Credit Scores were first developed over fifty years ago when Fair Isaacs Corp Developed the first credit scoring system. Today, the Fair Isaacs Corp Credit Score, which is called a FICO score, is the industry standard and used by lenders to evaluate whether to offer an individual a line of credit or a new home mortgage.
Credit scores are based upon information in a persons credit report and based on a numerical scale between 300 and 850. 850 is considered a perfect credit score, but anything above 760 is considered a very solid credit rating. While the amount of debt a person has plays an important role in determining their credit score, this typically only makes up about 30% of the credit score. The rest of the credit score is based off of the way an individual has paid off their debts, as well as the number of delinquent payments, the length of the credit history, and the types of loans offered.
Since a big part of a credit score is not how much debt you have, but how well you manage this debt, it is possible to maintain a healthy credit score even with a high level of debt. However, most loan administrators suggest maintaining a 30% to 50% debt to credit limit ratio.
One of the most important things that you can do to maintain a healthy credit score is to pay all bills off on time. Today, most banks offer free electronic payments, which can be a quick and easy way to ensure that all bills get paid on time. If a payment is missed, it should be paid off as quickly as possible.
Another important step in maintaining a healthy credit score is to pay off the debts that have the highest interest first, without a great deal of debt transfers. Many people, especially those who are having credit problems, also like to apply for any semi-attractive credit card offer they get, but too many credit inquires reduces your credit score, so this should be avoided. Instead, it is suggested to only apply for new credit once a year and to research potential credit offers before actually applying. Once a good credit offer is found, the credit inquire process should be completed in as short of a time frame as possible.
One big factor that goes into a credit score is the length of a persons credit history, so it is not usually advised to cancel a credit line, even if there is no credit balance. Instead, you can simply cut up the credit card, but leave the account open. This helps provide a longer credit history, even if you are not using it.
Using a debit card instead of a credit card can also be a good idea. These can be used in the same way a credit card would be and are accepted at all major retailers, but do not draw money from a credit line, but instead directly from a persons checking account. Some people even find that when they use cash, they are less likely to spend money, so it may be a good idea to do a little experimenting to get in the habit of efficiently managing money.
While credit reports and credit scores are arguably a very controversial device, if you wish to borrow money, having a high credit score is essential.
According to reports, the Cash for Clunkers Program could be running out of money, although the White House denies claims that the clash for clunkers program is being suspended.
The Cash for Clunkers program is designed to provide an incentive for people to trade their older vehicles for a new more fuel efficient car. Those that trade in a car that is 4mpg for fuel efficient receive $3,500 and $4,500 is provided for a 10 mpg increase. As part of the program, the traded in vehicle must be destroyed.
The Cash for Clunkers program was slated to run until November 01, 2009 or until its $1 Billion budget had been expended. However, it has become very popular and by July 28, around 16,000 dealers had signed up for the program.
If each of the dealers currently participating in the Cash for Clunkers program were to submit only 18 applications, the program’s budget would be completely depleted and there are reports that some dealers have already submitted more than 250 claims.
At midnight on Thursday, the Department of Transportation reported that the Cash for Clunkers program was being suspended, but these claims were later refuted by the White House Press Secretary Robert Gibbs who said, “We are working tonight to assess the situation facing what is obviously an incredibly popular program.”
Gibbs went on to say, “Auto dealers and consumers should have confidence that all valid cars transactions that have taken place to date will be honored.”
Reports that the Cash for Clunker program had been canceled fueled an increase in nighttime purchases by car dealers. To date, $150 million has already been paid out as part of the Cash for Clunkers program and $850 million is slated for pending applications.
Both Congress and the White House are reportedly looking for ways to continue funding for the Cash for Clunkers program, as it has proved an effective means of increasing new vehicle purchases and upgrading to more fuel efficient vehicles.
In the United States, Bankruptcy is used as a last resort when a borrower is unable to pay back their creditors. There are several different types of bankruptcy, but most people either declare Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Chapter 7 Bankruptcy, which is most often used, focuses on the liquidation of the debtors assets. Chapter 13 Bankruptcy, on the other hand, deals more with the reorganization of the debt. However, with both of these types of bankruptcy, the debtor can usually retain some of their property.
