Credit Karma is well-known in the world of personal finance as one of the leaders in offering access to a free credit score.

Credit Karma offers an array of interesting information about your credit situation, based on your TransUnion credit report.

And now, Credit Karma is offering free daily credit monitoring.

Features of Free Daily Credit Monitoring

The idea behind the free daily credit monitoring offered by Credit Karma is that you can receive updates about what is happening with your credit profile. It’s pretty straightforward: All you have to do is sign up for Credit Karma — for free. Once you are signed up, you will be alerted, by email, when any of the following changes occur to your credit profile:

• New credit inquiry
• Improvement in payment history
• Missed payment
• New account opened

Any major changes to your credit report are sent to you. Each day, Credit Karma looks through your information and alerts you to changes that are likely to have an impact on your credit score. This means that you can be alerted about events that could indicate that your identity has been stolen, or that indicate errors in reporting. You won’t be inundated with emails, though; you’re only supposed to receive the emails if something changes.

Signing up is easy. All you have to do is sign up for Credit Karma. You will be asked for personal information, though, including your name and address, as well as Social Security Number, since Credit Karma will be accessing your TransUnion credit report. If you are already a member of Credit Karma, you will be asked if you want emailed alerts when you login. In the profile area, there is a “Credit Monitoring Preferences” option to the left. You can check the box, or un-check it, depending on whether or not you want to receive the updates. It’s very easy to opt in or opt out of the emails.

Remember, though, that the Credit Karma free monitoring isn’t going to cover all of your credit reports. Only the TransUnion credit report is reflected, so you will still need to check your other credit reports for a comprehensive look at your credit picture. You can visit www.annualcreditreport.com to get a free credit report from each of the bureaus each year. Additionally, there are sites like Quizzle and Credit Sesame that can provide you access to your Experian score and report.

Other Credit Features of Credit Karma

Credit Karma also features a number of other credit information and tools. Your performance is tracked over time so that you are able to identify trends in your credit and in your finances. You can also compare your situation to others’ situations, and see how you stack up. It’s very a helpful snapshot of what your financial habits look like.

It’s not a bad idea to sign up for free information about your credit score, and get access to free credit monitoring. Being able to review your credit information, and get a general idea of where you stand can be helpful as you plan your finances. However, remember that these free sites offer you their own scores, and it is not the same as a FICO score.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

When you apply for and receive a credit card you are taking on a huge responsibility. The credit card company evaluates your credit worthiness and gives you a line of credit that they feel you can be responsible for. While most people will use their card to make purchases and then diligently make payments on what they charge, there are some people who, for one reason or another, do not keep up on their payments and eventually go into credit card default.  While I’ve never been in this situation, I’m almost certain it’s one that you want to avoid.

Credit card default is the term used to describe what happens when a credit card user makes purchases by charging them to their credit card and then they do not pay their bill. The consequences of going into credit card debt are not fun as saw firsthand the effects that this had on my father.  Here is what you can expect if you default for one reason or another on your credit card.

The Path Of Credit Card Default

When you miss just one credit card payment, don’t panic, as it does not necessarily mean you are automatically in credit card default. In order to avoid the path of credit card default however, you will want to pay your bill as soon as possible. If you do not and your account goes 30 then to 60 and 90 days delinquent you can expect to start getting calls from your credit card company asking for their money. Additionally, you will be racking up late payment fees and interest fees. Usually after your card reaches 180 days delinquency your debt will be forwarded on to a debt collection agency.

The collection agency will now be in charge of trying to collect the debt and they will do just about anything they deem necessary to get the delinquent money from you. The debt settlement company can also choose to file suit against you for the money owed and work towards injunctions to garnish your wages.

My wife is a huge fan of the show Dateline – yes, I’ve been suckered into it, too.  One of the shows went behind the scenes of ruthless practices that some collection agencies (emphasis on “some”) go to trying to get you to pay.  While I know most do abide by the rules, getting on a collection agencies call list is one that you want to avoid.

Your Credit Score

When your credit card account goes into default, you can expect your credit score to take a big hit. The better your score was to begin with, the further it will fall. Just missing the first payment will have impacted your score and as you continue to ignore your debt to the card company and your account becomes more and more behind, you can expect your score to continue to plummet.

