Ryan Ermey: You've checked your credit report and ... there's a mistake or evidence of fraud. It may be a battle to get it fixed. So we've brought in the heavy artillery for you. Kiplinger credit maven Lisa Gerstner, who joins us for a main segment interview. On today's show, Sandy and I get you ready to budget early for holiday shopping and a new edition of Financial Fact or Fiction revolves around credit card usage and evaluating mutual funds. That's all ahead on this episode of Your Money's Worth. Stick around.
- Episode Length: 00:27:52
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Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey, joined as always by my partner in crime, senior editor Sandy Block. Sandy, how are you?
Sandy Block: I'm good. And I am not committing any crimes today.
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Ryan Ermey: Thank goodness. So we here at Kiplinger like to be plenty proactive when it comes to finances. And that's why we're talking about holiday shopping, spending and budgeting today, because we'd like you to get an ample head start-
Sandy Block: That's right.
Ryan Ermey: ... so that you don't go over your budget.
Sandy Block: Christmas is right around the corner.
Ryan Ermey: As are all the other lovely holiday traditions. We don't want to leave anyone.
Sandy Block: No, no. And the Halloween decorations are already up in the stores.
Ryan Ermey: That's true. Halloween is my favorite holiday by the way.
Sandy Block: Yeah. No pressure.
Ryan Ermey: Yeah. So when we start thinking about holiday budgeting, to me it's about being proactive and actually creating a budget. And this is worth thinking about now because we all end up doing the same thing when the holidays actually roll around, which is you wait until the last second to buy everything for everyone on your gift list. And you go, "Ah, it's like 10 bucks more than this, and it's another 50 bucks. Alright." You know, like whatever. And you end up going way over budget and you can get yourself in trouble.
Sandy Block: That's right. And what I do is I end up running around at the last minute buying presents for people who bought presents for me.
Ryan Ermey: Right. So, yeah. So, the way to go about this and the advice that we've given in the magazine before is to set a strict budget that you can't go over. And one of the ways to do this is to put whatever amount of money you allocate for the holiday season. And that can include your gifts, it can include your-
Sandy Block: Travel.
Ryan Ermey: ... travel. You want to buy-
Sandy Block: Parties.
Ryan Ermey: ... decorations, you want to but booze to bring to parties. Try to factor all of that in and come up with a number that you're comfortable with. And then to make sure that you're not going to go over, consider putting the money into something like a low-fee prepaid card. We like the AMEX Bluebird card, which is low fee. It comes with FDIC coverage, even has some handy budgeting tools. And then once that money's gone, it's gone.
Sandy Block: No more gifts.
Ryan Ermey: It's the same with, you could equally stash your budget in a dedicated no fee, no minimum checking account. But the point is the same. And one of the strategies I came up with, I wrote a holiday gift giving guide for the broke back in my intern days. When I was honestly and truly broke. One of the pieces of advice I got from someone was to create a prioritized gift list with-
Sandy Block: Mom at the top.
Ryan Ermey: ...really, yeah, exactly. Do it like line items. Yeah. Mom is at the top and gets the most money going all the way down to whoever. And if you're doing that thing where, "Oh no, my friend got me this gift, I should give them something back." Leave a little bit of room at the end there for a little bit of wiggle room. But the point of the exercise of breaking things down by line items like that is that you don't end up spending $65 on aunt Debby and then you have $10 left in your budget for mom.
Sandy Block: For mom. Yeah. Right. Good advice.
Ryan Ermey: And the other side of this is you can find some ways to boost that budget. Some easy ways that you can pump up the available funds you have for holiday spending.
Sandy Block: Right. And we actually have a slide show on our website that has all kinds of ideas. Some of them, which I discarded, because for me they were too much work. I am not going to start walking dogs or driving Uber, I just, I'm sorry people, I don't care about you that much. But there were some good ideas that require minimal effort that I took note of that I thought were really interesting. One is to look for unclaimed property. There are billions of dollars in like leftover bank accounts. Paychecks you didn't get, I found some stock dividends a few years ago, and it's very easy to search for them. One of the, we'll put them on the show notes, but the most popular website is www.missingmoney.com so go on there. You put in your name, your address, and you find out if the state's got some money you forgot about. Well, that's really easy.
