Divorce & Credit: Here’s What You Need to Know

mark teta divorce

Divorce is always an unpleasant subject to broach, but it is important to understand all of the ways that divorce will affect your life moving forward. When going through divorce proceedings, finances are always discussed, but individuals may forget to take their credit into account.

The important thing to note is that a divorce filing will not directly affect your credit score. However, it is possible for a divorce to indirectly impact your credit score. There are a few things you need to keep your eye out for.

 

Make Sure Your Spouse Pays Joint Debts

It’s likely that during the course of your marriage, you created joint accounts with your ex-spouse. The most common joint debt are mortgages and credit cards. Once you receive your divorce decree, you’ll know exactly what your spouse is responsible for paying. It is likely that the ruling will require your ex spouse to take over entire payments for debts that your name will still be on. It will be on you to make sure that the debts that are actually being paid. No matter who is supposed to be making the payments, a missed payment on any account that is attached to your name will have a direct hit on your credit score.

In a best case scenario, the relationship between you and your ex will be amicable enough to ensure that you don’t have to worry about (intentional) missed payments. However, if that is not the case, you should take on the responsibility of the payments in order to save your own credit.

 

Watch Out For Your Credit Accounts

In the unfortunate scenario that the relationship with your ex-spouse it not a healthy one, you should be actively watching any joint credit accounts that exist between the two of you. If your ex was an authorized user on any of the credit cards that you share, they can quite literally rack up all of your credit cards without any legal repercussions. This would be self-sabotage on their end, but it would hurt your credit score all the same.

 

There is not much that can be done to remove each other from accounts that were open together. But, remove your ex spouse from any individual accounts that you have where they were added on as an authorized user as soon as possible.

For more information, see the following resources: NerdWallet & Experian.

 

Tips to Prevent Bankruptcy – Part 2

bankruptcy

In this blog post, I started to address a few of the ways that an individual can avoid having to file for bankruptcy. Bankruptcy should truly be viewed as a last resort; the long term consequences of filing for bankruptcy can be paralyzing. In this blog post, I will cover a few more basic tips to keep your finances healthy, and avoid traveling down the (usually avoidable) path to bankruptcy.

 

Start an Emergency Fund

While this may not be possible if you are already deeply in debt, it is a great preventative measure. This emergency fund should be several months worth of salary that you save over time. In the event that a person disaster takes place (loss of a job or medical emergency), you will be able to continue to function financially for a few months and avoid immediate thoughts of bankruptcy.

 

Work To Rid Yourself of High Interest/Unsecured Debt

If a majority of your debt is on credit cards, it is likely that a large portion of the money you owe carries a very high interest rate, and is what we call unsecured debt. (Unsecured debt is debt that does not pertain to an asset or specific property – ie: a car, house, etc.) If possible, refinance your secured debt to rid yourself of the unsecured debt. Work with your lenders to refinance your mortgage and get a cash out to pay off the unsecured, volatile debt. The refinancing will allow you to take on debt at a lower, more manageable interest rate.

 

Maximize Your Income

If you have already worked to minimize your spending across the board, and it is not feeling like it is manageable, it may be time to take on a second job. If you have a capable spouse who is currently not working, they should also begin to seek employment. Any increased income that can be had will help make your situation a little better.

The reality is that the process of preventing bankruptcy is never an easy one, unfortunately you may be looking at making a lot of decisions that do not align with your current lifestyle. But, if you are actively thinking about bankruptcy, that does mean that your finances are in trouble, and a personal sacrifices now will ultimately make your life easier down the road.

 

For more resources, see these articles: Investopedia, Quciken, USNews

 

There’s No Disputing It – Dispute Investigation, That Is

Article Originally Posted on http://www.mortgagecompliancemagazine.com/ 


 

If a consumer is not happy about a financial transaction, there is generally a means to seek a resolution to the situation and that creates compliance deliverables for financial institutions. So it is with disputes about transactions on open-end credit accounts. Other types of financial disputes may arise, and, we’ll talk about where those fall, too.

To meet compliance requirements, the financial institution needs to take steps to:

  • Identify exact nature of the dispute;
  • Determine if investigation is necessary; and
  • Ensure all of the investigation procedures, timing, and notice requirements are met and documented.

The type or purpose of the transaction will help you determine if investigation is required under  consumer compliance rules, and, if it is, what steps you must take to ensure the consumer’s rights and protect your financial institution. For consumer lending purposes, there is one area that requires formal dispute investigation – those under Federal Regulation Z – Truth in Lending Act (TILA).

