Rant: Credit Score stupidity

First – why do I have to subscribe to a service to get my FICO score? Sure I can cancel within the trial period and pay nothing, but I’m naturally averse to promotions that are betting on you to screw up. I’m sure my realism cost me a few points.

Second – the credit reporting agencies threw a hissy fit with Fair Isaac and came up with some kind of new scoring system amongst themselves since I last checked. WTF??

Okay, now that I got that out of the way, I just blew $10 on my TransUnion credit score after getting my free report. Know what I found  out? My 837 puts me in the 65th percentile. Apparently credit scores and SAT scores have a lot in common – you get several hundred points for putting your name on the paper.

According to the apartment complex I’m trying to get into in Colorado, I need to be in the 75th percentile or better. There is nothing bad in that report – just a bunch of credit cards that I closed 8-10 years ago and my two current ones showing a debt ratio of about 12% (I let my mom use one of them to part-pay for my little sister’s wedding).

Is the lack of variety in my types of debt really worth 1/3 of my credit score?

How about giving me 50 points for living in NYC for 10 years and always paying my hideous 4-figure rent on time every month? After all, if I need a credit score to get the roof over my head, certainly my ability to pay for it should count!

How about giving me another 50 for financing all education since my BA (master’s degree, teaching certificate and now the Rolf Institute) out of my savings? And I got through undergrad at a private college with no parental contribution and no GSL/Stafford/Sallie Mae or whatever the kids are calling in these days. Just a Perkins – $6200 – paid it off 2 years early. 

So I’m too old for a student loan. I don’t have a mortgage and rent doesn’t count. I live in Manhattan and don’t want or need a car, so no car payments. The most expensive things I lust after are a plane ticket to Nairobi and an LCD TV, both of which I am capable of charging and paying off immediately. Even if I didn’t pay them off immediately, it’s still “only” credit card debt.

Correct me if I’m wrong folks…
If I buy anything that involves a payment plan, it boosts my score.
However, they do a credit check – which knocks points off my score.
Sounds like a zero-sum game to me, and yet I’m at 65%.

So I’m stewing in the juices of injustice (yes I’m getting melodramatic). I suppose I should expect this from a system that invented the concept of “good debt”.

5pm UPDATE:  Caved and did the free trial at scorewatch.com – at least they promise to warn you of the expiration of the free trial 3 days in advance. And the news was much prettier – a score of 797 out of 850. I’m in the 88th percentile. I still think I belong at 100% though. Hmph!

Citibank is up to MORE shenanigans

Last week I got a notification that the interest rate on my credit card was about to change to 23.99% unless I did a balance transfer of no less than $3000 by December 10th, triggering that 3% fee ($90). Then I’d qualify for a 9.99% rate for a year on all balances before reverting to 23.99% – on all balances, including any portion of the transfer I failed to pay off in that time. In other words, 9.99% is some kind of introductory offer but for an existing customer with a FICO score over 800. What an unbelievable load of CRAP.

I don’t really care what they do with the rate because I pay it off in full every month and only failed to do so once in the last 5 years, which is when I discovered that you pay interest on the entire month’s balance $1800) and not just the portion you didn’t pay off ($300).  Never again. Anyway, if this is what I have to put up with to keep from paying an annual fee, fine. But as soon as my mom finishes paying off her balance on my Bank of America Visa, I may reclaim that card for daily use – it’s my oldest, and Bank of America has, to the best of my knowledge, not put the screws to their customers in the nasty ways that Chase and Citibank have. My card is still at an awesome interest rate of Prime + 1% on the transferred balance, and I just checked the purchase rate – 7.9%. I was really surprised they hadn’t messed with that, given what the other troubled banks have been pulling on their customers.

So I just dropped Bank of America customer service a thank-you note for not following in the mercenary footsteps of Chase and Citibank just because they could. I’m not really aware of anything they’ve done except cutting people’s credit limits, but I gave them props in my email for doing that – it was a mutually beneficial move and had a minimal effect on the customers they did that to.

