Mortgage News

President Obama announced a plan to ease eligibility rules for home owners who want to refinance to take advantage of ultra-low rates and lower their home loan payments. The administration hopes that by broadening its requirements for the Home Affordable Program that about 1 million home owners will now be able to qualify. Here are more details about the newly announced changes to the program:

• What is HARP? It’s a program started in 2009 that allows home owners to refinance their home loans at lower rates without having to meet the typical requirement of having at least 20 percent of equity in their home to do so. Under current guidelines, many underwater borrowers have been ineligible for the program because their home values had to be no more than 25 percent below what they owed their lender.
• What’s changing? Many of the extra fees to participate in the program have been waived, and home owners’ eligibility won’t be contingent on how far their home’s value has fallen. 
• Who’s eligible? Home owners with loans backed by Fannie Mae or Freddie Mac can participate. Home owners must also be current on their present home loan. 
• When will it take effect? The changes could take effect by Dec. 1. HARP also is being extended through 2013 to allow more home owners the opportunity to qualify.
• How successful will this be? The administration hopes that by home owners being able to lower their monthly payments they’ll be more likely to stay current on their home loan and avoid foreclosure. Also, the administration hopes that it will then free up household money to start spending more on other things, which could provide an overall boost to the economy. However, the administration says it realizes that aiding the housing market requires much more than a refinancing plan. 

Sources: Fannie Mae, Associated Press and Reuters.  Want to know if your loan is eligible to be refinanced under this plan? We can help you by finding out if your home is backed by Fannie Mae or Freddie Mac and analyzing other aspects of your eligibility. Just contact us.

With low home prices and ultra-low rates, the housing market is offering “perhaps the best deals of a generation,” notes a recent article by Bloomberg Businessweek. Since the housing boom of 2006, home prices have fallen about 31 percent. Also, rates have been hovering at record lows for the past few weeks. “It’s hard to see the possibility of losing on a home purchase right now, with these rates,” says economist Dean Baker. “Prices may go lower, but not by much.” The article notes the following scenario: Buying a $300,000 home with a 4 percent rate and a 20 percent down payment would mean a $1,145 monthly payment. The Mortgage Bankers Association recently predicted that home prices may fall another 3.5 percent by mid-2012 but rates will increase by a half-point. So for that same loan under that scenario, a home would sell for $289,000 while the monthly payment would be $1,171–only a $26 difference. For those who can qualify for a home loan , "playing the waiting game" won’t result in much gain, Nariman Behravesh, chief economist at IHS in Englewood, Colo., told Bloomberg Businessweek. Source: Bloomberg Businessweek

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Economic Update

The Numbers Game

When the government releases numbers, there is a mad scramble by economists to analyze what just happened. And what you see in the headlines is not only what is important. For example, on Friday the government reported that the unemployment rate dropped slightly. Even though it was a slight drop, any movement lower is good news. But wait, analysts were predicting an increase of almost 100,000 jobs last month and the increase was only 80,000. So that is bad news. We need at least 150,000 jobs added each month just to keep up with population growth. On the other hand, the previous two month’s job numbers were revised up by over 100,000 jobs. So that more than made up for the deficit. This is good news. Is anyone besides us confused as of yet?

The bottom line is, the report was not extraordinary in any way. That means that the economic recovery is continuing. It also means that the recovery is tepid at best. Despite the overall negative feeling, one has to remember that almost half of economists were predicting that we were slipping into a double dip recession just a few months ago. Now we realize that the double dip is less of a risk and we are moving forward. The economy’s growth rate of 2.5% and an average of around 125,000 jobs added each month are indicative of an economy getting stronger but nowhere strong enough to make up for jobs we have lost. We need at least 100,000 more jobs added every month to wake up the housing sector. So it is not what happened last month that is important. It is where we go from here. If Europe could actually finish their debt plan and move that focus from the front pages for a few months, that would help. Also Congress coming up with a debt plan will help. Remember the budget? Well, the time is getting short for a solution to this issue as the deadline for an agreement is again coming up later this month. Wouldn’t it be nice if the headlines were not marred with our representatives bickering during the month of November?

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How to Avoid Credit Repir Scams

It’s not always easy to separate good advice from bad. Here are some tips to help you when it comes to hiring a professional to help you with your credit challenges:

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Get Educated

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Knowing how to separate good advice from bad is not easy, but it can be done if you do your research. I have several Fact Sheets that you can read to educate yourself on how the credit system works. All you need to do is ask.

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Ask For a Referral

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Asking for a referral from a source that you can trust is a great step toward separating bad advice from good. In many cases you will find that your realtor, your mortgage professional, your accountant, or your attorney can recommend a trust-worthy credit improvement expert. I have a great resource for you.

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Don’t Buy Into a Sales Pitch

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How to Avoid Credit Repair Scams

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Firms that advertise on television or in the newspaper are generally staffed with salespeople, not specialists who can help you.

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Expect to Pay

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Don’t expect to receive good advice for free. Everyone has to make a living. If you call on a professional credit expert for advice or help, expect to pay as you would an attorney or accountant.

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Ask Questions

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Make sure the credit specialist you are talking to or taking advice from can tell you how credit scores are calculated. Without this knowledge, it would be impossible to create a strategy to successfully improve credit scores.

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Be Realistic

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Improving credit scores takes time. Watch out for companies or individuals promising miracles will occur in a few days or weeks. Remember, it took time for your scores to get where they are, and it will take at least 3-6 months, depending on your challenges, to improve your situation. It can take up to a year or more if you have multiple collections, tax lien, bankruptcy or identity theft issues.

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Participate

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Make sure that you are working with a company that requires your participation. It will not only ensure a higher level of success, it will also ensure a greater knowledge base.

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What makes my credit score go down?

here are many things that affect your credit score negatively. Not having enough credit, having too much credit, not paying your bills on time, maxing out your credit card accounts, applying for credit and being denied. It is important that you spend some time educating yourself on how the credit scoring system works. We can help you.

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For a detailed list of the items that lower credit scores, please ask for our Fact Sheet: 15 Reasons Why Your Credit Score Is Low.

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How long can negative items remain on my credit reports?

The Fair Credit Reporting Act (FCRA) requires that most negative credit items be deleted from your credit bureau file in no more than seven years, except for bankruptcy, some tax liens and judgments (public records) which can be reported for up to ten years. The creditor or the credit bureau can choose to have the negative credit information deleted whenever they please. Inquiries may remain on the credit report for up to two years. Don’t let this discourage you. You can start rebuilding your credit at anytime, and if you stay current on your payments and balances, your score can get better even after a bankruptcy.

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For more information, ask for our Fact Sheet: Credit Reporting & The Seven-Year Rule.

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How to Maintain Strong Creidit

It is easier to avoid credit problems than it is to come back from a credit mistake.

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Why It Matters

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Strong credit means lower interest rates, lower down payments, and more money for retirement!

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What You Need to Know

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There are five factors that make up your FICO score. Here are some tips on how to improve your score in each factor, resulting in a better score overall.

