Bankruptcy - Truths

Is Bankruptcy really the "peaches and cream" that some have made it out to be, or is there much more to it than what we know? Bankruptcy is a somewhat complex procedure, and even more now so with the new Bankruptcy laws in effect, making it harder for people to abuse filing for Bankruptcy. Many people look at Bankruptcy as a "get out of jail free" card. That could not be any farther from the truth.

There are two basic types of Bankruptcy proceedings. The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. Of the two common forms of bankruptcy, one is a reorganization bankruptcy and the other is a liquidation bankruptcy. Individuals may enter a reorganization bankruptcy in order to retain assets and pay off reduced creditor claims out of the individual's income. Reorganization is most commonly known as Chapter 13 Bankruptcy. In the US, liquidation is known as Chapter 7 Bankruptcy, which refers to the chapter of the bankruptcy law that allows your assets to be sold off (liquidated) to pay creditors.

In Chapter 7, a debtor surrenders his or her non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor's unsecured creditors. If a debtor does not qualify for relief under Chapter 7 of the Bankruptcy Code, either because of the "means test" or because Chapter 7 does not provide a permanent solution to delinquent payments for secured debts, such as mortgages or vehicle loans, the debtor may still seek relief under Chapter 13 of the Code. Falsifications on bankruptcy forms often constitutes perjury.

Recently there have been some major changes made to the bankruptcy laws. Under the old rules, most filers could choose the type of bankruptcy that seemed best for them, and most chose Chapter 7 (liquidation) over Chapter 13 (repayment).The new law makes it considerably more difficult for individuals to file for bankruptcy under Chapter 7, under which most of their debts are forgiven (or discharged), as opposed to Chapter 13, under which no debts are forgiven. The new law will also make it more difficult for serial filers to abuse the most generous bankruptcy protections. Under the old law, filers generally filed under Chapter 7, with the final determination made by bankruptcy judges, who evaluated the specific nature of each bankruptcy. The new law adds a number of new requirements for bankruptcy filers making the filing process more difficult and costly. All potential bankruptcy filers must now undergo credit counseling via an "approved nonprofit budget and credit counseling agency" prior to filing for bankruptcy. The new bankruptcy law brings some unwelcome changes for those who are considering bankruptcy. All debtors will have to get credit counseling before they can file a bankruptcy case.

There is more to filing bankruptcy than simply thinking you will just go see an attorney and all of your debts will be wiped away. It is a myth to think, I'll just file bankruptcy and start over; it seems so easy. The truth of the matter is that Bankruptcy is a gut-wrenching, life-changing event that can cause lifelong damage to a person's mental well-being along with their personal finances for a long time. Therefore, think long and hard and make sure you have exhausted all of your other options before deciding that you want or need to file bankruptcy. Bankruptcy is rated up there with some of the most traumatic life altering events such as loss of a loved one, serious illness, divorce and disability. Truly weigh your options before committing to filing for bankruptcy protection.

Fees, Fees - Are They All Needed?

Whether you are buying or selling your home fees are an inevitable part of the closing process. What do they all mean though and are they all really necessary?

Unfortunately when you are dealing with real estate there are always going to be fees and closing costs involved in the process. Even if you are not obtaining a mortgage on the property, there will still be fees associated with the real estate transfer, such as a recording fee, transfer fee, title/attorney fees, notary fees, doc stamp, etc... Even if you are obtaining a mortgage on the property and you are using a lender that is advertising no closing costs or no fees, chances are you will still have to pay for items such as an appraisal fee, your 1st year of homeowners insurance, your tax and insurance impound account deposit, and quite possibly an application fee.But how can these lenders avoid all of the other fees that you have heard about or noticed in prior real estate transactions. The answer is very simple, they "jack up" your interest rate on your mortgage loan to account, for the amount of money you would have had in fees, and then some. Many of these lenders advertising no closing costs or fees will even add a pre-payment penalty to your loan to make sure that you stay in it for at least a few years so that they can recover the money that they paid for your closing costs.

