The inquiry – The lender is going to pull at least one of your three credit reports in order to determine your creditworthiness. This means at least one of your credit reports is going to have a new credit inquiry, which can lower your score for up to 12 months.

The new account – The lender is likely going to report the newly opened account to all three of the credit reporting agencies. This new account can lead to a lower score because the account will be brand new and can lower the average age of your credit history.

New debt – If you choose to use the card, you will incur debt, which will be reported to the credit bureaus. The more debt, the more potential damage to your scores.

A new credit limit – The credit card you open will likely have a credit limit, which will be reported to the credit bureaus. This can help your scores, especially if it’s a high limit and you carry debt elsewhere.

Opening the account is really what causes the damage. Closing it doesn’t reverse that damage because it doesn’t remove the inquiry and it doesn’t remove the account from your credit reports. If you open an account it’s actually better to keep it open because as it ages, it will help your scores. It would be even smarter to use it periodically and pay it off each month so you don’t incur interest fees (but the lender makes a little revenue from the merchant fees, also called interchange).

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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But because of the large number of foreclosures that have
been, are, and will be going on, there exists the potential that not enough
owners will pay their dues – and you can't have a viable association if owners
aren't paying dues. If you own a condo unit, or are considering buying one, be
aware that this scenario can have serious implications.

The first: the remaining owners have to pay increased dues in
order to make up for the shortfall caused by the delinquent homeowners. They
won't want to do this for long.

The other implication: the association’s financial straits
could drive away new buyers for the units. In fact, an otherwise well qualified buyer might find a
lender won’t approve a loan for a condo unit in a development that isn’t
financially stable. That's because a lender does not want to potentially end up
having to foreclose and get stuck with a property that they could not sell (at
any price).

Associations with a large number of non-owner occupied units
(units owned by someone but rented out to another party) are of particular
concern. An investor-owner does not have the same kind of emotional attachment
to such a property because it is not his or her home. As a result, an
investor-owner might be motivated to just walk away from the unit if he or she
owes more than the property is worth, is not getting enough rent in to cover
the mortgage payment, taxes, and association dues – and can’t see any prospect
for recovering the equity.

Currently, these associations are undergoing a high level of
scrutiny by lenders. One lender we work with will not do a loan if the number
of delinquent owners exceeds 15% of the total number of units. If you are a buyer, obtain this
information, as well as the current operating budget and most recent financial
statements, before making an offer. If you are in escrow, it is more important to get verification of these
facts early on in the process, even before ordering an appraisal. Be sure to discuss this with your agent
ahead of time.

If you own a unit in a condominium, pay particular attention
to the financial statements from your association's management company. The
delinquent dues should be reported on this statement. You should also know the
number of non-owner occupied units in the project. If there is a problem, it's
better to take action sooner rather than later.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

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So why has this suddenly become a topic of debate, discussion, and conflicting answers? Because in March 23rd’s American Banker, Barrett Burns, the CEO of credit score provider VantageScore Solutions claimed, "…it can take borrowers as little as nine months to repair their credit score after a short sale or foreclosure."

Wow, that’s great news! Or is it? I found this difficult to believe, so I interviewed Craig Watts from FICO – credit score inventor, and VantageScore’s prime competition – to get the company’s input on how long it takes to repair your credit scores after such an event. Here’s the full transcript of my interview, unedited.

Ulzheimer: Is FICO willing to go on the record discussing the impact of a foreclosure and/or a short sale on a consumer’s credit score?

Watts: "FICO has consistently found that past payment history is the single most predictive category of information when we empirically develop credit scoring models using consumer credit histories. As an example, we recently looked at a sample of about 10 million credit reports representing a highly diverse U.S. population. We examined that group's most recent, twelve-month performance window. We found a default rate of 2.9% for the subset of all consumers with a clean credit record, and a default rate of 49% for the subset of all consumers who had had a recent foreclosure. In other words, consumers who recently experienced a foreclosure were about 17 times more likely to default on a credit obligation in the next 12 months than were people with a clean credit record. Obviously, recent credit defaults are vitally important when one is objectively assessing default risk."

Ulzheimer: How long does it take for a consumer’s score to recover after a short sale or foreclosure? And by recover, I mean fully recover.

Watts: "A consumer with a foreclosure or similar default on her credit report can expect her score to begin recovering after a couple of years if she consistently pays all her bills on time, keeps any credit card balances low, and takes on new credit only when needed. As the default event ages on her credit report its influence on her score will diminish, until the credit bureau removes the record from her file after seven years."

