Can Renting Build Credit History

 
Historically building an impressive credit history and higher score was done by paying mortgage, student, and auto loans as well as credit cards on time. The tracking of other reoccurring payments such as rent, cable, utility and mobile phone payments wasn’t taken into account. Even if someone never missed a payment they would still end up with no credit to speak of.
 
Two of the major credit bureaus: TransUnion and Experian are now incorporating rental data in the credit profiles. So paying rent on time can now be an opportunity to increase your credit score.
 
These two bureaus are gathering information through RentTrac. So renters that use RentTrac to make payments are providing information to Equifax and TransUnion.
 
A study done by RentBureau found that after Experian started gathering this information 97% of the study group built a credit score based on their payment history.
 
This also benefitted people already with credit scores also by increasing them 29 points on average.

More Changes?

While bureaus don’t currently count payments on utility, cable, mobile phones, doctors and hospitals, there is a support growing for including some of these into credit history as well.
 
The reasons for this support is because currently paying your phone bills on time doesn’t do anything for your score. However if you fall behind and it goes to collections, that will have a negative impact on your credit score.
 

Credit history, scores may improve with bureau changes by csmonitor.com

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Jack’s situation was that he had paid off several bills with a bonus check from work about 10 days ago.  He had called the three credit card companies involved and verified he had indeed posted the payoffs which totaled almost $6000.  He then had his mortgage broker pull a new credit report thinking he would have the increase in credit score that he thought the payoffs would give.  He only needed about 17 points to qualify for this loan but was told that his scores had actually gone down 2 points from a month prior.

Well this is what prompted Jack’s call.  He was confused and upset that he had read something I wrote previously about how FICO computes credit scores.  He thought that by freeing up his credit lines and paying down the debt would help his credit scores.   Was he right?

Upon review of Jacks credit report it did look like he would benefit from a score increase by paying down the $6000 of the $9000 worth of credit lines to cut his outstanding credit line usage from 67% overall to 0%.  so why didn’t he get any boost in his credit score?

Well. the answer to this in one of the myths regarding credit reporting.  Credit Scores are computed only on a snapshot of a credit report at the exact time the report is requested.

The problem is that most creditors only report to the credit bureaus one time per month.  Credit Bureaus are NOT real time so if you make a payment or payoff an account as in Jack’s case it might be days or weeks before the creditor reports it to the credit bureau and thus any FICO credit score change taken into account.

After Jack realized what was happening he was relieved that the bump he hoped for in credit score was most likely just a couple weeks away.  But Jack did ask a very good question…This process seems screwed up, most everything else we deal with is in real time, why aren’t the credit bureaus?

It is 2011 almost, right?

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On occasion, I am asked are things better or worse?

People are trying to be as responsible as possible to increase their credit scores because the reality is going down the road good credit is going to be necessary for any type of credit purchase from home ownership to low interest rate credit cards.  My hat is off to those working hard to maintain good credit or get out of the credit prison that low scores can bring.

There are many things as consumers we need to be aware of when it come to credit. Keeping an eye on what the “Bankers” say can be a forewarning of things to come. On the credit front according to Fitch Ratings credit card defaults fell to a 15 month low.  Michael Dean, a managing director at Fitch, tempered this welcome news by saying: “The trends are encouraging, but card defaults are still elevated historically and are expected to remain so.

FICO just released a report “US consumer Credit Risk” their trends and expectations for the 3rd qtr 2010. This report is a compilation of numerous banks and creditors both large and small.  Basically the survey covers 1) short term forecast for credit card delinquencies.  2) short term predictions for demand for consumer credit and the lending environment. 3) short term outlooks specifically for the existing customer credit balances and the level of charge offs from credit portfolios.

This FICO survey show a pretty grisly outlook coming for the next couple of quarters.  As a summary 53% of the respondents expect a rise in mortgage delinquency and only 14 % expect a decrease.  42% expect a rise in credit card delinquency, 49% an increase with student loans and 47% increase with small business loan delinquency.

With the vast majority of bankers expecting delinquency rates to increase or at best stay the same what does this mean to us Mr Joe Average consumer? Less access to credit and a tougher time getting it!  Yep, you can “bank” on it!!

This survey reports that 99% of the “Bankers” expect an increase or at minimum same scrutiny overall on risk management.  This simply put means they are going to watch their credit portfolios like a hawk!  It’s reported that 36% expect less credit to be granted and 39% expect the same credit as last qtr to be granted.   Overall 46% of all creditors expect approval criteria to get much tougher and 65% expect that when credit is granted a lower limit will be approved than in the past.