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Payment History Tips:

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• Make timely payments. One 30-day late payment can drop your score by up to 100 points instantly.
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• If your credit becomes unmanageable, contact your creditors to negotiate other arrangements or seek credit counseling immediately. Once you get it under control, your score will improve over time
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Amounts Owed Tips

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• In order to be rated in this factor which is 30% of your score, you must have open credit card.
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• Keep your credit card balances below 30% of their limit on statement date.
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• Don’t close unused credit card accounts. It’s better to let them become inactive.
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Length of Credit History Tips

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• Make sure all of your open accounts are reporting to all three credit bureaus.
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• Don’t open a lot of new accounts at once. That strategy will lower your average account age.
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Types of Credit Used Tips

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• Stay away from department store cards. They are considered third-party credit and when trying to rebuild or establish credit, you should apply for major credit cards ONLY.
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• A good mix of credit would be 2-3 credit cards and an installment (i.e. an auto or mortgage loan).
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New Credit Tips

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• Shop for the best rate in a focused period of time. If several mortgage or auto inquiries occur in a short amount of time, they are counted as a single hard inquiry.
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• If you see any unauthorized inquires reporting on your credit reports, dispute those items immediately.
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FICO 08 – The Algorithm Has Changed

FICO 08 – The Algorithm Has Changed

Beginning last year, Fair Isaac & Co. implemented changes in how your FICO score is computed, calling the new system FICO 08. The model replaces the existing FICO model, which has remained relatively unchanged since the 1980s.
Per Fair Isaac, here are the key changes in the new model:

• Do Authorized User Accounts Still Work? One of the credit-repair tricks that became popular in recent years was paying thousands of dollars to be listed as an “authorized user” on the account of someone with good credit (usually a stranger), thereby improving your FICO scores enough to get into that home or auto loan immediately. That stops with FICO 08, and rightfully so – because this practice was an obvious form of fraud.
  Here’s the good news-the new model will still allow legitimate authorized users such as a spouse and/or family member.  And I can tell you confidently that this credit building technique still works for spouses and children who have the same last name as the credit card owner.  There have been two cases in the last 60 days where I have seen my clients’ credit scores jump 50-60 points after being added to their spouse’s credit card account.
  It’s always a good idea to build your own credit, when possible, because that gives you power and control, but as a last resort this option will help. To maximize the benefit of this option, you should make sure that the account you are being added to belongs to someone you trust, has NO negative history reporting at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old. 
• Having just one big black mark on your credit, like a repossession, will matter less than it used to if your report demonstrates responsibility overall.
• Collection accounts with balances less than $100 will not impact the credit score any longer.
• Maxing out those credit cards will drag your score down even more than it used to! FICO 08 increases the emphasis on having available credit.
• Having a mix of credit is also more important in FICO 08. This means you MUST have at least 1-2 active major credit card accounts.

FICO said that the new model would have less impact on credit scores under certain circumstances, however, in my experience, the new model appears to be producing lower scores under almost every circumstance.  Especially when it comes to credit card balances and late pays.   So if you are one of those people who are out there wondering why your credit scores have dropped in the past few months-even though nothing has changed, this could be why.
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RECENT CHANGES IN CREDIT SCORING AND REPORTING AND HOW THEY AFFECT YOU

RECENT CHANGES IN CREDIT SCORING AND REPORTING AND HOW THEY AFFECT YOU

While the roots of the modern credit report can be traced all the way back to 1898, the numerical credit score wasn’t devised until the 1950s and didn’t become a major part of the American financial system until the last twenty years. In 1956, Bill Fair and Earl Isaac devised analytical tools that attempted to quantify the risk of loaning an individual money and launched a company based on this scoring system. Their company was called Fair Isaac & Co., better known by the acronym FICO. After several decades of success in Europe, FICO’s system caught on in the United States beginning with Equifax in 1989 and continuing with the other two major credit bureaus, Experian and TransUnion, in 1991. Since then, the now-familiar three digit score from 300 to 850 has become an integral part of the American credit system. 
The many factors that go into determining a credit score can seem complicated and daunting, and it’s taken a while for most consumers to get up to speed about how their use of credit affects this score. But just when you thought the credit score reporting process couldn’t get more confusing for consumers, some major changes have taken place in the last year with the rollout of the new FICO score model known as FICO 08.
It’s always good advice to be proactive in addressing and fixing any credit challenges. However, it’s more important than ever before to take a hands-on approach to your credit, and understanding how recent changes may affect your credit scores is a key part of being proactive.

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How do I get a free copy of my credit report?

How do I get a free copy of my credit report?


By law, each of the nationwide consumer reporting companies, Equifax, Experian, and TransUnion, must provide a free copy of your credit report, at your request, once every 12 months. You can access this program in one of three ways:

• Go to http://www.annualcreditreport.com; or
• Call 1-877-322-8228; or
• Complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can download the form with instructions at http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt156.pdf.

For a complete list of the ways that you can your credit reports and scores, ask for our Credit Resource Article: Pulling Your Credit Reports & Scores.


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Is it a good idea to hire a credit repair company?

Is it a good idea to hire a credit repair company?


If you are ready to purchase a home, or refi your existing loan, and you feel that the credit challenges you are facing are too much, and that you do not have the time to do the work or the necessary follow-up, then it is a good idea to seek professional help. Yes, there are companies out there who have given the repair industry a bad name, but just like attorneys, doctors, and many other professional industries, there are legitimate credit improvement firms that can help you. If you would like to get in touch with someone about your credit, please give me a call and I will refer you to a reputable company that I trust.
For more information about credit repair agencies, ask for our Fact Sheet: Avoid Credit Repair Scams.

There Is Good News!

• Aging Out: In all instances above where I reference how many points will be lost in each scenario, it is important to understand that over time all derogatory accounts age out. This means that the older the account, the less it will hurt your credit scores.
• 7-Year Reporting Period: The law states that derogatory items “can be” reported for 7-10 years. It doesn’t state that they “MUST BE.” There is no need to wait out the 7 years. You don’t have to. You can start seeking early removal of the item by asking the credit bureaus that are reporting the information to send you a copy of the information they have on file to verify their reporting.  Law states that they MUST have absolute verification, or remove it from your report.
• You can start recovering and rebuilding immediately. You do not have to wait to start recovering and rebuilding.  Contact me for some great tips on how to get started now.

Which is The Best Choice to Protect Credit Scores?

Each of the scenarios presented in this report has a specific impact on credit scores, but it’s important that each individual understands that this is a very personal decision. A borrower must weigh the impact such a critical decision will have on family, employment, and future financial stability.

But above all, consumers should not be afraid to ask questions and find out what options are available. Many consumers mistakenly assume that there are specific laws and policies set in place that govern the actions of lenders, creditors, and credit bureaus. However, in many instances they are in the grey as much as the consumer. So homeowners in trouble should not feel intimated by them.

In Conclusion

My advice to any homeowner on the verge of foreclosure is, first and foremost, find out what options are available. Do the research. Consult the experts. Gather as much information as possible, and weigh the pros and cons. What may seem to be the best answer right now may also have a serious impact for many years to come, so make an educated decision.

The great news is that whatever fate falls upon your credit scores right now, you can start improving your situation immediately.

 

A source for additional information is Linda Ferrari's Book The Big Score Getting it and keeping It

 

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Bankruptcy Mortgage Relief

Currently, bankruptcy offers very limited protection to a homeowner who is upside down with his or her payments. The borrower can file a Chapter 7 which, depending on the state bankruptcy law, will most likely require him or her to surrender the property to the bankruptcy court, or file a Chapter 13 debt repayment plan to spread out prior delinquent payments over a number of months or years in the future. However, as of now, no bankruptcy proceeding can modify the terms of an existing home loan on a principal residence.

How Long Before You Can Buy Another Home After Bankruptcy? 

The current guidelines from Fannie Mae & Freddie Mac state the waiting period for a Chapter 7 Bankruptcy is 4 years from either the dismissal or discharge date. The exception for extenuating circumstances is 2 years.

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period for a Chapter 13 bankruptcy is:

• 2 years from the discharge date, or
• 4 years from the dismissal date.

There are no exceptions for extenuating circumstances.

In the case of multiple bankruptcies, the current guidelines state that the waiting period is 5 years from the most recent discharge or dismissal date. The exception for extenuating circumstances is 3 years from the most recent discharge or dismissal date.

WORD OF CAUTION:  If you are facing a foreclosure, short sale or bankruptcy due to circumstances of losing a job, a medical crisis, the sub prime mortgage crisis fallout, it is suggested that you fully document your experience – starting now. It’s not recommended to wait until later, because, if you decide to apply for a loan in two years based on an extenuating circumstance claim, the details and emotional energy of what you are going through will be more difficult to document and prove down the road.

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How Does A Loan Modification Affect the Borrower’s Credit?

Lenders use special codes to report consumer account information to the credit bureaus. When the loan modification program was announced, lenders used an existing code, called AC, to signal that their clients were participating in a loan modification program. The problem for those borrowers, was the fact that the AC code indicates that the consumer has only made a partial payment, or has entered into a settlement agreement, paying less than the amount due.  Why would lenders use this code? Because there is no code for a loan modification, and the AC code is the closest fit.

