Posts Tagged ‘credit’

ID Thieves Target Kids

August 4, 2010

The latest form of identity theft doesn’t depend on stealing your Social Security number, according to an article published by the Milwaukee Journal Sentinel. Now thieves are targeting your children.

Nowadays children have Social Security numbers practically from birth, years before they even think about establishing a credit rating. Unscrupulous businesses are using computers to find these dormant Social Security numbers, and selling those numbers to help people establish phony credit and run up huge debts they will never pay off.

Online companies use computers and publicly available information to find random Social Security numbers. The numbers are run through public databases to determine whether anyone is using them to obtain credit. If not, they are offered for sale for a few hundred to several thousand dollars.

Because the numbers often come from young children who have no money of their own, they carry no spending history and offer a chance to open a new, unblemished line of credit. People who buy the numbers can then quickly build their credit rating in a process called “piggybacking,” which involves linking to someone else’s credit file. Many of the business selling the numbers promise to raise customers’ credit scores to 700 or 800 within six months.

If they default on their payments, and the credit is withdrawn, the same people can simply buy another number and start the process again, causing a steep spiral of debt that could conceivably go on for years before creditors discover the fraud.

The crime can come back to hurt children when they get older and seek credit for the first time, only to discover their Social Security number has been used by someone else.

Experts say the fraud is difficult to stop because it’s so easily hidden and targets such vulnerable people. Other than checking with the credit bureaus to see if there is a credit file associated with your child’s Social Security number, there are no specific tools for safeguarding the number.

The Fair Credit Reporting Act guarantees you access to your credit report for free from each of the three nationwide credit reporting companies (Equifax, Experian, and TransUnion) every 12 months.  (AnnualCreditReport.com is the only authorized source for the free annual credit report that’s yours by law.)

Monitoring your credit is one of the best ways to spot identity theft. The Federal Trade Commission recommends checking your credit report at least once a year to correct errors and detect unauthorized activity. Rather than getting three reports at once, we advise people to obtain one credit report every four months from one of the three credit reporting companies on a rotating basis. By requesting the reports separately, you can monitor your credit more frequently throughout the year.

We’ve always recommended doing it for yourself. Now do it for your kids too.

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Lessons Lost

January 19, 2010

Our parents (parents of baby boomers and earlier generations) emphasized savings. We were told that credit was a last resort. There were layaway plans in which desired products were set aside by shop keepers until the price was fully paid in installments. There were Christmas Clubs at the local bank or savings & loan so we could sock a little away each month and have the money for Christmas presents in December. Even most cars were purchased largely with cash (until the early 60s when financing became freely available). About the only thing purchased with credit was houses, but you were expected to have at least 20 percent for the down payment. Again, it wasn’t until the 60s, with the acceptance of mortgage insurance, that people started buying houses with as little as five percent down. And, as we all know, by 2005 purchases were being made with zero down.

Prior generations had two frequently expressed rules. First, you should have at least six months of living expenses saved before you used credit or invested in anything. Second, you should pay off your home mortgage before you retire. With the financial meltdown of the last couple of years, many believe we should return to these principles and this view of credit.

Here’s my take. In order to have a financial safety net, access to cash (financial liquidity) is important. Many of us thought having an equity line of credit was enough. Clearly it is not. Financial institutions called them due during the crisis, leaving borrowers with no way to pay them off much less meet other needs. Our parents were right. You need ready cash available for emergencies. Six months worth may be enough but for us baby boomers I think it should be more.

Because I think having cash is so important, I don’t necessarily agree with the second rule. If you want to stay in your home and have cash protection, the best alternative may be getting a long-term, flat rate mortgage while you are working and still can. This requires some figuring out because you will need to be able to pay the mortgage after you retire, and for as long as you want to stay in your current home. Seeing a good financial planner is recommended.

That’s what I did. I got a 30-year mortgage at age 61. I took enough cash out of my home to pay 2+ years of expenses, and put it in safe, short-term investments. I have always slept well and now I am assured I will continue to do so.