How to Deal With a Credit Freeze

By Robert L. Cain, written for Zip Reports, applicant screening for rentals and employers. Visit their website.

Most landlords and many employers check applicants’ credit before they rent to or hire them.  Making it more difficult, however, according to the Identity Theft Center, is that since January 1, 2005 there have been 7,954 security breaches with 1,054,627,432 (that’s right, over 1 billion) personal records hacked, including the 145.5 million from Equifax.  The result is that some people have frozen their credit reports so that landlords, employers, or anyone else for that matter, can’t check credit until the freeze is removed.

That can make qualifying an applicant more difficult, or at least delay qualifying.  Let’s look at why and how to work with a frozen credit report.

Once credit is frozen, which can take up to five days once the request is made, credit reports are inaccessible except to the person whose credit is frozen.  Each of the three major credit reporting agencies allow applying for a credit freeze online though the person requesting the freeze must do it for separately for each agency at a cost of $10 each except for victims of identity theft and people over 65, except from Equifax which has offered a free credit freeze because of their recent hacking.

Even with the freeze, which is in place until removed by the frozen consumer, a credit freeze can be removed temporarily for periods of seven, 15, or 30 days by default, but also for just that day or one organization.  Equifax  says that the credit report can be released within minutes.  That’s what they claim.  Whether that is accurate is another question as we’ll see below. The same procedure has to be repeated for each agency.  However, if the applicant can learn which agency the landlord or employer is using, he or she can unfreeze credit for just that agency.

Even so, for an applicant to ensure that his or her credit report is thawed, it is best to allow three to five days says Equifax even though they say another place on their website that a freeze can be lifted in a “matter of minutes.”

The lesson here is that anyone who may need a credit report available ought to unfreeze his or her credit several days before heading out to rent an apartment or apply for a job.  Do applicants always do that?  Of course not, and that presents a challenge for someone who needs a credit report to qualify an applicant.

Applicants also have the opportunity for pulling their own credit reports and taking those with them when applying to rent or for a job.  The thing landlords and employers need to be concerned about is a dummied up credit report.  After all, once the person in question has an actual credit report, anyone with even moderate skill with a word processing program can create something that looks exactly like a stellar credit report, just phony.

Another ploy landlords and employers may encounter is the applicant claiming his or her credit is frozen so can’t be checked.  As discussed above, that simply is not true, and that person might be trying to hide an unacceptable credit report.  If an applicant claims that, the landlord or employer has the option either educating the applicant or rejecting him or her out of hand for lying.  In defense of the frozen consumer, it is possible that he or she didn’t read the entire explanation on the credit reporting companies’ websites and doesn’t realize that credit can be thawed temporarily.  However, someone who took the trouble and learned how to freeze credit most likely would be more knowledgeable than the average person about the entire procedure. Freezing credit is a relatively involved process requiring, even when applying online, coming up with documents and identification that may not be readily available such as a copy of a valid id, proof of address (e.g. copy of utility bill).. Identity theft victims in order to get the free freeze need to provide even more proof of the theft, such as a copy of a police report, identity theft report, or DMV report

A credit freeze protects against someone opening a new account in the identity theft consumer’s name, but it does not protect against a crook using an existing account to run up credit charges.  In order to do that, a consumer needs to create a fraud alert.  That will or may be effective in stopping a crook from running up charges on an account.  When a credit report is ordered or someone uses an existing account, say a credit card, the reporting agency will verify, probably by phone, that the consumer is the one making the application.  A fraud alert doesn’t delay getting a credit report on an applicant like a credit freeze does.

It is essential to check credit for rentals and often important for hiring, and a credit freeze can throw a wrench into the process.  You may have to allow extra time so you can verify everything on a credit report, though the delay doesn’t stop the process. It is important to warn an applicant who has a frozen report that it may require more than three days to get a credit report and then more time to verify the information on it, after the applicant has requested the thaw.

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The Medical Debt Crisis

By Robert L. Cain, written for Zip Reports, employment and tenant screening company.  Visit their website.

Elsie was covered by an employer-sponsored health plan with a $1,000 deductible per person.  Then she had a baby.  At birth, her son acquired additional $1,000 deductible.  That meant, both Elsie and her son were liable for additional cost-sharing expenses up to an annual Out-of-Pocket (OOP) limit,  Those cost-sharing charges could vary depending on the type of service.  For example, an emergency room visit could be as much as $150, not to mention the add-on costs of the doctors who treated her and her son, but also the medicines and supplies needed for treatment.

Things got worse for Elsie (and her son).  Within a year after giving birth,  Elsie needed surgery and her son needed hospitalization twice before he turned three. The cost-sharing bills totaled $20,000 for mother and son.

Then there are what are known as surprise charges.

Elsie’s husband Richard had separate insurance through his employer whose insurance didn’t cover outpatient charges.  So even though Richard’s OOP maximum was $3,000, when Richard got injured in a car accident (not on the job), he had to pay $45 for every three-times-a-week physical therapy treatment, adding up to almost $500 a month or $6,000 per year.  Surprise charges.The sky had fallen on Elsie and Richard who now were in a position of trying to cope with huge medical bills, as it has also fallen on millions of other Americans. Of course, Elsie and Richard were unable to pay their bills and they were turned over to collections. (Elsie and Richard are examples, but both are actual cases, even though they are not husband and wife.)

Surprise charges also come from out-of-network (OON) providers.  Those can be any contract employee of a hospital who is not a member of the insurer’s provider network.  For example, someone goes to the emergency room with a laceration that needs stitches.  The emergency room doctor works as a contractor for the hospital, and the hospital doesn’t pay him.  The patient does.  If that doctor is OON, the doctor will send a bill to the patient because the insurance company won’t pay that OON doctor. Patients often don’t even know that the doctor repairing the wound doesn’t have a deal with the insurance company, and of course, never think to ask.  After all, that doctor is working at the hospital.