The dip in your credit score can have huge implications on you receiving credit for any other means like a car loan or a mortgage, for example. Additionally, things like your insurance rate, can also be affected.

What You Should Do

First and foremost, if you are currently not in credit card debt, do everything you can to avoid it. This means never charging more than you can afford and always paying your bill on time. If you are already in over your head, you need to do everything you can to start making payments. If your delinquent card has not yet been forwarded to a credit collection agency, you should contact your card company and do what you can to work out a payment schedule. If it is in collections you will need to work with them to come up with a way to pay back the money due. If you are in over your head and cannot make payments at all, it may be in your best interest to get in touch with a credit counselor for help.

photo credit: Håkan Dahlström

This article was written by Odysseas Papadimitriou, CEO and founder of CardHub.com, an online marketplace for credit card applications and gift card exchange.

The Great Recession has left consumers with financial scars. Many people lost their jobs, got into debt or saw their credit scores fall like the stock market during this time of economic difficulty. But now, as America begins to rebound, it is time for consumers to lick their wounds and hit the road to financial recovery. This can be accomplished in various ways, depending on the exact nature of one’s monetary malady. For those people looking to rebuild their credit standing, the answer is, perhaps surprisingly, use of a credit card.

Upon hearing this, you might be questioning why credit restoration is even necessary and why use of a credit card is suggested for achieving it. After all, irresponsible credit card use may be the exact reason your credit took a hit in the first place.

So why even think about using a credit card ever again?

Well, because your credit score so often represents you. Without a good credit score you may find it difficult to get a loan, purchase or rent a property, buy or lease a car or even get your desired job. Additionally, use of a credit card is the cheapest, most efficient way to rebuild credit. In order to improve your credit score, you must infuse your credit reports with a steady stream of positive information that will help muddle the existing negative factors that pulled your score down. A credit card can accomplish this in one of two ways. First, you can use your credit card to make regular purchases, which you then pay for in full every month. This will demonstrate responsible use to the credit bureaus. Alternatively, you can open your credit card account, lock your card away and benefit without ever making a purchase because simply having an open credit card in good standing and at zero balance adds positive information to your major credit reports each month.

Which Credit Card to Use – Get Secured

Ok, so a credit card is one way to go, but which one to choose? Look into, secured credit cards as one of the tools with which to build your credit. This kind of card offers guaranteed approval and is often the cheapest option available because of the refundable security deposit that you are required to place when opening it. This deposit protects the issuer from default, negating the need for an expensive fee structure. It also serves as your credit line, meaning you cannot spend more than you can afford with a secured credit card.

The exact secured credit card you get is dependent on whether you want to use it to make purchases or not. If you do wish to make purchases with your secured credit card, the Orchard Bank Secured Credit Card is a great choice because it has a low, 7.9% APR. If not, the Public Savings Bank might be Classic Secured Visa® Credit Card could be an option because it has no annual fee.

Getting a secured credit card is not the only option available to consumers with bad credit. An unsecured credit card for bad credit would be helpful for consumers who need an emergency line of credit in addition to a vehicle for credit restoration. However, while the new credit card law (CARD Act) made these cards more consumer friendly, they still have a costly fee structure designed to protect issuers from the risks associated with the bad credit demographic.

Consumers often get unsecured credit cards for bad credit because they want to begin improving their credit standing immediately but don’t have the requisite funds for a secured credit card’s security deposit. This course of action is ill-advised because not only are unsecured credit cards for bad credit costly, but being unable to wait to get a secured credit card also illustrates a lack of discipline that is unacceptable from someone looking to build his or her credit. Therefore, waiting until you have enough money to open a secured credit card is recommendable.

No matter what credit restoration avenue you pick, choosing to improve your credit standing is the right course of action. While you may be hesitant to use a credit card again or may think that you can live with a low credit score, having the foresight to recognize a credit score’s importance is crucial. As long as you use your credit card responsibly, your credit score will rise and you will have the freedom to buy a car, rent a property, or get a mortgage should you choose to do so. Ultimately, you must not limit your future options by failing to act now because doing so would be regrettable.

