Tempted to Sign Up for a Store Credit Card? You'll Pay Big

August 7, 2014, 4:23 am

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Filed under: Consumer Ally, Credit Cards, Store Credit Cards

It's not coincidence that most retail outlets promote store-branded credit cards. Why? It's profitable. Why? Because the consumer pays more -- way more -- for the privilege of using them when they carry a balance.

"Retailers dangle incentives like 15 percent off a purchase to encourage consumers to sign up for their credit cards," said Matt Schulz, senior industry analyst at CreditCards.com. "But this often ends up being a bad deal. The much higher interest rates far outweigh the one-time discount for anyone who carries a balance."

The average retail credit card annual percentage rate is 23.23 percent. That's more than 8 points above the average credit card interest rate and more than double what consumers with good credit can get, according to a CreditCards.com survey released Thursday.

Consider this example from CreditCards.com, making the minimum monthly payment for a $1,000 balance:

• Average retail card. It would take more than six years to pay off the balance, and you'll have paid an extra $840 in interest.
• Average non-store credit card. The balance would be paid off in less than five years, and interest payments would total $396.
• Average lower-rate card. Using a card with an APR of 10.37 percent, the balance would be paid off in just over four years, and the interest paid would be $232.

CreditCards.com reviewed the top 100 retailers by sales volume, as tracked by the National Retail Federation. Out of the 100 retailers, 36 have store cards. The highest interest rates:

• Zales (ZLC) (28.99 percent)
• Office Depot (ODP) and Staples (SPLS) (27.99 percent)
• Dick's Sporting Goods (DKS), HomeGoods, Marshalls, TJ Maxx (TJX) , JCPenney (JCP), Toys R Us (26.99 percent).

Despite the staggering interest rates, CreditCards.com notes that consumers can still get value from retail credit cards. If you pay your balances in full, many of these cards offer rewards and other incentives, including specials just for cardholders.

 

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In Farcing, Thieves Ask 'Would You Be My Friend?'

August 7, 2014, 4:47 am

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Filed under: Identity Theft

By Christine DiGangi

Consider this scenario: You're on Facebook (FB), and you receive two friend requests, both from people you don't know. With one person, you have no mutual friends, and with the other, you have some. Do you accept either request? Both? Just the one who shares your friends?

Scammers are banking on the likelihood you'll accept the request if you have mutual friends -- the more, the better -- even if you have no clue who the requester is. From there, they'll have access to everything you share with friends, and they'll start friending your friends and family to see what they share. All that good stuff helps them reach their ultimate goal: identity theft.

It's called farcing, and a researcher at the University of Buffalo published a study on it in an academic journal called Information Systems Frontier, saying these scams spread quickly and widely, as the scammer gathers friends and appears more legitimate.

What Is Farcing?

Farcing happens in two stages, wrote researcher Arun Vishwanath. The first stage is friending. Stage two involves the scammer requesting information from the new friends, aka phishing, the practice of acquiring information through seemingly legitimate means.

n Vishwanath's study, people's decisions to accept the friend request (part one) relied on the number of mutual friends and the photo of the requester. People were more likely to accept requests from people with more mutual friends. "Such profiles caused an upward information cascade, where each victim attracted many more victims through a social contagion effect," Vishwanath wrote. "Individuals receiving a level 2 information request on Facebook peripherally focused on the source of the request by using the sender's picture in the message as a credibility cue."

The study used four fake Facebook profiles: one with no photo and no mutual friends, one with a photo and no friends, one with 10 connections and no photo, and one with a photo and 10 mutual friends. Each profile was male, and the photos were considered averagely attractive, Vishwanath told the University of Buffalo Reporter.

How to Avoid Farcing

Farcing has been used on a variety of social networks, and people have used it to bully others, steal identities, spy on others and acquire child pornography. Avoiding it requires exercising caution on social media.

First, you should always be careful about what you share online, but beyond that, it's unwise to connect with someone you don't know. If the friend request appears to come from someone you have met, you may want to confirm their identity before sharing anything with them, because impersonation isn't unheard of.

Everyone on social media is at risk for identity theft -- it's a reality of today's technology and ubiquitous Internet use -- so make the effort to secure your personal information. Monitor your accounts (social and financial) for unauthorized use, and check your credit regularly to make sure no fraud is occurring in your name.

Your credit score can help you spot fraud, because a sudden, significant change in score may indicate unauthorized activity. You can track changes in your credit scores by reviewing them monthly, which you can do for free on Credit.com.

 

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Will Unit Labor Costs Confirm Wage Inflation Fears?

August 7, 2014, 5:35 am

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Filed under: Economy

Friday morning will bring the quarterly report on nonfarm productivity and unit labor costs. With the Employment Cost Index from last week having shown a pop much higher for the second quarter, economists and market watchers will likely be paying much more attention to this report than normal. The goal: to identify whether hat blip in wages and benefits is turning into higher operating costs for businesses in America.

As we are more focused on the labor cost in the equation this time around, we will look at what is released as the second reading first. Second-quarter unit labor costs are expected to have risen by 1.6% from for the previous quarter. The range listed by Bloomberg started at a gain of 0.3% and went as high as 7.5%, but that higher number feels like an outlier. The first-quarter unit labor costs were shown to have risen by 5.7%.

Bloomberg predicts the nonfarm business productivity business consensus estimate for the second-quarter will rise 1.4%, but there is a very wide range of estimates from -5.0% to 3.5%. The previous quarter was up 3.2%.

We saw an uptick in labor costs in the previous quarter in the Employment Cost Index by 2%, which caused some concern in the market that wage inflation was finally picking up. When the unit labor costs come out, we will have a better idea on whether wage inflation is something of real concern or just a blip on the radar.

Our idea on this matter is that if the unit labor costs come in above 2%, it would lend more credence to wage inflation and would validate what the Employment Cost Index suggested. If the report comes in closer to only 1%, then the market may suggest that the Employment Cost Index somehow missed the mark.

ALSO READ: States Where It's Hardest to Find Full-Time Work

Filed under: Economy

 

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Fed Survey Shows Many Households Still Worse Off Than Before Recession

August 7, 2014, 6:45 am

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Filed under: Economy

In its new Report on the Economic Well-Being of U.S. Households, the Federal Reserve Board provides insight into numerous topics of current relevance to household finances. These topics include housing and living arrangements, credit access and behavior, education and student loan debt, savings, retirement and health expenses.

What 24/7 Wall St. is talking out of this report the most is that, considering the effects of the Great Recession, some 34% of respondents reported that they were "somewhat worse off" or "much worse off" financially than they had been in 2008. Another 34% reported that they were the same.

