Unless they are in trouble, most people don’t wake up in the morning thinking about credit. Not even me, and I’ve spent much of my career immersed in it. But for most people, credit is an afterthought, and that’s unfortunate given the impact it has on our lives. Credit is now at a crossroads. It’s evolving right in front of us and that could mean real changes in the way we interact with it. Alternative credit is something we’ll all need to think about, though perhaps not first thing in the morning.

Before I joined eCredable, I spent the prior 7 years at the credit reporting agency Equifax. I got up close and personal with the credit ecosystem, both from the perspective of the creditor as well as the consumer. In my capacity as President of Equifax Personal Information Solutions, I worked with a team of people to create a variety of products targeted at helping consumers understand and navigate the complexities of the credit system. It’s a topic that requires the development of thoughtful and deliberate products that meet the needs of the infrequent credit shopper.

When you read the extraordinary amount of information that is written daily on the topic of credit, from the perspective of the creditor and the consumer, there’s a never-ending discussion on the relevance of credit to our everyday lives. Is alternative credit relevant to the way we conduct our daily financial lives? Now, more than ever, the answer is a resounding “Yes,” and here’s why.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

Traditional credit originates with the national credit bureaus (Experian, Equifax and Transunion) and consists of the payment information you make for repaying debt, like credit card balances, car loans, and mortgages. It also includes negative information like collections, liens, and bankruptcies. It has been around for quite some time. Like any new source of information, it took awhile for credit reporting and credit scoring to gain acceptance across the entire financial landscape. Understanding that the pace of change is highly correlated to the pace of technological advancements, it’s no surprise that automating the decisions associated with credit has been one step behind on this journey. Even though businesses have been able to use credit information in every facet of their decision making processes about consumers (their customers), they never seem to have enough information to further refine their ability to make financial risk based decisions. As the Great Recession exposed the risky lending practices of many lenders, part of the backlash includes a new focus on finding new sources of information to make more informed decisions.

Credit bureaus refer to information that is not contained in a consumer credit file as “alternative data.” In the context of consumer credit, it just makes sense to refer to this same information as “alternative credit” when you consider that this alternative data will be used for credit-related decisions. But why is this data “alternative” in the first place? Why can’t the credit bureaus get all this information housed in the same databases as the information used for “traditional credit?” It comes down to two simple but important business reasons: information availability and compliance with the Fair Credit Reporting Act (FCRA).

[Related Article: Free Consumer Reports: Nationwide Specialty Agencies]

By information availability, I mean the ability and desire for businesses that have payment information about consumers to report this information to the national credit bureaus. If there’s nothing in it for them, why go through the time and expense to share this information? It takes people and technical resources to report information to the credit bureaus. The information has to meet a significant number of minimum requirements for the credit bureaus to accept the information (the keys are quantity and quality). In short, you can’t just throw numbers out there and hope they stick.

By FCRA compliance, I mean the legal obligations that the Fair Credit Reporting Act (as well as FACTA, the Fair and Accurate Credit Transaction Act of 2003) places upon data furnishers. (Data furnisher is the name credit bureaus give to companies that provide data to them.) If a business reports information to the credit bureaus, the business needs to be prepared to respond to consumer disputes. In other words, when a consumer applies for credit and he or she is turned down due to an incorrect piece of information that was provided by the data furnisher, the business needs to be prepared to manage a consumer dispute and the potential for a subsequent legal action against the business.

All this adds up to people, time, and money. If businesses can’t significantly offset the expense of providing data with insights that will help them run their business better and be more profitable, then there’s no reason to report data to the credit bureaus. But this doesn’t lessen the need for companies to understand alternative credit. Most businesses want more customers, but they only want more “profitable” customers. They don’t want to extend credit to someone they don’t think can pay them back as agreed. It’s just common sense.

Approximately 75 percent of the adult population in the U.S. has traditional credit. The remaining 25 percent of the population has to get by with alternative credit. Alternative credit is defined as “credit reports and credit scores developed from data sources not typically contained in the national credit bureaus such as rent, utilities, insurance, and other forms of payment.”

If you’re a business, your first question is “how reliable is this information in making risk decisions?” FICO answered this question in 2007 when it released the FICO Expansion Score™, which uses alternative data to produce a credit score. The company was able to demonstrate that the FICO Expansion Score is comparable in its predictive values as traditional credit scores when evaluating credit. The predictability of the score was extremely similar to the FICO Score all the way through the score range of 300-850, until the score reached 780 (in the higher end of the scale, and not very relevant to assessing people without traditional FICO scores). This is important information, since FICO sets the standard for credit scoring.

If you’re a consumer without a traditional credit history (often called “thin file” or “no file” in our world), you’re probably wondering how you can use alternative credit to your advantage. The easy answer is that alternative credit allows you to build a credit history based on things you buy, not things you charge, like utility bills, rent payments, cell phone bills and auto insurance premiums.

[Related Article: Specialty Consumer Reporting Agencies: Tenant History Reports]

The law’s on your side: the Equal Credit Opportunity Act (ECOA) already provides you with the ability to provide this kind of information any time you apply for credit, and the credit grantor must consider this kind of information when using credit related information to make a decision.

Most consumers don’t know about this law, and most creditors don’t want to enlighten them. Why? Creditors have no easy way of accepting and using this information in making risk related business decisions. Creditors are completely hooked on using automated credit reports and scores to make these decisions without human intervention. If a consumer shows up at their place of business with a shoebox full of cancelled rent checks, utility bills marked paid, and various other pieces of paper that proves they paid their bills on time, the creditor would have a lot of work to do to understand the value and validity of this information. (It’s a little like how creditors made risk decisions 50 years ago.)

So what’s a consumer to do? The goal of alternative credit bureaus (like eCredable and others) is to help consumers overcome this challenge. If a consumer wants to avoid going into debt to prove their creditworthiness, but still wants to demonstrate their creditworthiness, having the bills they pay routinely that are not reported to the national credit bureaus can be extremely helpful. For years, creditors have used Alternative Credit in mortgage underwriting. This same approach is being extended to auto loans and credit cards as well.

eCredable is one of the companies helping to address the market need, albeit from the consumer perspective. Experian has expanded its credit file to include rental payment information from some of the larger property management systems that are willing to share data. Equifax has long been in the employment and income verification business, and is looking to complement this information with alternative data. Every year, more companies recognize the need to verify credit worthiness with alternative data, and I believe their requirements for alternative data for risk mitigation purposes will grow exponentially over the next two decades.

Is it time for “Alternative Credit” to join the mainstream credit conversation? It’s long overdue.

