Consumer Credit Blog

Lower Mortgage Rates?

admin — Sat, 03 Jan 2009 00:31:41 +0000

How Low Will They Go?

It seems that the current credit crisis may have at least one silver lining. That is mortgage rates for both new and refinance mortgages are approaching historic lows and they are likely to go even lower.

It was reported in the Seattle Real Estate News today that the Federal Reserve expects to start purchasing buying mortgage backed securities from lenders later this month. This move will free up lenders to start writing new loans once the bad mortgage debt is off their books.

Many mortgage lenders have already noted a substantial increase in requests for refinancing. While the National average is around 5.25 percent for a 30 year fixed mortgae a quick look today showed it would not be hard to track down a refinance in the 4.5 percent range right now with no points. If you are one of the fortunate ones who still has a solid credit history this may be the time to start watching for a lower rate.

Keep in mind not everyone will qualify for these ultra low rates. A solid credit score and at least 20 percent equity or down payment will probably be required. Jumbo loans or those over $417,000 will almost certainly pay a higher rate by as much as 3 percent. Even so it may pay to start watching the rates now. Those with a present mortgage of 6 percent or higher are likely to benefit from a refinance in the days and weeks ahead on a 30 year fixed mortgage or refinance.

It’s possible that as the rates lower more new mortgages will start to move some of the inventory of homes off the market later this year. For now, let’s see how low they will go.

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Credit Cards Use or Lose?

admin — Sun, 28 Dec 2008 23:10:17 +0000

Use ‘em or lose ‘em: Keeping Your Credit Card Accounts Active

Lately, Credit cards issuers have been closing inactive credit card accounts. This is partially due to the current credit crisis and sub-prime mortgage mess. With the tightening credit markets many credit card issuers have been stepping up the closing of inactive accounts. This is because the inactive accounts are considered a risk to the lender and are not generating any profit for the credit card issuer.

If you like many other Americans have a few credit cards lying around that you don’t use and that don’t have a balance (that’s a good thing) you may want to dust them off and make a few small purchases. Make only charges you know you can pay off right away.

This is really important if your account is one of the older ones you have or if all your other credit cards are near their credit limit. The age of your account and available balances all tie into your all important credit score. That’s why maintaining an active line of credit on your credit card is important step to take.

So, in order to avoid having the credit card issuer close your account due to inactivity, dust off the credit card(s), make a small purchase or two and pay it off when the bill comes. Repeat this once or twice a year with all your credit cards and you’ll help to avoid having the lender close your credit account and thereby maintain your credit score.

While this is no guarantee that your account won’t be closed it does go a long way to showing you still intend to use the card and more importantly, have the ability to pay the bill when it comes.

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Personal Loans

admin — Tue, 23 Dec 2008 19:10:19 +0000

Personal loans are usually short term loans to be paid back within a short amount of time, typically two to five years. Unlike a mortgage or car loan a personal loan can be used for any reason the borrower would like to use the money for such as a vacation or wedding.

When it comes to personal loans there are two basic types, secured personal loans and unsecured personal loans.

Secured Personal Loans

With a secured personal loan the borrower puts up something as collateral be it personal property or other asset. If the borrower defaults on the loan the lender gets the property. These loans typically come with a lower interest rate as the lender has less risk. Secured loans are also available at many credit unions as “share secured” loans. These loans are backed by the borrowers account balance. Much as if you were to borrow form yourself. The advantage with a secured loan is the lower interest rate. The disadvantage is that the asset put up as collateral can be tied up for the duration of the loan.

Unsecured Personal Loans

Unsecured personal loans are more common. With an unsecured personal loans (they are also called signature loans) the lender accepts the lenders word or signature that the loan will be repaid. The lender has considerable more risk with an unsecured loan because in the event the borrower defaults on the loan it will be much harder to get the debt repaid. For this reason unsecured loans come with a higher interest rate than a secured loan. The interest rate is determined by the borrower credit worthiness. Credit worthiness is many times determined by the borrowers “credit score“. The credit score factors the past borrowing history of the borrower and the likelihood the loan will be repaid according to the terms in the loan. Because of this it is difficult for people without a credit history to obtain an unsecured personal loan and they will pay a much higher interest rate for the loan.