Here’s the good news, a new code was developed in November 2009.  It is called a CN code, and it will indicate a loan modified under a federal government plan — which should eventually have no impact on credit scores.

Here’s the temporary bad news — for the time being, the FICO scoring model does not consider the new CN code.  Before a change of this magnitude can be made to the FICO model, FICO must concludes that the code in a credit file is accurately predictive of the consumer’s behavior.  That means testing, case studies and research, which will hopefully be completed by year end.

Note:  The new CN code will not eliminate late pays that were made during the loan modification process.  So Borrowers who pay late will still see a significant drop to their credit scores.  And, regarding consumers who have already been reported under the AC code, at the moment, there is no retroactive guidelines, however, most experts believe that there will be soon. 

Bottom line, if you are a homeowner who is in the process of a loan modification now, or a homeowner who has already gone through the loan modification process, you should ask your lender to report the account under the CN code now, that way the new code takes affect, your scores should go up immediately.

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Loan Modification

A loan modification is when the lender agrees to modify a part or all of the terms of the original mortgage loan agreement.  This existing note is modified and remains in place.  Changes to the agreement can include: extending the term of the loan, changing the monthly payments, and changing the interest rate to make the loan more affordable and to help the homeowner avoid foreclosure or bankruptcy.

Loan modifications have become extremely common. So much so that a backlog of cases has forced lenders to prioritize their caseloads. This largely means that many homeowners are being forced into default to get their attention. This is unfortunate, because one 30-day late pay can cause a 50-80 point drop in credit scores.  The good news is that borrowers who choose this option vs. foreclosure or bankruptcy, show that they are exhausting every effort to pay the loan, and the effort will show in your credit scores and history.

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The Mortgage Forgiveness Debt Relief Act Of 2007

The Mortgage Forgiveness Debt Relief Act Of 2007

When the lender decides to forgive all or a portion of the debt and accept less, the forgiven amount is considered as income for the borrower; leaving it open to be taxed. However, The Mortgage Forgiveness Debt Relief Act of 2007 contains amendments to remove such tax liability, allowing the borrower and lender to work together to find a solution beneficial to both parties.

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How Long Before You Can Buy Another Home After A Short Sale?

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a Short Sale is 2 years from the date the Short Sale proceeding is completed There is no exception for extenuating circumstances.

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How Does Short Sale Affect the Borrower’s Credit?

The short sales that I have seen on credit reports have appeared as “Paid Settlements” on a mortgage account. In the wake of the current mortgage crisis, short sales are becoming extremely common, but legislation has not caught up with the tidal wave and there is no law on the books relating to them to date. As a result, there is an opportunity for the borrower to negotiate credit reporting with the lender. I’ve seen several successful negotiations, so be sure to let your borrower know that it is possible.

A short sale proves that the borrower is exhausting every effort to pay the loan. The borrower has willingly committed to taking on months of emotional and physical stress in a good-faith effort to sell the property to maintain a good relationship with that lender. Most likely, the reason they can’t afford their current mortgage is because they were in an adjustable product and their mortgage payment has doubled. That doesn’t mean that they can’t afford a different loan program with a lower payment. There is no incentive for lenders to NOT negotiate with the borrower on how the item is reported to the bureaus. All they would be doing is cutting off a pretty substantial future income stream if they put these types of borrowers out of the market for two years. In that light, negotiation for a non-report on short sales is well worth it.

Here are the credit reporting options in preferred order:

• Paid As Agreed or Paid - Won’t hurt the score at all as long as the borrower has kept payments current.
• Unrated – May drop a few points.
• Paid Settlement – Credit scores will drop 50-150 points. 

If reported as a paid settlement, the item will remain on the credit report for 7½ years from the date of the first late pay that led to the paid settlement.

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Short Sale (aka: Pre-Foreclosure Sale)

In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the homeowner. The homeowner sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

A short sale is typically executed to prevent a home foreclosure. Lenders often choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the homeowner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure.

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How Does a Deed in Lieu Of Foreclosure Affect the Borrower’s Credit?

Most lenders report a deed in lieu of foreclosure as a foreclosure, so the credit scores will carry the same serious effect as if it were an actual foreclosure. However, borrowers can negotiate with the lender to report it differently in return for turning over the deed and avoiding foreclosure costs.

Many lenders will say that they cannot change the reporting status, but as you now realize, they can. Here are the credit reporting options in preferred order:

• Paid As Agreed – Credit scores will have already dropped over 100 points due to default in payments; however, if reported as Paid As Agreed, the borrower will be able to purchase another home in a shorter time period. 
• Paid Settlement – Credit scores could drop up to 100 points in addition to the points already lost for delinquent payments.
• Foreclosure – See above.

How Long Before You Can Buy Another Home After Deed In Lieu Of Foreclosure

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a Deed in Lieu of Foreclosure is 4 years from the date the proceeding is completed.

If there are extenuating circumstances that caused the borrower to have to enter into a Deed In Lieu of Foreclosure proceeding, the waiting period is 2 years from the date the proceeding is completed.

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Deed In Lieu Of Foreclosure

One option to foreclosure is a “deed in lieu of foreclosure.” In this scenario the borrower turns the house over to the lender and walks away without owing anything. A deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The main advantage to the borrower is that it immediately releases him or her from most or all of the personal debt associated with the defaulted loan. The borrower also avoids a foreclosure proceeding and may receive more generous terms than he or she would obtain in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of repossessing the property.

In most instances, in order to be considered for a deed in lieu of foreclosure the total debt on the property should be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement offer must at least be equal to the fair market value of the property being turned over. Generally, the lender will not proceed with a deed in lieu of foreclosure if the outstanding debt on the property exceeds the current fair market value of the property.

Because the agreement must be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer from the borrower that specifically states that the offer to enter into negotiations is  being made voluntarily. This will enact the parole evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.  

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

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How Long Before You Can Buy Another Home After Foreclosure?

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a foreclosure is 5 years from the date the foreclosure proceeding is completed.

However, if extenuating circumstances caused the borrower to enter into a foreclosure proceeding, such as the sub prime mortgage crisis fallout, loss of employment or a severe medical crisis, the waiting period, if approved, is 3 years from the date the foreclosure proceeding is completed.

In General: When it comes to foreclosure and how it affects the ability to obtain credit in the future, there are multiple points of extremely negative impact. Deficiency judgments for the amount not collected by the lender in the foreclosure sale can end up on a borrower’s credit report as a derogatory mark. Additionally, there is a high risk that the borrower will be hit with a substantial tax penalty which can result in a tax lien which also appears on the credit report. As a general rule, other than a bankruptcy, foreclosure is the least desirable of all of the options available when a borrower is upside down in a home mortgage.

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How Does a Foreclosure Affect Credit?  

A foreclosure can be reported as a Foreclosure or Repossession and carries the most negative penalty on a credit score just under a public record (i.e. bankruptcy, tax lien, or judgment.) There is a misconception that foreclosures are considered public records to the scoring system. However, they are not. Although there is a Public Notice Record on file once a foreclosure is started, this record is completely different than a credit report public record.

Unless a foreclosure becomes a public record, such as a judgment, it can only be reported on a credit report for 7½ years from the date of the first late pay that led to foreclosure. Many consumers and lenders believe that it is 7 years from the completion date of the foreclosure process, but that is inaccurate. A foreclosure falls under the same rules as a collection, charge-off, or other similar action.

A foreclosure can drop credit scores from 50-250 points (this includes points already lost due to delinquent payments). The difference in point loss depends on how many points someone has to lose in the payment history factor of his or her credit report. Thus if someone has a 750 credit score and they opt to foreclose, their score could drop up to 250 points. However, if someone has a 500 credit score, they may only lose 50 points for the same derogatory. 

If a deficiency judgment or tax lien is filed in connection with a foreclosure, credit scores can drop an additional 100 points.

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Foreclosure

Foreclosure is the legal process by which a bank or other secured creditor either sells or repossesses a parcel of real property, home or land after the owner has failed to comply with the mortgage or deed of trust agreement with the lender. Most frequently, the violation of the mortgage agreement is the default of payment. The completion of the foreclosure process allows the lender to sell the property and keep the proceeds to pay off the mortgage as well as any legal costs. The length of the foreclosure process varies from state to state.

