Tips on How to Boost Your Credit Score

credit score

Your credit score is like a report card on how you manage your finances, and just as it is important to have A’s and B’s on your report card, it’s important to have a good credit score. Not only can your score play a role in whether you can get a loan, it also may affect what you pay for insurance and the amount of deposit you have to put down on an apartment. If your credit score is lower than it should be, you can follow these tips to give it a boost.

Bring past-due accounts current

One of the best and easiest ways to boost your credit score is to get current on any past-due accounts. If you are applying for a mortgage to check with the mortgage company first before paying any collections or charge offs. These accounts may not need to be paid before the loan is done and paying off old collections or charge offs will bring your scores down temporarily, or until they show some history of being paid and could cause a problem with getting the loan.

Accounts that haven’t been paid on time can greatly reduce your credit score, because your payment history accounts for more than one-third of your total score. If you have any accounts that are in collections, pay those off first and make sure the collections agency notifies that credit bureaus that you are now current. Then concentrate on bringing other accounts up to current status. One key thing to focus on, however, is that you want to make sure you don’t let any new accounts become past due while you are catching up on accounts that are already behind.

Pay down debt

Once you have worked to get all your credit accounts current, your next focus should be on paying down debt. The amount you owe makes up 30 percent of your credit score, and if you owe a lot relative to how much credit you have available, then it will affect your score. A general rule of thumb is your debt should be less than 30 percent of the amount of credit you have available. So if you have $10,000 worth of available credit, you should owe less than $3,000. This rule applies only to revolving credit accounts like credit cards, not to installment loans such as a car loan.

Don’t close accounts

If you pay off an account, you may be tempted to close it, but that can hurt your score, especially if the account has been open for a long time. The length of your credit history accounts for 15 percent of your credit score, so if you cancel accounts you have had for a long time, it can shorten your history and hurt your score. Keeping accounts open, even after they are paid off, will help boost your score.

Don’t open new accounts

The more credit cards you have, the more it can lower your score, especially if you have opened a lot of accounts recently. Opening a lot of accounts in a short time looks risky to lenders and can hurt your score. Doing so also can shorten your credit history, which can reduce your score as well.

Dispute Investigation 101

mark teta finance

In any industry where financial transactions take place, there is a chance that a consumer will want to dispute a charge. When dealing with financial institutions (lenders), there are specific protocols that need to be followed and compliance deliverables that need to be met. The type of follow up that is required will depend on the type of financial dispute that is taking place. If there is a dispute in the realm of open-end credit accounts, it will fall under Regulation Z (which has its own required steps for resolution). Other disputes are handled a bit differently.

With any dispute there are few universal steps that financial institutions have to take to remain compliant.

  • The nature of the dispute needs to be assessed
  • Once the nature of the dispute is assessed, the financial institution must decide whether investigation is required (if it falls under Regulation Z, an investigation is mandatory)
  • If it is determined that an investigation is required, then the institution must then make sure that all procedures are followed (timing, notices, etc.)

When a dispute DOES fall under Regulation Z…

Transactions (and subsequently their related disputes) that revolve around home equity lines of credit, overdrafts related to credit, credit cards, and other transactions of that nature carry specific rules about their investigations and resolutions.

According to Regulation Z, a billing error is,

“a reflection on or with a periodic statement for an extension of credit that exhibits some type of error, ”

which can come in many forms.  An error can be anything from an unauthorized transaction to an improperly credited payment. If a consumer files a complaint about an error within the allotted 60 day time frame, there are three steps that will take places.

  1. Written acknowledgement of the receipt of the billing error dispute must be sent back the consumer within 30 days. The creditor must then follow all Regulation Z procedures.
  2. The consumer is not required to pay the disputed amount while the investigation takes place. The creditor is not allowed to make any negative actions against the consumer, and no delinquency is allowed to be reported.
  3. At the conclusion of the investigation, if there was no billing error, then the creditor must inform the consumer, in writing, that the disputed issue was in fact compliant. If it is determined that an error did occur, then the creditor in question must correct the error and send written notice of the correction to the consumer.

