Conventional wisdom says credit card holders who repay their debts on time will receive the lowest interest rates and other favorable perks from banks and credit card companies. However, according to a recent BusinessWeek article, credit card issuers are surprisingly (or not surprisingly) gouging responsible consumers as well:

"[Bank of America] sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase...Fine print at the end of the letter -- headed "Important Amendment to Your Credit Card Agreement" -- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer."

Sneaky Secrets
Historically, creditors raised interest rates in response to a late payment or over-limit fee, but the disturbing aspect of the BusinessWeek story is how these customers are apparently responsible, on-time payers.

On the other hand, as financial advisors, we are privy to inside information, and we're familiar with a long-standing dirty little secret of the credit card industry: Most credit card issuers have the right to raise the interest rate to any amount on any customer for any reason as long as they give the customer 15 days' notice. This "notice" can be fine print at the bottom of your monthly statement, a postcard in the middle of the month, or a letter disguised in the familiar plain envelope.

Mortgage Losses Equal a Credit Card Boon
As banks take a major hit from home foreclosures, they plan to recover a significant amount of their financial losses by collecting more fees and interest from credit card holders. Kathy Chu of USA Today wrote an excellent article about the sneaky tactics employed by our nation's largest banks:

"The [charges aren't] directly linked to delinquencies on mortgages and other consumer loans. But as banks' losses mount, they're jacking up fees and rates and tightening rules on all sorts of consumer loans — from credit cards to auto loans — to cushion their losses.

By raising rates and fees — but not boosting them so high that they push borrowers into default — lenders are seeking a delicate financial balance...They can't squeeze too hard that they're going to kill their client. But they have to squeeze more revenue out of their current portfolios."

How to Navigate the Plastic Jungle
So where do you go? What do you do?

• Understand the terms of your credit card. Call your bank. Ask them about fees, interest rates, and any other charges.
• Keep a close eye on your monthly statements. If any charges or fees look suspicious, call your bank immediately.
• Pay attention. Your credit card company is betting that you won't notice any changes to your account.
  
• Continue reading financial websites. Talk to friends and family. Create a personal network that will allow you to discuss all things personal finance.

If you have a credit card account, then you've no doubt seen the blank "checks" attached to your monthly statements. They are advertised to make your life easier...obtain fast cash, pay rent, and transfer higher-interest balances.

Let's Define "Convenience"
As it turns out, these checks are often more convenient for the creditor and identity thieves than they are for you.

When you use convenience checks, your creditor makes a much greater profit than when you simply swipe your card at the store. That's because:

• The interest rate on convenience check usage is often higher than the rate charged on card purchases.
• The creditor may charge a substantial convenience fee for using the check (up to 5% of the check amount, with no cap).
• There may be no grace period on purchases made with these checks, which means interest charges will be to accrue from the moment you use the check.
  
• Your creditor may apply your monthly payments first to lower-interest balances (such as card purchases) rather than to the high-interest convenience check charges.
  

Higher Risks; Less Protection
Traditionally, if you purchase defective merchandise with your credit card and you have no luck returning it to the seller, you may contact your credit card company for relief. However, if you use a convenience check to make the purchase, these protections may not apply.

Convenience checks are also a favorite target of mailbox thieves. Unlike unsolicited credit card offers, you can't "opt out" of receiving them. Since you never know when the credit card company will send checks, you can't report them missing when they don't arrive. Also, for some strange reason, most creditors don't require a call to activate the checks, and merchants often don't verify signatures on convenience checks. To make matters worse, the regulations that limit your liability to $50 for use of a lost or stolen credit card do not apply to convenience checks.

So, the bottom line (if you haven't already guessed) is we recommend that you "inconvenience" yourself by using the ol' trusty credit card instead.

Your parents or grandparents probably always told you, "If you can't pay for it with cash, then you can't afford to buy it." That may have been sound advice a generation ago, but such attitudes about credit are outdated and unrealistic for most adults working and living in today's world. As savvy, modern-day consumers, we will all need credit at some point.

The costs associated with purchasing cars, homes, health care, and college education have skyrocketed when compared to the average household income, so typical consumers need to borrow money if they want to own a home, purchase a car, and educate themselves or their children. Throw in a handful of charge accounts and credit cards, and it is no wonder that the average consumer is carrying more debt than ever before. With greater credit needs comes a greater need for debt management.

Good debt management ensures that you will have credit when you need it, make wise borrowing decisions, and avoid disaster if you become overextended. You can ensure that loans are available when you need them by establishing and maintaining a positive credit history. You can benefit from many specialized loan programs if you are aware of your borrowing options. You can save money by taking steps to reduce the cost of debt and save yourself from disaster if you know what to do when you can no longer meet your financial obligations.

Establishing Credit
You must first establish a credit record if you want to have ready access to loans when you need them. You establish a credit record by borrowing money from a lender who reports to a credit bureau. So, what's the problem? The problem is that few lenders will loan you money if you don't have an established credit record. That is the catch-22 of building credit. However, if you have no credit experience, there are several ways to get started.

Think small and take advantage of special credit deals to establish that first credit relationship. Increasing lender confidence with a large down payment, or posting collateral, is another. Insured credit, secured credit, and student loans have helped many borrowers get started. If you pay your obligations as agreed, you will be surprised at how many lenders will offer you credit once the ball is rolling.

Borrowing Options
You wouldn't try to buy a house using proceeds from a student loan, nor would you try to finance your college education with a credit card. However, you might use a home equity loan or line of credit to finance your child's college education. Knowing what borrowing options are available to you is important when shopping for credit. Some types of loans carry lower interest rates, some have tax-deductible interest, some are subsidized by government entities, and still others have special repayment terms designed to serve the needs of a special class of borrower.

