Real Estate Corner…

      Q.    We want to purchase a home but fear that our poor credit will prevent us from getting financing.  How can we repair our credit?

A.     Initially, you need to obtain a copy of your credit report and contact your creditors.  You will need to explain your current situation and offer to pay a percentage of your outstanding bill. 

Often creditors will settle for 30-40 percent of the total bill.  Once you have made your partial settlement payment, get them to issue you a signed settlement letter.  Copies of these letters will need to be sent to all of the credit bureaus (Equifax, Trans Union, and Experian/TRW).  In the eyes of a lender, this is a better method of rectifying your credit than setting up a payment plan though a consumer counseling service.  By resolving your own credit problems using the partial payment approach, it demonstrates to lenders your ability to be a responsible credit user.  In addition to avoiding the consumer counseling services, you should also avoid filing bankruptcy if at all possible.  This act will stay on your credit for a period of 10 years.  One of the only ways to redeem yourself in the eyes of a lender after filing bankruptcy is to get secured credit cards.  These are prepaid credit accounts that allow you to demonstrate your ability to spend wisely.

When looking for a mortgage after credit problems, look to mortgage brokers.  They are often able to offer you greater options than mainstream lenders.  Just because you have credit issues, don’t expect that you will be stuck with higher interest rates.  Some lenders can offer you great options.  Once you have begun to repair your credit history, it is imperative that you make payments on time.  Lenders who give you a second chance will not be a lenient with borrowers who have a history of credit problems.  It becomes your responsibility to prove to the lenders that you are capable of controlling your credit future.

If you are thinking of selling or buying soon, and require competent and caring representation,

feel free to call me at 405-820-1740 or email me at: rhonda@rhondasrealestate.com.

Decrease Debt - Improve Income

In order to start saving more and increasing your wealth, you must first begin to pay off the debts you have incurred that are inhibiting your advancement.  Many people have made the mistake of trying to tackle all their debt at once, which quickly leads to discouragement.  And here’s why.

There is nothing motivating about taking huge strides to pay off debt, but never fully realize the impact that it’s having on your bottom line.  If you stash away a few extra dollars towards each debt you have incurred without really keeping track of your progress or celebrating the little victories, you will very quickly experience burnout.

Therefore, your best bet is to first sit down and take the time to list out all of your current debts from credit cards to car loans.  Record the total debt amount along with the current minimum monthly payment on each account.

Next, choose the lowest debt and start to pay a little extra towards this one debt while paying the minimums on the others.  Choose an amount that will stretch you but is still within your means.  Once this debt has been paid off, you can then move on to your next lowest amount and apply the extra payment plus the monthly minimum of your old debt.

Continue this process until all your debts have been paid.  Be sure to celebrate along the way and keep track of your progress.  Over time you can then begin to apply your old debt payments towards a savings/investment account of your choice.

While you are paying off your debts and long after, there are various steps you can take to help increase your overall income while decreasing your expenses.  Essentially, each of the following ideas will require your commitment and discipline to follow through, but turning these ideas into habits can make all the difference.

First, by simply decreasing your spending on discretionary items, you can begin to better manage where your current income is going.  Many people fall into the trap of spending more as they make more, such as finally purchasing that big screen television, making upgrades to the house, taking the family on that 5 star cruise, etc.  Though there is nothing wrong with any of these purchases, we must learn to practice delayed gratification until the timing is right.  The average person typically makes a lot more than they think.

Next, you can take on a part time or second job, even if it isn’t that most ideal position.  Although this can be painful at first, building this discipline can be extremely rewarding and helpful when trying to pay off debts.  Additionally, you can begin to sell items within your household on Craigslist, Ebay, consignment shop or yard sales to bring in some extra cash.   Maybe consider starting a side business with a hobby or trade that you are passionate about.  Try freelancing, mowing lawns, or tutoring kids. 

Finally, you can either get a brand new job or stay in your current position and go the extra mile if you feel there is opportunity for advancement.  In the next post, we will cover some practical steps you can take to increase your income at your current position.  Stay tuned!

3 Steps to Remove Negative Remarks.

1.       Whenever a collection account is added to your report, this history can remain on your report for up to 7 years even after you pay off the debt!   Therefore, try to negotiate with the lender before making your payments in order to have these removed.

2.       It is almost inevitable that your report will contain inaccurate or outdated information at some point.  This can occur for several reasons and sometimes you may even find delinquent payments that aren’t yours!  Be sure to get these records wiped off and dispute any information that should not be on your report.