The long and short of the matter is that this survey from the Federal Reserve paints a dismal picture. 24/7 Wall St. would be quick to point out that this data is widespread in that it is from 4,100 respondents that actually completed the survey. Still, there is a serious look back on the period it was collected. Data collection began September 17, 2013, and concluded on October 4, 2013.

In the survey, households reported 60% as "doing okay" or "living comfortably" financially. Another 25% were described as "just getting by" and another 13% were struggling to do so.

Those with outstanding student loans were more likely to report cutting back on spending to make loan payments. They were also more likely to say that the costs of the education outweighed any financial benefits they received from the education.

ALSO READ: 10 States With the Most Student Debt

Some other key statistics from the survey were as follows:

• 31% of survey respondents had applied for credit in the prior 12 months, 33% who applied were turned down or given less credit than applied for.
• As of September 2013, education debt of some kind was held by 24% of the population.
• 31% of non-retired respondents reported having no retirement savings or pension, including 19% of those ages 55 to 64.
• The Great Recession pushed back the planned date of retirement for 40% of those ages 45 and over who had not yet retired.

FULL FED SUMMARY

Filed under: Economy

 

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Argentina Wants to Sue U.S. in World Court Over Debt Dispute

August 7, 2014, 6:48 am

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Filed under: International Trade, U.S. Government, Scandals and Lawsuits

AMSTERDAM -- The International Court of Justice says it has received a filing from Argentina seeking to have the court hear a complaint by Argentina about U.S. court rulings on its sovereign debt restructuring.

U.S. courts have ruled that Argentina must pay in full "holdout" bondholders who did not participate in a restructuring of the country's debt after a default in 2001.

The court said Argentina's application asserted that the U.S. rulings amounted to a violation of its sovereignty.

The ICJ, often referred to as the 'world court,' is the United Nations' court for resolving disputes between nations.

The court said Argentina has sent the U.S. government a letter asking it to accept the court's jurisdiction.

Unless the U.S. agrees, the court will not have jurisdiction and the case will not proceed.

 

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Fed Survey: 25% of U.S. Households Are 'Just Getting By'

August 7, 2014, 10:00 am

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Filed under: Family Money, Economic Indicators, Economic Recovery, Federal Reserve

WASHINGTON -- A quarter of U.S. households say they're "just getting by" financially, a survey by the Federal Reserve shows.

The Fed issued the first-time report Thursday, describing it as a snapshot of how Americans perceive their financial and economic well-being. The survey of about 4,100 households was conducted from Sept. 17 through Oct. 4, 2013.

Thirteen percent said they were struggling to get by, and 34 percent reported they were somewhat worse off or much worse off than before the Great Recession hit in 2008.

Other findings: a third of those who had applied for credit in the previous 12 months said they were turned down or given less than they requested, and 24 percent had some type of education debt.

Thirty-one percent of people who aren't retired said they had no retirement savings or pension, including 19 percent of those aged 55 to 64. Nearly half of adults weren't actively thinking about financial planning for retirement, with 25 percent saying they had done no planning at all.

Twenty-six percent of homeowners said they expected prices in their neighborhood to increase by as much as 5 percent in the 12 months following the survey period.

As the economic recovery enters its sixth year, a number of factors help explain why many Americans don't feel better off: Income hasn't rebounded. Millions are working part time even though they want full-time jobs. It's taking longer to find work. People are still struggling with mortgage debt. Most people don't feel free to spend as much as they once did.

A new annual report released Thursday by the Commerce Department shows that consumer spending has soared since the recession ended in U.S. states with oil and gas drilling booms and has lagged in states hit especially hard by the housing market bust. The state-by-state report points to substantial shifts in the economy since the recession.

 

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Stocks Dip on Fears About Global Growth, Russian Aggression

August 7, 2014, 10:04 am

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Filed under: Market News, International Trade, Investing

By STEVE ROTHWELL

NEW YORK -- Concerns about slowing global growth and the threat of rising tensions between Russia and the West pushed stocks lower on Thursday.

The stock market started the day higher as investors mulled the latest earnings reports and an encouraging report on jobs. By mid-morning, though, the market had given up its gains. While stocks slumped, government bond prices rose, pushing the yield on the 10-year Treasury note to its lowest level this year.

Stocks have slumped since the Standard & Poor's 500 (^GSPC) index closed at a record last month amid worries that the rising tensions between Russia and the West will hurt global economic growth. European Central Bank head Mario Draghi cautioned Thursday that the crisis in Ukraine could crimp the fragile recovery in the region.

"You're getting some good earnings, but it's just not enough to overwhelm the geo-political issues," said Drew Wilson, an equity analyst with Fenimore Asset Management.

The S&P 500 index fell 10.67 points, or 0.6 percent, to 1,909.57. The index closed at a record 1,987.98 on July 24. The Dow Jones industrial average (^DJI) fell 75.07 points, or 0.5 percent, to 16,368.27. The Nasdaq composite (^IXIC) fell 20 points, or 0.5 percent, to 4,334.97.

Phone and internet companies were among the day's biggest decliners. Windstream Holdings (WIN) fell 39 cents, or 3.4 percent, to $11.16 after the company reported that its earnings fell by 64 percent in the second quarter. The results missed analysts' expectations.

Eight of the 100 industry sectors in the S&P 500 fell. Health care and phone company stocks dropped the most, 1.2 percent and 1 percent respectively. Utilities stocks rose 1.1 percent, making them the biggest gainers, as investors bought safer assets.

The market had started the day higher as investors assessed the latest encouraging news from the job market.

Fewer people applied for U.S. unemployment benefits last week. Claims remain at relatively low levels consistent with stronger economic growth. Weekly applications fell 14,000 to 289,000, the Labor Department said.

Some positive earnings reports helped lift stocks in early trading.

21st Century Fox (FOX) rose $1.63, or 5 percent, to $33.96 after reporting better-than-expected fourth-quarter earnings late Wednesday. The company got a boost from films including "X-Men: Days of Future Past," ''Rio 2," and "The Fault in Our Stars." The company was adding to gains from a day earlier after dropping its bid for Time Warner (TWX) and announcing a stock buyback.

The gains for stocks were short-lived Thursday. The market started to head lower by lunchtime, and as stocks slumped, bond prices rose.

The yield on the 10-year Treasury note, which falls when prices rise, dropped to 2.41 percent from 2.48 percent on Wednesday. The yield on the note is at its lowest level in more than a year.

At the start of this year, many investors and analysts had expected 10-year Treasurys to fall as the economy continued its recovery and the Federal Reserve wound down its economic stimulus program. Instead, the opposite has happened. Bonds have rallied as inflation has remained low and doubts have arisen about the prospects for long-term growth.