[Free Resource: Check your credit score and report card for free with Credit.com]

Image: CarbonNYC, via Flickr

Since May is Older Americans Month, I decided to write about a topic that’s become a real issue in America. It makes me sad to say this, but unfortunately, we live in a world where senior citizens are often the target of financial fraud — elder abuse is a serious problem to watch out for.

This is addressed to the children and relatives of senior citizens, but it isn’t meant to exclude senior citizens from the discussion. However, whether you take some of these steps on your own depends on the mental and physical state of your relative. You’ll have to make the call, but if at all possible, it’s important to have your relative participate in the policing of his or her finances. If that’s not possible, then it’s even more important that you take the initiative to protect your loved one.

According to the FBI, seniors are targeted because they often have nest eggs, they come from a generation that was more trusting, and they’re often too proud to report the fraud. Another reason the elderly sometime hesitate to report they’ve been ripped off? They’re concerned their relatives might see this as a sign of declining mental capacity and they don’t want to lose their independence. Smart and unscrupulous thieves know all this, and try to exploit it.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

There’s so much advice on the Internet about what you need to do to protect your elderly relative against fraud. When you discover fraud, it can all be scary and quite confusing, so the FBI has come to the rescue with a comprehensive, yet easy-to-read, list detailing the different types of fraud and how to prevent them.

The scams range from funeral and cemetery fraud to fraudulent anti-aging products. I suggest checking out this site so you can be more aware of the scams your loved one could be exposed to. The FBI has another page describing all kinds of Internet fraud that you should check out. These scams range from investment fraud to the Nigerian Letter or “419″ fraud.

One of the most common types of fraud against the elderly is stealing credit card information. The thief then goes on a spending spree and hopes no one, including the senior citizen, is looking out for this activity.

Here are a few simple steps you can take to make sure your loved one isn’t the victim of credit card fraud:

Talk to your relative about email scams: You can’t be around your relative constantly, so take the time to explain why you should never give out your credit card number to buy a product that’s sold via email. These scams often promise a great product — anti-aging, perhaps? — but they need your credit card information. This type of scam also happens via phone.  Seniors get a call and they’re offered a new product that promises youthful energy. Once they have your loved one interested, they ask for a credit card number to seal the deal.

[Related Article: Act Fast: A Hotline for Elderly Financial Fraud Victims]

Keep an eye on caregivers: Maybe your mom is still at home and has home healthcare a few days a week. Or maybe she’s in a nursing facility and there are nurses and various medical assistants everywhere. Hopefully, your parent is exposed to professionals who are trustworthy. Just keep in mind that there are way too many reports of caregivers using the credit card of the people they’ve sworn to take care of. It’s horrible that someone would stoop so low. But it happens all the time.

If you can, it’s best to visit frequently and shred any mail that has personal information on it. If your mom has credit card accounts, you can view account activity online with her. You can even opt out of paper statements altogether. That way, you won’t have credit card account numbers within easy reach of whomever is in the room. Credit card fraud could still occur, of course, but by checking accounts online several times a week, you’ll notice if something fishy pops up on her statement.

Even if you can’t visit often, you can still check her credit card accounts online every week from your own home. But ask for her permission to make sure she doesn’t feel like you’re invading her privacy.

Keep an eye on other family members: I hate to say this, but often it’s family members who rob their own parents or grandparents. If you have a family member with issues, such as drug addiction or gambling debt, then that’s a red flag and warrants keeping an eye on things. When someone is desperate for money, they can justify taking it from anyone. They’re counting on the fact that no one will notice. You can prove them wrong by keeping on top of credit card account activity.

Look at the mail. You can learn a lot from the mail. Is your loved one getting letters from “charities” asking for a donation via her credit card? If she’s getting letters from organizations, she may have sent money to them previously. As suggested earlier, looking at credit card accounts online is a good way to make sure she isn’t authorizing payments to fraudulent entities.

Pay attention to new friends: The National Committee for the Prevention of Elder Abuse recommends keeping track of any new “best friends.” It may all be very innocent, but if it’s sudden and there’s an age difference, this may be a red flag that someone is planning to commit fraud.

[Free Resource: Check your credit score and report card for free with Credit.com]

Image: Alex E. Proimos, via Flickr

These days, many consumers are likely finding it easier to obtain many types of credit, as lenders have significantly slackened requirements for most loans and credit cards. However, the qualifications to obtain a good mortgage rate remain stubbornly high across the country.

Even as credit conditions improve significantly nationwide and many financial institutions are once again broadening lending efforts, many are still being extremely tight with financing for mortgages, according to a report from the New York Times. In fact, even as subprime lending for credit cards opens up considerably, many consumers with low credit scores will find themselves extremely unlikely to even be considered for a home loan approval.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

A recent study by the Federal Reserve Board indicated that consumers with a credit score of 620 willing to make a 10 percent down payment are now less likely to be approved for a mortgage than they were in 2006, the report said. Further, some were even reticent to extend financing to borrowers making a similar down payment when their credit rating was 720.

This is because most lenders are still extremely gun-shy about lending large sums of money to anyone but the most qualified borrowers, the report said. In many cases, those who are approved for a home loan will also pay far higher rates on the mortgage than those who have top-notch credit scores, even as the average interest rate has hovered below 4 percent for some time now.

“If you don’t have good credit, you’re not going to get that crazy low rate,” Deborah MacKenzie, the director of counseling at the Stamford, Conn., nonprofit the Housing Development Fund, told the newspaper.

[Free Resource: Check your credit score and report card for free with Credit.com]

Typically, the only way consumers can improve their credit ratings so that they can qualify for a home loan is by being smarter about managing their various lines of credit, including keeping credit card balances low and making all payments on time and in full. These are the two biggest factors comprised in a credit score. However, consumers can also be hurt by applying for too many new lines of credit within a short period of time, so avoiding this ahead of shopping around for a mortgage can be crucial to maintaining good credit health as well.

Image: lydiashiningbrightly, via Flickr

Student loan debt has been in the news a lot lately as federal lawmakers grapple with the possibility of extending the current lower interest rates on government-issued education financing, which are set to double this summer. However, many students may have limited knowledge of what they owe on these accounts.

A new study from Iowa State University found that about 40 percent of that school’s student body underestimated how much they owed on their education loans, according to a report from the Des Moines Register. About 10 percent of those surveyed underestimated their outstanding balance by more than $10,000, and just 22 percent carried no student loans at all.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

The researchers say that this study also highlights the pressing need for financial aid offices to step up counseling efforts so kids can better understand the effect these loans might have on their finances for years to come, the report said. The student loan process can often be difficult to navigate and understand for those who have little and, more often, no previous experience in dealing with credit in their own names. Many studies have also shown that college kids tend to lack a general understanding of how finances work, and some have advocated the need for mandates on financial literacy education.