How a Delinquent Loan Saved Me Money

The sister formerly known as Bridezilla (who turned out to be anything but) borrowed $7000 from me in early 2006 to buy a good second-hand 4WD car to get her to and from college in the Rockies. She swore she’d pay me back within a year, I knew that wouldn’t happen. She did manage to pay me back $1000, and I was happy to defer repayment until she got her first nursing job. She started in early August, got married in September, and I just got my first repayment check for $300. It came folded in a notecard that said, “Thank you for believing in me.”

She has apologized on and off over the years about not fulfilling her promise to pay me back, letting me know she hadn’t forgotten. Well, last year I thanked her profusely for not repaying me on time, because I’d have most likely had the money in the stock market and lost more than half of it. Given my complete lack of luck with long-term choices, I wouldn’t have recovered much in this uptick. So thank you, Newlywedzilla, for preserving my capital!

I need to blog about something brilliant

I was contacted by a reporter from Money magazine regarding a comment I left a month ago on Pants In a Can. Brainy Smurf had blogged about Bank of America slashing his credit limit in half, and I chimed in with:

Oh, Brainy, we have too much in common with our credit cards. We seem to be the first to be hit by any changes. They halved my credit line last month as well, from $24K to $12K. I don’t really have a problem with this – it never should have been $24K in the first place. This is a much better approach to protecting themselves from customer defaults than Citibank’s idiotic rate game.

Since I don’t list an email address on my blog, the journalist contacted me through the comment section on my most recent post – the one about Bridezilla’s wedding costs. I’m glad she didn’t hold that bit of fluff against me! And it also reminded me how micro-PF my blog has been lately. I need to write something really, really smart – and smartass, because I wouldn’t want to be accused of pseudo-intellectualism. Or bore my faithful little gaggle of readers away!

…and now it’s Bank of America’s turn

I sort of have another credit card that I don’t use. The balance is my mother’s, from back before her declaration of bankruptcy when I was trying to bail her out with my low-interest cards. The rate on her transferred balance is awesome: Prime + 1%. For more years than I can count, my ridiculous credit limit on that card was $24,000. Last month, they halved it. The balance owed is only about $1700, and messing with my limit bothers me FAR less than Citibank’s rate hike, but it led to me and my mother to speculating…

Why did Citibank raise my Mastercard rate, when I never carry a balance?
We came up with a couple of possibilities. At the “nice” end of the spectrum, I thought maybe they were trying to boost their average rate across the board as painlessly to their customers as possible, that somehow it would make them look better on paper for the regulators or whatever. At the other end, my mother suspects that those of us who don’t pay any interest because we pay off the cards are unlikely to object because it doesn’t really affect us – but Citi is now lying in wait for us to lose our jobs and need our credit lines.

Why did Bank of America halve my Visa credit limit?
In the letter, they said something about information from my TransUnion credit report (the only one that didn’t think I was a shining example of creditworthiness for no reason I could fathom). Given the timing, I would hazard a guess that it improves their performance on that Stress Test to have reduced their exposure to consumer credit. It doesn’t have much of an impact on my debt-to-credit ratio. Okay, so it just about doubled, but 6% to 12% isn’t going to set off alarm bells anywhere. I actually commend BofA for going this route in their overhaul – I should never have had access to that much unsecured credit in the first place.

Bank of America is my oldest card these days – I’ve had it about 9 years (and according to Experian, that’s not old enough to score me full points). When my mother finishes paying it off, we’ll see what terms they’re willing to offer me…wouldn’t mind escaping Citibank.

Lateness: Will the IRS behave like Citibank?

I emailed my CPA yesterday morning, since he didn’t drop off my taxes the night before as promised. He never replied. I checked my mail around 7pm last night, still no taxes and no answer to my email. Figured he was just filing for an extension again…until I saw the big fat envelope in my pigeonhole this morning. Crap.

In the past, I’ve mailed my taxes 1-3 days after the official deadline and never got penalized. When I’ve paid a credit card late, I just called and asked them to waive the fee (maybe had to do that once every two years) – no problem. However, the credit card companies have gone all hardass about their fees these days, and I’m wondering if, with the government’s spending rampage, they’ll jump at the opportunity to hit me with the $100+ penalty for being 24 hours late.

