John Ulzheimer is the President of consumer education at SmartCredit.com. Recently, there was a massive ten-year, $200M credit card fraud scheme, spanning 28 states, eight countries, with 18 people arrested. Ulzheimer breaks down how this happened. He also give us a step-by-step process whereby a fraudster can create a synthetic consumer out of thin air. Ulzheimer shares tips for improving your credit score and preventing identity theft. He urges people not to close their old credit cards.
John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of Consumer Education at SmartCredit.com and the credit blogger for Mint.com. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 125 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit. Download John’s CV here. John has 21+ years of experience in the consumer credit industry including positions with Equifax Credit Information Services and Fair Isaac (inventors of the FICO® credit scoring system). He has authored the following educational materials including:
• You’re Nothing but a Number
• Common Mistakes Made by Ineffective Credit Expert Witnesses
• Top 10 Ways to Survive a Deposition
• The Smart Consumer’s Guide to Good Credit
John has been quoted and published over 1,000 times since 2005 on the topic of consumer credit and has appeared numerous times on CNBC, FOX, CNN, CBS Evening News and Oprah’s “Oprah and Friends” XM Satellite Radio show. He has contributed to CNBC’s “On The Money” and “The Millionaire Inside”, Freddie Mac’s “Know Your Score” campaign, Oprah’s “Debt Diet” series and The Suze Orman Show. He is also a frequent commentator on credit-related issues in various outlets including CNBC, Associated Press, USA TODAY, Los Angeles Times, New York Times, CNN.com, Washington Post, American Banker, Wall Street Journal, SmartMoney.com, MONEY Magazine, Bankrate.com, ABC News Radio, CBS MoneyWatch, and other regional business and consumer media. Since 2006 John has been a regular guest lecturer at The Westminster Schools in Atlanta and the University of Georgia in Athens. He also volunteers his time to speak about consumer credit to the Georgia Consortium for Personal Financial Literacy and the Atlanta Union Mission. He has also taught courses at Emory University’s Center for Lifelong Learning and guest lectured at The Walker School, both in metro Atlanta.
Female Voice: Welcome to Creating Wealth with Jason Hartman. During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness then you ever thought possible. Jason is a genuine, self made multi-millionaire who not only talks the talk but walks the walk.
He’s been a successful investor for twenty years and currently owns properties in eleven states and seventeen cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman: Welcome to the Creating Wealth Show. This is your host Jason Hartman and this is episode number 313, 313. Thanks for joining us today and today we are going to talk a little bit about consumer credit and how to manage credit, with our guest John Ulzheimer, who will be coming up in a little bit here, but first I’ve got one of my college buddies on the line. And when I say that, I mean it in a rather odd way. I have long since been out of college, but my friend is just about to graduate from college here at Arizona State University and that is Cody. Cody welcome, how are you?
Cody: I’m doing great, Jason. I finally got on this show, so I’m really happy to be here.
Jason Hartman: You’re — you’re fifteen minutes of fame is upon the air right now. So, we talked about having you on the show for several months and we just didn’t get around to it.
Cody: I know. It’s been — it’s been quite busy.
Jason Hartman: It certainly has and — and you graduate next month. So, congratulations.
Cody: This is very true, yeah. A little less than a month away from graduation, so it’s starting to set in —
Jason Hartman: Well —
Cody: — [voice over].
Jason Hartman: — what — what impressed me about you when we first really talked in the breakfast diner her one day is you knowledge of finance and the financial markets and tell everybody a little bit of your background if you would, and tell them about your major and your education.
Cody: Yeah sure Jason, I’d love to. So, I currently attend ASU as Jason has already explained, and I’m graduating in May with a degree in finance as well as a minor in international business and that’s from the W.P. Carey School here.
Now, we also — ASU isn’t exactly known for its academics, but W.P. Carey School of Business actually — it was right 24th I believe out of the entire country for under grad — under graduate business programs. So, and that was in the Business Week 2013 survey.
So, it’s actually pretty impressive —
Jason Hartman: Yeah —
Cody: — obviously viewed as a whole.
Jason Hartman: — yeah, yeah, I know. Now, ASU is known as a party school. There’s no question about it, and I will attest to that, by the way, which — which Cody by the way you know I’ve been telling you that I think I need to actually graduate too, because my liver needs a rest.
Cody: I mean it’s definitely taxing on the — it’s more taxing than the government actually than on our bodies, so —
Jason Hartman: Funny, but kind of risky at the same time.
Cody: Yeah. But being at Tempe, Arizona here during this – I mean Tempe is such an awesome town and then you have downtown Phoenix and then Scottsdale, which is just an awesome party scene.
Jason Hartman: Yeah, a lot of night life around here. Arizona is — as far as the whole country goes, it’s really a very fun place and gosh, in Scottsdale, you have fantastic restaurants too. I heard was rated Number three for Foodies in the entire country after San Francisco and New York.
Cody: Well, I believe that for sure. There is — there’s so many great bars and restaurants and night life out there. So —
Jason Hartman: And you — you know what’s interesting too and not to get off on a tangent like we’re probably about to, but if you look at government interference in — in market places and business and government intrusion, a lot of new restaurant concepts start here in Scottsdale, Arizona. And one of the reasons for that, in my opinion is number one, the government doesn’t get in your way too much in terms of building and it’s — it’s fairly easy to get a business moving, start a new business, do construction, do a build out of a space, etcetera and open a facility. But then your — your servers and restaurants, you only have to pay them here like — I think server wage which is lower than the minimum wage, is —
Cody: I think it’s around five.
Jason Hartman: — is — no, no, it’s like less than that. It’s like four dollars and thirty cents or something per hour.
Cody: Wow.
