Ten Mistakes to Avoid When Trying to Improve Credit Scores

Ten Mistakes to Avoid When Trying to Improve Credit Scores

Don't damage your credit score further by rushing to do things that may intuitively make sense when trying to fix bad credit, but will actually negatively impact your credit score more. Let’s first look at what makes up one’s credit score, as developed by Fair Isaac:

The exact formulas for calculating credit scores are a closely guarded secret; however, Fair Isaac has reported the following components and the approximate weighted contribution of each as key factors:
35% - payment of credit accounts on time in the past (only includes payments later than 30 days past due)
30% - the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% - length of credit history
10% - types of credit used (installment, revolving, consumer finance)
10% - recent search for credit and/or amount of credit obtained recently

Mistake #1: Cancelling old credit cards. Remember, fifteen percent (15%) of your credit score comes from the age of your credit history. Therefore, cancelling your oldest credit card can often be a mistake. In addition, if you have balances on other credit cards, cancelling an old credit card that you don't use can impact your debt ratio, which makes up 30% of your score. If you don’t have other sources of credit that are older than seven years, do not cancel your oldest credit card.
Mistake #2: Paying “most” of your credit cards on time. 35% of your score depends on whether your payments were made on time (only payments that are more than thirty days late affect your score.) If you must be late on any card, make up that payment before it’s thirty days late. Don’t make the mistake to keep up with all but one or two of your cards and let those go later and later; instead, juggle the cards a bit if you have to, but make sure you are not too late on any one card.
Mistake #3: Requesting more credit than you need. 10% of your credit score comes from the types of credit used, so if you have a lot of open sources of revolving credit (i.e., credit cards), you may be seen as a credit risk because you have the potential of racking up a lot of debt very quickly. Don’t open store credit cards just to get a discount or other perk, and if you have any recently opened store cards, cancel them as soon as they’re paid off.
Mistake #4: Maxing out your cards. 30% of your score is developed from the ratio of your credit card debt to your credit limits. So, if all of your cards are maxed to their limit, your credit score will suffer even if you’re keeping up with the payments. Don't continue to charge and buy more and more on credit. Instead, focus on paying down the cards by making extra payments.
Mistake #5: Avoid taking loans and debts.When it comes to your credit report, no debt is effectively bad debt. If you’re a credit card avoider, you should consider getting one and making an occasional purchase with it - paying the balance on time. Some people use one credit card such as a card affiliated with their favorite gas station chain.They use it just for gas purchases, often racking up discounts on it, paying it off in full each month. This will help them maintain a solid credit score in case they need a loan in the future.
Mistake #6: Requesting a credit limit reduction. Many consumers believe that they have been granted too much credit and that they’re better off reducing their credit limits. The only significant effect a limit reduction has on your credit score is a negative effect on your debt ratio. Don't request a credit limit reduction unless it has a huge psychological value for you; otherwise, it will hurt your credit score.
Mistake #7: Using the first credit counseling service you hear about or find online. Very often, the ones that advertise the most are the ones that do the worst job. Use the FTC’s advice when searching for a reputable credit counseling service in your area. Call several of them and ask the questions from the FTC page to find ones that seem legitimate, then check with the Better Business Bureau before moving signing with one.
Mistake #8: Declaring bankruptcy. Too many people declare bankruptcy because they believe it’s the only way out. Before taking such a drastic measure, seek counseling first with one of the legitimate sources mentioned above. Bankruptcy can destroy your credit score for a very long time. Very often there are better solutions available to you, such as negotiating with creditors.
Mistake #9: Credit card arbitrage. Playing this game can seriously damage your credit score if you’re not an expert. Stay away ufrom this practice unless you’re financially stable and know exactly what you’re doing; if you make a mis-step, your credit score could easily be destroyed, and for a long time.
Mistake #10: Never checking your credit report. Most people who behave well with their credit just assume that their credit is fine, but sometimes errors can show up on your report. Visit annualcreditreport.com to get the free report that the United States government guarantees you from the three major agencies.