“You’re talking about people who, for them, borrowing is new,” Cynthia Needles Fletcher, a professor of human development and family studies at ISU, told the newspaper. “Yet these are really critical decisions.”

As a means of helping to counteract this lack of basic knowledge about their various outstanding student loans, the school is launching a program designed to increase awareness, the report said. This summer, it will send emails to all its students revealing exactly how much they owe, how much they can expect to pay per month when they graduate, and even a list of all the lenders to which they owe money.

[Student Loans: Research and compare options for student loans at Credit.com]

Recent studies have shown that the average college student now graduates from school with more than $25,000 in outstanding student loans, and that the cost of a year’s tuition has expanded rapidly in the last decade. This, therefore, can be extremely problematic for recent graduates, many of whom may still struggle to find employment within a few months of getting their diplomas.

Image: Sterling College, via Flickr

This week the experts from Credit.com contributed to a wide range of publications on subjects including identity theft, credit scores, credit cards and debt. Check out some of the highlights…

Adam Levin on Identity Theft

Credit.com co-founder and chairman Adam Levin spoke to WABC’s Stacy Sager about what people can do to protect themselves if their credit card numbers have been stolen. Sager reported on hundreds of card numbers, along with names and addresses published to a public website. “The website was stumbled upon by Sean Herskovitz, who never expected to find what he did when he Googled his girlfriend’s name,” Sager reported. “He was shocked to find her credit card information for sale, along with her Social Security number and address.” She spoke to Adam in Times Square, downstairs from Credit.com’s New York office. “The information could be just sitting out there for over a year,” he said, “for people to grab and use.”  @staceysager7 @Adam_K_Levin @eyewitnessabc7

Gerri Detweiler on Family Debt
Credit.com’s Director of Consumer Education Gerri Detweiler spoke to USA Today’s Christine Dugas about a University of Michigan study which reveals that families have more unsecured debt than savings. Unemployment and a tight economy have forced many to drain savings, run up their credit cards, or both. “They still have debt to deal with before they can take care of things like saving more money or paying for their kids’ college education,” Gerri told USA Today. @christinedugas @USATODAY @Gerridetweiler

Beverly Harzog on Credit Cards for College Grads
Credit.com’s credit card expert Beverly Harzog spoke with CBS Philly’s Jim Donovan about the pitfalls that face recent college graduates when it comes to credit card debt. ”When it comes to credit, the most important thing when you’re starting out is, yes it’s fine to get a credit card because it is important to build a good credit history, but pay that balance off every month. You really have to do that,” Beverly said in the report. @jimdonovancbs3 @CBSPhilly

Gerri Detweiler on Credit Scores
Gerri contributed to a couple of stories on PBS’s newish site for boomers, NextAvenue.org. Here’s an excerpt from “4 Lessons to Improve Your Credit Score,” by Caroline Mayer:

Make sure all your medical bills have been paid, either by you or your health insurer (or both of you). ”It’s very easy for a payment to fall through the cracks and end up in collections,” says Detweiler. A 2003 Federal Reserve study found that more than half of all collection accounts noted on credit reports involve unpaid medical bills. “This is a huge problem,” Detweiler says.

She’s also in a NextAvenue piece by Richard Eisenberg titled “It’s Time to Make Credit Scores Truly Free.“ @NextAvenue @richeis315

Ahead of its planned test run in two major U.S. cities later this year, the mobile wallet system being developed by the nation’s top mobile phone service providers recently announced it had struck deals with many major retail chains.

Isis — the mobile wallet program from AT&T, T-Mobile and Verizon Wireless — will begin testing in both Salt Lake City and Austin, Texas, later this year, and will partner with both popular local merchants as well as a newly-announced group of well-known national retailers, the company said. Among the latter group are Aeropostale, Coca-Cola, Champs, Dillard’s, Foot Locker, Jamba Juice and Macy’s.

[Free Resource: Check your credit score for free before applying for a credit card]

Companies participating in the program will have point-of-sale devices that can communicate with smartphones that come with embedded near-field communications technology. Those smartphones can be simply tapped on the reader to complete a purchase, the report said. As a result of the new slew of partnerships, hundreds of retailers large and small in both cities will be able to accept the more convenient and secure type of credit card purchase.

“Today’s announcement signals the mobile commerce experience has arrived,” said Jim Stapleton, chief sales officer for Isis. “A strong merchant base in Austin and Salt Lake City will make the Isis Mobile Wallet real for consumers as they choose to use their mobile wallet at many of their favorite merchant locations to pay and redeem offers. We look forward to working closely with both local and national merchants to enable a mobile commerce experience that transforms how consumers shop and interact with their favorite brands.”

The incentive for merchants to begin participating comes because it could help drive more business into their stores, the report said. For instance, they will be able to extend customers offers and deals for their products and services directly through the platform, as well as allow them to link their Isis accounts with store loyalty and rewards programs, giving them a more direct line to consumers for marketing. The benefit for consumers is both the convenience and better deals this will grant them.

[Credit Cards: Research and compare rewards credit cards at Credit.com]

Mobile wallet systems are expected to become quite popular. But for now a combination of limited availability of the necessary technology, as well as consumers’ concerns that the systems are less secure than traditional payment methods, are seen as the major hurdles to adoption.

Image: Daryl_Mitchell, via Flickr

For the record, I am not now, nor have I ever been, a member of the Hitler Youth. I point this out because based on the comments to my last few columns (which focused on the idea that a National Service Corps could help solve our student debt crisis) it would seem that some of you — not too many, thankfully — seem to think I’m affiliated with the organization. This, as you can imagine, is a bit troubling for a nice Jewish boy from New Jersey.

Here’s an example from commenter JakeFlagg:

“National Service. Didn’t that idea come from the National Socialists of the Third Reich? Hitler Youth? Of course it did, and this ‘admin’ has been on a fascist tear that Americans can hardly believe, but ought to, since we’ve essentially had fascist ideals in place since the 1920′s.”

Then… there’s this:

“Soon nearly 90% of the country will be branded as terrorists,” LSummers29 wrote. “Stock up on food and ammo or face imprisonment Hitler style, it’s your choice.”

[Related Articles: The Other Student Loan Slow Jam: Is It Time for a National Service Corps? and It's Time to Solve the Student Loan Crisis]

Not everyone was so incendiary. Many recognized that we indeed have a big problem, and offered ideas for a solution. After all, Americans now owe over $1 trillion in student loan debt, more than they owe on their credit cards. As real wages for most American workers stagnate and full-time employment for recent grads becomes the exception rather than the norm, college debt is becoming the anvil that hangs from the neck of many graduates. Something needs to be done.