At least my actual federal tax obligation is a 3-digit number. Self-employment has its drawbacks, but being able to deduct just about everything helps make up for the extra hassles and expenses (translation: health insurance and double social security).

Unmarried Couples Finance: Borrowing/Lending

Over at The Debt Chronicles, Sunflowers describes how she went about borrowing the money to pay off her consumer debt from her Significant Other — and how inferior it’s making her feel despite all her efforts to do right by him. About 5 years ago, I helped my debt-ridden sister (aka Bridezilla) through this exact situation. She and her then-boyfriend came to an agreement, not sure if anything was signed, but I thought it was perfect. I got involved only as the Excel “expert” who could set up a spreadsheet to calculate and track her payments.

Here are a few points to consider, from both legal/tax angles as well as emotional ones…

Tax implications

Feel free to chime in and correct me, because I’m working from a memory of a conversation with my CPA maybe 3 years ago when discussing loans to family. I’m not qualified to give advice on this – but hopefully I can help anyone in this position figure out what questions they should be asking….

  • As the recipient of an interest-free loan, there’s a tax implication for that sweet deal, but I don’t remember how it’s classified. Would be great if it could be considered a gift, but I don’t really know.
  • If you pay interest on a loan, the lender is supposed to pay tax on that as interest income.
  • Since I was dealing with immediate family members and the amount was below the non-taxable gift limit ($12K or $13K these days), my CPA cleverly phrased a suggestion that we define it that way to avoid a lot of annoying nickel-and-diming.
  • I think, legally and taxwise, it is viewed quite differently if the person making the loan directly pays the borrower’s credit card companies. Like maybe it doesn’t count towards the maximum tax-free gift limit or something (strangely, I recall this from an episode of Divorce Court, which I used to watch on the personal TVs at the gym for lack of any other 10am viewing options…it was either that or who’s-yer-daddy Maury or Rachel Ray, and I can’t stand her voice).
  • If the occasion arises for me to loan money to a Significant Other, I’d draw something up and get it notarized to protect myself…and then hopefully not have to use it. It would be more of a back-up plan.
  • In Sunflower’s position, she and M have a joint account. I think that would make it very easy to make repayments in the form of transfers out of the joint account and into his personal one.

The Psychological Backlash

My sister and her then-boyfriend agreed on an interest rate of 5%. That was WAY below the 18-25% she was paying, which would allow her to pay off the debt really fast. For him, it was about the same rate he could get on a CD. I thought this was a great way to handle the financial imbalance in the relationship because it cost him nothing in the short term to improve their long-term situation (had there been one). My sister, however, was unable to see it as fair to him in any way because she was getting all the benefit while he just broke even on the deal. I tried so hard to help her see that it wasn’t costing him a penny to help her like this, but she had been under the burden of about $20K consumer debt for so long that she couldn’t overcome her “loser” feelings. FYI, this was not the underlying reason why their relationship didn’t work out.

Currently, she has an outstanding car loan with me, at an agreed-upon interest rate of 6%. She’s had the loan for 3 years and only paid 15% of it back in the beginning and nothing since, and she feels really bad about it. Two years ago, I told her that I considered it an investment in my old age, because without a car, she wouldn’t have been able to go to nursing school. I’m not going to have any kids to look after me when I’m old, so it will be extremely advantageous to have a sister wired into the medical community – and used to changing old lady diapers. I recently informed her that she doesn’t start accumulating interest until June, giving her an additional 6 months’ grace period after graduating. Like a student loan, which it really was in a sense. I made her okay with this by pointing out that I would have had all that money in the market and lost at least half of it in the last few months. I actually thanked her for saving a significant chunk of my savings from the Diving Dow — that really got through to her.

Conclusions

  • As a lender to family members, I swear to you I’m perfectly happy getting interest equal to market value.
  • As a borrower, ALWAYS offer – or even insist on! – interest because it’s proof that you’ve thought through your need for a loan, understand the impact on the lender, and truly care about fairness.

Anything I’ve missed?
Anything I got ass-backwards?
Any caveats of your own to throw in?
Please let me know with a Comment!