Tags: improve credit scores,

Lenders act to limit US foreclosures - Yahoo! News

Here is an article that is extremely imporant for anyone who is having trouble paying their mortgage. There is some help out there. Try to make your e mortgage payments on time, so that your credit score does not suffer. Talk to your lender to let them know you are having difficulties to see what type of assistance they may be able to offer.

Lenders act to limit US foreclosures - Yahoo! News
Lenders act to limit US foreclosures
By Mark Trumbull, Staff writer of The Christian Science Monitor Thu Apr 26, 4:00 AM ET
"The home-loan industry, facing the worst housing downturn since the early 1990s, is ramping up efforts to help strapped borrowers stay in their homes.
The goal is to restrain a gathering wave of foreclosures that carries big costs for both lenders and borrowers.
This rescue effort isn't expected to save every at-risk homeowner. But it promises to reduce monthly payments for many who have fallen behind on mortgages. In the process, it could help to stabilize a struggling real estate market.
So far the housing slump, precipitated in part by overzealous borrowing and subprime lending, continues its downward slope. In discouraging news for homeowners and homesellers nationally, a report Tuesday showed "the deceleration and declines in home prices are showing no signs of turnaround." Citing February data, Standard & Poor's Case-Shiller index of housing prices in 10 cities posted a 1.5 percent drop from February 2006 – an annual decline not seen in 15 years.
That news follows hard on a revised 2007 price forecast by the National Association of Realtors. NAR said this month it no longer expects the median price of an existing home to rise this year, predicting instead a 0.7 percent decline. The slower recovery, it said, is a result of "tighter lending criteria and fallout from the subprime loan debacle."
Some lenders offer to refinanceImpelled by financial and political pressures to try to curtail foreclosures, lenders are taking action on several fronts:
• Fannie Mae, America's leading mortgage lender, says it plans to help as many as 1.5 million "subprime" borrowers – people with low credit ratings – refinance out of high-interest loans.
• Freddie Mac, which like Fannie Mae is a government-backed corporation, is creating new products to make homes more affordable to buyers with poor credit. Freddie Mac doesn't make loans directly but pledges to buy as much as $20 billion worth of these mortgages from participating lenders.
• Washington Mutual, another giant lender, says it will refinance $2 billion in subprime loans, helping borrowers avoid foreclosure. The new loans will come with below-market interest rates.
• Some finance companies are partnering with nonprofit organizations that act as advocates for at-risk borrowers.
• In addition to efforts by specific companies, the Mortgage Bankers Association announced a foreclosure-prevention campaign in partnership with the nonprofit group NeighborWorks America. They will link homeowners to a free counseling hotline (888-995-HOPE) provided by the Homeownership Preservation Foundation, boost the capacity for homeownership counseling within NeighborWorks, and conduct a national ad campaign for homeowners in financial distress.
All of this represents significant relief, but the magnitude of the problem is large and growing.
"We're struggling to provide help" to troubled borrowers, says Robert Pulster, who heads a Boston nonprofit group called Ensuring Stability through Action in our Community. "We're seeing double the problem that we were seeing last year."
The lenders themselves are careful not to overstate what the new projects can achieve. "While these efforts will help cushion the expected rise in foreclosures, we need to be clear that these offerings are not a panacea," said Richard Syron, chief executive of Freddie Mac, as he unveiled the new products at a congressional hearing April 17.
Even when the economy and the housing market are strong, some borrowers run into financial difficulty because of events such as job loss, divorce, or illness.
Over the past year, two other factors have driven the rise in past-due loans and foreclosure filings.
One is known as "payment shock," when adjustable-rate loans reset sharply upward. Lenders in recent years failed to consider whether the borrowers will be able to afford their loans once initial "teaser" rates adjust, critics charge.
The other is simply that a decade-long housing boom stalled out. Some who bought homes near the market peak – often with no down payment – owe more than the house is now worth. So selling it offers no sure escape route from foreclosure.
But foreclosure is costly for lenders, chewing up tens of thousands of dollars in missing loan payments, home-sale expenses, and property maintenance. If foreclosures are concentrated in a community and drag down home values, that's bad for lenders' business prospects.
Politicians have been prodding lenders to help at-risk homeowners. In congressional hearings, Democrats have bashed the mortgage industry for helping to create the problem. Nonprofit organizations have added to the pressure.
Rita Askew, safe at homeRita Askew of Evanston, Ill., is one borrower who remains in her red-brick townhouse thanks to help from her lender and community groups.
Her husband, the family breadwinner, had to leave his school-maintenance job for several months last year because of an accident. "I probably would have been selling my house," Mrs. Askew says, if the National Training and Information Center (NTIC) hadn't stepped up for her.
NTIC helped win a loan-modification accord that cut the monthly payment from $1,668 to $1,117. The interest rate dropped from 10.6 percent to 6.0 percent.
Several major lenders, including Ocwen Financial Corp., CitiFinancial, and Select Portfolio Servicing Inc., have agreed to partner with NTIC to negotiate "workout" deals when possible for troubled loans.
But for people who face difficulty paying their mortgages, the choices can narrow quickly if the loans go unpaid for a month or more.
Borrowers can seek a traditional refinance deal with any lender. They can seek temporary forbearance or a loan modification deal. Some can successfully sue the lender, showing that the original loan process violated state or federal laws. Or they can try to sell the home, perhaps talking the lender into accepting proceeds that fall short of the loan balance due.
Housing advocates say to beware of "rescue" scams, outfits that charge big fees and then fail to help people stay in their homes."