Regulation Z Billing Error Resolution

Regulation Z dedicates §1026.13 to ‘Billing error resolution.’ The rules about investigating and resolving billing errors applies to open-end credit accounts (home equity lines of credit, credit cards, certain types of overdraft lines of credit, and the like).

Regulation Z defines a billing error as a reflection on or with a periodic statement for an extension of credit that exhibits some type of error. The error could be one of many types, including the amount or frequency of the transaction, that the transaction was not authorized by the consumer, or that a payment was not properly credited. Notice from the consumer to the creditor must be in writing and received by the creditor at an address designated in the account disclosures no later than 60 days after the creditor sent the first periodic statement that reflects the alleged billing error.

Once the creditor receives the duly executed notice from the consumer, the creditor must:

  • Mail or deliver written acknowledgment to the consumer within 30 days of receiving a billing error notice, unless the issue has already been resolved within the 30-day period; and
  • Comply with the resolution procedures of Regulation Z within two complete billing cycles (but in no event later than 90 days) after receiving a billing error notice.

While the allegation is pending resolution:

  • The consumer need not pay the disputed amount, but the creditor may seek to collect the undisputed portion of the debt;
  • The creditor must not make or threaten to make an adverse report about the consumer’s credit or report any delinquency, based on the disputed amount;
  • The creditor may not accelerate the debt or close the account, based on the disputed amount;

Following the investigation, the creditor has certain rights and duties:

  • If no billing error occurred, or, if a different error occurred than alleged, the creditor must provide a written notice to the consumer that is compliant with Regulation Z.
  • If a billing error occurred as asserted, the creditor must:

(1) Correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charges, as applicable; and

(2) Mail or deliver a correction notice to the consumer.

  • The creditor must follow all other requirements of Regulation Z with respect to finance charges, credit reporting, and notices to the consumer.

Records of such disputes, information used to investigate them, and all notices to and from the consumer must be maintained to evidence compliance.

Other Consumer Disputes

Billing error resolution rules under Regulation Z are specific to open-end credit accounts. What about other errors or alleged errors about which consumers lodge a dispute? What responsibilities do financial institutions have to investigate and resolve those disputes?

Financial institutions are responsible to maintain, as part of the Compliance Management System (CMS), a consumer complaint process. For instance, the Consumer Financial Protection Bureau’s Supervision and Examination Manual states:

“An effective compliance management system should ensure that a supervised entity is responsive and responsible in handling consumer complaints and inquiries. Intelligence gathered from consumer contacts should be organized, retained, and used as part of an institution’s compliance management system.”

So, virtually any complaint that a consumer communicates in writing must be documented as part of the CMS, investigated, and resolved. The documentation about the disputes or complaints must include information to evidence expeditious handling, vigorous investigation, and timely notice to the consumer. Regulators have an expectation that disputes or complaints will be resolved equitably and that the results will be used by the financial institution to improve processes wherever possible.

Around the Industry:

Effective Now:

  • More debt collection compliance activities from CFPB.

On the Horizon:

  • CFPB and loan pricing policy – will this interest spread to mortgage loans?
  • CFPB seeks public input on HMDA resubmission.

MCM Q&A

  • Love automated mortgage loan payments? Controlling the compliance risk? See this.

 

 

Getting Approved For a Mortgage: Here’s What You Need

calculator

The desire to own a home is relatively universal, and once you decide it’s time to start looking at homes, a whole plethora of tasks begin to unfold in front of you. The average individual does not have hundreds of thousands of dollars of cash on hand, so the greatest task to tackle is getting approved for a mortgage. While lending companies may be willing to extend credit under certain circumstances, the reality of the situation is that the standards for being approved (quickly) for a mortgage are very high. There are a few things that you will need (and need to be aware of) when applying for a mortgage:

 

Strong & Lengthy Employment History

Lenders feel safer with lending when your recent employment history touts at least a 2 year stint at your most recent place of employment. The longer you’ve been working (and the smaller number of job hops that you have on your resume), the more trustworthy you become to banks.

 

Excellent Credit & Your Credit Reports

This is a bit of a no brainer; your credit score is one of the most important factor when it comes to being approved for a mortgage.  Your FICO score can be in the 620-640 range to be approved for some loan programs, however a  credit score of 720 or higher will lend itself to getting much better interest rates, which can equate to thousands of dollars saved over your lifetime.

