Spending Smart: Information you can bank on
09/05/2014 3:10 AM
09/05/2014 3:10 AM
In the bustle of everyday life, it can be difficult to keep up with all the trends and issues that affect your wallet as a consumer. For example, did you know there's potential for a new tax on your Internet service and that the formula for calculating credit scores is changing?
Here are four consumer news items you should know about.
Taxing the Internet for the first time. If Congress doesn't act by Nov. 1, Internet service could be taxed by states and local governments, meaning you could have an even higher cable and phone bill than you do now.
A 1998 federal law, called the Internet Tax Freedom Act, has forbidden such a tax in most states. But renewing the act, while not controversial, has become entangled in the Senate with a different issue: the collection of sales tax on goods sold via the Internet, such as a tax on a book sold by Amazon.com.
If the deadline expires with no resolution or extension, state and local governments in all states could collect sales and communication taxes on Internet service, not only access for your home Wi-Fi network, but your smartphone service too. Taxes for an individual could amount to an extra $15 to $20 a month - or about $200 a year, some observers say.
Internet service providers want the service to remain tax-free. For example, when the bill to keep Internet service tax-free passed the House in July, Comcast, in a statement, "urged" the Senate to act before the deadline.
Annabelle Canning, executive director of the Internet Tax Freedom Act Coalition, said much is at stake.
"It's clearly billions of dollars that could be imposed on consumers," she said. "And it's not only an issue for consumers, but for businesses of all sizes."
New FICO scores don't matter ... yet. Lost in the news about how the most-used credit score brand, FICO, has changed its formula for calculating scores was an important fact: It won't matter, at least for a while.
FICO, which says its brand of scores is used by 90 percent of U.S. lenders, said its new model, to be released this fall, ignores old collection agency accounts that have been paid off or settled, and it discounts bad medical debt because it's not a good indicator of creditworthiness.
That's good news for millions of would-be borrowers who might be able to get loans they otherwise would be rejected for. But lenders are not obligated to buy the new version of FICO scores, just like you can continue using the old operating system on your computer after a new one is released. It could be years before use of the new score is widespread, said John Ulzheimer, credit expert with CreditSesame.com.
The advice? If you're someone who has old debts in collection because of medical bills or old debts that have since been settled or paid off, shop around for loans and hope to hit on a lender using FICO's newest version, FICO 9, due to be released this fall.
"If you want to leverage the consumer-friendly aspects of FICO 9, then you've got to find a lender that's actually using it," Ulzheimer said. "That underscores the importance of not only shopping for the best deal from lenders, but also the best credit-scoring model."
If you have old paid-off collections, it's especially important to shop around. First, your score is likely to change dramatically. Second, FICO's rival score-provider, VantageScore by Experian, also changed its scoring system, and it claims that hundreds of lenders already use its score that ignores those paid-off old debts.
"So if you're a consumer who has good credit but for a few paid collections, it would be considerably easier for you to find a lender who uses the VantageScore than it would be to find one that uses FICO 9, at least right now anyway," Ulzheimer said.
If you never defaulted on a debt, none of this affects your credit score.
More free credit reports. The official place to get your free credit report once a year is AnnualCreditReport.com. You can get one free report a year from each of the three credit bureaus: TransUnion, Equifax and Experian.
But recently, Credit Karma, a personal finance website, announced that through its site, it will let you see one of those reports - from TransUnion - for free more often, even weekly.
While Credit Karma will try to nudge you toward financial products, such as applying for credit cards, you're not obligated. Note that this is not about your credit score. Instead, it's about the reports that scores are based upon. (Credit Karma also provides one of the lesser-used scores for free, from TransUnion.)
You will have to provide the last four digits of your Social Security number to access your reports. It's important to monitor credit reports to find errors and possible fraudulent use of your identity.
The only downside is that credit information can vary among credit bureau reports, and Credit Karma gives you frequent access to just one of the three.
Bitcoin advisory. Virtual currencies, such as bitcoin, XRP and Dogecoin, might seem like a good alternative payment system online or even an investment, but they carry significant risks. So much so that the Consumer Financial Protection Bureau issued an advisory recently, calling them the "Wild West" of financial products. It said these forms of electronic money often have unclear costs, volatile exchange rates, and the threat of hacking and scams, and that companies may not offer help or refunds for lost or stolen funds.
The currencies are not backed by any government. Bitcoin, for one, fell as much as 80 percent against the dollar in a single day this year, exposing investors to massive potential losses. Recently, a bitcoin was valued at less than $500 but had been valued at more than $1,000 over the past year.
Consumers who encounter a problem with a virtual currency product or service can now submit a complaint with the CFPB at consumerfinance.gov.
Companies and industries sponsor polls released almost daily that reveal seemingly interesting consumer "facts." But the rigor of some of the surveys can be suspect, sometimes the result of an unscientific online poll on an organization's home page. Others put more work into it.
But for fun, here are some recent findings.
The average household spends nearly $670 on back-to-school shopping, according to the National Retail Federation's 2014 Back-to-School Survey. But GoBankingRates found that 84.3 percent of Americans feel that less than $500 is more reasonable, with more than half saying the budget should be less than $200.
Campus bookstores are known for price gouging, says DealNews, but it turns out that textbooks aren't the only items they sell at a premium. DealNews researched online bookstores of six universities and found that laptops and tablets are sold at higher-than-average prices, sometimes costing up to 135 percent more than back-to-school deals on the same computers.
A poll released by GoBankingRates and The Penny Hoarder unearths a statistic that is startling, if accurate: 73 percent of Americans have less than $1,000 saved or don't have a savings account at all.
A study by Cheapism found that consumers shopping at warehouse club Costco can save 25 percent over conventional retail stores on such items as food, clothing and electronics. That's plenty to cover the $55 Costco membership fee, Cheapism concluded, conceding that a limited selection at Costco is a weakness.
ABOUT THE WRITER
Gregory Karp, the author of "Living Rich by Spending Smart," writes for the Chicago Tribune. Readers may send him email at firstname.lastname@example.org.
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