Archive for January, 2009

Renters: Prepare for a Move by Raising Your FICO Scores

Sunday, January 11th, 2009

Many tenants assume that their landlord is rich, but that’s not always the case. In fact, that’s often not the case.

Owning real estate has long been considered a way to build a nest egg, so many would-be real estate tycoons start with one single family home and try to add more houses and apartment buildings as time goes by. If they’ve purchased for the right price and can keep the units rented for more than the monthly payment, they see a positive cash flow and begin building a bank account.

But, if times get tough and they’re unable to keep their properties fully rented, or if repair costs escalate, those properties can become a liability instead of an asset. If other financial disaster strikes, they may even begin using the rent money for the mortgage payment on their own homes.

Since landlords and tenants don’t usually discuss the landlord’s financial situation, tenants can be caught unaware when the house or the apartment they occupy suddenly goes into foreclosure. Remember that only owner-occupied homes are eligible for relief under the Streamlined Modification Program, so foreclosure of rental properties is a very real possibility.

To address this problem, Fannie Mae announced that it would introduce a new policy in 2009 to give aid to renters. While the rule of thumb used to be that all REO properties remained vacant, now people living in foreclosed properties will have the opportunity to sign a new lease with Fannie Mae while the home is marketed for sale. They may also be given money for moving expenses.

Freddie Mac is working on a similar plan.

Of course, not all homes have a mortgage with Freddie or Fannie, and a tenant wouldn’t know if it did or not until they were notified after foreclosure had begun. So, if you have cause to believe the home you rent might be going into foreclosure, investigate the laws in your state to learn how long you will be allowed to stay after a filing.

Since foreclosure actions, judgments and bankruptcy filings are all public record, you can also do some investigation to see if any trouble is brewing. Any action related to your landlord should be listed in district court records or at the County Recorder’s Office. If you’ve been dealing through a rental agent and don’t even know who your actual landlord is, you can find out through cross-referencing from the address and legal description.

Even renters need good credit scores now, so be prepared for a possible move with the highest possible FICO scores. Get your credit report – with scores – and see how you stand today. Then, unless you’re already hovering in the mid 700′s, begin taking steps to raise that score. your resource for free credit reports, credit cards, loans, and free credit repair advice.

Citigroup Credit Card Promises – Made to be Broken?

Tuesday, January 6th, 2009

In an effort to fend off greater regulation, Citigroup executives made a commitment to Congress in early 2007. That commitment was a pledge that it would no longer reserve the right to raise interest rates at any time for any reason. They did reserve the right to increase interest rates when an account expired.

This pledge was, of course, also made to tens of millions of their credit card customers.

Now Citigroup has changed its mind. It plans to start raising rates for those customers who have not had an increase in at least two years. Citing a “difficult market environment” and a $1.4 billion third quarter loss, Citigroup claims this move is necessary to prevent further cuts in profits.

Chief administrative officer John P. Carey was quoted as saying “We are carrying out this repricing in order to continue lending in this environment.”

If you are a Citigroup customer, you should have received notice of this increase with last month’s statement. But did you read the fine print?

Cardholders have until the end of January to turn down the higher interest rates. If they decline the rate increase, they will pay down the balances on their accounts under the old interest rate and will be able to continue to make charges until their cards expire.

After that, cardholders who declined the rate increase would have to pay off their balances or transfer them to a different lender.

Citigroup representatives said that it plans to raise its customers’ borrowing rates by two or three percentage points. This will cause some borrowers to pay 20% rather than 17% – and will cause others to pay even higher rates.

New York’s Democratic Representative Carolyn B. Malone, who proposed the House credit card legislation, was quoted as saying “Banks appear to be repricing cards for economic reasons – theirs, not their customers’. Apparently a deal is only a deal when it doesn’t cost the financial institution too much money.”

This action is a breach of trust that Citigroup apparently hopes consumers will either disregard or forget. But will we? Only time will tell.

Should you receive notice of a rate increase – from Citigroup or any other credit card issuer – consider whether you have the ability to say “No” to the increase.

Saying no will mean you’ll have to move that balance or pay it off when your credit card expires. So look at the remaining time on the card, calculate how much you’ll save, and make an informed decision.