Whenever you have the need to finance an expense, it is worth your time and effort to educate yourself about your borrowing options. Lenders today are enormously competitive, and there are more than just interest rates to consider when comparing one loan package to another. Find the loan that best suits your needs, and be sure you have examined all your choices.

Credit Reports
Part of what makes it possible for you to shop for credit is your credit report, which is a record of your past credit relationships. As mentioned previously, establishing and maintaining a good credit record makes you an attractive customer for lenders. You will get the best deals and have access to the largest number of credit options if your good credit record is maintained.

The first step in maintaining a good credit record is to pay your obligations as agreed. However, merely paying your bills is not enough. Many credit reports contain errors that are clerical in nature or caused by misidentification (e.g., someone else's bad credit gets put on your report). Although these errors are not your fault, they can cause delay or rejection when applying for a loan. To avoid such complications and delays, you need to obtain copies of your credit reports from the various national credit reporting agencies. Once done, you need to interpret the information and determine whether errors have been made. If there are problems with your report, you have a series of "borrower's rights"--enforced by the federal government--that you can exercise as well as detailed a procedures for correcting errors. You can force the credit reporting agencies to investigate errors and either correct, confirm, or delete the information, usually within 30 days.

Repairing Poor Credit
If the information on your credit report is correct but bad, you face a more difficult task. However, a poor credit record can be improved. Adding good credit to your report is helpful. It shows that your period of financial difficulty is over and that you are once again making good on your debts. You can also go back to creditors that reported bad information and negotiate a deal in which you agree to pay off the account, or make additional payments on the account, if the lender will agree to upgrade your credit status.

Your report may contain bad credit because of a dispute with a creditor. Perhaps you purchased a defective appliance on credit, the merchant failed to repair or replace it, you refused to make payments, and the merchant reported you as delinquent. You can add a consumer statement to your credit report to tell your side of the story. If all else fails in your attempt to repair credit, you may have to simply wait out your credit problems. Even bankruptcies disappear from your report in time.

Reducing the Cost of Debt
It is good to periodically evaluate your debt situation and determine whether you can reduce the cost of debt. It just doesn't make sense to pay more money for interest if you can be paying less.

There are several ways to reduce the cost of debt: You can refinance loans to get lower interest rates, use the equity in your home to pay off high interest loans and credit card balances, or transfer your credit card balances to cards with lower rates.

Other options include prepaying debts and liquidating assets to pay off loans and to avoid further interest charges. You may also seek to reduce or eliminate non-interest costs related to borrowing, such as fees and private mortgage insurance (PMI). If you have kept your mortgage payments current and built up sufficient equity in your house, you may be able to cancel your PMI coverage. Also note that many of these options have tradeoffs. For more information, you should talk to a qualified financial professional.

Options When You Can't Meet Your Financial Obligations
Ideally, you should never incur more debt than you can afford. If that plan fails, then your next task is to recognize when you are financially overextended and do something about it. Doing nothing is the worst possible choice. The longer you wait to take action, the more severe your financial troubles are likely to become.

Increasing your income stream may be an option. If not, there are things you can do to reduce your monthly obligations. Reducing the cost of debt, or negotiating directly with your creditors may enable you to lower monthly payments. If you need professional advice, you can contact one of the many nonprofit credit counseling services, such as Consumer Credit Counseling Services, which can often arrange an affordable repayment plan for you. If things are really out of control, you may want to consult a financial planner about more extreme tactics and determine whether you would benefit from a self-help support program such as Debtors Anonymous. You should face up to your financial difficulties and take steps to resolve them.

Your credit reports contain information about past and present credit transactions. They are used primarily by potential lenders to evaluate your creditworthiness. So if you're about to apply for credit, especially for big items like a mortgage or car loan, you should review all three of your credit reports; they each possibly contain different accounts and personal information.

See What They See...For Free
You are entitled to a free credit report under the following circumstances:

• A company has taken adverse action against you, such as denying you credit, insurance, or employment (you must request a copy within 60 days of the adverse action)
• You're unemployed and plan to look for a job within the next 60 days
• You're on public government assistance
  
• Your report is inaccurate because of fraud, including identity theft

The Annual Freebie
In addition to the above scenarios, you are entitled to one free credit report every 12 months from each of the three credit bureaus.

You can obtain your free annual reports online at www.annualcreditreport.com, by calling 877-322-8228, or by completing an Annual Report Request Form and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Alternatively, you can contact each of the three credit bureaus:

• Experian National Consumer Assistance Center, www.experian.com, P.O. Box 2104, Allen, TX 75013-2104, (888) 397-3742
• Trans Union LLC, Consumer Disclosure Center, www.transunion.com, 1000, Chester, PA 19022, (800) 916-8800
• Equifax, Inc., www.equifax.com, P.O. Box 740241, Atlanta, GA 30374, (800) 685-1111

If you make your request online, you should get access to your report immediately. If you request your report by phone or mail, you should receive it within 15 days.

Make the Freebies Work
Keep in mind that you do not have to get all three annual free reports at the same time. For example, we generally recommend that our clients order one of their free reports every 4 months:

• January - Experian
• May - Equifax
• September - Transunion

This little trick ensures our clients maintain free ongoing credit reporting throughout the entire year.

What's It All About?
Your credit report usually starts off with your personal information: name, address, Social Security number, telephone number, employer, past address and past employer, and (if applicable) your spouse's name. Check this information for accuracy; if any of it is wrong, correct it with the credit bureau that issued the report.

