verified.  But remember, their name will be the one on the lease.

Friends and Family

If moving back in with your parents is out of the question, tell your friends and family about your situation.  With all the recent layoffs and pay cuts, you may know other people who are hard up for cash, need help with rent and are looking for a roommate to help make ends meet.

Local Listings

Through your local newspaper, Craigslist and other listings, you might have more luck connecting with an owner and renting directly from them. 

You might improve your chances by being honest and explaining your situation. You could mention your previous income, job prospects, savings and any severance payments and unemployment benefits you’re receiving. (Just remember not to post personal information like this online.)

“You may be able to work out a deal if you agree to pay an additional month’s security, or sometimes a whole year’s rent upfront,” notes Wang, who’s planning to launch a roommate matching service by the end of this summer.

Local listings like those on Craigslist often include week-to-week and month-to-month room or apartment sharing ads as well.

Get a Co-Signer

If you’ve been turned down by brokers and landlords and scoured ads in your local newspaper and online to no avail, you’ll need to find a co-signer or guarantor in order to get a new apartment.  They’ll be subject to even higher credit score and income requirements. And they’ll be taking a serious risk by agreeing to be held responsible for your missed payments, so don’t give them any reason to think they might get burned.

It boggles my mind sometimes that there are people out there who don’t have any idea what their credit scores are. I suppose if you know you’ve paid your bills on time your entire life, it’s safe to assume you have nothing to worry about. Or is it?

The fact is, unless you pull your credit reports and scores you can’t be sure they contain the right information, let alone be sure someone else’s information isn’t included by mistake. But what is a FICO® score and why is it important to know yours?

The FICO score predicts the likelihood that you or I or whoever is being scored will become seriously late in repaying any of our creditors over the next two years? explains Craig Watts, a spokesperson at Fair Isaac Corporation, the company that developed FICO scoring.

Here’s a graph showing where Americans fall within the FICO score range.

Contrary to what you might first think, Fair Isaac does not actually provide credit scores. We don’t provide scores at all, interestingly enough. We’re an applied math company, so we create the formula. says Watt. “That formula is installed in the operating systems of each of the three credit bureaus. The bureau collects information it knows about you into a credit report, runs that information through our formula to produce a score?

Whether you’re applying for a store credit card, a car loan or trying to refinance your mortgage, the organization you’re applying to will likely obtain your credit score to help make their decision to approve your application or determine an interest rate.

This is just the reason why it’s important to periodically check your score. Without knowing it, you could be selling yourself short to lenders by not knowing the information they’re using to evaluate you.

What makes it even more confusing is that there isn’t one single score for each person. Fair Isaac’s FICO formula can be used to evaluate your credit history as reported from any of the three credit bureaus—Experian, Equifax and TransUnion. You’ll never know which ones a lender will use, so it’s a good idea to monitor all of them.

If you’re planning any kind of significant loan in the near future, you want to check your credit report and FICO score at each of the three national credit bureaus at least six months before you apply for that loan,â€? Watts advises. That will “give you the greatest chance to correct any errors and to influence that score positively before you walk in the lenders office and lay down that application.â€?

But before you run out and close all your credit card accounts, you should know what factors have the greatest impact on your score.

“The most important thing on the credit report for the FICO score is how you’re repaid your bills in the past—have you been late, have you been on time. If you have been on time, then you get positive strokes for that. If you’ve been late, then you get negative strokes,â€? says Watts.

Obviously, this is a change that takes time to achieve and will cause a slower improvement in your score. Below is a chart showing the top FICO score influencers and their weight. As you can see, on-time payments take up the largest portion. However, the amount you owe in relation to the amount of credit you have is high as well. This is an area where you may be able to affect a quicker change.

Watt says there are basically three good ways to work on improving your credit score:

1. Make sure you are never late in making payments. This includes bills like cell phones, utilities, parking tickets and even library fines that could be reported on your credit report for non-payment.
2. Pay down high balances on revolving credit. Lenders view you as a lower default risk if you’re not using all of your open credit.
3. Be resistant to new lines of credit. It may be tempting to save 10% at the register when a salesperson offers you credit, but evaluate the offer to see if it’s truly worth it for you in the long run.

For those who’ve never taken a look at their credit reports or scores, it can seem like a daunting task to begin to correct errors or improve your credit outlook. But Fair Isaac’s myFICO.com site is a great resource for consumers who want to educate themselves.

The company offers several products through its web site that can give you varying degrees of information.

For $15.95, you can order a FICO Standard report, which will give you your score and credit report from a single credit bureau (you choose which one) and shows you the factors that are positively and negatively affecting your score.

If you’re interested in your scores and reports from all three bureaus, then you can order the FICO Deluxe product for $47.85.

But perhaps the most interesting scoring product they offer is Score Watch, which lets you continuously monitor your Equifax score for $8.95 per month.

I recently purchased a house and had some loose ends to tie up on my credit report. I purchased Score Watchâ„¢ to get an idea of how my score would be affected as the changes were updated on my credit report. Being the credit nerd that I am, I love to see how my score fluctuates with different actions.

And for me it’s a good motivator to stay the course to rebuilding my credit profile. Each time my score changes, I’m notified via email and can log into my account to see exactly what caused the change.

Watts agrees that access to such credit information has a positive impact on scoring. “As people get plugged into what lenders really pay attention to, then they are better equipped to focus on those kinds of priorities or behaviors in the future, which leads to an improvement in their credit ratings,� he says.

Guest Author: Kara Parlin