U.S. Treasury securities also offer a higher yield than bonds issued by other governments. The yield on the 10-year German government bond is 1.06 percent, and French government bonds with the same maturity offer a yield of 1.5 percent.

Investors are also buying Treasuries as geopolitical tensions rise around the world.

"The Treasury market is going to continue to confound the bears," said Bill O'Donnell, chief Treasury strategist at RBS.

In commodities trading, the price of oil rose Thursday for only the second day in the past nine. There are concerns about intensifying violence in Iraq as the White House weighs air strikes to counter recent advances by insurgents.

Benchmark U.S. crude oil rose 42 cents to close at $97.34 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many U.S. refineries, rose 85 cents to close at $105.44 on the ICE Futures exchange in London.

In metals trading, gold rose $4.30 to $1,312.50 an ounce and silver fell three cents to $19.99 an ounce. Copper rose a penny to $3.18 a pound. In currencies, the dollar fell to 102.03 yen and the euro fell to $1.3364.

 

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2 Huge Projects May Help Speed Recovery of Las Vegas

August 7, 2014, 11:00 pm

≫ Next: Procter & Gamble Is Kissing Most of Its Brands Goodbye

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Filed under: Company News, Industry News, Entertainment Industry, Travel Industry, Investing

Because it's so heavily dependent on domestic tourism, Las Vegas was one of the hardest-hit American cities during last decade's recession. So much so that five-plus years later, it has yet to fully recover, with numerous key economic indicators remaining stubbornly below their pre-slump levels.

However, two recently announced, large-scale renovation efforts on choice pieces of real estate -- along with other key projects soon coming onstream -- should help juice the economy of this glitziest of American cities.

Hail Caesar

Caesars Entertainment (CZR) announced in July it would spend nearly $250 million to spruce up The Quad, a 2,256-room hotel on the Strip (the stretch of South Las Vegas Boulevard home to most of the city's famous casinos and resorts) and north of Flamingo Road.

The facility will also get a name change come Oct. 30 of this year, to LINQ Hotel & Casino. This ties the hotel more strongly with the adjacent property Caesars owns, simply known as The LINQ. The oddly spelled complex is a popular shopping, dining and entertainment plaza, so it's probably a good marketing strategy for Caesars to rechristen the hotel after it.

The renovation should help breathe some life into The Quad and bring it up to the standards of some of its neighbors on The Strip. Or, in the words of Caesars' chief marketing officer, make it the venue of "a complete lifestyle experience at one of the best locations in Las Vegas."

Stay With the Ghost of Elvis

Renovations are also on the way at another massive Vegas property, the nearly 3,000-room hotel now known as the Westgate Las Vegas, on Paradise Road. It's named after its new owner, the privately owned timeshare operator Westgate Resorts.

The complex has a long and storied history. When opened in 1969 as The International Hotel, it was the largest hotel in the world. No less a personage than Elvis Presley resided in one of the International's penthouses; he also performed in the hotel's theater.

Since then, the structure has gone through several ownership changes. The record for longest tenure belongs to the company now known as Hilton Worldwide (HLT), which purchased the property in 1970 and held it for nearly 30 years.

Westgate Resorts bought the building from investment bank Goldman Sachs (GS) in a deal announced at the end of June. The price was not disclosed. Westgate promises to "renovate every square inch" of its new asset, spending around $250 million to do so. Some accommodations, unsurprisingly, will become time shares.

Vegas Rocks

These aren't the only projects that'll change the character of the Strip and its environs.

Later this month, a newcomer to the Vegas resort scene, privately held restaurant and nightclub concern SBE Entertainment, will open the doors of its sparkling 1,620-room SLS Las Vegas. This is a $415 million refurbishment of what was once the Sahara Hotel & Casino located just north of Westgate Las Vegas.

Just down the Strip, fists will pump and lighters will be waved at City of Rock. The 33-acre campus, which will have capacity for 80,000 or so people, is to be home to the U.S. version of the durable Rock in Rio festival. The initial extravaganza is scheduled for 2015, and the campus will be repurposed for other events when Rio's not in town.

A consortium of investors, including longtime Vegas high roller MGM Resorts International (MGM), is behind the $20 million project.

That isn't the only asset the company's paying for. September will see the official opening of its 1,100-room Delano Las Vegas, an $80 million repurposing of its existing THEhotel in the company's sprawling Mandalay Bay complex.

Rolling for Prosperity

Vegas needs an economic lift. Although the city has improved certain key financial metrics over the past few years, its annual gross domestic product (as of 2012) was hovering slightly below its pre-recession peak. Meanwhile, in terms of unemployment, Vegas' most recent monthly rate is 7.9 percent, well above the national rate of 6.1 percent.

On the plus side, more visitors are flowing in. In the first six months of the year, nearly 20.7 million of them arrived, an improvement of over 4 percent on a year-over-year basis.

Collectively, Vegas hopes for this momentum to keep rolling, like a hot pair of dice.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. Try any Motley Fool newsletter service free for 30 days.

 

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Procter & Gamble Is Kissing Most of Its Brands Goodbye

August 7, 2014, 11:00 pm

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Filed under: Company News, Industry News, Consumer Goods, Food & Beverage

It's one of the most ruthless brand slaughters in corporate history. Procter & Gamble (PG) last week announced, concurrent with its latest quarterly results, that it would jettison as many as 100 of its products. This is more than 50 percent of its total, an awfully big number for any company rationalizing a product portfolio.

Eliminating the Esoteric

But no one should worry that the company's more famous items -- Gillette razors, for example, Pampers diapers or Duracell batteries -- are being abandoned. Although the company hasn't specified which goods will go, it has said that they will be its smaller and more obscure offerings. (One analyst suggested Ausonia, Discreet, Blend-a-Dent, Braun Oral-B and Rindex will go.)

The rationalization is sensible. After it's finished, P&G will have around 70 to 80 products, which were collectively responsible for roughly 90 percent of its $83 billion in global sales for fiscal 2014.

It intensifies a strategy the company has begun recently. This past April, it shed most of its pet food brands, notably the Iams and Eukanuba lines to Mars (best known as the maker of candy like M&Ms and Snickers) for $2.9 billion in cash.

Divest and Grow

Procter & Gamble's stock rose on news of the sell-offs. Investors, it seems, are cheered by the potential of eliminating that dead weight.

Although the company hasn't been doing badly of late -- it beat the average analyst estimate for profitability in its recently reported quarter -- its growth has been sluggish, and it could use some streamlining. That $83 billion sales figure is less than 1 percent higher than the 2013 tally, while net profit advanced by 3 percent to $11.6 billion.

Likely adding to that positive sentiment is the fact that the company has done the divestment dance many times before (although, it has to be pointed out, not with so many products at once).