Another surprise charge, it may not even a doctor but some other service.  Kaiser Family Foundation gives the example of George.  After surgery, he was too frail to go home, so his doctor recommended an inpatient rehabilitation unit of the hospital.  Trouble was, though physically attached to the hospital, that unit wasn’t part of the hospital but was independently owned and operated by a separate company, and that company wasn’t part of the plan network.  That bill ended up $23,000, all on George.

Some 43 million people in the US are in Elsie’s, Richard’s and George’s shoes, about one person in five who have credit reports, writes Liz Weston in her September 4, 2017 column.  What’s worse is that under 8 percent of the collections are paid.

The total amount of medical debt can’t be calculated because not all of it shows up as medical debt.  The Kaiser Family Foundation reports in “Medical Debt Among People with Health Insurance”:  “The total dollar amount of medical debt held in the U.S. is difficult to measure. Medical debt may be masked as other forms of debt, for example, when someone uses a credit card to pay a doctor bill.  The amount reflected on a credit report will indicate credit-card debt.”  A person may also skip a mortgage payment, or more than one, to pay a medical debt.

It’s even worse for the uninsured.  The Kaiser Family Foundation reports that “Among non-elderly patients, nearly half (45%) of the uninsured report problems paying medical bills.”

Medical providers, doctors, hospitals, and such, can turn an account over to a collection agency just one day after it is overdue.  They often don’t, but they can.  Common practice is that the collection agency will not report the debt until it is 180 days in default, so it doesn’t show up as a collection until then.  Even so, it shows as a past-due balance on a credit report.

The folks with medical bills in collection may also have difficulty getting more medical care.  Providers may refuse to treat patients who can’t pay their bills.  The Kaiser Family Foundation used the example of Kieran.  “One hospital to which she owed money refused to pre-register his wife for a hospitalization until overdue bills were paid.”  Others want to avoid further medical bills so they forgo care, even continuing care.

But that’s only part of the story.  Even if someone is making regular payments on a medical bill, the creditor may still turn the debt over to collections even without notifying the debtor.  Some people may be surprised by the call or letter from the collection agency about a bill they didn’t even know they had.  It could be a bill that was sent to the wrong address or even not sent at all before the bill was turned over to collections.

It only gets worse.  Some 62 percent of bankruptcies are because of medical debt reported nerdwallet.com in 2013..  That results in many of the debts being discharged completely with a Chapter 7 bankruptcy or placed in a payment plan in a Chapter 13 bankruptcy.

But the effect on the economic lives of the people who fall victim to medical debt is enormous.  A credit score can fall more than 100 points, say, for someone with a pre-collection 780 FICO score.  That means he or she will have difficulty renting an apartment, will pay a higher interest rate for a car loan, and may not be hired for a job. Then there is job loss.  Sometimes people lose their jobs because of their health problems or have to quit their jobs to care for an injured or ill family member.

Some people lose their homes because they stop making mortgage payments to make their payments on the medical debt.  Some people stop making car payments and have their cars repossessed.  Others have their electricity shut off. And it may be all for naught because they end up filing bankruptcy anyway.

It’s a terrible thing when medical financial problems plague people, and something that needs fixing.  But there is little or nothing we can do personally except write to our Senators and Congresspeople.

We have to empathize with them, but they are in financial trouble and our businesses depend on  consistent income.  Empathy and business go only so far.  If someone can’t pay the rent or has wages garnished, that is our concern and something we can and must do something about.

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Three Ways They Can Steal Your Credit Card Information

By Robert L. Cain, written for Zip Reports Employee and Tenant Screening Service.  Visit their website.

They are out to get you.  Well, maybe not you personally, just your credit card information. If they get you, that’s only because something you did made it possible for them to get all that information.  What you did was most likely totally innocent and something that people do regularly, but this time those creative crooks found a way to hack your credit cards.

We’ll look at three ways, restaurants, RFID readers, and juice jacking, where bad guys can obtain your credit card information and can use it to run up bills for you.

Restaurants and Drive-Thrus

My wife and I often eat at Chili’s, not necessarily for great food and service, but because it’s close to our house and we can’t think of anywhere else we want to go.  One thing about Chili’s, though, is that you can pay your bill at the table with a table card processor.  All you have to do is push a button and your bill comes up, then slide your card; the machine spits out a receipt (well, if you’re lucky; usually it is out of paper or the receipt printer is jammed).

We ate lunch at BJ’s Restaurant and Brewhouse a few weeks ago, and when we paid the bill, the waiter processed our card with a hand-held reader while he stood at the table.  The only other time I experienced that was at Heathrow Airport in London where the waiter did the same thing.  Usually, when you get the bill, the waiter takes it away into the inner sanctum of the restaurant to run in the credit card machine. There’s where the danger lies.

He or she has access to all the information on the card including the three-digit security code on the back.  Those who are particularly tech adept can even clone your card with a card-making  machine, all while you are waiting to sign for your meal.

A similar danger is at drive-thrus at fast food restaurants.  If you hand your card to the clerk at the first window (the one where you pay), and if he or she has the proper equipment as is intent on criminal behavior, the clerk can create a clone of your card.  For example, a Pennsylvania woman working at a Dunkin’ Donuts drive-thru was arrested in 2015 for using information on customers’ cards to create duplicate cards.

In case you’re concerned, those mobile credit card processors are about as secure as security can make them as they are 128-bit encrypted and tokenized.  It would take a super computer over 1,000 years to break 128-bit encryption, longer than bad guys want to deal with.  Tokenization is a substitute data element where your card data is never stored intact anywhere, making it nearly impossible for hackers to reassemble it through decryption or reverse engineering. It enables a sender/receiver to communicate back and forth without displaying any sensitive data.  No, I don’t understand exactly how that works, but it does and is one more layer of security.

There are a couple of ways to avoid being victimized in restaurants where your card disappears into the back room.  The obvious one is to pay cash.  Another is like closing the barn door after the horse is out by looking for unauthorized charges on your card.