The bulk of the information in your credit report is account information. For each creditor, you'll find the lender's name, account number, and type of account; the opening date, high balance, present balance, loan terms, and your payment history; and the current status of the account. You'll also see status indicators that provide information about your payment performance over the past 12 to 24 months. They'll show whether the account is or has been past due, and if past due, they'll show how far (e.g., 30 days, 60 days). They'll also indicate charge-offs or repossessions. Because credit bureaus collect information from courthouse and registry records, you may find notations of bankruptcies, tax liens, judgments, or even criminal proceedings in your file.

At the end of your credit report, you'll find notations on who has requested your information in the past 24 months. When you apply for credit, the lender requests your credit report--that will show up as an inquiry. Other inquiries indicate that your name has been included in a creditor's "pre-screen" program. If so, you'll probably get a credit card offer in the mail.

You may be surprised at how many accounts show up on your report. If you find inactive accounts (e.g., a retailer you no longer do business with), you should consider closing the account and asking for a letter from the creditor confirming that the account was closed at the customer's request.

Basing the Future on the Past
What all this information means in terms of your creditworthiness depends on the lender's criteria. Generally speaking, a lender trusts you to make timely monthly payments against your debts in the future if you have always done so in the past. A history of late payments or bad debts will hurt you. Based on your track record, a new lender is likely to turn you down for credit or extend it to you at a higher interest rate if your credit report indicates that you are a poor risk.

Too many inquiries on your credit report in a short time can also make lenders suspicious. Loan officers may assume that you're being turned down repeatedly for credit or that you're up to something--going on a shopping spree, financing a bad habit, or borrowing to pay off other debts. Either way, the lenders may not want to take a chance on you.

Your credit report may also indicate that you have good credit, but not enough of it. For instance, if you're applying for a car loan, the lender may be reviewing your credit report to determine if you're capable of handling monthly payments over a period of years. The lender sees that you've always paid your charge cards on time, but your total balances due and monthly payments have been small. Because the lender can't predict from this information whether you'll be able to handle a regular car payment, your loan is approved only on the condition that you supply an acceptable cosigner.

Correcting Errors on Your Credit Report
Under federal and some state laws, you have a right to dispute incorrect or misleading information on your credit report. Typically, you'll receive with your report either a form to complete or a telephone number to call about the information that you wish to dispute. Once the credit bureau receives your request, it generally has 30 days to complete a reinvestigation by checking any item you dispute with the party that submitted it. One of four things should then happen:

• The credit bureau investigates, the party submitting the information agrees it's incorrect, and the information is corrected
• The credit bureau investigates, the party submitting the information maintains it's correct, and your credit report goes unchanged
• The credit bureau doesn't investigate, and so the disputed information must be removed from your report
• The credit bureau investigates, but the party submitting the information doesn't respond, and so the disputed information must be removed from your report

You should be provided with a report on the reinvestigation within five days of its conclusion. If the reinvestigation resulted in a change to your credit report, you should also get an updated copy.

You have the right to add to your credit report a statement of 100 words or less that explains your side of the story with respect to any disputed but unchanged information. A summary of your statement will go out with every copy of your credit report in the future, and you can have the statement sent to anyone who has gotten your credit report in the past six months. Unfortunately, though, this may not help you much--creditors often ignore or dismiss these statements.

Most lenders use an automated credit scoring system to help determine your creditworthiness. The higher your credit score, the more credit-worthy you appear. One of the factors built into the scoring is your debt-to-credit-limit ratio (the amount of debt you owe compared to your total credit limit for all cards). Lenders like to see ratios indicating you're indebted for balances less than 30% of your total overall limit. Generally, if your debt-to-credit-limit ratio is higher than that, then reducing your debt will improve your credit score. But how you reduce your debt can make a difference.

Act Carefully
You may believe that you should consolidate several credit card balances on one card with a low interest rate, and then close the paid-off accounts. Don't. While it makes sense to transfer high-interest balances to accounts with lower rates, you should keep the paid-off accounts open in order to maintain the highest possible total available credit.

Protect Yourself
Many consumers want to close unused cards in order to reduce their exposure to identity theft through the fraudulent use of inactive open lines of credit. This is a valid concern; however, it should be weighed carefully against the negative effects of the credit scoring system. This is a tough choice--and affects every consumer differently. If you have a specific question, you should seek advice from a financial professional.

The Credit Report is a Different Story
Even though your credit score may be affected, it's important to note that paying off a delinquent or collections account will not necessarily remove the negative information from your credit report. You still have to go through the necessary credit repair steps in order to correct your file.

So you've racked up thousands of dollars in student loans. Graduation is barely in your rear-view mirror, and the student loan companies are contacting you weekly about your soon-to-begin repayments. And if you didn't have enough on your mind already, we have to inform you that interest rates on variable student loan products just went up as well. Despite the increasing costs of higher education (and your burning desire to pursue graduate school) our federal government has a multi-trillion-dollar national deficit to repay...and apparently Uncle Sam's target is our nation's college students.

What's New
As of July 1, 2007, the interest rate on Stafford loans in repayment increased from 7.14% to 7.22%. The interest rate on in-school, grace, or deferment status Stafford loans went from 6.54% to 6.62%. And the rate for PLUS loans jumped from 7.94% to 8.02%. These rates will be in effect through June 30, 2008. The Department of Education sets the rates once each year based on the last three-month Treasury bill auction held in May.

These new rates apply only to loans issued on or after July 1, 1998 and before July 1, 2006. For all Stafford and PLUS loans issued on or after July 1, 2006, the loans will have a fixed interest rate--6.8% for Stafford loans and 8.5% for PLUS loans.