Many commenters suggested an attitude adjustment (in the most positive context) on the part of students to take on less debt, and make sure they can repay the loans they do receive, which isn’t at all unreasonable.

“Just like credit card debt, folks need to take resposibility (sic) for spending what they do not have,” wrote RAH12345.

Others suggest that students now do what many of their parents did — think “work, not “debt” and take part-time jobs to help pay for school.

“It took me 12 years to graduate debt free,” said a commenter using the screen name litnakaro. “Worked full time, went to school fulltime or part-time depending on what I could pay for with cash each semester.”

But while changes by individual students obviously can make a huge difference, I think we need systemic changes to fix a systemic problem. That requires changes in government policy, especially when it comes to higher education, where federal funding plays such an overwhelmingly decisive role.

To that end, here are three ideas for policy changes from our readers that I found most intriguing. Some of them could work in conjunction with the National Service Corps, while others would stand-alone. I’ve also included my own thoughts regarding their impact and feasibility.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

1. Skin In The Game

Moravecglobal:

“All higher education loans are guaranteed by the university endowment. Graduate of a university like University of California Berkeley defaults. The University of California Berkeley endowment repays the taxpayers. Watch UC Berkeley graduate default drop like a rock!”

William concurs:

“Have the federal government lend at 1% to the schools. Have the schools lend at 2% to the borrowers. The total period for the loan is ten years. If the borrower cannot pay, the school is on the hook to the federal government. The schools become banks, the school is also the guarantor. The taxpayer is protected. Watch crappy degrees disappear and degrees get cheaper. In the event that the borrower cannot find a job, the borrower is not obligated to pay during their time of unemployment during that ten year period. Make the colleges have a vested interest in helping that graduate find a job rather than sticking them out into the wind to twist.”

Moravecglobal and William make an excellent point. Today, colleges and universities have little financial incentive to rein in costs. Why should they when the government and private lenders dole out student loans like candy canes at the Santa Chair in malls — not to mention the fact that the debts are non-dischargeable in bankruptcy? And in case you missed it, the New York Times recently ran a great article about the student debt crisis which featured this shocking statement from E. Gordon Gee, president of Ohio State University.

“I readily admit it… I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”

I’m all for proposals that impress upon all the stakeholders — students, universities, government, private lenders — the severity of the issue. These suggestions make one wonder: What do we have to do to make colleges start taking this problem seriously?

2. Reinstate Recourse

Allan Collinge, founder of StudentLoanJustice.org:

“I have an even better idea: return the standard consumer protections that should never have been taken away, such as bankruptcy statutes of limitations, refinancing rights, and others.  It is the removal of these protections that enabled the runaway inflation we are seeing, and similarly it is the return of these protections that will put college prices back in check. Beyond that, I look forward to alternative payment proposals such as what the author puts forward.”

Student loans may seem like any other kind of debt. They do come with interest rates, after all, and they require monthly payments.

But in point of fact, they are quite different. More like tax obligations, student loans almost never go away, even after a borrower declares bankruptcy. And if consumers default on student loans, their options for refinancing are often significantly more limited than with mortgages or other types of debt.

While I agree with Alan in principal, the combination of seemingly unlimited student loan money from the government, and the reinstatement of bankruptcy options, could unleash a wave of chapter 7 bankruptcies among recent graduates. However, assuming the government continues doling out student loan money at will, we should consider allowing student debt to be recast in a chapter 13 bankruptcy, which could reduce principal and interest rates for graduates in real trouble.

3. Get the Government Out

KB9TTX:

“As long as easy money flows from governments to students’ accounts to the universities, the universities will not need to cut costs … or even try to cut costs. Further, many public institutions receive funding directly from the governments. So why is tuition so high then? I assert that in most cases we will find that tuition is legislated to be some proportion of revenues. If a university requests, X in revenues then tuition is set at Y% of X. If X is based on costs of previous period, then X will continue to rise with inflation and special programs du jour. Thus Y% of X will rise too. Since universities don’t “enjoy” the free market feedback loop of losing dissatisfied customers (for every drop out, the government has another student in the queue for a Stafford grant), they have little incentive to reduce costs in a consistent meaningful way to “stay in business”. Therefore, to fix this looming Tuition loan tsunami, get the federal government out of the business of education funding. Let the market place correct the distortion. Let the prices fall back to the levels that a student can work and pay or save for college in a meaningful way rather than the life long 529 plans that so many have to use today (another federal government market distortion mechanism). But certainly, another Federal program isn’t going to solve the problems generated from a Federal program.”

[Free Resource: Check your credit score and report card for free before applying for a credit card]

KB9TTX wasn’t the only commenter to express this sentiment. A number of others pointed out that one reason why college tuitions are rising so quickly now is the same reason why residential real estate prices shot up during the 1990s and 2000s: There’s just so much money to borrow.

Unlike the mortgage bubble, however, which was driven by banks looking to make big profits from securitization fees (Fannie and Freddie notwithstanding), this time around most of the money is coming from the federal government.

On the one hand, I absolutely agree. The current system offers no effective check on tuition costs, and likely does play a major role in fueling tuition inflation.

On the other hand, it’s hard to imagine how to extricate the government from the present scheme without causing chaos. If government support for student loans went away immediately, America’s system of higher education could conceivably crumble.

Phasing out such support gradually also raises all sorts of thorny questions. Would art majors be the first to lose federal subsidies? Or would the reductions be made by type of institution, possibly with controversial private for-profit universities losing support first? While it’s easy to see how government spending is helping to fuel tuition increases, I have yet to see any concrete steps for how such a change might be implemented.

Solving this problem will take time, and I thank all the commenters, even the ones who think I’m a Nazi, for taking the time to think about the issue and what we might do about it.

[Student Loans: Research and compare options for student loans at Credit.com]

Image: Will Hale, via Flickr

You’ve no doubt heard the advice many times: “Check your credit reports at least once a year to make sure they are accurate.” It’s good, solid advice worth heeding. But what happens when your credit information gets mixed up with someone else’s – and you can’t seem to separate it? Or worse yet, if you check your credit reports and find no problems, but still get turned down for credit due to negative information?

The phenomenon is called “mixed files,” and it can be very difficult to straighten out.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

To learn more, I spoke with Jill Riepenhoff, a reporter for the Columbus Dispatch. Along with her colleague Mike Wagner, she recently conducted an in-depth investigation into credit report complaints. Following is an edited excerpt from my interview with Riepenhoff on Talk Credit Radio:

Who’s Complaining?

