Netcredit

Do You Have Too Much Debt?

2010-11-13T14:01:00.000-08:00

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:
http://tinyurl.com/msn-debtcalculator

Essentially if you are over 30% of your availble credit balance and over 40% of your monthly income going out the door you are going to start seeing an impact on your score. Use this handy tool and 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 or major purchase like a car loan.

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%.

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 loan is still in deferred status then they will not count against your ratio unless it becomes apparent you will be starting to make payments soon. Usually your student loan is not a payoff we would target, 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! loannetter
© copyright 2009 susan templeton loannetter

Credit Recovery after Short Sale or Foreclosure:

2010-08-22T13:00:00.000-07:00

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 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: www.equitytalks.blogspot.com

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! Loannetter
© copyright 2010 susan templeton loannetter

What's Your FICO Score Really Worth?

2010-06-07T12:49:00.000-07:00

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!
Loannetter

© copyright 2009 susan templeton loannetter

Credit Card Rates: How High the Moon?

2009-11-06T18:30:00.000-08:00

IMPORTANT: Credit Card Rates are 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".... yada yada... 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 of 29.7%. I nearly feel out of my chair. I've never missed a payment on that card. I keep the balance pretty low. So what gives?

Congress passed a bill out of concern that consumer debt was getting out of control. Months ago. That bill required Big Bank's and Credit Card Companies to give us 30 days notice in writing before they could raise our interest rates and they must have a 'reason'. So what did the Credit Card companies do? They begged. They told their friends in the House Financial Services Committee and all their mates in the banking industry they could not possibly effect such a huge change and inform all their customers in so short a time (this happended like six months ago). So Congress gave your creditors until February 2010--LOTS of time to 'inform consumers' that they are raising our interest rates dramatically. Don't be surprised to see up to 30% as your new interest rate. All in time for Christmas. All in time to 'inform us' before the new congressional bill takes effect stopping them from raising our rates.

Who is being served here? Have you noticed that many of these same companies are the very banks who took our tax dollars as TARP money to keep them afloat? I am seeing more and more consumers come in with the idea in mind of paying down their debt and KEEPING it down. So now these same companies complain that consumer debt is down. Wow.

What's a wise consumer to do? When you get the letter, call your card company and tell them you wish to OPT OUT of the increase. Which means 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. As long as you get a card that guarantees your rate beyond February 2010, that is.

Note: Don't close the credit card as that lowers your available credit. You will have to get through to a person to keep it open and opt out. The scary male voice on the recording I got says "IF YOU OPT OUT...YOUR CARD WILL BE CLOSED"...etc. So your best bet may be to pay your cards down to zero balance and just stop using them. More posts on how to work the credit system right here in the menu to the right. Just click the months to see relevant titles.

Happy Opting Out! Loannetter
© copyright 2009 susan templeton loannetter

FREE Consumer Credit Reports

2009-11-06T17:36:00.000-08:00

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. We give you a copy and discuss any issues to be aware of. 80% of credit reports have errors on them!!

What's a good score? 300-850 is the score range, with 850 being perfect, 720 is excellent, 620 is the baseline (for lending) with under 600 being considered poor. You'll need 680 for better rates and over 720 if you are self employed for best terms. When you apply for a mortgage your lender should provide you with a copy of your report which may or may not show your score (ours do). If you are declined, they send you a notice and that allows you to mail in for a copy of the report the lender viewed.

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 good and not so good services that act on your behalf to dispute items on your credit. (More on that in other posts). I have seen scores raised 100 pts in three months with diligent effort.

Happy scoring! Loannetter
© copyright 2009 susan templeton loannetter

Should You Buy Now?

2009-08-15T14:02:00.000-07:00

Facts: 700 billion of our tax dollars gifted to the largest banks in America has not created a high degree of trust in our banking system. New credit card rate restrictions have prompted a cut back of credit limits and closed accounts. Interest rates on mortgages have remained very low. 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 (big bailout recipients) are now being funded under FHA or USDA 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.

Bad timing?
For those of you who missed it, several failed banks, including the 3rd largest FHA lender, Taylor Bean Whitaker (closed August 4th 2009), 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 that bank you are now looking for another lender. This situation only provokes more angst and distrust of brokers, bankers and sellers. Banks, meanwhile, have become very very picky.

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 there are so many people are overwhelming the credit reporting bureaus that the system won't cope and many will be given the benefit of the doubt.
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. Three is all it takes. 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 720 and you will enjoy the benefits for many years!

To your successs! Loannetter
© copyright 2009 susan templeton loannetter

Will Credit Get Even TIGHTER?

2009-03-24T16:32:00.000-07:00

How does market confidence affect availability of credit?

The current lack of confidence in Banks and Financial Institutions as our folly has come into the public eye has led to a concern over the commitment of banks to lend money to consumers. HUH. Banks make the mistakes and consumers pay? Ah but the the BIG question is...just who is lending and for how long?

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. Here's a very revealing news item showing how some banks circumvented their own guidelines via 'stated income' or 'liar loans'. Check out this MSNBC video clip on the biggest financial abusers, and how they broke the rules.

Some staff inside banks were offered incentives to lie! MSNBC Clip2

Having seen that news story and the results of these practices over the last two years, it's no wonder we have tighter lending guidelines today. Laws are created when we have lawlessness...so this is the banking world's way of making the lending arena safer for borrowers and bankers alike. Surprisingly some of the very banks who committed these loans are still in business. Some of these very banks are, inexplicably, receiving bailout funds. Not everyone 'gets it' how incredibly greed based our systems had become.

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

Calling All Credit Card Holders!

2009-02-18T21:29:00.000-08:00

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 have ever in your life missed a payment or have a habit of going over your limit. I know of one client who called their bank to request reinstatement and he succeeded...but this is quite rare! Needless to say this person had a long and perfect record with the company. He was polite and convincing. He was also lucky to get someone on the phone who spoke English and who agreed with him!

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 injustice being meted out by the big banks. 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.

Because your credit information is deposited with the three government sanctioned Credit Bureaus, once this system gets wind of changes in your credit patterns, whether caused by you or your credit card companies, it dumbly starts penalizing you for this perceived new 'risk' and lowers 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

Loan Modification FACTS

2008-09-24T14:47:00.001-07:00

Explore Loan Workout Options:
If you have an Adjustable Rate Mortgage that is adjusting or have missed mortgage payments which has impacted your ability to refinance, you still have options in this market. Your lender may offer several 'loan workout' options including but not limited to: reinstatement, forbearance or a new repayment plan to suit your situation. When you call your lender directly ask for a supervisor for best result!

FHA Rescue and Secure Plans FHA officially offers a range of options for people needing to get out of ARM loans or who may be in arrears. Not all lenders offer these plans. Even FHA is teetering on risk based pricing hits (translated: higher interest rates) to encourage lenders to fund these loans. Certainly you should speak with an FHA licensed broker or bank about whether you will qualify. Officially the FHA has advised they perfer no FICO score or a minimum of 500. The banks who fund FHA loans have very strict loan limits (by city/county) and very few will fund under 580 FICO scores. Unfortunately, with guidelines tightening on all fronts, alternative credit reports are no longer acceptable in this market.

Mortgage Modification For longer term issues impacting your ability to afford your current mortgage, you are advised to pursue mortgage modification with your current lender. Mortgage modification may help by adding missed payments to your current loan balance while adjusting the adjustable rate to a fixed rate. This may be accomplished by extending the number of years on your loan, thereby lowering the payment within your means.

Mortgage Insurance Loan: If your mortgage is insured (via Mortgage Insurance) you may qualify for a one-time interest-free loan from your MI guarantor to bring your account current and pay it back within a certain time frame. Your lender handles this process since they are essentially the insured party.
Loan Modification Resources: There are many companies out there who will help you work with your lender to modify your loan for a fee. These are legal negotiators whose fees range from $1000 to $4,000 or more. Your success depends on your circumstances and you ability to negotiate effectively with lenders. Modifiers are professionals who have the inside story with lenders.
In Washington State, our DFI has proposed new rulings that only Licensed Loan Officers and Brokers can offer this service to protect consumers. You should not have to pay more than $500-1000 up front. If they don't get an acceptable result, you should get your money back less an application fee of around $300. My sources tell me the lenders are very motivated to keeping people in homes. They do NOT want your house back.

Private Options: I've been speaking with several private lenders about options to refinance out of situations.... but they are very strict on minimum 580 to 600 FICO Scores in this market. Most private lenders want hefty fees up front and interest rates starting at 10% for higher risk loans. Since some ARM loans are already adjusting higher than that, a private lender could be a very decent option if you are in too deep to have your loan modified.

Non Profit Counseling Hotline: For borrowers in arrears or nearing a rate reset they know they cannot afford, call Hope Alliance's hotline. Hope Alliance is a non profit HUD sponsored counseling organization who will help you determine the parameters of your situation. After which , they will petition your existing lender on your behalf. The lender will then respond directly to you, after which you are on your own to negotiate.