While in some cases, bankruptcy is the only option, it can have a very negative affect on a persons credit rating. Typically, for the next 7 to 10 years, the individual will have a very low credit score, which makes borrowing money very difficult.
This article discusses how to refinance a home after bankruptcy, although the information provided can also be applied to anyone who wishes to refinance their home. Even though many types of loans, like a new car loan, can be very hard for someone who has declared bankruptcy to get, refinancing a home is often not viewed as a large risk by mortgage lenders. So, even if you have declared bankruptcy, it is usually possible to refinance your mortgage.
Most people decide to refinance their mortgage in an effort to get a lower interest rate and a lower monthly payment. In the case of someone who has filed bankruptcy, it is not uncommon to have a subprime mortgage, which can have excessive rate increases, higher interest rates, and unfavorable terms. As a result, refinancing your home can often be the best way to save money and stay in your home.
It is important to note, however, that when you refinance your home, you are basically starting from scratch with your new lender. Over the course of the first few years of a mortgage, you are primarily paying the interest of the loan. Over time, the amount of interest you are paying will decrease, while the amount that you are paying towards the principal will increase.
As an example, lets consider a home that costs $200,000. In the first three years of your mortgage, you might pay $50,000 to your lender, but only $3,000 goes towards the cost of the home. So, after 3 years, you would still owe $197,000 towards the home. Over the next three years, you may pay $9,000 towards the principal and as time goes on, the amount that goes towards principal increases. If you were to refinance your home after only 3 years, you would be refinancing it for basically the full amount, even though you have paid your lender $50,000.
This is important to remember, because a big part of refinancing your home involves determining whether it is in your best interests to do it in the first place.
The first step when preparing to refinance your home should be to begin setting aside some money every month. When you refinance a mortgage, you will usually have to pay a number of different fees, including an application fee and a loan origination fee.
These fees are often called junk fees, because they do not actually go towards the mortgage itself or the value of the home. In many cases, junk fees can cost several thousand dollars, so it is a good idea begin saving money as early as possible.
It is also important to determine if your current mortgage has a penalty for paying the mortgage off early. Some mortgages, especially subprime mortgages, have a pre-payment penalty, which goes into affect if you pay your home off early. If this is the case, you will need to take this into account.
Before you begin shopping around for a new mortgage, it is also very important to analyze your monthly expenses and compare these with your monthly income. This is important because you need to get an idea of what type of monthly mortgage payment you can afford.
It is important to take into account all of your monthly expenses, including utilities, phone bills, car payments, food, and any other living expenses you may have. Also, make sure that you include any outstanding debt, such as credit card bills, as well as emergency bills that may occur.
Getting an idea of the current mortgage rates is essential, even if you have poor credit or have filed bankruptcy. You can use these figures to help decide whether a particular lender is offering you a fair interest rate or if they are offering a subprime mortgage.
Begin by calling around to several of your local banks to find out what the current mortgage rates are. At this time, don’t mention the details of your situation, but simply inquire as to what the current mortgage rate is. It is also a good idea to consult some online lenders as well, who usually have their basic interest rates posted on their website.
Once you have an idea of the current mortgage rates, you can start to get estimates for refinancing your home, as a number of lenders to provide a pre-qualification letter with their rates. The lender will ask you for your financial information, but they should not actually run your credit or charge you any fees for the written estimate.
At this point, it is imperative that you are upfront and honest with the lender. Lying about your bankruptcy or your credit score, might get a higher estimate, but when they actually run your credit, they will find out you were lying and will not offer you the same rate. In the end, you are only wasting your own time, as well as that of your lender, which can often disqualify you from receiving the loan anyway. Instead, honestly answer their questions about your income and bring up the fact that you have filed for bankruptcy.
Make sure that you also ask about the cost of refinancing your mortgage, such as attorney fees, application fees, and any other charges that the lender might have.
It is a good idea to check the rates of a multiple lenders, so you can explore all of your options.
Once you have a number of estimates, you can begin comparing the different loans to find the one that best fits your needs. Start by comparing the interest rates offered to the standard interest rates that you found in step 3. This will give you an idea of whether the interest rate is normal or if it is subprime.
