Credit Facts In The News Part 2

A very important part of your credit education is staying on top of credit facts in the news. This week we will take a look at things that are happening right now that affect your total financial future.

According to the L.A. Times, buyers who use FHA financing soon will be able to use their $8,000 tax credits for settlement fees, escrow charges, higher down payments or to "buy down" the interest rate.

The Obama administration has put out the official word: Starting soon, first-time home buyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing.

But in its final guidelines to lenders and buyers issued May 29, the Department of Housing and Urban Development clarified that buyers obtaining FHA loans through private lenders would have to invest at least some of their own funds -- whether from personal savings or gifts from relatives -- in the form of a minimum 3.5% down payment.

In other words, you'll need equity in the house to participate. This won't be a zero-down plan, with one exception: If you obtain your FHA loan through one of about 10 state housing agency "tax credit monetization" programs, you'll be allowed to pay for your entire down payment with the help of a bridge loan provided by the agency.

Those bridge loans generally are low-interest or no-interest short-term second liens secured by the property, and convert into second mortgages if they are not paid off with the proceeds of the tax credit.

For FHA lender-supplied cash advances, you'll be able to use the $8,000 tax credit -- or whatever-size credit you qualify to receive -- for settlement fees, escrow charges, higher down payments or to "buy down" your interest rate to cut monthly payments.

How will this all work in practical terms? How do you apply? Here's a quick guide:

To start, you'll need to qualify as a first-time buyer under the generous definition permitted by Congress -- that is, you cannot have owned a principal residence during the previous three years, and your household gross income cannot exceed $95,000 for single taxpayers or $170,000 for married couples filing jointly.

To get the process rolling, you'll have to write a contract on a house you can afford to buy and apply for a mortgage through an FHA-approved lender. There are more than 12,000 lenders with that designation. Large banks or bank-affiliated mortgage lenders are more likely to be geared up for the program in the near future, according to industry experts. Home builders, who have advocated credit-monetization programs for months, are likely to be major participants. The tax credit program requires all eligible purchases be closed no later than Nov. 30.

Besides the usual mortgage application information, the lender is likely to require some extra paperwork, based on FHA guidelines:

* A filled-out IRS Form 5405, which is your request to the federal government to send you a tax credit check. You can file an amendment to your 2008 return and get the credit within a matter of weeks, or you can file for it on your 2009 taxes. Most buyers are expected to opt for the amended return route. Form 5405 is available for download at www.irs.gov.

* Proof that you have no outstanding judgments, liens, unpaid taxes or other obligations that could reduce or eliminate the tax credit you're seeking.

* Confirmation from your employer that you are not subject to wage garnishments, which could also affect the amount of the credit.

Your lender will be strictly limited on what it can charge for providing you tax credit money in advance. According to FHA guidelines, fees must be reasonable and nominal -- generally no more than 2.5% of the expected tax credit. For example, if you're in line to receive the full $8,000 credit, that would mean the most you could be charged for the cash in advance typically would be $200.

A senior HUD official said that the agency wanted to keep these fees as low as feasible to avoid abuses or gouging, and that HUD would be monitoring transactions to make sure participating lenders were adhering to the guidelines.

At HOPE we educate our clients everyday on making wise credit decisions. If you would like to know more please call us at 704-503-3669. Our staff is waiting on your call.

Credit Facts In The News Part 1

A very important part of your credit education is staying on top of credit facts in the news. This week we will take a look at things that are happening right now that affect your total financial future. According to the Philadelphia Inquirer,  President Obama recently signed the Credit Cardholders' Bill of Rights Act of 2009, which includes two important provisions that regulate the marketing of credit cards to college students.

Marketing to college students is a critical element of the modern credit card industry's strategy of encouraging debt early. A 2008 report by the U.S. Public Interest Research Group noted that "targeting of undergraduates and making exclusive deals with colleges represent a long-term industry strategy to become the first-in-the-wallet, top-of-the-wallet card for as many consumers as possible."

One provision of the new law, drafted by Rep. Patrick Murphy (D., Pa.), requires credit card companies that enter into so-called affinity agreements with colleges and universities to publicly disclose the terms.

Many students across the country are enticed to apply for credit cards that bear the name and logo of their institution. Such offers are the result of exclusive agreements between colleges and credit card companies, from which both sides profit handsomely.

Colleges receive hundreds of thousands to perhaps millions of dollars in annual revenue in exchange for the rights to market credit cards to their students. In exchange, credit card companies receive exclusive marketing rights, as well as regular lists of students' contact information, including campus mailing addresses, permanent/home addresses, phone numbers, and e-mail addresses.

Until the Murphy amendment was passed, these affinity agreements were shrouded in secrecy. Now, students, families, and others will be able to examine and evaluate the agreements, which the credit card companies must report to the federal government.

Another successful amendment to the legislation, sponsored by Sen. Bob Casey (D., Pa.), bans inducements to students in exchange for credit card applications. For years, we have heard stories of students applying for credit cards - effectively enrolling themselves in thousands of dollars in debt, exposing themselves to credit risk before their professional lives even begin, and signing over their personal information - in exchange for such tokens as blankets at college football games during the winter.

Student indebtedness has continued to rise over the past decade, according to the Project on Student Debt. The average student today owes roughly $20,000 before he attends his first job interview. The PIRG report noted that, on average, college freshmen are $1,300 in debt to a credit card company, while college seniors carry an average of more than $2,600 in credit card debt.