Starting in 2001, it inked deals with comestibles giant J.M. Smucker (SJM) that saw it part ways with familiar brands Jif peanut butter, Crisco shortening and Folgers instant coffee. Combined, those deals were valued at nearly $4 billion.

More recently, it sold another well-known food line, Pringles potato chips. That brand, which was originally to have been transferred to Diamond Foods (DMND), eventually ended up at Kellogg (K), with the latter firm ponying up nearly $2.7 billion for the salty snacks.

With that kind of track record, investors can be reasonably confident that Procter & Gamble can dispose of its lesser brands just as effectively.

Sell a Brand and Win

Whatever the impetus for doing so, companies often benefit in numerous ways when they jettison their less critical product lines.

The promise to do so helped General Motors (GM) ultimately draw tens of billions of dollars in bailout money from the government after the company came to the brink of failure during the 2008-2009 recession.

General Motors made good on that pledge, selling Saab and, following a failed attempt at divestments, shuttering its once-innovative Saturn line and that of Hummer, the gas-guzzling civilian version of the military's Humvee troop car.

U.K.-based consumer goods multinational Unilever (UL), meanwhile, began shedding some of its food brands in late 2011, and it has since seen its share price grow by around 22 percent.

Products that left the company's portfolio include Skippy peanut butter, sold in 2012 for $700 million to Hormel Foods (HRL), and the Bertolli and P.F. Chang's Home Menu frozen prepared meals lines. Those brands were bought by ConAgra Foods (CAG) for $267 million in that same year.

Like Procter & Gamble, Unilever is a veteran at divestment. In 2008, the company unloaded its North American laundry detergents business (comprising the All, Wisk, Surf and Snuggle brands) to private equity concern Vestar Capital Partners. Laundry detergent might be a low-cost item, but the deal wasn't. Unilever brought in nearly $1.5 billion in cash and stock from the sale.

Results Slide

Slimming down Procter & Gamble won't be an easy or quick task; the company hopes to sell a lot of brands, and its less-popular ones at that. In spite of the firm's experience in sell-offs, this will take plenty of time and not a little effort.

But at least it's taking concrete steps to become leaner and more focused, and the market seems to be cheering the attempt. Hopefully for its shareholders, Procter & Gamble's try will lead to better financial results, and keep up support for that stock price.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends General Motors, Procter & Gamble and Unilever. Try any of our newsletter services free for 30 days.

 

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Why You Should Stay in Stocks Even When the Market's Falling

August 7, 2014, 11:00 pm

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Filed under: Investing Basics, Personal Finance, Investing

I remember it like it was yesterday. The last few months of 2008 tested the mettle of even the heartiest stock market investor. Daily I talked with investors who decided to sell out of their portfolios entirely. When you see the Dow (^DJI) plunge 500, 600 or 700 points in a day, it makes total sense on one level. Investors see the ship sinking, or at least they fear that's what's going on, and they want a life preserver while there's still one left.

Fast forward to today, and the fear is still there. We start hearing about whether or not it's time to get out of the stock market, especially when the media seems to only report on bad things. If you're going through that mental exercise of whether or not you should jump ship, consider these reasons why you should stay the course.

The Media Does Not Know Your Situation

Members of the financial media have one job ... to get ratings. That's not bad, per se, but in their pursuit of that goal, they will tell you things like this:

• The sky is falling.
• There is much to be afraid about.
• Conditions are ripe for a pull-back.

Truth be told, conditions may be ripe for a pull-back. No one really knows. However, what I can tell you is that members of the media do not know your specific circumstance. Various pundits may come across as great stock pickers, but they don't know your situation. They aren't tailoring their recommendations to you; they're fear-mongering. The atmosphere of fear this creates will be an even bigger problem for you if you're an emotional investor. While it can be difficult to separate your emotions from your money, try. Fear will often lead you to make irrational decisions that may not be in your best long-term interest.

Simply put, it's best to put the financial talking heads on mute.

You Will Lose Money by Jumping Out

I know it seems counterintuitive, but you will lose money by jumping out of the stock market due to fear. Going back to the emotional argument, the stock market runs on 90 percent emotion and 10 percent reason. It is doing what it should be doing -- going up and down.

Consider this. During the plummet in 2008, the S&P 500 (^GPSC) lost just over 38 percent of its value. Retail investors jumped out at various points of the downturn and might have saved themselves from some of those losses. However, many continued to stay out of the stock market after it hit bottom due to fear of losing more money. That makes sense on one level, but it's shortsighted. Those emotional investors (and thanks to fear, non-investors) missed out on the S&P 500 more than doubling from 2009 to 2013. Pulling out now, especially when you stay out long-term, is a recipe for losing money, not making it.

You Have a Goal That Needs Long-Term Commitment

Most of us have goals that require active investing. The stock market, whether we like it or not, is going to have these short-term blips. It is going to have day-to-day swings, and some swings might be wild. Jumping out when the market appears to be tumbling is not going to help you reach those long-term goals.

I know this can be difficult when you're seeing your retirement account balances go down. I deal with that myself, and I've spoken with thousands of investors who've dealt with the same thing. But we should not allow this fear to derail our investment plans. Instead, it should encourage us to keep our focus on what matters -- the long term and how we're going to reach our goals. That might mean making slight tweaks to your asset allocation or looking for opportunities to invest in, but overall, it means keeping a long-term vision that withstands the market's daily swings.

At the end of the day, the stock market is going to fluctuate. Success requires focusing on the big picture. If your desire is to grow long-term wealth, that will serve you much better than listening to any doomsday predictions.

John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. He is a father, husband, and veteran of the financial services industry who's passionate about helping people find freedom through frugality. He also writes about wise ways to manage your money at WiseDollar.org.

 

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Unit Labor Costs and Productivity Very Mixed, With Crazy Revisions

August 8, 2014, 2:09 am

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Filed under: Economy

Economists and market watchers want to know if labor costs are truly rising or not. After all, there has been very mixed data. Now a report on second quarter non-farm productivity and unit labor costs is signaling even more mixed data - with crazy first quarter revisions that just make the numbers seem wishy-washy.

We had already seen a higher GDP report for the second quarter and saw a much higher Employment Cost Index report, and non-farm productivity followed suit. Productivity rose 2.5% versus a 1.4% consensus expected by Bloomberg. Here is the problem - the first quarter reading was revised from a dismal -3.2% down to an even worse -4.5%. While these numbers are quarter-over-quarter and are very volatile, this means that the higher than expected report for the second quarter was negated by a negative revision in the first quarter.

Unit labor cost implications were our biggest concern, and now they remain our biggest concern due to a massive revision. Second quarter unit labor costs were up by only 0.6%, a full point shy of the 1.6% gain expected by Bloomberg. The problem here is the first quarter revision - rising from a preliminary hot 5.7% up to a massively higher 11.8% gain.