Oydsseas and CardHub.com are not endorsed or affiliated with LPL Financial.

photo credit: MyTudut

FICO 8 is getting a lot of press right now. Even though it was introduced in 2009, it has taken almost two years to really be adopted by lenders and other creditors. However, now the FICO 8 model is catching on more widely, and you can expect to see some changes in what is important to your credit score. The major credit bureaus have been using it, and now a number of banks, credit card issuers and others are using it. FICO 8 is picking up steam, and this means that you should be aware of what has changed.

According to myFICO.com, there are four main changes to the formula that can mean a change to your score:

1. Isolated Late Payments: One of the biggest impacts on your credit score is your payment history. A late payment can mean real damage to your FICO score. The new system, though, accounts for aberrations in what is normally a good payment history. If your other accounts are in good standing, the FICO 8 score will not be as negative as it might have been before.
2. High Credit Utilization: If you are close to your credit limit, it will hurt your FICO score more than it used to.
3. Collections Accounts with Small Balances: Instead of dinging you for small collections accounts, FICO 8 now ignores collections items that feature an original balance of less than $100.
4. Authorized User: Continues to look at authorized users on credit accounts. This helps students and spouses build a credit history through the shared management of a credit card account.

Lenders and other creditors (as well insurance companies) sometimes make their own tweaks to the scoring formula created by FICO. The FICO 8 score may used as a foundation, but if a lender has some items that are considered more important, they may be emphasized more.

Pinpointing Consumer Behaviors

The point of FICO 8 is, of course, to better profile consumer credit behaviors. FICO 8 is designed to emphasize different behaviors more accurately than in the past, and it is also designed to take more information into account, supposedly building a more accurate picture of your consumer credit behaviors for use by lenders and others.

It is worth noting that FICO (and other credit scoring models) are constantly changing. Different tweaks are added regularly so that the vast amounts of information available about financial habits can be used to create a profile that can be reduced to a single three-digit number. In addition to having the FICO 8 scoring model in use now, there are additional credit scoring models. These include formulas aimed at mortgage borrowers, at bank deposit behaviors and even a score that takes into account that you might not use credit very much.

Be aware of what FICO 8 means for you, as well as what future changes to the FICO scoring model might mean. Even if you don’t pay close attention, there are some things you can do, in general, to help your credit score — whether the FICO 8 model is used or not. Make your payments on time and in full, pay down your credit card balances, and be careful about applying for additional credit.

photo credit: me and the sysop

You know that your credit score is one of the most important bits of financial information about you. Where you fall on the credit score scale is often considered to be a way of determining what kind of person you are when it comes to managing your money. Lenders — and plenty of others — use your position on the credit score scale to make decisions about how they will treat you in money matters.

What is the Credit Score Scale?

When most of us think of credit scoring, we think of the FICO score, put out by the Fair Isaac Corporation. This credit score ranges between 300 and 850, with 300 representing the lowest possible credit score. However, it is important to realize that this is not the only score available. Other companies use variations of FICO’s formula to create their own scores. Additionally, there are companies out there that have created their own credit score scale altogether. However, for the most part, you are likely to run into some version of credit scoring that uses a model similar to the FICO score.

The point of the credit score scale is to allow lenders and other financial services providers (like insurance agents) to immediately ascertain whether or not you are a credit risk. If you have a low credit score, then service providers, like cell phone companies, and even a potential employer, might make assumptions that your level of financial responsibility is low, and that you might prove irresponsible in other areas as well. Clearly, lenders view a low credit score as something that increases the chance that they won’t be repaid the money they lend.

Your position on the credit score scale is usually figured by using a formula that takes into account the following information:

It is important to realize that, even though lenders see your credit score as a big piece of the puzzle, they may also look at other items, such as your income and your employment history, when making a decision.

What is a Good Credit Score?

For the most part, a good credit score depends on the current market conditions. Prior to the financial crisis, a 680 was considered good enough to get a good interest rate on many loans. Now, many lenders want to see a score of at least 720 to offer you the best deal.