This project had really organic beginnings for us though. A colleague of ours in the newsroom has had a long-time problem since 1994 trying to correct her credit report. She has been mixed with somebody who has a similar name and it’s just year after year of frustration. When I heard this, I thought, “That is crazy. That doesn’t happen.”

The first thing that I did was go to the Ohio Attorney General’s consumer website and I just put in the search terms of the big three credit reporting agencies. Immediately, I saw hundreds of complaints, and I thought there’s probably something here. So that was really how this began, it was just a personal story from someone in our newsroom, and wondering whether it was an isolated case.

[Free Resource: Check your credit score and report card for free with Credit.com]

We sent public record requests to the Attorney General of all 50 states and then we also did a Freedom of Information Act request at the Federal Trade Commission which was the full regulator of the credit reporting agencies until last July when the new Consumer Financial Protection Bureau took over.

From the AGs, we were able to get complaints from about half the states. The others either wanted to charge us too much money or they weren’t public records. A couple of states just completely ignored us.

Ignored and Frustrated

The number one theme that jumped out right off the bat was that these consumers, by the time that they were contacting the AG’s office or the FTC, their concern was long ignored by the credit reporting agencies. Whatever the issue was, they could not get it corrected nor could they get anyone on the telephone at the credit reporting agency to help them.

I must say that these complaints (at least the ones from the FTC) were unverified. We don’t know what happened. We can’t say with 100% certainty that this was a legitimate complaint. But when you read the narratives of these, you just knew that there was something in there. Elderly people that were complaining because they didn’t know how to use a computer, they wanted to get their credit reports, they couldn’t get anybody on the phone to help them navigate the system. That’s a credible narrative in my mind.

Mixed and Mismatched

(To understand how this happens), I kind of picture it a little bit like a library. It’s not like there is a report that they picked out of the file cabinets that says “Jill Riepenhoff.” What they do, is when a creditor orders a report it kind of searches through all the library shelves and looks in all the books and finds all the ones that look like they belong to Jill Riepenhoff.

[Free Resource: Check your credit score and report card for free with Credit.com]

Well when I order my credit report, they’re pulling the books, if you will, that have my exact name, my exact address, my exact Social Security number, my exact date of birth, and typically they ask something about my account information: what’s your mortgage payments or who’s your car loan with or something like that. So, when the computer goes to pull the books off the shelf, they’re only finding those accounts that exactly match the needed information.

When creditors do that, they have much looser standards. They don’t have to ask for all that information, they can pull off the shelf based on a partial Social Security number or a partial name. So, like, we found situations where it was close enough. Myra could easily include information from somebody named Maria, for example. So the computers go in and pull all those books that look kind of close enough. Then, boom! You have a mixed report because you have Maria and Myra on the same report now. But that consumer won’t see that because it’s only going to pull the things that exactly match.

Your Worst Nightmare

One of the stories that we highlight in the series is the woman who went to buy a car in Colorado. And the week before she went to buy the car, she checked her credit report to make sure everything was in order. It was fine, she had a wonderful credit score. She even paid for the score to make sure that everything was above board.

She goes into the dealership. She even goes on her lunch break, thinking this is going to take that little amount of time. The next thing she knows, she’s practically in custody in the car dealership because when the car dealership ran her credit report, the matching formula used said was on a terrorist watch list from the federal government.

It took her about six years (to straighten it out) and she had to file a lawsuit in order to make the damage go away. On her own, she could not convince the credit reporting agency that she was not the international drug trafficker who the alert was up against.

Learn More

To listen to the full interview with Riepenhoff: Download the interview here; play the interview online here; or get the podcast on iTunes.

Learn how to correct mistakes on your credit report here.

Image: Omad, via Flickr

This past week brought some good news, some bad news and some interesting news. The good news is that credit card delinquency rates are down. Actually, I think that qualifies as fantastic news! The bad news involves skimming at gas pumps and an unintended negative consequence of the Credit CARD Act of 2009.

The interesting news is that there are three new travel credit cards on the market. Let’s start with that.

New credit cards reflect consumer push-back

This is an interesting take on three new consumer credit cards: The Bank Of America Travel Rewards card, the BankAmericard Privileges credit card with Travel Rewards, and the Fairmont Visa Signature Card from JPMorgan Chase. The reporter notes that these new cards have some good features, though none are terribly comprehensive. If you like travel cards, read this and see what you think about the new kids on the block. @ChicagoTribune

Prepaid Debit Cards: Here a Fee, There a Fee

I’m a faithful reader of the New York Times Bucks Blog because it always has some thoughtful analysis of personal finance topics. Last week in my news roundup I included the Bankrate study that looked at prepaid cards. Here, Ann Carns does a good job explaining why you should read all the fine print before getting a prepaid card. @NYTimes

How scammers can steal your credit card information at the gas pump

Gas prices are going down and that’s cause for celebration. But the bad news is that you still need to be careful when you pay at the pump. Thieves use skimmers to steal your information from your bank card. Consumers aren’t the only ones who can lose money. A CBS news correspondent says that skimming costs the financial industry more than $350,000 a day. @sharylattkisson @CBSNews

TransUnion: National Credit Card Delinquency Rate Ticks Down, Reversing Two-Quarter Trend

It’s good to hear that the national credit card delinquency rate (the rate of borrowers 90 or more days past due) has dropped a little from the end of 2011 to the end of 2012. Also, the average credit card debt per borrower in the fourth quarter of 2011 decreased by $242 and is down to $4,962 per borrower. @MarketWatch @TransUnion

Stay-at-home mom fights new credit card rule

I think we all knew this issue would become a major problem for stay-at-home parents. When the Credit CARD Act passed in 2009, there was a clause that required card issuers to start considering individual income, not household income, when someone applies for a card. This part of the CARD Act became effective last October. This article gives a thorough and revealing look at what happens when this practice is put into place. @CNNMoney @BlakeEllis

Image: 401k, via Flickr

Are you one of the millions of consumers who opted to do a short sale on your home during the mortgage crisis?  There may be some good news for you as earlier this month, Fannie Mae announced new mortgage guidelines targeted at troubled mortgage borrowers that potentially reduces the amount of time it takes to obtain a new mortgage from four years to two years.

The overwhelming majority of mortgage lenders follow mortgage underwriting rules published by Fannie Mae and Freddie Mac.  So if you lost your home to a short sale or turned it over to the bank and are now thinking of financing a new home, it’s a good idea to familiarize yourself with their guidelines. The new rules are scheduled to go into effect on July 1, 2012.