Component readings were as follows:

• non-farm output rose by 5.2%in Q2;
• compensation rose by 3.1% in Q2, but that was versus 6.8% in Q1;
• and hours worked rose 2.7% in Q2.

The final verdict for the second quarter labor costs and productivity is one of confusion. The second quarter reports were mixed on a standalone basis, but then the revisions to the first quarter only added more confusion. We would signal that this seems to feel as though the economy remains on a path of a return to normal growth with only a very moderate cost pressure scenario.

Filed under: Economy

 

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Week's Winners and Losers: Delivery Sizzles, Deals Fizzle

August 8, 2014, 2:15 am

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Filed under: Company News, Earnings, Mergers & Acquisitions, Industry News, Wall Street Watch

There were plenty of winners and losers this week, with a few potential mergers coming undone and a maker of electronic learning toys getting schooled. Here's a rundown of the week's smartest moves and biggest blunders.

Trex (TREX) -- Winner

It's summer, and apparently a lot of homeowners decided to invest in sprucing up their outdoor living space. Trex posted strong quarterly results on Monday. The leading maker of weather-resistant wood-alternative decking saw its sales climb 23 percent, and adjusted pre-tax earnings soared 62 percent.

There was some weakness earlier this earnings season out of other home improvement specialists, so it's a welcome surprise to see Trex holding up so well. The good news doesn't end there. Trex is eyeing accelerating growth, calling for revenue to climb a better than expected 27 percent in the current quarter.

Mergers -- Loser

In any week there seems to be a couple of acquisitions or mergers, but sometimes Cupid isn't feeling up to the arrow-slinging task. A couple of big potential buyouts came undone this week when Rupert Murdoch pulled his offer to buy out Time Warner (TWX), and Sprint (S) nixed plans to snap up T-Mobile (TMUS).

The deals fell apart for different reasons. Murdoch just didn't have an interest in chasing Time Warner's stock higher in a hostile buyout bid. Sprint realized that regulators weren't going to be happy unless there were four major independent wireless carriers out there.

Instant Gratification -- Winner

Amazon.com (AMZN) announced on Wednesday that it was expanding its same-day delivery service to six more cities. Prime shoppers in Baltimore, Dallas, Indianapolis, New York City, Philadelphia and Washington, DC, metro areas will now be able to place an order on the website by noon and pay $5.99 to have it delivered that same day.

Naturally the selection is limited to items that Amazon stocks locally, but the one knock on Amazon about having to wait a day or two at least for shipments to arrive is starting to go away. Google (GOOG) and Barnes & Noble (BKS) teamed up to offer same-day book deliveries in Manhattan, West Los Angeles and the San Francisco Bay Area.

LeapFrog Enterprises (LF) -- Loser

It's not easy selling tablets these days, but it's even harder to do that in the toddler education market. LeapFrog Enterprises saw its stock tumble after posting brutal quarterly results. Sales plunged 43 percent, as its LeapPad learning tablet and other electronic learning toys failed to gain traction.

LeapFrog was a market darling in 2011 when it introduced the kid-friendly LeapPad Explorer tablet. It sold out ahead of the holiday season, sending parents scrambling to get the hot toy of the season. Three generations of the tablet later, we're seeing LeapFrog struggling to stand out in a world where traditional Android tablets have fallen sharply in price.

Jack in the Box (JACK) -- Winner

Flipping burgers may seem like a dangerous niche for investors, but let's not assume that all of the fast food chains are faring as poorly as market leader McDonald's (MCD) these days. Jack in the Box shares moved higher on Thursday after posting better than expected results.

Jack in the Box also posted a healthy increase in comparable-restaurant sales, a metric that's been negative for McDonald's lately, and the company boosted its earnings guidance for the entire year. Let's not paint the burger joints with the same broad strokes. Some of them are paying off for hungry investors.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google (C shares), LeapFrog Enterprises, McDonald's and Trex. The Motley Fool owns shares of Amazon.com, Barnes & Noble, Google (C shares), LeapFrog Enterprises and Trex. Try any Motley Fool newsletter services free for 30 days.

 

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Your Landline May Be the Key to Big Dividend Checks

August 8, 2014, 2:45 am

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Filed under: Company News, Earnings, Telecommunications, Dividend Stocks, Investing

Providing landline connectivity is a fading business, with more and more folks saving money by disconnecting their home phone plans, relying primarily on smartphones.

It's a grim trend that would make this a scary area for shareholders, but good luck trying to tell income-chasing investors to stay away. Despite their dubious growth prospects, Frontier Communications (FTR), CenturyLink (CTL) and Windstream (WIN) have been attracting investors based of the strength of their generous quarterly distributions.

Frontier and Windstream -- and to a lesser extent CenturyLink -- have tried to go where the big boys won't. They concentrate on smaller markets where traditional phone services are still in demand, and they don't have to compete as hard with the titans of telco. It's an interesting strategy. It has long-term flaws, but the three stocks are still magnetic to investors that put up with the shortcomings in exchange for fat dividend checks every three months.

Yield Signs

How meaty are the disbursements here? CenturyLink yields 5.9 percent, and it's at the low end of the niche. Windstream is the most generous payer with a hefty 9.9 percent payout. Frontier straddles the two with its 7 percent yield. All three reported quarterly results this week, giving the market some valuable insight on the sustainability of their popular distributions.

It's important to remember that these three companies aren't merely selling landlines. You don't stick around if you're only selling buggy whips, Beanie Babies and Milli Vanillii CDs. Frontier, CenturyLink and Windstream are trying to offset the folks canceling their home phone lines and millennials who have no intention of ever having them by selling more relevant broadband connectivity. They also offer businesses a growing array of corporate communication services.

For the most part, these efforts haven't been enough to grow the overall business. Frontier kicked off the three days of earnings reports on Tuesday, checking in with a 0.6 percent decline in revenue. CenturyLink reported quarterly results on Wednesday. Revenue clocked in at $4.1 billion, 0.2 percent lower than it did a year earlier. Windstream rounded up the earnings reports on Thursday morning. Its revenue slipped 2 percent to $1.5 billion.

They weren't substantial downticks, but all three posted year-over-year declines in revenue.

Dialing the Wrong Number

Investors in all three companies are realistic. They're not expecting to see top-line growth. Analysts see all three companies posting slight declines in revenue for all of 2014. They key is to slow the process long enough to be able to sustain the generous payouts.

Frontier merely met Wall Street's profit target, but Windstream missed again. It has now come up short on the bottom line in four of the past five quarters, and, as the one with the chunkiest yield, it's also the one that's the most vulnerable.

