Wednesday, November 18, 2015

Does Credit Counseling 'Work'?

Credit Counseling Success Depends on YOU:

Given that 70% of credit reports have errors, you may be surprised how hard it can be to correct just one item! If you have found this blog, chances are you have an issue that is not going away fast. It is generally true that it takes more time to rebuild your credit than the time it took to create the problem. Ah, hindsight!

USA consumers have a right to correct and dispute items on their credit reports.

You also have a right to receive Housing Counseling. The Consumer Financial Protection Bureau (CFPB) offers a wealth of up to date advice on their site on how to build good credit and find an independent HUD counselor in your area who can advise you for little or no cost. It's a great starting point on your journey to better understanding of your finances. 

Check out the CFPB:

Alternatively if you Google "how to improve my credit score" you will be inundated with information. But the fact is, many people who have had their identity breached or suffered serious financial stress often feel overwhelmed. Starting with HUD gives you a sense of where to start and address your specific issues. 

Take a deep breath and call 800-569-4287 and ask to be assigned a HUD counselor. They will ask a few questions and have someone call you back to set up an appointment and explain the process.

Search for a HUD counseling agency in your state and zip code:   

You will be asked to gather your documents and make an appointment to discuss your situation over the phone an assigned counselor. Naturally, as in any organization, HUD Counselors agents vary in their expertise. If your situation is complicated and you're not feeling the love - be polite, hang up and dial the HUD Hotline again and ask for another person to assist you. They will be polite too. 

If you want more help than the conversations offered by HUD counselors: You may seek out a Credit Counseling Agency. There are some very good Credit Counseling agencies who do know what they are doing. They will generally offer to work with you for a certain period of time for a monthly fee. During the process you will be asked to participate as they explain the steps. If you don't participate then it would be a waste of your money perhaps better applied toward lowering your credit card balances! 

As in any situation where you are hiring someone for their expertise: Interview them for the job! Most agencies offer a free consultation to find out if their process will work for you. And before you decide to hire them - find out if they are legitimate. When I worked in an FDIC Bank, as a representative of the firm, I was asked not to refer people to anyone. Period. 

So where are the good people and how do you find them? 

Ask a friend, a member of your family or your clergy. Your employer, accountant, church, Public Library or Senior Center may also have resources. Librarians love to help people! Some community organizations offer credit counseling. Generally, unless they are HUD certified or a legitimate licensed credit counseling business, you could be taking your chances. Some people masquerading as counselors could be scam artists. 

If you are currently qualifying for a mortgage your lender may be able to handle some items on your behalf. Your loan officer may know of a reputable resource. After your lender reviews your credit report, they will provide a Consumer Explanation Letter which outlines issues negatively impacting your credit. A good lender should be able to explain the impact of specific issues to your loan application.  

If you are not sure about any business: Call your local State Attorney General and ask if the person or company is licensed and if there are any complaints about them They keep tabs on who is operating legally in the state and it's their job to protect consumers from fraud. In fact your State Attorney probably has a website with lots of identity theft resources so always look there as well. 

Washington State Attorney General site:

Feeling overwhelmed? Believe me, from personal experience: the day you resolve to rebuild your credit and clear your good name, you will feel one hundred percent better. Taking that first step is worth it!

Since the nature of credit issues is so personal, you want to know your conversation is confidential and that the company keeps records secure. Beware of anyone who cannot answer your most basic questions about how they operate, what they charge, and what to expect in terms of your own involvement. Generally speaking a Credit Counselor will not do anything 'for you'. They will instruct you how to make the changes to improve your credit.

A Credit Counselor may ask you to forward documents that you receive from the Credit Bureaus during the process so they may assist you in understanding correcting your records. You are driving the bus here! So if someone suggests you pay a particular card balance down - ask them why - and they will explain the impact that particular card is having on your overall credit. Professionals know how the credit algorithms work. You may cancel the process at any time. 

Toward the end of the process. it’s extremely important remove any "disputes" from you credit file at the three Credit Bureaus: Equifax, Transunion and Experian. After you have resolved and corrected issues, if the items continue to report in dispute status, this removes that item from your credit score and presents issues for lenders. So be sure you check report again and have those disputes cleared. After all that work you deserve the benefit of improved credit. 

Go forth and prosper!

