Credit Tips for Buying Your First Home

Thinking about buying your first home?  Before you even consider making an offer, before you get pre-qualified, before you do anything at all, you'll want to take a good, long look at your credit report. Believe it or not, even those of us with the best credit almost always have something that holds up the mortgage loan process, so if you can head off any problems before you start the process, you might make it a little less stressful later on.  

Here are a few tips to help you along:
 
  • Closing Old Accounts Can Actually Hurt Your Credit
    • One of the main factors that lenders look at when reviewing your clients’ credit history is how long accounts have been open.  They typically average all current and past accounts to get an average length of time. The longer your credit history, the better. By closing an old account, you are effectively reducing the impact that individual account may have on your overall credit history. Instead of closing the account, keep it open.
  • All Debt is Not Equal
    • Lenders look at the specific type of debt to better understand the risk associated with it. Short-term accounts, like credit or charge cards, are considered more risky if the account has a high amount of revolving debt. This is due, in part, to the requirement that credit cards be paid off monthly.  In contrast, a 30-year mortgage is considered to be a long-term debt and is treated as such. Therefore, just because you have a car loan with a high balance remaining, does not mean that it will hurt your credit as much as a credit card that is maxed out.
  • Credit Repair Doesn't Always Improve Your Credit Score
    • The old adage of “if something is too good to be true, it probably is” couldn’t be more accurate in this example. Younger generations have become increasingly interested in getting help establishing or repairing their credit.  Companies such as Credit Karma, Credit Sesame, and even the major three credit reporting companies such as Equifax, Experian and TransUnion offer ways to improve or “boost” credit. However, buyer beware.  These companies can only assist you with creating a plan to pay down or consolidate debt. They cannot magically make or reduce the amount of debt a person has — this can only be done by paying off an account.
  • A Paid Off Bill is Not Immediately Removed From Your Credit Report  
    • Unfortunately, a derogatory mark like a collection or missed payment can stay on your credit report for up to seven years. While paying this off will stop future attempts by the collection agency or banking institution to collect on the debt, there is no way to remove a derogatory mark from your credit report unless it was reported incorrectly due to fraud or identity theft.
  • Marital Status Changes Can Affect Your Credit Score
    • Information like income, employment and relationship status are not reported to credit bureaus. Questions regarding this information will likely be asked during the credit application process in conjunction with your credit score.  However, they will not show up on a credit report. This is important for those going through a separation. If one partner does not pay a debt and the other partner is on the account, it will negatively impact both parties.

Working from Home?

 

Are you one of the millions of people who have been asked to work from home this year?   Believe it or not, shifting to staff members working from home is actually proving beneficial to businesses and employees in many areas.   So far, 65% of workers say they are more productive in a home office than in a normal office, and, even more interesting, 67% of employers say remote workers are more productive.

Employers and employees alike are discovering that working from home can result in lower stress levels for workers, reduce commuting times and costs, and help the environment. An infographic (below) from UK firm Computers in the City explores the benefits of remote work and delves into how businesses can ensure employees are healthy, happy, safe, and productive while working from home.

Repairing Damage to Your Credit Score

As if 2020 wasn’t bad enough already, what with a pandemic, lockdowns, and an economic downturn unlike any other, millions of people also lost their jobs… and that will leave millions of us with blemishes on our credit reports that can and, in many cases will, take years to clean up.  We all know what the effect of just one missed payment can be, but what about months of missed payments?  What about repossessions, evictions, and the inevitable court cases that are sure to arise?  Is there anything that can be done to salvage some of your credit score?

Although there really is no good answer to these questions, there are some things that you can do to mitigate some of the damage:

  • Review your Credit Report:  Even though it is not a particularly pleasant activity in light of recent events, sit down and go through every single item on your credit report.  Make a list of the changes (favorable and unfavorable) over the past few months, and then, address each of the unfavorable items individually.  What options are available to you for correction of each and every item?
  • Put a Statement in your Credit File:  Most credit bureaus have the option for you to put some notes, explanations, letters, etc., into your file.  Take advantage of those options!  While it may not improve your score, it will help future lenders, employers, etc., to see exactly what caused the problems that are in your credit file.  And, while it might not seem important to you now, having a note about your job loss due to the pandemic will definitely help to explain those late charges on your credit cards later on.
  • Find and Dispute Errors:  Errors in your credit file are far more common than most people realize and taking the time to review and remove negative, inaccurate information is vital to maintaining your credit file.  Common problems include incorrect name, address, phone numbers, accounts belonging to others, identity theft, data errors, and more.  Dispute each and every single issue that you find – identify, clarify, and submit backup documentation to substiantiate your claim, then as that it be corrected or removed.  It may take time, but it can and should be done!
  • Watch your Credit Score as closely as you do your bank account:  With so many free credit monitoring services available, there is really no excuse for not knowing what your score is and exactly what is impacting your score at any given time.
  • Make your payments on time:  Once you get past your problems and get your income back on track, get your payments back on track as well.  Many people figure that there’s no way they’ll ever catch up or repair delinquencies, so they just ignore them without ever making the effort to get back on track.  That’s the wrong approach – contact your creditors and work out a plan to get each and every account up to date.  You might even be able to negotiate the removal of those late payment notifications in return for catching up, but first you have to try.
  • Get your Credit Utilization Score down as soon as possible:  Since this one thing makes up a huge part of your credit score, getting it down below 30% is vital to improving your score.  (Get it under 7% and that puts you in league with those who have “very good” credit.  1%-3% puts you in league with those who have “exceptional” credit.)
  • Increase your Credit Limit:  Although this is not always the best route to take, opening a new credit card can decrease your credit utilization, and therefore, increase your credit score.  Just be sure that you don’t make the mistake of overusing your new credit card and/or applying for too many new cards!

Remember, you’re not alone in this situation.  Millions of people around the world have been negatively impacted by recent events, so your hard work to repair your credit will undoubtedly pay off in the future when lenders have to decide who among us is worthy of new credit.

 

Article reprinted with permission from  Fresh Start Card Offers.

Have You Checked Your Credit Cards Lately?

Have you checked the credit limits on your credit cards lately?  If not, you might want to take time to do just that, especially since roughly 50 million Americans’ credit card accounts were either closed or had their credit limit cut in the past 30 days.  That’s about 1 in 4 credit card holders, and of those, men between the ages of 18-38 years old were particularly affected.

Credit CardWhat’s even worse is that lenders are not even required to tell you when your credit limit is lowered, so you may not find out until you’re ready to actually use that credit card.  Why now, you wonder?  Truthfully, this is another financial side effect of the COVID-19 pandemic.  Early on, lenders reviewed accounts, then lowered some credit limits to reduce their risk of loss if it appeared that consumers would struggle to make payments, or even use the cards to live on, as unemployment skyrocketed across the country.

Sadly, these credit cutbacks occurred just when household budgets were hit the hardest.  Not only are families using their cards frequently right now, but some are having to use them to make ends meet until unemployment funds start coming in, or to buy essential goods.

Unfortunately,  even though this makes sense for the credit card companies, it didn’t make things any easier for consumers.  But, in their defense, total credit card debt has been growing steadily since 2015, and is hovering right around $1.1 trillion nationwide.  And, even before the pandemic, delinquencies had already hit a seven year high as many families struggled to meet payments.

While we don’t have exact details, some cardholders have reported credit limit reductions in the thousands of dollars, so you’ll want to log in to every account to check your limits. Then, if you find your credit limit has been reduced, contact the issuer and request that they reconsider the reduction, or even in some cases, closures of accounts that have been dormant for some time.

In fact, you may want to consider moving a couple of small recurring payments to a dormant card, like Netflix or Hulu subscriptions, and set it up on autopay to handle payments, just so that the card is not considered dormant (and subsequently closed).  Just that one regular monthly charge will keep your credit card account active without adding any unnecessary expense to your budget, thereby  preserving the now-active card’s larger spending limit for true spending emergencies.

Surviving the Crisis

By now, many who’ve been laid off, furloughed, had our hours cut, or worse, are really running tight on cash, even as the pandemic rages on.  While both federal and state governments have promised quick access to unemployment funds, stimulus checks, and other forms of help, these things take time.  Time that you may no longer have.  So, what are your options?

If you’re fortunate enough to have credit available, you may want to consider using your credit cards to get you through the immediate cash crunch.  However, you’ll definitely want to sit down and consider all of your options first.  If you’re already in too deep with credit cards, racking up more debt might not be the best thing to do, especially if you don’t have a plan to repay the debt once you get back on your feet financially.

But, if you do expect your cash flow shortage to be temporary, and you do have a plan to pay off the debt you incur, then you may be able to utilize your credit cards to get through it.  By using your credit cards to pay when you can, you can save cash to pay for things like your mortgage, car payment, certain utilities, etc.  This one move can give you the time you need to get through a cash crunch, whether that means going back to work, getting your stimulus check, or starting up unemployment.

 

 

It’s a Great Time to Review Your Finances!

