Saturday, September 18, 2010

Should I Co-Sign to Help Someone Obtain Credit?

Recent shifts in policy have made it harder for young people and people without excellent credit to get their own loans and credit cards.  The CARD act now states that those under the age of 21 can not hold a credit card without either a steady job or a co-signer.  Those who have blemishes on their credit report are in a similar situation since lenders are less likely to turn the other cheek and offer these individuals new loans or credit cards.  With no where else to turn, these individuals are now turning to co-signers for assistance, but should you help them?  
Saying no to pleas from friends and family members looking for help can be tough, but remember, you should take careful consideration before cosigning.  Needless to say arguments about payments, loan status, and lack of communication can cause disputes and damage personal relationships.  Co-signing for those who are not close to can cause turmoil as well.
Lately, many have attempted to capitalize on the tight credit market by charging upfront fees to co-sign for individuals they don’t even know well.  Message boards and online posts are full of people looking for advice on how to start a cosigning business.  Teenagers and young adults without jobs as well as those who have damaged their credit due to bankruptcy make good prey for those looking to charge upfront fees to cosign.  If you’re considering starting this type of business, however, think twice before doing so.  While co-signing for a stranger may not be illegal, some may find it morally wrong and it could possibly end with both you and your co-signee in hot water with creditors. 
You must be prepared to literally bail out the person you co-signed for should they default or become late on payments.  Otherwise, you’ll reap all of the disastrous results of late payments on your credit history.  In addition, cosigning makes it appear to credit card companies like you have several accounts.  Too many accounts could lower your FICO score.  If you’ve been in any of these situations, you should begin working on repairing yourdamaged credit now and refrain from cosigning for others in the future.

Friday, September 10, 2010

How Will a Short Sale or a Foreclosure Affect my Credit?

As of this week, a recent study by the real estate data provider, CoreLogic, has revealed that about 11 million US homes are occupied by owners who owe 15% or more than the current appraisal value of their home. This amounts to an alarming 23% of American home owners. This tells us that an even larger number of Americans are “underwater” on their mortgage in some capacity.

Amidst the recent real estate bubble, millions of Americans have found themselves facing the question of whether to fall into foreclosure or attempt to sell their property through a short sale. The next question is usually “which is better for my credit?” First, It is important to know the difference between the two processes. Although there may not be one with any ultimate advantage over the other, this will help you decide which process which is right for you.

A short sale is only possible when your lender agrees ahead of time to accept less than the amount owed on the loan. Not all lenders will agree to negotiate a short sale, especially if you are not currently very behind on your loan or have other cash assets. If you know your loan will become delinquent in the future, (i.e. unemployment payments running out, job ending)having a short sale in anticipation could be helpful - but depending on your individual situation, a short sale could be just as damaging to your credit as a foreclosure.

A foreclosure will occur when you are indeed behind on mortgage payments. The amount of allowed payments missed before the final foreclosure will vary according to your state. These late payments can very negatively affect your credit and regulations state that you’ll likely need to wait 24-72 months to apply for a new home loan. (One advantage for short sellers is only needing to wait about two years to re-apply for a mortgage loan.)

There is some debate about whether short sales will harm your credit any less than a foreclosure, but the fact is, neither will help you to obtain good credit. Bad credit can get in the way of renting a new apartment, buying a newer downsized home, or even getting a new car or new job. In order to secure your future after a short sale or foreclosure, it will be imperative to assess your individual situation with complete financial and credit counseling

Friday, August 27, 2010

Having Good Credit is More Important Now than Ever

Recent shifts in economic climate have led to a heightened sense of awareness in both lenders and consumers. Prior to 2007, those with near-prime and even sub-prime credit could easily get mortgage loans, auto loans, and other lines of credit. Today it is extremely difficult for those with sub-prime credit and sometimes even for those with just near-prime credit to obtain credit of any kind, negatively affecting every aspect of the individual’s life.
Paying off past due accounts most often does not, in itself, raise your credit score or change the way lenders see your credit report. Outdated information about you, late bills (depending on the creditor, these may be reported anywhere from 30-90 days after the payment is late.), and even uncontrollable events such as a recent change in address can hurt your credit. Financial counseling can be helpful in identifying problems and improving your credit.
The aspects of an individual’s life that are either negatively or positively affected by credit are vast, and having bad credit can evoke a chain reaction of financial hardship. Your credit affects your ability to finance an auto, obtain credit cards, mortgage a home, rent an apartment, to carry insurance, and even to get a job.
Loan or credit denials can be extremely inconvenient, and borrowing with sub-prime credit can be costly. Your FICO score, one aspect of your individual credit, can range from 300-850. In today’s economy, creditors frequently look to loan only to consumers who have credit scores over 700. Those with scores below 680 who do borrow for a home or auto will often spend an extra 1,000 dollars per year or more in order to borrow, as they are given less than prime interest rates. Financial Councling can be beneficial to repair credit before a large debt is incurred to reduce the fee of borrowing, saving the consumer money over the course of the loan.
Today, it is clearer than ever that individuals and business owners need good credit to thrive. Certain actions on your credit report can change the way the lender sees you, and these days the lenders are looking deeply into your credit history. It is important that your credit score and credit report are as optimal as possible. Credit Care Company professionals are experienced in helping to achieve good credit.