Keep Your Promise to Repay
Student loan repayment is a serious matter, especially since it directly affects your credit score. The main thing to remember is to communicate with your lender. If you are unable to make continuous monthly payments, just pick up the phone and let them know. They understand how most recent graduates are on the lower end of the economic scale and will usually work with you to arrange a favorable payback schedule.

When you rent a car, you absolutely need insurance...but that doesn't necessarily mean you should purchase it from the rental car agency. You most likely already have adequate coverage through your regular auto insurance policy or even through your credit card company.

Purchasing insurance from the rental car agency may significantly increase the overall cost of renting a vehicle, so do your homework before you walk up to counter. Start by visiting the rental agency's website, where you can usually preview the types of coverage you'll be offered and read up on the terms and conditions.

Various Options
One popular type of coverage generally offered is the Collision Damage Waiver (CDW), sometimes called a Loss Damage Waiver (LDW). If you purchase this waiver, you may not be held responsible if your rental car is stolen or damaged. But you may want to decline the CDW if you own a vehicle and have comprehensive or collision coverage, because the coverages and deductibles that apply to your own vehicle generally extend to your rental vehicle. If you have any questions, call your insurance company to learn what is (and is not) covered. Also, different rules apply for business and international travel.

Next, call your credit card company. Coverage varies, but many cards offer protection (the coverage will be secondary to any insurance coverage you have). To receive protection, you generally have to decline the CDW and charge the entire rental car transaction to the credit card supplying the coverage. Make sure you understand all conditions that apply.

Evaluate Your Own Risk Tolerance and Comfort Level
The bottom line is that if you don't have coverage through your auto insurance policy or your credit card, or you simply want the highest possible guaranteed protection, you'll likely need to purchase it from the rental car agency. But never wait until you're standing at the counter in front of the rental agent to decide, because if you do, it's easy to waste a lot of money buying insurance you don't really need.

Home ownership is a dream that many Americans share. However, a mortgage can be an enormous burden, and paying it off asap is the first item on many consumers' to-do list. But competing with the desire to own a home "free and clear" is a need to invest for retirement, children's college education, and other goals. Setting aside some extra cash for these goals may mean sacrificing other opportunities. So how do you choose?

Evaluate the Opportunity Costs
Deciding between prepaying your mortgage and investing your extra cash isn't easy, because each option has advantages and disadvantages. But you can start by weighing what you'll gain financially by choosing one option versus the others. In economic terms, this is known as evaluating the opportunity costs.

Here's an example. Let's assume that you have a $300,000 balance and 20 years remaining on your 30-year mortgage, and you're paying 6.25% interest. If you were to put an extra $400 toward your mortgage each month, you would save approximately $62,000 in interest, and pay off your loan almost 6 years early.

By making extra payments and saving all of that interest, you'll clearly be gaining a lot of financial ground. But before you opt to prepay your mortgage, you still have to consider what you might be giving up by doing so--the opportunity to potentially profit even more from investing.

To determine if you would come out ahead if you invested your extra cash,start by looking at the after-tax rate of return you can expect from prepaying your mortgage. This is generally less than the interest rate you're paying on your mortgage, once you take into account any tax deduction you receive for mortgage interest. Once you've calculated that figure, compare it to the after-tax return you could receive by investing your extra cash.

For example, the after-tax cost of a 6.25% mortgage would be approximately 4.5% if you were in the 28% tax bracket and were able to deduct mortgage interest on your federal income tax return (the after-tax cost might be even lower if you were also able to deduct mortgage interest on your state income tax return). Could you receive a higher after-tax rate of return if you invested your money instead of prepaying your mortgage?

Keep in mind that the rate of return you'll receive is directly related to the investments you choose. Investments with the potential for higher returns may expose you to more risk, so take this into account when making your decision.

Other Points to Consider
While evaluating the opportunity cost is important, you'll also need to weigh many other factors. The following list of questions may help you decide which option is best for you.

• What's your mortgage interest rate? The lower the rate on your mortgage, the greater the potential to receive a better return through investing.
• Does your mortgage have a prepayment penalty? Most mortgages don't, but check before making extra payments.
• How long do you plan to stay in your home? The main benefit of prepaying your mortgage is the amount of interest you save over the long term; if you plan to move soon, there's less value in putting more money toward your mortgage.
• Will you have the discipline to invest your extra cash rather than spend it? If not, you might be better off making extra mortgage payments.
• Do you have an emergency account to cover unexpected expenses? It doesn't make sense to make extra mortgage payments now if you'll be forced to borrow money at a higher interest rate later. And keep in mind that if your financial circumstances change--if you lose your job or suffer a disability, for example--you may have more trouble borrowing against your home equity.
• How comfortable are you with debt? If you worry endlessly about it, give the emotional benefits of paying off your mortgage extra consideration.
• Are you saddled with high balances on credit cards or personal loans? If so, it's often better to pay off those debts first. The interest rate on consumer debt isn't tax deductible, and is often far higher than either your mortgage interest rate or the rate of return you're likely to receive on your investments.
• Are you currently paying mortgage insurance? If you are, putting extra toward your mortgage until you've gained at least 20% equity in your home may make sense.
• How will prepaying your mortgage affect your overall tax situation? For example, prepaying your mortgage (thus reducing your mortgage interest) could affect your ability to itemize deductions (this is especially true in the early years of your mortgage, when you're likely to be paying more in interest).
• Have you saved enough for retirement? If you haven't, consider contributing the maximum allowable each year to tax-advantaged retirement accounts before prepaying your mortgage. This is especially important if you are receiving a generous employer match. For example, if you save 6% of your income, an employer match of 50% of what you contribute (i.e., 3% of your income) could potentially add thousands of extra dollars to your retirement account each year. Prepaying your mortgage may not be the savviest financial move if it means forgoing that match or shortchanging your retirement fund.
• How much time do you have before you reach retirement or until your children go off to college? The longer your time frame, the more time you have to potentially grow your money by investing. Alternatively, if paying off your mortgage before reaching a financial goal will make you feel much more secure, factor that into your decision.

