What's In Your Wallet?!

What is a credit report? Should I check it regularly? Doesn't it cost $30? What information will I find?

These are all great questions. Most people go through life not keeping up with their on-line financial resume of sorts. A credit file disclosure, commonly known as a "credit report," can be used to determine your loan worthiness, set your loan interest rate, influence your employability, and affect tenancy. In short, the outcome of where you work and live can depend upon what's inside your credit file. Don't you want to be informed as to what it contains? What if the information is wrong. Over 50% are.

Three companies keep up with your credit file at the national level. They are Equifax, Experian, and Trans-Union. Just add dotcom to the end of any of these to visit their website. They each maintain their own version of your credit file, but often share information with each other.

A credit report tells what is inside your wallet. Every offer of credit you've accepted, including credit cards, shows up in your report. Remember that Sears card you signed up for at the register to save an extra 15% and then you cut up the card so you wouldn't use it? That shows up too. Every line of credit, whether revolving or an installment, whether with a bank or a rip-off finance company, whether open or closed is in your file. Each entry will stay in your file for seven years past the date of last activity. The only way to see seven years of inactivity is to a) pay off the account, and b) close the account in writing. Don't think your phone call made a difference. A chapter 7 bankruptcy will stay for 10 years.

A credit report tells how you've handled what's in your wallet. Have you paid on time? Have you been 30, 60, or 90+ days late. EVER? Do you have an account in collections? Do you have a credit limit that is max-ed out, or are you over the limit? Do you have a large limit and a small balance? You might look at that as responsible. A mortgage company will look at that as an accident waiting to happen after you move into the new house they provided. After all you won't be able to make their payment when you furnish your house on those low balance credit cards.

A credit report tells where your wallet has been. Have you taken a trip to the local courthouse? Did you file a B-K? Was there a judgement or a lien filed against you? Any public records obtained from local, state, and federal courts can show up here.

A credit report tells who's been inside your wallet. Anyone who has asked to see your credit file shows up in the inquiry section. This might be your bank or mortgage company. Or it might be a rip-off credit card company like Chase, Capital One, or Citibank preying on the consumer and wanting to market their product of debt to you. (You can get rid of unauthorized pre-screened offers by writing to the credit bureaus).

If there is anything inside your wallet that doesn't belong (inaccuracies), you can write the credit bureau of question to dispute the information. Under the Federal Fair Credit Reporting Act, they have 30 days to research and respond to your dispute or are required to remove it.

You want to check your credit report regularly (at least once per year). Don't take your eyes off your wallet. You wouldn't let someone else circulate a resume about you without reading what it says and checking it for truth. After all, the wrong information could cost you tenancy, a mortgage, or even that job you worked so hard to get.

You can obtain a free credit report once a year by going to Annual Credit Report website.

Thirteen-Twelfths Isn't Average, or What to Do About the Increasing Price of Natural Gas

An FPU alum emailed asking if a utility company's average price plan is a good buy. This is a great question especially in the wake of increasingly higher natural gas prices.

According to the Energy Information Administration, the average residential price of natural gas will be 43% greater this winter than last. Plus, average consumption is predicted to increase, making your gas bill surge almost 50% over this time last year.

Average price plan's are a great budget keeping tool, spreading out the cost of what you pay over a year into monthly installments that are exactly or nearly the same each month. What you need to watch for is the integrity of the company (is their plan a gimmick to gouge you the consumer) and the balance sheet (do they audit your account on an annual basis).

I'm sure many of you are home owners and are familiar with escrowing your taxes and hazard insurance. You pay the same escrow payment each month along with your P & I payment (principle and interest), and the mortgage company pockets your interest, reduces the principle of the loan, and escrows the balance. Once a year they pay your insurance premium and taxes, and do a yearly audit to make sure your escrow payment doesn't need to be adjusted. After all, they don't want to collect too much money and have a large cash balance in your account, and neither do they want to have a negative balance and float your payment for you. This stuff is highly regulated.