Next, compare the cost of refinancing your home against the cost of keeping your existing mortgage. It is essential not just consider the difference between the monthly payments, but also the cost of the junk fees and any pre-payment penalties associated with your current mortgage. For instance, if your monthly payment is $100 less on the new mortgage, but you have to pay $3,000 in junk fees, then it would take you almost 3 years before you break even on the mortgage. Remember, that the junk fees are due at the time of signing.
It is also important to look at the big picture. An amortization table can be very handy, which will break down every payment over the course of the loan to show you how much of it is going towards interest and how much towards principal. It is important to compare where you are with your current loan and where you would be if you refinanced your mortgage.
After you have carefully considered all of your options and decided upon a lender, it is a good idea to try to get your lender to reduce the junk fees. These fees can often be reduced with a little negotiation and are often padded just for this reason.
While refinancing your home can be a great way to reduce monthly payments or get out of a subprime loan, it is not a decision that should be taken lightly, especially for those who have filed bankruptcy. Instead, it is important to make sure that refinancing your home is really in your best interest and not just think about the difference in monthly payments.
If you have less than perfect credit, then you have likely received numerous offers from credit counselors or businesses that specialize in credit repair.
In truth using these types of companies is not usually going to be in your best interest. This is because all of the things they can do, such as negotiating with creditors, is something that can be done by the individual.
Credit Repair Agencies are basically simply another lender and if you have ever watched any late night infomercials, you are sure to have seen their advertisements. They might say they will “Get rid of your Bad Credit!†or “Quickly Raise your Credit Score,†but in the end, they are out to make a profit.
Most credit repair agencies will offer free credit counseling to get people interested in their service, then they will set up a plan, where you pay them and they pay your creditors. It is basically just like taking out another loan, but with a much higher interest rate than if you had just spoke directly with your creditors.
In fact, credit repair agencies are so often the root of a business complaint that the Federal Trade Commission, published several warning signs that you might be dealing with a dishonest credit repair service.
Using a credit repair service, like you might find advertising on late night television that they can
“Fix Bad Credit!â€, is seldom in the best interest of a person with poor credit.
These companies may be able to lower your monthly payment, but this is likely something you could do on your own by speaking with the credit company. Instead, they make their money by offering a loan at subprime rates.
Credit Counseling is usually a better option than using a credit repair company, although there are a number of dishonest credit counseling companies as well.
The difference between a credit counseling company and a credit repair company, is that the credit counseling company will go over all of your debts and then speak with your creditors. The counselor will request that some of the debt be forgiven, such as late fees, and will request a lower interest rate, in return for the debt being repaid.
This is again something that the average consumer can do, because having the debt repaid is in the best interest of the creditor, so they are often willing to lower interest rates and forgive late fees.
Always ensure that the credit counseling company is non-profit and some are even run by the actual credit card companies.
Even though they are technically non-profit, credit counseling companies actually get paid a commission from creditors when they are able to work out a deal with a borrower. Sometimes, you pay the credit counseling company, who will in turn pay the creditor, which is referred to as a Debt Management Plan(DMP), but these should only be used as a last resort. In either case, there should not be a fee for using the credit counseling service.
While many of the things a credit counseling company does are within reach of the average borrower, they can provide a helping hand for some.
Since there is so much dishonesty in the credit and credit repair industry, it is important to always thoroughly analyze the company before using them.
Below are some tips for analyzing a credit counseling service.
In a perfect world, the best way to hand bad credit would be to avoid taking out debt in the first place.
Unfortunately, it does not always work this way, so it may be necessary to repair your credit.
If this is the case, speaking directly with the creditor should be your first step. The creditor wants you to pay them back, so will often work with you to reduce interest rates and forgive late fees.
Speaking directly with your creditors is almost always just as effective as using a credit counselor. It is also much safer and less expensive than using a credit repair company.
Credit reports are often used by creditors to determine how much of a risk a person would be to lend to. These reports contain information about a persons financial dealings, with some other limited personal information.
