Dec 6, 2009

Is Your Mortgage Readjustment Hurting Your Credit Scores?

The current downturn in the housing market has left many individuals ‘upside down’ on their homes – owing more than the home is worth. A common strategy in these situations is to have the mortgage adjusted, generally with more favorable payment terms for the borrower. These loan modifications, some of them sponsored by the federal government, can be beneficial for individuals who need to gain control of their debt and reduce mortgage payments at the same time.

However, some borrowers are discovering that these mortgage readjustments and loan modifications are having a detrimental effect to their credit scores. This is because loan modifications are reported as partial payments, and may even be reported as late payments by lenders. Under the Credit Data Industry Association rules, loan modifications are typically reported as a partial payment, which can lower your credit score 50 to 100 points, or more, depending upon your particular situation.

Unfortunately, lenders are not required to tell you that they will report your loan modifications as a partial payment or a late payment. You may not find out about the damage to your credit scores until you attempt to apply for new credit or see lower limits on the credit that you are to have. Even if you make all agreed-upon payments under the new loan modification consistently on time, you may find that your credit report shows you as delinquent with regards to your mortgage payments. The only way to correct this is to contact the lender directly — the credit bureaus have no control over how your loan modifications are reported to them.

So what can you do to protect your good credit score if you need to have your mortgage modified? Your best option is to speak directly with the lender and find out how your loan modifications will be reported. By working directly with your lender upfront, you may be able to avoid the damage to your credit scores. If you are already taking advantage of a loan modification, it’s in your best interests to check your credit report and be sure that your timely payments are being ported accurately by your lender. If your bank has a policy of reporting loan modifications in a manner that is detrimental to your credit scores, you may wish to try to negotiate more equitable terms for your particular situation. Some banks are willing to work on a case-by-case basis with borrowers, so you may be able to get your credit report adjusted if you speak directly with the lender.

A final option is to place a notation on your credit report, detailing your situation. While this may not make a big difference in your actual credit scores, lenders who pull your credit report will have a more accurate picture of your current financial situation, as well as an understanding of your commitment to pay your creditors on time. By being aware of the potential damage to your credit scores before you enter a loan modification agreement, you can take steps to minimize the negative effects.

Posted in credit scores, loan modifications, mortgage readjustment | No Comments »



Nov 21, 2009

“No FICO” Credit Cards – Understanding the Scam

Qualifying for additional credit is one of the many reasons people work to keep their credit scores healthy. The allure of a credit card that does not require a credit check is one that appeals to many. Secured credit cards, those which require a deposit in order to be issued following to this category. However, typically the credit limits are low — anywhere from $200-$500 — unless the amount of the deposit is significant. “No FICO” credit cards promise credit limits of $50,000-$100,000, all without pulling your credit limit. But there’s a catch — you have to pay for the processing fee upfront (typically $500-$600), and your credit card is actually tied to a trade line with the bank.

Most, if not all, of these offers are scams — you pay the money and you receive nothing in return. The most famous of these “no FICO” credit card companies is a known scam, and the Attorney General has made an arrest in connection to the fraudulent credit scheme.  London Exchange, based out of Santa Ana California, has allegedly scammed consumers out of hundreds of thousands of dollars. The owner of this company is currently under arrest; however, there are no details about whether or not the consumers who were scammed can expect to see any of their money returned.

However, even if some of these “no FICO” arrangements are legitimate, they do nothing to help you improve your credit score, and in fact may only cause more financial troubles down the line. Because you essentially sign an agreement to be responsible for the trade line, you could be held responsible for other individuals’ payments on the same trade line. So if one individual on the agreement racks up debt and then defaults, everyone else using the trade line may then be charged and held accountable for that default.

Assuming that everyone pays as agreed and no one defaults on the trade line, there are still problems – namely, that all of your timely payments are doing nothing to improve your credit scores, or help you to reestablish a solid history of repayment on your credit report. The bank issuing the trade line does not report these payments to the credit bureaus, as the credit is never applied for in your name. While some individuals may see this as a benefit, due to the fact that it will not show up as a financial obligation when someone pulls the credit report, it still must be listed on any applications for new credit, and failure to do so could be considered fraud.