The bottom line is this: You can't fully repair your credit score in as little as nine months unless you can convince the credit bureaus to remove the items from your credit reports. And as long as the items are accurate they will remain for seven years. Your scores will begin to recover in time as the item gets older and older and loses predictive value, but unfortunately it won’t happen after only nine months.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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It's an interesting idea, because the things you buy say a lot about who you are — they are often more revealing than the things you say. Do you eat at McDonalds, or do you eat at independently-owned raw food cafes? Do you rent slasher moves from Blockbuster, or do you download nature documentaries on iTunes? Do you buy Ed Hardy clothes, or do you sew your own from vintage patterns purchased on eBay? Credit card data is something most of us think of as private information, but in this age of social networks, people are getting used to the idea of sharing private (and usually mundane) events in their lives. Blippy is an idea whose time has come.

When you register at Blippy, you can search for your friends to find out if any of them have a Blippy account. To share your own purchases, you must link to one or more online accounts you have at retailers like iTunes, Zappos, eBay, NetFlix, or Woot (the number of retailers continues to grow as more sign on).

Linking to retailers involves providing Blippy with your username and password, which, frankly, makes me a little nervous. It's not that I don't trust Blippy; it's just that I don't trust hackers who might think Blippy is a good source of passwords to scoop up and sell on the black market. You can also link your credit cards">credit cards or bank debit card to Blippy to share purchases. Again, you must enter your account number and password at Blippy.

Blippy claims that it "performs super-human feats to protect your data" with "128-bit SSL encryption and 24/7 physical security in our data centers," and I have no reason to doubt their good intentions. Still, the only other person who knows my bank account information is my wife, and I'm hesitant to hand it over to anyone else.

It comes down to the fact that I don't care enough about sharing my purchases to take even the slightest chance that my bank account access info could be swiped. (Another thing to consider is that people who follow you on Blippy will know if you are out of town. Hopefully burglars won't read Blippy for leads.)

I'm probably just being paranoid. As of this month, Blippy is tracking $2 million worth of user transactions per week, and that number is growing, so clearly a lot of people are using the service.

The nice thing about Blippy is that I can reap its benefits without having to share my purchases with anyone else. It's fun to see what other people on Blippy are buying. I can see that Leo Laporte (the host and producer of the popular podcast, This Week in Tech) just spent $660.16 at the Omni Hotel Downtown in Austin, Texas. That means he must be at SXSW. He also recently rented Jaws, Up in the Air, and Taking Woodstock from NetFlix. (This reminded me to rent Taking Woodstock myself).

In addition to being able to see purchases made by individuals, Blippy lets you see all the Blippy member transactions made at different companies. For instance, you can see all the NetFlix rentals made by Blipsters here. The iTunes purchases (and downloads of free apps, which are also included) are particularly useful to me because I'm always interested in new iPhone apps and a lot of the ones that Blippy users buy appeal to me. When a purchase is published on Blippy, other Blippy members can comment on it, and the resulting conversations are often useful in helping to determine whether or not an item is worth buying.

For people interested in joining Blippy who aren't keen on the idea of sharing news of *everything* they buy, they should know that they have the option of reviewing each of their purchases before it's published. Blippy also provides you with a sticker that you can attach to the credit card you want to assign as your "public" card. That way, you can use your other cards to buy things you'd like to keep private.

Are you a Blippy user? If you are, I'd like to hear your thoughts. Please share them on  the comments page.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

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The problem: Those
offers are misleading.

"The Federal Trade Commission has received
complaints from consumers who thought they were ordering their free
annual credit report, and yet couldn't get it without paying fees or
buying other services," the FTC states on its credit report Web site. "TV
ads, email offers, or online search results may tout "free" credit
reports, but there is only one authorized source for a truly free credit
report."

Consumers should "avoid confusing 'free’ offers – which
often require consumers to spend money on credit monitoring or other
products or services," according to another FTC statement.

Now
the FTC is doing its part to help. Its new Free Credit Reports
Rule requires companies that offer "free" credit reports to post
disclosures at the top of every Web page. The disclosure states:

In
addition, each website must include a clickable button that reads "Take
me to the authorized source," with links to AnnualCreditReport.com and
FTC.gov.

The new rule takes effect April 2, 2010 for websites.
The exact wording of disclosures for TV and radio ads has not yet been
decided, so for them the disclosure requirement does not take effect
until Sept. 1, 2010.

Companies may still advertise that they
offer access to free credit reports, even if their only "access" is
offering a link to the official site. But regulators hope that the new
disclosure will reduce the number of consumers who are fooled by scams
in which a free credit report is offered as the bait for other scams.