It’s just the way things are right now.  Like it or not credit scores are at the forefront of what we can do or not do.  If you’d like to get more information on how to increase your credit score just let us know.

Be Bold!

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It’s true, new car loan defaults are decreasing!

There are some interesting facts.  Taking a look at the 720 credit score plus category FICO reports that in the May to June 2009 period 1 out of every 411 borrowers went 60 days or more past due on their new car loan payment.  During the same time period in 2008, 1 out of 288 fell past due in the second year which is a 43% reduction.

If you look at the same time periods but in the credit score range or 300 to 599 you’ll find almost an 11% 60 day delinquency rate for new car loans during the period ending April 2009 and a huge reduction down to 8% for the same period ending 2010.

At first glance you can say “YEAH” for the credit companies they’ve reduced delinquency!   Well they did certainly tighten down the lending criteria over the last couple of years.  It’s not near as easy to get a car loan or for that matter a mortgage or credit card now as in the past.  But one underlying reason is that many people are much more cautious with their finances.  Many are asking themselves “do I really need that new car or can it wait till next year?”   Many are holding off making bigger ticket purchases over fears of the economy.  Perhaps having been thrown a curve ball over the last couple years people are saying “time out” before jumping into a new debt.

Bottom line, many people by pulling back the reins, working hard to correct credit problems that have popped up over the last couple years are positioning themselves for an improved financial future by building up the savings reserves, paying down debt, and responsibly getting some credit repair done when needed.

So delinquency in the new car department is down.  Some help given to the tighter credit standards but my belief is a huge portion of credit here goes to a more thoughtful and financially prudent consumer.

Keep up the good work!

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One of our consultants popped in yesterday afternoon to drop off a deal (a good thing).  He was telling me of a situation he ran into and wanted to know what kind of an effect it could have on his prospects credit score.

Well the situation was a $110k line of credit which had a balance of 96k.  This particular credit line was rated R-1 paid as agreed.  A perfect rating, right?  or was it?

Unfortunately we see this kind of thing all the time…“but wait” you say, this is a good thing!  Well, upon further investigation I found out this was actually a home equity line of credit, which makes sense.  I mean how may visa cards do you see with a 110k credit line?

Let’s look at this a couple of ways.  First thing is it’s a home equity line of credit so it’s tied to real estate which makes it a mortgage loan, right?  Well, yes, it is a mortage albiet a line of credit which by definition means revolving, right?  so is the R-1 rating correct or should it be M-1?

Survey says…it’s a Home Equity Line and while you don’t see this all the time the correct rating should be a mortgage shown as a Home Equity Line

When a creditor rates this line of credit as revolving or R-1 the FICO scoring system eats this alive because it sees 96K owed on a 110K available credit line so this person MUST be in trouble and might take a big hit to the credit scores.

When it is rated as a mortgage or Home Equity Line then FICO understands this is against real estate and grades it based more on payment history and not as heavily in the amount owed area.

So, then the question becomes “Why would a creditor do this?”  The answer is to keep your scores suppressed!  I know the truth can hurt but the reality is most creditors giving a home equity line do not want this line paid off.

Ok, so if they don’t want the line paid off then what’s the best way to keep these deals on their books?  You’ve got it!  By suppressing your credit scores, through misreporting, your options can become limited in what you might be able to do.  If your scores are suppressed you might not be able to get a mortgage refinance or another credit line at better terms so…..

It’s not fair but it is life and how most creditors play the game.  Fighting back is your right so if you find your HE Line of Credit rating like this it very well could be costing you money!  You can find out more about credit repair and should you make the effort to do it by CLICKING HERE.

Be Bold!

Herschel

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When you’re looking for a new mortgage many lenders evaluate your credit based on the “Three C’s.”

Credit
Is it likely that you will repay the loan? Are your payments on time and up-to-date? Are you financially stable and reliable?  What are your credit scores?  Today’s marketplace, most conventional lenders require your scores to be in the 700+ range and most FHA loans a 620 score or higher.

Capacity
Are you able to pay the loan? What kind of outstanding personal debt do you have? Do you have enough earning power and net worth to repay a mortgage or home equity line of credit?

Collateral
What is the value of the home you are purchasing?   The more money you put down the more favorable an applicant you become.   The zero down loans are pretty much a thing of the past so a down payment.  The lower the LTV or loan to value the lender is evaluating the better your odds.