© 2015 susan templeton

Sunday, July 21, 2013

Loan or Rental Application 101 - Cliffs Notes

Surviving the Loan or Rental Application Process:

Facing a blank rental or loan application can be intimidating. There you are, wanting a new home, and this invasion of your privacy is staring back at you. Many adults go weak at the knees when they see the Uniform Loan Application Form 1003. Your average Rental Application makes the 1003 form look like a cakewalk. 

Seriously, you don't have to divulge all. Just cover the basics and make a good presentation of yourself. As I tell Homebuyer Education students: "You may feel we are rummaging through your underwear drawer!" The fact is landlords and lenders are sizing you up for their specific risk criteria and there is no other way for them to legally gather what they need, while considering your own legal right to fairness. 

So why the overt scrutiny? 

#1. Your landlord or lender wants reliable, responsible, stable tenants who can demonstrate an ability to pay them on time. 
#2. Your loan officer or property manager wants credible applicants that reflect well on their assessment.
#3. Your underwriter or management firm wants applicants that reflect well on their reputations and company profits long term.
#4  Your landlord or bank will take a big financial loss to their portfolio if you prove not to be so credible or a true liability. They will give the reviewers heck if they are wrong.

In short: everyone's butt is on the line. 

Renters: Put yourself in the landlord's place: you apply as an innocent looking single lady who also has an unmentioned gangland entourage that torches the place after turning it into an Opium den - that's their loss. Hazmat cleanups and legal or financial expense is something every investor fears - believe me they have all had their share of 'bad experiences'. Home owners sharing or subletting rooms are even more at risk if they personally accept someone into their home. Getting my drift? 

Homebuyers: Investors reselling your mortgage on the secondary Wall Street market (think Fannie Mae/Freddie Mac) have even more at stake as evidenced by the housing melt down. They really don't want to be explaining to the likes of Lloyd Blankfein why you strategically walked on your obligation! 

Cliff's Notes: Application 101
Here are some quick pointers for surviving the application process:

1. Identity Information: your Social Security number, birth date and address are absolutely required for the credit and background check.
2. Work history: 2+ years (college transcripts count!) 
3. Income: must be supported - gaps must be explained
4. Residential history - 2+ years on time payments
5. Credit history: a report will be pulled - lenders and landlords get different reports
6. References: offer only credible people who have agreed to be contacted
7. Assets: where you bank or hold your investments - list banks/addresses or advisor.

Sounding scary yet? 
Anyone renting a home will be asked these things if the property is worth living in. If you are borrowing money for a mortgage, the list gets longer and goes deeper throughout the process until you are approved by the underwriter. That can take a few weeks to a month or more. Fortunately, Landlords will let you know within 48 hours usually. 

NOTE: According to Fair Housing/Credit laws you must be informed and sign a form to allow them to proceed. Lots of student dives take their chances and they are more expensive and lower quality due to the higher risk factors. I work with investors all the time so better homes have similar applications. My own clients who rent homes are very thorough and offer lower rent for higher quality tenants. 

When in doubt: explain!
If you are recently employed or rely on a pension or trust fund and don't fit the 'paystub' request, just write a letter outlining the facts. The point is to encapsulate what the reviewer needs to know as succinctly and briefly as possible.

1. Sample letter - Recent graduate applying for rental:

To whom it may concern:

I am a recently graduated student from X university and now teaching full time at X company while completing my graduate degree in X field. My rental references during college are included on your application. I lived my fist two years during college at home with family while attending X community college.

While I do not have extensive credit history or assets, all my accounts are in good standing. I am seeking a stable home to build my career in X city and request a 1 year lease at minimum.

Feel free to contact my references to confirm my character and on time payment history.

Thank you for your time. 
(sign and date with your current address and phone number)

2. Sample letter - Retiree applying for mortgage

To whom it may concern:

I retired from X corporation in X year as an X manager in the X division. My income is derived from personal investments in accounts held at X- bank(s) and with X funds manager, listed on your application.

The proceeds I draw from my accounts are not taxable income, therefore I am not required to file Tax Returns. Nor do I receive pay stubs from other sources. 

Feel free to contact my accountant or financial advisor, X name at X phone number who can confirm my financial standing. 

Thank you for considering my application.
(sign and date with your current address and phone number)

Thin credit or challenges?
Head off any concerns before your report is pulled. Bear in mind, lenders will see virtually everything about your credit history. Landlords and insurance companies get a 'rating' not your full report. Both will be informed of criminal or bankruptcy proceedings which show up as Public Records.