If the foreclosed property is sold for less than the remaining primary mortgage balance, and there is no insurance to cover the loss, the court overseeing the foreclosure process may enter a deficiency judgment against the borrower. Deficiency judgments can be used to place a lien on the borrower’s other personal property, obligating the borrower to repay the difference or suffer the loss of one’s property. It gives the lender a legal right to collect the remainder of debt out of the borrower’s other existing assets. 

However, there are exceptions to this rule. If the mortgage is classified as “non-recourse debt,” then in the event of foreclosure the borrower has no personal liability. This is often the case with residential mortgages. If so, the lender may not go after the borrower’s personal assets to recoup additional loss. The lender’s ability to pursue a deficiency judgment can be restricted by state laws. In California and some other states, original mortgages (the ones taken out at the time of purchase) are typically non-recourse loans; however, refinanced loans and home equity lines of credit are not. If the lender chooses not to pursue deficiency judgment—or can’t, because the mortgage is non-recourse—and writes off the loss, the borrower may have to pay income taxes on the un-repaid amount even if it can be considered “forgiven debt.”

Any other loans taken out against the property being foreclosed (second mortgages, home equity lines of credit) are “wiped out” by foreclosure (in the sense that they are no longer attached to the property), but the borrower is still obligated to pay them off if they are not paid out of the foreclosure auction’s proceeds.

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Homeowner Options & How They Affect Credit Scores

Foreclosure, Deed in Lieu of Foreclosure, Short Sale, and Bankruptcy can all have long-lasting impact on an individual’s taxes and ability to obtain credit. Homeowners need to get the facts before making critical decisions that will impact their lives for many years to come.

The following is a breakdown of homeowner options, and how each affects the credit scores. There are several loan products available, but, as previously mentioned, Fannie Mae & Freddie Mac own or guarantee about half of the U.S.’s mortgage market, so it is best to use their most recent Selling Guidelines as laid out in their June 25, 2008 Announcement.

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You May Have Extenuating Circumstances & Not Know It!

In most cases, homeowners who are facing mortgage default will at some point want to purchase a new home, however, there are specific waiting periods put into place to make sure that consumers have enough time to rebuild and re-established good credit.  The good news is that for consumers who are being forced into mortgage default due to extenuating circumstances, those waiting periods are reduced. 

Here is the definition of Extenuating Circumstances as it appears in the 2010 Fannie Mae & Freddie Mac Guidelines:

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).  

The lender must obtain a letter from the borrower explaining the relevance of the documentation.  The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

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There Are No Requirements On Lenders To Report Negative Informatio

There Are No Requirements On Lenders To Report Negative Information

When it comes to how a lender will report to the credit bureaus, I bring this to your attention as moral support in consumer efforts to NEGOTIATE, NEGOTIATE, NEGOTIATE.
The Fair Credit Reporting Act clearly states that creditors are NOT required to report negative information to the credit bureaus.
There’s more to this story, however. An August 13, 2008 Announcement from Fannie Mae & Freddie Mac clearly states that they place NO requirement on how lenders report mortgage default accounts to the credit bureaus. In response to the frequently asked question about how these items should appear on the credit report, the announcement stated:
“For reporting these actions on Fannie Mae loans, we require that servicers report to one of the major credit reporting agencies, but it is our policy NOT to direct specifically how to report various actions.”
This is powerful and significant information. If the Fair Credit Reporting Act doesn’t require lenders to report negative information at all, or in a specific manner, and the nation’s largest buyer of mortgage loans does not require lenders to report negative information at all, or in a specific manner, this leaves the door wide open for negotiating deletions or non-reporting of these items. So I reiterate: NEGOTIATE, NEGOTIATE, NEGOTIATE.
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“Is it better to file for bankruptcy or to be foreclosed?

 “Is it better to file for bankruptcy or to be foreclosed?”
 ”What is a short sale and how can it affect my credit?”
 ”What about a Deed In Lieu of Foreclosure?
 ”What should I do?”

The recent economic crisis has paralyzed the hopes and futures of millions of homeowners who are now wondering how they will recover and rebuild in one of the most stringent lending environments on record. How will they manage their credit through the turbulent economic and financial strangleholds in which they find themselves trapped? Is there relief? Is there any salvaging of the housing market? What is the best path for consumers to get there?
There’s no question that many families will still have to leave their homes. Their biggest question now is how to most effectively do so (without devastating their credit scores) so that they will someday be able to buy a home again.
Now is the time for tough questions to be asked and answered.
Note: The guidelines which are referred to in this report are the selling guidelines of Fannie Mae & Freddie Mac, the two companies (recently taken over by the U.S. government) that own or guarantee about half of the U.S.’s mortgages. These companies base their decisions to purchase mortgage loans on guidelines that are national policy. These guidelines mandate specific credit requirements and policies with respect to problematic situations such as foreclosures, deed in lieu of foreclosures, short sale, or bankruptcy. Specifically, a demonstration of an impeccable credit history must be shown for a designated period of time after the negative event has occurred.
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If you are ready to purchase a home

If you are ready to purchase a home, or refi your existing loan, and you feel that the credit challenges you are facing are too much, and that you do not have the time to do the work or the necessary follow-up, then it is a good idea to seek professional help. Yes, there are companies out there who have given the repair industry a bad name, but just like attorneys, doctors, and many other professional industries, there are legitimate credit improvement firms that can help you. If you would like to get in touch with someone about your credit, please give me a call and I will refer you to a reputable company that I trust.
For more information about credit repair agencies, ask for my  Fact Sheet: Avoid Credit Repair Scams.
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Can I Improve My Score?

Can I Improve My Score?

Yes, there are specific and strategic steps you can take right now to start repairing your credit problems.

1. Start with the basics. Order all three of your credit reports and all three of your credit scores. You are entitled under the law to a free copy of your credit report-from all three credit bureaus-each year when you order it from Annual Credit Report Request Service. To order, visit www.annualcreditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281. You will have to pay an additional fee for the credit score from each bureau. Scan your report for any errors. Is there an account on there that you didn’t apply for? Is there a company reporting a debt that is inaccurate? Are all of your credit card limits reporting? Are your balances up-to-date? Are your name, birth date and Social Security Number correct? If there are any errors on your report, no matter how small, they can lead to big problems and inhibit you from obtaining credit and even keep you from getting the interest rate you deserve on your mortgage or refinance.
2. Start improving what you can immediately. Late payments and delinquent accounts will affect your score negatively, so take care of them-the sooner, the better. If you have a good relationship with your creditor, call them to see if they’ll work with you on removing a late payment. They do it all the time. If you have past due accounts, call your creditors to see if you can negotiate a better interest rate, lower payments or make other arrangements to pay off your debt sooner. Also, don’t carry high balances on your credit cards. If you carry more than 30% of your limit every month, this reflects negatively in your score. Don’t charge what you can’t pay off within 90 days, and don’t max out your cards.
   • Rule 1: Make sure that you only send the letter to the bureau(s) that is reporting the derogatory information. Not all creditors report to all bureaus. If you send a dispute letter to one of the three bureaus that is NOT reporting the information, you take the risk of having the derogatory information added to that bureau, and your score will go down.
   • Rule 2: Make sure that you send everything certified so that you can prove delivery.
   • Rule 3: Include copies of any supporting documentation you may have to support your claim.
   • Rule 4: Keeping a log of activities is very important for successful credit repair. Click Here for an example of a log you can use.
   • Rule 5: Mail disputes to bureaus at their different addresses. Each bureau has several addresses. If your first dispute comes back without change, send it to another address for that bureau. Click Here to print a list of credit bureau addresses.
3. Disputing errors on your report. Errors can appear on your credit report. These can be human error in reporting information from a creditor or one of the credit bureaus. They could even be unauthorized accounts set up in your name by an identity thief. Before you apply for a loan, you should verify the information in your credit report. If you find errors, you should correct them immediately. Here are the rules in sending dispute letters to the credit bureaus:
4. If the credit challenges are too much. If you feel that the credit challenges you are facing are too much, or if you don’t have the time or stamina to do the homework necessary to get the ball rolling, then it’s time to consider using a professional service to help you reach your goals. If you decide this is the path you would like to take, give me a call and I will set up a free credit consultation for you with a company that has orchestrated higher credit scores and better financial opportunities and futures for of individuals from all walks of life.

