How to Improve My FICO Score

Transunion started using a different “Black Box” model in January, and now Experian and Equifax are making technical adjustments too.

Although they will not allow us to know the exact forumal for calculating the score - we know SOME of the changes!

Some of the changes are

• Collections that start under $100 will not have an impact on your score. These are 3rd party collection accounts.  However!  You will get “no love” for paying down that $500 collection to $75.

• Maxed out credit cards will hurt MORE

• An approximate 15% shift in points towards credit use.  This will help your score if you carry little debt on your credit cards BUT it will definately hurt you if you are maxed out

• A single 30 day late will not hurt as bad on one rough spot BUT a pattern of 30 day lates will hurt more

• Authorized User accounts will still be scored, BUT there is going to be some sort of “reality test” that FICO isn’t sharing with us.  The guess is if the consumer has a 2 year credit history and there is a 20 year old authorized user account on that consumers credit they won’t be receiving the “points” for that account.  In other words does that account make any sense in the consumers credit profile. This is actually GOOD news for folks who are trying to re-established credit and can get a family member(s) to add them as authorized users!  We had been told that User Accounts, or Co-signed Accounts would TOTALLY go away!

REMEMBER!  If you are a First Time Homebuyer - you might qualify for a $8000 Tax Credit!  For More Information, Click Here!

If you have questions about your credit score, and how it will affect your ability to purchase a home - and obtain a mortgage - please call Steve and Eleanor Thorne, at Meridian Residential in Cary, NC  919-459-1313.

If you have 3 Credit Cards - and one of them is “Max’d Out” and One has a zero balance, and one you pay off monthly… you could be pulling your score down!

Look at the following example:

Credit Card Balance Available Credit

Visa $10,000 $10,000

Visa $0 $10,000

•

Leave Credit Card Balance As Is = Lower Credit Score

•The smarter move is to spread the balance between Cards ($5,000 each).  This makes it look like to the COMPUTER SYSTEM that checks all of this - that you are NOT max’d out!  This will = Higher Credit Score!

Everybody wants to get RID of credit - but please know that you need at LEAST 2 credit card accounts, and at least 1 installment loan to get the minimum credit scores needed for a home loan! The current minimum scores are 620.
Just getting negative credit off of your file will not get your score up high enough for the 620 score!  The BEST idea we’ve heard of recently is this:

Go to your Credit Union.  Open a Secured Credit Card.  If you want a card with a $250 limit, then put $500 in a savings account tied to the card.  By putting TWICE the amount of the limit - most institutions will NOT pull your credit, which means you will not have an inquiry.  We want to AVOID inquiries, as they generally pull your score down at least 5 points PER PULL!

REMEMBER, if you are a First Time Homebuyer you might qualify for a $8000 Tax Credit!  For more info, click here!

If you have questions about your credit, and live in NC, contact Steve and Eleanor Thorne, Meridian Residential, 919-459-1313.  We are residential mortgage lenders!

Many people have some adverse credit items on an old account, or collection… and those accounts are really pulling credit scores down.

The question becomes, can you get those accounts paid and the negative credit taken off?  The answer is MAYBE.  Here’s a sample letter you can use, that says (in essence) I’ll pay this debt if you remove all record of it from my credit report.

My experience is that the debt might get removed by one or two of the agencies - but at least one (normally Trans Union with what I’m seeing) will not remove the debt - but hey, I think this is a GREAT thing to try!
Collector’s Name
Collector’s Address
Collector’s City, State Zip

Dear Collection Manager:

This letter is in response to your [letter / call / credit report entry] on [date] related to the debt listed above. I wish to save us both some time and effort by settling this debt.

Please be aware that this is not an acknowledgment or acceptance of the debt, as I have not received any verification of the debt. Nor is this a promise to pay and is not a payment agreement unless you provide a response as detailed below.

I am aware that your company has the ability to report this debt to the credit bureaus as you deem necessary. Furthermore, you have the ability to change the listing since you are the information furnisher.

I am willing to pay [this debt in full / $XXX as settlement for this debt] in return for your agreement to remove all information regarding this debt from the credit reporting agencies within ten calendar days of payment. If you agree to the terms, I will send certified payment in the amount of $XXX payable to [Collection Agency] in exchange to have all information related to this debt removed from all of my credit files.