Generally, though, a credit score below 600 is considered quite poor. If you score between 650 and 699, you are considered to have be in the fair to good range. Some won’t have a problem with you when you have a score of between 620 and 700, but you probably won’t be offered the best terms. A good credit score can mean more than just a good interest rate on a loan: It can also lead to lower insurance premiums and the ability to qualify to move into a better rental.

Credit scoring isn’t exact, but it’s what is widely used, and it is a good idea to pay attention to your place on the credit score scale if you want to succeed financially.

photo credit: Casey Serin

Your credit score is an important number that affects your ability to qualify for credit and the terms you are offered if approved. Most American consumers are familiar with basic credit scoring principals. For example, paying bills late will be viewed as a negative while reducing debt is considered a favorable action. There are many other variables that are considered when calculating a credit score. It is important to understand how different situations affect your score in order to make the best decisions to improve your score. Here we are going to look specifically at unpaid medical bills and the impact they have on your credit score.

The reason that I was curious about this, was based on a recent panel that I sat on. On the panel consisted of 3 lenders – one from a local bank, one from a credit union, and one that specialized in SBA loans. You might be asking yourself why in the heck I was sitting in on the panel? Trust me, I was asking myself that very question.

Part of the discussion had turned to credit scores and the lender from the local bank made a comment something to the affect of, “When it comes to unpaid medical bills, they have the harshest direct effect on your credit score. A $50 unpaid medical bill can sometimes reduce your score by 100 points”.

When I first that comment, I was a little taken a back. Do unpaid medical bills really hurt your credit score that bad?

Treated like any other debt?

There are several different perspectives from which debt is viewed in relation to your credit score. For example, simply having debt may not viewed as negatively if you are making timely payments each month. On the other hand, unpaid debts- such as the case with unpaid medical bills will have a more significant impact on your credit score when such debts are reported to the credit bureaus as a collection account. When you look at the big picture, having a high credit utilization is considered a negative, however when compared to debts that have not been paid and end up in collection- high credit utilization is the lesser of two evils.

The big takeaway is this: Medical bills are not reported to credit agencies. It’s when you don’t pay the medical bill and it gets turned over to a collection agency that it can have a damaging affect on your FICO score.

Flexibility in payment

Unpaid medical bills do offer a level of flexibility that is not often seen with credit card accounts or other financial obligations. In many cases, hospitals and other health providers will be willing to work out a payment arrangement which will prevent the unpaid bill from being reported as late or delinquent. This can be a real advantage for individuals who do not have the ability to pay the bill in full, yet are able to pay down the debt over time. If the medical bill is not reported as unpaid or in collection, there may be no impact on your credit score. It is for this reason that any individual who has an outstanding medical bill should contact the respective health care provider to discuss available payment options. By doing this you can prevent a negative hit to your credit score while you pay off your unpaid bill.

Liz Weston, author and financial expert was asked by someone what they can do to help out with their credit score. This person had numerous delinquencies on their credit report from unpaid medical bills and was trying to raise their current score of 650.

You can help prevent future damage to your scores by monitoring all your doctor bills closely. Your goal is to prevent them from being turned over to collections or being reported to the credit bureaus at all. That may mean calling the doctor and your insurance company monthly to check on the progress of any reviews that are delaying payment; in some cases, you may need to pay the bills and seek reimbursement from your insurer. Yes, it’s a hassle, but it’s better than another blow to your scores.

Liz is right, it is a hassle, but is totally worth it. My wife is the queen of being organized and she is constantly on top of our medical bills. There have been countless times where she’s had to challenge the insurance company on what we paid when they threatened to turn it over to a collection agency. She’s on top of it and with a credit score in the 790′s, it’s proof that staying on top of your medical bills pays off.