If the dispute DOES NOT fall under Regulation Z…

There are several potential billing disputes that do not involve open-credit accounts. In those situations, the creditor/lender is still responsible to carry out the “consumer complaint process” as part of the Compliance Management System.

All complaints must be documented, investigated, and resolved in accordance to the Compliance Management System (CMS).

 

What to Consider Before Buying Your First Home – Part 2

home and vintage car

In my last post, I started a list of things that you should absolutely consider before purchasing your first home. Buying a home is a major live achievement, and you’ll want to make sure that everything goes as smoothly as possible, so your achievement doesn’t turn into a source of deep personal and financial strife.

Let’s delve a little further into some other important things to think about before you sign on the dotted line.

 

Don’t Buy A Home for the View

If you’re looking at a home, and the selling point is the view, you must remind yourself that that view may not be there forever. Markets shift, renovations happen, and new properties are built all of the time; those can easily obstruct or destroy the view that you loved so much.

Protip: If you really love the view, and you have the means…..try and buy the property that makes it up. This is really only applicable in rural, undeveloped areas, but it may be possible to purchase a small plot of the land that makes up the view that you love.

 

What Is The Long Term Plan?

There are a few things to consider when you’re thinking long term.

  1. The most obvious question is whether or not you are planning to grow your family. How many kids are you planning for? Will there be enough space? Is the layout of the house kid-friendly/safe?
  2. If this is just a “starter” house, and you’re planning to move and rent out this house: Make sure renting is allowed. There are some homeowner associations that contractually prohibit renting, so be aware of that before you buy.
  3. If this is just a “starter” house, and you’re planning on selling, determine who the house will appeal to when you’re trying to sell. Is this home going to appeal only to first time buyers or will families consider it too?

You’ll want to try to invest in a home that appeals to a broad market. So, consider things like school districts, proximity to amenities, & family-friendliness when purchasing because you don’t want to end up with a house that you can’t sell or lose money on because your potential buyer-pool is limited.

What to Consider Before Buying Your First Home – Part 1

row houses

Coming to a position in life when you feel ready to purchase your first home is very exciting. Of course there will be a lot of planning and budgeting before any concrete decisions are made. But, there are certain things that many first-time buyers forget to even think about when planning out their big buy.

Use this as a checklist of things you should take into consideration when thinking about investing in a home.

Look Into Funding & Grants

You’d be surprised by the assistance available for potential buyers if you do the proper research. Many people are quick to assume they wouldn’t qualify for grants because of income limits, but that’s not always the case. There are a lot of associations that provide grants and assistance based on profession, so check for those first. Then, look into grants available specifically for the area/type of area that you are looking to live in.

 

Can You Handle a Financial Emergency?

I mentioned emergency funds in a past blog post in the context of bankruptcy prevention, but it absolutely bears repeating. If you are going to invest in a home, you must have a significant savings. If you lose your job, or there is a medical emergency, do you have enough saved to cover expenses and your mortgage for a few months?

First-time buyers who are transitioning from renting also often forget that all maintenance will now come out of pocket. Many homeowner insurances will have deductibles that you must hit before they pay for damages, so remember that there can be a lot of unplanned out-of-pocket expenses that come with owning a home.

 

Think About What Kind of Neighborhood You Want to Live in

It’s easy to be swept up into the whirlwind of house showings and open houses, and the last thing you want to do is fall in love with a house in an area that doesn’t align with your needs. One of the most important things to determine is whether or not the area is primarily renters or buyers. The high turnover of residents in rental properties means that the vibe of the neighborhood can shift very easily.

If you’re planning to have a family, there are also a few things to think about. What are the schools like? Are there a lot of other families in the area, or is it primarily single residents? Will there be resources for your children?

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

 

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

 

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.