There are a number of people who could potentially view your credit report, including the government, banks and other creditors, and insurance companies. It is also possible for employers, both present and prospective, to view your credit report. This is common in professions where they are worried about company theft or embezzlement.
In fact almost anyone can see your credit report providing that they are able to offer an actual financial reason why they should be able to see your credit report. Each person is also eligible to receive three free copies of their credit report every year, one from each of the different credit reporting agencies.
Since there are so many potentially important people who could looking at your credit report, it is important to identify any problems and try to fix them as soon as possible. This can not only make it easier to receive a loan or mortgage, but can also effect many other parts of your life.
At first glance, a credit report can seem very confusing, but all of the information in a credit report can basically be divided into four sections.
Personal Information: Credit Reports are prohibited from containing information about race, religion, or sexual orientation, but they do contain a great deal of other identifying information.
This includes the persons name, aliases, current addresses, previous addresses, Social Security Number, Date of Birth, current employer, past employer, and information about husbands or wives.
Credit Information: As the name implies, credit reports contain a great deal of information about your credit history. This includes mortgages, credit card debt, unpaid debt, debt that has been sent to a collections agency, and some utility information. Also, in the case of loans it has information such as the type of loan, length, cosigners, and a two year payment history.
While the credit information is usually very inclusive, it can not include bankruptcies that are more than 10 years old or other debt that is older than 7 years.
Information from Public Records: This includes any state or country government records, including information on bankruptcies, tax liens, or other civil judgments. It can also include child support.
Recent Credit Report Requests:: This section lists the people who have requested your credit report over the last year, although it goes back 2 years for employers. Sometimes, too much activity can raise a red flag to lenders and may also be an indication of identity theft.
For the homeowner, there are a number of advantages to home ownership, many of which are financial and tax related.
One of the biggest benefits of owning a home, as opposed to renting, is that every month you are actually putting money towards the value of the home, instead of simply giving it to a landlord. This process is referred to as building equity in a home.
Equity is the difference between the value of the home and the principal of the mortgage. As the principal of the mortgage decreases, the equity increases, however equity can also be influenced by increases or decreases in the value of the home.
As an example, lets say that someone purchases a $120,000 with a $12,000 down payment. This means that the principal of the mortgage is $108,000 and they have $12,000 in equity.
Now, lets assume that in five years, the value of the home has increased to $150,000 and they have paid the principal down to $80,000.
Even though the homeowner has only paid $40,000 towards the value of the home, because the homes value has increased, they have $70,000 in equity.
The equity is computed by taking the value of the home($150,000) and subtracting the amount that is still owed on the mortgage($80,000.)
It is important to remember that the equity of the home is not real money, in that it is not something you can physically hold. In order to actually earn the equity, the home must be sold and if the value of the home were to decrease, then equity would go down.
It is a common misconception that a homes value is always going to significantly increase, which was fueled by rapid increases in home prices during the 1990’s, when a homes value would sometimes increase by over 20% every year.
While technically, you do not receive your equity until you sell your home, a number of lenders offer home equity loans and home equity credit lines.
A Home Equity Credit Line is much like a credit card, which has a credit limit based off of the homes equity. In most cases, the interest rate will also be very high, like a credit card, but the homeowner is not obligated to use the Home Equity Credit Line.
A Home Equity Loan, on the other hand, is more like a second mortgage. The homeowner will receive a single lump sum, which is based off of the equity of the home. They then have to make monthly payments, which is in addition to their monthly mortgage payments.
With the rapid increase in home values that took place during the 1990’s, many lenders began offering very large home equity loans, but with subprime mortgage rates. As a result, many homeowners took out these loans and began using them for things like new cars, vacations, or college tuition. Some even began piggybacking their down payment loans, which is when the homeowner takes out a mortgage and a separate loan for the homes down payment at the same time.
Then, the housing bubble burst, home values decreased, which resulted in a lot of people owing a lot more than their home is currently worth. Also, many of those who had received a subprime mortgage faced increasing mortgage payments, which further compounded the issue.
Deciding to take out a Home Equity Credit Line or a Home Equity Loan should not be taken lightly, because if the homes value were to decrease, the equity would also decrease, with the homeowner still being responsible for paying for the home equity loan.