Sandy Block: Another one, and this one I have also applied, used to buy gifts... to see if you've got unused rewards on your credit cards. Now I know a lot of our readers are very vigilant about using their rewards, but a lot of people just happen to have a rewards card. And what I do is periodically I go on mine and cash it all in for Amazon gift cards. And then I just have them in my file and then I use it to buy gifts. And you can buy practically anything on Amazon. So that's some extra money laying around that you might know about. You got any ideas, Ryan?
Ryan Ermey: Well, you mentioned gift cards, which is, by the way, a good idea for staying on budget, right? You're not going to go over-
Sandy Block: Right. This is 20 bucks...
Ryan Ermey: ... you may also have gift cards laying around. I think I have gift cards that I received as gifts that I haven't used for a couple years. We've recommended websites in the past that you can exchange those for, I mean, you don't want to, re-gifting is always tough and unless it's something maybe you got a Home Depot gift card that your dad would love or whatever. But otherwise you can cash in old gift cards or exchange them for other gift cards that people might like. Of the suggestions laid out by our colleague Bob Niedt in that slideshow, that's N-I-E-D-T, for those who are interested. There's a couple that stood out to me that seemed fun.
Ryan Ermey: I know that you mentioned not wanting to do too much work, or really do anything too extreme, like I don't want like anything that's just going to be like a bummer.
Sandy Block: I'm not selling my blood.
Ryan Ermey: Yeah. I don't want to sell any fluids. I don't want to sit for any polls or focus groups.
Sandy Block: Clinical trials.
Ryan Ermey: Yeah, really. Sure, what could go wrong? Show up at Christmas is like a third eye growing up. But there's a couple that I think sound fun. One is doing TaskRabbit or Fiverr, sort of small gigs for stuff that you already kind of like to do. You know, for me, I'm like a fastidious grammar person. Maybe I can pick up a couple of extra little jobs, copy, editing or doing something like that, just for a little bit of extra money. There's a very, very trendy restaurant like caddy-corner to me in my fun, hipster neighborhood in D.C. And there's people online, there's no reservation. So there's people online there starting at about 4:00 every single day.
Ryan Ermey: Now that the weather is nice, my plan is to maybe go on TaskRabbit and see if I can't get extra money to just sit online and read a book.
Sandy Block: Get online, there you go.
Ryan Ermey: And the last thing I wanted to mention, I encourage people to go back and listen to our interview with our former colleague Kathy Kristof, who runs a website called Sidehusl.com. There are a lot of side hustles out there that people might find quite enjoyable. I'm not going to go and walk people's dogs, but I know people who would do it for free just to hang out-
Sandy Block: Just because they like dogs.
Ryan Ermey: ... with dogs all day. You can get paid for that. The one that I think is pretty interesting is this idea of giving tours of the city that you live, and I've lived in D.C. for a decade now, and I'm still relatively hip. And they have these sites that you can find, Vayable is one, ToursByLocals, where local people can give tours to incoming tourists of the city.
Ryan Ermey: And, am I going to go around and tell them the history of the Jefferson Memorial? No, but I could run a pretty good dive bar tour. And it's fun, you get to meet new people, and you can charge, I mean, if you go on these sites and look around, you can charge a lot of money to bring people to the same crappy bars you're drinking at anyway. So the bottom line, if you want to find ways to pump up your budget a little bit for the holidays, go right ahead. But the bottom line is you should have a budget and stick to it. Otherwise you could really get into trouble over spending. So like I said, mom at the top of the list, make sure you know what you want to spend and you should be okay.
Ryan Ermey: After the break, Lisa Gerstner prepares you to do battle with the credit bureaus and win. Don't go anywhere.
Ryan Ermey: We're back and we're here with Kiplinger's contributing editor Lisa Gerstner, you've probably heard her on the show before. She is the master of all things credit for the magazine. Lisa, thank you for coming on.
Lisa Gerstner: Thanks for having me again.
Ryan Ermey: So you have a story in the October issue of Kiplinger's, Battle the Credit Bureaus . . . and Win, like a hardcore headline, I love that. So we're always reminding readers to check their credit reports at annualcreditreport.com and to check to see if they have any mistakes. But what the story points out is that if someone actually finds a mistake, it may be tougher to remedy than they think. Why is that?