Tags: Lenders act to limit US foreclosures, credit score

What are Ways ID Theft Can Occur?

What are Ways ID Theft Can Occur?

First what is Identity Theft?
Identity theft is a very bad event that causes a lot of harm to a consumer’s credit. Think of how you would feel to know that someone else has used your credit and has left all the responsibilities and problems for you. Once the fraudulently opened accounts start appearing on your credit report, it will lower your credit score for sure because the ID thief is not likely to behave well with your credit.

What are Ways ID Theft Can Occur?

ID thieves have so many ways to scam people - and it is an easy crime to get away with. It is important for consumers to know how thieves can get access to personal information, and use it.

• By stealing or hacking the database of a business.
• By stealing your wallet.
• By stealing your snail mail or email containing your personal information, or submit a change of address form and bypass your mails to their door. (shred your junk mail and other correspondence)
• They can get your personal information from trash.
• They can steal your information through fake mails, phone calls and from duplicate sites purposefully build to scam people.
• They can pull your credit report by camouflaging as employer, creditor or land-lord.

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So what happens when ID Theft occurs?
Using your personal information, crooks can ruin your credit in a very short time. They can –

• Open credit card account in your name.
• Take out bank loan to buy a car.
• Open a bank account with your information and write a number of bad checks.
• They may apply for a phone service in your name, obviously the bill will be charged to you.
• They can quickly do all of the above!

How can I avoid the scam?
There are some things that you can do to help you avoid identity theft. Here are a few:

• Do not carry extra credit cards with you that you do not need.
• Never disclose your SSN to a person who you do not know or send it out over an unsecured media.
• Keep a watch on your credit report regularly and make it a habit.
• Periodically check your bank statement.
• Close the credit cards that you are not interested to use any more.
• Do not have your SSN printed on your check leafs.
• You can stop pre-screened credit offers or ask credit reporting agencies to block your date of birth and SSN on your credit report.
• Do not respond to any email that states unrealistic message for you, like your bank account has been closed or craps like that. If necessary, type the website address of the concerned institution by your own, do not follow the link embedded in the emails.
• You can subscribe to an identity theft prevention service, such as LifeLock, that will take care of all of this for you.

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Credit Repair and Buying a Home

Credit Repair and Buying a Home

If you are considering buying a home - stop! Before you do anything else, get a copy of your credit report. You can obtain a free copy once each year from AnnualCreditReport.com.

Why get your credit report? Well the fact is that most credit reports contain erroneous information which, in some cases, may affect your credit score negatively. It is very important to check your credit report very carefully, and if you find errors, dispute them immediately with all three of the national credit bureaus. It can take 30 days or more to get erroneous items deleted from your credit history.

