I recently met with a couple who had relocated to the Seattle area and were ready to make an offer on a home. They’re very qualified with their income stability and enough savings to put a twenty percent down payment on their next home. What surprised them was the credit report. [Read more…]
Why It Pays to Get Preapproved Early: You May Think You Know Your Credit Score
April 7, 2010 by Leave a Comment
The Fed is Getting Tougher on Credit Card Companies
January 15, 2010 by 2 Comments
In a press release earlier this week, the Fed announced they have approved the final rule amending Reg Z regarding credit cards which will go into effect on February 22, 2010. The new rules set tougher guidelines on credit cards, especially with regards to protecting consumers against rate changes and how they are billed.
No interest rate increases for the first twelve months. There are some exceptions such as if you have a variable rate tied to an index; if your rate is an introductory rate (which in that case, your rate must be fixed for a minimum of 6 months); and if you're more than 60 days late on your bill.
Increases to your interest rate can only be applied to your new balance. Your old balance will keep the lower rate.
Payments will be applied towards the highest interest rates first when you pay more than the minimum payment. (Some exceptions may apply).
Statements must be mailed or delivered at least 21 days before your payment is due. Your due date should always be the same day of the month unless it falls on a weekend, in which case your due date will be the following business day.
Charges you make "over the limit" may be restricted (not allowed) unless you give your credit card company permission.
If you're under 21, you may need a cosigner such as a parent, to obtain a credit card. Guess those credit card companies will have to stop preying on college students unless Mom or Dad agree to cosign.
No two-cycle (double-cycle) billing. According to the FOMC's site "credit card companies can only impose interest charges on balances in the current billing cycle.
When your rate or fees are going to change, you must be notified 45 days priorto the change taking place. You will have the option to refuse the change, however this probably means that your canceling your account. If you do refuse the change, and your account is canceled, the creditor can impose higher payments by requiring to pay off your account in five years. NOTE: Canceling your account may be damaging to your credit scores. Should you get a notice that your rate or terms are changing and you don't agree with it, you are probably better off (as far as your credit score is concerned) paying off the card by applying more principal than canceling it with the creditor.
New monthly statements will show you how long it will take you to pay off your credit card making minimum monthly payments as well as what your monthly payment would need to be if you wanted to pay off your card in three years.
I applaud the new credit card rules. Since their not going into effect until February 22, 2010 you may want to keep an eye on your interest rates…with just over a month before they take place, sly credit card companies may try to sneak a few changes in before things get tougher.
Overdraft Protection and Your Credit Score
November 18, 2009 by Leave a Comment
I have to admit, a lot of my content for the articles I write come from my clients or other home owners who have really good questions. When I can't find an answer ready to refer them to here at Mortgage Porter, it's time to write a post! Here's a great example of a question I recently received from one of my refi clients:
"I have a question about a possible impact on our credit score, which you may have some insight into. We have been meaning for some time to get overdraft coverage on our checking account for "just in case" and today, we got that lined up. However, I'm reading over the documents from our bank this evening and it looks like they just issued us a credit card. Is this something that would play poorly on our FICO score?"
Overdraft protection is often a new credit card issued from your bank that is attached to your bank account. Because this is "new credit" it will impact credit scores.
According to Linda Ferrari's book "The Big Score – Getting It and Keeping It"
"New accounts will lower your overall account age and diminish your length of credit history for a period of 3-6 months, so be sure to have cushion in your score. Even if you've used credit for a very long time, opening a new account can lower your credit scores."
How much your score is impacted is hard to say–it depends on your overall credit picture. If you're someone with perfect credit and 800 scores, your credit score may be barely impacted. However, if you are someone with pretty good credit (around 720) BEFORE the new debt (over-draft protection) and you're considering a refinance or using a mortgage to purchase a home, you might have just dipped your credit low enough to have been impacted by higher mortgage loan rates.
Overdraft fees can add up quick and due to recently regulations by the Fed preventing banks from charging overdraft fees on certain transactions (ATM/debt cards) which will go into effect July 1, 2010, banks are sure to offer overdraft protection to help make up for lost revenue.
The Federal Reserve Board on Thursday [November 12, 2009] announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
If you are considering adding overdraft protection to your bank account, do find out what type of account it is: a line of credit (or credit card) or maybe it's attached to your savings account. If you are considering a mortgage (or other type of financing where credit scores are considered) you may want to delay obtaining overdraft protection until after your transaction has closed to avoid having your credit score dinged.