Call: Hope Alliance 800 449 9392 www.995hope.org
The Hope Alliance fee is paid by the lender if successful, so there is absolutely no cost to you.

BUT FIRST If you are not sure how to proceed, the first step is to ask your lender directly about potentially working out a solution. Before you call, read about your options online at the HUD site.
http://portal.hud.gov/portal/page?_pageid=73,1827467&_dad=portal&_schema=PORTAL

Success to you! Loannetter

Housing Bill Promises!

2008-09-17T14:04:00.000-07:00

Congress Passes Housing Bill to Assist Homeowners
Takes effect January 1, 2009

The newly passed Housing Bill promises more help for homeowners facing foreclosures. What we don't know yet is how Congress is going to get private banks to actually deliver these programs. Much of the legislation is designed to better inform consumers and this is very welcome news to our industry!

Officially, Congress has set aside more money for FHA guaranteed loans and will pump more money into Fannie Mae and Freddie Mac. Since Freddie and Fannie, both Goverment Sponsored Enterprises, or GSE's were placed in conservatorship shortly after the Housing Bill was passed, the new heads have not yet declared if their recent guideline changes (tighter) will continue as planned. In fact, FHA has areadly delared a moratorium on their own risk guidelines so the whole situaiton is very much up in the air. These risk based guidelines translate into higher interest rates and fees for marginal credit or declining values...affecting many many people across the country.
What most people don't understand is that 'government lending' means a percentage of guarantee to the final lender who is going to hold the note. They still have to like you and your property!
This bill does raise current loan limits -- which means an individual borrower can borrow more than the previous FHA limits for their locale. Reading closer, the new First Time Homebuyer tax credit must be repaid over a fifteen year period. It appears these measures are designed for short term relief.
Good or Bad News? The FHA minimum down payment was raised to 3.5% from 3% by the new Housing Bill. The bill has also outlawed 'gift funds' but family gifts are still allowed. Lenders have become much tougher about keeping your debt to income ratio under 43% and verifying your income. If you don't qualify for a full doc FHA loan your next best option is to have greater down payment funds. If you have 20% down for a convetional loan, you won't need mortgage insurance unless, again the property is in a declining area...so plan on an extra 5%.

Investors are also facing lower limits on how many properties they can mortgage (4 total mortgages). It's a good idea to speak with a financial advisor about setting up a savings plan if you are planning to buy a home in the next year or two!

January 1, 2009 is when these new guidelines come into effect. If you can qualify for a refinance or purchase loan before then and need to make a move before your ARM adjusts--don't wait! Rates, while volatile, appear to be rising. 'FHA Secure' interest rates are currently higher by 1.5 - 3% depending on your risk category. 'FHA Rescue' (the new program) is likely to be even higher.
Do You Know Where Your Money IS? Considering all the bank failures, mergers and buyouts, it's a good time check out your bank and see they how stable they are: click this link to look and compare bank ratings:
http://www.bankrate.com/brm/safesound/select.asp?insttype=0 (click or copy and past this link into your browser)

I am pretty sure if your bank was doing something risky they have ceased to do so given the new level of FDIC oversight. So while they may be less inclined to lend--this is to protect your deposits!
Buying a Fixer Upper? When buying your own home, it's easy to add up to $35,000 cash for renovations or $6,000 for energy efficiency improvements through FHA streamline renovation "Green Loans". We also have full construction and renovation loans through our specialist construction lenders. It really is a great time to buy, build or renovate if you are in good shape financially. Check out my Buildnet Blog.
Improve Your Fund-Ability! The most important thing you can do these days to improve your chances of getting a loan is to raise your 'middle' FICO score to 720 or higher (850 is the top). Check out other articles in the menu at right.
Having sufficient assets to close is absolutely essential these days.
Remember when the rule of thumb was no more than 25% of your income for your house payment? Those days may be returning. While you are riding your bike to work -- take time to appreciate the scenery. You might find a nice little house you can afford along the way!
Happy shopping! Loannetter
© copyright 2008 susan templeton loannetter

Stop Your FICO From Becoming a Fido!

2008-07-19T15:51:00.000-07:00

Online Mortgage Shopping Impacts FICO Scores
If you've considered checking out an online mortgage site: think again. What they don't tell you is that their network may comprise multiple agents. Each may pull your credit report (separately) over a course of hours or days while they review your loan options.

While all this is going on, your FICO score is taking a nosedive. Each mortgage inquiry can negatively impact your score 3 points. Each time. So if 10 brokers pull your credit in one 90 day period you could be 30 points worse off. And here's the scary part: each of those 10 brokers could actually submit your application to another 10 banks who also check your credit and that little exercise just cost you 30 points per broker...so the potential for damage is exponential. Because banks and lenders have strict FICO score requirements, a lower FICO Score can affect your qualifying for the loan you want. So much for convenience...

What is a FICO Score?
Invented by the Fair Isaac Company, FICO scores are based on a scale of 300-850, there are three FICO scores issued to you--one from each of our three National Credit Bureaus: Experian, Transunion and Equifax. These are our government respositories of information collected from creditors, courts and municipalities across the country. Not all creditors report to all three bureaus, so your score numbers will vary somewhat. They also collect information reported by collection agencies, government sources and other brokers who submit information about you to verify your identity when you apply for a mortgage.

FICO scores are one measure that lenders use to evaluate you, by placing you in risk brackets. These brackets (a range of score numbers) supposedly determine your likelihood of defaulting on loans. Every time you apply for credit, be it a cell phone account or credit card, you can bet your credit is being pulled.

Your Credit Report is not the same thing as your FICO Score.
The report is prepared by a Credit Reporting Agency that 'pulls' the information on file from the three National Credit Bureaus. Different lenders may prefer the score from a particular bureau, but most use the 'middle score' of the three scores. FICO scores are based on complicated logarithms which indicate how well you manage your debt.

What's a 'Good Score"?
The difference depends upon the lender and their own guidelines, but basically 680-740 is required for the best rates for conventioanal loans. The difference in a 679 and a 680 score (the higher the better) could make quite a difference in the final analysis. Your score also determines whether you qualify for a 'no doc', 'stated', or 'full doc' loan. The higher your score, the greater the trust lenders have in the information you provide. The lower your score, the more verification (paperwork) lenders require. Anything over 740 is gold standard. Lenders have restrictions on funding mortgages below certain scores but some capitalize on this niche by charging higher rates.

In late 2007, Fannie Mae and Freddie Mac progressively raised the 'guidelines' they allowed for credit scores and debt to income ratios. We now have penalty-based interest rate pricing for lower scores. These days if you are self employed you can expect a very hard time if your FICO score is below 700. A FICO score of 580 is the lowest most banks will entertain for government guaranteed programs like FHA, VA, and USRDA Loans. Every bank and lender must adhere to these guidelines unless they hold their own loans in a portfolio (very few do) rather than sell them.

A FIDO Story
A client of mine requested a 'free' online Credit Report she saw advertised on an internet ad. She clicked on the site, and answered a few very personal questions including giving out her Social Security Number, email address, etc. and was asked for a credit card number to 'verify' her identity. Moments later, her screen flashed blank and she could not retrieve the report. Annoyed, she cancelled the transaction, without receiving a report. She checked her emails: no report. A few weeks later, she noticed a charge on her account for a yearly service fee which she did not recognize. Unfortunately she had used a Debit card so her bank would not refund the payment because she had 'authorized' it by giving them her card number.

While many of these so called credit firms are being shut down, it's best to avoid the heartache. Unfortunately, this same client had submitted an online mortgage application to a firm promising three competitive bank quotes. Her FICO score fell about 60 points in one month. In her case, the original broker she contacted did not mention they used several agents and after a few weeks, they simply turned her down after wrecking her score. I was sickened when I saw her report afterward. Her list of lender inquiries was as long as your arm, which also affects your score.

Unfortunately, contesting an inquiry on your credit is not really possible...you can bark all you like!

Regular Check Ups
By now you've probably been drilled about checking your credit yearly. Fortunately, every citizen can a get free report once a year in the USA. It's wise to sit down and look it over carefully to verify that no unauthorized credit cards or collections have been lodged against you. If you happen to have a common name, it is easy for mistakes to occur. I knew a man who had the same name as an uncle who lived rather irresponsibly. He was actually advised after repeated efforts clearing inaccurate reports against him to change his name!

Not all Credit Reports show your FICO score, so you can order your own online from the Fair Isaac consumer site www.myfico.com It costs about $49 for a Tri-Merge (all 3 scores). It does not impact your score when you check it yourself. When you apply for a mortgage, your bank or broker will pull a professional Tri Merge Report. Ours costs about $20 if you want to use the secure link below. We will call you to discuss your report with no obligation. Banks can't use the consumer reports from My FICO as they are apparently sanitized.

Banks and Brokers must have your permission to pull your credit but this practice may not be adequately monotored in some settings. If you already have a banking or credit relationship (cards, revolving accounts) your creditor may check your credit without your permission to see how you are perfomring on your other obligations. This is the really stinky part: if you are behind or missing payments on accounts, your current creditors can raise the rates they charge you!!