Your credit score is used to determine the rate of interest that you will pay for the mortgage. Erroneous or negative items listed on your credit report could bring that score down considerably, costing you thousands of dollars over the course of the mortgage. You can improve your credit score; however, it can take some time, so start early.

Credit repair and buying a home are definitely tied. Even if you think you have very good credit, be certain. Check your credit report because may people have been victims of identity theft, affecting their credit horribly, and they don't even know it.

So, before you start looking for a new home - get your credit report in shape.

Tags: Credit Repair and Buying a Home

Personal Information Contained In Credit Report

Personal Information Contained In Credit Report

If you have never looked at your credit report, you may be wondering what type of information it contains. First of all, we do advise that you order a copy of your credit report from each of the three major reporting bureaus at least once each year. You are entitled to one free report each year, and may access your reports for free online at AnnualCreditReport.com.

You may be surprised at the amount of sensitive personal information that it contains. In addition to your name, address, and past residence addressess, you'll also find your date of birth, social security number, and employer. In addition, information about every credit account and whether or not you pay on time, any collection activity, or legal judgements will also appear on your report.

Understand your credit report and all of the listings there to be certain that you have not been a victim of identity theft. Check your report very carefully for erroneous items or any indication of fraud. Any errors should be disputed and reported immediately to the credit bureaus so that your credit is not negatively impacted.

Personal information contained in credit report should also be safeguarded. Be careful to whom you give access to your credit information. Identity theft prevention protection is available, and highly recommended.

Tags: Personal Information Contained In Credit Report

Info on Credit Repair Websites

Info on Credit Repair Websites

You'll find lots of information floating around the Internet about credit repair, credit restoration, and increasing your credit score. Some of the information is good, and some could get you into trouble.

First of all, it is not legal to establish a new credit identity. This credit repair scheme called “file segregation” promises a chance to hide unfavorable credit information by establishing a new credit identity. This may sound great to you, especially if you’re afraid that you won’t get any credit due to a bankruptcy or other negative credit report listings.

The problem: “File segregation” is illegal. If you use it, you could face fines or even a prison sentence. If you come across any Web site or agency that offers you this alternative, keep looking.

Although there are many such websites out there that will claim to help you by changing your identity or with other schemes that are not legal, there are just as many good ones.

Info on credit repair websites is available from the Federal Trade Commission Web site. Take a look on OnlineCreditProfessor.com for an example of a very good and informative site about credit repair and other personal finance topics. Suzanne Busby, the Online Credit Professor, also offers an excellent and informative Blog that is sure to help you, as well.

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ID Theft Protection Policy

ID Theft Protection Policy

According to the Federal Trade Commission (FTC), identity theft is the fastest growing crime in the United States. It affects nearly 20,000 per day! And while it is an easy crime for identity theives to get away with, and the penalties are not necessarily severe, it can hurt the victim in many ways.

Many people are victims of identity theft and don't even know it yet! Check your credit report regularly and carefully for any sign of identity theft or fraud. (It's a good idea anyway to check your credit report for any errors that may affect your credit.) ID theft hurts! As a victim your credit is destroyed, you may have trouble getting a job, and credit and insurance will cost you much more - if you can qualify.

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It has been estimated that identity theft victims spend as much as 600 hours over many years, on average, to clean up the mess caused by identity theives. Don't be a victim - be proactive in protecting yourself against identity theft.
Shred all junk mail, and any other correspondence that contains any personal information - even if it is only your name and address. That's all a thief needs to start stealing your identity.

Get an ID theft protection policy such as LifeLock. It is the only ID theft protection of its kind to offer a $1 million guarantee. LifeLock has been touted on many news programs (CNN, MSNBC) and by journalists (The Wall Street Journal, Chicago Tribune, and others) recently as being one of the best methods you can use to protect your personal information from theft.

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identity theft prevention

Identity Theft Statistics

Identity Theft Statistics
Did you know that nearly 20,000 people each day become victims of identity theft? Are you one of them? Identity theft is the fastest growing crime in the United States.

Most identity theft victims are not aware that their personal information has been stolen until they try to get a loan, insurance or job, and find out that they have a bad credit report. Even worse is to get a call from a collection agency trying to collect on a debt that you know nothing about, or being arrested due to mistaken identity!