The Middle Ground
If you need to invest for an important goal, but you also want the satisfaction of paying down your mortgage, there's no reason you can't do both. It's as simple as allocating part of your available cash toward one goal, and putting the rest toward the other. Even small adjustments can make a difference. For example, you could potentially shave years off your mortgage by consistently making biweekly, instead of monthly, mortgage payments, or by putting any year-end bonuses or tax refunds toward your mortgage principal.

And remember, no matter what you decide now, you can always reprioritize your goals later to keep up with changes to your circumstances, market conditions, and interest rates.

Your bank account is empty, credit cards are maxed out, and you're getting late notices for accounts that don't belong to you. It's a terrifying situation. Now your heart starts pounding because despite your best efforts of identity protection, many aspects of its protection are increasingly out of your control...Internet hackers, internal employee misconduct, and third-party scams are running rampant. This "uncontrollable" theft is becoming more common; last week, TJ Maxx Stores disclosed a massive theft of credit card data from more than 45 million of its customers.

So what exactly can you do after you identity has been stolen?

Time is Money
To minimize your losses, act fast. Contact companies in this order:

1. Your credit card companies
2. Your bank
3. The three major credit bureaus
4. Local, state, or federal law enforcement authorities

Your Credit Card Companies
Credit card companies are getting better at detecting fraud; in many cases, if they spot activity outside the mainstream of your normal card usage, they'll call you to confirm that you made the charges. But the responsibility to notify them of lost or stolen cards is still yours.

If you do so in a reasonable time (within 30 days after you discover the loss), you won't be responsible for more than $50 per card in fraudulent charges. Ask that the accounts be closed at your request, and open new accounts with password protection.

If an identity thief opens new accounts in your name, you'll need to prove it wasn't you who opened them. Ask the creditors for copies of application forms or other transaction records to verify that the signature on them isn't yours.

Whether the identity thief compromises an existing account or opens a new one fraudulently, the creditor involved may want you to fill out a fraud affidavit. Most will accept the uniform affidavit form available from the Federal Trade Commission (FTC); you may obtain it from the FTC at www.ftc.gov.

Follow up your initial creditor contacts with letters indicating the date you reported the loss or theft. Watch your subsequent monthly statements from the creditor; if any fraudulent charges appear, contest them in writing.

Your Bank
If your debit (ATM) card is lost or stolen, you won't be held responsible for any unauthorized withdrawals if you report the loss before it's used. Otherwise, the extent of your liability depends on how quickly you report the loss:

• If you report the loss within two business days after you notice the card is missing, you'll be held liable for up to $50 of unauthorized withdrawals. (If the card doubles as a credit card, you may not be protected by this limit.)
• If you fail to report the loss within two days after you notice the card is missing, you can be held responsible for up to $500 in unauthorized withdrawals.
• If you fail to report an unauthorized transfer or withdrawal that's posted on your bank statement within 60 days after the statement is mailed to you, you risk unlimited loss.

If your checkbook is lost or stolen, stop payment on any outstanding checks, then close the account and open a new one. Dispute any fraudulent checks accepted by merchants in order to prevent collection activity against you. And notify the check-guarantee bureaus:

• Check Rite (800) 766-2748
• ChexSystems (800) 328-5121
• CrossCheck (800) 552-1900
• Equifax-Telecredit (800) 437-5120
• NPC (800) 526-5380
• SCAN (800) 262-7771
• Tele-Check (800) 366-2425

The Three Major Credit Bureaus
If your credit cards have been lost or stolen, call the fraud number of any one of the three national credit reporting agencies:

1. Equifax (888) 766-0008
2. Experian (888) 397-3742
3. TransUnion (800) 680-7289

Note: Although you should only need to contact one of the three bureaus (the one you call is required to contact the other two), we recommend you call all three bureaus.

Next, place a fraud alert on your credit report. If your credit cards have been lost or stolen, and you think you may be victimized by identity theft, you may place an initial fraud alert on your report. An initial fraud alert entitles you to one free credit report from each credit bureau, and remains on your credit report for 90 days. If you become a victim of identity theft (an existing account is used fraudulently or the thief opens new credit in your name), you may place an extended fraud alert on your credit report once you file a report with a law enforcement agency. An extended fraud alert entitles you to two free credit reports within 12 months from each credit bureau, and remains on your credit report for 7 years.

Once a fraud alert has been placed on your credit report, any user of your report is required to verify your identity before extending any existing credit or issuing new credit in your name. For extended fraud alerts, this verification process must include contacting you personally by telephone at a number you provide for that purpose.

If you live in one of the handful of states that allow you to "freeze" your credit report, do so. Once you do, no one--creditors, insurers, and even potential employers--will be allowed access to your credit report unless you "thaw" it for them.

If your state allows you to freeze your credit report, you must contact all three major credit reporting agencies. In some cases, victims of identity theft are not charged a fee to freeze and/or thaw their credit reports, but the laws vary from state to state. Contact the office of the attorney general in your state for more information.

