Financial experts urge diligence in building, preserving favorable credit rating

During this year's tax season, James Clifton learned in a letter from the IRS that a fraudulent tax return had been filed using his name.

"When I opened the letter, I just started laughing," he said.

As an assistant professor of accounting practice at the NDSU College of Business, Clifton teaches classes on individual taxation and fraud examination.

"I said, 'Well, I guess I've been dinged.' "

Clifton had to prove his identity to the IRS which, when satisfied, gave him a special pin number to include in his future returns.

It marked the fifth time he has been the victim of fraud, he said.

When it first happened 13 years ago, he noticed a fraudulent $2,000 charge on his credit card statement that was incurred "someplace in Germany," Clifton said. He reported it right away.

These incidents illustrate how easy it is for criminals to steal your information and identity, rack up bills using your credit, open credit card accounts in your name and make messes you are left to clean up, he said.

"If somebody gets your credit card number and enough of your identifying information, they have enough to steal your identity," he said. That information includes your name, date of birth, social security number and mother's maiden name.

In his classes, Clifton drives this point home with students by challenging them to see how much of his personal information they can find.

For example, your mother's maiden name is not online but it is public information, he said. Your mother's maiden name is an example of the type of information that thieves use to commit fraud.

With a single phone call, one of his students reached the offices of the county where Clifton married and obtained the name from his marriage license.

"That was kind of mind-blowing," Clifton said.

Criminals can steal your identity "not just for credit fraud, they actually live (with your identity)," he said, "and the law is wondering who's who?"

In the "big hacks" against corporations like Target, Home Depot and Apple, "the hackers' goal is to download as much information as they can get their hands on and sell it."

Because of today's interconnected electronic network, fraud of this type "is going to happen to everyone sooner or later," he said. "If you're not willing to do the legwork to clean up the mess, you better have LifeLock (identity protection service) or something like that."

Alicia Kellebrew, certified financial professional with The Village Financial Resources Center in Fargo, said caution is key when dealing with credit.

"People should be careful what kind of information you're giving out. Are you shredding those pre-approved credit offers you get in the mail?"

If you normally receive a bill on a certain date, and suddenly it stops coming, check into it, she said. It could be that your mail has been intercepted or rerouted.

Bad credit effects

While you may not be able to completely avoid victimization by cyber criminals, there are steps you can take to build and maintain a good credit profile, experts say.

"People are finding out, more and more, how important a good credit rating is," said Kellebrew.

"(A poor credit score) can cost you a lot of money in a lot of different ways."

If you have a poor credit score, the credit cards that charge high interest rates-above 35 percent-may be the only ones you can get, she said.

Credit checks are used to determine insurance premiums you'll pay for your car or home.

"Businesses will run credit checks on job applicants," she said.

A poor credit score can limit your options in life, she said. "For example, if you want to go back to school, you can't because you can't get a loan."

It's a common misconception that you must carry a balance on your credit card in order to establish credit, she noted.

You should make credit card payments on time, as required, in order to establish a credit history, she said. Such evidence that you can handle credit properly will bolster your credit score.

It's also wise to check your credit ratings regularly to make sure no one has opened an account in your name. Also, lost credit cards or passports should be reported immediately.

"Credit is an important part of life these days," Clifton said. "(It) affects how you live. There are a lot of situations where credit comes into play."

Having a poor credit score may disqualify you from renting an apartment, he said.

"Apartment managers look at your credit report and ask, 'Is this person going to pay the rent on time?''

If you have a poor credit score, you may be rejected as a tenant because they assume that "you're going to trash the place and make it unlivable," he said.

For a young person planning to take out a loan to buy a vehicle, it can mean a huge difference in the rate of interest he or she will pay.

If you have bad credit, you could pay up to 19 percent interest, he said. But buyers with a good credit score are more likely to be charged a low single-digit rate.

Young people, in general, have trouble grasping the importance of good credit, he said.

"They don't recognize the value of paying bills every time and on time."

"It doesn't matter if the loss of (a good credit score) was unjust or not. (Decision-makers) just go by the documents in front of them."

When you mishandle credit, "you fall into a big morass of the system," Clifton said. "It doesn't matter what you say or do, people do not want to do business with you."

'Good life'

Credit problems can affect those who routinely spend all they earn, and then some, financial advisors say.

"So many people live paycheck to paycheck," Clifton said. "We have an expectation that we should be living the good life. After all, this is America, right?"

In many cases, "young people, when they graduate college, expect to have the lifestyle their parents have," he said. "That's not realistic."

Their parents have probably spent many years working to achieve that lifestyle.

"You have to live according to your means," he said. "Credit cards make it easy to ignore that."

Communication

People "don't realize they're hurting themselves" when they abuse credit, Kellebrew said. "They think, 'I'm only 30 days late.' They lack the knowledge of the effect it has. They don't think it's a big deal.

"It is a big deal."

"(Sometimes, people) become overwhelmed and wait too long to seek out help," she said. "They ignore it, but it's not going to go away. It'll get worse, and then you have fewer options."

Too often, people make the mistake of avoiding contact with creditors.

"For a lot of people, if they can't make their payments, they get scared," Kellebrew said. "They don't talk with creditors. But you should-sometimes they can work with you (on an acceptable payment plan)."

For those trying to establish or restore credit, she recommends approaching a bank that you have a relationship with about obtaining a secured credit card, she said. "It works like direct deposit.

"If you do well with that, you could talk with them about upgrading to a normal card."

"Just because you've made mistakes (with credit), or your credit has been tarnished through no fault of your own, that doesn't mean it won't get better," she said. "All hope is not lost."

She cautions against getting enlisting businesses that promise to fix credit problems quickly.

A poor credit rating "can be reversed," she said. "It just takes time and being careful going forward."