If asked about specifics, you can be more general with a landlord but if you do have collections, your rating will be low - so you may be asked to explain what happened if they give you a chance. If you get that call, be cool: "Yes I was defrauded in 2009 (or closed my business or went through a divorce, etc)  if you would like I can supply support documents to that effect". Don't get into the messy stuff. And don't offer any more information than requested. If they ask for page 6 of your bank account, provide page 6. 

Appreciate that the bank about to loan you $200,000 will verify everything you state about your financial situation, including the legitimacy of your funds on deposit. That's a lot of fun for everyone thanks to the Patriot Act. Just know it's not personal but a matter of national security that your grandmother's birthday check to you for $100 will be verified. She may be asked to sign a letter that you don't have to pay her back. No kidding. 

Income and Assets:
In the case of Rental applications, a pay stub and current employer reference usually does the trick. Self employed and retirees must satisfy they have current resources.  

For a Mortgage application, you must establish you have resources for the next four years. You only need to show funds needed to qualify, not your entire investment portfolio. If you are legitimately not required to file Tax Returns, you may be asked to sign a 'non filing' form IRS 4506-T)

What do do if you are denied:
Should your application fail, you will receive a letter with instructions on contacting the credit agency involved in their decision. Do it and get a copy of the report provided and address any issues that came up. Since 70% of credit reports have inaccurate information you need to know what is reporting and if you can sort it out. These things don't go away by themselves. 

If you need help contact with credit our housing issues, contact a HUD counselor 

That said, the process is what it is for all parties involved. You want the money or the apartment, right? Just smile and think of England! 

All the best!

© 2013 susan templeton

Sunday, November 11, 2012

What's UP with FICO Scores Lately?

The 2010 FICO(r)  Scoring model which was finally introduced in 2011 didn't seem to have a lot of effect on credit reports we see. Or did it?

With so much competition for mortgage loans against the backdrop of our housing crisis you'd think tinkering with the Credit Scoring system would be problematic. The purpose of these changes is to further define strong credit patterns and weed out non-issues which may cloud the picture. Lenders and other users of credit reports use scores and credit data to establish risk patterns so the new system supposedly refines some of their concerns.

To date, the complex nature of scoring has left the door open to abuse by some people attempting to game the system by piggybacking their otherwise null or bad credit onto a good credit history of a relative by being named a joint user of an account. The new system cannow recognize if only your joint accounts are in good standing - so having fake joint accounts could potentially backfire.

One of the more recent bugaboos is how 'disputes' are viewed by underwriters. More than one disputed account on a credit report can cause your loan to be denied (!). The practice of people disputing everything created a virtual storm; creditors were being forced to defend their records. So now, if a pattern of disputes is seen, the risk factor goes up dramatically.

Also previously one recent late payment could have very swift and negative effects on your score. The new system is taking into account the 'severity' of that late payment in terms of the kind of credit and your previous patterns to allow a certain margin of error. One late payment may have less effect than before but it's hard to say exactly the effect upon your report specifically (in light of many other factors) unless you'd like to pull your credit - then miss a payment and have another look!

Currently your balances carried (as a percentage of available credit) comprise about 30% of your score. The new model supposedly allows a higher factor of balances as long as your on-time payments trend is strong or you display a practice of paying down your balances. On time payments is the number one concern for most credit score models, comprising 35% of your FICO score. So the things you can control: your balances and your on time payments are the things that affect your scores the most. As it has always been.

One helpful change is the lower impact of small low balance debts like parking tickets - as long as you don't have a huge string of them indicating a pattern. Like the old system what matters is patterns of behavior that signal risk.  

I am often asked what can a person do about their lack of credit or how to improve or start a credit profile. I recommend you build your credit accounts and use mindfully and reasonably. It's important to take on debts you actually need and will be able to manage successfully within your current means. It's a huge mistake to take on large open balances if you don't have self control. The system is designed to determine if you are a 'good user' of credit. So use wisely!  