RFID

You can spot an RFID-enabled card by the four curved lines that represent a signal emission.  They can be read by a card reader up to six inches away.  In fact, it doesn’t even have to come out of a wallet or purse; the card reader can read them as someone stands at the checkout in a store.  Smartphone apps also enable contactless payments where they are set up in stores. Trouble is, a crook with an RFID reader that he or she can buy on Amazon for as little as $8 can also read the card financial information.

I watched a You Tube video of a man who sat in a shopping center with a remote card reader attached to a laptop and captured data as people walked by.  No, he didn’t do anything illegal with it, but showed the people whose cards he had hacked.  He later read his own card and created a credit card on a hotel key card and used it to buy coffee at Starbucks.

The simplest way to avoid that problem is simply wrapping aluminum foil around the card in your wallet or purse.  That stops the signal from the RFID chip.

Juice Jacking

Your smartphone is about out of charge and, of course, you left your charger at home.  It will go dead in just a few minutes, but all is not lost.  There in front of you is a public charger.  Not so fast.  That charger could steal all the information on your phone.

Here’s how it works.  Smartphones all have a common feature to charge, the USB connection.  Look at the charger on your phone and you will see that although there may be an AC plug, there’s also a USB plug plugged into that.  That USB connection is what enables you to transfer or synchronize information from your phone to a PC or somewhere else that permits it over the same cord that charges it.

Even though it isn’t a common trick for bad guys—yet—it’s a real danger when it is in place in a public charger.  The hacker installs a device that captures the data off a smartphone as it is plugged into the public charger.  Many people keep their entire lives on their phones including credit card numbers and contactless pay apps, that operate like RFID, where you can pay for an item or items simply by waving your phone in the vicinity of the payment processor.

The nefarious device can suck the data out of a phone in as little as a minute when it is plugged into a public charger assuming the malicious device is attached.

The first public explanation of this hack came at a 2011 DEF CON security conference in Las Vegas where three hackers using inexpensive equipment created a juice jacker to demonstrate how vulnerable people would be when they plug their phones into public chargers.

How worried should you be?  Probably not too.  The chances of a public charger hacking your phone are slim, because this particular crooked behavior hasn’t caught on—yet..  Still, there’s no reason to take a chance.

If you do have to plug into a public charging station, turn your phone off or sign off so it requires your password to access your data.  Carrying an extra battery doesn’t hurt either.  Safest of all is never having to charge your phone in public at all, of course.  That means keeping it topped off.  Also, if you can, carry a charger with you that you can plug into an electric socket.

The bad guys are always out to get you and looking for new and more creative ways to steal important information and data.  Restaurants, RFID chips, and juice jacking are three ways they steal credit card information.  Just so you are forewarned.

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A Lie, the Truth, or a Dream?

By Robert L. Cain, written for Zip Reports.  Visit their website.

A clerk at Home Depot offered us a Home Depot credit card.  We told her that we have credit cards we never even use so don’t need another one.  She said they made her offer them to everyone, but then told us that it had taken her and her husband five years to climb out of the credit card debt hole they had dug for themselves.  That’s the truth and something that would make her a likely candidate for taking on as an employee or tenant.

Many people have dug themselves holes they can only dream of climbing out of. They approach us to hire them or rent to them. We have to decide if the story they tell us about their less-than-stellar credit history is a lie, the truth, or a dream.  Obviously the woman at Home Depot was the truth.  But how about these?

“I’ve learned my lesson.” “I’m still learning.” “I just need another chance to prove myself.” Dreams or lies? Certainly not demonstrable truth.

The cogent point is that we and our businesses are not there to “help them out” or “give them another chance.”  We owe it to our customers and/or tenants to ensure that the people we hire or rent can show us they are at least somewhat responsible financially.  So how do we determine the difference between a lie, the truth, and a dream?  We’ll look at some ways to sort that out shortly.

The credit situation always affects hiring and renting but maybe more so of late. The biggest issue, of course, is student loan debt.  It amounts to $1.34 trillion, more than either credit card or auto loan debt.  Credit card debt is “only” $764 billion and auto loan debt “only” $1.17 trillion with millions of people in trouble with one or more kinds of these debts.

Plus, there’s no bankruptcy escape from student loan debt, so those people with student loans who default are more likely to see their wages garnished than are those with other debts.  Time magazine reports that someone defaults, goes 270 days past due, on a student loan every 29 seconds, that’s 2,929 people a day, 1,087,448 people a year. Even so, an auto loan in default can mean a car getting repossessed and a credit card debt default can mean bankruptcy or wage garnishment assuming the debtor has filed a bankruptcy in the past seven years and still managed to get another credit card.

None of those options is a plus to an employer or rental owner.  Still, the people with suffocating student loans, choking credit card bills, and flesh-eating auto loans need to get jobs and find places to live.  Can we believe their stories? They always have one, and some are so practiced and seemingly true that they may convince us.  After all, they have been rejected so many times that they have their story down to an art.

The clerk at Home Depot was telling the truth.  She had solid evidence of a change in her family’s desire to escape crippling debt.  Others not so much.

When, as the final step in the qualification process we pull a credit report and discover that this person has credit that wouldn’t allow him or her to buy a painted rock, we need to hear decide about the entire story ?  It may be a good story, and I’m sure you’ve heard most of them.  They’ve “learned their lesson.”  Have they?  What evidence do you have that their lesson is learned? Has that lesson resulted in action to correct their mistakes? It is not up to us to take their word for it; it is up to them to prove it.

How do they prove it?  One way is a demonstrated improvement in their credit situation.  For example, if they had $50,000 in debt and now they’re down to $40,000, obviously something happened to get their debt load reduced.  What was that?  Was it something that shows they are doing something positive to bring down their debt? It is up to them to tell us, not up to us to assume that they are getting a clue.