In
complaints to the FTC, consumers have said that such offers are often
phishing scams intended to trick them into clicking on sites that steal
their personal information. Others, including freecreditreport.com,
offer "free" reports, but only after consumers pay a membership fee.

Freecreditreport.com
is owned by Experian, one of the three major credit reporting agencies.
The FTC’s new rule doesn’t address this directly, but it does restrict
the credit reporting agencies somewhat by requiring them to delay
advertising their products on AnnualCreditReport.com until after
consumers obtain their credit reports.

So why should you check
your credit report in the first place?

For starters, if you have
good credit, you stand a better chance at obtaining credit, loans, or a
mortgage; renting an apartment; getting a decent interest rate when refinancing
a loan; and in some cases, qualifying for a job. If you don’t have good
credit, by regularly examining your credit reports – ideally taking
advantage of the three free credit reports (one from each credit bureau)
each year via AnnualCreditReport.com – you’ll face up to your problem
areas, and be able to get to work on fixing them.  And if you have good
credit, this can help keep you on track.

Not to mention that
you’ll be better able to spot – and take action to correct –
inaccuracies in your credit report. The sooner you discover whether a
creditor has erroneously reported you delinquent on an account, or if
someone has fraudulently opened an account in your name, the better. Too
often, consumers who have otherwise been on good credit behavior have
had their financial plans waylaid by errors in their credit reports.

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After 22 years of seeing credit repair firms come and go, I am quite confident in saying there is no credit repair fairy who can waive a magic wand and remove negative but accurate information from your credit files (nor are their "loopholes" in the law that do the same.) But I will confess I sometimes wonder what these firms are doing to get results for their clients.

Now we know at least one credit repair company's "super-secret" method for deleting negative credit: pretend your clients are victims of identity theft. That’s the approach that got Sam Tarad Sky and his company, Credit Restoration Brokers LLC, into hot water with the Federal Trade Commission. The FTC just announced a settlement against Sky, his firms (which also included a debt settlement company Debt Negotiations Associates LLC), his attorney Kurt A. Streyffeler, and Streyffeler’s law firm, Kurt A. Streyffeler, P.A. (ever notice how many companies are involved in these FTC complaints?).

According to the FTC, Sky’s firm falsely told consumers he could improve their credit reports by removing negative information such as judgments, foreclosures, tax liens, bankruptcies, repossessions, and child support delinquencies from the reports regardless of how old or accurate the information was. The FTC’s complaint also alleged that he and his lawyer falsely told consumer reporting agencies, as a reason to dispute negative items, that consumers were identity theft victims.

Customers paid up to $2,199 for these services. Apparently Sky overlooked the federal Credit Repair Organizations Act (CROA) and charged customers upfront. He also apparently neglected to tell customers they could cancel the contract within three business days.

Oops.

I can completely sympathize with the desperation of many consumers today whose credit scores have taken horrible hits and who feel like they will never get credit again. But please be very careful before you decide to pay for services that make wild promises about what they can do to fix your credit. Before you even go down that road, use Credit.com’s (truly) free Credit Report Card to understand where your credit stands, then take advantage of the myriad free resources in our Learning Center to figure out what to do about it.

The fine print: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

Gerri
Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt
recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress:
Real Life Solutions for Solving Your Credit Crisis.

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As recently as
2004, most banks simply would not allow consumers to overdraw their
accounts. If you tried to use your debit card to buy something that cost
more than your checking account's balance, too bad. The purchase was denied, and
that was that. But as we've learned, the alternative may be worse.

What
changed? Banks realized how much money they could make by allowing
consumers to withdraw more money than they had in their accounts,
charging them big fees every time they did it. According to the Center for
Responsible Lending, last year, the average overdraft fee was $34, while
the average transaction that placed consumers over the limit was just
$17. (That often works out to an equivalent interest rate of 200% or
more since most borrowers make up the shortfall within a few
days). If you overdraw two or three times before you realize it, a new
fee applies each time.

More notice, more choice

Last year, America's banks made $20
billion on overdrawn debit card purchases and ATM withdrawals alone (not
including overdrawn checks and other fees). It's a staggering amount,
especially when one considers that 2009 was the worst year for the
economy since the Great Depression, a year when millions of Americans
lost their homes to foreclosure and their jobs to the recession.

Finally,
the Federal Reserve is changing the rules regarding overdraft fees.
Unfortunately, banks will still be allowed to charge them, and the rules
do not set a ceiling for the maximum overdraft fee banks can charge.
But the Fed's new rules may help consumers avoid fees by giving them
more notice and more choice.