How would you like it if your mortgage company overcharged your escrow, gouged you with a premium for this service, then pocketed the overages as a cost of doing business. You wouldn't stand for that, and neither would the government. But this very thing is happening with an Oklahoma utility company, Oklahoma Gas & Electric (OG&E). And it isn't your escrow payment they are overcharging; it is your average bill plan.

In May of 2002, OG&E entered the world of online billing and rolled out an average pay plan called "Average Billing." There is nothing "average" about it!

A year later, in September 2003, I inquired of OG&E what my "Average Billing" payment would be. Their answer was $84.32. As an informed consumer I asked how the calculation was derived and was told it was an average of the past 12 months. Their own website offered:

"Average Billing...helps customers manage their budget because their electric bill payments are averaged over the last 12 months. Their monthly payment will vary slightly but won’t have the abrupt seasonal jumps."

Hmm. Sounds kind of suspicious. A monthly payment that isn't fixed, and no mention of an annual audit or balance adjustments.

Armed with the last 24 months of utility bills, I shot a quick calculation from September of 2002 to August of 2003. My calculator showed an average of $73.63, a difference of $10.68. So I asked what the discrepancy was and was told I probably just made an error. They obviously didn't know my love, enjoyment, and precision with math.

After two follow-up phone calls to prove my suspicions, I couldn't believe what I had found. OG&E had a scam going that was ripping off poor people and those too stupid to do math: in order to arrive at THEIR calculation, you needed to add in the most recent month twice before dividing by 12. I asked "Shouldn't you divide by 13?" "No!" I was told, "It is a weighted average."

You don't have to be a math genius to know that an average is the result obtained when adding together several quantities, and then dividing by the number of quantities. There is no mathematical provision for an average that allows you to include a greater number of numerands (the numbers being added at the top of the fraction), than the resultant dividend (the number you are dividing by). This rip-off plan costs you an additional one month's payment per year (an extra one/twelfth per month). Sounds like an average plan until you do the math. Thirteen-twelfths isn't average!

What OG&E calls "Average Billing" I call "fraud" and "oppressing the poor." The Bible speaks clearly about oppression, especially the powerful who prey on the weak. Jeremiah was an Old Testament prophet who proclaimed judgement against an evil King of Judah:

"But your eyes and your heart are set only on dishonest gain, on shedding innocent blood and on oppression and extortion. Therefore, this is what the LORD says about Jehoiakim son of Josiah king of Judah...He will have the burial of a donkey--dragged away and thrown outside the gates of Jerusalem." (Jer. 22:17-19, NIV)

In contrast, his father Josiah was a godly King of whom it was written: "'He defended the cause of the poor and needy, and so all went well. Is that not what it means to know me?' declares the Lord." (Jer. 22:16, NIV)

I realize OG&E's billing practices may have changed in the past two years, but integrity doesn't change. Either you have it or you don't. And OG&E doesn't have it. One day they'll have the burial of a donkey.

Fortunately, my electric service is all I have with OG&E. My natural gas comes from another provider, Oklahoma Natural Gas (ONG).

As much as I detest OG&E's "Average Billing," I think ONG's "Budget Payment Plan" is an honest deal. They average your last 12 bills when you sign up and that becomes your monthly payment. It is not a "weighted average" and there is no gimmick or premium.

In addition they keep a balance of your payment (the monthly average) versus usage, and make annual adjustments (kind of like your escrow payment changing annually). According to the ONG website:

"The Budget Payment Plan eliminates the ups and downs of monthly natural gas bills that can fluctuate with the typically seasonal nature of the usage of our product. Using your past consumption history, your total annual cost of natural gas service is divided into 12 equal payments averaging the amount you pay each month.... Once each year, we review your account comparing actual usage to the previous pattern, and make any necessary adjustments plus or minus." (emphasis mine).