If you discover fraudulent transactions on your credit reports, contest them through the credit bureaus. Do so in writing, and provide a copy of the identity theft report you file. You should also contest the fraudulent transaction in the same fashion with the merchant, bank, or creditor who reported the information to the credit bureau. Both the credit bureaus and those who provide information to them are responsible for correcting fraudulent information on your credit report, and for taking pains to assure that it doesn't resurface there.

Law Enforcement Agencies
While the police may not catch the person who stole your identity, you should file a report about the theft with a federal, state, or local law enforcement agency. Once you've filed the report, get a copy of it; you'll need it in order to file an extended fraud alert with the credit bureaus. You may also need to provide it to banks or creditors before they'll forgive any unauthorized transactions.

When you file the report, give the law enforcement officer as much information about the crime as possible: the date and location of the loss or theft, information about any existing accounts that have been compromised, and/or information about any new credit accounts that have been opened fraudulently. Write down the name and contact information of the investigator who took your report, and give it to creditors, banks, or credit bureaus that may need to verify your case.

If the theft of your identity involved any mail tampering (such as stealing credit card offers or statements from your mailbox, or filing a fraudulent change of address form), notify the U.S. Postal Inspection Service. If your driver's license has been used to pass bad checks or perpetrate other forms of fraud, contact your state's Department of Motor Vehicles. If you lose your passport, contact the U.S. Department of State. Finally, if your Social Security card is lost or stolen, notify the Social Security Administration.

Follow Through
Once resolved, most instances of identity theft stay resolved. But stay alert: monitor your credit reports regularly, check your monthly statements for any unauthorized activity, and be on the lookout for other signs (such as missing mail and debt collection activity) that someone is pretending to be you.

As the grizzled duty sergeant used to say on the televised police drama, "Be careful out there." The identity you save may be your own.

Identity thieves can empty your bank account, max out your credit cards, open new accounts in your name, and purchase furniture, cars, and even homes on the basis of your credit history. And if an identity thief gives your personal information to the police during an arrest and then doesn't show up for a court date, you can be arrested and jailed.

There are basically two types of identity theft:

1. Account takeover - a thief gets your existing credit or debit cards (or even just the account numbers and expiration dates) and goes on a shopping spree at your expense
2. Application fraud - a thief gets your Social Security number and uses it (along with other information about you) to obtain new credit in your name

You may never be able to completely prevent either type of identity theft, but here are some steps you can take to help protect yourself from becoming a victim.

Check Yourself Out
It's important to review your credit report periodically. Check to make sure that all the information is correct, and stay on the lookout for any fraudulent activity.

As of September 2005, you can get your credit report for free once a year. To do so, contact the Annual Credit Report Request Service online at www.annualcreditreport.com or call (877) 322-8228.

If you need to correct any information or dispute any entries, contact the three national credit reporting agencies:

1. Equifax: www.equifax.com 1-800-525-6285
2. Experian: www.experian.com 1-888-397-3742
3. TransUnion: www.transunion.com 1-800-680-7289

Secure Your Social
Your most important personal identifier is your Social Security number (SSN). Guard it carefully. Never carry your Social Security card with you unless you'll need it that day. The same goes for other forms of identification (for example, health insurance cards) that display your SSN. If your state uses your SSN as your driver's license number, request an alternate number.

Do not have your SSN preprinted on your checks, and don't let merchants write it on your checks. Don't give it out over the phone unless you initiate the call to an organization you trust. Ask the three major credit reporting agencies to scramble it on your credit reports. Try to avoid listing it on employment applications; offer instead to provide it during a job interview.

Don't Leave Home With It
Most of us carry a checkbook and several credit cards, debit cards, and telephone cards with us all the time. That's a bad idea because if your wallet or purse is stolen, the thief will have a treasure chest of new toys to play with.

Carry only the cards and/or checks you'll need for any one trip. And keep a written record of all your account numbers, credit card expiration dates, and the telephone numbers of the customer service and fraud departments in a secure place--at home.

Keep Your Receipts
When you make a purchase with a credit or debit card, you're given a receipt. Don't throw it away or leave it behind; it may contain your credit or debit card number. And don't leave it in the shopping bag inside your car while you continue shopping; if your car is broken into and the item you bought is stolen, your identity may be as well.

Save your receipts until you can check them against your monthly credit card and bank statements, and watch your statements for purchases you didn't make.

When You Toss It, Shred It
Before you throw out any financial records such as credit or debit card receipts and statements, canceled checks, or even offers for credit you receive in the mail, shred the documents, preferably with a cross-cut shredder. If you don't, you may find the thief going through your dumpster was looking for more than last week's takeout.

Keep a Low Profile
The more your personal information is available to others, the more likely you are to be victimized by identity theft. While you don't need to become a hermit in a cave, there are steps you can take to help minimize your exposure:

• Stop telephone calls from national telemarketers by listing your telephone number with the Federal Trade Commission's National Do Not Call Registry by calling (888) 382-1222 or registering online at www.donotcall.gov.
• Remove your name from most national mailing and e-mailing lists, as well as most telemarketing lists. Write the Direct Marketing Association at 1120 Avenue of the Americas, New York, NY 10036-6700, or register online at www.dmaconsumers.org.
• Remove your name from marketing lists prepared by the three national consumer reporting agencies. Call (888) 567-8688 or register online at www.optoutprescreen.com.
• When given the opportunity to do so by your bank, investment firm, insurance company, and credit card companies, opt out of allowing them to share your financial information with other organizations.
• You may even want to consider having your name and address removed from the telephone book and reverse directories.
• Never provide any personal information via phone, letter, or e-mail unless you initiated the transaction. Legitimate businesses should already have your information on file, and will not call you or e-mail you to ask for it.