In Conclusion

Your credit score is so important to your current financial well-being and the stability of your financial future. In fact, your credit score is really the key that can either open doors for you or lock them shut for several years. I am very committed to my effort to help you learn more about both the importance of the score as well as repairing, improving and maintaining strong credit reports and scores for life.
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What Is Not In Your Score?

What Is Not In Your Score?

Your race, color, religion, national origin, sex and marital status, age, salary, occupation, title, employment history, where you live, interest rates, child/family support obligations, rental agreements, soft inquiries, whether or not you are involved in a credit counseling program.
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What Goes Into Your Score?

What Goes Into Your Score?

There are five factors that make up your credit score, and each factor weighs differently on your score. Here’s the breakdown:

• 35% of your score is based on Payment History: The biggest chunk of your credit score, payment history tells lenders how you have been paying your bills. Late payments, collections, past due accounts, and public records such as bankruptcies can seriously hurt your score. It is very important to not incur late payments on Mortgage Accounts. One 30-day late can cost you 50-75 points.
• 30% of the score is based on Amounts Owed: The second biggest factor affecting your credit score, this factor takes into account how much is owed on all your accounts, how many accounts you have that carry a balance, and what percentage of your available credit are you using. Keep credit card balances under 50% of the available limit at all times, and when preparing to make a large purchase, bring those balances down to under 30% at least 3 months before applying for the loan.
• 10% of the score is based on New Credit: This factor includes the number of recently opened accounts, the number of credit inquiries, and the time since each account was opened. This portion of the score also looks at how often you apply for credit. It is best when applying for a mortgage that you do not open or apply for new credit accounts. When shopping for a new mortgage or auto loan, it pays to plan ahead so that you do all of your shopping within a focused period of time. You can have your credit report pulled as many times as you want within a 14-day period when shopping for a mortgage or auto loan and it will only count as ONE hard inquiry.
• 15% of the score is based on Length of Credit History: This factor scores you on how long you have had credit, the time since you opened an account and the time since recent account activity. While applying for a mortgage, consumers will want to leave open accounts they have had for a long time as it will help boost this portion of the score.
• 10% of the score is based on Types of Credit Used: A mix of credit is the best way to develop a good score. The most important consideration is to be picky about the type of credit you apply for because that will really help your score. For instance, to the scoring system, third party financed credit cards (i.e. department store credit cards) are considered to be particularly low quality credit as the holder of such cards can appear desperate for credit. However, there is one exception to this rule, and that is that the scoring system considers Sears credit cards as a positive.

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Some Facts You Should Know

Some Facts You Should Know

What Is a “Good” Credit Score?

Scores generally range between 350 and 850. A score of 740 or better is considered “Excellent” credit.

Why do the scores from the three credit bureaus vary?

The three major credit bureaus, Experian, Equifax and TransUnion are for profit businesses, not government agencies. Their main business is collecting data about YOU from creditors and then reselling that data to lenders, employers, insurance companies, utility companies, and most recently to YOU, the consumer. Since these three companies are competitors, and DO NOT share data with one another, it is very common that the data they house in your file will differ because not all creditors report to all three bureaus. That explains the variance in the scores as each line item affects the score either up or down.

How many scores do I really have?

When you go to apply for a loan, the scores the lender will pull will not be the same scores that you would receive from the bureaus. The reason for this is that lenders DO NOT buy their scores directly from the bureaus, but instead take the DATA ONLY from each bureau, enter it into their own scoring software and calculate their own scores based on the criteria they feel better evaluates whether or not you will be a good credit risk for their program. So all lenders calculate your scores using the same data from the three bureaus, but all lenders DO NOT use the same software to evaluate that data.
The potential for varying scores is great. You want to properly manage your credit to ensure that your scores are favorable under all scoring software models.

Do lenders use all three scores?

Mortgage lenders use the middle of the three scores. All other creditors can use any one of the three. That is why it is important to keep all three scores maintained.

How fast can your credit score change?

Your credit score can change whenever your credit report changes. And the good news is that once it changes, there is no memory of yesterday’s score in the system. You don’t have to worry about looking back as you move forward with improving your credit. Just remember, negative items will lower your score fast, but improving your score takes time. That is why it is important to check your scores all the time so that you will be prepared for the next opportunity.
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Good credit is imperative

Good credit is imperative because it is your golden ticket to financial freedom for right NOW and it prepares the foundation for financial security LATER. Isn’t that what we all seek?
In planning for tomorrow by improving your situation today, you can eliminate the risk of limited financial security for your retirement years. You don’t want to work forever, and you shouldn’t have to. You can take immediate action that will enable you to set yourself up for a more secure future by simply being wiser about how you manage your credit, your debts and your finances.
So what is the single first step we can take toward planning for a more secure future and retirement? It begins with ensuring that we put ourselves in a position in which we derive the very best value from every financial commitment we make. The best value means NOT spending hundreds or thousands of dollars on high interest rates for credit cards, auto loans and mortgages.
So how we can position ourselves to get the best value from our financial commitments? Simple. We make sure that our Credit Scores are above 740 at all times.

A Quick Education On The Credit Score

Here’s a little primer on how credit scores evolved. Developed in the 1950’s by Fair Isaac & Co., credit scores hit mainstream use in the 1980’s when three major credit bureaus, Experian, Equifax and TransUnion negotiated an agreement to create an objective and fair scoring system that would analyze all of your data, compare it with the way thousands of people pay their bills, and come up with a three digit number between 350 and 850 that indicates whether or not you are a good credit risk. As you probably guessed, the higher the number, the better your chances are of getting the loan at the best interest rate.
Today, credit scores are the No. 1 piece of data on which people are judged to determine whether or not they get approved for loans and how much interest they will pay for those loans. The good news is loan approval now only takes a few minutes. The bad news is that the credit score is now becoming widely used by not only the lending industry, but also by employers, utility companies, insurance companies and cell phone companies, and the list is growing every day.
A good score opens doors that will lead to abundant opportunities both for now and for a more secure future, and by having a complete understanding of what makes up a good score, you can start right now on the path to a higher credit score and a better financial life.

Over the next few posts we'll go over these in detail. Again, feel free to contact me with any questions you may have.
Professor Deb

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Take Responsibility for Keeping Records & Proof Documents

In our credit scoring system, consumers are guilty until they can prove themselves innocent. The story doesn’t matter, and getting an item updated or removed without proof can take months or even years. This is why keeping records, files, proof of payments and creditor agreements is extremely important to maintaining strong credit. It takes only one inaccurate item to drop scores by up to 100 points. If you stay organized with your paperwork, then you can eliminate months of wasted time and frustration in getting those items corrected. Here are some tips:

• Keep copies of past credit report. You should try to keep a copy of your credit report from the three credit bureaus on file (electronically or physically) for the past seven years. Consumers frequently find that a derogatory account is older than the current credit report shows. New collections are re-dated all the time—which will also re-date the debt. When this occurs, an older copy of the report may indicate 1) when the item was actually charged off, which would help verify the real date of last delinquency on the account, and 2) prove that the account has been re-dated. This is why retaining a copy of an older credit report is extremely useful in proving your case. It can verify the Statute of Limitations and confirm whether or not the 7-Year Reporting Period has actually expired.
• Create a file system for online bill payments. Online bill payments are very convenient. They also require a good deal of trust. When consumers make their bill payments online, there is no guarantee that the creditor will record the payment on time. For this reason, it’s important that you develop a system to keep track of online receipts. One way would be to take a screenshot of your payment confirmation pages and email it to yourself. Once you receive the email, you should create a folder in Outlook, or another email program, dedicated to that one creditor. The subject line of the email should be the Creditor Name and Month of Payment.
• Keep a spreadsheet of your open credit accounts. One of the most common responses I get from a prospective client who has late pays is that he or she “thought” the bill had been paid on time. Then, when asked to track the payment information, all of a sudden it becomes an overwhelming process to contact the bank, look for the cleared checks, and confirm the date the payment was made and what month it was for. Having your open credit account and creditor contact information in one place makes it much easier to be sure you are on top of your payments so that not even one late pay occurs due to oversight.