There are a few more factors mortgage lenders look into when evaluating your capability of obtaining a loan. To confirm your responsibility and stability they may examine:

• Your monthly income
• Occupation and length of time with employer (two or more years is ideal)
• Home ownership status and history
• How often you move or have moved; patterns of behavior and the timing of that behavior

And there are other examples such as, if you had a charge-off (when the creditor sells your debt to a collection agency) in your credit file from several years ago and you’ve been able to maintain your credit over the years, you will be judged differently from someone who recently had a charge-off.

But whatever the case, it’s imperative to get off on the right foot when rebuilding your credit.. It is important to establish good credit behavior as early as you can in order to build a solid credit reputation.

Essentially, credit bureaus will look for five main characteristics when determining how high your credit score will be.

In descending order, they are:

1. Past delinquency. If you have failed to make payments in the past, lenders fear you will repeat that behavior based on your bad credit history.
2. How your credit has been used. Have you maxed out or spent close to the limit on a credit card? If so, then you may be considered a greater risk than someone who is more conservative with his or her credit line. Do you pay off your bill every month or a keep a revolving balance?
3. How long you’ve established your credit history. The scoring models can judge each individual separately. Credit reporting agencies may take into account the duration of a person’s credit history.
4. Frequency of credit inquiries. It is recommended that you check your credit once a year to see if you have a good or bad credit rating. Creditors requesting reports several times in a short period may send a signal that you are applying for a lot of credit due to financial difficulties, or that you are taking on too much debt and overextending yourself.
5. Your credit variety. It is best to have a mix of installment and revolving loans (e.g., auto, credit cards, retail, etc). On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.

It is important to understand all the factors that determine if you have good or bad credit. It is never too early to begin building a good credit history and avoid bad credit inconveniences in the lending process.  In addition, you’ll want to perform a bit of credit repair on any of the bad credit if you have any inaccuracies, outdated or any credit items not validated being reported.

If you’d like you can find out more about your credit report by getting a free consultation (Click Here) we’d be happy to help you determine what needs to be done to “prepare you credit” before you apply for a new loan.

Post your comments and let me know your thoughts.

Be Bold!

Herschel

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That is the hundred dollar question!  The FICO score created by the Fair Isaac Company is one of the most shall I say “guarded” secrets at the credit bureau’s.  So much so that even senior executives under oath, have sworn they do not fully understand the exact reason for score movements under certain circumstances.

I mean why does one persons credit score who is at 750 drop 15 points with one 30 day late on a charge card and other person’s whose score is at 650 drop 50 points with that same 30 day late?  No other derogatory is reported yet Mr 650 had three times the point deterioration than Ms 750!

Fair?  Well, the truth is that there are so many factors that have been put into this system that the average persons head will spin (even the not so average) like a top trying to figure it out!

The algorithms that FICO’s crazy mathemeticians have created are not for the faint of heart!

FICO has a bit of a game that you can play to estimate your score.  It’s just a handful of questions that take a look at where your credit scenario currently is at.  If you want to get serious about credit repair and improving your scores then take a quick moment to check it out and PLAY HERE (click this) !

The thing you want to notice and study are the questions and the numbers of answers.  Every question has 3 to 10 possible answers thus giving you literally thousands of possible scenarios and THIS IS JUST THE TOY MODEL!!

After you’ve had a chance to play around with the “Toy” post a comment and let me know how it worked out for you!

Be Bold!

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What happens to your existing mortgage after bankruptcy filing?

When you need to declare bankruptcy, you usually will want to file either chapter 7 or chapter 13.  However, the consequences of filing chapter 7 are different from that of chapter 13.  The effects on your existing mortgage after filing bankruptcy are discussed below.

Consequences of filing Chapter 7:

Sometimes filing chapter 13 can be really expensive for the homeowners. In that case, filing chapter 7 bankruptcy is favorable for them. It can free you from your personal liabilities to pay back the existing debts.  However, homeowners may still be unable to keep their house after the discharge of bankruptcy depending on your state laws.  In addition there are earnings and asset guidelines that must be met to qualify.

Consequences of filing Chapter 13:

You can protect your home from a foreclosure by filing chapter 13 bankruptcy; however, it is advisable that you seek help from an experienced bankruptcy lawyer.  By filing chapter 13, you can work on a structured debt repayment plan, which can also take care of your monthly expenses. Usually, you need to repay your court trustee within 3-5 years. Chapter 13 can also give you automatic stay protection, which can prevent your creditors from suing you. It is also helpful to stop collection efforts during the repayment process.

Reaffirming mortgage debt:

If you want to save your home even after filing chapter 7 bankruptcy, then you need to file a reaffirmation agreement. Once you file the paperwork, the mortgage company may agree to work with you and also approve your plan so that you can clear the delinquent account within a specific time period. It means that you are agreeing to pay off the debt amount, which you owe to your lenders.

