Do Credit Inquiries Adversely Affect Your Credit Score?

January 21st, 2013

While calculating credit scores, FICO score does take into account credit inquiries. If you’re not familiar with the term credit inquiry, you should be aware that this is nothing but the record of who pulled out your credit report and on which date. When it comes to credit applications, there are many consumers who are worried about applying for credit as they feel that this might lower their credit score. However, the actual fact is that credit inquiries might lower your credit score but it is not that credit inquiries will always hurt your credit score.

What is the true impact of a credit inquiry on your credit score?

Before you decide not to apply for whatever you were about to apply for, you should consider the fact that inquiries usually have a marginal impact on your credit score. Just because an inquiry might cause your credit score to plunge, it doesn’t mean that it will go down to such an extent that the lenders will change their mind about lending you credit. If your FICO score drops from 790 to 786 due to some new inquiries, this is not going to make a relevant change to your borrowing ability. You should also keep in mind that majority of the credit applications usually results in a single inquiry on one of the three credit reports. When you apply for new credit, this won’t mean that all the 3 credit reports from the 3 CRAs will be pulled out. They will check one report and therefore a single inquiry will be present in only a single credit report. This will also mean that your FICO credit scores on the 2 other credit reports won’t affect at all.

What is the grand scheme behind credit inquiries hurting your credit score?

One thing that should be kept in mind is that credit inquiries aren’t just the only thing that is terribly important in the entire scheme of things and computation of your credit score. Credit inquiries affect up to 10% of the points in your FICO score and therefore when it comes to the pieces of the FICO score that gets affected, inquiries consist of the smallest piece. According to FICO, 57% of the consumers are getting maximum points from the inquiry point category and this means that the inquiries aren’t lowering their credit scores. Only 4% of consumers lose more than 20 points due to inquiries by the lenders.

In a nutshell, inquiries don’t take a huge space while calculating your credit score and hence you shouldn’t worry about the credit inquiries. Get new lines of credit only after shopping around so that you don’t need to fret about dropping down your credit score. Pull out your credit report time to time to check the listings, whether or not they have any serious impact on your credit score.

Author Bio: This article has been contributed by Allen Smith. He is a contributory writer for Oak View Law Group, CA based law firm. He is also a financial advisor and guest author for acclaimed blogs. Allen has been writing for more than five years and helping people to get wise with their money. His interests include attending financial seminars, writing columns related to debt settlement help, bankruptcy filling, credit consolidation and visiting personal finance blogs. Please click here to know more about OVLG.

Simple Ways to Spend Less & Pay More on Debt

January 4th, 2012

Credit card debt can balloon out of control before anyone knows it. Once someone realizes how bad the situation has become it can seem almost impossible to dig out from under the red tape. Doing so will almost certainly require a change in spending habits and then applying the money saved to the monthly payments.

Ways to save

*Set goals – Decide what exactly it is that needs to be accomplished. Simply deciding to save money or pay down debt likely won’t work because that can’t be measured. Set a period of time in which a certain amount of debt should be eliminated.

*Spending – Begin by tracking every expense, from monthly bills to grocery trips, for a period of time. After a couple of weeks, go back and see if there are any areas that can be cut out, such as eating out.

*Budget – After costs have been accounted for and adjusted, create a budget using income and expenses. This will reveal whether there will be any extra money left around that can be applied to those debts.

*Start saving – Make a point to put a set amount of money into a savings account each pay period or on a monthly basis. Many employers offer an option to have money from a paycheck automatically deposited into a savings account. Using this option will remove temptation to spend the money rather than save it. An emergency fund should also be created to help fund when emergencies arise. Use it to pay for them instead of relying on a credit card.

Pay down debt

Once a little extra money can be found it should be applied to the debt payments as much as possible. There are other ways to help reduce the amount owed to credit cards.

*Lower rates – Ask the company if a lower interest rate is possible. If they agree, it can save money in the long run. If they refuse, consider looking around for an account with a lower, or even zero percent, interest rate.

