The Consumer Credit Counseling Service of Atlanta is encouraging people to declare their independence from credit-card debt. Make this month the start of your lifetime of economic freedom, says the nonprofit organization.
"Using credit cards for purchases can put you at risk, especially if you aren't disciplined," said Suzanne Boas, president of the CCCS office in Atlanta. "It may feel like you aren't really spending money and, before you even realize it, you have amassed a large debt that is difficult and very costly to repay."
This group's call for self-defense is useful considering the latest bankruptcy statistics. The number of consumer bankruptcies filed during the first three months of 2007 jumped to 187,361, a 66 percent increase over the first quarter of 2006, according to the Administrative Office of the U.S. Courts.
This sad news comes at the same time that the five federal regulatory agencies that oversee banks, savings institutions and credit unions (and related subsidiaries) issued a joint statement directed at certain lenders. The organizations implored the lenders to be more forthcoming about the eventual sting that borrowers may feel after signing up for teaser interest rates on subprime mortgage loans. The regulators are particularly concerned about adjustable-rate mortgage products that are contributing to the rise in bankruptcy filings.
The loans in question enabled people to get low initial payments based on a small introductory rate. Those teaser rates are expiring and many borrowers are finding they can't handle the larger mortgage payments, leading to increases in defaults and foreclosures.
About $467 billion of mortgage loans will reset for the first time in 2007 and another $383 billion will reset in 2008, according to Moody's Economy.com. Together the $850 billion is equivalent to about 9 percent of the mortgage debt that was outstanding in 2006, says Celia Chen, director of housing economics for Moody's.
The crux of the regulatory clarification to lenders is this: An institution's analysis of a borrower's ability to repay one of these hybrid loans should include an evaluation of the borrower's ability to repay the debt after the introductory rate expires.
"D'oh!" as Homer Simpson says.
The road to financial success means factoring in the best-case scenario and the worst-case scenario.
True financial independence is making financial decisions based on the resources you have today, not on what you might have tomorrow. That applies whether you're borrowing on a credit card or applying for a home loan.
For more info and to order your credit report with FREE credit score please visit www.reliacredit.com
Thursday, July 19, 2007
Start Freeing Yourself from Burdens of Debt
Thursday, July 12, 2007
What Type of Data is Used to Calculate My Credit Score?
Your credit score is based on credit-related information-both positive and negative-in your credit-bureau file, including:
- Payment history
- Outstanding debts
- Credit history
- Inquiries and new account openings
- Types of credit in use
Monday, July 9, 2007
Knowing credit report can help save money
Ryan Marshall, Carroll County Times Staff Writer
Anyone who’s ever bought a car, gotten a credit card or received a student loan likely has a credit report — and knowing what’s in it can save a lot of money.
The information in a credit report helps set an interest rate, which determines how much interest is paid on money borrowed.
Rod Griffin, manager of public education for Experian, said the information in a credit report is gathered from public records and previous applications for credit.
Experian, along with Equifax and TransUnion, are the main credit reporting agencies in the United States.
The information can include your name, address, Social Security number and information on any bankruptcies, tax liens or civil judgments against you.
Not included is information about savings or checking accounts, individual retirement accounts, investments or assets, Griffin said.
Along with the personal information, credit reports also track inquiries — a record of who has looked at your report.
Griffin said inquiries are divided into two categories: hard and soft.
Hard inquiries come when you initiate a credit transaction, such as opening a new charge card at a local department store.
Soft inquiries are produced when you don’t apply for credit but someone else checks your report, such as for pre-approved credit offers.
Soft inquiries only show up on copies of a credit report that you receive, while hard inquiries are visible to anyone who looks at the report.
Inquiries usually only affect credit if you already have credit issues such as missed payments, Griffin said. He said they are never the only reason someone’s request for credit would be declined.
Credit reports also keep records of whether you pay your bills on time.
Missing payments or having them arrive late can drive down your credit score, the numerical value assigned to your credit.
The scale for credit scores goes up to 850, with a good score usually considered to be anything above 720, said Neil Harrington, from M&T Bank’s consumer loans division.
The score is determined by factors such as the amount of credit someone has and how it’s being used and whether payments have been made on time, Harrington said.
Plenty of people don’t understand how important having good credit can be, said Elizabeth Schomburg, senior vice president at Family Credit Counseling Service, a nonprofit created to educate the public about debt and work with people who are struggling with it.
One of her company’s jobs is to help educate people on what the information in a credit report means and how they can use it to their advantage.
Many people only think about their credit report when they’re getting ready to make a major purchase, she said.
But Schomburg said the information in the report is affecting peoples’ lives more and more.
Potential employers and landlords can check credit reports, she said. They can even be used by insurers to check rates.
Having good credit is often looked as a sign of responsibility, she said.
Congress passed the Fair Credit Reporting Act in 1970 and amended the act in 1996.
Under the act, employers can’t access the report without your written permission.