As they say, the devil is in the details and not all qualification information is available (or easily found).  In summary, you will be required to come up with a 20% down payment to obtain a mortgage in the reduced two-year time period unless you can prove your problems were the result of extenuating circumstances, for example — a divorce, medical expenses or unemployment.  In these cases, you may be able to secure a mortgage in the shorter two year time period with a lower 10% down payment.

It is my understanding that there are also requirements that interested consumers also meet certain credit and ability to pay standards and pass Fannie Mae’s credit criteria screens — which review your credit report and credit scores.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

This could be a substantial challenge for many of the consumers for whom this revised rule is targeted to benefit.

The presence of a short sale information or flag on a credit bureau report is considered negative by most all credit scores, as it predicts future credit risk. The flag can stay on the report for up to seven years.  Generally speaking, the impact on score will be severe.  The exact impact on a given consumer’s credit score resulting from the reporting of a short sale will depend on several factors:

• The information associated with the short sale reported, and
• The current credit profile of the consumer (the other activity being reported on the consumer).

The negative impact on score is more noticeable if this item is posted on a credit file that has no or little history of missed payments and/or derogatory information and has low balances on active credit.  In these scenarios, the points lost can be 100 or greater.  The impact may be less noticeable if there are indications of high risk behavior (missed payments, etc.) on the credit bureau report as the credit score is already lower — reflecting that higher risk behavior.

There are not really any “tricks” to quickly increase the score quickly when this information is posted on the file.  The points lost due to the short sale flag will have (gradually) less impact over time as the date it was originally posted becomes older (and assuming that you have no other delinquency information on your file).

It appears that this rule change will be most helpful to those impacted consumers who have already re-built their credit since they first enacted the short sale, have steady and sufficient income and are deemed capable of successfully handling the new mortgage they are seeking.

[Featured Products: Research and Compare Mortgage Rates at Credit.com]

Image: macrofarm, via Flickr

The rate at which consumers fell behind on their home loans declined considerably in the first quarter of the year, and now stand at levels not seen in years.

The delinquency rate on home loans for properties of between one and four units fell to 7.4 percent of all outstanding loans in the first quarter of the year, down from 7.58 percent in the fourth quarter of 2011, and 8.32 percent in the same period last year, according to the latest statistics from the Mortgage Bankers Association. While declines are traditionally viewed in the first quarter of every year, the MBA’s data shows that the drops this year were more significant than traditional adjustments would have predicted, showing that the declines are real, rather than the result of seasonal norms.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

“Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future,” said Michael Fratantoni, the MBA’s vice president of research and economics. “The percentage of loans three payments or more past due, the loans that represent the backlog of problems that still need to be handled, is down to the lowest level since the end of 2008. Foreclosure starts are at their lowest level since the end of 2007.”

Delinquency fell for all types of mortgages except VA loans on a quarter-over-quarter basis, the report said. Prime fixed rate loan delinquency now stands at 4.07 percent, and late payments for prime adjustable-rate mortgages dropped to 9.05 percent, down from 9.22 percent in the fourth quarter. Further, loans backed by the Federal Housing Administration also saw drops in delinquency, falling to 12 percent from 12.36 percent a quarter earlier. The rate of homes that were in foreclosure increased on a quarterly basis, however, rising to 4.39 percent.

[Featured Products: Research and Compare Mortgage Rates at Credit.com]

As the economy continues to generally improve, consumers are finding themselves in a better position to pay off all their outstanding debts on time. Factors such as declining unemployment rates and rising salaries have contributed to Americans feeling better about their personal financial situations. Experts believe that these trends will likely continue for some time, meaning that the housing industry may continue to improve, encouraging more qualified buyers to enter the market.

Continuing declines in the housing market in some parts of the country have left many homes still “underwater” across America. While these homes may not be physically floating in water, their owners no doubt feel like they are drowning in debt. One reader writes:

My first mortgage is paid.  I took out a line of credit on this house for $81,700 in 2007. I am 72 years old and retired.  I have since moved out of state.  I would like to sell this house, but the homes in this area are only selling for $40,000 – $45,000. I cannot afford to pay the difference. What are my choices?

I am sure you are well aware that you are not the only person in this situation! It’s unfortunately quite common. According to CoreLogic, just over 11 million homes — about one in five homes with a mortgage — are in negative equity, meaning mortgage balances are greater than the value of the home.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

Before we look at your options, there are a couple of things you need to think about here.

First, it’s important to realize that when you paid off your first mortgage, the lender that holds the home equity loan moved into first lien position. So even though this loan may have originally been taken out as a second mortgage, it is no longer a second mortgage. The reason that is important is that sometimes when a homeowner is underwater on both a first and second mortgage, the second lienholder is more willing to negotiate because it knows that in order to foreclose it has to pay off the first mortgage. That doesn’t sound like it’s the case here.

One thing you need to do before you can make a decision about this house is to meet with a tax advisor with experience in issues related to 1099-Cs. If you are able to get out from under this loan without paying the full balance, the IRS will consider any cancelled debt taxable income. You’ll owe taxes on it unless you can show that you qualify for an exception or exclusion, such as the insolvency exclusion, or the Mortgage Debt Forgiveness Relief Act (which is currently slated to expire at the end of 2012 unless Congress extends it). This is vitally important because you don’t want to end up in a situation where you owe the IRS a big tax bill you can’t pay.

[Related Article: A Slew of Tax Tips to Clean Up Your 1099-C Mess]

With that information in mind, you can consider:

A short sale. This is a sale of your home in which the lender allows you to sell the home for less than what you owe. If you are able to sell your home this way you want to get an attorney to look over the agreement to make sure you aren’t on the hook for any deficiency balance.

Walking away and letting the home go into foreclosure. This can be risky because the lender may decide to sue for any balance left after the home is eventually sold. But it is a popular option in some cases.

Filing for bankruptcy. This may allow you to put this home behind you and avoid taxes on any cancelled debt. An attorney can help you figure out the pros and cons of this approach.

[Learn More Here: Underwater On Your Home: Your Six Options]

You may have some tough decisions to make here, but getting advice from experienced professionals who are helping other homeowners in similar situations should help you decide which approach is right for you.

Consumers are now handling their credit card accounts more responsibly after going half a year with more troubling statistics coming out about their spending and repayment habits.

Instances of consumer credit card delinquency — defined as accounts that have gone 90 days or more without a payment — declined between the fourth quarter of 2011 and the first of 2012, according to the latest consumer credit statistics from  credit monitoring bureau TransUnion. Now, that rate stands at 0.73 percent of all accounts, down from 0.78 percent a quarter earlier.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

And at the same time, the amount of money being borrowed on those accounts also declined, the report said. At the end of the first quarter, the amount owed by consumers was $4,962 per person on average, down $242 from the total seen in the fourth quarter. Both the amount owed by the average consumer and the delinquency rate on these accounts had been rising since for the previous six months.