Managing Credit in the Post Credit Crunch Era

2010 marks a turning point in the world of consumer credit. We’ve just survived the worst credit environment since, well, ever. The CARD Act went into affect (most of it anyway) on in February 2010. And, lenders are actually starting to increase the amount of pre-approved mail they send to prospective cardholders. How can consumers benefit from this new environment? Where are the potholes? And lastly, what should we be doing with our credit scores?

Pothole #1 – Having Average FICO Scores is Good Enough. If you think this then you’re making a big mistake. Those of you who have FICO scores in the mid 600’s were considered golden 36 months ago. Today, you’re considered too risky and the credit market has largely passed you by. Conversely, if you have FICO scores above 720 AND are on the buyer’s side of the credit equation then you are in the catbird seat. Auto loans are at or near 0%. Mortgages are at or below 5%. Credit cards issued by credit unions are at or below 9.9%. It’s a great time to be a borrower but only if you have strong FICO scores. Shoot for 750 because that puts you in the best position.

Pothole #2 – Thinking the CARD Act Solved the Free Credit Report Scams. On Fair Isaac’s consumer website,, they take a jab at their newest “Biggest” nemesis, Experian. “U.S Gov’t brings common sense to “free credit report” false advertising” is front and center on their website. What they’re referring to is the new rule that requires companies that offer free credit reports to clearly state that it’s not the free credit report as required by Federal law. So, how did Experian get around this one? They will now charge you $1 for your “free” credit report. It still remains to be seen exactly how the Federal Trade Commission is going to address the continuous actions of Experian (who has already settled two financially meaningless lawsuits with the FTC). “Free” and “$1” are clearly not the same thing so the false advertising seems to continue. Regardless, consumers will still be enrolled for a monthly subscription to a credit monitoring service if you claim your $1, err, free credit report from so buyer beware.

Opportunity #1 – Better Credit Means More Leverage. You’ve heard to term “it’s a buyer’s market.” You’ve also heard the term “It’s a seller’s market.” Well, for the first time in almost three years it is now a buyer’s market in the consumer credit environment. But, it’s a buyer’s market only if you have good enough credit to deserve the very attractive rates offered by almost all lenders. If you’ve been putting off paying down credit card debt now may be the time as paying down credit card debt is the fastest way to significantly improve your credit scores.

Opportunity #2 – Short Selling Has Been Anointed as The Best Way to Dispose of a Bad Mortgage Loan. A short sale is when the lender takes less than the principal amount and considers the loan as being paid in full. A short sale is not clean from a credit perspective because it is reported as either a charge off or a settlement, both of which are considered very negative by the FICO scoring system. But, Fannie Mae will allow you to get a mortgage within two years if you’ve chosen a short sale over a foreclosure.

Pothole #3 – Beware of Loan Modifications. Loan modifications are a relatively new phenomenon thanks to the mortgage meltdown. Homeowners who have some sort of hardship might be able to convince their lender to lower the interest rate so much that the payment becomes affordable and allows them to avoid foreclosure. The problem with loan modifications is you are not guaranteed the modification. And, it takes many months for large mortgage lenders to decide whether or not you will qualify. During this time they are asking that you pay a lower amount. This is called the “trial period.” This is reported as a rolling late payment to the credit bureaus, which obviously can damage your credit scores. And, after all is said and done, you might find yourself without a modified loan but with many months of late payments, which are not removed.

Pothole #4 – The Authorized User Strategy Might Backfire. For many years consumers have used the authorized user strategy to build, rebuild and/or improve their credit. The theory, which was accurate, was if you could add an account with a stellar payment history and a large credit limit to your credit file simply by being added as an authorized user on an account belonging to another person, perhaps a parent. Since the authorized user doesn’t have contractual liability the cardholder isn’t responsible for the payments. If the primary cardholder became delinquent then you would simply have your name removed from the account and it would be removed from your credit reports. The problem with the strategy today is that at least one of the credit bureaus, Equifax, won’t remove the account from your credit reports. In fact they are responding to dispute letters with the following, “As an authorized user, you may be liable for any/all activities on this account.” The issue is the word “may.” It’s my belief that a credit bureau can’t maintain information on your file that it simply believes “may” be your responsibility. This one will likely play itself out in court when the class action set gets wind of this.

It’s important to keep in mind that the world of consumer credit is dynamic, constantly changing. Credit scores will likely change, lenders will change their standards, and credit bureaus will change their policies. These observations are as of early 2010 and will eventually become outdated, perhaps even by the end of the year. Stay tuned