Book Review: The Big Score by Linda Ferrari
October 28, 2009 by Leave a Comment
Last month I had the opportunity to speak at The Mortgage Girlfriends Mastermind Summit and to meet Linda Ferrari. Linda is someone who I’ve known of for a long time. She’s an expert at credit scoring and is passionate about consumers knowing and understanding their credit score. She is the author of “The Big Score — Getting It and Keeping It”.
This book is a great resource–for young and old alike. We are impacted everyday by our credit scores and Linda does an excellent job shedding light on mystery of credit scoring. Her book is structured in an easy to read and research format. If you need help working on repairing your credit, you’ll find step by step advice in this book. It could be the best $20 you ever spend.
For the record, I paid for my copy and I am not receiving any compensation for my review.
New Credit Card Regulations and Games Creditors Play
October 21, 2009 by Leave a Comment
The Credit Card Act of 2009 was recently signed into law by President Obama with many positive benefits for Americans. Here's some of the Act's features:
- written notice must be provided at least 45 days in advance of a rate increase or significant change in terms.
- prohibition of universal default.
Consumers have the right to refuse a proposed higher rate, and the credit card company may close the account and demand the account be paid off within five years.
One of my clients, with excellent credit scores, recently had two of her department store credit cards inform her that they were going to jack up her interest rates around 5% higher for really no reason at all. She has the right to refuse this and if she does, they will close her accounts. This will most likely show on her credit report as a "closed by grantor" which doesn't look pretty. Even though my client has great credit, this looks as if she had an issue with paying credit and it was the creditor who closed her account–not her. Regardless, a closed account with a balance on it may be damaging to your credit score. Here choices were to accept a 5% higher interest rate or have her account closed with a payment amortized for 60 months (much higher payment).
What did I recommend for her personal scenario? NOTE: Your scenario may require different actions…everyone's situation is unique.
She is currently in the process of a rate-term refinance to reduce her interest rate and to convert her adjustable rate mortgage to a 30 year fixed rate. With her personal scenario, she will use a combination of the refund of her existing reserve account from the mortgage servicer who is being paid off and the "skipped" mortgage payment to apply towards paying off these two department store credit cards. She's lucky.
And it's not just department stores who are jacking up credit card rates on consumers…banks are too:
"Millions of Wells Fargo & Co. credit card customers will soon feel the pinch of higher rates, as the bank and other major credit card issuers rush to get ahead of new consumer protection rules that would limit their ability to jack up rates.
The San Francisco-based bank, the nation's eighth largest issuer of credit cards with $22.3 billion in total balances, said Wednesday it plans to raise interest rates by 3 percentage points on the "vast majority" of its 5.9 million credit card customers. The higher rates will go into effect on Nov. 30 — one day before Congress wants to enact new rules that put strict limits on rate increases on existing credit card accounts. Customers of Wells Fargo will begin receiving letters as early as today notifying them of the change."
Although the Credit Card Act of 2009 is intended to help consumers, it's not going to totally stop the games credit card companies and banks play. Before you react, it's important to know what your options are and how it may impact your credit scores. This is a great "excuse" to obtain a tri-merge copy of your credit report to review your scores and what's being reported about you and your credit.
When Your Credit Score Drops During a Mortgage Transaction
July 8, 2009 by 2 Comments
I recently received a phone call from a home buyer who was anxious because her mortgage originator had informed her that her credit score was below 720 and according to her LO, she no longer qualified for private mortgage insurance for the home she was in the process of buying.
Your credit scores are constantly changing. When your credit report is pulled, it's only a snap shot of your scores at that time. Recently, conventional lenders shortened the amount of time they will allow for a credit report to be used from 120 days to 90 days from the date the credit report was pulled. If your credit report is expiring before your transaction is closing, it may impact you for better or worse–with underwriting guidelines and/or pricing of your mortgage rate. Depending on what your loan to value is (how much home equity you have or down payment you're using) an expiring credit report with a dropping score can be detrimental to your loan approval.
Here are some steps you can take to try to make sure that your credit scores remain steady during your transaction.
- Be aware of when your credit report is going to expire.
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Do not make changes to your credit profile including:
- Do not pay off and/or close accounts (without first discussing this with your loan originator).