Jason Hartman: Yeah, and the servers are lining up for the jobs. It’s not like there’s any shortage of demand for those jobs, okay. And you know, they make their money on tips obviously and bar tenders make thirty — thirty five dollars an hour. That’s pretty darn good for a college kid, and waiters and waitresses make good money too, and that’s why a lot of new restaurant concepts start here. True Foods started here. There’s a bunch of others. My friend who’s in the — he basically leases and — and sells properties to largely restaurant clientele and he told me. He says, you know Arizona — I mean especially Scottsdale, is like a hub of — of new concepts. So again, when government loosens the reigns a little bit, things start to flourish and stuff happening. So — and that’s why it’s not a zero sum game in economics. When you lower taxes, you actually increase economic activity and ultimately increase net tax revenues to government and — and Reaganomics and — and the Laffer curve — Martha Laffer proved this.
Cody: Absolutely.
Jason Hartman: Yeah, interesting stuff. But anyway, go on about your background. Sorry for the tangent there.
Cody: Yeah, sure. That’s typical though.
Jason Hartman: It is.
Cody: So I — yeah, I actually moved out here from Ohio about four years ago and went through a school here by — even before that in 2009, I’d say around 2005 — 2006, early high school, I came — or I became fund of investing back then where I opened up my first e-trade account and I actually opened that up with my dad’s name, just because you have to be eighteen to actually have your own account. So, I did that and actually bought my first investment, two shares of Apple Back then. I think they were trading it like forty eight bucks a share and yeah, you know, ten fold increases I kin d of missed out on if I held onto those. But — so yeah, after I almost doubled my money with those two shares, I continued learning about equity markets and stocks, and basic investing principles, and I kind of merged that with some driven investments like the futures market.
So, right now I basically concentrate on a lot of commodity investments, futures and options on futures.
Jason Hartman: And that — that is the dangerous thing I think, because once you have a success in that market, it’s kind of like gambling. You know it’s —
Cody: Oh, it’s one hundred percent gambling.
Jason Hartman: — it’s — it’s — you — you – well, no — and what I mean though, is they kind of get you in because when you start winning gambling you think, oh gosh, I’m just going to keep winning, and you put more money now and that’s — that’s kind of a crazy thing, but —
Cody: Yeah, it’s a slippery slope, for sure. You definitely have to be diligent with your stock losses and be very protective of your capital, because with something like a future con — a futures contract, it’s highly leveraged which means you can make a lot more money than with the traditional stock or bond but you can lose a lot more just as quickly. So —
Jason Hartman: Yeah.
Cody: — it’s very, very risky regarding your capital.
Jason Hartman: Yeah, and you’ve taught me a lot about that. So, it’s pretty interesting stuff, but you know me, I love income property. I love the simplicity of — of real estate. You know all that stuff you showed me on your — your iPhone and so forth, it’s — it’s pretty complex.
Cody: It definitely — it’s taken me — I’m still learning about them to be honest and I’ve been in the futures market for a little over three years now. So, it’s always a continuous learning process.
Jason Hartman: Yeah. Well, you wanted to talk a little bit about student loans because you’re — you’re in it. You’ve got one and your friends have them or — or going to school and — and there’s a huge bubble kind of inflating. What are your thoughts? I know you’re — you’re looking at a recent CNBC article about it too.
Cody: Yeah, definitely. We discussed CNBC article I found. It was published the 27th of March actually, and they were basically examining Equifax’s recent report for the first quarter of 2013 regarding government private student loans. So, they actually had a record number. It was about three and a half billion dollars in these government and private student loans that went bad in the first three months of 2013, and that’s been the biggest increase since Equifax began keeping track. So, it’s definitely alarming.
Jason Hartman: Yeah, it’s definitely alarming. Now you know we’ve talked about this a lot on past shows and I know you’ve been listening to your podcast Cody for a while. When did you start listening to podcast, by the way?
Cody: Ah, a little after [inaudible]. I’d say for about a year now.
Jason Hartman: About a year. Yeah, and we’ve talked a lot about this, and folks this is one of my big theories that this — this student loan bubble which is not over one trillion dollars, not dischargeable debt. So, people never get a second chance. The student loans must be repaid, period, end of discussion. So, nobody’s going to get out of these loans unless there’s some big change in the law, which I don’t really think that will happen, but these loans have to be paid and — and they’re going to keep the generation why cohort as renters for a lot longer than before.
Cody, I’d like to ask you kind of a little bit about your outlook about things. I mean, you’re a finance guy. You’re working for one of the utility companies now here in Arizona doing internal lot work I believe, right?
Cody: Yeah, yeah. I’m an intern for the audit services department in the largest utility company in the state of Arizona, and they’re actually the highest tax payer in the state, so it’s now a multi-billion firm where I’m working right now.
Jason Hartman: Fantastic, and what — what are your thoughts in — what are your — your peers? What — what do they say and think about the future? Like do they think they’re going to get out of school and go buy a house and settle down and get married and have kids, or is that not really even on their mind? Like they’re — I think this generation’s going to put off family formation a lot longer than any generation before it.
Cody: Oh you know what, I mean to be completely honest, being in Arizona State University right now it’s very distorted regarding everyone’s expectations and outlook on life after college. But in general you know I think that a lot of people are almost delusional these days about their expectations of what they’re going to have after school and just the — the change in landscape of their career fields.
Jason Hartman: And I agree with you totally. I think a lot of these kids are unfortunately in for a pretty rude awakening.
Cody: Oh, that’s — that’s an under — that’s one of the biggest understatements I think you can make is —
Jason Hartman: Okay. All right.
Cody: — what they can have.
Jason Hartman: So — so, tell — tell me what you mean about that. We live in an area where a lot of these kids, they have really nice cars. They have nice apartments. They’ve got the latest clothing. I mean they dress better than I do, that’s one of the things I’ve learned. I thought —
Cody: Enough about me.
Jason Hartman: Yeah, exactly. But tell me about that. You know you say that rude awakening comment is an understatement.
Cody: Yeah you know what, I mean it’s — it’s — we need to focus on school but you also have to love your professional portfolio concurrently I believe, and right now with the job landscape as it is after the 2008 recession here, I mean it’s — it’s almost ignorant to expect that you’re going to get maybe a forty five or fifty thousand dollar job right out of school with little or no experience and you add in eighty percent of people’s majors here, I mean at ASC where it’s liberal art — things like liberal arts, communication, that sort of thing with no quantitative or scientific skills at all. It’s – it gets very delusional with the — the mindset I think that they have.