In Conclusion

The current credit crunch is hurting a lot of people. The government’s big bailout is welcome news for the financial world, but it will give little comfort to individuals. Especially hard hit are those with relatively low credit scores. It’s important that you understand the value of credit improvement, and the significant and positive impact it can have on your financial outlook. The Take Action Steps included in this special report can help you get started right now—for better and for good!

If you feel that your credit challenges are too much to handle on your own, call me and I will help you find a professional, trustworthy company that can help.

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How Long Before You Can Buy Another Home After A Short Sale?

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a Short Sale is 2 years from the date the Short Sale proceeding is completed There is no exception for extenuating circumstances.

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Step 5: Commit To A Maintenance Plan

Step 5: Commit To A Maintenance Plan

Everything we do in life revolves around maintenance. We maintain our cars, our homes, and our yards. We maintain our teeth, our appliances, our investment portfolios, and our health. The same diligence should apply to maintaining your credit. To implement strong credit scores for life, you must initiate and adhere to a solid maintenance plan.
The following tips make it easy for you to start strong and stay strong and see your plan through from initial fixes to long-term maintenance that will help you achieve long-term financial health.

Join An Online Credit Watch Program

A credit watch program will give you continued access to your credit reports and scores, and will also notify you when there is any activity—normal or unusual—on your credit reports with all three credit bureaus. There are two reasons to sign up for a credit watch program:
When you set out on a take action plan, you need to commit to seeing it through. This is the most difficult part of the credit improvement process. But the not knowing and waiting part can be very unsettling. Many consumers either pay a fortune to pull their credit reports every 30-45 days or they mistakenly have their credit report pulled several times by lenders because they want to know exactly where they stand. Unfortunately, doing this causes hard inquiries, which can bring a consumer’s credit scores down by several points. By signing up for an online credit watch program you keep the cost to a minimum, you don’t hurt your scores, and you have access to your information all the time.
The second reason to sign up for a credit watch program is as follows: Most people are extremely busy, or they simply cannot stick with a plan. Think about it, if gyms actually had to provide services to everyone who signed up for membership, those services would be so delayed that most people would either complain and ask for their money back, or just go to a more elite club that is not oversold. The reality is that most people who sign up for membership, don’t go. It’s the same with credit. Everyone starts out with the best of intentions, but quickly become lackadaisical after the big points have been regained. However, credit management for life requires a commitment to credit maintenance.
If you are going to make the investment, here’s what you should look for in a program:

• Access to updated credit reports and credit scores for ALL three credit bureaus every 30 days.
• DAILY monitoring of your credit notifying you if someone tries to access your credit for any reason.
• Notification of any changes in your credit profile or score.
• Identity theft insurance.

The cost of a credit watch program can vary anywhere from $ 80 to $ 150 per year. Usually, most offer a trial period for 30 to 60 days for a minimal fee. If you are not happy with the service, be sure to cancel your membership before the trial period ends.
Order your credit reports from the three major bureaus directly every 6-12 months. In addition to joining a credit watch program, you should pull your credit reports from the three credit bureaus directly as follows:

• If you are active with their credit, you should check your data at the bureau level every 6 months.
• If you are not applying for credit and have not received any notifications of unusual activity on your credit watch account, then you should check your data at the bureau level once a year.

This is when you want to look for variations in personal identification and demographic information, accounts that don’t belong to you, check credit card limits, and open/close status. This is the time to give your credit a full check up.
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Step 4: Manage Your Debt Strategically

How you manage your credit card balances is one of the best-kept secrets for improving your scores. There are specific rules that the scoring system uses to rate revolving balances and they are:

1. If you want your scores to improve, consistently keep your balances on all credit cards under 30% of the available limit on statement date.
2. If you want to maintain your scores, it’s okay to keep the balances on all cards between 30%-49% of the available limit on statement date.
3. Once your balance goes over 50% of your available limit, you start losing points. According to Fair Isaac & Co., a maxed-out credit card can cost up to 80 points, even if there is a good history on that account. Logic: Statistics show that individuals who carry a balance of over 50% on revolving accounts month to month, appear to be living off of their credit cards and are more likely to default on their payments. While this rationale does not make sense on low limit credit cards, all accounts are treated the same.

Statement date means the date your actual statement is printed or emailed to you. It is not the due date. What most consumers don’t realize is that in most instances the balance printed on the statement is the balance that gets reported to the credit bureaus and it is the balance to limit ratio that shows in your score. So make sure that you find out from each of your revolving account creditors what date they print your statement, and make your payment before that date.

With creditors lowering limits on even the most credit-worthy individuals today, managing your credit card balances strategically is more important than ever. Here are some to tips to make sure that you manage your limits wisely:

• If you have to charge more than the 30% or 50% of your available limit as defined above, then make sure that you go home and pay that balance down immediately. Don’t take any chances.
• If you cannot pay down your credit card balances to 30% or 50% of your available limit as defined above, even though credit card companies are tightening up on limits, call your credit card companies to ask for a limit increase without pulling your credit. You’d be surprised at how many creditors will oblige if you have maintained a good payment history on the account.
• Pay credit card balances across the board. In other words, it will not help your credit scores if you pay down one card at a time. So if you have 3 cards at 80% of their limit, and you cannot pay them down to 30% or 50% of your available limit as defined above all at once, pay them down in equal increments so the balances all decrease at the same rate.
• DO NOT consolidate your credit card debt onto one low-interest card UNLESS if after the debt transfer the balance on the new credit card is under 30% or 50% of your available limit as defined above.
• Don’t go over your credit card limits, even if by just one dollar–doing so could cause you to lose 100 or more points, the result of a double penalty. The system interprets that you cannot hold to a creditor’s agreement, and also that you are overextended. Both carry very negative impacts to your scores.
• Be careful with American Express cards because they have no available credit limits. As a result, the scoring system will use last month’s statement total as your available credit limit. This means that if you spent $ 5,000 last month, and then $ 6,500 this month, it appears to the system that you are over your limit. The best way to handle AMEX is to make sure that you pay your bill before the statement date, without exception.

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Wait

Two of the most misunderstood aspects of credit reporting are: Statute of Limitations and the 7-Year Reporting Period. It is important to understand both when deciding whether you should wait for the derogatory information to fall off of your report, or not. Most consumers don’t realize that there are two expiration dates when it comes to negative credit accounts. In most instances, charged off debt expires sometimes 3-4 years before the 7-year reporting period is up. What you need to take into consideration:

• If the statute of limitations has expired on a debt, then you are no longer legally liable to pay that debt. You cannot be sued and your wages cannot be garnished. However, the item can still remain on your credit report for the 7-Year Reporting Period and you may be denied credit due to an open derogatory balance on your credit reports. Statutes vary by type of debt and by state. Call me if you have a question about your state.
• Once the 7-Year Reporting Period runs, you can have that item removed from your credit report altogether. There are exceptions to the 7-Year Reporting Period for some public records, but in most instances, when that 7-Year Reporting Period expires, you are free and clear.

It’s a personal decision. If you are a year from the 7-Year Reporting Period and you cannot afford to pay the debt, then wait it out. However, if you are able to pay the derogatory AND negotiate a deletion, you can arrange to have the item removed earlier and get on with your financial goals. Remember, knowledge is key to successful negotiations.

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Negotiate

If your decision is to negotiate on an item, the most important advice I can give you about negotiating is to do your research before entering into negotiations with a creditor or collection agency.