Since the new models were introduced we have seen more kinds of detail on reports. There is a great deal more 'flagging' of inaccurate or non matching data for example if your name is spelled wrongly or a digit of your birth date is off it can red flag your identity as a possible concern. All thanks to the Homeland Security laws tightening up on national security - your lender is now in the position of serving as watchdog for possible identity theft or unusual movement of money. So when your lender asks for a copy of your drivers license and a copy of a recent utility bill in your name and your Social Security Card and your marriage can bet something on your credit report has flagged your identity and the underwriter is just verifying you are who you say you are. It's all for your protection too.

As the lending landscape continues to observe  increasingly risk averse rules, it's important to have your credit in tip top shape. FICO scores do impact some loan programs more than others - either as a factor of interest rate, pricing of the rate, or other facors including loan to value and mortgage insurance requirements. 

What is considered a 'great' credit score has become somewhat elusive as the national average scores have fallen to between 690 and 700. In 2006 the average was in 720-740. Before, a FICO score over 680 was considered above average to excellent. Now a FICO score under 720 is less desirable and may impact your interest rate and terms offered.

These days, a FICO score under 640 is becoming problematic so your lender may recommend some work to improve your score work before making a loan application. Once your application is started, you are stuck with your score for that transaction. So it's important to review your credit well before you apply for a loan so you can rectify any issues with some breathing space.
Long term, the benefits of a bit of work on your on-time payment and balance habits will go a long way to insuring you get a great FICO score and better lending options.

All the best!  

© 2012 susan templeton

Saturday, November 13, 2010

Do You Have Too Much Debt?

Your Debt to Income Ratio is key to your loan approval. Here's how to beat the system.

Your personal Debt to Income Ratio (DTI) is an important factor all lenders use to determine your credit worthiness. This ratio is essentially what you earn against what you are paying out each month for scheduled debt. If you have a high debt ratio, then your monthly living expenses will usually start to suffer and most people will start missing payments or let their credit balances creep higher. This is murder to your credit rating as all your creditors will see this trend when they view your statistics. Once your balances rise, your credit score dives, and up go your interest rates! So it pays to understand how this works. Literally.

SAVE this Debt Evaluation Calculator link:

Essentially if you are over 30% of your availble credit balance and over 40% of your monthly income going out the door via regularly scheduled debt, you are going to start seeing an impact on your ability to get a mortgage.

Use this handy evaluation tool check it often to keep yourself on track.

It is important to have control of your monthly debt payments against your monthly income. A high debt ratio might indicate that your monthly expenses are becoming unmanageable. A high DTI will discourage lenders from loaning you money.

Quick DTI Example for Monthly Gross Income of $4,000:
Mortgage including taxes and insurance (or rent): $1,000
Car payment: $300
Credit card minimum payments $200
Other unsecured debt: $100  (i.e, a computer or applicance account)
Total debt payments: $1,600 per month
= Total monthly debt ratio of  40%
This is considered acceptable and 'safe' range.

Let's add an item and see what happens
Medical debt or collection account: $400
Total debt payments: $2,000
= Total monthly debt ratio of 50%
This is becoming a bit high and you would be advised to lower it. 

Very few banks would let you borrow to a 50% debt ratio for a home mortgage.

Adding one more item to your home budget:
Student Loan Payment: $400
Total debt payments: $2,400
= Total monthly debt ratio of 60%
This is too high and and considered a risky debt level

Virtually all banks would deny your proposed $1,000 home mortgage payment with a debt ratio of 60%. (A strong compensating factor might be your liquid assets able to service the proposed new debt.)

Why does DTI matter?
In the 60% DTI case above, you still have theoretically $1,600 income available for your use. This amount of  money is likely to be absorbed by taxes and other life expenses with no safety net in case something unexpected comes up. What happens if you have a major car repair or lose hours at work? A person with a 60% DTI is very unlikely to be saving or building up a retirement nest egg.

So unless you are a very careful investor who saves money and has few surprises in life, 60% DTI is considered very risky cost of living. If you happen to have several children and other responsibilities then even 40% could be a stretch for you personally.

How DTI Affects Your Mortgage-Ability:
With a 60% DTI, if you were applying for a mortgage you would expect to be turned down by every bank in town. As a mortgage planner, I would sit down with you and go over your credit report and help you identify what, if anything, can be resolved to assist you to qualify for a home mortgage.

DTI Strategy:
Let's say you wanted to buy a home within three months. If you have 6 months left on your car payment and it can be paid down to under 3 months - that really helps. (We can remove debts that are under 90 days to be paid off with good payment history).