*Pay the debt – If more than one account has a balance on it, pick one and focus efforts at paying it off while paying the minimum on the others. Some will pick the lowest balance while others will pick the highest one.

*Use cash – Until debt spending is under control, and even after, use cash to make purchases. Buying additional items with a credit card defeats the purpose of trying to reduce the debt. Once the debt has been eliminated, try to continue using cash to avoid falling back into the trap.

Getting out of debt can be an uphill battle but the most effective weapons can be a savings account and a budget. Armed with these, a consumer can see where they can save money and how much. Once that’s been determined at least some of those savings can be applied to paying off the debt.

This article has been contributed by Christina Lloyd, who uses these strategies to keep her spending under control. She writes for a website that has information about government college grants, such as grants for beauty students, and other types of financial assistance that is available.

Renting vs. Owning – The Smart Choice is Clear in Today’s Market

December 18th, 2011

Across the country, news stories continue to scare buyers into thinking that the market may continue to fall – and that prices will drop even more.

The truth is, whether home prices rise or fall in the near future is irrelevant, because a home is for the long term. It’s a place to live and build a future. What matters is that right now, you can own the home you want for a fixed monthly payment that will fit comfortably within your budget – and will become even more comfortable as your income rises over time.

If you want the independence and pride of home ownership, waiting to see if prices go even lower could prove to be an expensive mistake. Interest rates could rise at any time, eliminating any savings from a lower price. In fact, in order to offset a 1% increase in interest rates, your mortgage loan balance would have to drop by 11%.

A $150,000 mortgage loan at 4% carries a monthly payment of $716.12.

A $133,400 mortgage loan at 5% also carries a monthly payment of $716.12

Staying with the $150,000 mortgage loan balance, an increase from 4% to 5% would raise your monthly payment to $805.23 – that’s $89.11 per month, or $1,069.32 per year.

Waiting could mean purchasing a less desirable home, or paying considerably more per month.

Security and pride of ownership:

When you own a home you have a safe port to come home to each day. It’s yours, and as long as you continue to make your payments, no one can tell you to leave or tell you how to live within your walls.

You can make improvements knowing that you and your loved ones will be the beneficiaries of your efforts.

The drawbacks of renting:

• Tenants have to follow rules set down by landlords: No pets, no basketball hoop on the garage, no cars left in the driveway, no noise, no hanging pictures on the wall, no repainting rooms… and on and on.

• You have no security and thus no “home” to call your own – because you could be required to move at the end of your lease.

• Your landlord could sell the property or be foreclosed upon – and you would have to move.

• As a tenant, you’re building equity for the landlord, not for yourself.

• But worst of all, monthly rents can and will increase – probably every time you renew your lease.

Thus, anyone who has good credit, a little cash for a down payment, and plans to remain in the community should be looking for a home right now. It’s the only sensible thing to do.

How Parents Can Teach Their Kids About Good Credit

November 23rd, 2011

Sometimes lost among the “big conversations” parents must have with their children is the one about the value of money and how to obtain good credit. Teaching children the importance of being frugal may be even more important these days than ever before. Whether the child wants to buy the latest video game or a used car, realizing how much it will cost and how to save for it will be a lesson they will never forget.

Tips for teaching kids about money

There are many different strategies parents can use to teach children the importance of spending money wisely, from an actual sit down chat to using real-life examples.

*Every day events – Shopping for groceries, paying bills or planning a family vacation are all opportunities to teach children the value of money. Explain why certain items are bought while others are not, how monthly payments come into play and why Disney cannot be visited every year. Young children may see parents withdrawing money from an ATM and expect that can be done at any time. Explain to them where the money comes from. The same should be done for any household using checks.

*Savings – Get into the habit of saving a certain portion of income each month into an account. Teach the children to do so also, even setting up a savings account for them. Encourage them to deposit a portion of any birthday or holiday money they receive, rather than simply spending it on the latest toy that catches their eye. Later, they might also help contribute to a college education fund.