Take a Byte Out of Crime
Whatever else you may want your computer to do, you don't want it to inadvertently reveal your personal information to others. Take steps to help assure that this won't happen.

Install a firewall to prevent hackers from obtaining information from your hard drive or hijacking your computer to use it for committing other crimes. This is especially important if you use a high-speed connection that leaves you continuously connected to the Internet. Moreover, install virus protection software and update it on a regular basis.

Try to avoid storing personal and financial information on a laptop; if it's stolen, the thief may obtain more than your computer. If you must store such information on your laptop, make it as difficult as possible for a thief by protecting these files with a strong password--one that's 6 to 8 characters long, and that contains letters (upper and lower case), numbers, and symbols.

Don't Talk to Strangers
Opening e-mails from people you don't know, especially if you download attached files or click on hyperlinks within the message, can expose you to viruses, infect your computer with "spyware" that captures information by recording your keystrokes, or lead you to "spoofs" (websites that replicate legitimate business sites) designed to trick you into revealing personal information that can be used to steal your identity.

If you wish to visit a business's legitimate website, use your stored bookmark or type the URL address directly into the browser. If you provide personal or financial information about yourself over the Internet, do so only at secure websites; to determine if a site is secure, look for a URL that begins with "https" (instead of "http") or a lock icon on the browser's status bar.

Wipe It Clean
When it comes time to upgrade to a new computer, remove all your personal information from the old one before you dispose of it. Dragging all files to the "trash" isn't sufficient to do the job; "deleted'" hard drive data can easily be recovered with common computer programs. Instead, overwrite the hard drive by using a "wipe" utility program. The minimal cost of investing in this software may save you from being truly wiped out by an identity thief down the road.

Credit cards can be used to pay for nearly everything these days--groceries, a state-of-the-art home entertainment system, even an income tax bill to Uncle Sam. And gone are the days when you charged everything to the sole credit card in your wallet. Now there's likely to be a bunch of cards jockeying for position--everything from traditional credit cards, travel & entertainment cards, merchant cards...and let's not forget the ever-increasing array of reward cards, which promise airline miles, cash rebates, merchant discounts, even contributions to a 529 college savings plan.

But this convenience comes at a price. Unless the full balance is paid each month, the credit card issuer can legally assess double-digit interest on the entire monthly balance--even the paid portion. According to the American Bankers Association, a nonprofit banking trade association, the number of consumers who are past due on their credit card bills hit a record high in the fourth quarter of last year. And the Federal Reserve recently reported that consumers increased their credit card spending in the early months of 2007.

Wading through credit card gimmicks can be tricky. For example, when a credit card issuer states that you have been "pre-approved" for a card, it doesn't mean that a credit card will arrive in the mail automatically. Instead, it only means that the issuer thinks you are a credit-worthy candidate. The credit card will arrive in the mail only after the issuer has satisfactorily reviewed the information in your credit application.

For a more in-depth analysis of various credit card offers, we highly recommend several blogs to you from around the Web. Some of our advisors' favorite blogs are: MyMoneyBlog, The Simple Dollar, Young and Broke, Get Rich Slowly, and Generation X Finance.

Keep in mind, these external blogs are a wonderful resource to get your financial mind churning. As with any information, we encourage you to seek additional sources of information. Remember, nobody cares as much about your money as you do.

What is credit?
When you say you want credit, you are seeking to purchase goods or services today and forego all or a portion of the payment until a later date. You may or may not be bound by a payment plan. You may or may not be required to pay a percentage of the purchase price up front (down payment). You may or may not pay a fee (interest) in exchange for the privilege of buying now and paying later. But in all cases, you are making a purchase and being trusted to make final payment at some time in the future.

Why is credit so important?
Credit provides you with financial flexibility and security.

There are many reasons why you may seek credit. Here are a few examples:

• You move into your first apartment and don't want to sleep on the floor while you are saving up money to buy a bed. You need credit.
• Your blind date orders the lobster, champagne, and a chocolate dessert. You only brought $40 cash. You need credit.
• You are traveling in another country with no access to your bank account and unexpectedly find a painting that will look great in your living room. You need credit.
• You are traveling through Big City, USA, when your car's engine croaks. You didn't anticipate such an emergency. You need credit (if you don't have an emergency fund established).
• You can't live through the summer without a heart-shaped swimming pool just like the one the neighbors got...we'll forget about the fact that a YMCA membership is more cost-effective...If you remain unconvinced by our argument, then you will need credit.

Whether you're unable to make immediate payment, can't get access to your cash, are faced with unexpected circumstances, or simply recognize the time value of money, credit allows you to obtain goods and services today that you will not have to pay for until a later date. Used responsibly, credit can help you improve the quality of your life, overcome financial obstacles, and even (on rare occasions) save you money.

What does it mean to establish credit?
Establishing credit means establishing your reputation as a good credit risk.

When you make a purchase on credit, you are being trusted to make final payment at some time in the future. If you pay as agreed, the lender will likely want to do business with you again. If you don't pay as agreed, the lender will likely be less willing to extend credit in the future or will charge you a higher interest rate. As time goes by, you establish a reputation. If you have paid your bills, it will be said that you are a "good credit risk". This will enable you to obtain more credit from other lenders, in greater amounts.

If, however, you have not paid your bills, or have consistently paid them late, it will be said that you are a "bad credit risk". Lenders and collection agencies will label you as a no-pay, a slow-pay, a deadbeat, sub-prime, or just plain bogus. It will become increasingly difficult (and expensive) to get credit.