For example, if they had gone to a financial planner, worked out a way to climb out and are actually using the plan, that is the truth.  But shouldas and couldas don’t get it.  “I should have been more careful, but now I’m going to start paying off my bills” is not a response that encourages confidence.  Chances are, they will fall right back down to the bottom of the hole they dug for themselves, pick up the shovel that’s still stuck in the dirt at the bottom just waiting for them, and dig some more.  Sure, they’ve “learned their lesson” but learning a lesson and actually putting something into place to correct the errors of their ways are two different things.  Still they want you to give them a chance to prove themselves.  Prove it first, then come back and talk to me. What they have said is either a lie or a dream.

“What’s your plan for success?”  “How’s that working?”  “What progress have you shown?”  “Convince me I should believe that you are going to get yourself in a better situation.”

We need to worry when a credit report shows crippling debt not just staying the same but increasing.  We need to worry when we see current 60-, 90-, and 120-late payments on a credit report.  Planning to do something about it doesn’t bring down the bills.  Actually doing something may.

When we need to worry less is when we see 60-, 90-, and 120-day late payments over a year old but are current now, when we see debt balances decreasing, when we hear their plan for climbing out that is actually in place and working, when we hear their dream of being debt free is not just a dream but a process in place.  Until then, there’s no reason to believe they have learned their lesson or deserve another chance to prove themselves.  Let them prove themselves first.

We see applicants who have debt problems and some of them will be excellent candidates for employment or renting, but they are the ones who are in the process of correcting those  problems.  The people who dream about being out of debt, who know they have a problem but aren’t doing anything about it, who haven’t got a ladder so they can climb out of their debt hole are poor risks.  The proof is in a working plan. Make them show the proof.

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Screening in Both Tough and Good Times

By Robert L. Cain.  Written for Zip Reports.  Visit their website.

With the unemployment rate hovering around “no qualified employees” available, it is becoming more and more of a challenge to pick and choose the person who can do the job you want done.  Rental owners and managers have the opposite “problem,”  too many applicants.  Even so, the solution is the same.  We’ll look at that in a minute.

Yes, there are people out of work who don’t qualify as unemployed, but the labor department doesn’t count them.  Those are the people who are either “discouraged,” that is, given up looking for work as a bad idea or who are working in place-holder, temporary, or part-time jobs.  The Bureau of Labor describes “discouraged” as those who did not actively look for work in the preceding “four weeks for reasons such as thinks no work available, could not find work, lacks schooling or training, employer thinks too young or old, and other types of discrimination.”

They amount to some 8.4 percent of the population, including those who are considered by the Labor Department to be “unemployed.”

That group could be among those who apply for an available job.  Not the ideal situation.

However, a more telling statistic is that only 78.4 percent of the 25-54 year olds are in the labor force leaving 22.6 percent, or more than one in five, outside looking in.

Rental owners, on the other hand, in most parts of the country, have the opposite situation.  The national vacancy rate sits at about 7 percent, with some cities in the country at under 4 percent and Portland and Los Angeles at under 3 percent.  That means there are almost no vacancies and those that pop up are immediately swamped with applicants.  There are areas of the country where vacancy rates exceed 10 percent, and in those areas, the solution we will discuss still applies.

There’s a fly in the ointment, though, or maybe another fly.  The wheels of the economy are wobbling.  They haven’t fallen off yet, but the signs are there that all is not well.

For example, of the 107 million auto loans, 6 million of them are at least 90 days past due.  The real fly in the ointment is the number of subprime auto loans in trouble, some 9.1 percent report Standard and Poors data.

Of the 44 million student loans, 40 percent of them, 17.6 million, are either in default or at least 90 days past due.  That’s the combined population of Ohio and Indiana.  Of that 44 million student loans, 11.3 percent are in default, meaning 270-plus days past due.  That’s 4.972 million people, more than the population of Alabama.

Then there’s the credit card debt.  Of the $746 billion that people owe, $4.077 billion is seriously delinquent, amounting to nearly 10 percent of the people who have credit card debt.

Finally, there’s mortgage debt.  The total mortgage debt is $12.78 trillion, and of that the Wall Street Journal reports 5.54 percent of that is delinquent.  That is the highest figure excluding the recession numbers since they started keeping track in the early 1990s and exceeds the first quarter 2008 numbers. Of course, mortgage debt isn’t an issue for rental owners and managers.

All those numbers mean factoring in this information in deciding whom to hire and rent to.

What’s do employers looking to hire need to do?  What about rental owners and managers who have the opposite problem from employers?  The answer is the same: describe your ideal employee or tenant.

Obviously employers still must take care in hiring so they get employees who can not only do the job but also have the potential to be employees they want to keep.  That means deciding the minimum acceptable applicant.  And write it down.  Make a checklist on which all the boxes have to be checked for an applicant to get so much as an interview. That can include education, job experience, ability to get along with others, drugs, and credit situation.  Keep in mind debt situations that could affect someone’s ability to do the job. People whose cars are about to be repossessed or who are about to be evicted or foreclosed on are too big a risk what with those people possibly ending up not being able to get to work.

Rental owners and managers will do best to follow the same pattern.  Who is the ideal tenant?  If the vacancy rate in your area is bouncing on zero, you have the luxury of picking and choosing— making the rental standards such that only the highly qualified need even apply.  You can be selective about time on the job, qualities as a tenant as described by references, and amount of debt, factors that might make paying the rent a challenge.  The most important thing to keep in mind is don’t budge from your requirements no matter how “persuasive” an applicant is.  You have to follow all your procedures, something that might take a couple of days, before you can say yes or no.  Of course, it’s first come, first checked.  But you know that.

Remember, standards that are too strict can be loosened, but those that are too loose are much harder to tighten.

Yes, employers and rental owners and managers face the opposite situations, but the solution is the same, set up the criteria of whom you will accept.  If you don’t know who is acceptable, how will you know when he or she shows up? Of course, employers may want to be a little more lenient as far as credit goes, but not so much that the door is wide open for anyone who can breathe and who may show up for work every so often and somewhat sober.

For rental owners and managers, it means your standards in low-vacancy and no-vacancy areas are so stringent that only the most qualified will bother to apply.