 

Make sure to review all three of your credit reports before diving into the mortgage application process. An estimated 40% of credit reports contain errors that could be directly affecting your credit score. Make sure to get all discrepancies fixed as soon as possible.

Money Down & Cash on Hand

It is virtually impossible to get a loan without putting money down. The general rule is to be prepared to put down a minimum of 20% of the mortgage up front. It’s also important to remember that banks and lenders will also be checking your cash on hand. Lenders are weary of mortgage applicants that don’t have a significant enough savings; if a single emergency could clean out your savings, it is unlikely that you will get a mortgage.

 

Misc Important Documents:

  • Records of your employment history for at least 2 years
  • Records of your residence for at least 2 years
  • Proof of Homeowner’s Insurance
  • Pay Stubs from the last 2 months of employment

 

For references and additional resources, please see the following articles: 123

 

Tips to Prevent Bankruptcy – Part 1

credit squeeze

Some individuals’ personal finances become so overwhelming that they look to bankruptcy as a quick fix. But the reality is that bankruptcy should be an absolute last resort. Filing for bankruptcy leaves the filer with an abysmal credit rating, which will make borrowing money virtually impossible for at least a decade. Those who file for bankruptcy are also subject to mandatory credit counseling, and are likely to be forced to make continuous and ongoing payments to various creditors.

There are a few situations where bankruptcy is virtually unavoidable. A long period of unexpected unemployment or a severe medical emergency can quickly clean out a savings account and leave few viable options for financial survival. However, most cases of bankruptcy are caused by unsustainable spending habits and a lack of savings. The majority of those cases can be avoided with just a few lifestyle adjustments.

 

Reduction of Spending

The easiest way to start cutting what you spend is to first determine where your money actually goes. Create a budget using an online service like Mint.com to really get a handle on exactly what your spending is each month.  Once you see exactly how you are spending your money, you can find areas where spending can be reduced.

 

Start by destroying credit cards, and using cash to make purchases. This will make your spending feel more “real”. If cash only is impossible, then your next step may be to downsize your current living expenses.  The goal of all of the reduction is to live within your means. If that means moving into a less expensive home or buying used cars instead of new cars, then those are measures that should be taken.

 

Contact Creditors/Lenders/Service Providers Before Payments Are Late

If you are already making the minimum payments on your bills, but are still struggling to keep up with the payments, contact the lenders. It’s important to determine if a late payment  could be made without penalty or if the bill’s deadline could be extended.

 

If you are working with a large amount of credit card debt, and seriously considering filing for bankruptcy because of it, speak to the creditors about your options. A lower interest rate or repayment plan may be available. Creditors do not want to lose all of the money that was loaned out, so they will be more inclined to work out a scenario where your payments are more manageable.

There is still much more to learn. Be sure to check back next month for more tips to Prevent Bankruptcy.

For resources and more information, see these two sites: here & here

 

What Are The Three Credit Bureaus?

money

Most people are familiar with the phrases “credit”, “credit score”, and “credit report”, but few people understand the intricacies of the credit system. The one thing that consumers have trouble understanding is the differences between the three credit reports and the three credit bureaus that produce them. It’s a confusing system for many; each credit report contains information that the other two bureaus do not report on. This is a breakdown of the three reporting bureaus, and the differences between the them:

 

Experian

There are a few things that Experian does differently. They are the only report that specifically reports on-time rent payments (if your rent management company works & reports to Experian RentBureau). The other reports only highlight the times when rent was not paid on time.  Experian also provides “status details” on the items on your report. The status details explains the month and year that an item is scheduled to be removed from your credit report. (Positive payment history stays on for 10 years. Negative items may vary, and Experian takes the guess work out for you.)

 

TransUnion

TransUnion provides the most detailed employment section of the three credit bureaus. Experian and Equifax only provide the employers’ names (and even then, that’s not guaranteed). In stark contrast, TransUnion lists out the employers’ names, the position held at the company, the date that employment commenced. They also provide the opportunity to change and correct any information that is reported incorrectly. The employment information does not factor into the credit score, but it does provide potential lenders information on how long you’ve been with your current employer, and how long you’ve stayed in past positions.

 

Equifax

Both Experian and Equifax list all of the accounts on a credit report together in alphabetical order. Equifax however, separates and lists accounts based on whether they are open or closed. This allows individuals who are not sure about the status of various accounts to easily determine which accounts they need to focus on (in terms of amount of debt, etc.) Equifax also provides information on why particular accounts are closed.

 

For sources, see here and here.