In an interesting twist, Windstream announced a few days ago that it plans to spin off some of its telecommunications network assets into a real estate investment trust. It will allow investors to either buy into its high-yielding yet slipping home phone service -- taking advantage of a REIT structure to maximize income -- or stick with its other services that are growing modestly without the beefy distributions.

It remains to be seen if Frontier will go that route. CenturyLink probably won't. It's larger and better positioned to invest in growing services. It announced on Tuesday that it's expanding of its speedy gigabit service to 16 cities.

All three investments have varying amounts of risks, and it's probably fair to say that the higher the yield the bigger the risk in the three stocks. (We talked about the dangers of chasing the highest dividend yields here.) However, for investors eyeing large payouts every three months these three meandering yet risky telecommunications investments may be too tempting to ignore.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Get The Motley Fool's free report on nine dividend stocks our top analysts recommend for every income investor's portfolio.

 

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Is This 'Game Over' for Video Game Consoles?

August 8, 2014, 3:02 am

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Filed under: Company News, Microsoft, Sony, Electronics, Investing

Well, it had a good, long life. At the beginning of 2013, Sony (SNE) halted production of its iconic game console, the PlayStation 2, after more than a dozen years on the market.

Its successor, the PlayStation 3, probably won't even be around as long: The company introduced the PlayStation 4 at the end of 2013. Sony has pledged to support the PS3 (released in 2006) for "as long as there is a good business there for us." It's a rather tepid promise.

Most likely, by the time of its demise, PS3 won't be the blockbuster its older brother proved to be. The latter's total global sales were in the neighborhood of 160 million units. Now, toward the apparent tail end of its life, the PS3 has sold just something a bit north of 80 million consoles.

Dedicated consoles like the PS2 were nearly synonymous with video gaming earlier this decade, but competing platforms have eaten away at their dominance. And that chomping looks set to continue.

Losing the Game

The big two combatants in the console market are Sony and Microsoft (MSFT), which in line with its rival unveiled its own new-generation machine, the Xbox One, prior to last year's holiday season. On the surface, both companies have so far enjoyed smashing business with their latest models, moving millions of units.

However, zooming in a bit on those sales reveals some cause for concern. According to popular IT news website Tech Crunch, parsing data from researcher NPD, around 271,000 PS4s were sold this past January.

For January 2007 -- the month just after the previous generation of consoles (PS3, Xbox 360, etc.) were introduced -- the figure isn't much higher than the PS3's tally of 244,000, and it's beaten by the PS2's nearly 300,000. Remember, at that point PS2 was yesterday's model for Sony.

The numbers for Microsoft are more stark. January saw the company sell roughly 141,000 Xbox Ones -- less than half of the 294,000 in sales of the then-fresh Xbox 360 the same month seven years ago.

Worse still is the tally for the once-mighty Nintendo (NTDOY). Back in early 2007, the company's then-new, innovative Wii ruled the January sales charts with around 436,000 units sold. Fast-forward nearly seven years. Nintendo's current-generation machine, the Wii U, sold only around 49,000 units in January 2014.

Xboxed In

Those declines are symptomatic of a market squeeze. Segments that house cheaper, less involved gaming options such as mobile apps have surged. According to the Entertainment Software Association, these days 44 percent of gamers use smartphones as a platform for at least some playing.

No wonder certain operators in this segment are raking in the bucks. King Digital Entertainment (KING), creator of the addictive Candy Crush Saga, nearly tripled its gross bookings on a year-over-year basis in its first quarter of 2014, from $219 million to $641 million.

Candy Crush Saga follows the modern trajectory for video game success, which often cuts consoles out of the scene entirely.

Candy Crush Saga follows the modern trajectory for video game success, which often cuts consoles out of the scene entirely. In 2012 it debuted as a playable add-on in Facebook (FB). Several months later, King Digital released app versions of the title. These days, Candy Crush Saga is available for all major mobile operating systems on the "freemium" model (it's free to download, but selected in-app options must be paid for).

Meanwhile, at the higher end of the spectrum, many dedicated gamers eschew consoles for tricked-out PCs. These machines, rigged with state-of-the-art CPUs and video cards, can produce a richer and more immersive experience than an Xbox or PlayStation.

These serious players spend serious money on their gear. A report from Jon Peddie Research reveals that they shelled out around $20.7 billion for this hardware in 2013.

The top and bottom ends of the market aren't small. According to industry observer Charles Sizemore of Sizemore Capital Management, at the moment high-end PC gaming comprises roughly 20 percent of the market, with mobile gaming apps taking around 17 percent.

Playing a Brand, Not a Box

This squeeze has led to some dark mutterings that this current generation of video game consoles -- the eighth, for those counting -- could be the final one. Even the top manufacturers hint at such a future, with Sony saying last year that PlayStation will likely evolve into more of a service brand than a piece of hardware.

So the consoles are still hanging in there, but their glory days do seem to be over. They did well while they lasted. Anyone up for getting out the old Xbox for a nostalgic Halo death-match while we still have the gear?

Motley Fool contributor Eric Volkman owns shares of Facebook. The Motley Fool recommends Facebook, and owns shares of Facebook and Microsoft. Try any Motley Fool newsletter service free for 30 days.

 

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Wholesale Inventories Rise Less Than Expected in June, May Revised Lower Too

August 8, 2014, 3:19 am

≫ Next: What We Learned from Being Mystery Shoppers

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Filed under: Economy

The last economic report for Friday was the Wholesale Inventories reading for June. It turns out that inventories rose by only 0.3% for the month. Bloomberg and Dow Jones both had the consensus estimate at a gain of 0.7%. This put the inventories reading up at $533.5 billion.

While the gain was lower than expected on a month over month reading, the inventories level was up by 7.9% from the prior year. Another knock here was that the gain of 0.5% in May was revised lower — down to a gain of only 0.3%.

The Census Bureau report showed that sales were $454.4 billion. June durables were up 1.4% from the prior month but up 6.6% from a year ago. Sales of non-durables were down 0.7% from the prior month, but they too were up by 6.5% from a year ago. Interestingly enough, sales of farm product raw materials were down by a sharp 8.1% from the prior month.

The so-called Inventory/Sales Ratio, a key view by economic watchers, was 1.17 - versus 1.16 in June of 2013.

Wholesale trade is released monthly by the Census and aims to measure the total dollar value of sales made and inventories held by merchant wholesalers. This report is generally not a market moving report, but two weaker than expected readings (June lower than estimates, and May revised lower) does at least bring up some concern that merchants are not stocking up their shelves in preparation for a rush of business.