- Do not make or finance large purchases.
- Do not obtain new credit.
It's possible to do something as innocent as paying a collection on an overdue library book only to have your credit score drop.
You might consider meeting with your mortgage professional well before entering a mortgage transaction (refi or purchase) to review your credit and to see if there are actions you can take to improve your credit score.
If you find that your credit score has dropped during a transaction, take action immediately. Find out how this may impact your loan approval and/or interest rate and learn what your options are.
Credit Scores for the Ages
January 2, 2009 by Leave a Comment
I’m taking a few days off from “blogging” to enjoy a little break…this article was orignally posted at Rain City Guide. You can read the original, along with comments, by clicking here.
It’s funny how sometimes a post will take on a life of it’s own within the comments…such is the case with my recent interview of Jillayne Schlicke. My intentions were to call out to Washington State LOs to make sure they’re up to speed with the new year approaching…the comments have turned into a discussion of credit scores. Most likely because of Jillayne’s prediction:
“I expect that underwriting guidelines will continue to go up as banks and conforming paper sold to Fannie and Freddie will raise minimum credit score requirements to 800 and require 20% down. Everyone else will be pushed to FHA.”
Ardell offered stats from 2005 on credit scores and age so I thought I’d share credit score information from credit reports I’ve provided since the start of 2008. Not all of the subjects obtained a mortgage loan.
- Age 18 – 29: average credit score = 697. Don’t let age fool ya, this group had a high score of 807 and a low of 513. (This group = 12% of the demographic).
- Age 30 – 39: average credit score = 735. High score of 811 and the low at 614. (36% of demographic).
- Age 40 – 49: average credit score = 739. High score of 819 and a low of 592. (31% of demographic).
- Age 50 – 59: average credit score = 759. High score of 820 and the low at 680. (15% of the demographic).
- Age 60 – 69: average credit score = 714. High score of 813 and a low at 589. (4% of the demographic).
- Age 70 plus: average credit score = 805. High and low score: 805. (1% of the demographic).
The average mid scores, year to date credit reports I’ve ran is 732 for the borrower and 720 for the co-borrower. This means that if they are considering locking, the rate would be based on the lower of the two mid scores. I’m also pleased to see that the credit score criteria that I use (credit scores from 720-739) seems to be appropriate for when I’m post.
From the same interview with Jillayne post, Ardell asks:
“What good is it to say interest rates are at 5.875%, if only people 70 plus can get that rate? False advertising…no? If the average person buying a home can only get a rate of 6.5%, then we have to stop encouraging people to think their rate is going to be something that is unlikely”
Using the credit score data above, it’s very likely that the younger group would be FHA candidates. Not just because of having an average credit score of 697, most are still working on building their savings and do not have 20% down payment. Combine a 697 mid score with a 90% loan to value and (now costly) private mortgage insurance and FHA may be the better option. The key is to investigate all available options if someone decides they should buy a home at this stage of their life.
The next two groups, 30-49 year olds, would fit the rates that I quote at RCG since the credit score criteria I use is based on 720-739. Based on Friday’s rates, their rate would be 5.875% at 1 point (total shown in lines 801, 802 and 808 of the Good Faith Estimate or HUD). This combined group is 67% of the applications with credit reports that I have worked with year to date.
Credit scores 740 and above qualify for a slightly better rate. Based on Friday’s scenario, they would have 0.25% improvement to fee–so 5.875% would be at 0.75% points (using the above example). Or depending on how rates were, they could possibly obtain an 0.125% better rate.
The slight dip in average credit score to 714 for ages 60-69 I think just reflects that “life happens”. Maybe something medical has taken place or you were on vacation and thought you paid that credit card or you’re helping your kids with college or you have an unknown parking ticket or an overdue library book turned into a collection. I’ve seen many surprised people over the years where they had no idea their credit score dropped. This is in no way a reflection on this age group, it’s just how the stats came in for this report based on my data.
FHA credit scores (where the credit report was ran and FHA was the identified loan program, the loan may be closed or just prequalified) averaged 680. FHA is not as credit score sensitive as Fannie/Freddie. FHA is looking for clean credit (no lates) in the past 12 months.
This data is hardly scientific and is really just a reflection of the people I work with which is really pretty diverse. I don’t advertise or do cold calling or try to “specialize” in a niche market…so I’d like to think that this group is a good “norm”.
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