So what are all of these fees for and what do they do for you? We will not discuss every individual fee in this article, but we will focus on the main fees and charges. First, we have the appraisal fee. This one is pretty self explanatory, as you want to make sure the home is worth what you are going to pay. Next, we have your lender fees such as underwriting and such. These fees compensate the lender for reviewing the file, making sure the file adheres to the lending institutions guidelines and policies and normally to FNMA and FHLMC's guidelines as well. Third, we have origination fees and/or broker fees. Usually, you will have these fees if you work with a mortgage broker or a mortgage banker. A mortgage broker will shop your loan around and will almost always find you a considerably lower rate than what you would be able to qualify for on your own with the same lender. Therefore, they charge a fee for this service. Fourth, we have your title company fees. Many times the total fees here for the title company will be the largest chunk of fees charged. The title company fees guarantee that you receive a clear title, insure the title, insure the loan is properly recorded and notarized, and make sure all of the money is properly disbursed accordingly. Finally, you have your miscellaneous fees such as survey, endorsements, doc stamps, wire fees, etc... that are not always necessary but depend on the type of loan and the lender's policies. For more detailed information about closing costs, please visit: http://www.nomoneydown123.com/Florida/understanding_a_good_faith_estimate.htm

Therefore, even though sometimes the fees can seem a bit much, mainly they are all there for your benefit and protection. Anytime you are considering a no cost or no fee mortgage, make sure that you have no intention to keep that loan more than a few years. If you decide to go with a no fee loan and keep it longer than that, you will end up paying much more over the life of the loan than had you just paid the closing costs. If you are planning to stay in the home for a number of years, then paying the closing costs and taking the lowest possible rate will probably be in your best interest and will save you the most money in the long run. Also, some of your closing costs may be tax deductible. You can also have the seller of the home you are buying pay your closing costs by negotiating that into the price. There are many options that surround you when dealing with fees and real estate, just make sure you understand your options and you make the best decision for your finances.

Credit Problems? What can be done?

Credit Problems? What can be done?

Do you have credit problems? Are you looking for help with repairing your credit? Do you want to know what your options are? Are you trying to buy a home with bad credit? Do you need 100% financing but your credit score is too low? If any of the above questions describes your situation or you currently have some issues with your credit score(s) being low then this is indeed a must read. Low credit scores and bad credit can cause many problems in today's world with so much emphasis on almost everything you do placed on your credit profile. Whether you are applying for a new credit card, applying for a personal loan, wanting to get financed for a mortgage, trying to find a homeowners or auto insurance carrier, applying for a new job, trying to rent an apartment, or whatever it is you need to do, everyone wants to look at your credit profile and credit scores and use this to help base their decision on. To be honest, this is extremely scary. Many people have credit problems because of bad situations, bad choices made at a young age, life threatening illnesses, family problems, and a wide variety of other reasons that happen to come our way in life. The problem for most people is that once they get into a bad situation and their credit suffers due to this, it becomes a very tough and sometimes never-ending battle to dig yourself out of this situation. Lets face it, bad things happen to very good people.

There are some solutions and assistance available out there though to improve your credit, your credit scores and your financial situations. The first thing that you need to do is to obtain a copy of your credit report and look to see how good or bad your credit actually is, where the deficiencies in your credit report are and whether there are any inaccuracies being reported within your credit report. This will give you an idea of where to go next and as to what you available options are. You can obtain a free copy of your credit report once per year by visiting www.annualcreditreport.com.

Your next step will be to determine how bad your credit actually is and which of the following is going to be your best option. You can choose from trying to repair your credit yourself, hiring a credit repair company to work with you on fixing your credit report, you can hire a credit builder types company to help rebuild your credit almost overnight, or you can find a mortgage broker that would be willing to assist you with improving your credit scores. There are various ways sites online that offer numerous tips on how to repair credit, sample credit dispute letters, credit scoring factors and everything else you can think of. Here are a few links with a lot of good information on self credit repair/maintenance help:

http://fshomeloan.com/index_files/mortgageblogger.htm
http://www.creditinfocenter.com/forms/
http://www.ftc.gov/bcp/conline/pubs/credit/repair.shtm
http://credit.about.com/od/creditrepair/Credit_Repair.htm