Paying for deficiency after foreclosure:

If your bank forecloses your property but cannot recover the unpaid debt, then you might have to pay for the deficiency.  If you are unsure if you can maintain your property and it’s debt service, then you should seriously consider when you are filing bankruptcy as the time to legally turn the property over and have the debt dissolved.

How do you qualify for a new mortgage after bankruptcy?

Go through the following steps to know how you can qualify for a mortgage even after filing bankruptcy.

1. Plan a budget and follow it – Analyze your financial status and prepare a budget. Try to follow it in order to save yourself from any more debt problems in the future.

2. Try to rebuild your credit – If you have any debts that exist after the bankruptcy discharge make sure to pay them on time. Check out using secured lines of credit or unsecured lines that you can aquire.  Even if you have a higher interest rate for a short time it will help rebuild your credit so that you can apply for a new mortgage loan within 2 years of time or so.

3. Get professional help if you’re not familiar with the credit laws to clean up the mistakes within your credit report.  It’s estimated that as much as 79% of all credit reports have mistakes and negative items reported.  If not reported correctly then credit repair may make sense and those bad credit marks must be deleted per the Fair Credit Reporting Act.

4. Check your credit reports regularly – It is really important to check your credit reports regularly. If there are errors, then fix them immediately.

5. Get ready for making a down payment – You may not qualify for a minimal down payment mortgage. Therefore, you may need to make a sizable down payment in order to qualify for the mortgage.

6. apply for FHA or VA mortgage loans – It is relatively easier to qualify for an FHA or a VA mortgage loan than that of conventional mortgage loans.

It is quite important to learn from your past mistakes, if possible. Therefore, you should not make any more late payments or leave medical bills unattended to. When you are taking out any loan/debt, you should carefully analyze your financial situation in order to ensure that you’ll be able to make the required monthly payments on time as you’ve determined in your budget as determined in the first step above.

If you’d like to find how much bad credit can cost Click Here

If you have any thoughts that might help others let me know or just let me know your thoughts on this post.

Be Bold!

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Today’s posting will give you the FICO credit score breakdown.   Knowing what to do and the areas to focus on when rebuilding your credit or if you’re looking to increase your credit scores can be the difference between success and failure.

The term credit score usually refers to your FICO score, a number based on a formula developed by the Fair Isaac Corporation, which looks at a summary of all your credit accounts and payment history. Your FICO (credit) score determines your access to and cost of credit. Most lenders use it as the main basis for loan or credit approvals, so the higher the better and the lower the more problems. FICO score ranges from 300-850, and Fair Isaac calculates them for each of the three big credit reporting agencies: Transunion, Equifax, and Experian.

Here’s how your score is determined:

• 35% is determined by your payment history. Do you regularly pay your bills on time to any creditor that submits your information to the credit bureau? Overdue medical bills, utility bills and other bills may appear here.
• 30% is based on the amounts you owe each of your creditors, and how that compares with the total credit available to you or the total loan amount you took out (debt to equity ratio). If you’re maxing out your credit cards, your score may suffer.
• 15% is based on the length of your credit history, both how long you’ve had each account and how long it’s been since you had any activity on those accounts. The fewer and older the accounts, the better (assuming you’ve made timely payments).
• 10% is based on how many accounts you’ve recently opened compared with the total number of your accounts, as well as the number of recent inquiries on your report made by lenders to who you’ve applied for credit. Your score can drop if it looks as if you’re seeking several new sources of credit, a sign that you may be in financial trouble. (If a lender initiates an inquiry about your credit report without your knowledge, though, it should not affect your score.) Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less. But every inquiry you trigger when you apply for a credit card can affect your score. So be selective.
• The final 10% is determined by the types of credit used. Having installment debt like a mortgage, in which you pay a fixed amount each month demonstrates that you can manage a large loan. But how you handle revolving debt, like credit cards, tends to carry more weight since it’s seen as more predictive of future behavior. (You can pay off the balance each month or just the minimum, for example, charge to the limit of your cards or rarely use them)

What’s not in your FICO credit score: Contrary to popular belief, your age, employment history and where you live are not used in determining your credit score. This is not to say this information won’t be considered by lenders when evaluating you for a loan, its just that it will not factor into your FICO score calculation.

By focusing on these areas in the order they are listed will help you obtain any improved results you might be looking for when it comes to your credit scores.

Let me know your thoughts on this posting…

Be Bold!

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