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: https://www.optoutprescreen.com

The Federal Trade Commission offers advice on opting out of call, mails and email:
http://www.consumer.ftc.gov/articles/0262-stopping-unsolicited-mail-phone-calls-and-email

  
Happy Opting Out! 

© 2009 susan templeton

FREE Consumer Credit Reports

Order your FREE credit report once a year:

Online: http://www.annualcreditreport.com/ (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 http://www.myfico.com/ 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. http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?weblistaction=summary

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 lawlessness...so 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 borrow...in fact we expect even tighter guidelines for quite a while in a correcting swing of the pendulum toward conservative standards.

Happy Spring! Loannetter

Wednesday, February 18, 2009

Calling All Credit Card Holders!

Creditors have been calling all their cardholders to inform them that their credit cards are either being closed or their credit limits are being lowered. This has broad reaching implications on your 'available credit' and thus your FICO score.

Why Worry?
The fact is, your almighty FICO credit score is comprised of many factors, not the least of which is how 'fat' your balance is against your available credit limit. So in the case of having your limit lowered, usually to your existing balance (i.e., what is owed now) means the system sees that card as maxed out. If you previously had 50% or more available and unused, the system saw you as managing your credit within reason. 30% or less is the ideal limit for optimal credit scoring. 100% of your balance being used indicates higher risk therefore your FICO Score will be lowered. Since the system analyzes your behavior every month for such things as late payments or limits being reached, the effect of losing your available credit will be four fold:

1. You now have a maxed out balance and
2. You have no available credit on that card.
3. Your FICO score will go lower and affect your ability to get a mortgage or other credit.
4. Because of these 3 factors, your interest rates will be raised on your cards. Hardly fair!
The situation is compounded when every bank does this with every card you hold so suddenly your available credit plummets and so does your credit score. The only small consolation here is that everyone you know is probably having the same experience, so eventually the entire credit system will lower it's settings to the new risk factors. (Credit scores are averaged against other credit users.)

What Can You Do About It?
Well, you can try calling back and pleading your case to restore your balances and re-open your cards if they were closed. The chances of your success are limited if you often miss payments or have a habit of going over your limit. I know of one client who called their bank to request reinstatement and he succeeded. Needless to say this person had a long and perfect record with the company. He was polite and convincing. Others have found less success. The fact is, many folks are relying on their available credit as a backstop these days. You may be hanging out until your customer pays you or your unemployment kicks in. Please remember you are not alone.

Speak Up, Out and Often!
I would urge citizens write their congress persons and speak or write about this particular change is affecting you personally. The more your representatives hear from their constituents, the more likely they can have an effect on the behavior of our Federal Trade Commission. After all, the Consumer Protection Act is supposed to protect you, and advocate for consumers, not creditors.

Once the Credit Bureaus get wind of changes in your credit patterns, whether caused by you or your credit card companies, they crunch the numbers of any new 'risk' which my very likely lower your FICO score. High debt to credit balances are top risk factors right up there with late payments. This is not something you can dispute, unlike an inaccurate charge or other record.

Housing Rescue Plan to the Rescue?
I am hopeful that as part of the 2009 Housing Rescue, the powers that be will revisit the arcane and increasingly irrelevant FICO Scoring system to help get more folks into home-ownership.
Happy Recovery
Loannetter

© copyright 2009 susan templeton loannetter