In addition, if you paid off your credit cards and removed that $200 payment, you are again, improving your DTI. You might have a bonus coming at the end of the year that could be used for this purpose. If you can make a 3 month car payment (to bring your car loan under 90 days pay off) that would improve your ability to finance a home purchase today. Or we might decide to target your home purchase time frame within three months. Three months is a good time frame to be shopping for a home while you are improving your debt ratio, which by the way will also raise your FICO score.

At that point, if all other issues including your credit rating and history and income are acceptable, you would likely qualify for a $900 home mortgage payment for a total debt ratio of 45% or $1,800 per month expenses.

Note: Student Loans may be in 'deferred status' until you start working and once you are working and paying them -- usually at very low interest rates. If your student loans are in deferred status they may still be counted against your ratio - as you will be responsible for those payments eventually. Usually your student loan is not something we would target to pay off early, since credit cards and car payments generally have higher interest rates.

Why Does Your Bank Care about DTI?
Underwriters will ask many questions during a loan application if you are on the edge of your ability to make payments over the 45% DTI target zone. If you are under this range, and show good history of making your payment on time, you are showing responsible ability to manage your debts. You are most likely already enjoying a good credit score and will also benefit from a very good interest rate offer.

A bank's number one concern is your ability to make your payments on time. Factors like DTI and FICO score are their top tools to determining if your application meets the Fannie Mae, Freddie Mac and specific investor guidelines.

Use these simple rules to your advantage!

© 2009 susan templeton

Sunday, August 22, 2010

Credit Recovery after Short Sale or Foreclosure:

Position Yourself to Purchase a Home Within 2 Years After a Foreclosure Using This Strategy:

Generally, buyers who have past credit issues due to a financial crisis may be able to buy a home within three years from the incident. This varies by loan type and lender. Most lenders have their own underwriting guidelines on what they will accept and when. 620-640 FICO is the starting point for government insured loans. So for anyone going down this path, consider the recovery time to get your credit back into lending territory and note the recovery steps at the bottom of this post. Put them on your refrigerator! Given the sheer number of people in financial distress right now, consider that loan guidelines may change in the coming years.

For more distressed borrower information, visit our other blog:

How soon can you buy a home again?
If you default on your home loan now, the clock starts ticking when the home is transferred to a new lender. NOT unfortunately, the date your foreclosure is registered. If you were able to keep making your payments or miraculously did not have months of ‘late payments’ pile up on your credit you could theoretically apply for a new mortgage right away. How an underwriter views your situation is very much up to your risk factors and the lending bank’s mood (as always!).

Basically you may start considering home ownership again within three years. Some more conservative banks will say seven years because they are selling your loan to Fannie Mae or Freddie Mac. It all depends on how credit worthy you become after your loss.

Myth: "Short Sales affect your credit less than Foreclosure"
For anyone enduring months waiting for their home to successfully sell in this market; understand this: Foreclosures and Short Sales have very similar effects on your credit! 120 days of late mortgage payments (while in short sale mode = not making payments) have a very similar FICO score effect as a foreclosure. Since, on average, a short sale takes from 6 to 13 months - month after month, your credit continues to tank with each successive late; and each late is fresher and fresher piling up red marks against you (recent negative impacts have more effect on your score than older ones). Your score can only start recovering when the late payments stop and your home is sold.

In some short sale transactions -- you may also be left with a debt to pay back (the short fall the bank is owed) so be very careful about negotiating your final terms. Definitely get legal advise before you agree to any terms! Also forgiven debt is considered income by the IRS--so again get legal advise and have your accountant weigh in on this also.

Fannie Mae Guidlines are the toughest after Foreclosure:
After Foreclosure, Fannie Mae requires 7 years of good credit history and a minimum 680 FICO score, with 10% down payment and some limits on refinancing. This is after your foreclosure completion date. After a Short Sale Fannie Mae is willing to fund a home purchase in 3 years depending on hardship factors. If you filed for Bankruptcy that could easily extend your wait time a year or more. Similar caveats will apply. Expect a higher interest rate and a grilling at loan application if you expect to apply for a conventional loan.