Jason Hartman: And so — I mean, they — they expect things will be just good and they’ll have all the material things they want and those — got a new job and everything will be peachy, and they’ll have a highly — high paying job?
Cody: Yeah, yeah. They — I — I — I believe a lot of them they — they think the job market’s like it has been over the last six years and it’s not even close. There’s this huge backlog of job opportunities where people are staying in their current positions, especially finance and accounting, which I follow really closely because one of my best interests regarding my career path, but yeah, there’s just such a backlog of people just from what I’ve seen in the corporate world where there’s not a lot of incoming entry level job opportunities for us. So, it’s more competitive than ever because a lot of people — a lot of these older people are staying their careers and not even be able to retire at sixty five or seventy. But, I’ve seen director — the direct — people in director levels in some of the companies I’ve been with, seventy plus. You know, the retirement just to keep up, so —
Jason Hartman: Really? Wow, that’s a —
Cody: — there’s not a lot of mobility at — at — like it used to be especially in finance and accounting.
Jason Hartman: Uh huh. Well, that’s a — that’s pretty amazing. Now you told me recently that you sent out I think about two hundred resumes. Is that correct?
Cody: Oh, it’s — yes. It’s a continuous process. It’s — it’s something that you can’t just send out a batch of applications and wait to hear back, especially in today’s market. I mean, things like Mike Dent make it a lot easier to apply for jobs and the servicing process and what not, but there is definitely a continue — a continuous process of applications that I have been sending out over the past — past six to eight months, and that’s for full time positions that start over the summer for intern [inaudible].
Jason Hartman: One thing I really would say that’s really good about your generation — generation wise that you’re very, very, very entrepreneurial. Every — every ASU kid that I’ve met has an idea for something. Granted a lot of them are half baked, but — but you know, it really —
Cody: It’s where all these [inaudible] come from.
Jason Hartman: Yeah. No, totally. I mean, everybody — it seems like every other kid I meet want — has an idea to develop an iPhone app.
Cody: Yeah, but if the kid — my friend in our fraternity, he actually just developed his app. It’s called TAP Contact Exchange, and yeah, he’s been working on that for over a year now and it finally got approved through Apple and went live about three or four weeks ago. So yeah, I have a close friend that’s actually — that entrepreneurial where he took it to that next level and hired programmers that develop his app and [voice over] —
Jason Hartman: How is it doing for him, do you know?
Cody: Yeah, yeah. He’s definitely on the marketing path right now for the app. He’s trying to build up a user base. Yeah, so he’s doing really — really well with that.
Jason Hartman: Fantastic. And I — I think the thing that really could save us is technology, and it is amazing. Like my — one of my favorite technologies is 3D printing and I was just reading an article about that today and about how that could bring tons of manufacturing back to the United States and really hurt China, ultimately. And you know just the creativity and the entrepreneurial spirit, I think is very good about your generation. So — so — so, I think there’s some — there’s some — there’s a lot of positives and negatives at the same time but in either case as far as just the heart of numbers go and the math goes, the lesson for our investors listening to this show is provide rental housing, because generation why is the largest demographic cohort in American history. Larger slightly than the baby boomers and I say they’re going to be renting for a lot longer than other generations. And — and you know Cody there’s another concept I’ve talked about on the show, you’ve heard me talk about it, but I — I always like to say the best thing you can have on a resume is mobility.
Cody: Absolutely.
Jason Hartman: With the ability to go where the jobs are, right?
Cody: Yeah, relocation is something that’s part of almost any application if you’re willing to relocate, then they’re definitely going to take that as a positive attribute to your application.
Jason Hartman: Yes. So the lesson there is, don’t get tied down with a house. Be a renter. It’s good. We can serve those people and — and help them have that mobility and it’s just a good deal for all concerned.
Any other thoughts on the student loan issue?
Cody: Oh you know what, I mean it’s definitely something that outpaces a lot of the common topics that we hear about politically all the time, regarding Medicare; Medicaid; entitlement spending; transfer payments. It outpaces that by a huge margin. It’s definitely not something that’s covered as much. So the record number of delinquencies in forebearments regarding student loan borrowers is one of the most alarming things regarding any type of government spending, because the government’s basically guarantying all of these loans and the taxpayers are eventually going to be on the hook for these.
Jason Hartman: Yeah, yeah. But — well the taxpayers and really different than other loans, the borrowers because they’re just not going to find it very easy to default on these. They’re in debt [voice over] —
Cody: Oh, they’ll get wages garnished. There — there is — they’ll hunt them down. They’ll — they’ll do anything they can to get that money out of them.
Jason Hartman: Owe — owing the student loans is like owing money to the IRS. They’re going to collect. So —
Cody: Absolutely.
Jason Hartman: — yeah, so that’s – that’s something different. Let’s switch topics here before we get to our guest. Let’s talk a little bit about bitcoin. This is amazing and we haven’t talked much about this on the show, but when I was speaking at that international investment conference or that offshore investment conference in Belize about a month ago, that’s when I first heard of bitcoin and I don’t know when you became familiar with it, but it’s — it’s — what it is folks if you’re not familiar, it’s this — it’s a digital currency and it’s basically a mathematical formula that was invented by — well I guess they don’t know exactly who invented it, but I think the credit was given to like a Chinese guy.
Cody: You know what, yeah it’s kind of interesting because there — there’s some speculation that it’s actually a pseudonym developer. So, we might not have even known the actual developer of the currency.
Jason Hartman: Right, right. No, it’s — it’s a bit of a mystery, for sure. And what — what’s interesting about this is it’s a mathematical formula of a digital currency. Gosh, you — you talk about a fiat currency here, well bitcoin is probably the ultimate fiat currency. However, the interesting thing about it is the way the formula works is that it cannot be debased. There is an absolute limit to the amount of currency.
Now, everybody when they talk about fiat currencies they instantly think — you know all a bug star saying, yeah gold, gold, gold. Gold actually can be debased too because no one really knows the supply of gold, okay. Yes, we do know that it’s hard to mine it and the supply is, at least on earth ultimately limited at some point but nobody really knows what the limit is.