Smartphones: The New Determinant of Creditworthiness

smart phone

In developing countries, where banks and banking infrastructures are practically nonexistent, financial institutions are figuring out a way to determine the creditworthiness of individuals in those areas.They are looking at how people use their smartphones.

 

Several startups are working within Kenya, the Philippines, and Indonesia to make the process of lending and borrowing less risky for everyone involved. These are countries where physical banks are few and far between, so the startups are working with potential lenders to develop new ways to assess the risk of potential “lendees”. It’s common that many consumers in these areas have smartphones, even if they do not have bank accounts, so there is a great deal to learn about people through their smartphone usage.

 

Studies have shown that individuals who send more text messages than they receive are perceived to be a risk, because they are not frugal with their time or money. People who make more phone calls in the evening are considered to be a “good risk” because these people are seemingly more aware of their spending (off-peak hour phone calls cost less money).  However, the biggest factor in this smartphone use vs creditworthiness argument is the study of a person’s smartphone payment history. The timeliness of their bill payment is factored in, but there is a heavier observation of other transactions made via smartphone — many people make payments for groceries and personal expenses through their smartphone.

 

This new determination of credit is transformational in a few ways. For one, it’s creating a space for the masses within these countries, to have access to credit where there has never been “credit” before.  This new process is also calling attention to how different the credit systems are around the world. Credit in one country is in most cases useless in other countries because of how different the metrics are. In more established countries, like the United States and The UK, South Africa, and India credit is determined by both positive and negative factors, which aren’t even available or relevant in developing countries. These developing changes in the field of credit are opening up the eyes of international financial institutions; consumer credit may be forced to evolve everywhere to keep up.

 

To see the article that inspired this blog, click here.

Determining Tenant Worthiness

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As a landlord, deciding who will be a good tenant for your property can prove to be and extremely challenging process. There are several key factors in making a tenant decision, but the most important one is determining whether or not the potential renter will be able to consistently pay their rent in a timely fashion.  There are several determination factors to consider when making this final decision (the most important one being their credit score).

 

What is your applicant’s age?

FICO scores vary based on the consumer’s age. When you’re considering younger applicants as renters, it’s important to keep in mind that they may not have enough credit history to possess a higher score.

 

What has impacted the applicant’s score?

Take the time to review the credit report. Some factors that might have negatively impacted a score might not be relevant to you as a landlord (ie: the number of credit inquiries they’ve had.)

 

Is there a guarantor willing to cosign?

Maybe you feel the applicant would be a great fit but their previous credit history isn’t ideal.  Considering a cosigner for the lease, which will provide a backup source of payment if your tenant does not follow through on their payments.

 

Whether you’re a landlord looking to rent your property, or a tenant searching for your next apartment, a person’s credit score is vital to any rental agreement. A landlord will likely infer the worthiness of a potential tenant through their credit score, which shows someone’s financial stability. Ideally, as stated in homeguides.com, a FICO score of 660 and up is the optimal credit score for a potential tenant to a property but can vary based on landlord preference. In a situation where an applicant has poor credit, a landlord might suggest a month to month lease agreement, a higher rental payment, or automatic payments.

 

What is a Credit Score?

credit score

Used as a basis in determination for loans, credit cards and mortgages, credit scores play a vital role in any person’s credentials. Your credit score can literally mean the difference between being approved for a mortgage on your first home and being denied. Credit scores also plays a significant part in determining interest rates.

Your credit score is a generated mathematical algorithm that uses information from your credit report, as depicted on bankrate.com. Although there are various credit score models, most lenders use an applicant’s FICO score to determine their eligibility. According to FICO, “90 percent of all financial institutions in the U.S. use FICO scores in their decision-making process.”

There are 5 primary aspects in determining someone’s credit score: payment history, debts owed, length of credit history, new credit, and types of credit used. Each metric is weighted in different percentages against your score, with payment history and debts owed making up for more than half of your total score. Whether you are new to building credit or have a substantial number of years with credit also works as a factor in your credit score. Those who are new to credit have a different formula used than those who are not. Consumers with similar credit profiles have a formula designed for their category.

Although some lenders may have their own spectrum of what  “a good credit score” is, creditkarma.com suggest a good score is anywhere between 700 and 850. Knowing your credit score is a crucial aspect in planning your financial success. Prior to applying for credit you should always review your score and know where you stand. There are various sites you can visit that specialize in managing your credit score. By doing so you have the opportunity to build your score and make yourself a more favorable applicant, thus setting yourself up for future financial success.