Legally, when a bank or lender pulls your report we are required to give you a copy of the report and a form listing any derogatory information used if we turn down you application for a loan. A mortgage lender should be able to explain your report and take the time to go over it with you. Your Credit Report is your first step to getting the desired result: the loan you deserve!

Wishing you every credit sanity! Loannetter

© copyright 2008 susan templeton loannetter

Practice Credit Wellness!

2008-01-09T20:05:00.000-08:00

4 Point Plan to Success:

Most people think if they not have claimed bankruptcy or bounced checks then all is well in credit land. Unfortunately, it’s not that simple. If you have let your payment schedules slip or allowed your credit account balances to creep up these practices can seriously impair your creditworthiness.

Since the new Fannie Mae and Freddie Mac guidelines for mortgages were released in late December 2007, lenders are being forced to charge more for loans in up front points and fees due to the increased risk factors. This means a low FICO score is costing you higher interest rates not only on your mortgage but for everything from insurance to auto loans. The difference between a low 600’s score and a score over 700 could easily mean $100 a month on a car loan and more on your home payments. Below are some tips for turning things around. The standards have been raised 20 - 40 points across the board this year and document stacks are that much taller!

Make 2008 the year you get on top of your credit! It may only mean changing a habit or two. For example, use auto drafts to make your mortgage payment rather than relying on the mail. Make more than the minimum payments on your credit cards and your score will improve steadily. It helps to have a goal…so here are some tips to help you chart your course!

Set Your Goals: Every citizen can request a free credit report every year at http://www.annualcreditreport.com. Review your file, see what is reporting, how accurate it is and if you have any issues needing correction or addressing. This is your starting point to credit wellness.
Learn the Terms: To manage your credit wisely it helps to understand the lingo. Read my article Credit Reports Defined or download the free booklet Understanding Your FICO Scores written by Fair Isaac, the folks who invented the FICO scoring system.
Plan to Win – Once you’ve checked your report and defined any targets, you can correct your course. For example if you have been making late payments, set up an auto-draft system to pay your bills a few days before they are due—without fail. Even one late payment will affect your score.
Keep Watch – Congratulate yourself once you see improvement…but don’t let up! About 6 months before applying for a major line of credit or mortgage, order a new credit report with a score. Unfortunately the consumer reports you buy yourself are ‘sanitized’ and may not have as much information as lender reports…so scores will vary. Your bank or broker will pull you lender report showing your scores for you when you are closer to financing, say 30 days prior to seeking a mortgage.

Once you know what your score is, and you've made what improvement you can, you can become qualified to compare rates and product terms. To say: “Interest rates are under 6% today” does not mean you will not be offered these terms unless your credit picture is a rosy one!

Check our the My FICO score free calculator for comparisons on scores, rates and payments

Happy scoring! Loannetter

© 2008 susan templeton

Factors That Affect Interest Rates

2007-09-19T00:00:00.000-07:00

By now every consumer seems to know about the existence of FICO Scores...but what are they really? FICO Scores are essentially indicators of risk, that is, how likely you are to pay your mortgage on time and not go into default. The best way around the score game is if you qualify for FHA or VA or another government initiative designed for entry level homeowners. Naturally there are government caveats on these loans...subject of another blog. There are many factors that affect your interest rate:

FICO Scores affect rates and your borrowing power!
If you apply for a home loan with a FICO credit score of 720+ you will most often be offered the current lowest interest rate if you are able to fully doccument your income and assets and own or are refinancing a solid property. As a 'stated income' applicant with limited or no documentation, the required FICO scores have been raised in 2007 to 700 or better to qualify for decent rates, depending on the specific lender's guidelines. Many conventioanl lenders won't fund self employed borrowers with 'stated income/assets' at all.

It's best to discuss methods of documenting your income that may work for your situation with your mortgage planner. We find it hard to negotiate great rates below 620 FICO scores. Low to mid 600's is generally considered the Alt-A category offering moderately higher rates. Sub Prime Lenders (made famous this year) work with borrowers who have extenuating circumstances and FICO scores as low as 500 or who cannot document their work history or income sufficiently for a conventional loan. Many sub prime borrowers have excellent credit, just short work histories!

For comparison on a Fixed Rate Loan:
720+ FICO = 6.5% for full documentation of income and assets.
680-720 = 7.0 % for full documentation
620-680 = 8.0% for full documentation
540-600 = 10.0% for full documentation

Below 540: You will be charged even higher rates and may only qualify for 'hard money' and shorter terms. The difference in your monthly payments and cost of financing is pretty impressive and will mean the difference in how much house you can afford to purchase.

In addition, there are higher loan costs in points and fees for having sub-par credit. Generally, it's all about risk and the extra work necessary to get your loan closed.

Derogatory credit issues:
1. If you have a history of late payments with creditors within the last twelve months.
2. If you have fewer than three active lines of credit.
3. I you have filed bankruptcy within the last seven years (four years is fund-able with most banks)
4. If you have suffered an foreclosure in the last 10 years.
5. If you have unpaid collections or charge-offs within the last 2-4 years (depending on the lender).
6. If you have liens or judgements against your title.

Title issues:
Liens against a title must be paid off before or at closing to provide a 'clear title' for a lender. In the case of paying off an existing mortgage company, this is straightforward process handled by our escrow agent. In the case of unpaid collections expect additional interest fees or to pay them at closing. Also, if someone else is listed on your title (often in the case of divorce) you must secure a quit claim deed from the other party and submit your divorce or settlement papers.

Beware of adding your children on title. If they are over 18 they can cause serious credit liens without your knowledge by credit card abuse or other bad behavior. According to some states, children under 18 cannot be legally responsible to hold title to mortgages unless their net worth exceeds 2 million dollars.

Property issues:
1. If your property is zoned rural or agricultural over ten acres (some allow 50 acres).
2. If your property is in a flood zone, wetland or hazardous area.
3. If your property appraiser cannot provide three comparable property sales within 2 miles and six months.
4. If the appraiser's report reports significant damage or safety issues (legally they must note this) to the structure.
5. If a manufactured home is pre-1976 era, has been moved, or had additions to alter its structure... it is fund-able with very few lenders at very high rates.

Note: there are many other issues which individual lenders use to establish the rate they offer a borrower, based on their own portfolio of property and risk ratios. In fact, some lenders specialize in higher risk portfolios because they can charge more for the money. The more sub par issues you have on your Credit Report, the greater risk you are considered by a lender, and this is reflected in your score (read more about Credit Scores on previous blogs) As a result, up go the lender's requests for documents (conditions) and potential fees for underwriting and appraisal reviews. Not to mention your bank or broker will charge more for their time.

Now don't let all this talk about rates get you down. The most important aspect of a mortgage is your ability to afford one! Two main factors besides credit history affect your acceptance:
1. The Loan to Value (LTV) which means how much you are borrowing against a property's worth. If the LTV% is under 75% the rate often improves.
2. Your Monthly Payment or Debt to Income (DTI) is usually the kicker...i.e., how much can you afford to pay toward your housing cost every month.

Most lenders have great short term products to help you get a home loan or refinance for a year or three. These loans will help you improve your FICO score and you won't miss out on that wonderful new home at today's prices!

Happy borrowing! Loannetter
©2007 susan templeton loannetter

Trigger Lists: Is Your Credit Report Private?

2007-05-18T21:17:00.000-07:00

The Federal Trade Commission is allowing our four Credit Reporting Companies: Equifax, Experian, Innovis, and TransUnion, to re-sell your credit report without your permission.

This is a shocking revelation with serious implications. We feel it is an invasion of privacy and could expose consumers to potential identity theft.

Here's What Happens:

You go to a trusted bank or mortgage company to discuss your financial situation and they pull a credit report to qualify you for a loan. This triggers an alert in the system that you are in the market for credit. The bureau then compiles lists of consumer reports and re-sells them to other lenders on 'trigger lists'. They are re-selling not just your contact details but your actual credit report.

Of course the buyers of these lists target the top FICO score clients first. You may start getting unsolicited calls. Lots of calls. Some people report being harassed dawn to dusk. The callers may imply they are calling from your bank or processor. They make fantastic offers offering ridiculous teaser rates for huge sums of money. It doesn't seem to matter if you have an unlisted number --the calls just keep coming. If you are listed on the Do Not Call List, you can certainly report the offenders at the Do Not Call Registry www.donotcall.gov. The fines are pretty stiff so if you tell a caller you are on this list it's unlikely that person will call again. The calls and letters offering all kinds of credit just keep coming.

The biggest concern is not that the list exists (which is bad enough) but that your actual report is being released. If you've seen a credit report you know it contains a great deal of personal information including account numbers, balances and collections. This puts your mortgage lender in a very awkward position as they are now effectively competing for your business with strangers --people with whom you did not choose to share your personal financial information. Unfortunately some unsolicited callers use misleading tactics--claiming to be from 'your bank' or processing department. We are very concerned in the mortgage industry about this breach of consumer privacy.

