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TUESDAY'S
TOUR AND TIP
Does One Late Payment Matter???
Mind those bills. All of them. A late payment on one account could
cost you higher rates and fees on all your accounts -- from your credit cards
to your auto insurance. More and more companies are peeking at credit reports
regularly to justify raising interest rates or increasing credit limits.
Some
of the biggest credit-card companies have started aggressively penalizing
customers who show signs of trouble anywhere in their credit reports. If a
company likes what it sees in a customer's credit report, a cardholder might be
rewarded with a thicker credit line. But one black mark from any creditor could
trigger a rate hike.
So
if you fall behind on your Sears bill, the interest rate on your Citibank
credit card could shoot up.
A justification for hiking rates
"Why
should that matter?" asks Howard Strong, author of "What Every Credit
Card User Needs to Know." "It doesn't harm them in any way. It's
ridiculous. It's just a way to knock up rates."
The
lenders say their concerns are justified.
"We're
looking at risk factors. If we see someone become delinquent with another
creditor, that may be an indicator that they are about to become delinquent
with us," says Maria Mendler, a spokeswoman for Citibank. "We may
need to adjust our credit decisions accordingly."
Credit
counselors say many people feel blindsided by the credit-card companies' rate
increases -- especially if they haven't been late with any payments.
"I'm
hearing about it more and more," says Hal Prather, a branch manager at
Consumer Credit Counseling Service in Norcross, Ga. "It's apparent to me
that most people don't read the inserts (that come with their statements). I
think most people learn about it the hard way."
Mike
Kidwell, vice president of the nonprofit debt crisis center Myvesta, adds,
"We get calls and e-mails all the time. 'I've never been late on this
card. Why is my rate going up?' Or 'I had trouble with one account and my rates
went up on another card.'
"You've
got to be aware of limits on credit cards. If other creditors are seeing
balances going up and all of a sudden you're late, you're considered a greater
risk. Not just with the one creditor that you paid late, but with all your
creditors."
The credit/auto connection
Does
having bad credit make you a bad driver? Some auto insurers think so. That's
why they're using credit data to help determine your insurance rates.
Ninety-two
of the 100 largest personal auto insurance companies in the country use credit
data in underwriting new business, according to a study by Conning & Co.,
an insurance research and asset management firm.
It's
not as wacky as it sounds. There does appear to be a connection between your
credit record and the likelihood of you filing an auto insurance claim.
Drivers
at the bottom of the credit heap file 40% more claims than drivers at the top
of the credit heap, according to a study by the Insurance Information
Institute.
Consequently,
having black marks on your credit report could really bump up your auto
insurance rates.
"A
consumer with bad credit is going to pay 20% to 50% more in auto insurance
premiums than a person who has good credit," says Clarence Smith,
assistant vice-president at Conning & Co.
Who's watching
Some
credit-card companies review customers' credit reports more often than others.
"Some
may do it monthly. Some may do it quarterly. Some may do it yearly," says
Martie Edmunds Zakas, corporate vice president of communications for Equifax,
one of the three major credit bureaus. "Some never do it."
All
Capital One card customers are subject to periodic credit checks.
"Of
course, we may look at rule-breakers more frequently," said Diana Don, a
spokeswoman for Capital One. "If people are constantly late or going over
the limit, we don't want to give them that much leverage to overextend
themselves."
Most
auto insurance companies use credit data when underwriting new customers. Far
fewer, just 14% of the nation's largest insurers, use credit data on contract
renewals. And some states don't allow this practice at all.
Just
how big an effect your credit record has on your auto insurance bill varies --
based on the state you live in and the insurance company you choose.
"Good
credit at one company may not be a good insurance score at another
company," Smith says. "That's why it's important to shop."
A
study by the Casualty Actuarial Society showed that people with prior driving
violations or accidents and good credit had much better loss ratios than people
with clean driving records and a bad credit history. An auto insurer prices
policies based on a customer's potential to file a future claim. Someone with a
flawed driving record and clean credit record could actually end up paying less
for auto insurance than someone with a spotless driving record and a spotty
credit record.
How to protect yourself
Here's
how to manage your accounts to reduce your chances of a late payment:
Adams
Fairfield Realty
Chrissy Neumann
"Making You Feel At
Home"
www.castlesbychrissy.com
404.925.5335
fax - 770.565.4477