“After two consecutive quarters of increases in both the delinquency rate and average debt, it is encouraging to see a return to declines in delinquency,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “This contributed positively to a general trend since the bottom of the recession, which saw delinquency rates remain at near-record lows. Trends in average debt year over year suggest that little more than the usual seasonal influence is behind these changes.”

These improvements were seen even as credit card issuers continue to expand their efforts to lend to borrowers with subprime credit scores, the report said. The amount of new credit cards issued nationwide rose 20 percent in 2011 compared with 2010, driven by a 24.2 percent increase in lending to subprime borrowers, up from only 21.8 percent of all accounts given to these consumers the year before. That trend continued into the first quarter of this year, when subprime accounts made up 24.1 percent of new account origination.

[Credit Cards: Research and compare credit cards at Credit.com]

Consumers with subprime credit scores likely saw their ratings take a significant hit during the recent recession, but the improving economy has buoyed credit quality nationwide and helped to repair many consumers’ personal finances as well. Lenders, recognizing this trend, have once again broadened credit standards for new accounts.

Image: shawnzrossi, via Flickr

To err is human and to forgive is divine, but some consumers find it harder to be godly when it comes to their money.

The Temkin Group, a business that consults on and researches customer experiences, has done a new survey of 10,000 consumers to determine which businesses customers are most and least likely to forgive. The 2012 Temkin Forgiveness Ratings shows a mixed bag for banks and credit unions.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

While USAA, a bank that works with military members and their families, took the top spot as the business that participants would be most likely to forgive, other financial services companies didn’t fare as well. In fact, when looking at industry averages across the study, credit card companies had the lowest forgiveness rating out of 18 industries while grocery chains and retailers had the highest.

However, consumers as a whole are more forgiving than they were last year, when Temkin conducted the Forgiveness Ratings for the first time. Banks, investment firms and credit card issuers all saw a double-digit jump in their industry forgiveness rating from 2011 to 2012.

[Credit Cards: Research and compare credit cards at Credit.com]

So what has caused this increase in consumer kindness? The Temkin Group didn’t offer much in the way of analysis of these numbers, but it could be that time heals all wounds and the more distance consumers get from the Great Recession, the more forgiving they will become of the financial institutions that were blamed for the meltdown.

Image: Swanksalot, via Flickr

These days, there are significant consumer protections in place for Americans, but at least one segment of the population might have a little trouble as a result of the increased safeguards against predatory or misleading lending practices.

One of the provisions of the Credit Card Accountability, Responsibility and Disclosure Act required lenders to consider individuals’ income when they apply for a credit card so as to ensure they can afford their payments, but this has been problematic for many stay-at-home parents, according to a report from CNNMoney. Stay-at-home parents who rely on their partner’s income to cover their expenses might have need of a credit card in their own name, but will be denied unless they can prove to lenders that they have their own source of income.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

Experts have noted that one way around this problem is for stay-at-home parents to open a card with their partner’s name on it as well, but this can be concerning for a different reason. For instance, if the couple were to separate or divorce, having both partners being co-signers on the same account can create friction and even financial problems, regardless of the intentions with which they entered into the agreement.

Further, for those who stay at home to raise their kids, not having a credit card in their own name can be problematic because it might adversely affect their credit standing.

As a result of these problems, there has been some amount of pushback from stay-at-home parents, who are now campaigning and petitioning federal agencies to change the rules so that those who do not have their own income might, under special circumstances, be able to get credit cards in their own name, the report said. Already, the federal Consumer Financial Protection Bureau, which oversees the lending industry and is in charge of enforcing the Credit CARD Act, says it is examining the way the current rules affect stay-at-home parents.

“We recognize that stay-at-home spouses have significant financial responsibilities and play an important role in the U.S. economy,” CFPB spokeswoman Jen Howard told the news agency.

[Credit Cards: Research and compare credit cards at Credit.com]

Overall, these federal protections have been a boon to consumers, but the CFPB has proposed a number of changes and new rules that will better serve Americans in how they deal with their finances going forward.

Image: Leonid Mamchenkov, via Flickr

When it gained full regulatory power over the financial services industry last year, the federal agency tasked with protecting consumers from predatory or misleading lending practices has as its primary goal the creation of simpler lending agreements that were easier to understand.

However, in the intervening months, there has been little in the way of action toward that goal. Now, though, one of the federal Consumer Financial Protection Bureau’s top officials says that the need for a uniform, simplified lending disclosure for credit card agreements is still very much on the agency’s mind, according to a report from Dow Jones Newswires.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

Speaking at a conference for the payments industry, Marla Blow, assistant director of card markets for the CFPB, stated that it’s her belief that consumers should be able to easily read and understand the terms of any lending agreement into which they enter, and that a document should be created by the agency to make that possible, the report said. The goal for such a document is that it would be more legible and understandable, while still providing legal protections and making sure the issuing industry’s concerns for disclosure forms are addressed.

Already, there has been some worry voiced by lenders that the CFPB’s trial document — currently being tested for credit card applications to the Pentagon Federal Credit Union — does not include crucial legal language that spells out the legal responsibilities between lender and consumer, the report said. The concern is that this could lead to a larger number of lawsuits over balance disputes. Currently, these complaints are the most frequently lodged by consumers with the federal agency.

However, the CFPB says that these billing disputes are largely the result of consumers not having a full understanding of their lending agreement, and that simplified disclosure forms will help them to avoid these issues in the future, the report said. Consumers also frequently complain about the interest rates on the cards they acquire, and this, too, would be included and explained in the CFPB’s ideal disclosure document.

[Credit Cards: Research and compare credit cards at Credit.com]

The CFPB has had full regulatory power since last July, but only gained its top executive earlier this year. Since that point, however, it has been far more aggressive in rolling out consumer protections for a number of financial accounts.

In less than a month, I will graduate from my MBA program at Georgetown University with more than $120,000 in student loans at 7% interest.  Six months after graduation, my grace period will end, and I will have to start repaying more than $1,000 per month.  Here is my strategy for repayment.

Earn Baby, Earn

The first thing I have to figure out is how to increase my income from its current level.  Without more money coming in, there is no chance for me to pay down my debt and maintain my current lifestyle.  Some student loan repayment strategies I’m considering are taking on another job while I continue making money on my hobbies like blogging, graphic design and website development on nights and weekends.