Your credit history can be ruined very quickly by identity theives. You can be denied credit, a job, or face higher rates for insurance due to bad credit that you did not cause. It is essential that you protect your personal information to the best of your ability to avoid this crime.

Here are 5 things you can do to prevent identity theft:

1. Shred all junk mail, and any other correspondence that contains your name, address, account numbers, or other personal information. (Often identity theives need only your name and address to start stealing your identity.)
2. Do not give your personal information to anyone that calls you looking for information
3. Avoid applying for loans or credit cards and such over the Internet
4. Check your credit report frequently for signs of fraud or identity theft
5. Subscribe to a proactive identity theft protection services such as LifeLock. They are the only service of this type to offer a $1 million guarantee against ID theft.

Everyday we hear about another way that identity thefts are hurting consumers. You can avoid this crime with a small amount of effort on your part.

P.S. You only have 5 days left to file your federal income taxes.....

Tags: identity theft statistics, avoid identity theft protect your credit report,

Do-it-Yourself Credit Repair

Do-it-Yourself Credit Repair

Do-it-Yourself credit repair to improveyour credit score takes a conscious effort on your end. There are several factors that affect your credit score; improving the score requires you to take care of the most important of those factors so that you can manage your credit better, and improve your score. Follow some simple steps to improve your score and your credit history.

Improve your payment history:

• Avoid making late payments on your bills.
• Pay off all your past-due bills as soon as possible.
• Request an alternative plan with low monthly payments from your creditor if you need help.
• Negotiate with your creditors to remove charge-offs from your report and re-open those accounts.
• Request that your creditors erase late payment entries after you re-start paying on time.

Reduce your outstanding debts:

• Pay off high interest debts first.
• Keep your balances low and try to keep your revolving debt to 50% of your available credit.
• Don't close old and unused accounts quickly in order to lower your available credit. It will raise your debt-to-credit limit which has a negative impact on your score.
• Try to close accounts gradually over several months.
• Verify that the accounts closed are reported as "closed by consumer".

Improve Your Credit History:

• You should not open several new accounts within a short period of time.
• Adding too many accounts in a short interval implies that you are not able to manage your credit properly.

Manage new credit efficiently:

• Restrict yourself to a medium credit limit and not a higher one as your creditor suggests.
• Do not open too many new accounts if you have gone through credit problems in the past.
• Plan your budget taking into account your finances and credit.
• Avoid several credit inquiries within a short period; otherwise it would mean that you are about to open multiple new accounts and this will affect your score.

Use a proper mix of credit:

• It is better not to have too many installment loans as they can reduce your score. This is because the payments remain unchanged until you pay off the balances.
• You can have a combination of credit cards and installment loans or loans with fixed payments as they help in improving your score. But you need to handle your credit cards efficiently.You can also contact a credit counseling agency for tips on managing your debts. These agencies are different from the credit repair companies and they can guide you on how to improve your financial situation.

Once you have worked through the various factors influencing the credit score, try to maintain a stable credit report with the latest details. Check your credit report periodically for errors and problems. A few simple steps will help you in this regard.

• Request your creditors to send your account details and payment history to the credit reprting agencies.
• Create a savings account at your bank. Your creditors will be convinced that you have started to save and maintain extra funds to pay down your debts.

Besides practicing good payment habits and updating your credit report, you should look at removing any errors from your report. This will also help you to get a better score. When you request your credit report, the credit bureau will give you detailed instructions on how to file a dispute. Do so right away if you find errors.