Deed in Lieu requires 4 years recovery time from the day you walk away. If you compare the fact that a Short sale can take a year or more, a Deed in Lieu may be similar timing to a Short Sale because you are still on title with a short sale until a new buyer is found, i.e., the date the home is sold. The moment you hand over the keys in Deed in Lieu you are off title and onto recovery which may feel a lot quicker in many ways.

FHA and VA and USDA guidelines
Government lenders will often consider a home purchase for anyone with a solid credit recovery story within 2-3 years from the event, or less with some exceptions, like disability. Individual banks have their own 'overlays' on what they accept in terms of credit score and recovery times.

Essentially you could be back in a home in two years with other factors in your favor.

Private sellers may be less concerned about credit or offer a Lease to Purchase Option for those few recovery years. Just be careful and have an attorney look over ANY private sales contract. So start now to rebuild your credit!

Stick to your Recovery Strategy from DAY ONE!
1. Build an on time rental history for two years with landlords who will vouch for you
2. Maintain a stable income and work history for two years
3. Manage three active accounts responsibly (1 credit card, 1 auto payment, 1 store card or gas card)
4. Keep up to date tax records if you are self employed 
5. Put a budget in place and rebuild your credit from day one after your financial crisis has passed.
6. Work with a Mortgage Lender who will help monitor your progress.
7. Get prequalifed (by your Lender) at least three months before you start home searching in case any old issues pop up on title or your credit.

To your prosperous future!

© 2010 susan templetonr

Monday, June 07, 2010

What's Your FICO Score Really Worth?

In today's market, personal credit scores are being skewed by a decline in average FICO® scores. Why should you care?

Well, if you are intending to get into debt responsibly in the coming year your FICO score is still the number one criteria your lender will use to determine your likelihood of paying them back. It's also one of the chief pricing factors to getting the best interest rate. That said, things are changing at a rapid pace. The newly minted FICO models are supposedly taking less consideration for small things like parking tickets but the really big defaults for big items like mortgages and car loans will weigh even more heavily as a result. 

All defaults have less effect on your score as time goes on. With improved history that is! So it stands to reason that if more homeowners take the 'walkaway' option the impact will be figured into the score models for that particular historical period of consumer behavior. Essentially scoring models are averages of 'good behavior'. You will notice that each Bureau has their own priority list for what is most important (to their model) and this can certainly change, which is why you have three different scores.  

According to the FICO experts at Fair Issac Company, the inventors of the FICO scoring system: a 100 point difference in your middle credit score could mean over $40,000 extra in interest payments over the life of a 30 year mortgage on a $300,000 home loan. 90% of the largest banks use your FICO® score for credit decisions. Which means 10% don't: Portfolio Lenders, some Credit Unions, Sellers and Rich Uncles don't take your credit score into consideration as their chief determining factor - at least not officially.

Rethink that 'walkaway' or other default. A foreclosure, deed in lieu or other late mortgage payment of more than 120 days  can have up to 130 -200 pts immediate negative effect on your score. Even one point below 740 can cost you a higher mortgage rate. While the effect on your score lessens over time with good behavior, the main issue such defaults present is the ability to obtain other credit, notably absolute no go periods imposed by FHA, Fannie Mae, Freddie Mac and most sane lenders. Even FHA wants to see 3 years clean credit after any major default period. And we mean clean. No 'lates' at all during that time frame. Your underwriter WILL check your rental history and they WILL check every rental landlord for the previous two year period especially if you have had a default or your score is borderline.

Conventional lenders take a hard line: Fannie Mae recently announced the new guidelines may require up to 8 years good credit history required before they will fund a conventional loan to someone who walked away from their mortgage. Traditionally a foreclosure stays on your credit report for 10 years. Bankruptcies usually fall off around 5-7 years depending on the type. Again, FHA has been more lenient to date but there are certainly other means to buy a home.

Creative financing options: So many sellers are in the game now -- you could consider a Lease/Option for a few years or Seller Financing. So really, the barriers to traditional home ownership for those with default histories suggests you find another way around your situation. And if enough people find more creative means...the banks might have to give a little! 

Get legal advice!  If you go for a seller contract on a home purchase or lease option, please be SURE and get legal advice on your Purchase and Sale contract by a neutral third party real estate attorney who is knowledgeable in this arena in your state. Seriously. We all love our Realtors and our sellers but you just can't be too informed when it comes to signing a contract for your home purchase.

All the best!

© 2009 susan templeton

Friday, November 06, 2009

Credit Card Rates: How High the Moon?