Self credit repair can be done for very cheap and can also produce great results. The keys to making self credit repair work are to put forth a genuine effort of many different credit repair tactics and to stay persistent with your credit repair efforts. For self repair you must obtain copies of all of your credit reports from all 3 credit bureaus. Next you will dispute anything that is improperly listed, that contains errors or is listed unfairly. If your first round of disputes are unsuccessful you will send out another round of disputes and repeat this process until your credit has improved and the items are reporting correctly. You must keep good records of everything that you mail out, copies of everything and copies of all correspondence back from the credit bureaus and/or the creditors. Obviously there is more involved to fixing and improving your credit by yourself, however for the sake of time and simplicity I am only going to provide the basics for you here in this article. You can find out much more detailed information from clicking on the links above.

So, if you realize or decide that self credit repair help may be too extensive, time consuming, complicated or just plain difficult you may want to consult the services of a credit repair company. BE ADVISED THAT THESE COMPANIES ARE USUALLY CHEAP! There are literally thousands of companies that offer credit repair. Some of these companies are scams, some are worthless and provide an expensive service that does not follow through on their promises, and yet there are some that are very good at what they do and they provide you with a truly great service. Credit repair companies usually charge on average anywhere from $500 up to $1,500 per person. Usually, this will cover 1 year of credit repair. Other companies charge by the month, offer discounts for multiple customers and offer discounts for extended service agreements. Shop around to find a credit repair company that you can trust. Do your homework before entering into an agreement to work with one of these companies. Search sites such as the Better Business Bureau at http://www.bbb.org/, Rip Off Report at http://www.ripoffreport.com/, the appropriate state attorney generals office at http://www.naag.org/, or any other website that you know of that may be able to provide more of a background on the company you are considering dealing with. I also highly recommend doing a Google search on the name of the company to see what type of information comes up. If people have had bad experiences with a certain company, they will write about it online somewhere and if they do, it will generally come up in a search. Try this search with the company name "in quotes" and not in quotes for best results. Credit repair companies can help out, but again be cautious as to which company you decide to work with. Here are a few companies that I have come across in the past that seem to be good at what they do and seem to be reputable from what I have seen and heard:

http://www.thecrcgroup.com/
www.htdifinancial.com

If you absolutely do not believe bankruptcy is the route that you would like to take and you want to do your best to pay back most or all of what you owe, you can consider a consumer credit counseling or a consumer credit consolidation program to help you gain control of your finances again. Again these types of companies are a "dime a dozen" and there are literally thousands of them available out there. You should do the same type of research on these companies as mentioned above on the credit repair companies as well. Anyhow, the way these companies work is that they have prearranged agreements with many of the large credit card and lending firms throughout the nation that allow them to set up accounts for their clients to pay back their debt while reducing their balances, lowering their interest rates, freezing late and over the limit charges and/or any combination of these items. Therefore, you can save money in fees, interest and or lower your overall balance with some or all of your creditors in order to be in charge of your finances once again. If you do become involved with one of these type of companies please be advised that many lenders will consider these companies similar to filing bankruptcy or barely a step above bankruptcy. Your choices can be hindered or taken away altogether when you are trying to obtain new credit such as buying a house or a car while being in consumer credit counseling. Many mortgage lenders will not lend to a borrower when they are currently in CCC. While this does not make complete sense in regards that the consumer thinks they are doing the right thing by paying off their debt, it is still considered the next closest thing to bankruptcy from a lenders view. Studies have shown that consumers who have enrolled in the services of a consumer credit counseling service are more likely to default on their mortgage loan that consumers who have not. This makes it a higher risk to a bank. However, working with these types of companies can help improve your credit and can often result in less damage to your credit.