Tags: do-it-yourself credit repair

When Good Credit Marries Bad Credit [Fool.com] April 09, 2007

When Good Credit Marries Bad Credit [Fool.com] April 09, 2007
Don't wind up in divorce court! Here is some very good advice for couples who have very different ideas about how to handle money and credit.
When Good Credit Marries Bad Credit
By Mary Dalrymple
April 9, 2007
"If the law of love says opposites attract, then it's no wonder that sometimes Miss Good Credit finds herself falling head-over-heels for the bad boy, Mr. Poor Credit. There are a few things this unlikely pair should know before they walk down the aisle.
Marriage and financesWhen two people marry, they decide to share everything, but the wedding license doesn't force a merger between two credit reports. Married couples keep their separate credit files. Wedding vows do not automatically ruin anyone's good credit. Unfortunately for Mr. Poor Credit, they don't automatically improve anyone's creditworthiness, either.
That can change if our couple decides to share financial accounts. After all, marriage means not just love and companionship, but also mortgages and joint checking accounts. The bad behavior of one spouse can start to affect the other if they rush to merge their financial lives without first cleaning up any past credit transgressions or mending the problems that led them to a checkered credit history in the first place.
Married couples, separate financesAlthough it may sound heartless, maintaining some financial distance for a while might help a couple in the long run.
Let's say Mr. Top Credit and the newly Mrs. Bottom Credit visit their mortgage lender. Because they've both taken to heart the Foolish advice to talk money before marriage, they have already had a long chat over a candlelight dinner about Mrs. Bottom Credit's poor financial past.
When they start shopping for a loan to purchase their first home, they have a few choices. Mr. Top Credit could purchase the home only in his good name, but he will probably qualify for a smaller loan than the couple would together. Often, the smaller loan won't be enough to purchase the home they want. They could apply jointly for a loan, but Mrs. Bottom Credit's poor record could cause them to run into limitations and get less attractive mortgage terms, a potentially costly proposition.
Another option is to put off their home purchase and spend some time rebuilding Mrs. Bottom's credit rating. This can take a while and will require our newlyweds to be diligent and patient. In the end, they would be rewarded with cleaner credit, better loan terms, and maybe even fewer fights over money.
Fixing bad credit
The spouse with poor credit history can start cleaning up his or her act by ordering free copies of each credit report held by the three large credit brokers. That will quickly reveal the problems that need to be tackled, as well as any incorrect information that might be unnecessarily dragging a credit score down. Dispute any incorrect information with the credit bureau, and follow up to make sure it gets fixed.
Our bad creditor will then need to start mending the errors of his or her ways. That means determining how much is owed and to whom, catching up on payments, and demonstrating responsibility to lenders. Maintaining separate financial lives for a while might be a good idea if Mrs. Good Credit has some doubts as to whether her bad-boy husband has really mended his ways. Past credit problems can be the result of a job or health emergency that threw someone's financial life into turmoil. On the other hand, they can be a sign of irresponsibility. Mrs. Good Credit may want to hold off on merging her financial life with her new husband until she sees him acting responsibly.
If that's the case, Mrs. Good Credit might want to postpone creating any joint accounts or adding her husband to her credit cards. Any late payments or other misdeeds occurring on joint accounts will show up on both spouses' credit reports. She will also be just as liable for any debts incurred on those accounts, even if her husband's the spendthrift. "

Websites for Filing Federal Taxes Free - OnlineCreditProfessor.com

Websites for Filing Federal Taxes Free - OnlineCreditProfessor.com

This entry was posted on 4/5/2007 10:29 AM and is filed under Income Tax Filing,Income Tax Refund.
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The Becker-Posner Blog: Deterring Identity Theft--Posner

Deterring Identity Theft

You may be going through life thinking that you have great credit because you pay your bills on time, never ask for credit accounts that you don't need, and basically use your credit wisely. Perhaps the last time you purchased a car or house the lender praised your credit worthiness and high credit score.

None of this matters if you have been a victim of identity theft. Identity theft can ruin your credit rating and credit score even if you had great credit before the crime occurred in your life. Take a look at this article about avoiding identity theft.

The Becker-Posner Blog: Deterring Identity Theft--Posner
Deterring Identity Theft--Posner

"Identity theft" (or identity fraud) refers to fraud effectuated by stealing personal identifying data, such as a credit card number or a social security number, often by means of computer hacking or by emails in which the sender impersonates an individual, firm, or agency that has a legitimate need for the identifying data. Identity theft has become extremely common and is estimated to be defrauding Americans of a total of more than $50 billion a year. This is an understatement of the social costs of identity theft because victims often must spend hundreds of hours restoring their credit. Maximum punishments are severe, but the garden-variety identity theft is not heavily punished relative to potential gains. For example, an identity thief who steals $1 million and has no previous criminal record is (if prosecuted for violating federal fraud law) likely to receive a prison sentence of less than five years, except that as a result of the recently enacted Identity Theft Penalty Enhancement Act another two years will be tacked on.