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Two Issues: Beware of Reduced Student Loan Payments; and How to Ensure Judgments Appear on Credit Reports

By Robert L. Cain, written for Zip Reports, visit their website.

Reduced Student Loan Payment Concern

Here’s something to watch out for on credit reports: student loan payments.  About 43 million people have student loan debt, with industry estimates at around $1.4 trillion nationwide. Of that 43 million, over five million participate in one reduced payment plan or another on their loans.

That has allowed the borrowers to have their monthly payments lowered because of their incomes and family sizes.  The reduced amount they pay appears on their credit reports.  That amount, of course, varies depending on their income and family size.  Mortgage lenders, until April 2017, ignored the payment that showed on a credit report and instead calculated one percent of the total loan amount as the payment.  Fannie Mae changed that, but the calculation is about what the monthly payment would be were it not for a reduced payment plan, the monthly payment that shows on the credit report.  That makes for more people able to qualify for a mortgage.  However, that’s not what we are concerned with here.

So, for example, if a student loan was $40,000, one percent of that is $400, the expected, non-reduced payment that Fannie Mae mortgage lenders used before April 2017.  Now if the borrower had gotten the reduced payment and it was now $100, good for him or her.  But there’s a concern for employers and rental owners and managers.  You see, the reduced loan payment must be “recertified” every year and any income and family size changes reported.

Different programs calculate the payment reductions differently, and the ways they do it is enough to make you scratch your head.  Regardless, the payment amount is recalculated every year when the borrower “recertifies” the payment reduction.  Go to studentaid.gov for their explanation of the process.

Our concern is that the payment we see when we check an applicant’s credit could change markedly when he or she “recertifies” at the end of the year.  Thus, if you rent to someone and rely on say $100 as the monthly payment, if your new tenant has a new job that pays three or four times what his or her old job paid, that monthly payment could skyrocket in just a few months, making it difficult to pay the rent, especially after your new tenant goes out and buys a new Cadillac Escalade with a $850 a month payment to celebrate the new job.

The other issue is if the borrower neglects to “recertify.”  The payment then reverts to its original amount, probably the one percent of the loan amount.

Likewise for an employer, the new employee could end up unable to keep up rent payments and the car payment when he or she loses the reduced federal student loan payment thus getting evicted or having the car repossessed making getting to work problematic.

Sometimes a credit report will show a $0 monthly payment on a student loan.  Why, I don’t know, but the loan is not paid off.  A payoff would show in a different place.  The borrower has a reduced payment that isn’t recorded accurately on the credit report and requires the same precaution that any other amount would.

Just be aware that reduced student loan payments aren’t permanent and could change annually. You are safer recalculating the same way mortgage lenders have done.

How to ensure a judgment gets on a credit report

As we discussed last month, beginning July 1 judgments will appear on credit reports only if they contain a minimum of a name, address, and Social Security number and/or date of birth so the debtor can be properly identified.  It is up to county court clerks to record the judgments, but if we get a judgment against a debtor, we have to be diligent in ensuring that all that information appears on the judgment.  If it doesn’t, that individual who stiffed you could get off scot free and never worry about satisfying the judgment because the judgment never appears on the credit report.  He or she could go merrily along running up new bills and not paying them, either.

One huge advantage of a judgment is that the person against whom the judgment is filed can’t buy anything on credit until at least the judgment is satisfied, assuming the judgment shows on his or her credit report.  That means you might get paid.  Likewise, your judgment could keep the deadbeat from getting another job or renting an apartment.

I spoke with Attorney Dean Shyshlak of  Portland, Oregon, who told me the reason Social Security Numbers and dates of  birth stopped appearing on court records is identity theft.  Judgments, and all court actions, are public record and anyone can look at them either by going to the courthouse or maybe even going online.  That means if a Social Security Number or date of birth shows up, a criminal can create an instant new identity to use or sell to someone.  Even so, most state laws require that both the Social Security Number and date of birth appear on all money judgments. It has become optional for other court records for judgments than money judgments to contain identifying numbers that could result in identity theft.  In fact, some court clerks may automatically leave off such numbers on all judgments they record, despite the fact they are required for money judgments. Why is anyone’s guess.

Here’s how to ensure your judgment gets picked up by the credit reporting agencies.  Make sure that the judgment information contains a Social Security and/or a date of birth, or at least the last four numbers of the Social Security Number.  If the person against whom you obtained the judgment wants those identifying numbers removed, he or she can request it, but removal would probably violate state law.

What happens if the identifying numbers are left off and you want to ensure that your judgment appears on that person’s credit report?  Call the court clerk or county clerk and complain.  Ask what you need to do to get the required numbers on the judgment.  If you don’t get satisfaction there, talk to supervisors, then keep working your way up the ladder, if need be.

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Judgment and Tax Lien Information Deleted from Credit Reports. How Does that Affect Credit Decisions?

By Robert L. Cain, Copyright 2017. Written for Zip Reports, visit their website

Tax lien and civil-judgment information may be missing from credit reports beginning July 1, 2017. The deletion comes on the heels of a deal that the three major credit-reporting agencies made with 31 state attorneys general in 2015.  That means that some judgments and tax liens normally on credit reports may disappear and some FICO scores may increase as a result.  But all judgments and tax liens may not disappear depending on specific conditions.

The question is, does it make any difference to businesses that check the credit of prospective employees and tenants?  As we’ll see, possibly not, and even if it does make a difference, there are still ways to look for judgments and tax liens.

The new requirements say that any judgment appearing on a credit report must contain a minimum of a name, address, and Social Security number and/or date of birth.  They also require that representatives of credit reporting agencies visit county courthouses at a minimum of every 90 days. The reason for the change is that some judgment reporting is simply inaccurate. LexisNexis estimates that 96 percent of information about tax liens and 50 percent about civil judgments can’t be verified, reports Penny Crossman in a March 30, 2017 article in American Banker.  “Some observers note that tax lien and civil judgment information is sometimes attached to the wrong consumer’s file due to a lack of identity information,” continues Crossman.  The key word here is “sometimes.” The advantage for employers and landlords is that all judgments and tax liens we see on a credit report after July 1 are those of the person whose credit report it is, so no more getting away with saying “that’s a mistake on my report.”

