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