By now, many of us are getting bored with Netflix, our little home improvement projects, our hobbies, working from home, homeschooling, being laid off… the list could go on and on.  The point is, we’re all looking for different things to focus on, and as much as you might not want to, now is the perfect time to focus on your money.  I know that right now it’s much easier to just stick your head in the sand and pray that it’s all going to work out, but can any of us really afford to do that?  Seriously, if you’ve lost your job, you’re already stressing out over money, and if you’re still working?  Maybe you’re not sure how long that will last?  Either way, when you really sit down and think about it, it’s a great time to review your finances and your credit.  Yes, I know what you’re thinking… why depress yourself even further?

Actually, reviewing your finances right now might do more than depress you.  It can also give you the time to figure things out.  If you’re laid off, you can plan how you will catch up once this forced period of economic misery is finally behind us.  We’ve all heard about the economic stimulus, and the four full salaried months of unemployment that we’re being promised, but how will that fit into your life?  Can you make it work?  Can you catch up?  Or, if you’re still working, how can you use that stimulus money to your best advantage?  What can you do to get back to where you were financially before this forced shutdown.

See what’s happening?  That’s right, you’re making a plan to survive, to dig yourself out of this crazy mess that we’re all in!  If you’ve been reviewing things, you now know what you have in the bank, how much your monthly bills are, how much and where you can trim your expenses, how much credit you have available… things you probably didn’t know two weeks ago.  Things that will help you to survive once the pandemic is over and we all get back to living.  And even you have to admit that you feel just a little bit better, don’t you?

 

Tax Refund Burning a Hole in Your Pocket?

Money In PocketTax refund starting to burn a hole in your pocket?

It’s tempting, isn’t it.  You know, every year millions and millions of people file their taxes, cash their refund checks (or withdraw the cash from the bank when it arrives in the account), and spend it within a matter of days.

It seems as if there’s always a project that they want to do at home, or something that they just can’t live without, or even somewhere they can’t just NOT go.  Whether you’re tempted by new laminate flooring, a new car, or even that trip to the beach for spring break, don’t spend ALL of your tax refund so quickly this year.  Instead, why not set aside a portion of it for that emergency fund you’ve been meaning to start?

That’s right, SAVE part of your tax refund this year.

It took you ALL year to pay the taxes that resulted in the refund, so why not keep it a little bit longer than it’ll take you to get to the nearest home improvement, electronics, or automobile store?  Maybe you can rent a cheaper condo or hotel room on spring break?  Surely, there is some way that you can hang on to a portion of that tax refund?

Let’s face it, for some of us, that’s the single largest lump sum amount that we see all year, and it’s likely impossible that we’d be able to save that amount as easily as we get it once we file those taxes.  So, for once, why not think ahead.  Sit down with your checkbook, savings account, and budget, and really think before you spend.  Even if it’s only 10% or 25% of your tax refund, SAVE IT.

Put it in your savings account.  Draw it out of the bank in cash.  Do whatever you need to do so that you don’t spend it frivolously this one time.  I promise you, once you manage to save just a portion of it, just one time, every year you will strive to save a little more.  Don’t believe me?  Why not try it this year.

New FICO Scoring Could Change Your Credit Score!

FICO’s new scoring model, which was announced this past week, will likely lower credit scores for those with a current credit score below 600, as it is based more on the past two years of payments, and it takes personal loans into account.  However, those who already have good credit scores, and who continue to whittle away at existing loans, make payments on time, and don’t acquire new balances, will likely see higher scores under the new model.

“We’ve unfortunately found ourselves in an era where it’s becoming commonplace to water down the breadth of information on credit reports,” Ulzheimer says, adding that tax liens, judgments, medical collections and medical debt have all been removed or delayed from some credit scoring models.

“All of this is great for consumers who have tax liens, judgments, and medical collections…but it’s not great for scoring models and their users,” Ulzheimer adds. But he notes the new scoring model is not “consumer unfriendly” either. “People with good credit are going to score higher with newer models. People who have elevated risk are going to score lower.”

Despite the changed scoring model, it may take a while for it to hit your credit report.  “Change comes slowly in credit monitoring,” says CreditCards.com’s industry analyst Ted Rossman. “Rather than getting too hung up on which model a particular lender is using, consumers should practice fundamental good habits such as paying their bills on time and keeping their debts low,” Rossman continues.

Of course, ultimately, which model is used will be decided by banks and other lenders.  FICO 9, released in August 2014, is still not used across the board.  Many lenders still use FICO 8, whick was released in 2009.  And still other lenders use VantageScore, which is produced by the credit bureaus Experian, Equifax and TransUnion.