Reports can be accessed by a court order, federal grand jury subpoena or sometimes to help determine child support payments.
“Not just anyone can get a copy of a person’s credit report,” Griffin said.
In order to get information, a company must subscribe to Experian’s services and meet the company’s security requirements.
Even if a company does qualify, it’s limited in how it can use the information, Griffin said.
Experian often deletes information such as account numbers, dates of birth or other data that aren’t related to the inquiry.
The information in the report can be a useful tool to help fix bad credit.
Griffin recommended getting a copy of your report from all three major credit reporting agencies. No one can do anything about credit problems until they know what’s in their report, he said.
The key to remember is that managing credit is a working process, Schomburg said. Most people’s credit didn’t go bad overnight, and it won’t be fixed overnight.
Reach staff writer Ryan Marshall at 410-857-7865 or ryan.marshall@carrollcountytimes.com.
For more info and to order your credit report with FREE credit score please visit www.reliacredit.com
Thursday, July 5, 2007
Difference between 620 and 760 credit score?
Mathematically, the difference between 620 and 760 is only 140, but in real life it can mean a difference of thousands of dollars per year to you.
140 doesn't sound like much. If you were shopping for a new TV, and you liked two of them, priced $140 apart, you might not worry too much about the price difference.
However, in the world of your credit score, the difference between those two is huge.
A 620 credit score means you can get a home loan, from a very few lenders, with bad terms, at a rate of around 7.5%, if you're lucky.
A 760 credit score means you can get a home loan from anywhere, with very good terms, at a rate closer to 5.5%.
A 2% difference. Again a small number. But let's look at the effect in real dollars.
The monthly difference in payment can easily be $200 - $400. Over one year this is $2400 - $4800. Look at this table, using a sample mortgage:
For more info and to order your credit report with FREE credit score please visit http://www.reliacredit.com/
Tuesday, June 12, 2007
Cosigning a Loan?
What would you do if a friend or relative asked you to cosign a loan? Before you answer, make sure you understand what cosigning involves. Under federal law, creditors are required to give you a notice that explains your obligations.
The cosigner's notice states:
* You are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
* You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
* The creditor can collect this debt from you without first trying to collect from the borrower.* The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
* This notice is not the contract that makes you liable for the debt.
* Laws in your state may forbid a creditor from collecting from a cosigner without first trying to collect from the primary debtor.
Cosigners Often Pay
Studies of certain types of lenders show that for cosigned loans that go into default, as many as three out of four cosigners are asked to repay the loan. When you're asked to cosign, you're being asked to take a risk that a professional lender won't take. If the borrower met the criteria, the lender wouldn't require a cosigner.
In most states, if you cosign and your friend or relative misses a payment, the lender can immediately collect from you without first pursuing the borrower. In addition, the amount you owe may be increased by late charges or by attorneys fees if the lender decides to sue to collect. If the lender wins the case, your wages and property may be taken.
If You Do Cosign
Despite the risks, there may be times when you want to cosign. Your child may need a first loan, or a close friend may need help. Before you cosign, consider this information:
* Be sure you can afford to pay the loan. If you're asked to pay and can't, you could be sued or your credit rating could be damaged.
* Even if you're not asked to repay the debt, your liability for the loan may keep you from getting other credit because creditors will consider the cosigned loan as one of your obligations.
* Before you pledge property to secure the loan, such as your car or furniture, make sure you understand the consequences. If the borrower defaults, you could lose these items.
* Ask the lender to calculate the amount of money you might owe. The lender isn't required to do this, but may if asked. You also may be able to negotiate the specific terms of your obligation. For example, you may want to limit your liability to the principal on the loan, and not include late charges, court costs, or attorneys' fees. In this case, ask the lender to include a statement in the contract similar to: "The cosigner will be responsible only for the principal balance on this loan at the time of default."
* Ask the lender to agree, in writing, to notify you if the borrower misses a payment. That will give you time to deal with the problem or make back payments without having to repay the entire amount immediately.
* Make sure you get copies of all important papers, such as the loan contract, the Truth-in-Lending Disclosure Statement, and warranties, if you're cosigning for a purchase. You may need these documents if there's a dispute between the borrower and the seller. The lender is not required to give you these papers; you may have to get copies from the borrower.
* Check your state law for additional cosigner rights.
For more info and to order your credit report with FREE credit score please visit www.reliacredit.com
Monday, June 11, 2007
Credit scoring change overdue
THE SAVAGE TRUTH | But 'authorized user' change may hurt some women
In March I wrote about the dangers of "lending" your good credit to desperate strangers seeking to borrow money at interest rates lower than their own credit rating would justify.
Web sites had sprung up to act as "matchmakers" between people who needed improved credit, and people who have excellent credit and were tempted to earn some extra money every month by allowing these deadbeat strangers to become "authorized users" on their credit card accounts. The sites collected fees from both parties.
(Authorized users have no liability for payments, and do not have to undergo a credit check before being added to an existing account.)