Factors to consider regarding unpaid medical bills and your credit score

Determining how an unpaid medical bill will impact your credit score is not a perfect science. Each individual has their own credit history which will be factored into the formula for determining your score. If you have a history of paying your bills on time and managing your credit responsibly, the impact to your score may not be as damaging. Conversely, if you have history of making late payments, delinquent accounts or collection activity, an unpaid medical bill may have a significant impact on your credit score. Once an unpaid medical bill is reported to the credit bureaus, it will remain on your credit report for up to seven years. By understanding how different debts impact your credit score, you can make informed decisions regarding your personal finances and how you manage credit and debts moving forward.

photo credit: Henderson Images

I‘ve been lucky to have a solid credit score for quite some time now (around 750 last time I checked).  I know that once I graduated college, I was on the verge of letting my credit score slip really fast.  Luckily, I prevented a financial meltdown by taking control of my radical spending and my credit score has improved ever since.  I know, however, that many are not in that same boat and struggle to get the credit score they want.

If you want to fix your credit score, you need to know what your current score is. Most creditors rely on the three-digit FICO credit score, which range between 300 and 850, when determining your level of risk as a borrower. The higher your score, the lower the risk is for the lender and the better your interest rate will be. On the other hand, low credit scores result in getting denied for credit, or getting credit at extremely high interest rates. Contact a credit reporting agency to obtain your FICO score to see where you stand. You can get a free credit report, but to get the actual credit score you will have to pay (usually around $25).

Once you have your credit report and score in hand, you can take the following steps to fix your credit score fast:

1. Get Serious About Paying Off Debt

If you have credit cards, you’ll want to focus your debt repayments here first. Paying credit card bills on time, and paying down the balances or paying them off completely will improve your score faster and more than paying off installment loans (car, student, mortgage, etc).

2. How Low Can Your Debt Go?

Focus on getting your overall debt below 30% of your available credit limit on each credit card and revolving account you have.

This increases the amount of your “available credit” and will improve your credit score as you will be seen as less of a risk. Look at your credit card balances and send higher payments to the cards with balances closest to the credit limit first – to work toward the goal of decreasing your overall debt to less than 30% of available credit limits. Once you’ve obtained that goal, you can focus on paying back high interest debts first.

3. Use Credit ONLY When You Have To

photo credit: Qiao-Da-Ye賽門譙大爺

Try not to use your credit cards, even if you’re paying your bills in full each month. Each month, the balance from your last statement is reported to the credit bureaus, and whether you made your payment on time. Using a card that already has a balance isn’t going to improve your score, so save yourself the extra interest and stop using the cards while you’re working to improve your credit score. Definitely do not use credit cards from issuers who don’t report your credit limit. American Express tends not to submit a credit limit, which means the credit bureau assumes your highest balance is your credit limit. This will make it look like you’ve maxed out your credit card, which affects your score negatively.

4. Verification of Your Credit Limits

Verify that the credit limits shown on your credit report match your actual credit limit for each credit card account. If the report is showing a lower limit than you really have, it can cause artificially lower credit scores because it will appear you’re using more of your available credit than you really are. If you find an error, simply ask the credit-card issuer to update the information with the credit bureaus.

5. Fix Your Credit Report and Make Sure It’s Correct

Have your credit report corrected if there are errors with any of the following situations, as they negatively affect your credit score:

• Late payments, collections, charge-offs that you don’t think are yours
• Credit limits reported lower than they really are
• Accounts which are listed as anything other than “paid as agreed’ or “current”, including “settled”, “paid charge-off”, “paid derogatory”.
• Accounts listed as unpaid that were included in a previous bankruptcy.
• Any negative item older than 7 years that is still appearing on your report (it should automatically come off the report after 7 years – 10 if you filed bankruptcy)

photo credit: RLHyde

You’ve probably heard that applying for a loan can affect your credit score. Indeed, many realize that when a creditor looks into your credit in order to make a decision about a credit application, it can have a negative impact on your credit score. The fact that some inquiries into your credit can hurt your score has led to the myth that all credit inquiries can hurt your credit score. The truth is that there are two main types of credit inquiry: “Soft” and “hard.” Only the hard inquiry is damaging to your credit score.

Soft Credit Inquiry

It is important to realize that when you check your own credit report, it will not negatively affect your credit score. Your own inquiry is known as a “soft pull.” It’s made in order for you to keep track of your credit activity, and check for accuracy. Since you aren’t applying for credit when you are just checking your own report, the credit bureaus and credit scoring models won’t hold it against you.