Another option to improving your credit scores is by using a credit rebuilding company. You can try to do some of the credit improvement techniques listed above, such as a credit repair company or self help credit repair, in addition to using a credit rebuilding company. A credit building or credit rebuilding company will basically add seasoned and important trade-lines to your credit report for a fee. These can be some of the most costly ways to improve your credit scores and your credit report but these can also provide immediate benefits with some of the best results. The 3 most important factors in determining your credit score are payment history, balance to limit ratios, and length of credit history. By buying tradelines on your credit report you are able to take care of all 3 of these items. You are paying to utilize someone else's credit history as an authorized user (most of the time without any actual access to the account) and in return your credit report will add their excellent payment history on the "said" account, their great balance compared to credit limit will be added to your report, and their long established/seasoned credit history will be added to your report in order to improve your credit scores. While this type of credit building is permitted right now, there is talk from the credit repositories themselves to start preventing or avoiding this type of credit scoring loophole. If you think this option may be good for you, then you may want to look into it sooner than later. You can also use this method at a much lower price by using a friend or family member to add you as an authorized user to their account versus paying a company to do this for you. Here is a link to a company who has built a strong name and reputation for themselves for providing this type of service:
http://instantcreditbuilders.com/

Finally, you can choose to file bankruptcy as a last resort. Filing bankruptcy over the past year or two has been made slightly harder to do than it was in the past as bankruptcy filings had reached all time high levels in past years. When filing a personal bankruptcy you have 2 options. You can file a Chapter 7 Bankruptcy or you can file a Chapter 13 Bankruptcy. A chapter 7 bankruptcy is one in which most of your debts are simply wiped out and you are given a clean slate. Most people who file bankruptcy choose to file this type of bankruptcy over a chapter 13 for many reasons, of which many are quite obvious. Usually a chapter 7 bankruptcy is fully completed within 3-6 months start to finish. A chapter 13 bankruptcy is a repayment plan. The repayment plan can last anywhere up to 5 years to pay back a good portion or possibly all of your outstanding debt. If you are unable to file a Chapter 7 then your only option for bankruptcy will be a Chapter 13. If you can not demonstrate the ability to pay the Chapter 13 bankruptcy then most likely you will not be able to file bankruptcy altogether. A chapter 13 bankruptcy will not be completed, also referred to as discharged until the payment plan has been completely paid off. A bankruptcy can help many people in many different situations and provide a fresh start for them. While the level of bankruptcies in recent years has been record setting the profits of the credit card companies are still reaching record levels as well. Therefore, if you have decided to file bankruptcy you should not be embarrassed by it nor feel like you are doing something terrible. Many consumers simply run into bad situations, whether they or a family member has suffered a life threatening illness, lost a job, or some other unfortunate situation and bankruptcy can help them to get back on their feet again, get a fresh start and help to relieve the stresses caused by money problems. Here are some great links about bankruptcy:
http://www.bankruptcyinformation.com/
http://bankruptcy.lawyers.com/Bankruptcy-FAQ.html
http://wiki.answers.com/Q/FAQ/1784

Here is an article that I wrote in a blog of mine located at:
http://fshomeloan.com/index_files/mortgageblogger.htm. This information about credit and credit scoring is still up to date and very worthy of reading about credit scoring and credit reports. Please contact me if I can be of any further assistance to you about any of the information contained within this report.

Some quick tips for helping to increase your credit score:

* Know and understand your credit and how credit scoring works

* Review your credit report 1-2 times per year

* Request limit increases to provide better balance to limit ratios (do not use extra limits)

* Pay all accounts on time and make sure you do not go past 30 days late

*Avoid allowing any accounts to go into a collection status

*Avoid bankruptcy

*Never max. out your credit cards

* Ask questions if you don't understand something on your credit report

* Dispute inaccuracies and errors as soon as they are discovered

*Keep you balances 40% or lower from your credit limit on revolving credit

*When shopping for a mortgage or auto loan try to do it within 14 days so that it only counts as 1 inquiry

* Do not close revolving accounts after you pay them off

* Don't be afraid to ask friends and family for help or advice if you get into a jam

* Don’t go crazy applying for a lot of new credit

* Use some common sense

* Look into some of the alternative rebuilding credit methods mentioned above

* Establish a long history of credit

* Don’t think that if you pay for everything in cash and don’t have any credit that this is good for you.

* It may help your debt to income ratios, but it will not necessarily help with financing for a mortgage or with having a good credit score.

* Do not live on credit cards and manage your credit wisely

* Be responsible when utilizing credit and don’t over extend yourself

* If you get into credit trouble search for a solution early on, communicate with your creditors to find a solution before your credit is destroyed. Most lenders are willing to work with you as long as you communicate with them.