Civil judgment and tax lien reporting are an essential part of predicting credit risk, explains John Ulzheimer, credit reporting and credit scoring expert.  He says this move “dilutes” the value of a credit report.  Well, maybe.

By far the biggest beneficiaries of the change are those whose credit falls in the subprime category.  The net effect, besides the deleted judgment and tax lien information, is a possible bump in FICO scores.  Fair Isaac, the company that provides FICO scores, predicts that about 11 million consumers will see an increase of under than 20 points, with 0.35 percent seeing a bump of 40 points or more. But tax lien and judgments often correlate with other derogatory information such as collections and serious delinquencies because people with judgments and such usually have other credit issues, too, thus “diluting” the bump in FICO scores.

Do we even care about FICO scores when we look at a credit report?  Probably not so much.  That is only a secondary indicator. The result of removing much of the judgment and tax lien data from credit reports and the resulting increase in FICO scores is much like holding a match under a thermometer.  The temperature reading goes up, but it’s still 45 degrees outside.  The upshot will be that lenders will rely less and less on a FICO score and more and more on “alternative data” and “trended data.”

Alternative data is probably a better predictor of someone’s credit behavior than is a FICO score. Included in “alternative data” are

  1. public and institutional data such as educational history and professional licensing
  2. property asset and ownership data such as home ownership, deed and appraisal sourced residence valuation, and recreational licensing
  3. court sources of derogatory items such as foreclosures, evictions, and bankruptcies, and
  4. economic health such as address instability and cost of living economic trajectory [where their income is and has been headed] (Lexis Nexus)

Also included will be utility and phone bills, items that are not reported to credit agencies unless they are egregiously past due and/or turned over to collection.

“Most of these sources don’t report to the traditional credit bureaus and aren’t included in commercial credit bureau scores.” (Lexis Nexus, “Alternative Data and Fair Lending” Aug. 2013).  That, of course, may change.

Then there is  what is called “trended data.” It is a superior predictor of credit worthiness.  “Trended, historical, longitudinal or time-series data is an invaluable tool for gaining practical perspective into consumer behavior,” says Equifax in a 2014 report on trended data.  They advise “You can gain a deeper understanding of specific consumer behavior history, including:

  • Spending patterns
  • Credit utilization
  • Past balances
  • Payment history

As Equifax explains on its website, “two consumers can have the same credit score, but one consumer’s score could be moving up while another’s could be moving down. That give those who check credit the ability to use “trended data to assess a consumer’s credit behavior over time.”

Equifax goes on to say that a consumer’s past behavior can help predict future behavior.  That means when we analyze a credit report, we don’t just look at how many past-due bills he or she has but also what that person’s current spending and paying habits are.  It might take a while for a FICO score to catch up, but we can spot either danger or positive signals by looking at trended data.

Along comes Vantage Score.  Vantage Score, explains the Vantage Score website,  shunts aside the exclusion of  many judgments and tax liens so that “predictive performance loss is minimal due to the fact that each scorecard within the algorithm incorporates a combination of derogatory behavioral attributes.”  What that means in plain English is that they use trended data. In addition, explains credit.com, it “not only provides scores to general consumers but also helps 30 to 35 million adults who may not have a credit profile . . . whether because they’re new to the world of credit or don’t use credit frequently.”  Vantage Score currently gets about 10 percent of the credit-scoring business.

FICO scores are simply the thermometer, not a real predictor of credit worthiness, any more than the thermometer is a guaranteed accurate reporter of temperature since it can be affected by so many variables that can change its reading independent of the actual temperature.  And that thermometer analogy will become more appropriate as judgments and tax liens vanish from credit reports.  We want to know if there is a danger of bad debts lurking ready to bite someone who wants to rent from us or work for us and if our applicant pays bills at least close to on time.  Looking at past due balances, payment history, and imminent repossessions is far more telling than an artificially created number.  If necessary or desirable, judgment and tax lien information is still available from county courthouses, but by using other data reporting information, that may be unnecessary.  Judgment and tax lien information is not required to judge credit worthiness since we have other information that we can be assured is accurate.

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A Generation in Debt

By Robert L. Cain, Copyright 2017

Most, 54 percent, are concerned about paying their student loans. Only about 36 percent own a home, while almost one-third of them, 32 percent, owe more than their home is worth. One-quarter of those, 24 percent, have been late with mortgage payments. And more than one in three, 35 percent have unpaid medical bills.  Those are the millennials reports a study by the National Endowment for Financial Education.   The young, fresh faces who are entering the workforce and excitedly renting their first homes, come with crippling debt burdens

In spite of that, some 64 percent, almost two in three, give themselves a high mark for their financial knowledge.  They mostly have checking accounts, about 85 percent, but 29 percent of them say they overdraw occasionally. They have retirement accounts, too; about  36 percent have a self-directed IRA, but 17 percent of them took a loan on it in the previous 12 months and 14 percent took a hardship withdrawal.

My how times have changed. “Young adults are increasingly at risk of starting their adult careers buried under a mountain of debt with no hope of repayment,” reports Jason N. Houle, Dartmouth College professor of Sociology, in his paper “A Generation Indebted: Young Adult Debt across Three Cohorts.”  Houle adds, “newer cohorts of young adults face unique risks and circumstances in young adulthood that earlier born cohorts did not.” [my emphasis]  Houle continues, “From 1970 through the present day, the proportion of households with debt has increased, and median household debt has risen from $20,000 to over $67,000 in constant inflation adjusted 2010 dollars.”