Here are some other great resources to help you get to know the ins and outs of the credit counseling and debt negotiation industry:

• National Foundation for Credit Counseling
• Association of Independent Consumer Credit Counseling Agencies
• The Federal Trade Commission
• National Consumer Law Center
• Consumer Federation of America’s Report: Credit Counseling in Crisis
• National Consumer Law Centers Report: The ABC’s of Credit Counseling

Here are the basics to debt negotiation:

1. Lay your debts out on paper.
2. Validate collection and charge-off debt with the creditor or collection agency.
3. Verify the Statute of Limitations and 7-year reporting period.
4. Figure out how much you can realistically afford to pay.
5. Call the creditors to discuss your options or negotiate.
6. Get the agreement in writing, and then follow through with the payment plan as agreed.

The key to successful debt relief negotiation is to establish clear goals before you start, and be persistent. Many times you may have to contact the creditors or collection agencies several times before reaching an agreement. Be professional even when they are not. Do not let your emotions get the best of you. Be polite, calm, and cool.

I am a true believer in trying to do it on your own if you have the time because no one will have your back like you will. It does not take a specific degree to get the job done. However, there is a clear precedent set years ago by the credit counseling and debt negotiation industry that makes creditors very reluctant to deal directly with consumers. But a precedent is not a law, and if you do your research, and work hard enough, you can definitely do it on your own.

Two important things to remember:

1. Negotiate with confidence that you will win. By doing your research, you will gain the knowledge you must have to successfully negotiate derogatory debts. Knowledge is power, and once the collection agency or creditor realizes that you have done your research, not only will you limit their response options, but they will realize immediately that you are not a pushover. The tactics that they would normally use on a consumer who doesn’t know their rights, will now be useless to them, and they will be more apt to agree to your terms.
2. Get everything in writing. Words mean NOTHING when it comes to agreements with collection agencies or creditors and the terms they agree to on the telephone.

On the other hand, if you don’t have the time or emotional energy to face creditors and collection agencies head-on, you do have options. My best advice is to do as much research and cost comparison as you can before you hire a company to help. Make sure you do the math on the plans they propose. In other words, make sure that at the end of the day, the payment plans, or fees make sense.

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Step 3: Decide & Act: Dispute, Negotiate, or Wait

Now it’s time to take action. This means taking the steps to get the items on your list updated, corrected, or removed. For the purposes of this report, I will outline the basics for each step over the next 3 days. You have three choices, as follows:

Dispute

If your decision is to dispute an item, you must be ready to commit and follow through. Here are some basic tips to get you started:

1. Send a letter to the credit bureaus giving them a detailed explanation of what you are requesting. Attach copies of any supporting documentation that you have (i.e. statements proving your correct credit card limits and proof of payments). Send letters certified, and, to avoid delay in their replies, always attach proof of social security and proof of address right from the beginning.
2. Wait 35 days (allowing 5 days for mail time.) If the bureaus do not respond within 35 days, send a formal complaint letter reminding them that per Section 611 of the Fair Credit Reporting Act they are required to respond within 30 days from the date they received your initial dispute. Also remind them that per Section 616 & 617 of the same Act they are liable for damages, including punitive, and that if necessary you will seek legal representation. Attach your original dispute letter and proof of delivery to the complaint.
3. Just because the credit bureau has determined an item “investigated” does not mean the results are accurate. If you are 100% sure that your claim is true and accurate, and the bureau responds stating that the creditor has verified the information and the item will not be removed or updated, you must request a reinvestigation under Section 611 of the Fair Credit Reporting Act. I highly recommend that you do so within 5 days of receiving the results of their investigation. You can repeat this process as many times as you want, however, after three to four attempts, I would consider moving onto the next step.

If the credit bureau continues to stand its ground on not updating or correcting inaccurate items on your credit report, here are some additional tips:

• Attaching copies of lawsuit verdicts that show how consumers have prevailed against the bureaus can help you convince the credit bureaus to make the necessary changes to your reports. It lets them know that you are well aware of your consumer rights. There are several references to successful lawsuits online wherein consumers who have sued the credit bureaus and creditors with punitive damages have been awarded hundreds of thousands of dollars and even millions.
• Look for other consumer stories on the web. There are many credit repair blogs in which consumers share their strategies. Be careful not to take advice as blind trust, but instead, look for helpful hints that pertain to your situation.
• File a complaint with the Federal Trade Commission Consumer Response Center. You may be able to have your case added to a class action lawsuit against the bureau that is reporting the inaccurate information. You can access the FTC Complaint Wizard at http://www.ftc.gov/bcp/index.shtml, or you can mail a complaint letter to the following address:

Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW

Washinton DC  20580

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Step 2: Create Your Take Action Plan Checklist

When most people look at their credit reports, they focus on repairing the negative items. It is critically important for you to remember that negative payment history only makes up 35% of your scores. There is another 65% of your scores that has nothing to do with negative payment history but still brings down the scores. It is essential that you make sure that all of your good credit is being reported and being reported accurately.

Before making your TAP Checklist, you will want to create a workable spreadsheet that will organize the data and action plan in a way that will give you instant indication of what action needs to be taken. At minimum, your spreadsheet should include the following columns:

One of the columns in your spreadsheet will be the dispute reason. To help you get started, here’s a list of 30 of the most common dispute reasons. If any of these apply to the information being reported on your credit reports, you should consider the item negative and add that item to your TAP checklist:

1. This account does not belong to me.
2. I was not 30, 60, 90 or 120 days late on this account.
3. This is a duplicate account.
4. I never authorized this account.
5. The balance on this account is incorrect.
6. There is no past due balance on this account.
7. You are not reporting a positive account on my credit report.
8. This account is closed with a $ 0 balance and has a positive history.
9. This account was closed by me, not the creditor.
10. You are not reporting the correct limit on my account.
11. This account was included in a bankruptcy and should have a $ 0 balance.
12. This account was paid.
13. The open date on this account is incorrect.
14. This account is still open.
15. I am only an authorized user on this account. Please remove it.
16. You are reporting my home equity line of credit as a revolving account.
17. I never authorized this inquiry.
18. This public record has been satisfied/released/dismissed/vacated.
19. You are listing the wrong file/released/satisfied date on this public record.
20. This account was charged off in (date). No late pays should be reported after that date.
21. The date of last activity on this account is incorrect.
22. This account never went into foreclosure/repossession.
23. The 7-year reporting period has expired on this account.
24. The statute of limitations on this account expired. You cannot report it or re-insert it.
25. You are reporting someone else’s information on my credit report that has the same name that I do.
26. You are reporting the wrong social security number, birth date, spouse’s name, phone number on my credit report.
27. You are reporting wrong/expired/misspelled addresses on my credit report.
28. You are reporting misspelled/wrong names on my credit report.
29. You are reporting outdated/wrong employment information on my credit report.
30. This student loan account has been deferred.

The key is to make three separate TAP spreadsheets, one for each credit bureau, and to write down EVERYTHING that needs attention. Then, you can decide which action should be taken—Dispute, Negotiate, or Wait.

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A 5-Step Credit Improvement Take Action Plan (TAP)

Here are the steps, plain and simple:

1. Get Your Credit Reports
2. Create Your Take Action Plan Checklist
3. Decide & Act: Dispute, Negotiate or Wait
4. Manage Your Debt Strategically
5. Commit to a Maintenance Plan

 

Step 1: Get Your Credit Reports

Today, you have access to your credit information all day and every day. This is wonderful news. Consumers now have the opportunity to quickly correct and maintain credit reports. It is mission- critical for consumers to seize that advantage by assuming responsibility. Lenders, employers, and vendors judge us based on our credit reports, and they know that we are capable of doing so. The days of excuses are in the rearview mirror.

You can get started by acquiring a copy of your credit reports from each of the three major bureaus. It’s important to get reports from each of the three, not just one. The bureaus do not share data, so you need to get a full accounting of everything that is being reported.

You options are as follows:

OPTION 1: Free Credit Reports – By law, each of the nationwide consumer reporting companies, Equifax, Experian, and Trans Union, must provide a free copy of your credit report, at your request, once every 12 months. To read more about this, a good source is the Federal Trade Commission’s Consumer Alert that you can download at http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt156.pdf.

• You can access this program in one of three ways:
• Go to http://www.annualcreditreport.com; or
• Call 1-877-322-8228; or Complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can download the form with instructions at http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt156.pdf.