Unfortunately credit and credit scoring has become to important of a part of our lives as it can affect so many different things. Be smart and try to maintain the best credit rating that you can, utilize the advice and the links I have provided for you and don't be afraid to ask for help when you need it. The worst thing you can do is to do nothing at all.

Current Mortgage Market

So what is currently going on in the mortgage market? Are interest rates up, down, all over the place or what? Where are rates going? How are housing prices doing? Is this a good time to sell your home? If you are considering selling should you sell now or should you try and hold out for awhile longer? These questions and many more are very common questions right now with a very topsy-turvy market that leaves a lot of question marks right now.

The mortgage market has seen an overall decline in mortgage applications over the past 6 months or so as the application level has dropped since Dec. 06. However this past week mortgage application levels have increased for the 4th week out of the past 5 weeks as of late, while mortgage rates have remained relatively stable. The national 30 year mortgage fixed rate average is right around 6.14 as of the end of the week, which is actually almost 1/2 percent lower than where the rate was 1 year ago. Therefore, we still have excellent, low mortgage rates and if the timing is right refinancing and/or home-buying are still very good ideas.

Market experts are still expecting rates to increase by the end of the year, however we have been hearing this for quite some time with little to no change. As mentioned above rates are actually 1/2 percent lower that were they were one year ago. However, they have to increase sometime. If I was considering doing anything mortgage related, in my opinion I would definitely try to get it done before the end of summer to be safe and take advantage of the great fixed rates that are being offered.

Housing prices in many parts of the nation are still struggling a bit. Many parts of the US seemed to experience housing value increases that are just not consistent with the economy and they just increased too much, too fast. While there are still numerous areas in every state that are experiencing very modest housing value increases, there are still areas throughout the nation that housing values are declining because of rapid appreciation rates that skyrocketed way too fast. Ohio is one such state with many areas that are realizing dropping or stagnant housing values all throughout the state. Other factors as to the problems with housing values are the steady increase in foreclosures nationwide, too many houses for sale in certain communities, and the somewhat tougher lending guidelines many subprime lenders are placing on their mortgage products now.

As to whether now is a good time to sell or not, it is really going to depend on what area you live in. As previously mentioned some housing values have actually shown decreases, while other are remaining stable and increasing at a much more realistic level. With that said selling right now if you are in a good community can still be very profitable. The key to selling though right now is to make sure you find a good Realtor. You may even want to find a Realtor who thinks outside the box. Again depending on where you live, many homeowner's right now are offering items such as car leases, furniture, etc... to homebuyers to help to sell their homes quicker. Therefore, selling right now can still be a good thing but it is suggested that you do a little research online in your area to find out how the market in your area is, how many houses are listed and check on the current real estate trends in your city. You can also ask a Realtor for some of this information although they may provide information that is somewhat biased because many Realtors are very slow and they need home listings. If the information that you research appears to not favor selling now, you may want to consider holding off until sometime around the middle to end of summer and looking into it again.

Ps: If you are unable to find sales and prices online your county courthouse should also be able to provide you with housing sales and prices if you take a trip up there or your local newspaper usually will provide this information as well.

I will try updating my blog once per week from now on so please come back to check out next weeks post(s).

Buying a home with little to no money down

Whether you are a first time homebuyer or you are a seasoned homeowner looking to upgrade and buy a new home there are mortgage programs available for you. There are 100%, no money down mortgage programs that are available for many people. There are even some 100% financing (0 money down) home loan programs available for people with credit scores as low as 500. While the financing terms will not be the most favorable it is still nice to know that you may have options for your situation.

80/20 Combo Loan
Probably the most common way to buy a home for people with little to no money available for a down payment is the 80/20 combo loan. This is 100% home financing utilizing an 80% first mortgage loan and a 20% second mortgage loan. For example let's say you have put in a bid on a home for $150,000 and it was accepted. This means $150,000 is your purchase price and if you were doing an 80/20 combo loan you would obtain an 80% first mortgage in the amount of $120,000 (150,000 x 80%) and you would obtain a 20% second mortgage in the amount of $30,000 (150,000 x 20%). The main benefits of the 80/20 combo loan are that you are able to buy a home with little to no money down and you are able to avoid PMI, Private Mortgage Insurance. PMI is a very costly insurance, especially when you have a very small down payment, that you the borrower pays to help protect the bank in case you default on the mortgage. Not only is the insurance costly but PMI requires you to pay insurance for the bank. I don't know about you but I would not like being required to pay for someone else's insurance. Therefore, this is one of the hottest and most common financing methods available today to buy a home with zero money down.