It was a practice that should have been stopped by the government. The services clearly violate the Federal Credit Repair Organizations Act, because of how they accept payment for promises to boost the deadbeats' credit, according to John Ulzheimer, of Credit.com
I'm surprised no state or federal prosecutor sued these companies for facilitating bank or insurance fraud. By fraudulently enhancing a credit score, all three participants - the borrower, middleman, and "lender" of credit -- were participating in a deception.
Now, Fair Isaac, the company that created FICO, the most popular credit scoring system used by lenders nationwide, has announced that its new scoring model will no longer factor the scores of "authorized users" into its FICO accounts.It's a move that should put an end to the enticement of letting a stranger use your credit-worthiness when applying for insurance or a loan. But it may also affect many unwary people, causing their credit scores to drop sharply.
This change could have a huge impact on women. Many women who use their spouse's credit card are unaware that they are not joint holders of that card.
Instead, they have gone for years as an "authorized user" on the spouse's card. Most card issuers do report payments on a user's credit report. But now, that payment history will no longer count as part of the credit score!
In the future, if that woman wants to purchase insurance or open a new account, she may find she has a very low score -- simply because those credit cards are no longer counted in her score.
Many parents added teens to their credit card accounts as authorized users to help them build a credit record. Now these accounts won't be included to help build the teens' good credit score.
I've always suggested the best way to help a young adult build a credit history was to open a "secured" card account, with a credit limit based on a deposit in a savings account at the credit granting bank.
Then the young cardholder can use the card to make purchases or cash withdrawals, and build up his or her own record of prompt and complete monthly repayments.
All of that payment history will be reported to the credit bureaus under the individual's name. (To search for a "secured card" go to Bankrate.com.)
After all, if an individual can't qualify for credit on his or her own, but secures it fraudulently, there is a great likelihood of default -- whether on a mortgage or some other purchase.
And when lenders lose, we all wind up paying. That's the Savage Truth.
Terry Savage is a registered investment adviser.
For more info and to order your credit report with FREE credit score please visit www.reliacredit.com
Common Credit Score Myths
A lot of credit score myths about fico score ratings get spread around and some of them are just outdated information. Sometimes even lenders can give you the wrong advice and it can get confusing. But the bottom line is bad information can cost you money no matter who you get it from.
Fico score ratings are used for most mortgage lending, which means, you need to know what will hurt or help your credit score points. To make it clear, here are some of the most common credit score myths.
* Checking your credit report will hurt your credit score
Checking your own credit report and credit score counts as a soft inquiry and does not go against your score. However, if anyone else like a lender or credit card company is checking your credit report, this is considered a hard inquiry and will generally knock off about 5 credit score points.
The credit score rating system treats multiple inquiries in a 14-day period as just one inquiry. The system ignores all inquiries made within 30 days prior to the day the credit score is computed. So if you want to minimize the damage from credit inquiries, shop for a loan in that short period of time.
* Closing old accounts will improve your credit report score
Sometimes even lenders will tell you to close your old and inactive accounts as a way for improving your credit report score. In most cases, closing old accounts will actually have the opposite effect with the current credit score rating system.
Canceling old credit accounts can actually lower your credit score because it makes your credit history appear shorter. If you want to reduce your levels of available credit, it's better to reduce or close new accounts instead. Applying for new credit is more likely to lower your score.
* You need to check more than just FICO score rating
If you ever hear this from anyone, consider it a red flag. All of the three major credit reporting bureaus offer FICO credit score ratings using the formula developed by Fair, Isaac. Even though each one gives the scores a different name you only need a fico score rating from the three major credit reporting bureaus.
At Equifax, the FICO score rating is called the Beacon credit score. At TransUnion, it’s called Empirica. At Experian, it's known as the Experian/Fair, Isaac Risk Model.
The reason each of the three major credit reporting bureaus will have three different scores is because they don’t all share the same data. So when checking your credit report, just make sure it comes from the three major credit reporting bureaus: Experian, Trans Union and Equifax.
Examine your credit reports from all three major credit reporting bureaus before you apply for a big loan like a mortgage. Fix any errors in all three reports before you shop for a loan because it takes time to correct your credit report.
* Credit counseling will hurt your score
The current FICO credit score rating system ignores any reference to credit counseling that may be in your file. The researchers at Fair, Isaac, the company that created the FICO credit scoring rating system, found that people getting credit counseling didn’t default on their debts any more often than anyone else.
However, any late payments you've had with creditors will hurt your credit score. Credit counseling can hurt your ability to get a loan because you probably have had trouble paying creditors.
Some lenders will back away if you are in credit counseling. Others may see it differently, but usually will charge you higher interest rates than if you had perfect credit.
The best way to improve your credit report score is paying your bills on time and paying down credit card debt. Check your credit report regularly for any errors and make sure you don't fall for these common credit score myths.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative articles that give you the knowledge to correct your own credit and credit report.
For more info and to order your credit report with FREE credit score please visit www.reliacredit.com