Consolidate my Student Loans

Right now, I have thirteen student loans outstanding.  Once the payments start after my grace period is up, I will have a paperwork nightmare. To simplify the repayment process and fix my interest rate, I am going to consolidate my federal student loans into one loan. Since I do not have any private student loans, I will be able to consolidate through the Direct Loan Consolidation program and avoid paying loan consolidation fees.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

Pick the Best Repayment Plan

There are several student loan repayment plans available to borrowers.  Recently, a new plan was created called the Income-Based Repayment Plan. When I started my business in school, I chose to take a lower salary so I could reinvest more in my company’s growth.  As a result, my Adjusted Gross Income was relatively low last year and the income-based repayment plan may be the best option for me.  It may not be the same for other borrowers, so make sure to consider your repayment options and find the best repayment plan for your situation.

Manage and Track Spending

One of the keys to successful student loan repayment is creating a budget and sticking to it every month. Personally, I use this budget and cash flow worksheet to track where my money goes and set spending goals each month. No matter your method, find a way to hold yourself accountable so you never miss a payment on your student loans.

Rapid Repayments

There are a couple strategies I plan to employ to reduce the amount of interest I pay on my student loans.  First, I am going to make a payment every two weeks, rather than one payment each month.  This method is called rapid repayment. By paying every two weeks rather than once a month, I will reduce the amount of interest I pay dramatically over the life of my loan. Additionally, rapid repayment forces me to apply one additional payment to my loan each year. If I pay once a month, I make twelve payments per year.  If I pay every two weeks, I make 26 bi-weekly payments, or the equivalent of thirteen months of payments each year.

[Featured Products: Compare credit score, report, and monitoring plans at Credit.com]

Apply Future Bonuses and Gifts Toward Debt Repayment

Debt repayment requires discipline and sacrifice.  While I want to take bonuses and gifts and buy fun stuff, I simply cannot.  The top priority after graduation is to eliminate my student loan debt as quickly as possible. In the past, my priority was building up my emergency savings fund.  My new goal is to repay my debt.  The choice is simple.  Repaying my student loans is the equivalent to putting my money into something that returns a fixed rate of 7% each year. With interest rates on savings accounts and CDs paying low interest rates, it makes more sense to apply excess cash toward debt repayment. So whenever I get extra cash in my bank account, I will use it to pay off my loans first.

Image: Donkey Hotey, via Flickr

Millions of Americans are still struggling financially, but likely do not want to pass the kind of money problems and related stresses they feel onto their kids. One of the best ways to help youngsters avoid these problems in the future is by taking the time to instill good, basic advice about money while they’re young.

Even if consumers have had trouble sticking to what they know to be good credit practices in the past, it can still be extremely helpful to kids to learn the basics of smart account management at a relatively young age, according to a report from Tulsa, Oklahoma, television station KJRH. Taking the time to sit down with kids, whether it’s regularly or just once or twice, and explain the best ways to handle a credit card account when they’re grown up so that they don’t wind up with large amounts of high-interest debt can have a significant positive impact on their financial lives.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

One of the most important things for kids to learn about credit card use is the importance of keeping their balance low, the report said. As a consequence, it might be a good idea for parents to teach them that it’s vital to keep spending so low that the balance on their card can be paid off in full every month. This is important because it won’t lead to interest charges that end up costing them more money, but will still grant them significant financial flexibility.

Further, parents should educate their kids on the importance of making sure all bills are paid on time and in full, the report said. While credit card users should always try to make more than the minimum payment on their account as a means of more quickly reducing their balance, sometimes it’s not always possible. However, this should never be the reason that cardholders miss a due date or don’t meet the minimum payment required, because this will likely lead to costly penalty fees and interest rates being applied to their balance.

[Featured Products: Compare credit score, report, and monitoring plans at Credit.com]

Finally, it might be a good idea for parents to talk to their kids about the importance of shopping around for credit cards instead of taking the first one offered to them. This will help them identify the best possible accounts available to them and put them in a good position to borrow responsibly.

When it comes to website security and functionality, Discover tops a new list from Forrester Research.

The Forrester study, titled “2012 U.S. Credit Card Secure Website Rankings,” was conducted from March 6-9 and compared the top six U.S. issuers on 50 different criteria.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

While Discover didn’t get a perfect score, it did achieve an 80 out of 100, the highest among all of the issuers. The issuer ranked highly  in the online servicing category and the site’s security features were said to be “significantly above minimum standards.”

Security is a growing concern for many cardholders. As recently as March, information associated with 1.5 million accounts was stolen from a major processor of debit and credit card payments.

[Credit Cards: Research and compare credit cards at Credit.com]

Also, talk of the mobile wallet is making consumers second-guess the security of a new payment option. As more issuers provide options for swipeless or contactless payments, security is becoming even more important for cardholders even as the industry reassures consumers that encryption used for this type of mobile payment system actually makes them more secure than regular credit cards.

Discover was also applauded for its customizable alerts that make it easier for customers to manage their accounts.

Image: Philip Taylor PT, via Flickr

Since the end of the recession, consumers have been repeatedly cutting the rates at which they feel behind on their credit card payments and repeatedly failed to pay the bills, but that trend might be reversing itself.

Analysts recently suggested that the record-low instances of delinquency and default observed by credit card lenders since the end of the recession were expected to bottom out at some point this year, and already, this might be taking place for at least one major lender, according to a report from Dow Jones Newswires. In its monthly filing with the Securities and Exchange Commission, Capital One Financial, one of the six largest credit card lenders in the nation, reported that it saw instances of defaulted accounts rise to 4.07 percent of all balances in April, up from 3.85 percent in March. Defaulted accounts are those that are 90 days or more behind on payments and are charged off by lenders as being uncollectable.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

But at the same time, the lender noted that short-term delinquencies — those accounts that are only 30 days or more behind on payments — fell once again in April, the report said. In all, this type of late payment slipped to 3.18 percent of all accounts, down from 3.25 percent in March. Generally, experts view fluctuations in lender delinquency rates as predictors of future charge offs, indicating that progress could be uneven as the year goes on.

During the recession, many consumers ran into severe financial difficulty that made it difficult or even impossible for them to pay their credit card bills on time every month, and instances of both delinquency and default spiked considerably. The problem became so widespread, in fact, that many borrowers saw their credit scores fall to the point where they could no longer qualify for any types of credit, and were therefore forced out of the borrowing system altogether, particularly as most lenders significantly increased lending standards to guard themselves against further losses.

[Free Resource: Check your credit score and report card for free with Credit.com]

But now, as the economy improves and consumers get a better handle on their finances, many lenders are once again broadening issuing standards, giving consumers with subprime credit scores access to new accounts once again. Some experts believe this might be leading to an increase in charge offs, but others say they had to increase naturally back to historical averages.