100% Sub-prime Loan
This type of financing is generally for people with a blemish or a few blemishes on their credit. It can also be used for people who may have a hard time documenting income or who seek "creative financing" methods. Usually, the 100% sub-prime loan will be 1 loan instead of 2 loans such as the 80/20 combo loan. There is generally no PMI on this type of loan either, however your interest rate is generally going to be at least 1-2 percent higher than your rate would be with an 80/20 combo loan. Sometimes with the right situation you can even make this type of financing work better for you than other methods. Sup-prime loans generally will cost you a little bit more than conforming loans but they are generally worth it, if your situation calls for one. Sometimes these 100% sub-prime loans will even offer 103-107% financing as well. What this means is that your home loan financing would be a true no money down, no money out of pocket financing. If you ever decide to consider this option look at the both the "big picture" and the "small picture". Don't accept a 9% rate so that you don't have to come out with any money out of your pocket if you can qualify for an 8% rate and all you have to do is come up with the closing cost money. A good mortgage LO should be able to help you decide which loan is right for you.


Seller Carryback
A seller carryback, also known as a seller piggyback or a seller second mortgage, is a loan where the seller actually holds title to the second mortgage of the home. Sometimes you may have certain circumstances that are preventing you from qualifying for the financing that you need and your mortgage lender will not allow you to finance over a certain percentage of the purchase price with them. However, they may consider allowing you to obtain a second mortgage from the seller (if the seller is willing and able) so that you can still buy the home under the financing terms that you need. For example lets say you were looking to buy a $100,000 home and the lender would only allow you to borrow 90% ($90,000) of the purchase price with them for the mortgage financing. This means that you would need to come up with 10% ($10,000) in order to buy this house. However, if the lender and the seller will permit you to use a seller carryback mortgage you may still be able to buy the home with little to no money down. A seller carryback is going to be similar to any other mortgage. It will be drawn up as a mortgage with certain provisions to it. You may be required to make monthly payments based on a certain interest rate for a certain amount of time or you may be required to pay off the seller carryback mortgage within a certain time frame and not be required to make any monthly payments. The seller of the home would obviously need at least that much equity available in the home to make that type of financing work as well. The seller carryback will usually help you to avoid PMI, or at least limit it, buy a home with little to no money down and provide you with another financing alternative when you are buying a home.

There are many other programs available out there as well to help you buy a home with littel to no money down but I wanted to touch on some of the most common types of 100% finanicng for informational purposes. Please feel free to email me or to post your comments if you have any questions about buying a home with little to no money down. There are many programs available out there that many mortgage companies and it's Loan Officers do not take their time or put in the effort to find. It is imperative that you find a qualified and educated mortgage professional to deal with.

Credit and Credit Scoring

Credit scores have become more of a factor in people’s lives than ever could have been imagined. Your credit and credit scores can affect your ability to buy a home, get a car, get a credit card, take out a personal loan, obtain homeowner’s insurance, obtain auto insurance, get overdraft protection at your bank, rent a home, sign up for home utilities (such as gas, cable, phone, etc…) apply for a job and the list goes on and on. Without good scores your applications for any of the above can be turned down altogether, you may be required to place large deposits down, and/or you may have to settle for very unfavorable terms. So therefore you can see the importance at keeping your credit scores as high as you possibly can. However, understanding how the credit scoring process works, is a task that most people don’t understand.

Credit scoring is a complicated process and each of the 3 major credit repositories have their own credit scoring models in place to determine a borrower’s credit score. The 3 main credit repositories are Equifax, Experian, and TransUnion. Equifax has credit scores that range from a lowest possible score of 300 and a highest possible score of 850
Experian has a range of 340-820 and TransUnion150-934. Just like computers have upgraded operating systems over the years such as, Windows 98, Windows 2000, and Windows XP, the credit scoring system versions update periodically also. Not all lenders use the same version or the most updated version when obtaining a credit report and credit score for a borrower. Therefore, this is one reason why you may have varying credit scores between one lender and another.