Credit troubles are becoming more common in the current economy, as individuals who may have had excellent credit scores in the past struggle with unemployment, rising housing costs, and other financial issues. As credit limits are lowered even for individuals with an excellent history of repayment, and people continue to look for alternative methods of financing, one can expect these types of scams to continue. Your best option when it comes to evaluating any potential extension of credit is to be vigilant with your research, and to turn down any offer of credit that requires high fees up front.

Source: http://ag.ca.gov/newsalerts/release.php?id=1813

Posted in FICO, credit card offers, credit cards, credit scores | No Comments »



Nov 5, 2009

New Credit Laws – Tactics the Credit Card Companies are Using to Charge You More

When the new credit card laws went into effect in late August, it was seen as a good first step to creating fair credit terms for all consumers. While this is still the case, many individuals may be facing higher payments than they were under the old laws. This is due to changes the credit card companies have made in an effort to reduce potential losses due to the new regulations. If you’ve been hit with any of the following tactics, there are a few things you can do to help improve or maintain your credit scores.

Last Minute Interest Rate Hikes – Many credit card companies sent out notifications detailing higher interest rates and other terms in advance of the new credit card laws. Some of these notifications may be confusing to consumers, due to the fact that the listed changes may not take effect for several months. Here’s the bottom line: if you received a notice of a change to your credit card’s terms before August 20th, you only have 15 days to opt out, even if the proposed changes don’t take effect until months later. Don’t wait to take action, and be sure to read the fine print in order to avoid having your account closed, or assessed additional fees.

Changes to Minimum Payments – Some credit card companies are also raising the amount you have to pay each month if you carry a balance – up to 5% from the typical 2-2.5% seen in years past. While you can’t always opt out of these changes, in some cases you may have the option to write in and retain your old rates. Be careful with this option, however, as some companies will close your account if you opt out of their new terms.

Increased Penalties for Late-fees and Over-limit Fees – While these types of penalties are easy to avoid if you pay your bills on time and stay within budget, credit card companies are also reducing consumers’ credit limits without providing any notice. Because the credit card companies aren’t required to inform you about changes to your credit limit, you could rack up over-the-limit fees without realizing it until your statement arrives in the mail. Your best defense against this is to sign up for alerts that will let you know when you are approaching your limit, coupled with regular vigilance through online access or customer service, so that you always know your limit before you go shopping.

Another way to avoid paying extra: Opt out of over-limit purchasing altogether.  Companies are now required to allow you to do this, but you will have your credit card declined for any purchase if that purchase would take you over the limit. If you typically keep your balances low, but aren’t sure about your credit limit, this is one way to avoid getting hit with additional fees.

Most credit card companies allow for automatic payment of your bill, either in full or the minimum balance, monthly. By taking advantage of these programs, you can eliminate the chance that you’ll be charged a late-payment fee on your accounts as well. Just keep track of your due dates and be certain that you have the funds readily available to cover the automatic bank draft, or you could wind up paying just as much, or more, in overdraft fees from your bank.

Posted in credit card companies, credit card laws, credit scores, interest rates, late fees, overlimit fees | No Comments »



Oct 27, 2009

Credit Cutbacks – Has Your Limit Been Slashed?

In an effort to minimize potential losses as a result of the new credit card laws that went into effect on August 20th, many credit card companies are slashing credit limits for customers who carry a balance from month to month. This can be true even if you’ve never missed a payment, and have been responsible in paying your other bills on time.

While changes in interest rates require a notice, these reductions to your credit limit can come without warning, leaving many uninformed about the reduced limits until they receive their monthly statement. Reductions of hundreds or thousands of dollars are not uncommon, and can really put a dent in your credit score, regardless of how responsible you are when it comes to making on-time payments each month. What’s worse, you may be hit with over-the-limit fees on newly reduced balances, when your original spending was well-within your old credit limit.

Many consumers are surprised to realize that unlike interest rate changes, changes made to the credit limit can be done at any time, without informing the consumer. This means that even if you have a $1000 credit limit today, there is nothing stopping the credit card company from lowering that limit to $800, or even $500 tomorrow. The only way to stay informed is to check your account information regularly. If your credit card company offers online access to your account, it may be helpful to check your credit limit in this way.