Exposing and regulating these ethically marginal business relationships between colleges and credit card companies is an important element in stemming the credit crisis.

At HOPE we educate our clients everyday on making wise credit decisions. If you would like to know more please call us at 704-503-3669. Our staff is waiting on your call.

Credit Basics Part 4

Credit Basics Part 4 Experian offers some very simple but sound advice about credit scores.   This week we will be sharing some of their insights with you. 

Items that make scores better

Paying your bills on time is the single most important contributor to a good credit score. Even if the debt you owe is a small amount, it is crucial that you make payments on time. In addition, you should minimize outstanding debt, avoid overextending yourself and refrain from applying for credit needlessly.

Applications for credit show up as inquiries on your credit report, indicating to lenders that you may be taking on new debt. It may be to your advantage to use the credit you already have to prove your ongoing ability to manage credit responsibly.

If you do have negative information on your credit report, such as late payments, a public record item (e.g., bankruptcy), or too many inquiries, you may want to pay your bills and wait. Time is your ally in improving credit. There is no quick fix for bad credit.

One common question that many consumers have regarding their credit score involves understanding how very specific actions will affect their credit score. For example, someone might ask if closing two of his/her installment accounts would improve his/her credit score. While this question may appear to be easy to answer, there are many factors to consider. A credit score is based entirely on the information found on an individual’s credit report.

Any change to the credit report could affect the individual’s scores. Simply closing two accounts not only lowers the number of open installment accounts (which generally will improve your score) but it also lowers the total number of all open accounts (which generally lowers your score). Furthermore, such an action will affect the average age of all accounts that could either raise or lower your score. As you can see, one seemingly simple change actually affects a large number of items on the credit report. Therefore, it is impossible to provide a completely accurate assessment of how one specific action will affect a person’s credit score. This is why the score factors are important. They identify what elements from your credit history are having the greatest impact so that you can take appropriate action.

You can read more from the Experian website on this information at http://www.experian.com/credit-scores/basics.html

At HOPE we help educate clients every day on how to make wise financial decisions. If you would like to know more please call us at 704-503-3669. Our staff is waiting on your call.

Credit Basics Part 3

Credit Basics Part 3 Experian offers some very simple but sound advice about credit scores.   This week we will be sharing some of their insights with you. 

Credit score factors

Score factors are the elements from your credit report that drive credit scores. For example, your total debt, types of accounts, number of late payments and age of accounts affect credit scores. Score factors indicate what elements of your credit history most affected the credit score at the time it was calculated.

Score factors are the key to improving credit scores. They tell you what you must address in your credit history to become more creditworthy over time. Score factors are usually consistent from one score to another, so addressing the items identified by the score factors can help you improve other credit scores.

Lenders are required to provide consumers with the most significant score factors when they are declined credit.

Improve your credit score

Get suggestions on how to make your credit score better. Discover what items in your credit report raise and lower your score. Learn the most important contributor to a good credit score.

Some suggestions Scores reflect credit payment patterns over time with more emphasis on recent information. In general, a score may improve, if you:

• Pay your bills on time. Delinquent payments and collections can have a major negative impact on a score.
• Keep balances low on credit cards and other "revolving credit." High outstanding debt can affect a score.
• Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix – it probably won't raise your score.
• Pay off debt rather than moving it around. Also, don't close unused cards as a short-term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.

Review your  credit report regularly so you know what is being reported. It won't affect your score to request and check your own credit report.

You can read more from the Experian website on this information at http://www.experian.com/credit-scores/basics.html

Check back tomorrow for more information on credit basics that will help you.

At HOPE we help educate clients every day on how to make wise financial decisions. If you would like to know more please call us at 704-503-3669. Our staff is waiting on your call.

Credit Basics Part 2

Credit Basics Part 2 Experian offers some very simple but sound advice about credit scores.   This week we will be sharing some of their insights with you.  Credit Score Facts

Learn more about score factors and why lenders use credit scores. Find out how your credit score rates before approaching lenders.

Types of credit scores

There are primarily two types of scores – generic scores and custom scores. Custom scores are generated by individual lenders, who rely on credit reports and other information, such as account history, from their own portfolios.

Vantage Score

Vantage Score is the first generic credit score developed cooperatively by Experian and the other national credit reporting companies. This score uses the same exact formula across all three credit reporting agencies.

Why lenders use credit scores

Before credit scores, lenders physically looked over each applicant's  credit report to determine whether to grant credit. A lender might deny credit based on a subjective judgment that a consumer already held too much debt, or had too many recent late payments. Not only was this time consuming, but also human judgment was prone to mistakes and bias. Lenders used personal opinion to make a decision about an applicant that may have had little bearing on the applicant's ability to repay debt.

Credit scores help lenders assess risk more fairly because they are consistent and objective. Consumers also benefit from this method. No matter who you are as a person, your credit score only reflects your likelihood to repay debt responsibly, based on your past credit history and current credit status.

You can read more from the Experian website on this information at http://www.experian.com/credit-scores/basics.html

Check back tomorrow for more information on credit basics that will help you.

At HOPE we help educate clients every day on how to make wise financial decisions. If you would like to know more please call us at 704-503-3669. Our staff is waiting on your call.