Young adults are not so adult anymore, either.  “Early Baby Boomers, those 24-28 from 1976-1978, moved quickly from their parents’ home, completed their education, entered the labor market, got married, and had a child in quick succession (and typically in that order) by the time they were in their mid-twenties,” reports Houle.  Young adults today overall have not gotten to the point preceding generations did.  Many rely on parents to make ends meet and one in three still live with parents, and for the first time in 130 years more young adults live with parents than with a partner, a Pew Research poll found.

But a college degree isn’t the ticket to the better life it used to be. College degrees are commonplace anymore, and so graduates have a more difficult time finding full-time jobs that equate with their college degrees, so we have the barista with the BA. Moreover, college enrollment has increased but college graduation rates have not, meaning that more students drop out of college and are still saddled with student loan debt while lacking the wage advantage a college degree brings.  Now imagine those fresh-faced young folks who dropped out of college. Their incomes are about $16,000 a year less than are those of college graduates reports the US Census Bureau.

How has it gotten to this point?  The culture in this country has changed from one where we expected to pay cash and avoid debt to one where we are expected to buy now and figure out how to pay for it later.  The Baby Boom generation didn’t succumb to the degree the millennials have. Millennials were raised with the idea that debt was not only just fine but the way people are expected to live.

Then there are the helicopter parents. A Forbes magazine article July 7, 2015 by Jennifer Calonia explained, “These parents routinely hover over their children, micromanaging their lives for fear that their kids will bring harm and failure unto themselves with poor decisions. More millennials are experiencing helicopter parenting into their mid- to late-twenties, often leading to stunted financial stability and success.”  These are the same parents who delivered their kids to soccer practice and playdates in their minivans, and not only clucked over, but interfered with, every event in their children’s lives never allowing their kids to make their own mistakes and learn from them.  That has carried over into the time when their children should be acting like adults, but mom and dad are afraid to let them leave the house.

Another reason for this disconnect is credit cards.  Until 2009 with the passage of the Credit Card Act, credit card companies had free reign on college campuses. “For decades, they were everywhere on campuses across the United States, hawking T-shirts and free food to students in exchange for filled-out credit card applications,” wrote Connie Prater on creditcards.com in 2008. Until the Credit Card Act of 2009, credit card companies signed up college students and told them to charge away.  They must have figured mom and dad would pony up for the bills when their son or daughter couldn’t.  Those college students, now the new generation in the workplace, got in the habit of charging everything right down to packs of gum and their daily Starbucks fix.  This cavalier attitude toward debt is coming home to roost with millennials discovering that they may have “no hope of repayment.”

Wages have stagnated or even fallen, so households need to try to make up that shortfall with increased borrowing.   Consumption has also become more important even as income inequality increased. And the price of higher education has skyrocketed over the past several decades, which means young people who graduate with more debt have an increased likelihood of needing to borrow more money to finance consumption once they start working.  They differ from the more stable generations we are used to, the baby boomer and Generation Xers, but they are coming to work for us and renting from us. This is the new normal and what we must expect with millennials.

No part of this article may be reproduced in any form without the express written consent of the author.

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Debts in Collection: How They Can Affect Hiring and Renting

by Robert L. Cain, Copyright 2016, Written for Zip Reports. Visit their website.

Almost one-third of Americans got calls and/or letters from a collection agency in the past year about debts they hadn’t paid. Over half of those, 57 percent, were contacted about two to four debts. So reports the Consumer Finance Protection Bureau (CFPB) in its Consumer Experiences with Debt Collection report.  You don’t get a call from a collection agency unless you are severely delinquent with a bill, usually if you haven’t paid it for 180 days.  Creditors don’t have to wait that long, and some types of bills usually go sooner or later, but that’s the rule of thumb and a step closer to the creditor taking legal action, from which garnishments and attachments can result.

The CFPB report breaks down the collections in several ways, by income, ethnicity, type of debt (bills or loans), and number of errors in the bills under collection.  It is instructive in what we might look for when examining an applicant’s credit.

First, 68 percent of consumers were NOT contacted about a debt in the previous year, but of those who were, 27 percent were contacted about one debt, 57 percent about two to four debts, and 16 percent about five or more debts.

The people with a non-prime, not sub-prime, credit score, that is a FICO score between 640 and 720, were far more likely to be contacted than those with a prime score, 720 or higher. Two in three people, some 66 percent, with a non-prime score were contacted.  And over half, 53 percent of them, had two or more debts in collection.  Over all, people with a non-prime score amount to only 37 percent of the population but have two-thirds of the debts in collection.

By far the most prevalent collection debt for loans was that for a credit or charge card, some 44 percent, followed by student loan debt, 28 percent.  Auto purchase loans were 18 percent, mortgages 12 percent, and payday loans 11 percent.  Student loans have a little more forbearance and become delinquent after the borrower has failed to make a payment for 270 days. That is typically when a student loan gets turned over to a collection agency. (34 Code of Federal Regulations 685.102)

For bills, as opposed to loans, by far the most common was medical bills with 59 percent of the people whom collection agencies contacted owing those followed by telecom bills at 37 percent and utility bills at 28 percent.  Collection agencies also contacted them about taxes, legal judgments or expenses, and rent.  The federal reserve says medical bills amount to more than half of the accounts in collection.

Of particular interest to employers and landlords is the number of auto loans in collection.  Statistics.com reports that .95 percent of all car loans were in default last year but 4.61 percent of sub-prime car loans were, those customers with FICO scores below 640.  Cars can be repossessed after a borrower misses even on payment explains nolo.com, but the collection efforts may continue for the amount of the missed payments.  And depending on the terms of the loan or lease, a lender can even come after a defaulted borrower for the total amount of the contracted unpaid balance.  Thus if you see an auto loan in default, even after the car has been repossessed, your applicant could still get collection calls and notices, and even be sued for the total unpaid balance.  Just think, no car but still in the clutches of a debt collector.

As we might expect, income correlates with the likelihood of loans going to collection.  More than half, 52 percent, of those with incomes of less than $20,000 had debts in collection followed closely by those with incomes between $20,000 and $39,999 at 41 percent.  However, lower income does not correlate with medical bills as those are relatively consistent at around 60 percent across all income levels.