Reports did not state what action would be taken if a consumer refused the increase and was unable to pay off the balance when the current credit card expired. At the very least, the interest rate would increase. At the very worst, the account would be subject to legal action or turned over to a collection agency.

Begin reading everything that comes from your credit card issuers – and act from a position of knowledge. That includes keeping a close watch on your credit report.

A Good Time to Have Great Credit

Sunday, January 4th, 2009

January 2009 marks the lowest home mortgage rates since Freddie Mac began tracking the data in April of 1971.

After 9 straight weeks of falling interest rates, the average rate on a 30-year fixed mortgage has now dropped to 5.1%. 15-year fixed rates were even better, at 4.83%.

While falling interest rates often put consumers in a “wait and see” frame of mind, this time homeowners are jumping at the chance to refinance their higher interest loans. The Mortgage Bankers Association reported that loan applications are now at the highest level in more than five years. The last such surge was in January of 2003.

Borrowers seeking new home mortgages made up only 20% of the loan applicants.

These low rates present a great opportunity for borrowers with solid credit and plenty of equity in their homes – and for prospective new homeowners with high FICO scores and a down payment in the bank.

Those in danger of foreclosure won’t get the benefit of these low rates because late payments and defaults have destroyed their credit ratings. Thus, unless one of the talked-about plans to bail out homeowners comes to pass, we can expect to continue to see more foreclosure properties coming on the market in the coming months.

This offers a double benefit to prospective new homeowners with high credit scores. As mortgage companies strive to clear out their inventories of repossessed homes, home prices will continue to drop. Those consumers with the ability to buy will find bargain homes and low interest rates – making home ownership more affordable than it has been for at least the past 5 years.

If a home purchase is even an idea in the back of your mind, now is the time to get a copy of your credit report and make sure you’re going to be ready when a bargain presents itself.

Even if you have consistently paid every bill on time; and even if your debt load is low; your credit report could reflect a lower than expected FICO score. This could be due in part to the structure of your existing debt, to data entry errors on your report, or to an undetected instance of identity theft. Be on the safe side: Get your credit report today.

Minimum Credit Card Payments Keep Consumers in Debt

Thursday, January 1st, 2009

Minimum payments on credit card balances were designed as a tool to help consumers when unexpected debts arise or a breadwinner is off work for some reason. Nevertheless, about 5% of all consumers routinely pay just the minimum each month.

Prior to regulations which went into effect in 2003, credit card issuers could set a minimum that was far less than the interest accrued each month, causing these “minimum payment” borrowers to go further in debt with each passing month – even without additional spending.

In 2003 Federal regulators stepped in with standards that ensure that the current balance can be amortized over time, but even these minimums will keep consumers in debt for far too long, and will result in huge interest payments.

Under current standards, the minimum must reflect a payment of at least 1% on the balance, plus current interest. If that interest happens to be 20%, the debt will double in 5 years. Meanwhile, at only 1% repayment per month, it will take 8 1/3 years to pay off the principal. The borrower will have paid 160% of the original amount in interest.

A second drawback of paying just the minimum is that the practice puts a label on the borrower. They’re seen as a greater risk, and so – of course- the credit card companies raise their interest rates!

Now, with the country in what has finally been labeled as a “recession,” many credit card users are no longer able to meet even monthly minimums. In response, some credit card issuers have instituted programs to help consumers get back on track. They’re waiving over limit fees and lowering annual percentage rates.

Some card issuers, such as Chase Bank, are offering Settlement Plans to let consumers settle their outstanding balances for 50% or less than the balance due. Of course, if a consumer was unable to meet a monthly minimum, the likelihood that they can suddenly pay off even half of the balance due is probably slim.

The best advice from financial experts is to pay as much as you can each month, and retire that credit card debt as soon as possible.

Just remember not to close the account once it’s paid off – having that unused and available credit will serve to raise your FICO scores. Even if you aren’t in the market for a new loan today, circumstances change.

Work to keep your credit rating high, because it affects more than just your ability to obtain a loan. Everyone from potential landlords or employers to cell phone providers judges you by that FICO score.

Our advice: get a copy of your credit report today, examine it to check for possible errors or signs of identity theft, then consider all the ways that you can raise that score all the way to the top.