There are five major components or factors that help to determine your credit score. Roughly 35 percent of your credit score is derived from your payment history, 30 percent from how much you owe compared to how much you have available, 15 percent comes from length of credit history, 10 percent from new credit and recent inquiries, and the final 10 percent comes from various other items such as the mixture of credit you currently have. Next we will discuss each of the five components in further detail and explain the basic principals as to how credit scoring works. This information is to be used only to help educate and as a guide to assist with the basic ideas involved in credit scoring.


Payment History (35%)

Your payment history is the most important factor of credit scoring. Bankruptcies, collection accounts, slow pays and late payments, foreclosures, judgments, and liens can negatively affect your credit score. However, an established history of on-time payments and a clean credit history will positively impact your credit scores and help to increase them over time. The older any negative credit history or adverse credit factors are, the less they will negatively affect your credit score. Therefore, recent late payments or other derogatory credit will negatively affect your credit much greater than aged bad credit.




Revolving Credit Balances to Maximum Limits (30%)

The second biggest factor in credit scoring comes from how you utilize your revolving credit. The credit scoring models are going to look heavily upon how much revolving credit you have available compared to how much you have used. For credit scoring purposes, having all revolving credit or credit card accounts maxed out to their limits is not a good thing, nor is it going to help better your credit scores. You don’t want to pay off all of your revolving credit accounts because that will not show the credit bureaus how well you manage your credit. Your ideal credit ratios should be roughly 20-40 percent usage. What this means is that if you have a credit card with a $1000 limit you do not want to max. out the credit card balance, but you would want to maintain a balance between 200 and 400 dollars. If you do realize that you have borrowed more than 50% of your available credit limit on your card or your balance is getting close to your limit, you should either try to pay your balance down to the 40% mark or call your credit card company and see if they are able to raise your limit. The biggest mistake you can make is to let your balance exceed your maximum credit limit. This will negatively affect your credit score a great amount.

Length of Credit History (15%)

The longer and more established your credit history is, the better and more positive of an impact it can make. Someone who pays their bills on time for a 10 year period of time is a much better risk than someone who only has a 1 year history of paying their bills on time, even if they both carry the same credit score. When you pay off credit card accounts do not close them, keep them open and use them periodically in order to continue to build an established length of credit. Closing your accounts can actually have more of a negative affect on your credit score due to limiting the length of time that particular account was open for. The longer you have established credit accounts, the better it is for you. It is possible to still have a good credit score with a short credit history; however lenders may not approve you for optimal financing options due to the lack of history still.

New Credit and Inquiries (10%)

The amount of new credit you have opened, will have somewhat of a minor impact on your credit scores. If you have numerous inquiries resulting from applying for a lot of new credit and add many new trade-lines in your credit report, this can have a damaging effect on your credit score. First, it may negatively affect your scores because you have a lot of new, un-established accounts. Second, it can negatively impact your score because you have a lot of inquiries with various lenders for various types of financing over a short period of time. Credit inquiries can affect your credit score, not a ton, but enough to lower your score. This is not to say don’t shop around or don’t have more than one firm pull your credit when looking to buy a car or a home. You definitely should use due diligence and shop between a couple of lenders to make sure you are getting a good deal. When you are comparing quotes however, you should try to do all of your shopping within a 30 day max. period of time. All inquiries that are made when applying for an auto loan or a mortgage loan are treated as only one inquiry when they are done within a 14 day period of time. Therefore if you are ever told to not have anyone else pull your credit or else your scores will lower, this has little truth to it. There is only one type of credit inquiry that counts toward your credit score. That one type of inquiry is when you are making an application for credit: such as a home loan, auto loan, credit card, etc… When you pull your own credit, a creditor you already have an account with pulls your credit, and/or a prospective employer pulls your credit, these do not have any impact on your scores. Understanding this can help you make sure that you do not fall victim to all of the urban myths regarding credit inquiries.