I mean when you look at technologies like fracking in natural gas and oil and all the — all the new technologies that have been developed there, we thought the supply was much more limited, but it turns out there’s a lot more than we thought, because now we have new technologies and new ways to get at it. Well, bitcoin was “mined” because when this formula was created, you could set up computers to go and mine bitcoin. Don’t really ask me how that works. I’ve never totally understand it, but you let your computer chug away and at the beginning when the currency was announced, it was easy to mine bitcoin, electronically. But now it’s much harder because most of the bitcoin or a lot of it at least has been “mined”. And folks, please don’t ask me to explain that. Someone explained it to me and I — I really couldn’t get my head around it. How do you mine something electronically off the internet? It’s just weird.
Cody: Yeah, I was on TechCrunch the other day. They had published an article on how to mine bitcoins —
Jason Hartman: Oh, okay.
Cody: — and slush pools. So yeah, there’s actually entire websites dedicated to these slush pools and minings.
Jason Hartman: Isn’t that interesting, though, I mean —
Cody: Yeah, one was located in the ChezRepublic.CZdomain. So yeah, a lot of them are of course can be international territory.
Jason Hartman: Fascinating. And then what happens is, the people that own bitcoin, that hold it, they put it — they list it on exchanges, and just like any currency, the price fluxiates. Well when I learned about bitcoin just over a month ago, the price was like forty seven dollars per bitcoin, U.S. Dollars, and just recently the price went up to I believe, two hundred sixty dollars and then it crashed way down to one hundred dollars in like one day. And interestingly — I know we were talking about this before Cody, but everybody probably knows who the Winklevoss twins are. Does everybody remember who they are? They are the famous intermix guys that sued Mark Zuckerberg over Facebook claiming that they had invented the Facebook idea and Zuckerberg stole it. Of course probably everybody’s seen the move, The Social Network.
Cody: Awesome movie, awesome movie.
Jason Hartman: Yeah, yeah, great movie for sure. But — but they’re big investors in — in bitcoin. In other words, they’re currency traders, they’re currency investors. So just like someone might want to hold dollars or hold Japanese yen, or hold the euro, well they hold bitcoin. They hold about eleven million dollars worth of bitcoin, and people accuse bitcoin of being a big ponzi scheme. You know in fact here’s one — one person quoting, people say it’s a ponzi scheme, it’s a bubble and at some point, an irritable shift to virtual currencies or here to stay and then another expert says — an anti-bitcoin says, to say the investment is highly speculative would be the understatement of the century.
So, what — what do you think? I mean, this is — this is basically just a whole currency, like any currency, it’s — it’s built on faith.
Cody: It’s nuts. I mean even though it came about in 2009, I recently just found out a couple of days when this crash happened. So a lot of their article I’ve — articles I’ve been researching media coverage it’s gotten, one of them I think it was the — you know it was the Times or Times Magazine rather, they were comparing it to the tulip mania of the 17th century home —
Jason Hartman: Yeah.
Cody: — where those prices of rare tulip bulbs were too absurd high and then crashed and took out all of its speculators in that. So I mean, a lot of the speculators are probably going to get burned. They’re jumping in a bitcoin right now, or the exchanges are so high. And another interesting topic they’ve brought up was, if you want to compare it to like a traditional currency such as like the British pound, they were saying it would be if the British pound, trading around a dollar sixty two pounds per dollar right now, it would have gone up to about thirty one dollars and ninety cents and then falling back to twelve dollars as if we were going to compare it to this past crash with bitcoin.
Jason Hartman: That is a big, big swing. And — and let me tell you something else about bitcoin that I learned. There is a — a website I — I — I think it’s called like Silk Road or something. I think it’s called Silk Road, and on Silk Road people trade bitcoin and they buy — they engage regular, legitimate transactions but they also engage in a lot of illegal transactions like drug trade and — and so forth. And so, the reason they use those bitcoin is that it’s anonymous. And so now the Feds have really been cracking down on bitcoin and looking at it. And under the legal tender laws, they could probably just outlaw it because they say it’s been used for all these surreptitious activities. So, any — anyway — it’s just an interesting thing. I mean, what a crazy concept. But I — I don’t know. Maybe a currency like this does have a chance. Of course, Uncle Ben Bernanke isn’t going to like it and none of the Rothschild family will like it because —
Cody: Oh, they’ll hate it.
Jason Hartman: — it’s — it’s a competing currency, you know.
Cody: Yeah, and you can’t just pop more of it in the economy, too. It’s — it has to be created.
Jason Hartman: It’s crazy, crazy stuff. Really, really fascinating, just kind of a — a mind blowing concept. A concept of bitcoin.
Well hey, before we get to our guest Cody, I’d just like to tell everybody about our property, real quick. I — I want to try and mention a property in every show, if I can and I usually forget to do it, but this one came up and I thought this was an awesome deal. This is a property in the greater Atlanta, Georgia area in Lithonia and it’s on the website at Jasonhartman.com. Fifty eight dollars per square foot, this is an — this is an inexpensive property for that area. It’s a sixty nine thousand dollar property, fifty eight dollars a foot. It’ll take about twenty one thousand dollars to buy it subject to qualifying, and cash flow, three thousand four forty five per year. And I’m just looking at the projections here on the performer. Sixteen percent cash-on-cash return, a debt coverage ratio of two point one three. And what that debt coverage ratio tells people is that it’s very difficult to get into trouble on a property ever with such a good debt coverage ratio like that, and the projective return on an investment overall is forty percent annually.
So, you know what I’d like to say Cody, even — even if things don’t go that well, even if they go — only go half as well, twenty percent annually is not bad at all, is it?
Cody: Oh, not at all. I mean you’re looking at higher — I don’t even know what I was going to say.
Jason Hartman: Yeah.
Cody: But, 1986 is not my style.
Jason Hartman: Yeah, yeah. Oh, oh — you — you — you finished things off with [voice over]?
Cody: Yeah, I’ve just been able to pull it off.