Many banks and credit unions offer personal loans. It helps to have a prior business relationship with the lender such as a checking or savings account.

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Repairing Bad Credit

admin — Sun, 21 Dec 2008 21:52:37 +0000

If you’ve gotten into a situation where your credit worthiness is damaged don’t worry, no matter how bad your credit score is there is always room to improve it. Below are some tips to start down the road of credit repair.

1. Get your free credit report from AnnualCreditReport.com. Check it over carefully, is everything correct? If anything is inaccurate contact the credit bureau using these guidelines at the Federal Trade Commission (FTC) website correcting your credit report.

2. Pay all of your bills on time. Late payments negatively impact your credit score. If you can not make payments contact the lender to make arrangements for a modified payment plan. Many lenders will work with you but you need to ask!

3. Pay off highest interest loans first. Focus the largest payment you can to reduce the highest interest rate and not necessarily the highest balance. While you want to be sure and make payments on every account, eliminating the highest interest rates will bring the total balance down faster.

3. Consider getting a secured credit card. A secured credit card requires a balance (often between $300 and $10,000) be deposited against the credit limit. Make payments each month to build a payment history. Many lenders will offer an unsecured credit card after a consumer shows a consistent payment history with a secured card.

4. If you have any, do not close old credit card accounts. Many people will tell you to close old accounts but part of you credit score history. Maintaining an old credit card even when it’s not in use will not hurt (and will probably improve) you credit score. Additionally closing an account will increase the percentage of available credit used. Creditors look at how much of a consumers available credit is use to determine risk. Someone with every account maxed out raises a red flag.

5. Watch out for scams, the credit repair market is full of scam artists offering instant credit repair and debt reduction. This is especially true of those charging a fee to eliminate your debt. Use the money to pay down your debt. Thoroughly check out any company before doing business with them. The old adage is still true, if it sounds too good to be true, it probably is.

The only thing that will repair bad credit is time and a consistent payment history.

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Credit Score

admin — Sun, 21 Dec 2008 19:56:19 +0000

What is a credit score? Well it’s a mathematical analysis of a person’s credit worthiness that translates into risk to a potential lender. Many lenders use a credit score to determine if a loan should be issued and if so what the interest rate should be. This is all based on the risk to the lender. The first thing that is needed to compile a credit score is credit information.

In the United States there are three major three major credit bureaus that maintain credit information they are: Experian, TransUnion and Equifax. Each of these companies offers its own credit score. Experian’s is called PLUS score, Equifax calls theirs ScorePower and the TransUnion credit score. There are also two other credit scores that are commonly used.

The first and most common is the Fair Issac Corporation score which is more commonly known as a FICO score. The FICO score ranges from 300-850. The FICO score is the most widely used throughout the world and is available from all of the major credit bureaus.

The second is a called a VantageScore. VantageScore was developed by the three major credit bureaus to compete with the FICO score. The VantageScore ranges from 501-990. Only in use since 1996 it has yet to bee seen if it will seriously compete with the FICO score. The credit bureaus have advertised that VantageScore will more accurately predict potential risk to a lender.

Now that we know what a credit score is how is it calculated?

While the exact mathematical model used to make up the score isn’t know, it’s pretty easy to see what would have a positive or negative impact on a credit score. Below information is from the VantageScore website on what makes up your credit score.

Payment History: Repayment behavior (satisfactory, delinquency, derogatory)
Credit Utilization: Percentage of credit amount used/owed on accounts
Balances: Amount of recently reported balances (current and delinquent)
Depth of Credit: Length of credit history and types of credit
Recent Credit: Number of recently opened credit accounts and credit inquiries
Available Credit: Amount of credit available

It’s a common misconception that you can get a free credit score every year. While it is true you can get a free credit report annually from Annualcreditreport.com if you want to see your credit score it will cost you an additional fee. Still, getting your credit report is very important to ensure that the data used to make up your credit score is accurate.

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