CBS Video Exposing Practice:

According to a recent CBS online video, the National Association of Mortgage Brokers is very concerned that the reporting agencies are not properly vetting the credentials of all the lenders they are selling these lists to. The Consumer Data Industry Association claims this practice is about providing consumer choice. We beg to ask: "shouldn't a consumer be able to choose with whom I share my personal financial information?" Since we have been conditioned to think that shopping around for the best deal is a good thing, it's easy to fall for the ploy. The problem with this approach is that your FICO score and your financial information are at risk.

Stop this practice: "Opt Out" on this website: www.optoutprescreen.com or call 1-888-567-8688

Recently, a client called to discuss questions from my processor. It turned out the person who had called her was not my processor. I was mystified how they could have known that she was discussing a mortgage until I heard about trigger lists. These days people refinance and move so frequently, I guess the odds of someone expecting a call from 'their bank' must be in their favor. Your lender should provide the names of people who will be contacting you about your loan ahead of time so you can be sure with whom you are speaking.

I assure you that responsible lenders are protesting this practice. I urge consumers to express your concerns to your Senators and Representatives at http://www.congress.org/

Loannetter
© 2007 susan templeton loannetter

Stop Unwanted Credit Offers--OPT OUT!

2007-04-26T13:11:00.000-07:00

"Soft Hits" to your FICO score at the Bureau level add up...here's a quick way to end the junk mail and save your shredder!

Did you know all those "Pre Approved" credit card offers you get in the mail are actually hurting your FICO score? Of course the disclaimers suggest this is not the case...however my lenders beg to differ. We have seen examples of real live human beings who experienced an improvement in their FICO scores after using this simple method of 'Opting Out'. By the way, when you open any credit or bank account, you should be offered this option but it's not actually something every banker remembers to do.

So, to end the weekly mail deluge and OPT OUT of unwanted credit offers. Click this link: www.optoutprescreen.com. You can choose to opt IN if you want these offers, opt out for 5 years or opt out forever. By removing your name from these lists you are eliminating ‘soft hits’ to your file….which do add up and lower your credit score. Should you miss the junkmail you can always opt back in later.

If you choose to opt out, unauthorized credit card companies are NOT allowed to check your credit to offer financing, new cards, etc. You will be removed from the marketing lists the bureaus share with subscribed lenders. Over time ‘opting out’ should help improve your FICO score....at least this prevents the bureaus from selling your file (another new 'trend' that consumer groups are trying to stop). Recently at least one of our credit bureaus has suggested they can legally sell their lists to non lenders...when will the madness stop?

Advantages of Opting Out:
1. Lower your risk of identity theft. By limiting the sheer number of offers you receive, you are limiting the opportunities for an identity thief to steal your mail and get credit in your name.
2. Less junk mail!
3. No negative effect on your credit score or ability to obtain credit. 4. Protecting your privacy!

Happy Opting! Loannetter

© 2007 susan templeton loannetter

Happy FICOS = Happy Couples!

2007-02-06T16:29:00.000-08:00

How to make the most of sharing your credit:

Are you recently married or about to become half of a couple? Your personal FICO score and that of your significant other’s could affect how you move forward as a team in the financial world. Buying a home and trading in your wheels for something more exciting (or less?) often requires a joint application once you are sharing a life and the associated joys.

Your FICO® scores will figure highly in the kind of loan and terms you will be offered so here are a few pointers:
You both have individual FICO scores based on previous history
You do NOT have a joint FICO score
As you open Joint Accounts, like credit cards and mortgages, the new history you create together will affect both your individual scores
When applying for loans, lenders usually look at both of your FICO scores when evaluating your loan application
Joint applicants will be tied to the lower of the two applicant’s FICO Score

Which means: If one of you has stellar credit, your low score partner may mean higher rates on joint purchases. What’s low? A FICO score of 500 is really unacceptable. 600 is passable while 700 is considered gold standard. 200 points is a very wide range in the FICO world. You need even higher scores to qualify for ‘stated’ or ‘no ratio’ loans.
It is not uncommon for a spouse who seldom uses credit cards to have the higher score. However, this does not mean you can use the higher score partner to qualify for a loan. The main borrower in most instances must also be the “primary wage earner” and could qualify on their income alone for the debt ratio limits without the other person’s income.
If you must use both your incomes to meet debt ratios (affordability) and one partner has a very low score you may be turned down even if one partner has a very high score. Some non prime lenders offer a ‘high score’ program but you can bet the rates reflect the higher risk factor. In the worst case you may not qualify for any loan. Even hard money lenders have their low score limits.
So what are you to do about your errant beloved with a lower FICO score? Sign up for a personal finance course at your local community college…or better yet read: Smart Couples Finish Rich by David Bach. A few new good habits will be easier with appropriate cheering from the ‘tidier’ partner. Habits can be changed with sufficient motivation!
Now if you really need to apply for a loan using the higher partner’s score--that may be an option--as long as you both appreciate the effect on that partner’s score will be negatively affected by a single late payment. The best habit is to keep your credit clean and healthy is by maintaining low balances on revolving credit and pay everything on time. Consider setting an ‘early reminder’ on your calendar to make payments ahead or have them as automatic drafts for a week ahead of the due date.
There ARE low score and no score programs out there that avoid these rules but there is usually a higher interest rate for this priviledge. Healthy scores will serve you better than ducking!
Whatever your strategy…once the good behavior starts the FICO scoring system will reward you with a higher score. Take a few pointers from your high FICO score partner and do as they do...and your marriage will be all the happier!
Wishing you every credit sanity! Loannetter
©2007 susan templeton loannetter

Cool Credit Tips

2006-10-13T21:34:00.000-07:00

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 and Adjustables that 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: Even banks hire newbies and give them Vice President Titles--so 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 is allowing 43% now. Non prime loans allow up to 55% 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 is often increasing in value much more quickly. 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! Loannetter

© 2007 susan templeton, loannetter

CoBorrowers: Getting Credited!

2006-07-17T23:19:00.000-07:00

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 many cases, the spouse on a mortgage isn't even reported to the bureaus. If you are a foreign national you could be a long time waiting for your credit to register. Time to you build some of your own...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. Not that our system favors any particular sex or anything. Legally the banking industry does not discriminate on race, sex, age, etc. The system knows if your income is lower than your spouse...by virtue of the practice of listing the Borrower first. 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 it 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!

Take out a Personal Credit Card
Instead 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 soar!

Keep the Cellphones and Phone Accounts in Your Name
These 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, you don't even have go use it...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 Chief Executive Officer so you can use this title when going for a loan. If you already have a 1st and Second, you may still qualify for a 3rd or Home Equity Product.

Set up Separate Retirement Accounts in Your Name
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 the old fashioned idea of savings bonds if you aren't game to play the market...or invest in something you understand like art or land that will increase in value...again in your own name.

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!

May I recommend some reading on the subject? 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! Loannetter

© 2007 susan templeton loannetter

Credit Counseling Before Bankruptcy!

2006-03-21T13:00:00.000-08:00

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! Loannetter
©2006 susan templeton loannetter

Got Credit?

2006-02-07T19:08:00.000-08:00

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!

Keep your balances low on your revolving card accounts. The trick with credit cards is to spread your balances across several cards (3 'trade lines' are usually required for mortgages) 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!!

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 3 sources where you have been paying your bills on time for the last year. Phone bills, cellphone bills, utilities 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 Alt Credit 2009: 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.

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: DON'T use 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 LAST thing you want 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! Loannetter
© copyright 2006 susan templeton loannetter

URGE Congress to Enact Tougher ID Theft Laws!

2005-11-27T13:44:00.000-08:00

Our Congress is Proposing a New 'softer' ID Theft Law:

Considering that Identity Theft occurs19 times per minute in the United States, it seems incredible to me that our Congress would be considering softer ID theft Laws. Recently enacted tougher State laws (as in Washington State) would be undermined by this new US Bill.
http://www.consumersunion.org

Urge your congressperson to support a tougher law to:

1. Remove the loophole that lets any company who fails to my personal information decide whether or not to tell me about it(!) As citizens, we must demand to make that decision for ourselves. We can only do so if we are informed when a company has ANY breach of security regarding our identities and financial information.

2. Insist on stronger security standards for everyone who handles consumers' personal information with real penalties if they fail to protect consumers. Companies who fail to protect my personal information should be pay for the inconvenience caused by their failure, including legal fees and damages which are ongoing to a person's credit rating and subsequent higher fees for every service, including insurance rates, mortgage rates, and credit turn downs.

3. Give you the right to see and correct the files that information brokers have about me--and stop them from selling or sharing this information without your express permission.

Please urge your congressperson to strenthen the new H.R. 4127 law to protect us all against identity theft and fraud.

We deserve a Congress that is accountable to citizens first!

Wishing you every credit sanity! Loannetter

Genuine FREE Credit Reports!

2005-10-25T22:39:00.000-07:00

How to order your FREE credit report once a year:

Online: 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 your 'free report'. Several firms have been convicted of secretly charging yearly credit monitoring fees.