Previously Issued Credit Lines Increasing Overall Debt Load

Thursday, January 1st, 2009

Banks were loaning money at a fast pace in the early months of this year, in spite of telling the Federal Reserve that they were tightening loan standards and demand for loans was down. They weren’t doing it on purpose – but at that point, they had no choice.

What gives?

Consumers and business faced with the impossibility of getting new loans combined with shrinking limits on their credit cards have been using previously issued lines of credit.

This is especially prevalent in commercial and industrial applications, because many companies that had financed themselves through commercial paper had paid for backup lines of credit. The banks didn’t expect that those lines would ever be used.

Home owners are also tapping in to previously committed funds. When it suddenly became much more difficult to refinance home mortgages, they began maxing out their credit cards through cash advances or drawing on HELOCs – Home equity lines of credit.

Many consumers had obtained HELOC’s for an amount greater than they needed at the time – because the line of credit was tied to their equity in the home, and because they paid no interest unless they drew out funds, it made perfect sense to do so.

These lines of credit were a “safety net” of sorts – there in case of an urgent need. And 2008 has brought urgent need to many.

According to a report in the New York Times, the six month period ending in March saw overall debt grow faster than at any time since 2005, when credit approval standards were very low.

The result – banks are now moving to reduce as many outstanding lines of credit as possible. They’re reducing limits on credit cards and home equity lines alike – and refusing to renew credit cards that have expired.

The shock for some consumers was what happened when they took a cash advance on a credit card. This act triggered some cards to suddenly reduce their credit limit to match their outstanding balance – which meant they were over limit when the month’s interest was added on. Then, because they’d gone over limit, the credit card issuer was free to raise their interest rate – giving them a double whammy.

While many are taking steps to move or eliminate this debt, others have simply said “I give up” and stopped paying credit card bills.

While more recent statistics are not yet available, we can assume that overall debt has risen drastically as more and more consumers have stopped paying credit card bills. Even with no new charges, credit card companies impose both late fees and over limit fees each month – and hike the interest rate to the maximum. Balances can double or triple in a short time.

These additions will affect reports of overall debt during the coming months, as analysts will not know how much is “deliberate” debt initiated by consumers, and how much is due to fees tacked on by credit card issuers.

Home Prices Continue to Fall in Spite of Low Interest Rates

Thursday, January 1st, 2009

Home prices and the number of home sales are both in free-fall, according to Nariman Behravesh, the chief economist at IHS Global Insight. Economists had forecast a fall, but when the number of sales dropped 7.6% from October to November, they signaled the biggest monthly decline since January 1989.

The median resale price dropped 13 percent from a year earlier, and according to the National Association of Realtors, was the largest decline since record-keeping began in 1968.

The result: Homebuilders are calling on the government to “fix housing fast” and the incoming administration is working with lawmakers to present a stimulus package. What that package might be remains to be seen.

Interestingly, in spite of the fact that foreclosures and short sales accounted for 45% of November’s home sales, the supply of new homes has decreased while the supply of resale homes has increased.

With prices and rates still falling, many homebuyers who can qualify for a mortgage loan under the tightened requirements are still waiting. Bargains abound as mortgage lenders routinely reduce prices in an effort to move their “REO” properties out of inventory, but many are waiting for even more drastic reductions.

Can and will the rate drop below the current average for a 30-year fixed rate loan? As of the week ending December 12, that rate was at 5.12% – the lowest it’s been in over 5 years.

The current situation is reminiscent of that period a few years back when rates were bouncing on almost an hourly basis. Borrowers – with no crystal ball for guidance – agonized over the proper day and hour to lock their interest rates. Should they wait and see if rates would drop another eighth, or if they wait, will they go up a quarter?

No one can accurately predict whether prices and rates will continue to fall – or if they do, how far. And serious buyers should be looking at the actual homes for sale rather than a compilation of average numbers.

One thing is certain. Borrowers with the highest FICO scores will get the best rates on mortgage loans – and borrowers with low scores won’t be getting loans at all.

If buying a home is in your future, get your credit report with FICO scores today. See where you stand so you can make any needed corrections and be ready when the perfect house at the perfect price comes along.

Disclaimer: This information has been compiled and provided by 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.