*Budgets – Explain to teens and young adults the importance of a budget, which should include income and all expenses. Stress the importance of paying bills on time and planning ahead to make sure enough money will be available. By learning this early in life they will be better prepared in adulthood.

*Good versus bad – Teens and young adults should also be taught the difference between good and bad credit. Going into debt should be reserved mostly for large purchases, especially those that will appreciate in value such as a new home. A car may fit into this category, too, even though it will depreciate. Bad credit would include credit card debt accumulated by purchasing luxury items that are not needed.

*Set goals – Telling a child, especially a young one, to simply save money may be a bit of an abstract thought. Have them work toward a goal, such as a special purchase they have been wanting. When they want to splurge on a different item they see, remind them of their goal and that splurging will delay achieving it.

It’s never too early to start teaching children the value of money and good credit. The lessons they learn from those experiences will carry over into adulthood and help make them financially secure.

This is a guest post from Katherine Watkins, who writes for a site that offers advice about home equity loans and home equity lines of credit. Katherine believes it’s important that parents teach their kids to have a responsible attitude towards money so that they are able to manage their finances wisely when they become adults.

Are Fannie, Freddie, and the Banks Scaring People Away From Home Buying?

September 19th, 2011

Despite the fact that it is now cheaper to buy than to rent in many communities, home sales are still not up to normal levels.

Why? Because too many would-be buyers are afraid to become caught in another price crash. After home prices plummeted – sometimes as much as 66% – those buyers are afraid of being stuck with a home that is worth far less than they paid.

The threat is real.

While no one can cite a specific number of homes in shadow inventory, everyone knows they’re out there, and if the banks suddenly release large numbers of them into any given market, they’ll drive prices downward.

Right now, S&P estimates between 4 and 5 million homes are sitting in “shadow inventory” status. This includes homes which have already been repossessed, and homes that will in all probability be repossessed.

Fannie Mae, Freddie Mac, and the Federal Housing Administration own approximately 92,000 homes right now, and they want to get them out of inventory quickly, so they could be hitting the market before long.

However, those who want to own homes should ignore the threat posed by shadow inventory.

During the “boom” years home ownership came to be regarded as an investment – one that should grow each year. But for individuals and families who need a home, this is an attitude that can keep them throwing away money on rent for decades.

A home is a safe haven – a place that is your “castle,” your private retreat where you can do and say whatever you please. It’s the place where you gather your favorite things and enjoy your favorite people. It’s a place to put down roots and stay.

Unless you plan to relocate within the next few years, buying a home today is a smart move. Even if prices take another dip, rents will not. In fact, as more homeowners go into foreclosure, rents have been rising. It’s the law of supply and demand at work.

And right now, with prices down and interest rates hovering around 4%, it is time to get moving. An interest rate increase of just 1% will wipe out any savings you might see even if home prices fall another 11%. So buy what you can comfortably afford, put down roots, and quit worrying that your new home might be worth less next year.

Just like a family heirloom – if you don’t intend to sell it, it doesn’t really matter what your home is “worth” on a given day.

CreditScoreQuick.com

Chase, Bank of America, and 15 Other Banks Sued by FHFA

September 8th, 2011

On September 2, FHFA filed lawsuits against JP Morgan Chase, Bank of America, 15 other banks, and 132 individuals.

The lawsuits, filed in the U.S. District Court for the Southern District of New York and a federal court in Connecticut, are civil suits requesting a jury trial. The plaintiffs seek a monetary judgment, although there are many in the real estate industry who would prefer to see criminal charges.

The subject of these lawsuits is alleged violations regarding the sale of residential mortgage-backed securities sold to the GSEs – Fannie Mae and Freddie Mac.

We find it interesting that at one time the Federal Government was urging banks to loosen their loan requirements so that “All Americans” could own a home. The banks did so, and placed thousands of families and individuals in homes with little to no down payment and low “teaser” interest rates that almost guaranteed failure when the loans re-set to normal interest rates.

Next, when the loans began to fail, the government declared the banks “too big to fail” and handed over bail-out money to keep them afloat.

Now those same banks are being sued. Why?

