Friday, October 13, 2006

Cool Credit Tips

Keeping a Cool Head to Protect Your Credit:

Buying or Refinancing? Get a second opinion!
If somebody tells you rates are rising to get you to sign on the dotted line--chances are they are pressuring you to sign. Rates have consistently risen and fallen (as they do) from 1/8th to half a percentage point during all the 'talk' of rises. Funny how they don't report drops! You can still get decent Fixed Rates that beat the Adjustables which may better suit your needs.

Avoid predatory lending practices by investing time to find out if the loan you are applying for is the loan you get! For more on that subject visit the Washington State Department of Finance and Industry site:
http://dfi.wa.gov/consumers/predlendwp.htm

Check out your Lender:
Ask a few leading questions and note how that person responds to your needs. If they are selling rates before they hear about you and your goals....exit stage left! You need to feel the person working with you has more than one answer and isn't tying to fit you in their 'box'. A typical bank has one rate sheet with products for which you may qualify. A mortgage broker will have numberous banks to choose from and they ALL have their good and bad points so matching you and your needs is a delicate juggling act. Be prepared to work harder if you have any credit issues or you property is a little borderline on type or value for the area.


Qualifying--for what you can actually afford:
Standard lender ratios don't always relate to individual circumstances. Work with your accountant or good old Home Budget sheet and calculator to draft a home expenses budget before you decide what kind of commitment you can afford. If your banker tells you that you will 'qualify' for a certain size loan that means that your DTI (debt to income ratio) is under 40-45%. Even FHA allows 43% now. Non prime loans may allow higher DTI. The actual livabilty of this number depends entirely on you, your family, your stage of life and how you handle debt. Not every family feels OK about 45% of their income going out the door every month while single people may feel just fine about spending more of their income on a mortgage. Take an active role in determining your commitment before making an offer to buy or refinance.

Weigh up your long term goals and short term needs: These days even the government guaranteed programs are offering some pretty whiz-bang options that help you get into a home or ease the burden of increasing property values. In many cases a few years of 'interest only' while not paying down your pinciple can buy you time. In the few years you are holding the loan balance at the original sale price--your property may increase in value. If you waited to buy or refinance in 2 or 3 years the rates could easily exceed what you can afford.


Be very upfront about your situation:
While the whole process of borrowing money can be a uncomfortable, it's very important you let your lender know what is really going on so they can take everything into account and save time and heartaches. If you wait to tell them you are leaving your job to start your own company--even if you have income to cover the shift to self employment--you could be very disappointed when the underwriter calls to verify your employment and your loan is turned down the day after you sign. Loans for stated income or 'no ratios' may cost a little more but do the job without the disappointment.


Be a good borrower:
Get your documents in on time and be in communication with your realtor or seller to keep things moving. A dead loan is the one waiting for information that keeps finding it's way to the bottom of the pile. Time is money in this business.

Fish or cut bait:
If you like to shop around with lenders and fiddle with online offers your credit score will take a beating. Limit your loan shopping to a 2 week 'de-duping period' and don't make it harder for your lender to offer you the product you truly deserve! If you picked a professional to work with you then you should feel comfortable to let them do their job. If your mortgage lender or banker doesn't get back to you quickly with good ideas you can terminate your agreement (so they don't keep loan shopping on your behalf) and ask around for someone who will help you achieve your personal vision. It's really not a good idea to have more than one lender workng for you because that causes multiple inquiries on your credit at the time you need your score the highest.

Wishing you every credit sanity! 


© 2007 susan templeton

Monday, July 17, 2006

CoBorrowers: Getting Credited!

Co Borrower Strategy to Build FICO Scores

Are you always listed as the second qualifying party on loans and credit cards and your spouse as the Borrower? Banks consider the 'primary wage earner' in 1st position for repayment resonsibility due to the income imbalance in most households. In some cases, the spouse is not reported to the credit atencies. You may need credit separately from your spouse.

Now, many of us know the Co Borrower is often the one at home paying the bills--so if anything we would like to credit you for making your beloved Borrower look good. However, the FICO system has ways of noting which person is the primary applicant or joint user of an account. Legally the banking industry does not discriminate on race, sex, age, etc. Below are a few pointers on enhancing your FICO score and building your credit:

Buy a Car in Your Name Even if you will both drive a car, and the money may come from a joint account...by taking out the loan in your name you are building your own credit---seperately. Needless to say your payment history will be impeccable.