Jason Hartman: You’re quick, man. Yeah, that’s good. No, it’s not stylish and swanky. I mean you know it’s a little regular looking kind of house on just a little middle class street, no big deal, but —
Cody: Forty percent, you can’t beat that for any — yeah.
Jason Hartman: Yeah, yeah, the — the — the return on investment is phenomenal, so it’s a little ranched out house, hardwood floors, no big deal. But good stuff. Well hey, anything else you’d like to share, give any people prospective for college? Any advice to parents? Don’t send your kids to ASU, they’ll just be drinking a lot of beer.
Cody: Well, I highly recommend it, yeah. It’s not going to be cheap for the parents, but yeah definitely give your kid’s have experience, it’s been amazing — been an amazing four years here to day the least.
Jason Hartman: Yeah well, you’re kind of — are you — are you excited about moving on and taking on the world?
Cody: Yeah, I’m not having any finance course for — for a while. It’s going to be amazing. It’s going to feel amazing after I get home from work and I don’t have to deal with that but, yeah it’ll be a nice change for a little bit and then I’m sure I’ll fall into corporate world and —
Jason Hartman: And — and you’ll become a doper in a cubicle?
Cody: Yeah, yeah. I’ll be back to the cube — the cube life full time, so —
Jason Hartman: No, not for too long. You’re going to be a good investor, so anyway —
Cody: I’m actually in the process of starting a CTA commodity training advisor business with my futures experience. So, that’s going to be a side project for a while, but yeah hopefully I can return to the show in a little bit and kind of discuss some of the commodity markets and outlooks for things like the metals — the core and totten markets, a lot of variety in alternative investments.
Jason Hartman: Yeah, well let me ask you about that real quick before we get to our guest? What do you think about the price of — the price of gold and silver are — are really down. I mean, it keeps surprising me. I — I — I just always love to nail Peter Schiff on this. He said that by the end of Obama’s first term, gold will be five thousand dollars an ounce.
Cody: Oh my God.
Jason Hartman: And — and you know all the silver bugs, when we had that little crazy blip up about two years ago — two and a half years ago, now I guess, they — they were all saying, it’s going to go to seventy five dollars an ounce in no time and here we are at what — twenty eight — twenty nine dollars now and gold is way down.
Cody: Yeah, you know any — any analyst’s expectations of price appreciation like that — they were saying the same things about Apple that it was going to be one thousand dollars a share within twelve months, and I mean it’s — it’s — it’s really hard to pinpoint the estimates like that.
Jason Hartman: Yeah, there — there are just so many factors playing on these kinds of things, whether they be stock or — or commodities. The — it’s just — it’s just very, very difficult to analyze especially, especially, especially when you have government intervention in the markets, because you just can’t predict governments. They act illogically. They — you — they sound principles of economics and understanding motivations of — of different parties in — in the economic landscape. When you put government into the mix, it just — it just becomes oh, very tough to predict and very illogical.
Cody: Yeah, you know it’s funny you actually just brought that up. There’s a relevant topic that relates directly to that. The Bank of Japan – it was about two weeks ago, they started buying back government securities to kind of help establish the economy and get it on track to growth rather than the stagnancy that it’s been over the past twenty — twenty five years. So, all this bond buying government intervention that’s been going on has devalued the yen. The yen future just took a nose dive about a week ago and it’s — it’s been an insane and spiraling out of control, the devaluation of this yen.
And the U.S. government’s actually — I was reading the Wall Street Journal —
Jason Hartman: They’re pretty upset about it.
Cody: Yeah, they’re — they’re absolutely mad and the Obama administration’s contacting them and trying to kind of prevent them from going through with the whole repurchasing program because it’s — it’s direct competition of what we’re doing right now.
Jason Hartman: Yep, it — yeah. It — what’s ironic is it’s so hypercritical because we’re — our Fed — our Fed is doing the exact same thing.
Cody: It’s a double standard to see all these Japanese —
Jason Hartman: A total double standard, yeah, ridiculous. Well hey we’d love to have you back Cody, and good luck with your career and congratulations on graduating next month, and we will be back with our guest here in just a moment. We’ll talk about some credit issues. We’re going to — we’ll talk with Ulzheimer from SmartCredit.com. So, we’ll be back in just a moment with that.
Female Voice: Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason’s experts evaluate the deal. For more information, go to Jasonhartman.com, now.
Jason Hartman: It’s my pleasure to welcome John Ulzheimer to the show. He is a nationally recognized credit expert. He is an author and an expert witness and a credit educator. John welcome. How are you?
John Ulzheimer: I’m great. Thanks for having me.
Jason Hartman: Good, I’d like to ask all our guests, where are you located today?
John Ulzheimer: Yeah, I’m actually based in Atlanta.
Jason Hartman: Okay, fantastic. Well, that’s a — a market we like for real estate investors. So tell us a little bit about what it is you do and I know there was a recent study out last week that talked about how people have improper information on their credit reports.
John Ulzheimer: Yeah, the — the FTC published a — a study that — that — the — an amendment to the fair credit reporting act in 2003 actually directed them to perform a credit file accuracy study and they published it actually just a couple of weeks ago. And the study concluded that between ten and twenty one percent of consumers have what was referred to as a confirmed error on their credit reports.
Now, confirmed error is different than an alleged error. A confirmed error means that they actually did confirm that there was something erroneous. It wasn’t just a consumer stating that something was wrong on their credit report. The confirmed error rate — the reason it was so broad the ten to twenty one percent was because there were varying definitions of the term, error. There were some errors that were cosmetic, meaning that you know for example, your former address may have been misspelled, which is almost meaningless. First is an error like for example, late payment did not belong to you or perhaps a balance did not belong to you.
So, there are varying degrees of error, but what — when you apply ten to twenty one percent to the credit file databases, the numbers start to become pretty impressive. Between twenty and forty two million consumers have some sort of error on their file, and — and these errors can be as benign as meaningless or they can be as problematic as the consumer gets declined for a loan, or perhaps gets approved but with less advantageous interest rates. And so it can cost them more money for the loan.
Jason Hartman: Right, but it’s just — but it’s just — I mean the confirmed errors are just one error, right, or is it at least one error?