Lisa Gerstner: The system is not necessarily designed to be consumer-friendly, and a lot of it is automated. So say you find a problem on your credit report, something is an error, and you want to go to the credit bureaus and have it fixed. You submit your dispute and you can write up a whole letter describing what the problem is. But what they're going to do typically is just distill that dispute into a two or three digit code based on the type of dispute that it is. So, it all gets down into just a couple of digits and then it's sent to the lender or whoever supplied the data in question. So, that could be a collection agency or whoever that may be.
Lisa Gerstner: So then that data furnisher reviews the case, decides whether there's actually an error here or not in their opinion. And then they send that information back to the credit bureau and the credit bureau regurgitates it back to you. That's typically how the process works. So there's really not a whole lot of room for nuance when everything is so automated. And that's difficult for people to come back or battle as we used in the title of the story. So I think that's really where a lot of the problem comes in. And it's just such a massive system that we're dealing with. The credit bureaus have information on so many people and so many disputes that they have to get through.
Lisa Gerstner: So I think that's where the root of the problem really is. There had been some reforms in recent years that are, they're supposed to help with this. So if you send supporting documents in with your dispute, like a bank account statement, for example, saying that you paid a bill, even though it's being reported that you didn't, they should be sending that onto the data furnisher. And the furnisher should be considering that. And the bureau should be conducting some of their own investigations on their end. But studies I've seen kind of surveying what's going on here suggest that all of this isn't necessarily happening or if it is, it's not really at the pace that they would want it to be. So, that's what you're up against when you're looking at disputing an error with the credit bureaus.
Sandy Block: So Lisa, when you get your credit reports, and given that it's not easy to fight them, what errors should you be on the lookout for and what's worth actually going head to head with them to try and get something fixed?
Lisa Gerstner: The biggest problems are going to be either accounts that don't belong to you, maybe a credit card that was opened in your name, but it's not yours that perhaps an identity thief is out there at work, or maybe collection accounts that show up in your name. It could be from a medical bill that a thief didn't pay, or utility bills or loans or anything like that. Anything on there that's really negative information, it can have a significant effect on your credit score. It can drop by a hundred points or more when something like this happens. So those are the ones that are really problematic and that you absolutely need to get resolved. Other things that you should keep an eye on even on legitimate accounts that you do own, make sure that the balances are correct, that any accounts that you've closed are marked as such.
Lisa Gerstner: Accounts will typically stay on a report for another 10 years after they're close, so just makes sure that it's marked that way. And then just personal information about you. So if you see an incorrect address, that could be a sign of identity theft, it may seem kind of harmless, but things like that actually can be a problem. So mixed files also, those can be really difficult for people to resolve and an incorrect address can also be a sign of that. So if someone has maybe a very similar name to you, and a similar Social Security number, sometimes the bureaus will actually get that information mixed up between the two of you. And then you've got all this incorrect information on your report.
Ryan Ermey: So you see in the story that you should dispute errors on two fronts, with the furnisher and with the bureaus, why take this sort of two pronged approach?
Lisa Gerstner: Going to the furnisher is often your best bet to actually get that information removed from your report. Because as I'd mentioned, they're ultimately the ones deciding, the credit bureau is just going to send it over to them and they're going to review your case. So if you can talk to that furnisher and convince them that something is wrong, they have to go back to the credit bureaus and correct information with all the bureaus that are reporting it. So, usually your credit report will show contact information for that furnisher. You can call them. Try to go through the system. If the first person doesn't help you, ask for a supervisor. Ask for someone in a different department, you may have to be persistent and keep trying.
Lisa Gerstner: So, That's what you want to do on that end. On the other hand, you do want to dispute with the bureaus, even if it's not necessarily very helpful, because it does preserve your legal rights.
Ryan Ermey: Paper trail.
Lisa Gerstner: So if this doesn't work out. Yeah, if they don't correct this error or the fraud that's on your account, it preserves your right to file suit against the lender or the bureaus. So you do want to do that. And I talked to a lot of attorneys for this article and all of them said, "File your dispute in writing on paper and send it over snail mail." Going online is quicker and it's easier and you may get a faster response, but then you have that paper trail if you do have to go to the legal route." So that's one bit of advice there. And I would just say be very clear and concise when you're writing this letter describing your problem because it's all automated, nobody's really going to be reading your novel about this terrible problem that you're having.
Sandy Block: So, Lisa, how should your strategy differ if you're reporting a case of fraud versus just reporting an error?