Filed under: Economy

 

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What We Learned from Being Mystery Shoppers

August 8, 2014, 4:07 am

≫ Next: Unpaid Bills to Matter Less for Credit Scores

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Filed under: Shopping, Secret Shopper, Stores, Saving

We always seem to be looking for ways to make extra money. All the better if we can earn it in ways that fit our schedule and keep us out of another office. One appealing way is mystery shopping -- going to a store or restaurant, oftentimes getting wined and dined for free, and then filling out a survey rating your experience. Seems easy, right?

There's more than meets the eye to this covert work. We know because we tried it out for a couple of months when we were living in New York City. Here are some considerations when it comes to deciding if mystery shopping is for you.

The Perks

• Enjoying free food. Yes, sometimes mystery shopping includes delicious, free food -- emphasis on the "free." And more often than not, you can bring a guest to join in on the free dining. For us, the option of going to expensive restaurants that wouldn't normally fit in our budget was really appealing. So if you're on a tight budget and can't usually justify the cost of a sit-down restaurant with your significant other, being a mystery shopper might be the best thing that ever happened to your appetite and wallet.
• Getting paid to shop. If you already spend a lot of free time shopping, or if going to a mall feels therapeutic to you (which it does not for yours truly), mystery shopping might be your thing. (Some gigs involve interacting with online businesses or dealing with a company's phone representatives.) That said, the Mystery Shopping Providers Association makes it clear that mystery shopping isn't so much shopping as it is gathering data, and that it takes "time, attention and effort."
• Working on your own time. In choosing assignments, you set the terms of when and where you're available. There are usually specific windows of time when you need to complete your on-location assignment, followed by a deadline to submit the review.

The Drawbacks

• It's not all fun and games. When all is said and done, you might wish you had just paid for the meal so you could have enjoyed it without having to log your minute-by-minute interactions, dialogue and impressions. All that labor-intensive sleuthing can be quite the buzz-kill at a romantic dinner, so don't invite a first date to an assignment.
• Writing a review. Unless you're someone who writes detailed consumer reviews for fun (we know you're out there!), this is the not-so-fun aspect of mystery shopping. For instance, after receiving our first assignment and seeing the level of detail needed to complete our review, the free meal didn't seem as appealing. The length of the required review varies, but your writing and the quality of the details you provide need to be tip-top.
• The Pay. While you might be getting comped meals and shopping excursions, the buck pretty much stops there. Depending on the assignment, you might make $12 to $25 per completed job. And oftentimes, the pay for restaurant mystery shopping is simply the cost of the meal. Depending on your definition of hours worked (is eating free food really work?) and how long it takes to complete a detailed review, you might find that what you earn per hourly on these gigs is well below minimum wage.

So, is mystery shopping for you? Personally, we decided the opportunity cost wasn't worth it. Is a free meal or shopping trip worth your time? That's a question that you'll have to answer yourself.

 

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Unpaid Bills to Matter Less for Credit Scores

August 8, 2014, 5:14 am

≫ Next: U.S. Worker Productivity Recovers After Steep Winter Decline

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Filed under: Credit Score

By CNBC

Changes are coming to the FICO credit-scoring system, potentially allowing millions of people to take out loans.

The Wall Street Journal reports that Fair Isaac (FICO), which produces the FICO score, will no longer include failures to pay bills when calculating a score if the issue has since been resolved. The tabulation also will take unpaid medical bills less into account, according to the Journal.

These changes -- which are meant to stimulate consumer lending -- are the result of discussions between Fair Isaac, the Consumer Financial Protection Bureau and lenders, the Journal reported. Out of the 106.5 million Americans with a payment collection on their report, 9.4 million had no current balance, which means their credit scores will be bolstered by the new system, according to the Journal.

Still, not everyone supports the changes. "A lot of people really just can't handle credit -- you're not really helping them by allowing them to dig themselves into debt," Howard Strong, a California lawyer specializing in consumer-protection class-action lawsuits, told the Journal. "It's like a sharp knife -- if you don't know how to use it, you can cut yourself."

 

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U.S. Worker Productivity Recovers After Steep Winter Decline

August 8, 2014, 5:51 am

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Filed under: Economic Indicators

By CHRISTOPHER S. RUGABER

WASHINGTON -- U.S. workers were more productive in the April-June quarter and labor costs rose slightly, a sharp turnaround from grim first-quarter figures.

The Labor Department said Friday that that productivity increased 2.5 percent at a seasonally adjusted annual rate, after plummeting 4.5 percent in the first quarter. That was the steepest drop in 31 years, and reflected a sharp 2.1 percent contraction in the economy. Economists blamed most of that shrinkage on temporary factors, such as harsh weather and a cutback in stockpiling by businesses.

Productivity measures output per hour of work. Greater productivity increases living standards because it enables companies to pay their workers more without having to increase prices, which can boost inflation.

Labor costs rose just 0.6 percent, after surging 11.8 percent in the first quarter. But labor costs shrank in the second half of last year and in the past 12 months have increased just 1.9 percent. That is below the long-run average of 2.8 percent and suggests that wages and salaries aren't rising fast enough to spur inflation.

The Federal Reserve keeps close watch on productivity and labor costs for any signs that inflation may be accelerating.

Despite the first quarter increase, labor cost gains have been tame throughout most of the recovery. Wages for most workers have barely kept up with inflation since the recession ended.

In the past 12 months, productivity has increased 1.2 percent, below the long-run average of 2.2 percent.

Productivity growth has been weak in the five years since the recession ended. That has raised concerns among some analysts that the U.S. economy may not be able to grow as quickly as it has in the past.

Productivity grew just 0.9 percent in 2013, 1 percent in 2012 and just 0.1 percent in 2011, according to revised figures released Friday.

In the short run, slow productivity can boost hiring. That's because companies need to hire more workers to lift output. Employers have added an average of 244,000 jobs a month in the last six months, the best six-month pace in eight years.

 

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Back-to-School Shopping? Try These 6 Made-in-America Gems

August 8, 2014, 6:11 am

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Filed under: Spending, This Built America

Whether you are a a parent or student, some great products made in America will help you get through the school year. Let's look at six companies.

Tough Traveler Bags and Baby Products

Tough Traveler has been making durable bags and baby products since 1970. The business in Schenectady, New York, prides itself on selling almost entirely American-made goods -- going out of the U.S. only for hard-to-find fasteners, small pieces or small custom orders. All cloth comes from the U.S.; a phone representative said the bags come from the "best U.S. cloth, not the cheapest."

Blackbox Cases for Apple Products

No matter what your age, your electronics are likely among the items that you break the most. Thus the market for Blackbox Case, founded in 2009 to handcraft products to protect your Apple (AAPL) gear (sorry, PC and Android users). Engineer Lance Atkins was inspired to create the lightweight, strong and stylish computer cases after taking his Macbook to Africa. After building his own computer-controlled woodworking router, he enlisted some skilled friends to make red oak cases to protect the MacBook Pro. The Golden, Colorado, firm has expanded to keeping a variety of Apple laptops and iPads safe and to using bamboo as well (wool felt and leather straps complete many cases).