The best known good consumer site is 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. 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. We give you a copy and discuss any issues to be aware of. 80% of credit reoports have errors on them!!

What's a good score? 300-850 is the score range, with 850 being perfect, 720 is excellent, 620 is the baseline with under 600 being considered poor. If you have applied for a mortgage your lender should provide you with a copy of your report which may or may not show your score (ours do).

If you are planning to get a mortgage 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.

Happy scoring! Loannetter
© copyright 2005 susan templeton loannetter

Handling Collections

2005-08-08T11:47:00.000-07:00

Collections on your credit hurt your FICO score. However, don't pay them off without establishing the effect they are having on your credit report! Anything over two years old has less and less effect. Many lenders will overlook old collections as long as your recent record is good.

Note: Once you've paid a collection, it is virtually impossible to remove from your report and could actually hurt your score in the short term!

Removing Collections from your Credit Report

1. Contact each original creditor listing collections on your report. (They may refer you to their collection agency if they have 'sold' the debt.) If you can afford to settle the debt, negotiate how you will pay it off. Insist that you will ONLY pay the debt IF they agree to REMOVE the item from collections and show the Account "Paid as Agreed" on your credit rerport. You must do everything in writing.

2. Your letter from the creditor (assuming you hounded them into submission) should state the account number, the amount they agree to accept, and their agreement to remove it as a collection and show it as a Paid as Agreed account.

3. Wait until you have a letter agreeing to these terms. Do NOT pay until you have this letter in hand! Use faxes or the mail but get in in writing.

4. After you have the agreement letter, pay it off promptly or as scheduled and keep a copy of your checks and letter of agreement.

5. THEN if your report continues to show these items:

Dispute Items Directly to the Credit Bureaus:

If you've had the fun of trying to negotiate an inaccurate listing with a creditor (big banks can be the worst) as in the above scenario, I suggest you take the matter straight to the Credit Bureaus.

If you DID manage to get a letter or fax from the creditor agreeing to remove an item from your report (and they have not within 3 months), attach this to a letter of explanation and send it Certified Mail to all 3 Credit Bureaus listed at the bottom of your report: Equifax, Transunion and Experian. Each bureau will need their own letter and copy.

The Bureaus will respond eventually. Be sure to offer to fax documentary proof or sending letters again and again until they realize you are not going away.

In the first instance, any dispute will be temporarily removed or listed as a pending dispute on your credit report while they notify the original creditor of your claim. The creditor has 30 days to respond and if they don't voila, it will be removed. You can hope they were as lazy responding to Equifax and friends as they were to you and be done with it. Your FICO score will start recovering from the damage once items are either removed or listed as Paid as Agreed with zero balances owing. The recovery takes longer than the original damage, so plan on three to six months if matters were serious. I've seen clients raise their scores in 3 months over 40 points, but your success will depend on the number and heft of issues.

What's serious? Each Credit Bureau has a slightly different pirority list and that is also listed in order of importance on your Credit Disclosure which your lender should supply when they give you a copy of your credit report.

Credit Reporting Bureaus:

Equifax Information Services: 800 685 1111
TransUnion Customer Relations: 800 888 4213
Experian: 888 397 3742

Credit Bureaus are legally required to act on your behalf in the case of disputes. The Bureau will notify you of the action taken. If collections agents are really sneaky, they may send the item to another collection firm and the same collection could land on your report again...which is why you need that letter with the account number and amount due as well as the amount paid AND their agreement to remove it as a collection and show it as a PAID AS AGREED account.

Beware of firms offering Rapid Rescoring. This is a real service that can also be real expensive. In some cases, your mortgage broker can remedy an inaccurate item or two by paying for a supplemental report (small fees here). We have the ability to report obvious duplications or inaccurate accounts to clear items from your report for a lender's review. This does NOT improve your score, but clarifies if such things as collections have been paid. You will need to provide your broker with any proof of such payments or Schedule F in the case of items discharged in a bankruptcy. Bankruptcy issues naturally take longer for your score to recover, so a very thorough lawyer is worth their salt here.

Don't freak if your Credit Report shows a mortgage late in the last year while you were on vacation. Most lenders will overlook one and if it's more than a year ago they are less concerned. It's when a pattern of irresponsible behaviour is shown that they get worried.

Professional credit counseling firms charge around $75 - $100 and upwards per item to remove derogatory items. Some charge a flat monthly fee. These firms vary tremendously in the results achieved. Some firms allow your credit to lapse--which causes your score to plummet while they negotiate your payments down. At that point, a creditor is probably sure you will never pay and may agree to pennies on the dollar. They make their cut on the difference in your settlement and what is actually paid. How you will sleep now that you know that?

If your problem is more serious than a few overdue collections, speak to a good accountant and consider your options.

FIRST TIME HOMEBUYERS

2005-06-27T11:07:00.000-07:00

Lenders first want to know your creditworthiness. To prepare yourself, it's a good idea to check your credit report to find out where you stand--at least a few months before you intend to buy your first home.

Credit History
Your credit history is a collection of records held by the national consumer credit reporting companies: Equifax, Experian and TransUnion. Your record comprises a list of all your relationships with lending institutions and credit card companies as well as tax and court records. Any outstanding fines or late payments will be noted in detail with the most recent issues carrying the most weight in terms of your 'score'. For more detailed information, read Credit Reports Defined on this blogspot

Free Credit Reports
By law every U.S. citizen can now receive a Free Annual Credit Report. This report is designed for consumers, and gives you the same information your lender sees in an easily readable format: http://www.annualcreditreport.com/

If you find anything on your report that you don't believe is accurate, you are advised to contact the specific creditor (contact details are listed on the last page of the report usually). Check out our article titled Report Fraud and Credit Disputes on this blogspot. You don't need to sign up for monthly credit reporting (for a fee) unless you have some recent concerns about fraud or are currently monitoring your accounts. For ongoing reports visit http://www.myfico.com/

Alternative Credit
Naturally, a lender will have concerns if you have ' no credit' i.e., no record of traditional 'trade lines' in the form of credit cards or loans. Alternative credit uses phone bills and receipts from regular accounts to build a credit picture.

Qualifying Factors
Your income is key to being a first time home buyer. Two years continuous employment history is standard requirement for most mortgages. Your lender will want copies of your most recent three months pay stubs and two years W-2's. Self employed borrowers will be asked to submit two tax returns. Other sources must be documented. These help to establish your correct ratios for what you intend to purchase.

Debt to Income Ratios
Debt to Income or DTI literally means how much money you have going out every month for fixed expenses in direct ratio to your income. This helps establish how much money you can afford to borrow. Credit cards, mortgages, auto payments, student loans, and other outstanding debt payments are all part of the picture. If your credit card balances are high, then you can expect to be qualified for a lower mortgage amount than if you had no outstanding debt.

Add your monthly rent plus all your monthly credit card bills (student loans, auto payments, etc) to arrive at your current Debt to Income Ratio. Next, substitute your proposed monthly mortgage payment including property taxes and insurance for comparison. The new Debt to Income ratio will be what the bank will use to 'qualify you'.

Borrower and Co-Borrower Qualifying
If you intend to purchase a home with a partner or spouse, that person will also need to qualify. Some lenders may forgive a lack of credit or lower score for a spouse or partner. Your mortgage lender or bank will advise.

Pre-Qualifying
It's a good idea to be prequalified by a bank or broker prior to looking at homes. Your lender will provide a copy of your credit report and take your application in order to get the ball rolling. This process helps you establish your lending budget. This also you in a better position to negotiate with a seller if they know you are pre-approved. Your lender will provide a letter to your realtor (usually with your offer to purchase) to help prove you are serious.

Once you've conquered these topics, you're ready to start looking at homes. Happy shopping!

Wishing you every credit sanity! Loannetter

click this link to order your personal credit report from our secure site.

Consumer Credit FREEZE in Washington

2005-04-28T09:08:00.000-07:00

Washington Governor signs security freeze legislation!

Congratulations! On May 10, 2005, Washington Governor Christine Gregoire signed SB 5418 and the effective date is July 24, 2005. This new law gives Washington state residents the right to place a security freeze to lock up their credit files so that new creditors can't check the consumer's credit file unless the consumer chooses to unfreeze, or unlock the file. The right to freeze the credit file applies to identity theft victims and to consumer who have been notified that the security of their personal information has been breached published by the Consumers Union

Consumers Union is urging consumers to support tougher state laws that would increase your protection. Considering that 9.9 million Americans are vicitmized by Identity theft each year--your chances of experiencing loss through identity theft increases daily.

To support the freeze on credit information access without your permission in your state, visit: https://secure2.convio.net/cu/site/Advocacy?page=UserAction&cmd=display&id=379

This petition is being presented to state legislatures by Consumer's Union. It would mean that individual consumers could 'freeze' their reports preventing companies from issuing new credit accounts and having access to your credit report without your permission. The downside is that you would have to temporarily 'unfreeze' your credit if you were legitimately seeking new credit. Another upside would be no more unsolicited credit card offers in the mail!