Lisa Gerstner: The law actually has special stipulations for fraud or identity theft and that works to your advantage. It often means that you're going to get a quicker, more streamlined result, but you do have to take certain steps for that. So what you want to do is go fill out an identity theft affidavit at identitytheft.gov, you go through, describe all the problem that you're having, and then you're going to have to send that to the bureaus along with proof of your identity, a description of which information on your credit report is fraudulent, and then just a statement saying that this resulted from a transaction that wasn't yours.
Lisa Gerstner: If you take all those steps and you send that in, they're supposed to remove the fraudulent information from your credit reports within four days. It's often a good idea just to contact the bureaus first, just to make sure that you're sending the information to the right place, that you're providing the type of proof of identity that they want, whether it's a driver's license or a birth certificate, whatever it may be. But in the ideal world that will go a little more smoothly for you than an error.
Ryan Ermey: So in either case, if you have been given the run around by the bureaus or by the furnishers, you say that it's time to turn to a third party. Who should people turn to in those scenarios?
Lisa Gerstner: A good step to take is try submitting your complaint to the Consumer Financial Protection Bureau. They have a whole portion of their website dedicated to complaints, and what they'll do is take your complaint, they'll send it to any bureaus that you mention, and then the bureaus are supposed to review that and send a response. And then the CFPB will get that response back to you. That may get their attention more than going kind of the standard route, which you should try first. Also, sometimes there are state agencies that can help -- your Department of Consumer Affairs, Attorney General's Office, other places you could go to.
Lisa Gerstner: Another one that I thought was kind of an interesting suggestion that I heard was writing to your Congressman or Senator. I'm not sure how effective it is. I'm not sure if they'll take notice of your letter, but if they do and they decided to contact the bureaus on your behalf, that will certainly get their attention. And then when all else fails, take legal action. You can go to a lawyer. There's a website called ConsumerAdvocates.org and they actually have attorneys who specialize in credit reporting on there, if you kind of search through their menu you can find them. And those attorneys often work on contingency. So if you take the case to court and it doesn't win, you don't pay anything, if it does win, they take a cut of your compensation.
Sandy Block: So, Lisa, I think I've mentioned this before on the podcast, whenever I'm listening to our all news radio station in the car, I hear these ads for these companies that say that they can clean up or repair your credit. Is this an option or is this something you should avoid?
Lisa Gerstner: Most of the time that's something you want to avoid. So credit repair companies often they'll promise to clean up your credit report for a fee, but sometimes they'll even combat legitimate information that should be on your report. Accounts that you paid late and things like that. And so because of that, the credit bureaus can just dismiss them if they think that that's what they're doing, that they're actually trying to fight information that should be on your report. So, that's one reason you don't want to go with those. And plus, you can do better on your own without paying a fee as long as you know the system.
Ryan Ermey: And as long as you're willing to battle-
Sandy Block: And read our story.
Lisa Gerstner: Exactly. You are armed.
Ryan Ermey: Right. Prepare for battle with Lisa's advice, which as we mentioned, you can find in the October issue of Kiplinger's on newsstands now and up on the website and surely in the show notes for this episode. In the meantime, Lisa, thank you very much for coming on. Wonderful advice as always.
Lisa Gerstner: Thanks for having me.
Ryan Ermey: Is it really worth paying attention to one, three, five and 10 year mutual fund returns, Financial Fact or Fiction is next.
Ryan Ermey: We're back, and before we go, Sandy and I wanted to play yet another game of Financial Fact or Fiction. Sandy, you're up.
Sandy Block: Okay, here's mine. Closing credit cards you don't use or aren't using will help your credit score, fact or fiction?
Ryan Ermey: I know that closing a card in general might ding your score, but I don't really know what the deal is if you're not using it.
Sandy Block: That's right. It doesn't matter if you're not. This is a little counterintuitive because you think you're trying to clean up your credit score and prove... get rid of some of these credit cards, right? Why not? Well, here's why. Because the calculation of the credit score includes something called a credit utilization ratio, and basically that is a ratio based on the amount of overall credit that you have access to and the amount of credit that you actually use.
Ryan Ermey: Right. So they don't want you coming close to that... every month.
Sandy Block: Right, they don't want you to use everything you got, right. So the lower your utilization ratio, the higher your score. So closing credit cards, while that might remove some temptation, is going to reduce your available credit. And unless you really reduce your spending by that same amount, it could hurt your score. So the advice I think I would suggest is just, if you have credit cards you're not using, don't close them, just put them away.