Get a Personal Credit CardInstead of using a debit card for everyday items, take out a modest credit card from the same bank and use it to buy groceries, etc. By setting up an auto pay account (from your bank account) you will never miss a payment. HINT: always leave a small amount in your monthly balance...$5 will do...to keep it 'active'. If you pay off your credit cards in full every month it looks like you aren't using it...so keep that balance below 30% of the limit and your FICO score will be great.

Keep Cellphones and Utility Accounts in Your NameThese regular accounts are good references if you need to create alternative credit. Again, set up an auto pay system to make sure you reap the benefits of consistent payment history.

Take out a Second Mortgage in Your Name
Even if you share the 1st mortgage with your spouse, when you take out a second in your name (assuming you can afford this) it will create a very important additional mortgage record in the system for you as the Borrower, not Co-Borrower. If you get a Home Equity Line, ...just keep it open with a small balance. If you and your spouse or partner operate a business, be sure to list yourself as President or Vice President.  If you already have a 1st and Second, you may still qualify for a third lien or line of credit.

Separate Retirement Accounts
It is also highly likely that you will need to provide for your own retirement income. Having your own funds is noted when you apply for a mortgage. Since women live on average about 10 years longer than men (sorry guys!) it is especially important that you have ready access to funds without the hassle of proving your ownership in your golden years should your spouse loose his or her marbles. Consider savings bonds if you aren't game to play the market...or invest in something you understand like antiquest that may increase in value

Build Your Own Asset Portfolio
A good financial advisor can help you set up an investment account to manage your assets given your situation. The rule: Pay Yourself First! Not Uncle Sam, not your kids, and certainly not your darling primary wage earner. If you start a modest nest egg sooner than later... it will bear fruit long into your golden years. And with that great FICO you will be able to borrow money on your own terms!

Two great books on thissubject are: Smart Women Finish Rich and the sequel: Smart Couples Finish Rich, by David Bach. In these slim volumes are many useful strategies for building your financial muscles, and while your'e at it--your credit rating.

Happy credit building!


© 2007 susan templeton

Tuesday, March 21, 2006

Credit Counseling Before Bankruptcy!

Bankruptcy Law REQUIRES Government - Approved Credit Counseling Prior to Filing!
If you are considering filing for bankruptcy, you must now receive Government Approved Credit Counseling within six months before you file. Individual States list government-approved credit counseling firms at www.usdoj.gov/ust

After Hurricane Katrina, credit counseling requirement for consumers who are filing for bankruptcy in Louisiana and the Southern District of Mississippi have been temporarily waived.

How Counseling Works and What it Costs
Credit counseling organizations advise consumers on how to develop a budget to manage money and debts and often offer free educational materials and workshops. The counseling may take place in person, online or by phone. Sessions usually last 90 minutes and must include an analysis. Some counseling firms charge for this service (usually around $50). Anyone who cannot afford to pay may ask to have the fee waived.

If after counseling, you are still intending to file for bankruptcy, you must obtain a specific certificate as proof--which you then take to bankruptcy court when you file. Some firms charge an additional certificate fee…so it pays to ask up front what the total fees may be in your case….be sure you get the right certificate before filing.

Debt Management Plans

If a firm recommends you negotiate a debt management plan (DMP) you will be asked to deposit money into an account with the firm. This seems to me a potential conflict of interest. I believe it is within your rights as a consumer to shop around for different solutions at this point. Your chosen counseling firm will advise on ho they will collect funds from you and use this account to pay your debts down over time. Sometimes creditors agree to lower interest rates or to waive fees if you are in a DMP plan.

Be careful here…not all firms are government approved and some have been known to take advantage of consumers by extracting higher fees and allowing you to lapse into a form of involuntary bankruptcy that does long term harm to your FICO score. Some firms have also been known to approach people with good credit and offer to help ‘settle debts for pennies on the dollar’…thereby ruining their FICO scores.

If you are going the Debt Management Plan route, you can rest assured no lender will want to work with you until you are out of this program. Some lenders offer ‘bankruptcy buyouts’ to help you settle the plans sooner--assuming you have real estate assets to leverage. Be sure you are working with reputable lenders and carefully consider which route will serve you best in the long run. A Certified Public Accountant may be your best resource. A good accountant could review the recommendations of a counseling firm as a second opinion.

Ask Your Credit Counselor (as advised by Federal Trade Commission)
· What services are offered?
· Will you help me develop a plan for avoiding problems in the future?
· What are your fees?
· What if I can’t afford to pay your fees?
· What are the qualifications of your counselors? Are they accredited or certified by an outside organization? What training do they receive?
· What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure?
· How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or make a contribution to your organization?
· Suppose I want only the credit counseling services and budget analysis that are required before I can file for bankruptcy relief. How much will these services cost? What services will your company provide?
· How will I know that I have the correct certificate I need to file for bankruptcy?
· Does the certificate cost extra? If so, how much?