Are your Credit Card Rates Rocketing?
I got one of those letters you tend to ignore the other day...a boring all legalese style thing from my credit card company. Two of them in fact. I was busy so it wound up in the inbox among the bills. A little voice told me that might be important so I finally opened one in a dull moment and read these words: "Thank you for your business"....with some more stuff about informing you of your consumer rights and protecting your credit.... and hidden halfway down in small type this letter informed me of my new interest rate just jumped over 10% higher. What gives?

Congress recently passed a bill to curb consumer debt. That bill required Banks and Credit Card Companies to give 30 days notice in writing before they could raise our interest rates and they must have a 'reason'. The Credit Card companies told their friends in the House Financial Services Committee they could not possibly effect such a huge change and inform all their customers in so short a time. So Congress gave creditors until February 2010  to 'inform consumers' that they are raising your interest rates. Don't be surprised to see a dramatic rise before the new bill takes effect.

Who is being served? Essentially, consumers are being encouraged to become more conservative in their use of credit and banks are being more risk averse. The ideal is to see more consumers paying down their debt and keep it down.

What's a wise consumer to do? When you get the letter, call your card company and tell discuss the possiblity of  'opting out' of the increase. This may mean your card will be frozen. You will have the option to pay it off and keep it open with a zero balance (for the foreseeable future) or transfer to another lower balance card.
Your best bet may be to pay your cards down to zero balance and use them more conservatively in the future and lower your interest payments over time. Everybody wins.

Generally it is also a good idea to Opt Out of new credit offers:
Opt out of prescreened Credit Offers here:

The Federal Trade Commission offers advice on opting out of call, mails and email:

Happy Opting Out! 

© 2009 susan templeton

FREE Consumer Credit Reports

Order your FREE credit report once a year:

Online: (or download a mail-in form)
By phone: 877-322-8228
By mail: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348

NEVER order a credit report from a site that asks you for a credit card number before giving you a 'free report'. Several firms have been convicted of secretly charging credit monitoring fees. 

The best known consumer site is which is the Fair Isaac Company site (they invented credit scoring). This site has some useful credit comparison tools showing how credit scores affect interest rates which in turn affects your payments. A Tri-Merge (3 bureau) report costs about $50.00 on these sites. If you check your own credit, it does not affect your FICO score.

Be aware, you do not need to sign up for regular credit check services unless you are concerned that someone has been abusing your identitiy. If you have experienced identity theft and you are concerned that your are still at risk, you can first make a police report, then send than information to all three Bureaus and they will 'lock' your file with a PIN code so no-one can attempt to check your credit without your code and permission.

When a lender pulls your credit, it can deduct up to 3 points from your FICO score, one for each bureau. Loan shopping beyond a 10 day period can impact your score significantly by going outside the 'de-duping period', so try to confine the number of lenders you allow to pull your credit within 2 weeks. Online lending firms have been known to 'shop out' your report to several agents (who each pull your score). The last 90 day period on your report shows the credit checks that were made and by whom. A responsible mortgage broker will only submit your loan application to a qualified lender they know can fund your loan given your specific requirements. Online shopping exposes you to agents seeking 'easy targets'.

Note: Free consumer reports may not show your FICO Score. You can opt to pay a fee for that information, which lenders require. The free reports are offered once a year. I charge the actual cost of approximately $20 for a Tri-Merge report in conjunction with a loan application, which shows your score. Note: 70% of credit reports have errors on them. Also your consumer report may not have the depth of a full lender report, and the scores are often higher as a result.

What's a good score? 300-850 is the score range, with 850 being perfect, 720 is excellent, 620-640  is the baseline (for lending) with under 600 being considered poor. You'll need 740 these days for best terms. When you apply for a mortgage your lender will discuss your score and any issues on the report. If you are declined, you will receive a notice with instructions on how to obtain a report with credit information they reviewed.

Plan ahead! If you are considering applying for a mortgage or major loan within 3-6 months, it's a great idea to check your report to be sure everything is in order. Credit repair can be time consuming--even with sufficient proof.

What about credit repair? There are some services that act on your behalf to dispute items on your credit or counsel you. You may call your State Attorney for information about the reputation of any consumer service.

You can always search a free HUD counselor in your area.

The best means to improve your credit rating is good behavior going forward.