John Ulzheimer: Correct, at least one error.
Jason Hartman: Wow, so it could be ten errors on one report, right?
John Ulzheimer: That’s — that’s — that’s true. That — that’s — that’s unusual. Most of the time when consumers have errors on their credit report, it’s not ten errors, it’s usually one error. Or if you have — if you have a credit report that has ten confirmed errors, it’s more likely that your name has been confused with another consumer and that a lot of their credit has incorrectly been applied to your credit file, which is where you can get a fairly large collection of incorrect information.
Jason Hartman: Sure, sure. It — it is so important in today’s world to have good credit and for people to pay attention to and manage their credit scores. Do you want to offer some tips on how people can do this? Certainly they should probably first get a copy of their credit report and review it, right?
John Ulzheimer: Yeah, I — I think you bring up a pretty good point. The — the — the same [inaudible] that directed the FTC to do this credit file accuracy study also directed the credit reporting agencies to set up a unified source to allow consumers to request free copies of their credit reports, and — and the website and — and it’s a legitimate website, is Annualcreditreport.com. And that is — that is the only place where a consumer can go on the web and request a truly free copy of their credit report pursuant to Federal law. What this FTC study underscores is the importance of actually doing that.
Now, you would assume that everybody wants to see what’s on their credit report and everybody goes and pull their credit reports periodically, but unfortunately, that’s an incorrect assumption. About ninety six percent of all free credit reports go unclaimed year over year, which is a — a — a truly astounding percentage given how important these credit reports are to your ability to get a job, insurance and competitively priced financing.
The study suggested that the credit reporting agencies don’t have an obligation to correct information on your credit report until you tell them that something is wrong. So you or your and — and any of your listeners can have an incorrect credit report right now and unless they get a copy of it and raise their hand and say hey look this is wrong, I need you to correct this, then it’s never going to get corrected.
So, that ninety six percent number needs to shrink and it needs to shrink considerably, otherwise you’re going to be talking about forty two million consumers with errors on their credit reports for quite some time.
Jason Hartman: That’s a — that’s a big number. I mean that is a huge, huge number when you — when you think about it. What does someone do first of all when they get a copy of their report in reviewing it annually they see something on there that is incorrect? Should they do it themselves? Should they write to the — the credit bureau or the — or the creditor, or should they hire a service? And then I want to ask you about these different services out there, because people are bombarded with the advertising of many claims that I’m sure are not true or realistic. So, maybe we can touch on that, too.
John Ulzheimer: So the — so the first thing the consumer should do when they get a copy of their credit report and they go through it and they’re doing a little of an inventory and trying to identify any — anything on there as incorrect is, you can take your argument to either of the credit report agencies directly, or you can take your argument to the source of the information, which is almost always going to be a financial institution or collection agency.
There are pros and cons of doing — of doing both and let me explain why. Most lawyers who practice fair credit reporting act law will tell the consumer that they should always file a dispute with the credit reporting agency first, and here is why, because if — if you don’t file a dispute with the credit bureaus, you can’t sue them for violations of the fair credit reporting act. You have to give them the opportunity to correct their mistake on the credit report. So, I — I would agree with them. At the very least, give the credit reporting agency the opportunity to fix the mistake and the — and the protocol would be to go to them initially and say hey look, Equifax or Experian or Trans Union or you call all three if you’ve got the mistake on all three of your credit reports. This is wrong. Here’s why it’s wrong and here’s what I want you to do about it.
At the same time, you can also contact the source of the information. You can call the bank. You can call the collection agency. You can call the auto financing company. You can call the credit card insurance and say hey look, what you’re reporting to the credit bureau was incorrect. My balance is wrong. The late payments never occurred. That account isn’t mine or whatever the dispute happens to be, and then eventually what you’re doing is you’re burning the candle at both ends. And — and the reason why that’s probably not such a bad idea is because the credit reporting agencies are just going to go to the source of the information anyway, and confirm with them if what they’re reporting is correct or incorrect.
Jason Hartman: And — and — and there’s a certain timeframe here, right? Doesn’t it start like a thirty day clock in which they have to respond?
John Ulzheimer: It’s — it’s either thirty days or it’s forty five days. It’s — it’s thirty days unless the consumer provides supporting documentation to the credit bureaus or the — or the furnishing party during the thirty day period. So, if you send them — I’ll give you an example. So, if you send them a copy of a cancelled check a week into the investigation, then you’ve just given them fifteen more days to complete it.
So, it’s going to be thirty to forty five days. Have — having said that, I mean let’s be honest about this. That — that provision of the fair credit reporting act has been around for at least two decades, well in advance the error of automation that we live in. Most consumer disputes are completed within a week or two because they’re highly automated, which is good news and bad news. It’s good news because they’re done quickly, it’s bad news because whenever you heavily automate a process as important as this, there are sure going to be errors.
Jason Hartman: Yeah, that’s — that’s true. So, with these credit repair agencies that you see out there advertising and so forth in the market place, a lot of our clients ask us about them and — and show listeners ask about them too, basically what they’re doing is they’re kind gaming the system, aren’t they and they’re looking for someone to miss the response time? Is that the — the play usually?
John Ulzheimer: Yeah, what they’re doing is they’re disputing information on behalf of the consumer. They’re kind of acting as their proxy for — for lack of a better term, and they’re — and they’re filing disputes. They’re getting what’s called limited power of attorney from the consumer to sign their name and either — either mailing the letter of dispute from their own location or they’re drop shipping it from where the consumer lives to get a local postal stamp or a postal mark on it.
They’re — they do charge a fee for this and — and normally it’s a subscription, so they’re charging them for I don’t know, nineteen ninety nine a month or twenty nine ninety nine a month or something more expensive.