Another option is to set up an alert that will send you an email or text message when you are approaching your credit limit, but this may not be as helpful in terms of saving your credit. Why? The ratio of how much you spend on your cards, versus your available credit limit is a factor in calculating your credit scores. If you wait until you are only a few hundred dollars away from your limit to set an alert, the damage to your credit score may already be done. While you will avoid any sneaky over-limit fees, you won’t be able to prevent the hit to your credit score that comes from over-utilization of available credit.

If one credit card company reduces your balance, others may follow suit as your available-credit-to-debt ratios will now categorize you as a higher risk. While the logical option would seem to be avoiding the use of your credit cards altogether, this choice can backfire, as many credit card companies are actively closing accounts that do not have any activity after a few months. Your best option is to continue using your cards, and pay off the balances each month if at all possible. This will keep you from having an account closed for inactivity, and it will also keep you from being targeted for credit limit reductions due to carrying a balance each month.

While there is no law that requires your credit card company to keep you informed about your credit limit, you can remain informed by keeping a close eye on your balances, either online or via customer service. Don’t let surprise credit limit reductions derail your good credit – set up alerts, check your balance regularly, and pay off as much as you can to avoid unpleasant repercussions.

Posted in credit card companies, credit card laws, credit scores, overlimit fees | No Comments »



Oct 12, 2009

Why You Need a Credit Card

If you are trying to rebuild your credit, you may think that your best option is to get rid of all your credit cards, or to avoid buying items on credit in the future. However, nothing could be further from the truth; in fact, if you don’t have any credit cards at all, you might find that it takes longer to repair your credit. Even if you’re getting out of debt and paying other bills on time, without a credit card, rebuilding a positive credit history can be difficult at best.

Your credit score is not determined by any one type of credit. Loans, credit cards, and other financial obligations all play a role. In general, credit cards are an important aspect in boosting credit scores because credit cards are an ongoing gauge of how well you pay back your debts, how you manage debt, and how responsible you are when it comes to spending. If you can maintain low balances, pay your credit card bills on time each month, and maintain a solid history of repayment, your credit scores will rise.

Getting rid of credit cards in an attempt to boost your credit scores will backfire. A better option is to choose one or two cards with a decent interest rate, and keep those accounts open and current. You don’t need to charge much – it’s actually better if you keep your purchases anywhere from 10% – 30% of your overall credit card limit. This demonstrates to creditors that you can be responsible with the credit you are given. It also makes it easier for you to pay off the credit card in full each month, which is another way to rebuild your credit scores.

If you have several credit cards, you may wonder which cards are best to keep, and which accounts (if any) you should close. In general, keep your credit card account open if:

You’ve had the card for several years. Having a long credit history is more beneficial than having a short one.

You have a balance on the card. Canceling an account while you still have a balance can wreck havoc on your available-credit-to-debt ratio.

The interest rates are low. Lower interest rate cards can not only save you money, but they can make it easier for you to stick to your repayment goals as well.

When should you cancel a credit card? In general, if the interest rate is high, or if the credit card company uses double-billing, it’s probably a good idea to get rid of that card as soon as the balance is paid off. The only exception to this is if the credit card is one with a long credit history. You don’t want to cancel your oldest cards, so in this instance, your best option would be to charge a very small amount on the card each month, and then pay it off again as soon as possible to avoid the extra interest hit.

If you are trying to rebuild your credit, you don’t currently have a credit card, and don’t think you can qualify to get one, try a secured credit card instead. With a secured card, you put down a deposit for a specified amount (usually anywhere from $200-$500) and in exchange you receive a credit card with a limit equal to the deposit. Charge only a small amount on the card, and then pay it off each month – this will let you build your credit, even if you don’t initially qualify for a regular credit card.

Regardless of which route you choose, getting and maintaining a credit card account is an essential part of any credit repair plan. Don’t assume that all credit is “bad” credit. If you want to be successful in increasing your credit scores, you’ll definitely need a credit card – just be sure to pick one that’s easy to manage, and don’t let the balances get out of hand.

Posted in available credit to debt ratio, credit cards, credit history, rebuild credit, repair your credit | No Comments »



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