The economic theory of punishment teaches that, at least as a first approximation, the expected cost of the fine or other punishment for crime should just exceed the expected gain to the criminal from committing the crime, in order to make it worthless to him. If we are not completely confident about what the gain from the crime is likely to be (or if we think some crimes, like breaking into an unoccupied vacation house in a snowstorm, should not be deterred, we may want to base the sentence on the victim's loss instead of the perpetrator's gain. In the usual case of identity theft, the loss to the victim will exceed the gain to the thief, because the time costs to the victim are not recouped in any form by the thief. Oddly to a noneconomist, those costs, together with the costs of efforts by potential victims of identity theft to avoid becoming actual victims and the costs incurred by the identity thieves themselves to accomplish their thefts, are the real social costs of identity theft. The mere transfer of wealth from victim to thief does not reduce the social product, but merely rearranges it.

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The word "expected" which I used in the preceding paragraph is intended to distinguish between a certain value and a probabilistic one. The expected value of a 100 percent probability of incurring a cost of $100 is $100, but so is the expected value of a 1 percent probability of incurring a cost of $10,000 ($100 = .01 X $10,000). If the probability of apprehending and punishing an identity thief is very low, the punishment will have to be jacked up very high in order to deter. Suppose an identity thief who sends out 100,000 "phishing" emails (impersonating persons or firms who would have a legitimate need for access to the recipient's personal identifying information) anticipates a $10,000 profit. If the probability that he will be caught and punished for his fraud is 1 percent, then a fine slightly in excess of $1 million would be necessary to deter him. Probably he could not pay such a fine, and so a prison sentence would have to be substituted, designed to impose the equivalent disutility on him.

My guess is that very few identity thiefs are caught, and also that many of them make a lot more than $10,000 per fraud, given such techniques as phishing that enable a fraudulent solicitation to be disseminated essentially without cost to an immense number of potential victims; if even a minute percentage of the recipients are hooked, the identity thief can make a killing. If this analysis is correct, the optimal punishment for identity theft is extremely heavy; it might well be life in prison.

Any proposal for punishment that strict would encounter a variety of objections--all superficial. The first is that punishment should be proportional to the gravity of the crime, in the sense of the cost that the crime imposes on the victim. By this criterion, bank robbery is a more serious crime than identity theft (and in fact is punished much more severely) because it frightens and sometimes endangers the bank's employees (only sometimes, because most bank robberies nowadays are "robbery by note"--the robber gives the teller a note saying that he is armed, but he isn't). But bank robbery is actually a sucker's crime; almost all bank robbers are caught because of a combination of surveillance cameras and the money packs that tellers are instructed to give robbers, which explode after a few minutes, covering the robber with indelible ink. Moreover, it is only because crimes that create a risk of physical injury are treated as categorically more serious than white-collar crimes that bank robbery is deemed a more serious offense than identity theft. Probably identity theft is a greater social problem (the average bank robbe's take per robbery is only $7,000), and, even if it is not, almost certainly it should be punished more severely because the probability of apprehension and punishment is much lower than in the case of bank robbery.

Nor would we have to worry, as we do with many crimes, that making the punishment for a particular crime very severe may increase the incidence of a more severe crime--may in other words impair "marginal deterrence." That is the policy of imposing heavier punishments for more serious crimes not because the punishment must fit the crime in a retributive (eye for an eye) sense, but in order to deter the substitution of more serious crimes for less serious ones. Were robbery punished as heavily as murder, robbers would have a greater incentive to murder their victims because that would reduce the probability of punishment (by eliminating witnesses) without increasing its severity. It is difficult to imagining identity thieves substituting more serious crimes for identity theft.