Brokers Support Protections
The Mortgage Brokers Association and other advocacy groups are urging congress to enact stronger laws protecting consumers from the wave of new identity thefts. If you have good credit, you will be the primary target. It really pays to review your credit report at least once a year (and several months before applying for a new loan) to be sure your information is accurate.

Every day we read of new security breaches at companies like ChoicePoint, Lexis-Nexis, Bank of America and numerous universities, retail stores and payroll companies. The ability of online hackers to break into the databases of these firms is beyond comprehension. We all hope it won't happen to us. At the current rate of ID theft in the USA, 19 incidents occur every minute.

The FBI is also taking a very strong interest in these matters as they relate directly to the mortgage industry. According to the Washingon Mortgage Brokers Institute, 80% of victim fraud is committed by insiders in the financial industry...including lawyers, appraisers, title companies, brokers, loan originators, bank employees, processors, etc. The problem is compounded by lax rules and regulations. For example, if your broker doesn't shred all sensitive documents, their trash could be the source of a wealth of information for identity thieves. And believe me...thieves know where to look! Fortunately, tighter regulations are being proposed to enforce better security procedures throughout the mortgage industry. One such safeguard is the standard background check that lenders undertake before hiring people to work with secure information. Unfotunately, a really smart con will dind some new way to outfox the system...so the system is evolving to stop these new practices.

Acts before Congress and your local state legislatures are being debated to create better safeguards. While some Bills exist that require companies to tell you when your personal information security has been breached...they first have to know about it! Companies who have been caught out (DFW shoes is one) often don't know the extent of the seciurity breach and by the time they notify consumers it may be too late to stop an attack on your personal credit.

7/15/06 Read update on this article regarding current bills before congress http://www.oxfordpress.com/business/content/shared/news/stories/IDENTITY_THEFT16_COX_W1718.html

Wishing you every credit sanity! Loannetter
(c) 2005 Susan Templeton

Avoid Loan Death!

2005-04-06T14:54:00.000-07:00

If you are applying for a mortgage, here are a few specific rules to help you make it to closing alive:

NEVER respond to a bank online request for your passwords or identity information. These may be opportunists looking for access to your accounts and it could be a coincidence that you are applying for a loan (who isn't these days?). Legitimate Banks may mail disclosure documents about your loan prior to closing. If you are working with a mortgage broker it is possible that more than one bank is competing for your loan--so keep the documents but do not respond to them...that's your broker's job. This can be confusing as the documents the bank sends may not be up to date anyway...but is does alert you that someone has applied for a loan in your name.
NEVER co-sign a note with anyone for anything! (I had to tell you that?)
NEVER give out your Social Security Number to a bank or lender who doesn't ask you to sign a Certification and Authorization form FIRST (informing you of your rights). Once this person has pulled your credit, you should be provided with a copy of the report showing your FICO scores.
NEVER shop online for a mortgage if you value your credit score (online lender 'hits' will lower your score because they farm out your application to multiple lenders at once). It's fine to check rates online but you should know that you may not qualify for a specific rate given your particular situation. Every bank has a specific set of guidelines....for example: self employed borrowers pay a higher rate unless their Schedule C tax documents prove a sufficient income after expenses.
NEVER fall for a voicemail or caller claiming to be a 'person from the mortgage company' offering a ridiculously low rate. Sure there are 1.25% rates but these things usually have a MARGIN and/or INDEX attached and unless you recognize the caller--chances are they are just fishing.
NEVER be late on your mortgage payment just before your loan closes. Even one day late will hurt with some banks....and Home Equity lines are the worst...I've had a client be reported for a 30 day late for the $1.70 service charge! One 30 day late payment on your record may put you in a higher risk and higher interest rate bracket (banks will work with prior notice, not excuses).
NEVER be late on your credit card payments.
NEVER rack up your credit card balances (over 40% balance) before you apply for a mortgage.
NEVER move all your credit balances to one card just before you apply for a loan...you really want to keep your cards evenly balanced so none are maxed out. AFTER your loan closes, move balances to the cheaper rate card and KEEP the cards open.
NEVER apply for any new credit cards 90 days before you apply for a mortgage.
NEVER close credit card accounts even if you aren't using them (just lock them up). The FICO scoring system and many lenders look at available credit--so having open cards with zero balances actually adds that particular credit limit to your available credit.
NEVER EVER buy a car or major applicance while waiting for your mortgage to close!
NEVER open new credit cards while waiting for your mortgage to close!
NEVER listen to what a realtor, your brother-in-law or your boss has to say about interest rates or specific loans. These very nice helpful people have no business discussing rates or loans because they don't have the right to full disclosure about your financial circumstances.
NEVER EVER lie about your financial situation to your lender or mortgage broker because they will find out and eventually have to turn you down or scramble at the last minute to find a solution that you do qualify for. You can say anything you like to your realtor, brother-in-law and boss!

Wishing you every credit sanity Loannetter

Report Credit Fraud!

2005-04-04T15:47:00.000-07:00

If someone has taken out a credit card in your name (without your permssion or knowledge) this is a fraudulent act, often involving forgery or impersonation and is a felony. Fraud is serious and can affect your credit indefinately!

FIRST RESPONSE:

Your first call should be to your local police or sherrif's department. Tell them what happened and provide any evidence you have, for example, a card statement or unauthorized payment withdrawals from your bank account. Get a police file number and copy of the report. You can choose to press criminal charges if this person has caused financial loss. Good luck finding them!

Go to your bank and stop any payments from going out of your account to a suspect card or account. They may reverse the charges unless they came from a debit card that is directly linked to your bank account. You can close the debit card immediately and get a new card with a new number to prevent further charges. Your bank will advise you on appropriate steps.

The problem with the credit card fraud scenario is that you don't often know that this is occurring until the person who took out the card is long gone...usually after they have maxed out the card and left you holding the bill. Eventually the credit card company will find you of course (you aren't hiding after all). If the bill has been unpaid for a few months, you can expect very upsetting phone calls all hours of the day and night by credit collectors claiming to be 'lawyers'. These people are a subspecies of humanity that do not understand or appreciate the fact you might actually be an innocent victim.

Create a Paper Trail:

Most credit card companies will respond to your complaint if you have proof! So keep that police report and make copies for all who call! Ask to see the original credit application on file with the signature and address the person used to get the card...the card company should be willing to fax or mail you a copy. Then you can dispute it's veracity. Unfortunately, if you have a good credit score, predators may successfully apply for several cards in your name using another address and you may never see a bill or statement.

Another form of Credit Fraud is someone gaining access to your debit card and using it as a credit card. Since many banks allow you to use your debit card to make credit purchases...you can do so without a PIN number. One way to avoid this is to ask your bank to put your picture on your card...but not all banks offer this service. The best remedy is to keep your wallet and cards safe! Anyone signing for credit in your name is essentially committing Identity Theft. Unfortunately, unless you report your debit card stolen, it's very hard to get a bank to refund lost funds.

Consumer News:
There are bills before state legislatures that would allow consumers to put a freeze on credit information without your permission. There is also a lobby being conducted by large consumer credit organizations to limit this protection, which is now before US Congress which suggests that a federal bill could over-rule individual state laws. You may want to write your congress member. Washington State passed a bill in 2005 allowing individuals who suspect they have been victims of fraud or theft to put a 'freeze' on their credit, preventing anyone from checking their credit without their full authorization.

Federal Trade Commission Site:
Check out the FTC's excellent online articles about Identity Theft. You can also report a perpetrator of fraud on their system. Such a person will find it hard to work in the finance industry if they have been reported....and unfortunately some of them do hide out in legitimate organizations to gain access to victims: http://www.ftc.gov/bcp/conline/pubs/credit/idtheft.htm

Another Consumer Site is Fraud Watch: http://www.fraud.org/

To put a Fraud Alert on your Credit Report call all 3 Bureaus:
Equifax Information Services: 800 685 1111

TransUnion Customer Relations: 800 888 4213

Experian: 888 397 3742

Fraud alerts and reporting are free! You don't need to pay someone a fee to handle this for you...just be vigilent and keep an eye on your report at least once a year to verify no new accounts have been opened. In some states, as in Washington, you can now put a freeze on your credit so no one can check your credit without your permission. Why didn't we think of that sooner?

Wishing you every credit sanity! Loannetter

Are You A Credit Fiasco Waiting to Happen?

2005-03-16T21:24:00.000-08:00

How TRUSTING Are You? How well do you know the people who might have temporary access to your filing cabinet, check book or wallet? Now think: there's the guy who installed new cable outlets...your cleaning lady... the neighbor who feeds your cat when your away. Like most of us, you are probably pretty trusting until the precise moment you are either robbed or betrayed. Believe me, I've been there. Once the damage is done it is very costly and time consuming to have it undone.