If you accept this offer, you also agree not to discuss the offer with any third-party, excluding the original creditor. If you accept the offer, please prepare a letter on your company letterhead agreeing to the terms. This letter should be signed by an authorized agent of [Collection Agency]. The letter will be treated as a contract and subject to the laws of my state.

As granted by the Fair Debt Collection Practices Act, I have the right to dispute this alleged debt. If I do not receive your postmarked response within 15 days, I will withdraw the offer and request full verification of this debt.

Please forward your agreement to the address listed above.

Sincerely,

Your Name

• Remember to put your information in the bold areas. 
• Send the letter only if you have the ability to pay the full amount listed as soon as the collection agent agrees to your offer. You will likely have to send this letter, and make phone calls SEVERAL times before you find a company representative who has the authority, or the willingness to do this.
• Send the letter and your followup payment via certified mail with return receipt requested.
• Make sure you keep a copy of the letter for yourself, and any notes and dates of who you spoke to, what number you called, and what time it was.

Getting your FICO score up, especially if you are going to apply for a job, open a checking account, apply for a car loan or a HOME LOAN is critical.  The minimum score requirements continue to go HIGHER!!  For a mortgage loan, you currently need a MINIMUM score of 620 for a purchase… For a refinance, with 20% equity - you need AT LEAST a score of 680 for it to make sense!

We have a customer who has seen some tough times.  They had a beach house, and had to sell it because their business was going down hill.  They had a business line of credit tied to the beach house, and when they sold the beach house, the bank moved that line of credit to the current home.

Now their home, which is worth $300,000 has a first mortgage for $298,000 and a second mortgage for $322,000.  They can’t get the second mortgage people to release the mortgage, even  though it was for a Commercial Business, not a residence.

These folks might be helped under the new Obama Making Home Affordable Plan announced today.

In the plan that President Obama is presenting to Congress, he is asking them to approve a new law that allows judges to “force” that second mortgage holder (mentioned above) to release their claim.  The borrowers will likely have to go into Bankruptcy to do it - but at least they will get out from under a HUGE mortgage that they can’t pay.

This is an unusual example, and I’m only presenting it because I know these folks and this is a problem for them.  But there are THOUSANDS of other people who have a home they bought 3 years ago for let’s say $250,000. At the time both the mom and dad had jobs, and they could afford the house.  Maybe they only borrowed $240,000… but a couple of months ago dad lost his job, and the house is now only worth $220,000.  This plan allows for incentives for all of the parties, the judge, the mom and dad, the bank… all of them to agree to a NEW mortgage plan - or a modification - that will pay the mortgage off in 40 years, possibly reduce the balance, and base the mortgage payment on mom’s salary.  It’s kinda’ like a refinance to new terms - but it’s still quite a bit different from that, because the bank is forced to take a loss!

Hope this helps!  Just remember… ALL OF THIS MUST BE APPROVED BY CONGRESS!

Have you seen the new Remax Commercial that says “when he gets home… we’re going to buy a new home!” And then it pans to the guy overseas, and he’s looking for homes on the Internet!  LOVE that Commercial!

If you’re one of those folks looking forward to taking advantage of your VA Benefits, check out your credit score!  The Veteran’s Administration does not actually make VA home loans… but they INSURE them.  Because of this, the VA gives guidelines for who they will insure, and what their credit scores should be.

I’ve recently been writing that Credit Scores are getting tighter in NC, and I’ve said that “it’s the Golden Rule” because the Banks are the ones who are setting their OWN guidelines about who they will loan money to and under what circumstances.  In recent months, Veteran’s who have scores UNDER 620 have had a hard time getting a loan.

The VA says they will insure loans for Vets who have scores down in the low 500’s - however, getting a bank to actually loan that money will be HARD.  Also - IF you can get a loan with scores under 620, then you will have a significantly higher interest rate… if today’s best mortgage rates are 5.25% … and you are applying for a VA loan, you will likely have a rate of 5.875%!

So work on your credit scores!  Check and see what your scores are!  And remember… it’s a great benefit, so don’t waste it! ALSO… if you are a first time homebuyer, you might qualify for a $8000 tax credit!  For more details, click here!

If you have questions about purchasing a home in NC - call Steve and Eleanor Thorne, Meridian Residential 919-459-1313

If you have bad credit - it does NOT mean you will not be able to buy a home!  But, depending on your credit scores - you might have to wait a little while!