Another type of soft inquiry is that made when companies check your credit history in order to send you “pre-approved” offers. These types of inquiries are known as “involuntary,” since you didn’t ask to have your credit checked. So, even though a company might have viewed your credit history and/or score to determine whether or not to send you an offer, these inquiries will not negatively affect your credit score.

Hard Credit Inquiry

On the other hand is the hard credit inquiry. Sometimes these are called “voluntary.” “Hard pulls” result when you are applying for credit or some services. Credit card issuers, mortgage brokers, and other lenders institute a credit request at your behest, and this is reported on your credit history, showing that you are looking to obtain new credit. Many cell phone providers, cable/satellite TV providers and others will perform a hard credit inquiry when you apply for these services.

A hard inquiry can hurt your credit score. However, the harm done is usually relatively small. While credit scoring formulas are kept mostly secret, it is estimated that credit inquiries make up no more than 10% of your credit score. The most important factors are your payment history and the amount of debt you have. However, some lenders become concerned when they look at your credit report and see several attempts to obtain new credit in a six-month period of time. (Although most understand if you have a cluster of inquiries over a few days as a result of shopping around for a low mortgage rate.)

Reading Soft and Hard Inquiries on Your Credit Report

The credit bureaus don’t label credit inquiries as “hard” or “soft” on your credit report. Different language is used:

• Experian: “Requests viewed by others” represents a hard pull. Creditors can see these when evaluating you for creditworthiness. “Requests viewed only by you” represents the soft inquiry. These are credit inquiries that are available for your information (so you can see which companies are checking your credit without your request), but aren’t visible to creditors evaluating your credit application.
• TransUnion: “Regular inquiries” are those that are equivalent to hard inquiries. They will remain on your TransUnion report for two years. “Account review inquiries” are the soft pulls made by you or by companies interested in sending you marketing materials.
• Equifax: “Inquiries in the last 12 months” are hard pulls that were performed at your request. “Inquiries that do not display to companies and do not impact your credit score” offers a pretty straightforward explanation of a soft pull. Equifax also has one more designation, unique to the credit bureau.: “Companies that requested your credit file.” This is a list of companies that asked for your file, so you can see who is interested in you. This information is also available to creditors looking to evaluate you, although its impact on your credit score is unknown.

For the most part, if you are responsible with your money and credit decisions, and make payments on time, and avoid applying for a great deal of debt, credit inquiries are unlikely to have a large impact on your credit score.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

This is a guest post by Carrie Davis who is a personal finance blogger at SpendOnLife.com.

Some cases of identity theft are pretty minor. Maybe you notice a couple transactions you didn’t make on your credit card statement, and a quick call to your bank about the fraud resolves the issue. But other forms of identity theft can be a nightmare to recover from, and can wreck your credit score in the process. Here’s how it happens.

Personal identifying information gets into the wrong hands

In today’s world, there are so many ways for identity thieves to get hold of our personal identifying information. Each time we buy something online, fill out paperwork at a doctor’s office, or even throw a financial document away in the trash, we are risking our identities. Fraudsters can do all kinds of things with one or more pieces of identifying information, such as our name, date of birth, Social Security number, or PIN number. They can open bank accounts, apply for credit cards and other loans, sign up for cell phone service or another utility, rack up medical costs, or, worst of all, sell our info on the black market which multiplies the potential for damage.

How an ID thief can wreck your credit score

When someone else takes out a loan in your name, what’s their incentive to pay back the debt? That’s right, pretty much nil. They rack up debt in our names, and leave us holding the bag. In fact, you may not even know an identity thief is working against you until you get a notice from a collection agency saying you owe money. By that point, you can bet that your credit score has already taken a nosedive.

Your credit score is the key to appearing like an upstanding, responsible citizen in the eyes of a lender. Your score is based on the information found in your credit report. An identity thief’s actions can add negative activity to your credit report, which in turn lowers your credit score, limiting your ability to qualify for new loans. Many a horror story exists in which an identity thief made it impossible for the victim to get a new, desperately needed loan.