The only way to protect yourself from identity theft is to keep your personal details behind a solid unrelenting wall of common sense. Don't carry your social security card in your wallet and DO have a locked filing cabinet or home safe where you store your check books, passport, un-used credit cards, bank statements, W-2's, pay stubs and anything with your social security number or account numbers that could be used to impersonate you. Sad but true--a very high percentage of people who use your good name are known personal or business acquaintances who had just enough information to forge a credit card or bank application behind your back. Once these folk are using your name you have two ways of finding out: 1. Checking your credit report or 2. The collector's dogs chase you down. By then things will look bad. Real bad.

And another thing: all those credit card companies who keep sending you 'pre-approved' credit applications are on fishing expeditions. They have retrieved your name and address from Public Tax Records and other databases. Shred any applications you receive from such sources.

If you are shopping for a mortgage, do so with trusted banks or personal brokers and confine your 'shopping' or application process to a 2 week period to limit the 'hits' on your credit score.

The NEVER Rules:
NEVER loan a credit card to a friend.
NEVER leave your wallet in your office when you go to a meeting.
NEVER shop on an unsecured online site.
NEVER let your passwords be known to anyone for anything.
NEVER email your passwords or account numbers (faxes are safe).
NEVER respond to a bank online request for your passwords or identity information.
NEVER co-sign a note with anyone for anything.
NEVER open a joint bank account with a friend or loved one.
NEVER give out your Social Security Number to a lender who doesn't ask you to sign a an Authorization form (informing you of your rights).
NEVER shop online for a mortgage if you value your credit score (online lender 'hits' will lower your score because they farm out your application to multiple lenders at once).
NEVER be late on your mortgage payment (banks will work with prior notice, not excuses).
NEVER be late on your credit card or other revolving account payments.
NEVER rack up your credit card balances (over 40% balance) before you apply for a mortgage.
NEVER apply for any new credit cards 90 days before you apply for a mortgage.
NEVER close credit card accounts even if you aren't using them (just lock them up).
NEVER open new credit accounts while waiting for your mortgage to close!
NEVER EVER buy a car or major applicance while waiting for your mortgage to close!

ALWAYS:
Always keep your PIN numbers, Social Security Card and Credit Cards safe. I will add to the Never list as they arise. Your additions and comments welcome. Every day somebody presents a situation inspiring another NEVER rule.

Wishing you every credit sanity Loannetter

Credit Reports Defined

2005-03-16T21:22:00.000-08:00

Your Credit Report Is A Record of Your Financial Behavior.
These records deonote patterns established over your borrowing lifetime You may be surprised to see records of employment and mortgages or credit card accounts over twenty years ago still reporting. Three national credit reporting bureaus maintain these records. These reporting bureaus: are Equifax, Experian, and Trans Union.

Credit reports (also known as your credit file, credit profile, or credit history) contain: Your identification, including your name, telephone number, and address, as well as your Social Security Number, birth date, and employer. (The information usually includes previous addresses and employers too.)

Your credit history, which details how you pay your bills to banks, credit unions, finance companies, mortgage companies, and retail stores. Also included are any existing public records, such as bankruptcies, judgments, and tax liens. Inquiries, or authorized credit checks by companies receiving your applications for credit, or your name for the purpose of offering you credit (usually within a 90 day period) are also reported and can affect your score negatively. Usually 1 to 3 points per 'hit'.

Your business accounts, medical history, purchases paid by cash or check, as well as your gender, national origin, race, and religion are not contained in a credit report.

How Credit Scores Work & What Lenders Look For:
When you apply for loans, credit cards, and/or leases, issuers review your credit report while evaluating your application, as well as your credit score(s). Today, some employers review the credit reports of applicants. Your credit also may be checked to qualify you for overdraft protection as well as to determine your ATM limit. Also, most insurance companies check their customer’s credit data when considering applicants or even setting premiums. The score information they receive helps establish the liklihood of claims filed for financial risk categories.

The information on your credit report detailing each of your accounts is sent to the credit bureaus by lenders. Also, information is obtained from public records, or provided by consumers themselves. Information usually remains on credit reports for seven to 10 years from the date the account is paid and/or closed, except for adverse information. Adverse information usually is recorded for seven years and generally includes late payments and other delinquencies as well as any civil judgments and bankruptcies. Foreclosures stay on you report 10 years but all these things have less and less effect as time goes on. Unsatisfied tax liens may remain on credit reports indefinitely and can be real show stoppers!

Credit Score Rating System: A Numbers Game
The FICO Score system was first invented by the Fair Issac Corporation. Lenders pull your credit report when taking a loan application. You should receive a copy of your report with your FICO Score and review from your lender or mortgage broker. Not all banks like to give you your report...I don't personally understand this approach to withholding information that you have every right to see. You can go to http://www.annualcreditreport.com/ and order one free report every year.

Unfortunately, Free Credit Reports now offered to every US citizen (once a year) do not list you FICO Score. While the information provided in free reports is useful to verify that everything on your report is accurate, you still need to know your score to approach negotiating a rate for a mortgage or credit card. Your FICO Score puts you in a paticular 'risk category' and the better your score, the better interest rate you will be offered. It's the holy grail of credit risk. It's a great idea to order one Bureau (of the three) and see how that looks first. If anything is amiss you can dispute it...and then check again in a month or so with a 2nd request.

Your credit score is a numeric indication of how likely you are to repay debts such as loans or lines of credit. Credit scores also are designed to indicate your creditworthiness in comparison with other consumers. Credit scores are based on the data in your credit report and are generated by computers using artificial intelligence. The scoreing range is from 300 to 900. Because there are 3 bureaus, you will have 3 FICO Scores. The middle number is called your FICO Mid Score and that is the number most widely used to determine your risk category. Some lenders prefer a particular bureau's score and you can hope it's your higher score!

Many types of credit scores are used, including custom scores or Alternative Credit reporting for people who have not maintained credit accounts. In addition, each lender requires different score minimums for application evaluation and approval. Also, lenders may review several credit score reports before making a final decision during the course of an application. Underwriters have their preferred sources that report up to the minute information.

Because no one score is the definitive credit score, 720 and above is generally considered a high score, while scores below 600 are considered low. Still, cases always vary by lender. And, because so many different scoring methods are used, a score of 750 from one source may not indicate the same as a score of 750 from another. 700 seems to be a magic number for self employed people and 680 will suffice if you can document full employment for two years.

It seems frustrating, but the difference of one point..say 679 instead of 680..could mean the difference in a favorable interest rate. You may need to take some quick steps to improve your score! (Paying down a credit card under 30% balance is a good rule of thumb to improve your score within 30 days.) When you apply for a loan, your broker or banker should review any issues for you in person or over the phone after reviewing your Credit Report. They take into account other factors (including your current debt-to-income ratio) when you apply for a specific loan. Your broker or bank is legally required to give you a copy of your complete report and they should be able to explain the codes for you.

Lenders always obtain the most recent score whenever an applicant applies for credit because each person’s score changes every time information is added (reported) to credit bureau files. For example, your credit score may change when you pay a credit card bill, make a loan payment, or open a new line of credit.

Credit scoring is based on many factors that may include:
* Payment history
* Amount of available credit
* Amount of credit currently being used
* Length of credit history
* Recent requests for credit

Under the Equal Credit Opportunity Act, credit scoring may not use gender, martial status, national origin, race, or religion as factors.

Of course, lenders usually do not base credit decisions solely on credit scores. Lenders usually make other considerations, such as income and length of employment at current employer, when evaluating applications. Also, many consumers do not realize that achieving the best credit scores may take 20 to 30 years because lenders consider older credit histories optimal.

ALWAYS:
Become informed about the status of your business and personal partners credit scores before entering into any joint ventures. When you marry or enter into joint credit accounts such as bank or credit cards, the credit scores of your partner or spouse will automatically impact each other, often in a negative way if one party has lower scores.

You can assist another person in raising their score if they have minimal or no credit history. Tread carefully here! The reverse of the desired result can happen! Avoid this by keeping your finances appropriately separate. Discuss your concerns with your mortgage planner or banker before applying for joint credit of any kind. These days, the more time you have the better!

Wishing you every credit sanity, Loannetter

©2005 susan templeton loannetter

Good Credit Scores=Good Behavior

2005-03-16T21:20:00.000-08:00

Remember, your credit scores are based on your financial behavior, so good behavior is key to maintaining good credit scores as well as improving your current position.

The List below is a quick review of how responsible borrowers behave.

Always pay all of your bills on time. This proves your reliability and demonstrates consistent behavior and responsibility.
Check your credit reports regularly and correct inaccuracies. Verify that the information reported about you is correct. Dispute anything incorrect with each of the credit bureaus immediately. Some disputes may require contact with financial institutions too. While it is best to document your disputes in writing, to all three bureaus simultaneously. Some bureaus provide customer service by telephone with instructions on how to register for a fraud alert.
Monitor your accounts closely for signs of identity theft. Simply review each statement and verify that all bills are authorized, accurate, and your own. Guard PINs and account numbers, and always report unauthorized activity immediately. It is a good idea to maintain a list of your account numbers and their corresponding toll-free, 24-hour customer service numbers in a handy, secure place separate from of your wallet in case it is stolen or lost.
Control your debt. Generally speaking, keep balances below 30% percent of available credit lines.
Manage your available Credit. Lenders may conclude that applicants with multiple accounts, all with high credit limits, may have too much access to excessive unused credit that could result in the sudden or gradual accumulation of too much debt.
Don’t try to change a score overnight by suddenly closing or opening accounts. Scores are based on complex statistical models that could make such actions backfire.
Avoid excessive inquiries. Inquires indicate applicants are submitting applications, generating multiple requests for their credit report. Creditors may view too many inquiries as a sign of financial trouble.
NOTE: Credit Repair takes longer than creating the damage. It's also a lot less fun.