The reason given is their failure to follow underwriting guidelines with regard to the loan to value ratio of homes being financed, the occupancy stipulations, and the borrower’s ability to repay.

However, it also appears that these banks didn’t want investors to know the quality of the loans they were selling. According to charts published on the Mortgage News Daily website, the banks misrepresented the loans included in the packages they sold. Thus, the lawsuits allege fraud.

For instance, a look at 5 packages sold by Bank of America shows a gross misstatement of the number of loans with a loan to value ratio of over 100%. While they call it misrepresentation or carelessness – it seems difficult to “accidentally” enter “zero” when the actual number is anywhere from 14% to 20%. They also misrepresented the percentage of loans with a less than 80% loan to value. Since those are the loans that don’t carry mortgage insurance, wouldn’t it be easy to correctly calculate their numbers?

It will be interesting to track the results of these lawsuits. It will be more interesting to see what effect they might have on borrowers coming into the market, needing new mortgage loans. Let’s hope this doesn’t cause yet another problem for the housing industry.

CreditScoreQuick.com

Technologically Advanced Credit Card Theft

September 8th, 2011

Before technology made things easier for credit card thieves, they dug through trash to get credit card statements and carbon copies with card imprints. Now they don’t have to get their hands dirty. Instead, they hack, phish, or skim their way to theft.

Earlier this year, thieves were able to get into the systems of Michaels Stores, Sony, Epsilon, Citibank, and even the security expert RSA. Sometimes they only got names and email addresses, but sometimes they got credit card numbers as well.

Here are 5 of the most common ways thieves use to access your information:

Secret Scanning: Crooks, moonlighting as bartenders, sales clerks, or waitresses use a small hand-held device to swipe and store your credit card information. The scanning device, about the size of an ice cube, fits easily into a pocket. All he or she has to do is have the card out of your line of sight for a few seconds

The fraudulent credit card reader: This one takes a bit of nerve, as well as acting ability.

Generally used in stores with limited staff, a team of thieves stage an “emergency” that takes the clerk away from the register. While the clerk is gone, one member of the team stays behind at the register and switches the credit card reader with a fraudulent reader. This one not only collects data for the store’s charges, it collects data for the thieves.

After several days, the team returns to the store, once again distracts the clerk, and switches the fraudulent reader for the original.

The Skimmer: Any credit card reader that’s unmanned for a portion of the day or night can be compromised by this one. It takes only a few minutes to set up and blends into its surroundings so well that only a trained eye is apt to spot it.

All that’s necessary is a few minutes to work unobserved and a place nearby where a crook and his or her laptop can hole up while the skimmer is working.

This is a small device that fits neatly over the slot at an ATM, a gas pump, or a vending machine. It emits a Bluetooth signal that can be picked up by the laptop and allows the crooks to capture credit card information from every consumer who inserts a card to make a purchase or withdraw funds.

The Hacker: This devious character preys on websites with low security. He installs a bit of software called malware that infiltrates a computer or a network. When you visit the site, it automatically and instantly downloads into your computer and allows the hacker to access your information.

The hacker can go almost anywhere – including the computer systems of banks and other businesses. From there, your personal information becomes his open book.
The Phiserman: Phishing also uses malware, but he sends it to you via email. Once you open the attachment, he’s in. From there he can access all your information. One form of malware, called spyware, allows the hacker to capture every keystroke you make – including your account numbers, PIN numbers, and passwords.

Because this hacker has access to your computer, he can send malware from your name to everyone in your address book – making his malicious message look as if it came from you.

What’s the point of all this? Money, of course. Depending upon the buyer and the information gathered, the thieves can get from $5 to $40 per compromised account.

How can you protect yourself?