A Warning About Imposter Websites. Only http://www.annualcreditreport.com is authorized to provide the free annual credit report mandated by law. Other websites make claims for “free credit reports,” “free credit scores,” or ”free credit monitoring”, but they are not affiliated with the program, and they are likely trying to sell you something.

OPTION 2: Third-Party On-Line Vendor Reports – There are many websites that offer credit reports and scores to consumers (i.e. freecreditreport.com, truecredit.com, etc.). They offer multiple ways to get your reports. You can make a one-time purchase, or join a monthly program. You can get all three reports and one credit score, all three reports and three credit scores, or one report and one credit score. In all cases, the data is taken from all three credit bureaus, and the scores are calculated by applying very general criteria that is not specific to any one use. Here’s the problem with third-party credit report vendors — the scores generated by these companies are not realistic to the lending industry. For instance, many third-party vendors use a score range between 501-990, but the scores used by 90% of the lenders and creditors across the nation are classic FICO scores that range from 300 to 850. So whenever joining an on-line credit watch program, you want to be sure to choose a program that uses a score range as close to the classic fico as possible.

Here are a couple of resources that use a score range that is very close to the FICO range of 300-850. Both of these companies offer memberships that give you access to your updated credit reports and scores as often as you would like, and pulling your reports from these companies do NOT cause a hard inquiry to your scores.

• Credit Keeper – Take advantage of CreditKeeper for the first 30 days at no cost. After that, CreditKeeper is only $ 9.99 per month, until you decide to cancel. This is an Internet-only offer, so you will need to sign up on-line.
• Privacy Guard - Now, you can try PrivacyGuard with the first 30 days for just $ 1.00. After that, Privacy Guard is $ 16.99 per month until you decide to cancel.

OPTION 3: Reports From the Major Credit Bureaus - The reports that you receive directly from the three credit bureaus are easy to read. More importantly, going straight to the source of the data will ensure that you have the most complete information being reported about you. This includes your credit accounts, your credit history, and your personal and demographic information.

But there are a few things to consider with this option. Experian and Trans Union’s truecredit.com, no longer offer FICO scores to consumers. As mentioned above, FICO is the scoring range used by 90% of the lenders in this nation. Point is, that if you purchase a credit score directly from Experian or Trans Union’s truecredit.com, the score will be misleading and will not be realistic from a lender or creditor’s point of view.

What Are Your Options?

• Here’s the good news, Trans Union still offer’s FICO range scores through their website at www.transunioncs.com. This is the only site you should purchase your actual Trans Union report and Trans Union score from.
• As far as Experian, as of February 2009, consumers do not have access to their FICO score based on Experian data at all. So our advice is when using this option of going direct to the bureaus, you should only purchase your Experian credit report (NOT SCORE). The best gauge to determine what your Experian FICO score would be is to compare the information on your Experian Credit Report to your Equifax & Trans Union reports. However, if you feel that you MUST have your Experian score, then we suggest that you go onto the next option.

Here is the information you need to purchase your reports from the bureaus directly:

• Equifax Single Report & Score: Score Power Cost – $ 15.95 (800) 685-1111
• Experian Single Credit Report: Cost – $ 10.00 (888) 397-3742
• Trans Union Single Credit Report & Score – $ 14.95 (800) 916-8800

WARNING: When you log onto each site, they will try to up sell you with many different products, including credit watch programs or 3-in-1 credit reports and scores for three times the price. Make sure that you only purchase the credit report and score from that bureau as outlined above.

If you have been denied credit or insurance within the last 60 days, if you are disabled, unemployed, or on welfare, you may be entitled to a free copy of your credit report. If this is the case, send a written request to each credit bureau.

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How to Maintain Your Good Credit Report and Score

In an economy riddled with increased expenses and stringent credit standards, the businesses and households that will successfully navigate through the economic hailstorm will do so because their credit scores will get them access to credit and cash, empowering them to forge ahead and capture opportunity while those around them fold.
Great fortunes are made in times of great peril. Like no other time in the last 80 years, those with great credit will have the opportunity to capitalize on opportunity for long-term success.
How Can You Be One of the Winners?
The information provided in this special report will help you or your business improve your credit scores regardless of where you are right now.
If you have excellent credit, this report will help you ensure that it stays that way.
If you have good credit, this report will help you improve it.
If you have fair to poor credit, this report will help you improve your credit scores and ensure that you avoid the extremely painful adjustments that await those who take no action.
Over the next few days, we'll discuss each step in detail.
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Credit Card Myth #10

Myth #10: Those Pre-Approved Credit Card Offers Do Not Hurt Your Score – FALSE!

Just because credit is offered to you, does not mean that you should accept it. When you receive one of those pre-approved credit card letters in the mail, your credit report has not been pulled yet, so you are NOT approved for the account. Once you pick up the phone to call the creditor, they will pull your report and you will be penalized immediately for the hard inquiry (10% of your score.) It is best to avoid these types of special offer credit cards (including Department Store offers of “Open an account today to save 15% off of your purchase.” The scoring system frowns upon 3rd party finance cards.

In Conclusion

The bottom line about misinformation? It’s always going to be out there, and many empty promises presented are tempting-but if something seems too good to be true, it probably is.

Hope this clears up some of the confusion, please feel free to share this information.

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Credit Card Myth #9

Myth #9: Making Arrangements to Pay a Charged-Off Credit Card Account Will Help Improve Your Score – FALSE!

If you have an old charged off credit card debt and you make payment on it, or make a written or oral promise to pay it, you will renew the 7 year credit reporting statute from that date. The best path to take in this instance is to debt negotiate. Offer the creditor .30 – .40 cents on the dollar as payment in full in exchange for a deletion letter from the creditor.
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Credit CardMyth #8

Myth #8: Marrying Someone Who Has Poor Credit Will Hurt Your Credit Score – FALSE!

Although getting married generally means that you’ll be combining finances, your credit reports won’t be combined. If you open a joint account, the credit information will show up on both reports, but your (or your spouse’s) past negative credit history won’t be reflected on the other person’s credit report unless you add your spouse as an authorized user to an account that has a negative history.
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Credit Card Myth #6 & #7

Myth #6: The Type of Credit Card Doesn’t Matter – FALSE!

The credit scoring system does not like third-party finance cards (i.e. department store cards, furniture store cards, etc.) Always try to stick with major credit cards (i.e. Visa, MasterCard, etc.)

Myth #7: Your Divorce Decree Protects Your Credit Score – FALSE!

Even if your divorce decree stipulates that your ex-spouse is financially responsible for debt that is held in both your names, you remain financially liable for that debt until it is paid in full. Both of you entered into a binding contract with the creditor. If your ex-spouse is named as the responsible party for a jointly held debt, and you cannot afford to pay off the account and close it immediately, then you should monitor the account closely to make sure it is being paid on time. Otherwise, negative payment history information will appear on your credit report, and could drop your score by up to 75+ points overnight. Keep in mind that it is against the law for a creditor to remove a late pay without documented proof that it was their error. One late pay can affect your score for many years.
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Credit Card Myth #5

Myth #5: Becoming an Authorized User on Someone’s Credit Card Makes You Legally Responsible for the Account – FALSE!

It is true that any activity on these accounts, good or bad will show up on your credit report if you are an authorized user, but unless you are a JOINT owner or Co-Signer of the account, you are NOT legally responsible for terms of the agreement with the creditor, and you can have your name removed from the account at anytime. Keep in mind that if any negative history reported during the time your name was on the account, that history will remain, but no further negative history will be reported.
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Credit Card Myth 4

Myth #4: Closing Credit Card Accounts Will Help Your Score – FALSE!

Don’t close credit card accounts at all, with the exception of closing a joint account after a divorce. You will lose points in two factors when you close a credit card account, both in the Amounts Owed factor which is worth 30% of your credit score, and in the Length of Credit History Factor which is worth 15% of your credit score. (These 2 factors combine to make up nearly half of your credit score, so pay attention here.) The more available money you have that you are not using, the better your score, and once you close the account, you lose the available limit on that card. Also, a common misconception by consumers is they believe when you close a credit card account, any bad history on that account goes away. This is not the case. That history stays with you.
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