Happy scoring!

© 2009 susan templeton

Saturday, August 15, 2009

Should You Buy Now?

Facts: Interest rates on home mortgages have remained very low - the lowest in 40 years. Home values have continued to drop or are stabilizing in some markets. These are crucial timing factors for anyone considering getting into or out of real estate right now.

Who can (or should) get a mortgage in these turbulent times?
While many many potential home buyers are competing for lower priced homes, we are seeing many loan applicants in angst due to longer time frames. New laws are affecting how banks and brokers operate. As a result, many loans that would previously be sent to Fannie Mae or Freddie Mac (investors who hold the lion's share of loans) are now being funded under FHA, USDA or VA to take advantage of easier government loan terms. Folks with decent credit and stable income are buying or refinancing in droves. The lines at our government underwriters became very very long due to this overwhelming demand.

Is this perfect timing to buy a home?
Our sources on several sides of the trading and banking world feel that economic turbulence will be here for a while and likely we will turn a corner some time late in 2010. Mainstream media promotes 'recovery' but few people are feeling that just yet. Realtors and sellers are particularly anxious as property values have continued to fall. Buyers must rely on their knowledge and local advice for which way the tide may be turning.

Banks in merger?
For those of you who missed it, several failed banks are either merging or reshuffling their decks. Timing could not be worse during the summer sale season. If you had a loan in process at a merging institution, you may now be scrambling for another lender. This situation only provokes more angst and distrust of brokers, bankers and sellers. Banks, in such an environment, are more likely to consider the lending guidelines as absolutes, not just guides.

What can you do to improve your chances of getting a loan?
1. Live within your means: keep your card account balances under 30% of the available or pay these balances down to under 30% (the 30-30 rule).
2. NOW is the time to be disputing errors on your credit report. Chances are many people are overwhelming the credit reporting bureaus - so know this process takes time.
3. Don't open new credit accounts and don't close your old ones!!! (old history is good history)
4. If you don't have any credit accounts now: establish three accounts over the next six months, say one every other month and follow the 30-30 rule...never go over 30% of the available balance and never miss a 30 day payment. The best accounts to have are a bank card, an auto loan or gas card, and a department card where you regularly shop. Four active lines are ideal. Manage them well. You need at least one to two year's history to create a solid report.

Live long and prosper!
Seriously folks, a solid credit history will serve you well and save you a bundle over a lifetime of borrowing even small amounts, regardless of the market. If you aren't buying a home then consider the effect of bad credit over your lifetime of owning cars, having credit cards with higher rates, paying higher insurance fees, being denied credit for important needs...all those fees and rates are higher if you have bad credit. What's bad credit? Anyone with a FICO Score under 680 will pay more for everything these days. Achieve 740+ and you will enjoy the benefits for many years!

To your success

© 2009 susan templeton

Tuesday, March 24, 2009

Will Credit Get Even TIGHTER?

How does market confidence affect availability of credit?

Wall Street created the financial vehicles we all use to buy everything from groceries to cars, student loans and homes. Unfortunately, the current financial chaos around 'fractonal lending' and how they resell 'risk' is causing Congress to step in and impose tighter guidelines. Better late than never?

For starters, a new FICO-08 Credit Scoring model is in the works at Fair Issac. This model, due for release in a few months, is designed to 'drill down' and more effectively split borrowers into more accurate risk categories. While we are hearing different reports about this model, the overall effect on lending could mean banks will feel 'more informed' and confident about to whom they are lending. New tighter rules for appraisals, national licensing of loan originators, and higher lending guidelines are helping validate higher standards all around. All good.

Of course, nothing beats good old underwriting guidelines applied by trustworthy human beings who know WHAT they are looking at. Bank underwriters are also looking at the big picture: including compensating factors like job stability and the property you are financing.

Having seen so much news about bad these practices these last two years, it's no wonder we have tighter lending guidelines today. Laws are created when we have this is the goal: to make the lending arena safer for borrowers and bankers alike.

So, the question lingers for folks considering their home loan options today: should you borrow now or wait? If you can qualify now, can document sufficient income and can afford the loan, you have done your homework and the investment is within your means-- then now is a very good time to buy or refinance. It's not going to get easier to fact we expect even tighter guidelines for quite a while in a correcting swing of the pendulum toward conservative standards.

Happy Spring! Loannetter