The NEWEST score requirements are 620.  This means that 2 of your 3 scores should be over 620 for a FHA or VA mortgage loan.  Your credit scores should be reasonably close to the same number… so if you have a 520, 621, 625 set of scores, that means something is reporting to the 520 credit company that is likely incorrect!  So look at ALL THREE of your scores, and see if there’s an “obvious” issue you can resolve.

You can’t just dispute the “negative” stuff to get to 620.  This is one of the most difficult things for folks to understand.  Once you get all of your collections paid, once you get all the negative stuff on your account settled - then you need to have some CURRENT good credit.  Look at what kind of credit you have.  Do you have Revolving credit and Installment loans reporting to all three agencies?? A mix of credit will get your scores up to their highest potential!

If you have a FORECLOSURE in your background, you can purchase a home again!  If you have a Bankruptcy in your background, you can also purchase!  So don’t let previous hard times bust your bubble!

People do not have bad credit because they woke up one day and said, “darn, I don’t feel like paying my bills anymore.”  Decide that you want to have good credit!  Then work on it!  Do the First Dispute letter (click here) then do the second letter(click here)…  Mail them to the three Credit Repositories… then be sure you have at least 3 tradelines!  If you need to get a Secure Credit Card - DO IT!

For our local market, the total number of homes sold in the Triangle area in 2008 was 20580, down 28% from 2007. The median price of a home in Raleigh was $209,204. Foreclosed homes represented 10% of all transactions in the Raleigh area, compared to about 20% across the country!  Our maximum FHA Loan Amount is $295,000.  To find out what the maximum FHA loan Limits are for your county in NC, click here!

If you are interested in purchasing a home in NC, and have questions about qualifying, call us!  Steve and Eleanor Thorne, Meridian Residential in Cary, NC  919-459-1313

The State of North Carolina limits the time you can be sued for a debt… In fact, all states have their own limits.  Those limits have to do with the KIND of commitment, or Contract you have with the Creditor. 

In North Carolina the Statute of Limiations are as follows:

Oral Contract: 3 years

Definition: An oral contract is an agreement that was made verbally. No contract was written or signed when the agreement was made. Oral contracts are legally binding, but they are harder to prove in court.

Written Contract: 3 years

Definition: A written contract is an agreement made on a printed document that has been signed by both the lender and the borrower. Written contracts are legally binding and easier to enforce than oral contract.

Promissory Note: 5 years

Definition: A promissory note is a written contract that includes a specific promise to pay. The promissory notes includes the interest rate, repayment schedule, and consequences of default.

Open-Ended Account: 3 years

Definition: An open-ended account is an account that has a varying, revolving balance. A credit card is an example of an open-ended account.

Okay, so if NC says that there’s a limit to when someone can sue you for a debt, does that mean it’s only on your credit report for that long?  No! You are still OBLIGATED for the debt, they just can’t SUE you.  The only thing that erases your obligation to pay a debt is a cancellation from the creditor, discharge in bankruptcy, or actual payment of the debt. Even after the statute of limitations has expired on a debt, you are still legally responsible for paying the debt. However, the creditor or collector no longer has the liberty of using the court to force you to pay.

This is one of the reasons that debt is being SOLD to companies like NCO and ACS.  They collect a “fee” from the original creditor, they now own the debt, and they have a new statute of limitations.

These companies, however, can not keep reporting debt on your credit report past the limitations from the ORIGINAL DATE of the problem. 

Let me give you an example… if you had a repossession from 4/2003, with a deficency balance owed of like $4000.  More often than not, Ford Motor Credit (or whoever) did not get a JUDGEMENT against you, they just filed it as a collection.  Starting in 2006 they probably starting selling your $4000 collection to other companies, they then sold it to someone, who sold it again.  Each time the debt was sold, it probably was filed as a new collection.  Fine, new collection as of 12/2006, new collection as of 12/2007, new collection as of 12/2008… but in April of 2010 ALL of those collections HAVE to come off your credit report!

If you are interested in purchasing a home, you need to be working on your credit.  We would love to help you get ready!  Call Steve and Eleanor Thorne, Meridian Residential, 919-459-1313!

Collectors call you because it’s to their advantage.  They can be threatening, they can get you all emotional… remember, the collection is a BUSINESS transaction.  You need to get the transaction back to a business level.

The best way to do that is by sending them a Ceast and Disist Letter, telling them that all future correspondance will be in writing.  You must send this letter by certified mail, receipt requested.  Keep everything in your folder, including the receipt you get back!