Now here — I’m — I’m — I’m — I try not to be the morality police when it comes to those kind of stuff and I let consumers make up their minds one way or the other, whether they like the services or dis — dislike the services. And if you look at — listen to the industry, the industry portrays credit repair as black hats, as immoral, as rip offs. The FTC is called the rip off artists. So, if you listen to consumers and the credit repair folks, they’re saying look we’re just trying to help the consumer leverage their rights. Since I — and I’ve been on both sides of the equation and I — and I kind of believe both of them to some extent. There are definitely some bad apples in the lot. Having said that, credit repair is not illegal. That is a huge myth. There is a federal law called the credit repair organizations act that defines how credit repair organizations have to do business, and if they follow the rules, then they are operating legally.
Whether you like them or not, it’s almost like saying you know I pay someone to change my oil in my car.
Jason Hartman: Right, you don’t do it yourself. You can have —
John Ulzheimer: That’s right.
Jason Hartman: — a proxy, sure.
John Ulzheimer: I can — I can do it myself, save a boat load of money. Do I want to do it, probably not. So yeah, I — it’s just a matter of whether or not consumers want a — outsource the profits of disputing items on their credit report or whether they want to do them in housed. Are they effective? Now here’s — here’s an argument that the credit bureaus can’t make. They are effective. The — some of these credit repair companies actually publish statistics on their website and unless the — the statistics are just completely made up, which I — I — I don’t imagine that they are, some of these guys are getting a whole lot of information removed from consumer’s credit reports. And so, from effectiveness prospective, they — their services do seem to work. So really being in today is a matter for the consumer to decide hey look, I paid these guys a couple of hundred bucks, can I get value for my money?
Jason Hartman: Right, right. Well you know, they’re set up for it like anybody. You — you go to an outside service, that’s the whole idea of specialization and economics. I mean these companies are set up to do this all day long. Individual consumers, they’ve got their own job and their own career and their own life to manage. That’s kind of a benefit, but a lot of them make a lot of big promises, and I think that’s where the trouble comes and — and they charge upfront fees and then maybe they don’t deliver on the promise. Isn’t that really kind of the — where the trouble comes?
John Ulzheimer: Yeah, and actually two — two of the things that you just mentioned are pretty clear violations of the credit repair organizations act. First, you can’t promise anything. You can’t guarantee that you can get anything off of someone’s credit report. You could promise that you’re going to work hard for them or you can tell — you can promise them a money back guarantee if they’re not satisfied, but you can’t market your services as guarantying that you can get something removed. That’s — the FTC does not like to see that and then they will come down hard and heavy on you.
The second thing the emission was charging people up front. That’s also a violation of the credit repair organizations act. You cannot as a credit repair company, bill anybody in advance for services that have not been rendered yet. You have to bill them after the services have been — have been rendered, and a lot of credit repair companies have moved away from the subscription service pricing model, where they receive a credit card at the end of the month for a fee and now will actually charge them what’s referred to as a paid per delete model, meaning that they don’t charge you anything until they’ve actually gotten something removed from their credit report, which would be defined as after services have been rendered. And — and the reason they do that Jason, is because they’re — they’re — they’re concerned and — and frankly, some of them are terrified of that credit repair organizations act because it’s — it’s got pretty significant fees.
Jason Hartman: The — the ones I found always charge an upfront fee. I don’t know how they do it if they’re just operating illegally or they’re sort of somehow saying it’s a retainer? You know like a lot of the loan modification law firms sort of have that problem, especially in the state of California when there was new legislation a few years ago about loan modification people, that they — they couldn’t — they — they sort of set it up in a way that made it legal, although I don’t think that was the spirit and intent of the law, but maybe we don’t want to go too far down that road. But if you have a comment, I — I think it would be appreciated.
John Ulzheimer: Well, some of them there, they’ll say, we’re not charging you for services. We’re going to charge you a seventy nine dollar setup fee. And — and I know a lot of them that do that. Or I’ve seen — I’ve seen that hap — I’ve seen that practice, where they’ll — they’ll charge you something and it’s definitely upfront, but it’s not being positioned as you’re being charged for services upfront or billed in advance for services or setting — you know, we’re charging you a fee to do a credit report review, or something kind of innocuous, if you will that — that — that they think in a way keeps them clean in the eyes of the credit repair organizations act.
Again, it’s — it’s really — it’s really a matter of what does the federal trade commission think about that practice and if they think that’s a — or just now to see if — now, if they think that’s a clear violation you know that’s something that could definitely come back and bite them.
Jason Hartman: Sure, sure. Yeah, that’s interesting. Now, how would someone go about finding a legitimate service verses — one hokey black hats services?
John Ulzheimer: Yeah, that’s — that’s a good question. They are —
Jason Hartman: If you have any to recommend, feel free, but I don’t know if you want to recommend a specific — so, that’s why I ask.
John Ulzheimer: I — I — I don’t — I don’t recommend any companies individ — individually, but I will — I will say this, that — that they — there is a trade association now for credit repair organizations, and — and it’s called the national association of responsible credit service organizations, and they — they — I know enough about them to know — I — I don’t have a — I don’t have any sort of affiliation with — with that organization, just to be clear, but what I do know is that they have standards that in order to be a member of their association, that their credit repair organization have to follow these standards to — to be part of their trade association. And that’s a pretty significant departure from the way these guys used to operate, which was really kind of the wild, wild west. A lot of seminar marketing, a lot of huge upfront — these thousands and thousands of dollars charged upfront without anything being done which is just a clear violation of — of the act. And I can — I can tell you that they have tried to — to clean up the — the industry but you know, the credit bureaus and the FTC have just worked so hard for so long to convince people that they’re all dirt bags.
And — and don’t get me wrong. There are still some that are — that — but to simply say that the entire industry is — is full of scum and that’s just really not the way it is.
Jason Hartman: Don’t — don’t throw the baby out with the bad water [voice over] —
John Ulzheimer: Don’t throw [inaudible]. If I — here’s a way you can find a good one. Don’t hire someone that’s been in business for two weeks.
Jason Hartman: Yeah.
John Ulzheimer: All right. The — the financial crisis put a lot of people who knew about credit, out of work and all of a sudden they’re either reappearing as either debt settlement companies or credit repair companies and you know I would suggest that you look for someone who is part of a trade association and has been around for a while and — and look, there’s a lot of ways to find consumer complaints on the internet. It’s not too hard to find those. I don’t — the BBB is more of a pay for play type of thing, in my opinion.