Randolph Sunglasses, Frames

The history of Randolph Engineering is a classic American story of adaptivity. Founded in 1972 by Polish immigrants Jan Waszkiewicz and Stanley Zaleski, the Randolph, Massachusetts, firm started out manufacturing tools, dies and machinery for the optical industry. But in the late 1970s, in need of a new income stream, the company shifted from tools to eyewear. Not so many years later, it was producing 200,00 Mil-Spec Aviator sunglasses a year for the U.S. Air Force, and that business soon expanded to sunglasses and prescription frames for civilians. A third generation of the Waszkiewicz and Zaleski families runs the firm today.

Crayola Crayons and Art Supplies

Crayola -- a name almost every American has come across -- started in upstate New York by Joseph Binney in 1864 as Peekskill Chemical Works, producing charcoal and lamp black. Son Edwin and nephew C. Harold Smith converted operations to Binney & Smith, adding pigments (1885) and pencils (1900) and moving to Easton, Pennsylvania, where headquarters remain today. Other classroom products include dustless chalk (1902) and paint (1920), but the biggest innovation is "safe, quality, affordable wax crayons" (1903). There are factories in Brazil and Mexico, but a page on the corporate website lists every product made in the States.

Sterilite Storage and Housewares

Sterilite started out making women's heels. Brothers Saul and Edward Stone partnered with Earl Tupper in 1939 to create plastic heels (they'd usually been made of wood). But with plastic of the time unable to stand up to heat, the brand moved to military personal grooming products. Later additions included toys, plastic giftware, food storage bowls, storage bins and shelving. In 1968, the company moved to Townsend, Massachusetts. It now lists seven lines on its website: storage, laundry, wastebaskets, food storage, pet and garage. (And yes, that's the Earl Tupper of Tupperware.)

Field Notes Notebooks

In 2006, designer Aaron Draplin took his love for American ephemera to the next level. Draplin created a hundred or so mini pocket notebooks -- the rage in the first half of the 20th century -- to give to friends as gifts. Recipient Jim Coudal loved his so much that Field Notes was created less than a week later. The Chicago-based brand has since expanded to multiple editions that offer various colors, styles and special editions for brands such as Levi Strauss and Microsoft (MSFT).

 

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FICO Score Changes Could Help Millions of Americans

August 8, 2014, 7:11 am

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Filed under: Refinancing, Credit, Credit History, Credit Score

Two months ago, I sat across a table from a woman on the verge of tears. As she clenched her jaw and cast her eyes towards the ground, she disclosed her overwhelming financial situation. An unexpected medical expense depleted her savings and sent her into a downward spiral of financial problems complete with collections agencies pestering her for payment. Even though she paid her other bills on time, avoided consumer debt and worked two jobs to support her family while trying to pay off her medical bills, she felt bankruptcy was the only way out.

Unfortunately, her story is familiar to many other hard-working, responsible Americans around the country. An unexpected medical expense can quickly send the most diligent and responsible people into dire financial straits. Those unpaid debts go to collections, causing a major hit on a credit report and score. Once a person's score drastically drops, it becomes hard to get a loan to refinance debt without a staggeringly high interest rate.

As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian (EXPN), and a hope is on the horizon for them.

FICO (FICO) -- the company behind credit scores -- on Thursday announced an unprecedented change to its scoring model: FICO Score 9 will change the way in which paid collection agency accounts, unpaid medical bills and non-medical bills impact a score.

What Are the Changes?

Under the current model, a collection generally stays on a credit report for seven years -- even if it is paid off. This is the same amount of time bankruptcies and foreclosures stay on a report. Now, consumers will see their paid collections being removed from their credit reports.

According to The Wall Street Journal, of the 106.5 million consumers with a collection on their report, 9.4 million had no balance. Those 9.4 million American won't be penalized under the new credit-score system.

Unpaid medical bills will now carry lower weight compared to non-medical debt going to collections.

"The median FICO score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points," according to FICO's release on the new model.

FICO also said it will refine the way in which consumers with "thin files" or minimal credit history are judged. Instead of solely focusing on paid or unpaid bills, the company wrote in the release, it has quantified the various degrees of a consumer's payment history.

Why Does This Matter?

In May, the Consumer Finance Production Bureau released a report questioning the legitimacy of using medical collections as proof of a consumers' trustworthiness.

In one example, the bureau pointed to consumers who are unaware of unpaid medical collections because they believed insurance had covered a co-pay or bill. If a consumer doesn't know a collection action has even been taken, he shouldn't be penalized on his credit score, especially if the small collection is immediately paid off.

According to its analysis, the CFPB determined consumers with more paid than unpaid medical collections had delinquency rates comparable to consumers with credit scores approximately 20 points higher. It appears FICO took heed of the CFPB's analysis and decided to stop penalizing consumers with unpaid medical bills in the same manner it treats non-medical bills in collections.

But Seriously, Why Does This Matter?

It matters because a higher credit score can help a consumer become competitive for loans with lower interest rates -- or competitive for any loan at all (from a credible lender).

This will likely mean millions of Americans struggling to pay down medical debts are going to be eligible to refinance their debt at lower rates and get a better handle on their financial situation.

Perhaps this will also reduce the number of responsible, hard-working Americans who feel their only options to get out from under their medical bills are bankruptcy or seeking money from predatory lenders in the form of payday loans or title loans.

When Will You See the Changes?

It'll take 12 to 18 months to see the changes, according to Nick Clements, co-founder of MagnifyMoney.com and a former bank executive with experience implementing new scoring models.

In a post for the site, Clements said a bank first works to understand the impact a new score will have on its existing portfolio, which often will take at least six months. Next, the bank will set up new pricing strategies and prepare its systems for the new scoring model by implementing new rules and analytics. This process often takes six months to a year.

Customers shouldn't expect a call telling them their loans' interest rates have been reduced.

Once FICO 9 is in place, existing bank customers shouldn't expecting a call telling them their loans' interest rates have been reduced. The bank is far more likely to use reduced rates to lure in new customers than to please existing ones. Instead, consumers should take the initiative to shop around their debt and check the rates with other banks, credit unions or personal loan lenders.

Ultimately, FICO's new scoring model should provide a much-needed boost to millions of Americans who fell on hard times and are otherwise fiscally responsible and should be eligible for competitive interest rates on their loans, mortgages and other financial products.

Erin Lowry writes for DailyFinance on issues relating to millennials, money and personal finance. She is the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. She is also the brand and content manager for MagnifyMoney.

 

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