Also of interest is the number of people who said the debt the collector claimed they owed was incorrect.  Some 28 percent said they didn’t owe the debt, a mistake by the creditor.  Another third, 33 percent, said the amount owed was incorrect, and 16 percent said that the debt was that of a family member, not them.  What is important for employers and landlords is that we are in no position to judge the accuracy of a debt, nor are we in a position to offer advice about what a debtor should do.  Our main concern is if the debt, legitimate or not, will affect the work or ability to pay rent of the applicant.

Ideally we hire people and rent to people who are current on their bills.  But we don’t live in an ideal world.  If someone has debts either in collection or past due, we have to decide whether those debts might end up affecting someone’s ability to get to work and work effectively or to pay the rent on time.

Read the full CFPB report at files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf

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How do you screen for nice?

By Robert L. Cain, Copyright 2017, Cain Publications, Inc.
Originally written for Zip Reports, Visit them here.

When Gary hired Jennifer to work in his print shop some 15 years ago, he of course wanted someone who could keep the daily books, make sure jobs got out on time, issue receipts, make occasional copies, and do other things that the assistant in a print shop does.  But he wanted something more.  He wanted nice.  Sure all those basic skills were important but most important was that Jennifer represented his company.   Now 15 years later, Jennifer is still there doing all the things she did at the outset and in addition mostly managing the print shop while Gary does what he loves and why he started the business, printing.  And Jennifer is still nice, a pleasure to do business with.

Gary screened for nice.  Lots of people had the skills necessary for the job, but few of them met his more important criterion.  For many business owners and landlords, the most important thing is qualifications.  Sure, qualifications are vital to success, but qualities are what will make or break a company or tenancy.  Qualifications don’t build a company, but qualities do, at least the right ones.

Putting qualifications in second place might require a big change in the thinking of employers and rental owners.  After all, you want someone who can do the job or you want someone who will pay the rent and be a good neighbor.  But those are only part of the picture for employment or tenancy success.

Say you need a rocket scientist.  Of course the candidate you hire will know about trajectory calculations, thrust analysis, payload weights, be able to do advanced calculus, and most likely have several advanced degrees, but if he or she is a constant thorn in the side of fellow rocket scientists, support staff, and management, it will be one crisis after another, one employee squabble after another, one job vacancy after another.  Instead, someone whom people enjoy being around, not necessarily a good time Charlie or Jane, does wonders for a productive workplace.

You are hiring a warehouse worker.  Yes, you want someone who may have worked in a warehouse before and have education enough to read and do the basic math required, but if he or she is constantly bickering with fellow employees, it makes the workplace a black hole.  What you look for is, just like the rocket scientist, someone whom people enjoy being around, who is helpful and kind.

You are renting an apartment.  You want someone who is able to pay the rent, who has a history of doing so, and who has not been evicted.  There are lots and lots of them.  But if you get a not-so-nice tenant, he or she will constantly disturb neighbors and fight with other tenants. The other tenants will move out and you will have a revolving door of vacancies.

How can you create rental and employment criteria to screen for nice?  First start with the qualifications, just like you always have.  If a minimum skill level is required, then the applicants must meet that minimum.  Then comes the important part, the part that will affect the success of your business or the long-term prospects for tenants, how nice the applicant is.

You might start with the ad. I thought of this as a possibility:

“We are looking for nice people. We’re looking for people who can not only do the job but also are a pleasure to work with.  We’re not talking about a team player here but rather someone who prides him or herself on pleasant surroundings, a business where people get along and help each other.  Drive is great as long as it’s not at the expense of someone else.  We want people who realize that workplace success is a cooperative process.  We are looking for people who are assertive, who will speak up with their ideas and thoughts, but not people who are aggressive, who try to intimidate others.”

You may have worked in an organization where the politics and backbiting made it a horrible place to work.  I know I have.  You dreaded going to work every day, maybe still do.  Anything that gets done is done in spite of the politics and backbiting.  Companies with a culture like that rarely are as successful as companies that make themselves inviting workplaces.

You know the minimum requirements to do the job you have a vacancy for.  Those will be different with each job and each company.  But you also have a duty to protect your investment and that includes trying to ensure that employees are all working toward making your company successful.

What do you look for when you screen for nice?  One thing is length of time of the job.  Job hoppers often wear out their welcomes wherever they work.  It’s easy enough to check “qualifications” such as education and knowledge. But not so easy to check for nice. Sometimes a call to a previous employer will find what you want to know.  Sometimes not. Even so, the more you can find out from third-party screening, the better.

The job interview can tell you lots, too.  “How did you get along with your last boss?  How about the one before that?  How did you get along with your fellow employees?”  Now listen to the answer.  If you hear things such as they were all out to get him or her, that nobody listened to all the great ideas he or she had, that he or she was unappreciated, you might think about going on to the next applicant.

People who job hop or move often are often expert at conning an interviewer.  They know all the right things to say, and that’s why they get hired or rented to over and over.  The interview needs to cut through the pat answers and listen for the real reasons they left a job or moved.

It’s the Goldilocks effect.  You don’t want a wimp, but you also don’t want some overpowering boor who makes life unpleasant for those around him or her.  If you have a go-getter, a take-no-prisoners type person, that may fit your idea of the type of person it takes to run a successful business.  In fact, as a business owner he or she might remind you of you when you started out.  But how does that go-getter work with customers, get along with fellow employees, and neighbors?  Will a go-getter help your business?  Will a go-getter make your property a pleasant place to live?

It’s someone easy to work with, a politician without the deceit, a leader who encourages rather than intimidates.

Businesses become great with great employees, those employees people like to do business with.  Rental properties are successful when nice, welcoming people live in them.  As I heard Zig Ziglar say years ago, “You can’t make a good deal with a bad guy.”  But nice guys?  The sky’s the limit.

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