3.       Wipe out any negative narratives.  These are the comments that lenders will add to your report on things such as charge-offs, bankruptcies, settlements, etc.  Try contacting each lender and requesting that these comments be removed.

5 Steps to Using Your Credit Card Wisely

1.       Do not max out your credit cards every month.  This is a red flag for lenders.  In fact, it is good practice to use no more than 30% of your allotted credit limit.

2.       Since 15% of your score is based on the age of your credit history, it is important to not close out your most seasoned accounts.  In fact, it is better to leave an account open and not use it then to cancel it.

3.       When possible, pay off your full balance on the credit card each month, or as close to zero as you can.  This will help you to have a better score and to stay in control.  By building this discipline you will avoid falling deeper into debt as well.

4.       Increase your credit limit and you will also improve your debt to credit ratio.  This in turn will improve your score, but only take on what you can handle.  The last thing you want is to obtain high credit limits and then max out your cards.  

5.       Try to open at least an account or two with major carriers such as Visa, MasterCard, etc.  You will be perceived  as a lower credit risk.

Fuzzy Credit Scores - Do you know your numbers?

In order to build and maintain a healthy credit score, it pays to know exactly what it is. Scores can range anywhere from 300-850. The higher the score the better, and each bureau will fluctuate somewhat based on their own unique formulas.  Contrary to what you may hear, you do NOT have to pay for these reports.

If you have not taken the time to review your credit report lately, you can run a free search at http://www.annualcreditreport.com.  You have the choice of pulling reports from all 3 bureaus at once, or you can choose to do one at a time throughout the year (i.e. on a quarterly basis).  Each entity (Experian, Equifax, and Transunion) is required to give you one free report each year. 

Did you know it's estimated that 70% or more of reports indicate some type of error?  So, it's highly likely that you will have something that must be disputed within your lifetime. Be sure to stay on top of this and dispute any incorrect entries as well, because it can affect you and your overall score greatly.

Before you read on...take that all important step & check your credit!

The next most important step you can take to achieve a healthier credit score is to STAY CURRENT!  Whenever a payment is more than 30 days late, you run the risk of negatively impacting your score. Your credit history makes up about 35% of your overall score, so it's vital that you make every effort to pay your bills on time.

Also, recent delinquencies will have a greater impact on your history than one or two isolated occurrences which happened over two years ago.  Your best plan of action is to budget your finances in order to create a payment plan to set aside necessary finances to pay your bills each and every month.

As long as you are paying at least the minimum amount each and every month, you will build the discipline necessary to stay current.  Be sure to also establish a system of automatic reminders to avoid forgetfulness. 

In order to build up a credit score, you must have an account that is at least 6 months old and has had updates within the last 6 months, with no active disputes.  Any negative history can remain on your reports for up to 7 years. 

However, if you went through Chapter 7 or 13 bankruptcies, records could remain on your report for as long as 10 years.  Also keep in mind that by signing on as an authorized user with another who has strong credit can also boost your score.

Next, “hard” inquiries will only negatively affect your record for 1 year, even though they may show up on your report for 2 years.  While this is the maximum amount of time that negative marks can remain on your report, creditors can wipe records clean at any time throughout this timeframe using their own discretion.

Next post: 5 Steps to Using Your Credit Card Wisely.

How to Better Manage Your Credit Score & Maintain Peace of Mind

 Credit Crusher:

Let’s face it.  We live in a credit crazed society.  The times have certainly changed, and more and more business is now being conducted with the simple swipe of a card.  In fact, a high percentage of the purchases we make on a daily basis are completed by using either credit or debit.  These cards are very convenient, easy to carry and are usually safer than walking around with a wad of cash in our wallets or purses. 

On the other hand, credit is a strong indicator of your spending habits, and can even make or break you when applying for loans or larger purchases.  Just like fire, if credit is not contained and channeled properly, it can easily consume your financial status and engulf everything in its path.  Therefore, we need to know what is healthy, how the bureaus evaluate our information, and what we can do to employ better habits in our own lives.


According to Creditcards.com, the average credit card debt per household with credit is a whopping $14,750!  This statistic is staggering evidence that we have allowed things to get out of control; thus, we must take action to improve our own situation.  Although this brief, yet seemingly long post is not intended to teach you how to pay off your outstanding debts, it will reveal the very behaviors you must begin to practice in order to maintain healthy credit and to keep your financial house in order. 

What Exactly is a Credit Score?

A credit score is simply the statistical likelihood of a person falling 90 days behind on a particular loan obligation within a 2 year period.  In fact, there is nearly a 99% higher chance of a person with a 620 or lower credit score to end up 90 days behind than for those who have an 800.  So your score is a very strong predictor of future outcomes. 