Many banks (and some credit unions)
automatically enroll customers opening new checking accounts in standard
overdraft protection programs which carry hefty fees for each
transaction that exceeds the available funds in the account. In most
cases, customers were not clearly warned about these fees, nor were they
given the chance to opt out.

The new rules change that. A bank cannot
charge overdraft fees on debit card and ATM transactions until they
first inform customers about the overdraft protection program and the
customer agrees to participate and pay the fees.

What happens if
you don't opt in for overdraft protection? Just like the good old days:
Nothing. The bank will simply deny any debit card purchase that
overdraws your account. It may be embarrassing, but at least it will
stop you from taking out a 200-plus percent loan. If you decide later
that you want overdraft protection, you can opt-in at any time. If you
get overdraft protection, and then no longer want it, you can opt-out at any
time. Banks are not allowed to charge a fee for opting out.

The
opt-in rule applies to new accounts as of July 1, 2010. They apply to
existing accounts as of Aug. 1.

There are some important
exceptions to the new rules. Many people pay monthly bills like their
rent, mortgage or utilities using automatic withdrawals from their
checking accounts. Banks do not have to ask your permission before
charging you overdraft fees for these types of withdrawals, and they can
charge as much as they want. Some banks may let consumers out of
over-draft protection on these transactions, but consumers have to ask
first.

Checks are the other big exception to the rules. If you
write a check for more money than you have in your account, banks can
charge whatever fees they like.

However…

Banking
industry advocates say the rule goes too far.

"I would suspect
that many community banks will simply stop offering overdraft protection
to avoid the costs and penalties of complying with the rule," Camden R.
Fine, president of the Independent Community Bankers of America, told the
New York Times.

It's about time they did stop, say consumer
advocates, who don't like the loopholes for checks and automatic
withdrawals.

"Some of the time, protection is never as good as
round-the-clock protection," Ed Mierzwinski, director of the consumer
program for the United States Public Interest Research Group, told the
Times.
    

Tips:

• Think before you
  act. Many banks are already trying to convince consumers to
  sign up for overdraft protection. These programs can be important for
  some consumers who may be living paycheck to paycheck and use their
  debit cards to buy necessary items, like important prescriptions, that
  they cannot live without. But for most consumers, overdraft protection
  is often unnecessary. If you can live without this protection, don't pay
  the fee.

• Ask questions. Always ask to
  see your bank's policy for overdraft and other fees in writing. If you
  notice new fees on your monthly statement that are not mentioned in your
  account agreement, contact your bank immediately.

• Watch
  for holds. Rental car companies, hotels, and even gas stations
  may place a hold on your debit card for the anticipated amount of the
  bill. Depending on how much money you have, this can freeze your entire
  account. The hold typically is not removed until several hours or a
  couple of days after the final transaction is processed.  Consider using
  a credit card
  for these types of transactions instead.

• Watch
  for fraud. Many accounts are overdrawn because an identity
  thief uses a stolen debit card to make a purchase or an ATM withdrawal.
  Sign up with your bank to monitor your account online; find out whether
  you can setup text or email alerts if your balance falls below a certain
  amount; and pay close attention to your monthly statements. The sooner
  you spot fraud, the easier it will be to stop it, and the fewer fees you
  may have to pay.

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The hosts and crew at NPR's Planet Money pooled their money and purchased $1000 worth of toxic assets. Not because they were expecting to make a killing, but because they thought it would be a good way to learn more about toxic assets and what they mean to investors, banks, and mortgage holders. (Here are some frequently asked questions about toxic assets.)

The NPR folks bought a portion of a mortgage bond that had sold for $2.7 million a couple of years ago. NPR's $1000 got them a 1/36th share in the bond. So, in other words, they got a share that was worth $75,000 when the bond was sold for $2.7 million. That's 1.3 cents on the dollar.

Why did the bond's value drop so much? Because many of the mortgages, mainly in California, Arizona, and Florida, are "troubled." The values of the houses are worth less than the money owed on the mortgages. Half people are behind on their mortgage payments. Fifteen percent of the homes are in foreclosure. When those foreclosed homes get sold at a loss, the bond shrinks.

But even so, the investors from NPR have received money each month because many of the mortgage holders are still making payments on time. Their first check was for $141. To date, they've gotten $332. As the NPR co-host notes, "If we keep getting checks [in this amount] till Thanksgiving, we will double our money." They asked their broker what was the worst thing that could happen. His answer: "Next month they sell all the houses and you get stuck with nothing."