Jason Hartman: That’s a — the business — the Better Business Bureau in my opinion is a bit of a scam. I mean, you know —
John Ulzheimer: I agree.
Jason Hartman: — it’s a telemarketing organization. You know you pay your membership and then you’re suddenly okay.
John Ulzheimer: Exactly. I saw — I saw a — a — a coverage on a — on a news — news show where Hamas got an A minus rating and they’re a terrorist organization. So they got spoofed.
Jason Hartman: But — but they’re good at it.
John Ulzheimer: Yeah.
Jason Hartman: There you go. What — what sort of the other — maybe can you take one more chunk? I know we’re limited on time here, but is there one more tidbit that you’d like to give our listeners before we wrap up on any area of credit or — or finance, for that matter? What should they know?
John Ulzheimer: So — so, I think there are a couple of things they should know and — and a lot of this is mis-busting and understand your free credit report rights. Everyone knows that they get a free run every single — every twelve months per federal law. Also, based on where you live the state where you live in might have additional, free credit report laws as well. For example, I’m — I’m in Georgia and I get two additional free per year because I’m a Georgia resident. So that means I get three free per year from three credit — that means I get nine free credit reports a year, so I should — I should never have to buy a credit report unless I really want my tenth of the year, which is a little bit obsessive.
So, understand now only your federal rights is up – pertains to credit but also the state rights, because they’re — they can be pretty significant and save you a — a — a great deal amount of money.
The second is, is that understand that items on your credit report are not etched in stone. You do have the right to challenge them. They don’t necessarily have to be incorrect to be removed. They also have to be verifiable. You can have an item on your credit report that is one hundred percent accurate, yet the credit reporting agencies can’t verify with anybody, they have to remove it. And a great example of that is bank A acquires bank B. Bank B either does away with or mortgages the records and no one can find records of your payments or your non-payments and therefore the credit bureaus can’t verify something on your credit report. They have to remove it even though it’s completely accurate. The law says that, all right.
The next is, if you’re going through — it’s a rough time, especially with your credit card insures, be aware that settlement may not necessarily be a smart way of dealing with the issue and here’s why. Settlement does not protect you from the creditor, meaning that if you settle or you go — your — you stop paying them because you’re trying to — to save enough money to offer them a — a large amount for settlement, they can actually sue you during that process. So, it’s not like a bankruptcy where you do have some sort of legal protection from your creditors.
So — so, understand that all right, because a lot of services — you’re talking about credit repair, I — I would say that the debt settlement companies are aggressively marketed about one hundred times more aggressively than credit repair companies. So — so, be aware of your rights with respect to debt settlement and — and where you are protected and where you are not protected. A lot of people can do settlements themselves. They don’t need to hire someone to do settlements on their behalf.
Jason Hartman: Right, and I — I’ve heard a lot of those scams in the debt settlement type of world, as well —
John Ulzheimer: Yeah.
Jason Hartman: — where you know, where they put them in these payment programs and — I’m — I’m no expert, but I’ve just heard some bad things.
John Ulzheimer: Well payment — payment program is a — a payment program is a very misleading term that these guys use. You’re not actually paying anything. You’re — you’re paying the debt settlement company and all the debt settlement company is doing is accumulating money that you pay them. It’s not being paid to a creditor yet. They are basically trying to build a war chest and the war chest is supposed to be big enough that they can go to your creditors and say, okay American Express, you — look John Ulzheimer owes you ten grand, will you settle for two? I’ve got two thousand, I can write you a check for two thousand today. Will you accept two thousand? And they’re trying to basically work up enough funds to be able to make that type of offer.
Now keep in mind that the debt settlement company’s fees are also going to come out of the war chest that you’ve — so you’re not — when you talk about making payments, that’s a — I — I think it’s a little bit misleading for — for these companies to suggest to you that you’re actually making a payment that’s being applied to some sort of balance —
Jason Hartman: Are — are — are those debt settlement companies keeping that money during the term in which you’re making payments to them?
John Ulzheimer: Yes, they are.
Jason Hartman: Wow, I — I would assume some don’t have fidelity insurance and they just run off with the money, I’d assume, right?
John Ulzheimer: Well, they’ve got to deposit it and — I mean — I mean they can’t just — I mean they can’t just put it under their mattresses. They’ve got to actually put it in a legitimate financial institution. Whether or not it’s got FDIC insurance or NTUA insurance, I — I — they’re accumulating way more than two hundred fifty thousand dollars in aggregate. So, I — I — I don’t know if that money is fully insured or not.
When you’re choosing one of those companies, if you do choose to do — go that route, you know you should do the same due diligence as you — you do when you’re choosing a lender, when you’re choosing a — a credit repair company, if you choose to do that, and — and make sure that they’re not you know, if the guy has been in business for a week and the paint’s still wet in their office because they just moved in. That they don’t have a boat load of complaints and they’re not being sued left and right and the — and the attorney — the state attorney general isn’t taking them to task because of how they’re doing business.
Jason Hartman: Yeah. Good point, good point. Well hey, give out your website, John.
John Ulzheimer: So, the — what — what I do most of my writing in the website called SmartCredit and that all one word, and the S and the C are capitalized and I also blog for Mint and I blog for Credit Sesame and I also blog for Credit Card Insider. And so, I’m published usually probably around one — one and a half times a day and it’s always about this kind of stuff, consumer credit; debt; credit reporting; credit scoring; credit file accuracy. If it’s about credit and you’re a credit junkie you know that’s where you’re going to find that kind of stuff.
Jason Hartman: Fantastic. And did you want to give out your individual website, as well?
John Ulzheimer: Sure, it’s JohnUlzheimer.com and if — and people are always welcome to follow me on Twitter. It’s at John Ulzheimer and I tweet my articles and I interview every day. So, it’s not hard to — not hard to follow, and —
Jason Hartman: Not hard to follow. And so John Ulzheimer, thanks for joining us today.
John Ulzheimer: Yeah, thanks for having me. I appreciate it.
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Transcribed by Debra
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