Spending Smart: Trends that could affect credit score, wallet
05/04/2014 12:00 AM
05/02/2014 7:08 PM
In the bustle of everyday life, it can be difficult to keep abreast of all the trends and issues that affect consumers – paying off credit cards, outlet shopping, banking, dealing with debt collectors and switching insurers, for example.
Here is a roundup of six recent issues and trends that could affect your wallet.• Another reason to pay off credit cards: Among the fundamentals of prudent money management is avoiding monthly finance charges on credit cards. But soon, carrying a balance might also hurt your credit scores.
Traditionally, credit scoring included a snapshot in time of your credit card balances but didn’t consider whether you paid them off monthly. But now, so-called “time series payment data” are a part of all of your credit reports, upon which scores are based.
Scores are important because they can determine whether you are approved for a loan and the interest rate you pay. And credit histories have been used for other purposes, such as setting auto insurance premiums.
With payment history data, lenders can see whether you’re a “transactor,” who uses cards for payment convenience, or a “revolver,” who carries a balance.
“It doesn’t take a rocket scientist to figure out this data will eventually influence our credit scores,” said CreditSesame.com credit expert John Ulzheimer. So far, though, credit bureaus and score developers have not said they will include the new data in scores, he said.
“This will eventually translate into credit score penalties for those who are not paying their credit card balances in full each month.”• Outlet shopping warning: Frugal shoppers know they can sometimes score good deals on name-brand merchandise by shopping at outlets. But the Federal Trade Commission wants you to know exactly what you’re getting.
“Much of the merchandise sold at outlet stores is manufactured exclusively for them, and may be of lesser quality than the merchandise sold at non-outlet retail locations,” Colleen Tressler, a consumer education specialist for the FTC, wrote in a recent blog post.
The price may be lower for a reason. Plastic might replace leather trim on a jacket, or a T-shirt may have less stitching and a lighter-weight fabric, for example, she said.
Tressler recommends asking sales staff whether the item you’re considering is “made-for-outlet” or the real McCoy.• Banking trends: Several recent surveys show how consumers are changing their banking habits, which might mean they should consider switching institutions.
For example, 3 in 10 Americans haven’t visited a bank or credit union branch in at least six months, Bankrate.com notes. And nearly 38 percent of Americans never write personal checks anymore, according to the GOBankingRates.com personal finance website.
If you also have changed habits, maybe it’s time to reconsider whom you’re banking with, especially if you’re incurring monthly fees.
Credit unions and some online-only banks are known for low fees. For example, 72 percent of America’s 50 largest credit unions offer stand-alone free checking accounts, according to Bankrate. That’s nearly double the portion of large banks that offer it. And if you’re sticking with a large bank because of a robust ATM network, consider that 30 percent of credit unions either do not charge their members for using out-of-network ATMs or provide at least one free withdrawal per week, Bankrate says.• Debt-collection complaints: It’s no secret that debt collectors sometimes use overly aggressive tactics, some of which are illegal, according to the federal Fair Debt Collection Practices Act.
But people who don’t owe debts are often also harassed, according to the Consumer Financial Protection Bureau and its examination of more than 30,000 consumer complaints. It was by far the top debt-collection beef to the agency, accounting for 34 percent of complaints. About two-thirds of consumers submitting those complaints said they never did owe the debt, while about one-fourth said the debt was already paid.
The bureau offers sample letters consumers can use to deal with debt collectors, one of which tells debt collectors to stop contacting you unless they can show evidence that you are responsible for the debt. Go to http://www.consumerfinance.gov/askcfpb/ and type “debt collector” in the search box.• Insurer loyalty: Consumer groups continue to object to a new practice auto and home insurers are using that essentially penalizes loyal customers. The practice, called “price optimization,” is a data-mining tool used by insurers to charge higher premiums to consumers least likely to shop for a new policy in the face of a rate increase.
“The tool is nothing less than an end-around (play to skirt) critical consumer protection rules that are needed to ensure fair pricing of insurance products,” said Bob Hunter, director of insurance for the Consumer Federation of America.
Raising prices is generally part of a free market, but auto insurance, in particular, is different because its purchase is not optional. States require drivers to buy it. That’s why laws in every state require insurance companies to use actuarial standards in setting rates, not such practices as price optimization, the consumer federation claims. Consumer groups noted that low-income customers, who have fewer market options because of geography, free time and financial literacy, tend to shop less than wealthier consumers. They are the ones most harmed by price optimization, the federation claims.
But Michael Barry, a spokesman for the Insurance Information Institute, said the price of auto insurance is based largely on the likelihood that a policyholder will file a claim and the cost of that claim. He said the arguments of critics assume that a policyholder can interact with only one insurer.
“Policyholders can, and do, switch auto insurers for any number of reasons. Saving money is one of them,” Barry said.
Consumers can protect themselves by following a simple rule: Regularly shop all your insurance needs. Prices can vary widely for the same coverage.
On average, customers saved $300 when switching insurers in the past 12 months, according to the J.D. Power 2014 U.S. Insurance Shopping Study. The longer customers had been with their previous insurer, the greater the savings when they switched, it found. Customers who were with their insurer for 11 years or longer before switching saved an average of $426 per year on premiums.• Airfare transparency: Traveler-advocacy groups are fuming at proposed legislation they say would help airlines hide the total cost of airfares.
The Business Travel Coalition calls it an “Orwellian-titled bill”: the Transparent Airfares Act of 2014. It would allow airlines to advertise the cost of a fare without taxes and fees, which critics say would undermine a 2012 rule by the Department of Transportation that requires airlines to prominently display total ticket prices.
But Airlines for America, an airline industry group, claims that the current rule for total fare advertising is unfair because it allows the government to hide how much it taxes airlines. On a typical $300 round-trip domestic ticket, customers pay $61 in federal taxes, or 20 percent of the ticket price, the group said.
Consumers should keep abreast of this to make smart airfare choices, and, potentially, to avoid sticker shock at the end of a tedious booking process.
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