Ryan Ermey: Just cut them up.
Sandy Block: Yeah. If you're worried, well, because you might need them at some point.
Ryan Ermey: Fair enough.
Sandy Block: But one thing I've heard is one of these like online penny saver tips or something is if you really are tempted, like maybe in the middle of the night, you're afraid you'll use these cards to like order stuff online, put them in a block of ice and put it in the freezer. So by the time it defrost, the temptation will have past.
Ryan Ermey: A quite literal credit freeze.
Sandy Block: That's right, you freeze your credit. So don't think that canceling credit cards will help your score. It won't help it and it could hurt it.
Ryan Ermey: Alright. So mine is when assessing a mutual fund, you should consider it's one, three, five and 10-year returns.
Sandy Block: Well, I would think that's a fact, Ryan, because that's something you always see. Here's your, in the ads, they always say, "Best buy-"
Ryan Ermey: ...one, three, five-
Sandy Block: ...that's right. So why is that, why would that not be true?
Ryan Ermey: So a funds long-term performance is an important thing to consider. You always want to take a look at a mutual fund's track record. But you want a fund that can perform consistently well against its peers and against its benchmark index. So the deal with one, three, five, 10 is a fund can be an absolute dog for nine and a half of those 10 years. But then in the most recent six months, it went up 1000%, and that's going to boost all of those numbers.
Sandy Block: Right. Which would only benefit you if you've owned it in the last six months.
Ryan Ermey: Right. And you've had it for ages and it's been horrible. So instead you want to look at a long-term track record, but you also then want to look at those returns broken out by calendar year. And this is something that you can do on Morningstar.com among other places. And you want to be looking at, alright, where is it finishing as a percentage of similar funds?
Sandy Block: Its benchmark, yeah.
Ryan Ermey: Morningstar breaks these things out into categories. So, like a large growth fund or something like that, like an S&P 500 fund would be a large company US blend fund and how it's doing against its index. And there are a couple other important things to consider. Of course cost is one of the very, very most important determinants of investment outcomes. So you want to look for funds that charge inexpensive or at least below average expense ratios.
Ryan Ermey: Volatility is another thing to consider. So what we're talking about, for year to year performance, you should be aware if a fund has sort of big swings in performance and that's how it drives its long-term returns. Or if it's sort of more of a steady Eddie. One metric that you can find for a mutual fund is standard deviation. If it's higher than the index, that means that it's more volatile than that index. One more thing to consider for active funds is manage your tenure. A fund can have a 20-year track record, but that really doesn't mean much if the person who was running the show-
Sandy Block: Just quit.
Ryan Ermey: ...has retired.
Sandy Block: Yeah, that's right.
Ryan Ermey: And they always say, "Oh, you know we have this plan in place and he's worked under him for years and all that." And that doesn't mean you should dump a fund whenever a manager changes. But if you're considering a fund, it's worth kind of sitting back and assessing, you know, what the fund is going to look like under this new manager. Sometimes the strategy can change drastically.
Sandy Block: Overnight. That's right.
Ryan Ermey: And the final thing I wanted to mention is that when it comes down to it, you should consider if an index fund makes sense. We already talked about costs. Index funds keep costs extraordinarily low.
Sandy Block: Right. They're very tax efficient because they don't have a lot of turnover.
Ryan Ermey: Exactly right. You took the words out of my mouth.
Sandy Block: I'm the tax person here.
Ryan Ermey: And you get broad diversified exposure to, I mean, you can get basically huge chunks of the market, like the whole US stock market, or you can get very niche sections of the market, say a particular sector or even region, and you're going to do that in a low cost, diversified way. And most active managers in fact don't beat their benchmarks on a long-term basis. So for cheap, broadly, diversified exposure, that's worth it. But on the whole, when you see these commercials that say, you know-
Sandy Block: "Best five year record."
Ryan Ermey: ..."Best one, three, five and 10." That doesn't really mean a lot. So it's worth drilling down, especially if you're considering an actively managed fund, one that's trying to beat an index on a regular basis. It's worth looking at that performance parsed out to see how consistent the performance has been over time. And that'll just about wrap it up for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show visit kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcasts@kiplinger.com and if you like the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.
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