Several things strike me about this plan. First did you catch the word "equal?" That stands in contrast to OG&E's "payment will vary slightly." Second, I like the word "review." It happens annually so I know there will be a reconciliation of my account. Finally, notice the phrase "plus or minus." Yes, that does mean that after a year if your average payment ended up being more than your usage, your payment will be adjusted--kind of like an escrow analysis. The first year my payment was $49. The second year it actually went down to $42. I'm locked in until summer. Don't you wish your gas payment was that low this winter?

In summary, budget payment plans can be a great buy if it truly is an average plan, not some kind of faux-average-scam-laden formula, and if the company does an annual audit to adjust your plan. It is a great way to ride out the volatility in the market and keep your budget on track.

What can you do if your utility company doesn't offer an average plan, or it isn't a respectable one? Simple. Just compute your own twelve month average, and escrow the difference between each bill and the monthly average. When you budget properly, every dollar has a name, even the dollars in your bank account. Just give the appropriate ones the name "Utility Bill." Otherwise, the ants will run off with it.

REDUCE unsolicitated emails, direct mail, and phone calls

DO NOT CALL REGISTRY
The Federal government created the national registry to make it easier and more efficient for you to stop getting telemarketing calls you don’t want. The Federal Trade Commission, the Federal Communications Commission, and the states are enforcing the National Do Not Call Registry. Placing your number on the registry will stop most, but not all, telemarketing calls. You can register online at http://www.donotcall.gov/ or call toll-free, 1-888-382-1222, from the number you wish to register. Registration is free.

THE CREDIT BUREAUS
There are three national credit bureaus: Experian, Equifax and Trans Union. These credit bureaus share your personal information with Telemarketers, insurance companies and financial services companies. You can opt out with these companies by calling 1-888-567-8688 or going to https://www.optoutprescreen.com/. Registration is free.

DIRECT MARKETING ASSOCIATION
The Direct Marketing Association (The DMA), established in 1917, is the oldest and largest national trade association serving the direct and interactive marketing field. Mail Preference Service (MPS) is designed to assist those consumers in decreasing the amount of national nonprofit or commercial mail they receive at home. The Telephone Preference Service (TPS), a do-not-call service, is a service to assist those consumers in decreasing the number of national commercial calls received at home. The e-Mail Preference Service (e-MPS) allows consumers to indicate that they wish to reduce the amount of unsolicited commercial e-mail they receive. You can register online for all 3 services at http://www.dmaconsumers.org/. MPS and TPS are $5 (e-MPS is free) if you register online, or you can write to be removed for free to:

Mail Preference Service (MPS)
Direct Marketing Association
PO Box 643
Carmel, NY 10512

Telephone Preference Service (TPS)
Direct Marketing Association
PO Box 1559
Carmel, NY 10512

Never Waste a Tree

Tired of offers for credit? Gary More was, and since he didn't read my blog entry on how to get rid of those pesky offers, he did the next best thing. He wrote "Never Waste a Tree" and sent one particular offer back in.

To his surprise, Chase Bank issued a card and sent it back to him. The name on the card? "Never Waste Tree."

Does this story sound too weird to be true? Not really. Credit card companies have long since moved from the realm of responsible to outrageous. They now target what was described by one company as an untapped marketing pool--high school students. These companies brand their logo on kids' play toys. In fact, a former coworker has a daughter who received an offer for credit at the age of six. It is not uncommon for dead people and pets to receive credit offers all the time.

Are you surprised that Chase Bank would issue a card such as "Never Waste Tree?" You shouldn't be. Credit card companies have much less to lose with new federal bankruptcy laws. It is now harder for the consumer to file chapter 7 bankruptcy and creditors are given greater recourse for collection.

I wouldn't want to take the credit industry on. Banking and credit card companies have one of the most powerful and well-funded lobbies on Capitol Hill. A recent episode of ABC's Boston Legal made credit card companies out to be the new "big tobacco". Debt is the new number-one-most aggressively and expensively marketed product on the planet.

I applaud Gary More for his conviction, but ultimately he probably just wasted his time. Maybe the issuing phrase should have been "Never Waste My Time" instead?!