  • Set up alerts so you know immediately if there’s unusual activity on your accounts.
  • If you must use public computers, don’t check your email.
  • Use a separate email address for all financial activity – and don’t have other mail sent to that address. You’ll instantly spot a phishing scheme coming to that address.
  • Don’t open unknown attachments. If something appears to be from a friend but doesn’t look like their normal correspondence, call or email them to ask if they sent it. Often, the answer is no.
  • Check your accounts online regularly. The sooner you catch fraudulent transactions, the sooner you can put a stop to further damage.
  • Only shop online with vendors you trust. Even they can be compromised, but they’re safer than dealing with unknown vendors.
  • If you find evidence that your accounts have been compromised, act quickly. Notify your financial institutions, law enforcement, and any one of the “big three” credit reporting agencies: Experian, Equifax, or TransUnion. They’ll set a fraud alert on your credit reports.

Can you absolutely avoid having your credit card information stolen? Not any more. Not if you use your cards. So be careful and be on the lookout for any suspicious activity.

CreditScoreQuick.com

Low Interest Rates and the Housing Market

September 8th, 2011

In mid-August, Freddie Mac reported that the average 30 year fixed-rate home loan had dropped to 4.15%. That put interest rates at their lowest level on record since 1971. Some say they’re the lowest that they’ve been since the 1950′s.

So while home sales remain slower than normal, mortgage lenders are busy refinancing homes and lowering payments for thousands of homeowners. In fact, some lenders have raised their rates in order to slow the flood of refinance applications.

Others are encouraging their customers to get started. While interest rates are expected to remain low over the next two years, home prices could still see a drop. Thus a homeowner who has equity today could find themselves underwater by next year – and unable to refinance without bringing in cash.

In addition, this shaky economy could mean job loss or a drop in income. By next year, they might not qualify even at a low interest rate.

And of course, if they can refinance today, why should a homeowner pay an extra several hundred dollars per month in interest for even one more month?

Since home prices are back to 2002 levels in many parts of the country, home sales should be booming. So why aren’t more buyers jumping on this opportunity?

Buyers are still worried about the economy. If they purchase a home – even with a low payment – will they be able to pay for it later? Few today feel secure in thinking their jobs will still be there next year, or even next month.

Buyers wonder if prices and interest rates will drop even more. This shouldn’t be a concern for a consumer who wants to own a home and live in it for the next several years, but there are those who want to be sure to hit the “bottom of the market.”

Many would-be buyers simply don’t qualify. Banks are making it tougher to get a home loan even with good credit. And those who have gone through a foreclosure or short sale still have a few years to wait before they’ll be eligible for a new loan.

Appraisals are all over the board. When Federal regulations mandated that mortgage lenders must order appraisals through a third-party service, appraisals soon became the major hurdle to home buying or refinancing.

Appraisals are too often assigned to out-of-area appraisers who don’t know local values and have not viewed the homes used for comparables. Thus, their values seldom reflect the true market value of the homes in question, and that can bring the transaction to a halt.

When they come in too low on purchase, the loan is denied. When they come in too high on a short sale or a bank owned property, the asset manager refuses to allow the house to be sold for the fair market value.

What do we need to make the housing market rebound faster? Jobs – and some faith in the economy.


CreditScoreQuick.com


Economic Attitudes and Their Effect on Home Sales

September 1st, 2011

The way consumers feel about the economy plays a large part in the housing recovery – or non-recovery, but overall concern doesn’t seem to quite as strong as one would expect at first glance.

A National Housing Survey conducted by Fannie Mae this summer found that up to 70% of the population believes that the U.S. economy is on the wrong track. This leads to pessimism, concern about job security, and reluctance to commit to debt.

But while we think recovery efforts are misguided, are the majority of us really that worried about our personal finances?

This past April – June, Fannie Mae conducted a telephone survey of over 3,000 people. That survey revealed that while the majority think the economy is going the wrong direction, only 26% were concerned about job security. Of this group, 65% still view this as a good time to buy a house. In contrast, of those who are not concerned about job security, 76% think now is a good time.

If you do the math, you’ll see that overall, 73% of Americans think now is a good time to buy a home.

So why are they waiting? Perhaps they believe they have plenty of time to wait and see what happens next. Only 26% expect home prices to rise over the next year, and few expect interest rates to rise.