Types & Mixture of Credit (10%)

Having a mixture of the various types of credit will have a small impact on your credit scores. For a person who has a good mixture of credit such as a home loan, auto loan, 2-4 credit cards and maybe a personal loan this could be deemed a good mixture of credit versus a different person who has 15 credit cards and no other credit. The ideal number of credit cards to maintain is 2-4. Also, other types of liabilities are important to have, such as installment loans and a mortgage loan.

“Knowledge is power” and the most important step to applying for a loan is to understand your credit report, your credit scores and how credit scoring works. It is highly recommended that every person checks their credit report at least once per year to help protect themselves from inaccurate information and from identity theft. A new law was recently passed that permits a borrower to have access to their credit report one time each year for no charge to allow them the opportunity to review their credit history and verify the accuracy of all items listed. You are permitted to obtain a credit report from each of the three credit repositories, TransUnion, Equifax, and Experian. You can get obtain your free report by logging into: http://www.annualcreditreport.com/ and following the directions. When you obtain your free report it will not contain your credit score, but you can pay a small fee if you would like to find out what your score is when you are ordering your free report. It is also highly recommended that you pull a report from each repository individually as opposed to all of them together so that you can dispute any erroneous information to each bureau separately. If you report a problem to only one of the bureaus it will not be fixed among all three of the bureaus. Remember the bureaus are separate of each other and have no communication amongst each other either. Some creditors report to only 1 bureau, some report to 2 bureaus, some report to all three bureaus and some don’t report to any. This is why you must make sure that you check all three credit repositories when you are utilizing your free annual credit report. In conclusion, your credit is very important and understanding the basics of how your credit scores are obtained is equally as important.


Some quick tips for helping to increase your credit score:

Pay all accounts on time and make sure you do not go past 30 days late
Avoid allowing any accounts to go into a collection status
Avoid bankruptcy
Never max. out your credit cards
Keep you balances 40% or lower from your credit limit on revolving credit
When shopping for a mortgage or auto loan try to do it within 14 days so that it only counts as 1 inquiry
Do not close revolving accounts after you pay them off
Don’t go crazy applying for a lot of new credit. Use some common sense
Establish a long history of credit
Don’t think that if you pay for everything in cash and don’t have any credit that this is good for you. It may help your debt to income ratios, but it will not necessarily help with financing for a mortgage or with having a good credit score.
Do not live on credit cards and manage your credit wisely
Be responsible when utilizing credit and don’t over extend yourself

Here is a quick contact list for the 3 main credit repositories:

Equifax Credit BureauP.O. Box 740241Atlanta GA 30374-0241(800) 685-1111
www.equifax.com

Experian (Formerly TRW Credit Bureau)P.O. Box 949Allen TX 75013-0949(888) 397-3742
www.experian.com

Trans Union Corporation (Credit Bureau)Consumer Disclosure CenterP.O. Box 390Springfield PA 19064-0390(800) 916-8800(800) 682-7654(714) 680-7292
www.transunion.com

To obtain your free annual credit report, which is highly recommended, visit:
http://www.annualcreditreport.com/

How to Find a Licensed, Reputable Mortgage Broker

Here are some good links and/or phone numbers to call to make sure the Loan Officer or Mortgage Broker that you are working with has the proper credentials. These sites will verify licensing, good standing, amount of complaints against, etc… These places are a good place to start when you are a first time homebuyer looking to find a reputable mortgage professional and should be a helpful as well as possilby even a little educational.


Ohio Division of Financial Institutions
Website: https://www.com.state.oh.us/dfi/fiin_apps/loan_officer/default.aspx
Phone: (614) 728-8400.

The Ohio Association of Mortgage Brokers, or the OAMB
Website: http://www.oamb.org/
Phone: 330 497-7233.

The National Association of Mortgage Brokers, or the NAMB
Website: http://www.namb.org/
Phone: 703-342-5870.

Cleveland Better Business Bureau, or the BBB
Website: http://www.cleveland.bbb.org/
24 Hours Anytime Line: 216-241-7678.

Florida Office of Financial Regulation, Division of Securities and Finance
Website: http://www.flofr.com/licensing/download.htm
Phone: 1-800-848-3792

The Florida Association of Mortgage Brokers
Website: http://www.famb.org
Phone: (800) 289-9983