Now each credit bureau will use their own unique scoring system when evaluating your information, so that is why your score will fluctuate somewhat on every report.  These numbers will also differ depending on the type of debt your take on, such as mortgages, car loans and consumer debt.  The obvious reason for this is that each carries its own unique risk factors that must be considered.   

35% of your score is made up of your history of delinquencies (30 days plus), and another 30% is your revolving debt ratio.  Since this makes up 65% of the total pie, it is imperative that you pay your bills on time and keep down the total amount of debt you incur.  This will also help you to avoid the temptation of over borrowing when you don’t have the means to pay. 

It is noted that there should be some type of activity on your card at all times, so try paying the statement balance that is owed for the month while allowing the remaining amount to carry over to your next bill.  That way you never have a zero balance and can avoid heavy interest charges.  Also make a point of paying the debt before the statement date, so that it always reports the lower amount and boosts your score.   

Next, another 15% of your score is based on the age of your credit.  So, it's wise to always keep your oldest lines open.  The remaining 20% is split up among the combination of credit (i.e. mortgage, car, consumer, etc.) and hard inquiries.  Experts report that a healthy credit mix usually contains around 3-5 revolving accounts, 1-2 automobiles, 1-2 mortgages and 3-5 hard inquiries each year.

Now for clarification, there are both “hard” inquiries and “soft” inquiries.  Each “hard” inquiry reduces your score by almost 3% for the first 10 each year.  After that, the reduction rate goes slightly down.  “Soft” pulls would be anything that is considered to be personal or promotional in nature, such as your yearly account review.

Credit Report Resources

If you have not taken the time to review your credit report lately, you can run a free search at http://www.annualcreditreport.com.  You have the choice of pulling reports from all 3 bureaus at once, or you can choose to do one at a time throughout the year.  Each entity (Experian, Equifax, and Transunion) is required to give you one free report each year. 

Did you know it is estimated that 70% or more of reports indicate some type of error?  Therefore, it is highly likely that you will have something that must be disputed within your lifetime.  Be sure to stay on top of this, because it can affect you and your overall score greatly.

A second great resource for reporting is located at http://www.missingmoney.com.  Want to find out if you or another relative is entitled to receiving money?  It’s possible that there are lost assets out there that are rightfully yours but were in fact never paid.  This site offers a free and comprehensive search to help track down any lost assets that have accumulated over the years.

Myth Busters:

Below are five questions that involve common misconceptions about things that affect your credit score.  Take the time to answer each one.  I've provided the answers for you, so don’t try to peak just yet.  Let’s see how well you know your stuff!

1.  My credit score will improve if I close unused credit cards.

2.  FICO credit scores should fluctuate somewhat between all 3 credit bureaus.

 

3.  Once married, my credit report will be merged with my spouse’s.

4.  Your credit score is negatively affected every time you request a copy of your credit report.

5.  Annual household income is not a part of your FICO score.

Answer key: F, T, F, F, T

What Affects My Credit Score?

Now, in order to build up a credit score, you must have an account that is at least 6 months old and has had updates within the last 6 months, with no active disputes.  Any negative history can remain on your reports for up to 7 years. 

However, if you went through Chapter 7 or 13 bankruptcies, records could remain on your report for as long as 10 years.  Also keep in mind that by signing on as an authorized user with another who has strong credit will also boost your score.

Next, “hard” inquiries will only negatively affect your record for 1 year, even though they may show up on your report for 2 years.  While this is the maximum amount of time that negative marks can remain on your report, creditors can wipe records clean at any time throughout this timeframe using their own discretion.  

For scoring purposes, revolving credit will typically have more of an impact than installment accounts.  The only real exception for this are mortgages due to the size of the debt and the amount of time it takes to pay down. 

On the other hand, all secured and unsecured credit cards (including department store cards) score the same.  If you use any bank issued cards, it is possible that if you pay off the full amount on your card every month, they may choose to lower your maximum available credit over time.  Remember that a higher credit limit will help lower your debt ratio, but this shouldn’t be used as a way to drive yourself into further debt.

American Express (AE) functions as a revolving account, and actually reports the total amount owed on your card as being your credit limit.  Therefore, it is wise to have all AE debts paid off before running a credit check as it will be bypassed in the report.

I hope this information is both insightful and encouraging.  As always, I'm here to help you in any way I can.  If you need further assistance or guidance, feel free to contact me at any time.  It is my goal to provide you with the best service and contacts available so that you can improve your finances and future!

Email: rhonda@rhondasrealestate.com