On this page, you can track the health of NPR's toxic asset.

Here's the seven-and-a-half-minute audio segment | Here's a transcript of the segment

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

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I was contacted about being approved for a $65,000 loan which I was receiving from "private lenders" because the banks turned me down. Because I'm high risk, I need to give the first 3 months up front. He really pushes the wire transfer (for the first three payments)…

After I got home, I saw the Credit.com news letter about loan scams and knew that this was one…

I have not given this thief any money and thank credit.com for the heads up and research tools.

This is one of the positive stories we’ve heard from people who have avoided advance fee loan scams. Others are not so lucky. We’ve heard after the fact from consumers who lost hundreds, or thousands of dollars, to these low-life “lenders” who will steal the very last dime of desperate borrowers.

Before you give money to an Internet lender who promises to give you a loan regardless of your credit rating, please come to the Credit.com forums and read the real-life stories!

The FTC also offers some tips for avoiding advance fee loan scams. Here’s a brief summary. Tip offs that may be dealing with a scamster:

• A lender who isn’t interested in your credit history. Banks and other legitimate lenders generally evaluate creditworthiness and confirm the information in an application before they guarantee firm offers of credit — even to creditworthy consumers.

• Fees that are not disclosed clearly or prominently. Unless you are dealing with a reputable, secured credit card issuer, an upfront fee that the lender wants to collect before granting the loan can be a cue to walk away, especially if you’re told it’s for “insurance,” “processing,” or just “paperwork.”

• A loan that is offered by phone. It is illegal for companies doing business in the U.S. by phone to promise you a loan and ask you to pay for it before they deliver.

• A lender who is not registered in your state. Lenders and loan brokers are required to register in the states where they do business. To check registration, call your state Attorney General’s office or your state’s Department of Banking or Financial Regulation. 

• A lender who asks you to wire money or pay an individual. Don’t use a wire transfer service or send money orders for a loan!

I’ll add another tip: Check out the domain name registration for the company. You’ll often find the website is registered overseas, anonymously, or has recently been established. If so, investigate carefully.

Please be careful. I'd like to hear your success story about how you avoided a rip-off, rather than read about how you've been taken.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

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?Settlements such as this generally are agreed to when the defendant (a) doesn’t believe it can win in court and/or (b) wants to control its downside financial risk and avoid spending potentially millions more defending a major lawsuit while being distracted from normal business operations. Still, according to Jean Noonan, a partner with Hudson Cook, LLP and former FTC senior executive, "$12 million is a lot to settle a deceptive advertising case."  This means that LifeLock and its co-defendants, company founder Robert J. Maynard, Jr., and CEO Todd Davis, could have spent more if they chose to defend the lawsuit, go to trial, and possibly lose at trial.

??Some of the issues the FTC had with LifeLock were the scare tactics used in its marketing to attract new customers and the use of a guarantee provided by the company in its advertising. The FTC seems especially sensitive (thankfully) to guarantees, as this is the second significant enforcement action that was caused, in part, to over-guaranteeing service results. In 2008, the FTC shut down over 30 credit repair agencies for overstating the potential results for using their services.  

??Additionally Todd Davis, famous for parading his Social Security Number on the side of a truck through the streets, has himself been a victim of identity theft, after the disclosure of his Social Security Number. The fact that you have an identity means you are a target and, while you can mitigate your risk of becoming a victim, there's nothing you can do to guarantee that you will not become a victim. Protecting your personal information, destroying sensitive documents, and being diligent with your credit reports and credit card and bank statements is generally considered a better way to minimize your risk. The judgment therefore severely restricts the kinds of representations LifeLock can make in the marketing and sale of its products and services. It also requires LifeLock to implement a comprehensive information security program to properly safeguard information about its customers both in its own possession and in the possession of its service providers.

??This isn't LifeLock's first high-profile settlement. Experian, one of the credit reporting agencies, sued LifeLock in 2008 for violating the Fair Credit Reporting Act (FCRA) and California law by impermissibly placing fraud alerts on credit files on behalf of consumers. That case was settled in late 2009. Many consumer advocates believe that LifeLock, by placing tens of thousands of fraud alerts on credit files where there was no fraudulent activity, would water down the value of fraud alerts placed by consumers who were actually victims of fraud.??

According to Adam Levin, Chairman of Arizona-based Identify Theft 911, an identity management and identity theft remediation and resolution service provider, "This settlement sends a message that is loud, clear, and completely appropriate. Further, with a crime as dangerous and life-changing as identity theft, there is no room for spin." In this case the "spin" was awfully expensive.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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