In keeping with national statistics, 26% of respondents reported that their mortgage is underwater. 42% of those borrowers are stressed by their debt, and 9% have considered defaulting on their mortgage loan. Overall, only 4% of all mortgage borrowers say they’ve considered defaulting.

When discussing changes from last year, the numbers who reported higher debt (16%) vs. less debt (19%) and an improving financial condition (25%) vs. a worsening condition (26%) were surprisingly balanced.

Looking at the difference in overall financial condition between homeowners and renters, it is the renters who report the greatest improvement: 36% against only 18% of homeowners. Not surprisingly, homeowners who are underwater were more likely to report that their financial situation had deteriorated.

Pessimism seems to rule when it comes to the economy – only 39% of those interviewed expect their financial condition to improve over the next year. This may be why consumer spending almost ground to a halt during the second quarter of 2011. Consumers simply don’t want to take on more debt when they are unsure about having the money to pay those bills.

Renters of single family homes have slightly different opinions about the home ownership than those who dwell in multi-family housing. 74% of the single family renters believe that owning a home is more sensible than renting, while only 68% of the multi-family residents hold that belief.

However, well over half in both groups say they will continue to rent rather than buy the next time they move.

As you’ve seen, it’s not because they don’t believe in home ownership. It turns out that 70% are pessimistic about their ability to obtain a loan, so probably won’t even make the attempt. Respondents cited reasons including debt, down-payment, income, job security, and credit history as blocking their way to home ownership.

CreditScoreQuick.com

Protecting Your Credit During a Divorce

August 14th, 2011

Divorce plays havoc with emotions – and it can also play havoc with your credit.

If you and your spouse have an amicable divorce, settling financial and credit issues can be relatively simple. But as too many have found out, a “spouse scorned” can create financial problems that take years to solve.

The first step should be trying to separate your credit obligations. That begins with getting both credit reports and checking to see which accounts are held jointly and which are in only one name. When some accounts are held separately, look  to see which list the other spouse as an authorized user.

Removing an authorized user is the simplest of all the steps, and should be done by the account holder. If he or she refuses, the authorized user should contact the credit issuer in writing and ask to be removed. If they refuse, file a notice with each credit bureau.

Obviously, the reason for removing a spouse from your account is to protect yourself from “scornful spending.” An angry spouse can max-out your card and leave you to pay the bill.

Why do you want to be removed? Because if your spouse fails to pay that bill, it will show up on your credit report and could be factored in to your credit score.

If you have unused joint accounts – such as a credit card or a home equity line of credit – cancel them so that neither of you can obligate the other.

When listing joint accounts, or accounts which may belong to one but authorize use by the other, remember to consider accounts which may not be listed on your credit report – such as a doctor, dentist, or local retail store.

When a jointly owned home is involved, the spouse who stays should attempt to refinance in their own name only. However, if equity is involved, or if the “staying” spouse can’t qualify for a new loan on his or her income, selling the home may be the only safe alternative.

If you have other current joint accounts, the best course of action is to pay them off by opening new separate accounts and transferring the debt to each spouse according to the divorce agreement. But since income and credit scores often prevent this kind of division, the next best thing is to protect yourself by staying informed.

Remember – even though a divorce decree may deem one spouse responsible for specific debts, the creditors still consider both parties responsible if both parties signed the credit agreement. And in community property states, this can hold true even if only one spouse signed.

Thus, if joint obligations are divided between spouses, the divorce decree should include “what if” provisions for what happens if one of you can’t make the payment.

One common solution is the provision that you must be notified in advance, so you can make that payment.

You can also ask your lender to send you a duplicate copy of the account statement each month, or to give you access to online account records. The important point to remember is that when your credit rating is at risk, you need to know if the payments are being made.

Should you find that your spouse is not making payments as agreed and is putting your credit at risk, contact your divorce attorney immediately. The court will then step in and insist that your spouse pay your legal fees in defending yourself against claims from a creditor.

CreditScoreQuick.com

Disclaimer: This information has been compiled and provided by CreditScoreQuick.com as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.