Here are four ways an identity thief’s actions can show up on your credit report and lower your score:

• New credit inquiries: Each time an ID thief applies for credit in your name, the lender is likely to check your credit report. These credit checks (also called “inquiries”) appear on your credit report and typically ding your credit score by a few points.
• New loans or credit cards: New loans or credit card accounts taken out by an identity thief don’t necessarily hurt your credit by themselves. The problem starts when those accounts become delinquent because the ID thief isn’t paying the bill. Your credit score takes a hit each time a month of non-payment passes.
• Collections accounts: After a certain period of time (usually six months to a year), lenders turn unpaid debt over to a collection agency. When this happens, a collection account appears on your credit report, and that has a very damaging effect on your credit score. Medical identity theft often results in a collection account: Thieves use your information to receive medical services or treatment, and when those debts go unpaid, the medical provider sends the debt to a collection agency.
• Unpaid cell phones or utilities: When a thief opens a wireless plan or home utility using your personal information and doesn’t pay the bill, those providers are likely to report the default to the credit bureaus. This results in a negative account appearing on your credit report, which hurts your score.

What you should be doing

There are two very important things you should be doing to prevent and monitor for identity theft:

First, protect your identity as much as you can.

You don’t have to give every salesclerk or waitress the evil eye when you hand over your credit card to, but a healthy dose of caution can go a long way. Start by checking out these great tips for shopping safe online. Shield your PIN and Social Security number from lingering strangers. Shred your financial mail, and don’t leave bank statements, checks, or tax paperwork sitting in your mailbox. And don’t fall for phishing schemes! If someone calls or e-mails you asking for personal or account information, chances are they are trying to scam you.

Second, check your credit reports often.

Each major US credit bureau (Experian, Equifax, and TransUnion) maintains credit history for us. Under the Fair Credit Reporting Act, we are legally entitled to a credit report from each bureau once a year at absolutely no cost. Go to annualcreditreport.com, the government-run website, to get yours. Look for accounts and credit inquiries you don’t recognize as well as incorrect personal information. These could be signs of someone tampering with your credit.

If you don’t regularly check your credit, there’s no other way to know if someone is out there using your personal information to his advantage. If you do discover that you have fallen victim to fraud, you’ll need to file disputes with the credit bureaus, contact your bank(s) immediately, and possibly even file a police report. For more information on recovering from identity theft, download the free Identity Theft Recovery Guide from SpendOnLife.

This is a guest post by Carrie Davis who is a personal finance blogger at SpendOnLife.com, a site dedicated to giving readers true and accurate information about credit, debt, and identity theft. She is FCRA-certified and has a passion for educating others on how to achieve financial independence.

Jeff Rose is a registered represented and Securities offered through LPL Financial, Member FINRA/SIPC

photo credit: me and the sysop

Q: My dad always preached about keeping a high credit score.  Could you explain what criteria are used to calculate credit scores so I can know what I need to do to keep mine high?

A: Five factors are used.  The two that are weighted heaviest are your payment history (35%) and outstanding debt (30%). If you make prompt  payments and keep your credit card balances down, you have control of 65% of your score.

Three Remaining Factors

The remaining factors are length of time you have had credit (15%), the numbers of inquiries on your report (10%) and the types of credit you have (10%).I don’t disagree that a good credit score is important, but I want to caution you about falling in love with it.  Why?  Because four of the five factors used to create the score require that you go into debt and stay in debt.

The Goal of Your Credit Score

Your goal, on the other hand, should be to get out of debt and stay out of debt.  A few years ago my wife and I decided that we were no longer going to live in the debt rat race.  We rid ourselves of car debt by selling an expensive car and purchasing (with cash) a less expensive car.  We knocked off all consumer debt and eventually paid off our house.

Is my credit score trashed?

Not really, but because we don’t borrow money and don’t own credit cards, our payment history is becoming outdated and in time my score will start dropping.   And do you know what?  We don’t care!  The purpose of a credit score is to let lenders know if you are a good risk to borrow money, so, for us, it is irrelevant.  Would I trade being debt free for more debt so I could have a good credit score?  NEVER!  I hope you wouldn’t either.

Need a Free Credit Score?

Knowing is half the battle.  Be sure to get a free Fico credit score to see where your credit stands.