Here’s a sample letter:
Date

Your Name
Address
City, State Zip

Debt Collector’s Name
Address
City, State Zip

Re: Account Number

Dear Debt Collector:

Pursuant to my rights under federal debt collection laws, I am requesting that you cease and desist communication with me, as well as my family and friends, in relation to this and all other alleged debts you claim I owe.

You are hereby notified that if you do not comply with this request, I will immediately file a complaint with the Federal Trade Commission and the [your state here] Attorney General’s office. Civil and criminal claims will be pursued.

Sincerely,

Your Name

Remember to Customize the cease and desist letter with your information including the current date, your name, address, and account number given by the debt collector.

By LAW, once the collection agency receives your cease and desist letter they can communicate with you once more, via mail, letting you know one of three things: that further efforts to collect the debt are terminated, that certain actions may be taken by the debt collector, or that the debt collector is definitely going to take certain actions.  MEANING… they could say,” we are not going to try and collect this debt (don’t hold your breath on this one! LOL!), we MIGHT file a collection against you,” or they can say they, “WILL be filing a collection or judgement against you” - but they can’t call.

REMEMBER!!!  When you send the cease and desist letter to the debt collector, send it via certified mail with return receipt requested. This will provide proof that the letter was sent and received. If the debt collector communicates with you beyond the single instance allowed by law, this evidence will allow you to seek punitive action against the debt collector… meaning you can take THEM to court!

If you are trying to purchase a home - credit score requirements have gone up… you need to work on your credit, and not ignore it… but that doesn’t mean that you have to go through all the TRAUMA of the collection calls to get this done!

If we can help you - we will! 

Call Steve and Eleanor Thorne, Meridian Residential,

919-459-1313

If you’ve been Bankrupt, and you want to purchase a home - FHA will allow you to do that… but there are some rules that FHA sets on you… and then there are the “Golden Rules.”  What I mean by that is this:

FHA  insures loans, but they don’t APPROVE the loans.  FHA has guidelines, and rules which they set out for a Bank that says, “We will purchase a loan from you if the loan meets these specific parameters.”  The BANK, who is actually lending the money, and getting FHA to INSURE the loan has it’s own set of guidelines.

FHA GUIDELINES for Chapter 13

FHA will consider appoving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee’s written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.

FHA Guidelines for Chapter 7 Bankruptcy

At least two years must have elapsed since the discharge date of the borrower and / or spouse’s Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.

Okay - so the Bank can get FHA INSURANCE on the loan if it meets the particulars above, but does that mean you are a good credit risk, and they will actually make you a loan?  Well, that could be something entirely different. 

It’s important to know that if you don’t have at least a 620 credit score you will probably not be getting a mortgage loan.  If you have 12 months of clean credit, and at least THREE tradelines, you might have a 620 score.  If you only have 2 open lines of credit, you probably do not have a 620 score, no matter who long you have been “makin’ the payments on the truck on time.”  The first thing to do is re-establish credit.

If you have questions about purchasing a home in NC with FHA financing, click here!

You’ve heard about the Credit Crunch… but now it’s hitting Home!

For most of 2008 - the Credit Crunch was happening to someone else, right?  Well, Last November Citi announced that it’s increasing rates on Credit Cards for 10 MILLION people!  Wow!  Now more than ever, it’s important to know what your options are when it comes to this - and which ones are going to HURT your credit score! 

  Interest Rate Increases

“In November 2008, Citibank announced it would increase interest rates for nearly 10 million cardholders. About Credit/Debt Management readers reported double and even triple interest rate increases that skyrockets their cost of carrying a credit card balance.

Consumers have a few choices when it comes to responding to interest rate increases. While many choose to opt-out, it’s not always the best decision. Opting-out nearly always leads to your credit card being closed. Since a closed credit card can affect your credit score, opting-out could hurt you worse than it hurts your credit card issuer. In some cases, paying off the balance at the higher interest rate is better, especially it if means saving your credit score.”

The “Problem” with paying off the total balance…

The problem with completely paying off a balance is that the credit card company might decrease your credit limit!  This is why we generally suggest that folks pay their accounts down to 1/4 of the credit limit!

If you are considering a home purchase in NC, and you have questions about how your credit score will be viewed for a mortgage loan- call Steve and Eleanor Thorne, Meridian Residential, 919-459-1313