Lenders usually rely on credit-reporting agencies to determine your reputation for creditworthiness. These reporting agencies collect data about credit transactions and attempt to keep accurate records on all borrowers in a particular area. There are at least three major providers of such information in the United States. For a fee, and with your permission, a lender can obtain a copy of your credit report and evaluate your reputation for creditworthiness (a limited amount of information can be gathered without your permission).

A typical credit report contains information about you, your address, your job, and your income. Most importantly, it contains a history of your experience with lenders. It typically includes details about who you obtained credit from, how much you borrowed, when you obtained it, when you paid it back, whether you were late, how often you were late, whether there is any outstanding balance, whether any collection actions were taken, and whether or not you filed for bankruptcy.

Convenient, low-cost access to credit is available only if you have established a favorable credit report. Lenders typically ask you to fill out a credit application when you are seeking credit (it is usually in the fine print of this application that you grant permission for them to obtain your credit report). However, information set forth in your credit application is likely to be seriously considered only if it is consistent with information obtained from a credit-reporting agency or verified independently (an inconvenient and time-consuming process).

Without a credit report, lenders have nothing to go on. It is easy for a lender to deny you credit when you have no credit history. Without a record of your credit experience, a potential lender deems you a mystery. The lender knows nothing about you or your reputation for creditworthiness. It may be easier for a lender to deny credit than to take a risk or conduct an independent investigation. If you cannot get a credit application approved, then you won't be able to establish credit.

How do you get credit?
If you want to establish credit, you need a regular source of income. The income can be derived from a job, trust fund dividends, an allowance from your parents, government benefits, alimony, investment dividends, or any other source. What is important is that you have some kind of continuing and predictable cash flow. Without regular income, you cannot demonstrate an ability to make regular payments. Establishing a regular source of income is your first step.

Request credit from a lender who reports to a credit bureau
All your efforts to establish a credit rating will be wasted if your lender does not report repayment information to a recognized credit-reporting agency. Lenders are not required to report. Ask about their policy before you apply for credit. If the lender reports, then ask for a credit application.

Think small at first
By thinking small, you limit the lender's exposure. Exposure is the lender's total potential loss. If you have never obtained credit before, do not make your first request a personal loan for $40,000 with no collateral. This maximizes the lender's exposure. The lender might be willing to extend you credit but not if big money is at stake. Try applying for a small loan, perhaps $500, and pay it off promptly. Then apply for another loan, perhaps a larger one. Eventually, you will have a solid credit relationship with that lender, and the credit activity will be reflected on your credit report.

Choose a credit card with a low credit limit
While thinking small, you may explore the chances of getting a credit card with a low credit limit. Major credit card companies frequently offer small lines of credit to groups such as college students or credit union members. If you are a student, look for applications in the back of campus magazines or in the school's bookstore. Check with your credit union. Your status as a group member may be enough to get you a card. Get it, use it, and pay it off promptly. The activity will be reported to a reporting agency.

Apply for a retail store charge card
If you don't belong to a special group, try the local mall. Many retail stores issue charge cards, which are similar to credit cards, but can only be used at the issuing store. Most major retailers will offer charge cards to first-time borrowers. Ask for an application at the cash register or customer service counter. The interest rates are usually high and credit limits low for first-time borrowers, but if you use the card and pay your bills promptly, you will establish a credit rating. Furthermore, the store may sell your name and address to other retailers, who will mail you invitations to apply for their charge cards.

Obtain a gas card
Most major petroleum companies offer gas cards to first-time credit seekers. These can be used to purchase gas and services at any of the company's stations. The credit limit is low and the balance must be paid in full every month. Ask for a card at your favorite gas station, or check popular magazines devoted to travel, vacation, automobiles, or business for applications and toll-free numbers.

Get the government to guarantee your loan
If you are a full-time college student, you probably qualify for one or more government-guaranteed loans. Most government-guaranteed student loans are available even if you do not have a credit history. Lenders are willing to extend enormous amounts of credit under these plans because the government agrees to repay the loan if you don't.

Get a secured credit card
Many credit issuers offer secured credit cards. A secured credit card provides you with an open line of credit secured by a cash deposit. These types of cards typically come with a high interest rate. Here is how a secured credit card works. You give the credit card issuer a cash deposit. The credit issuer gives you a credit card with a credit limit equal to the cash deposit. You can charge up to the credit limit using the card, and then make monthly payments on the balance. If you fail to make the payments, the credit card issuer uses your cash deposit to cover the unpaid balance. If you make your payments as agreed, you will eventually establish credit and qualify for an unsecured credit card. The secured credit card issuer will return your deposit, less any unpaid balance due, when you cancel the account.

As Lightship Mutual joins the ranks of the online blogosphere, we look forward to providing insightful wit and biting commentary into today's social, political, and technological events as they relate to your personal finances.

Mission: Blog
The Daily Compass represents the ongoing thoughts, musings, and opinions of the advisors of Lightship Mutual. This forum serves to compliment our monthly newsletter, 'The Lightship Compass'. If you are not yet on our email list, click here to begin receiving our monthly publication, as well.

Staying true to our overall company's mission, we believe that this forum belongs to you. We fully anticipate a heavy involvement from our site visitors, and we look forward to providing accurate, clear, fast responses to your questions and comments.

Here Comes the Neighborhood
As the new kids on the blogosphere block, we're happy to be a part of your community. We promise: a well-manicured lawn, no loud music, and we'll only decorate the backside of our house with pink and green shutters. So feel free to drop by anytime with some fruit cake, punch, or any other treats from the welcome wagon. There are always interesting conversations around here, and we are truly excited to be a part of your online experience.