10 Ugly Truths About Credit Cards

Credit card debt is one of the most difficult financial obstacles to overcome – interest rates are high, minimum payments barely scratch the surface of the actual debt, and it’s just so, so easy to fall into the trap you set for yourself whenever you use your credit cards without having a real plan for paying them off.  Unfortunately, the ugly truth about credit card usage has only gotten uglier in the past few years.  Not only have interest rates risen, but credit card use itself has tripled, and there doesn’t appear to be an end in sight.

Here are just a few of the down and dirty truths about credit cards and the debts we carry… and you might be surprised at just how much you don’t really know!

1. Nearly Half of the Population is in the Same Boat You Are

That’s right, you’re not alone.  Nearly half (46%) of all adults carry a balance on their credit cards from month to month, and since interest rates rarely drop, we’re all paying a premium for those purchases we made on that card.

2. It Takes Years to Pay Off Some Balances

If you’re like most people, and there are months when you can only pay the minimum payment, it can be very difficult to pay your credit card balances in full, ever.  For example, if you carry $3,000.00 in debt, at 17% interest, over time, your interest charge can easily amount to another $3,000.00.  That’s DOUBLE your initial balance – take a look at how much of your monthly payment actually goes toward the principal.  You might be sick.

3. Americans Aren’t Paying Off the Balances

Even though we’re really good at spending money, it turns out we aren’t nearly as good when it comes to paying the balance off.  In fact, for every dollar on average that we pay off, we’re adding another $2.65 in new debt.  It doesn’t take a genius to figure out that this cannot continue indefinitely.

4. The Average Household Credit Card Debt Is $5,700 

Even though the overall economy has improved significantly, the average household still carries around $5,700 in credit card debt, and are still unable to pay off much of that debt.

5. Interest Rates Are Not Coming Down

Even though the economy has improved, and mortgage rates, car loans, and other types of loans have low interest rates right now, most credit cards average at or above 16% interest.  Make just one late payment, and that can jump to 30% (or higher).

6. Just One Late Payment Will Damage Your FICO Score 

Even though it’s better to pay late than not at all, making just one payment that is more than 30 days past the due date can really harm your credit score for a very long time.  Payment histories stay on your credit report for up to seven years and can cause your score to drop significantly.

7. Baby Boomers Have the Least Amount of Credit Card Debt 

Perhaps it’s because baby boomers are aging, but the least amount of credit card debt belongs to the Baby Boomer Generation, while Gen X owes the most.  Born between 1967 and 1981, the average Gen Xer holds a credit card balance that is nearly $8,000. Even more telling, credit scores have historically dropped lower with each successive generation, meaning the successive generations will likely carry a larger balance than the Gen Xers.

8. 20% Of Americans Have More Credit Card Debt Than They Have In Savings

Even though it’s recommended that we all build an emergency fund that will cover three-to-six months of living expenses, most people have less than $1,000 in savings, and another 12% don’t have any emergency savings at all.  That means an emergency can quickly put most people into credit card debt.

9. Women Carry Less Debt Than Men 

Even though women are the “shoppers,” men actually carry more credit card debt, coming in at an average of $7,407 vs. women, who carry about 22% less, or $5,245.

10. Most of Us Will Die Carrying Credit Card Debt

Approximately 65% of Americans will owe credit card debt up to the day we die.  That’s more than those of who are not expected to leave this earth without a mortgage.  The average debt, which is more than $4,000, also leaves a legacy that family members have to deal with.

In closing, understand that credit card debt is an ugly problem that we Americans have yet to take control of in our own lives. But, it doesn’t have to be the norm – not if you take action now.  Control costs where you can, pay as much as you can on those balances, and stop the cycle before you find yourself struggling. 

Controlling Debt While You’re in College

1. Don’t wait until you finish school to start paying back those student loans. Even if you’re only paying the interest that’s accruing month to month, start paying what you can as soon as you can.

2. Get a job while you’re in college.  Wait tables, run a cash register.  Just do something to earn money.

3. Get your own place, off campus, as soon as possible.  Many colleges require you to live in a dorm the first year, but as soon as that’s over, get a place!  (If you’re in the same city as your parents, and if it’s feasible, live at home while you’re in school.

4. Skip the college meal plan.  You can make your own food for far less than it will cost you to eat in the cafeteria all the time and you can make food you really like!

5. Keep your day to day expenses to a minimum.  Skip that $6.00 cup of coffee!  Make your own at home.  Take a snack, pack a lunch, park the car and walk.  Whatever it takes, cut your daily expenses.

7. Skip the partying.  Let’s face it, alcohol is EXPENSIVE.  Parties are expensive.  You’re in school to earn a degree so that you can earn a living.  Keep your partying to a minimum and concentrate on your studies.