A further argument against severe punishment is that identity theft is easily prevented by potential victims, and it is less costly to society for them to take their own precautions than for the taxpayer to pay for more prisons. There are two fallacies here. The first is the assumption that increasing the length of prison sentences increases the number of prisoners. That depends on the responsiveness of potential criminals to a higher expected cost of punishment. If it is high, then an increase in punishment may reduce the number of prisoners by increasing deterrence by a greater percentage than the added length of the sentence. (Below I argue that it is likely to be high in the case of identity theft.)

The second fallacy is to disregard the heavy aggregate costs of self-protection against identity theft. Everyone who has a credit card or social security number or other personal identifying information (which is to say everyone), and in addition has some financial resources, is a potential victim of identity theft. Among this large group of people, all who are cautious will take some steps to prevent identity theft, as will the custodians of their personal identifying information. These costs, which would be avoided if identity theft could be stamped out, must be compared with the costs of increasing the punishment of identity thieves. Those costs might be slight if the threat of heavier punishment had such a strong deterrent effect that the threat had rarely to be carried out.

A reason to expect a more than average responsiveness of crime to punishment in the case of identity theft is that identity thieves tend to be educated people, or at least to have pretty good technical skills. Educated people tend to have low discount rates because education entails deferral of earning. And people with low discount rates are more responsive to increased prison terms, which involve adding years at the end of the existing term. A person with a very high discount rate might not be deterred when his expected sentence for committing some crime increased from 20 years to 25 years, but a person with a low discount rate might consider that extra five years a significant present cost (that is, after discounting to present value--the lower the discount rate, the higher the present value of a future stream of costs or earnings). Moreover, an educated person is likely to have superior legitimate alternatives to crime than an uneducated person; and the closer a substitute a legitimate earning opportunity is for earnings for crime, the less the expected earnings from crime need be reduced by increased punishment in order to induce the substitution. This is the other side of my earlier point about marginal deterrence."

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Overlooked Tax Deductions

Overlooked Tax Deductions

Get the highest possible refund, or mitigate your tax burden by getting every possible tax deduction. Using an online interview driven tax program such as TurboTax will help you to maximize your deductions and get the highest refund for which you are eligible. These programs have been built to make sure that you don't miss a single deduction.

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Here are a few tax deductions that are frequently overlooked by taxpayers:

1. Points: The one-time mortgage-closing free is expressed in "points". The dollar amount of points paid is deductible from your federal income tax in the year that the loan is made for the purpose of purchasing a home, or for refinancing a home loan. In addition, you may be eligible to deduct points for home equity loans.
2. Publications related to tax and finance: Includes books, magazines and other publications regarding financial or tax matters.
3. Charitable expenses: Deduct any out-of-pocket cxpenses incurred when donating your professional services or personal time to a tax deductible chartiable institution. Also deduction per mile auto usage, parking, tolls, etc.
4. Health Insurance: Self-employeed individuals may deduct a portion of health insurance premiums paid for their own insurance.
5. December deductibles: Deduct for tax deductible items charged in December even if you didn't pay them until the following January.
6. Unreimbursed business expenses: Deductible when they exceed 2 percent of your adjusted taxable income. Some examples include, but are not limited to, use of your automobile for business purposes; office supplies purchased for work; continuing education; or gifts to business associates up to $25 per person per year.
7. Personal property taxes on cars and trucks: Deductible when they are based on the fair market value of the vehicle.
8. State Income Tax: You must decide whether you want to deduct the sales taxes you paid or your state income tax amounts. The choice is clear for residents of the seven states that do not collect state income taxes but do levy state sales taxes: Florida, Nevada, South Dakota, Texas, Washington, Wyoming and Tennessee. Figuring your sales-tax breakThe sales tax deduction will be available to filers who choose to itemize their expenses on Schedule A. Either claim the total sales taxes you actually paid based on the amounts shown on your receipts. (Just be sure to hang onto those register tapes in case the Internal Revenue Service has a question about how you arrived at your deduction amount.)
   Or you can claim the amount you'll find in the sales tax tables, found this year in IRS Publication 600.

These are only a few of the frequently overlooked federal tax deductions for individuals. However, we strongly encourage everyone to use a reputible tax preparation service that is setup to maximize the deductions for which you qualify.

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