Federal Trade Commission resources:
To learn more about bankruptcy law
www.usdoj.gov/ust/bapcpa/index.htm
For information about choosing a credit counselor, visit
www.ftc.gov/credit

As always, buyer beware--and compare before you commit!

Wishing you every credit sanity!


© 2006 susan templeton

Tuesday, February 07, 2006

Got Credit?

How Do You Build Good Credit?
Most people start building their credit history over a period of time as a natural progression into adulthood. However, not everyone likes the idea of owing money. The object is to demonstrate that you can handle your financial responsibilties. The system notes consistent behavior, so don't make any sudden moves.

Apply for a small credit card with your bank or credit union and pay it on time every month. Leave a little balance on the card ($5-$10) to keep it 'active' in the FICO scoring system. If you bank says no, then first establish a savings account and then ask for a card or line of credit for the amount you have in your savings.

Avoid those offers in the mail that say you are pre-approved. Many of these cards are hooks wtih low entry rates and escalating fees. Instead approach your bank or credit union about a small starter card to build your history.

Keep your balances low on your revolving card accounts. The trick with credit cards is to spread your balances across several cards and keep the balance of each card below 30%. that means if you get a $1,000 credit line, don't max it out at $999 and keep it there. This will hurt your FICO score. Keep that $1,000 card balance below $300 and you will be using the system to build a strong history and score. Better yet, set up an automatic payment to your credit card from your bank account to be SURE you don't miss a payment. If you do that...ask your bank to pay the card statement short bty $5-10 to keep your account active in the FICO systmem. Since the card is with them...they should be able to accomodate this small request to assist your building credit. Asking nicely seems to work better with anyone who holds your money and your credit in their hands!!

4 active 'trade lines' with at least 12 months active history on each each (line, credit card, auto payment, student loan, etc) are required for mortgage applicants. If you have less than 4 active lines, you can ask to have an alternative credit report prepared.  If you took out a Student Loan and borrowed lump sums, you may have several actual lines rather than one big one.

What is Alternative Credit?
If you don't have time to use this method over a year or more, and your lender is willing to work with you...you can build an Alternative Credit Report. This is done by submitting letters from at least 4 sources where you have been paying your bills on time for the last year. Rent, phone bills, cellphone bills, utilities and auto insurance are good bets. Your mortgage lender will handle getting this report created for a flat fee by submitting these to their credit reporting agency who compile your report. They actually call each creditor and verify the information you submitted is correct. Many lenders are fine with this practice, especially on First Time Homebuyer loans.


Update on Alternative Credit:
Very few lenders are allowing alternative credit reports due to the tighter standards in this economy. Most lenders are requiring a minmum of 620 or 660 FICO scores. That's your middle number of three scores so if you have one account in arrears that report to more than one agency (say Equifax and Experian) then that one missed payment will lower your middle score. And they want to see 12 months of good history on 3 active trade lines. So if you don't have 3 cards or reporting lines it's important you have other good account history to present.

Don't Blow It!

Once you have established a credit report... your credit picture will continue to build over time as you use it and pay your bills on time. Good behavior pays off!

Easy Does It!

Don't apply for several cards at once and rack up your charges. Plastic is rather tempting if you aren't used to using it. A slow build up works best. Yes, you can have too many cards! How many varies...it's an individual issue. It becomes obvious you have too many if you can't pay them all and keep your balances below 30% of the available balance. So keep it simple with two or three: a gas card, a bank card and a favorite department store card are fine. If you have a car loan, computer finance or education loan that you are paying off now..they will count as trade lines. Don't go overboard with the plastic quotient.

Interesting point: old credit is good credit. So even if you aren't using your old cards, just leave them open and keep an eye on the statements...updating in them of any change of address or name changes. New credit lines are less 'valuable' in the scoring system and can have a negative impact if you apply for a rash of new cards all at once.

Another guard against losing your hard earned credit: Avoid using your debit cards online. This does nothing for your credit (and could expose you to fraud). Another good reason for having a small credit card with a limit is that anyone trying to use your card illegally can only go so far and you are protected in the case of theft or product problems...just be sure to report if it's stolen or suspicious charges appear on your statement.


The very last thing you need to do is have a creditor close a card or report it as a collection because you can't make your payments. Credit is a privilege..so treat it that way and you will be enjoying great credit and the rewards of low interest rates for a very long time.

Wishing you every credit sanity! 


© 2006 susan templeton