ALSO: Don't shop for a mortgage lender for 3 months and then be surprised to see you have a drop in your FICO score of 40 points or more. I've seen it happen. What online lenders don't tell you is that they 'job out' your loan application to a number of brokers and every bank they send it to also pulls a report so the number of 'hits' increases exponentially.

REFINANCE HINT: If you have taken out a short term loan, say a 1/1 ARM just to get into your home and build a better credit score with the intention to refinance, be extremely careful that you behave ultra responsibly about all your credit behavior. Don't max out your credit cards during the month (stay under 30% of available balance) and undo what your good mortgage payment history is doing for you. Also, keep your credit spread across all your cards so the balances all below 30% if possible. Otherwise, you will be stuck in the world of higher interest rates for a very long time.

OLD WIVES TALE: When you close credit cards...a popular misconception to improve your score...it actually LOWERS your available credit limit and your score.

Wishing you every credit sanity. Loannetter

©2005 susan templeton loannetter

HALT Identity Theft!

2005-03-16T21:14:00.000-08:00

Most people find out they have been the victims of Identity Theft too late to prevent it. Watch your bank and credit card accounts every month for suspicious charges. Unexplained withdrawals should be reported to your bank immediately and investigated!

Early Signs:
Have you noticed any small suspicious charges on credit cards or bank accounts? This is an early warning sign of impending doom. If you have lost mail, bank statements, pay stubs, a wallet, credit card or check book--a thief or con may sell or hold them to use later.

If you suspect you have been exposed to Credit Fraud or Identity Theft, you should notify all three Credit Reporting Bureaus (details below) to put an alert on your file--even if you only suspect a person who had access to your personal details. Unfortunately, with the increase in online purchases, there is a substantial increase in intercepted information by hackers who put spyware onto your computer designed to seek out credit card and bank account numbers. Registering a Fraud Alert with the credit bureaus is done by phone (numbers below). The service is free.

Once your report is flagged, the Credit Bureaus will contact you before allowing a card or credit account to be issued in your name. I understand this can stay in place indefinitely--but it's a good idea to check in or repeat it every 90 days if you have ongoing issues. Unfortunately, once someone has your details they may 'hit' your accounts for small amounts to see if you notice for a few months before making major charges. It's always a good idea to report any suspicious charges to you bank and immediately close accounts that have been affected.

Federal Trade Commission Site:
Check out the FTC's excellent online articles about Identity Theft. You can also report a perpetrator of fraud on their system. Such a person will find it hard to work in the finance industry if they have been reported....and unfortunately some of them do hide out in legitimate organizations to gain access to victims: http://www.ftc.gov/bcp/conline/pubs/credit/idtheft.htm

To put a Fraud Alert on your Credit Report call all 3 Bureaus:
Equifax Information Services: 800 685 1111
Trans Union Customer Relations: 800 888 4213
Experian: 888 397 3742

If you have experienced Identity Theft, read my blog titled Reporting Fraud and follow each step. It is up to individual consumers to report and correct their credit. The process is time consuming with long term benefits and it's free if you do it yourself. Beware of Credit Repair and Credit Counselling firms that offer to do this for you for a big fat fee. Their actions can have the reverse effect. If you choose that route, do check out the firm with the Better Business Bureau. Unless you problem is related to your own bad habits, it's far better to handle this yourself.

Wishing you every credit sanity! Loannetter
©2005 susan templeton

To Bankrupt Or Not To Bankrupt?

2005-03-16T21:00:00.000-08:00

Bankruptcy is a very important legal option open to U.S. Citizens who have serious financial problems from which they cannot reasonably recover given their current circumstances. There are two types open to individuals: Chapter 7, sometimes know as a 'straight' or 'liquidation' bankruptcy and Chapter 13, also called 'wage earner' or 'repayment plans'.

You can get a lot of bankruptcy information from your State Bar Association, some of whom publish informative articles online. Office supply stores also carry Do It Yourself Bankruptcy Kits. You have the right to represent yourself in court, however the complications of this area of law elude most of we mere mortals. It helps to read up on the implications for you personally before you make a decision that could affect the rest of your credit lifetime.

Credit Counseling: A Word of Warning:
There are a number of 'credit counseling agencies' and 'debt elimination firms' that may essentially allow you to lapse into a form of bankruptcy that does more harm than good to your credit. Several of these firms are being investigated for fraud and misinformation. They have been known to approach unsuspecting people with good credit scores and use scare tactics to take over their payment plans, thereby ruining their credit.

It pays to become informed of your options and while I don't personally recommend any firms, there are some very good sources for credit counseling. If you simply need help deciding which way to go...the best place to start would be with a good Certified Public Accountant! Lenders really don't like credit counselling agencies and will often treat this as a bankruptcy. They will insist that you are out of the counselling period before funding a mortgage. Not all credit counsellors register as a creditor on your credit report...so ask if they do before you commit to working with them. Those that don't may be worth a try!

Seeking An Attorney's Advice:
Fortunately, a number of law firms specialize in bankruptcy for a flat fee and this is a popular option. Be sure to ask around--a local attorney who doesn't handle bankruptcies should know who has a good reputation in this field. Many offer a free first visit to discuss your options. I always suggest getting more than one opinion on a matter that is this important to your financial future. The difference in a thorough BK lawyer and a lackadaisical one will be reflected in the final result and could impact your future credit report. I have seen evidence of poor BK management with charges still reporting on a client's credit report that should have been removed in the BK process.

Every person and situation is different so your filing should be carefully considered. An attorney can advise you of the long term implications and prepare the necessary documents. They will also accompany you to court and help you make informed decisions.It's also very important that you feel comfortable with the lawyer you choose. Interview more than one! The emotional side of bankruptcy is hard enough so you deserve someone you feel is empathetic to your personal situation.

Chapter 7 is the option most people chose when their resources are not sufficient to cover their debts and attempts to manage them further would be fruitless. There are many rules regarding who can claim Chapter 7 and how.

Chapter 13 is essentially a court managed re-payment system. Chapter 13 gives an individual a specific time frame in which to make good on debts, to dispute debts and make efforts to repay those they feel are justified. This procedure stops creditors from continuing to rack up interest charges and legal fees as time progresses.

2005 News: The U.S. Congress voted in 2005 to enforce a 'means test' on individuals who claim bankruptcy to make the process harder for individuals to escape responsiblity for their valid debts. Any responsible lawyer will advise you on which option makes the most sense given your current economic situation. Most will advise that you work with a CPA (certified public accountant) before taking on your case. The Federal Bankruptcy laws changes have made it much more difficult to 'write off' your debts.

Even though you cannot claim bankruptcy for another 7 years, some people use this as an unfortunate form of 'financial planning' . One reason given for the motion before congress is to prevent gamblers, drug dealers and other criminals from avoiding responsibility for paying their court fines and legal fees. Of course, lawyers could choose themselves to be more stringent in whom they represent--but our system of rules seems to require rule enforcers.

A clean slate: Whatever decision you make, there is a point when it is time to draw the line and stop suffering from past financial mistakes or circumstances beyond your control. You deserve the opportunity to clear the slate in the manner that is most suitable to your circumstances. I have heard people say this is a very freeing experience after feeling overwhelmed for years. You can finally answer your phone without fearing who might be on the other end demanding payment.

Creditors View: Once you have satisfied a bankruptcy proceeding, you may be surprised to find creditors knocking on your door offering new credit cards! They know you can't claim bankruptcy for another seven years and are willing to risk getting you on the hook again for high interest rates. Banks that specialize in Bankruptcy Buyouts (for Chapter 13) and One Day out of Bankruptcy Loans offer some reasonable options to help you get back on your feet. Work with a trusted broker or lender who can explain and research your options.

Try to avoid Home Foreclosure if at all possible. A Foreclosure will most negatively impact your FICO Score and your ability to get another mortgage at a decent rate for at least two or more years. Most conventional lenders won't fund a Bankruptcy client for 7 years and a Foreclosure client for 10 years. Still, plenty of lenders are willing to give you a chance.

Just don't go down the same path again. Unfortunately, the truth behind the stigma of bankruptcy is that 50% of people who claim bankruptcy once do so again. The biggest question you must ask yourself is: "Have you learned sufficiently from the humbling experience of claiming bankruptcy to never go there again?" Or perhaps more aptly: "Can you forgive yourself for being human?" Hopefully, both answers are 'YES!"

Wishing you every credit sanity! Loannetter

© 2005 susan templeton loannetter