Archive for January, 2011

Experian adds Rental History to their Credit Report

Friday, January 28th, 2011

Rental history has gone unnoticed on credit reports for years. Families all over the U.S. have been making their rental payments on time with no credit toward their credit reports. Experian recently announced that they would be adding rental history to their reporting and will be the first major credit bureau to do so.

There are roughly 103 million Americans currently renting. According to Experian, with that many Americans the Bureau felt it was necessary to give those renters credit for their good history. In the past only negative history made it on their reports and now they will report the positive history.

In the world of mortgage a good rental history is never counted as good credit like a credit card history on your credit report.. It is usually necessary to have a good rental history to show you can make your payments on time. Lenders found this out by getting a verification of rental from the land lord.

With this new feature of reporting to Experian your history will be available on your credit reports. Once Experian makes this information available the scientists at FICO will determine whether rental history will be able to predict credit risk in the future. This information will also determine whether FICO will add this history to their scoring model.

In the past this type of history is considered non-traditional history. Other examples of this history would be your electricity payment, water bill payment, car insurance payment; all of these types of payments are non traditional history.

Some government loans such as FHA will allow you to get such history to show credit worthiness. But in most cases the way any of this non-traditional history shows up on your credit report will be as a result of a collection for non-payment.

This new reporting feature could be good for some Americans if they make their rental payments on-time and Experian does not report the late payment history. Currently if you are late on your rental payment that history goes un reported to your credit report. With this new feature of reporting only time will tell how it will affect credit reports and scores.

2011 Mortgage Loan Update

Tuesday, January 25th, 2011

The requirements to get a mortgage loan in 2011 are just as stringent as it was in 2010. There has been lots of Federal regulation implemented in the banking industry that has caused some issues. Over regulation is never good for any industry but in some cases are necessary to protect the consumer. Nether less here are the requirements for mortgages currently.

Credit Requirements
Most lenders are going to require a minimum 640 credit score to get a mortgage loan. This means out of all 3 credit bureaus your middle credit score needs to be a 640 or above.  Now there are some lenders that will go lower on your credit score requirement, but the rules are strict. Most of these lenders will require down payment (No Gifts Allowed) and 3 to 4 months mortgage payment in the bank after you close. In most cases even though a lender advertises they provide financing for scores below a 640, the guidelines typically make it tough to get financed. Let’s just face the facts. If your score is below 640 in this current market it is extremely tough for banks to sell that loan to other banks. So most banks only finance loans that are marketable.

FHA Loans
FHA has their own guidelines for loans they will insure. Remember FHA is not a bank, but a government agency that insures loans provided by FHA approved lenders. Even though FHA has its rules, a bank will have a set of its own rules as well. A bank in today’s market in most cases is only willing to finance FHA loans down to a 640 credit score. FHA however will insure loans down to a 540 credit score with 20% down. So there is a lot of confusing information out there about who will do what. You will find that most lenders will not provide financing for loans with credit scores below a 640. FHA also requires that you put down a minimum of 3.5% of the sales price.

Conventional Loans
Conventional loans are typically for borrowers with money to put down and good credit scores. Most lenders in this current market will require a 660 credit score to get a conventional loan financed. In most cases a credit score of 720 or above is ideal for conventional loans. Since conventional loans are approved through automated underwriting engines created by Freddie Mac and Fannie Mae, the higher your credit scores are the better terms you will get. Conventional loans currently require a minimum of 5% down of the sales prices.

VA Loans
VA loans are loans for veterans. This loan is 100% financing currently and most lenders require a 620 credit score. A DD-214 will be required to show you were honorably discharged. This is a very popular with veterans because of the terms.

USDA is a loan for rural areas. If you don’t mind driving from a suburban area, this is a great loan. The loan is 100% financing and currently some lenders will go down to a 620 credit score. You also must qualify with the medium income requirements for the area you are buying in. Like any loan there are restrictions with this loan, but the terms make it attractive for moderate income families.

Needs List for a Mortgage Loan
There is basic information needed to get a mortgage. Here is the list.

1.    Last two years W2’s
2.    Last two years tax returns (all pages) This is new and a couple years ago was only required for the self employed and for those whose income was 25% or higher commission based..
3.    Last 2 months bank statements ( all pages)
4.    Last 30 days paycheck stubs
5.    Landlord Name & Number

The needs list provided is a standard list most banks use. During the application process a loan officer or underwriter may require additional information depending on your particular circumstances.

You’re Credit Report
An educated consumer saves money typically. Especially if you know what your credit scores are. After all lenders are in business to make money like any other company. If you walk into a loan application without a clue in regards to your credit report the lender will attempt to charge you more. Make sure you know what is on your credit report along with what your credit scores are with all 3 credit bureaus.


I don’t expect lenders to lower the bar anytime soon. After recent bank failures all over the country I don’t blame them.

The government is still pressuring banks to lend again, even after the recent banking debacle. A matter of fact all banks are lending to those who have the credit to get a loan. It only makes sense to lend to borrowers that show responsibility and have a stake in the loan which would be in the form of a down payment. Being able to get a loan with a 620 – 640 credit score in my opinion is still pretty risky.

Mike Clover

FTC Released Interim Report on Credit Report Accuracy

Monday, January 17th, 2011

The FTC released a 4th interim report to Congress laying out the progress the agency has made on a national study examining the accuracy of credit reports. The FTC currently is doing a study on the accuracy of credit reporting and is directed to report that information to Congress.According to the FTC they are to conduct this study every two years starting in 2004 through 2012, with a final report in 2014.

This study will be based on three topics in the credit reporting process:
•    Consumers
•    National consumer reporting agencies
•    Furnisher of information to the reporting agencies

There are approximately 1000 random consumers in this study that have been selected throughout the nation. These consumers will review their credit report from all three national credit bureaus with a credit expert who will point out potential errors on their reports. The study participants will be encouraged to dispute errors that could affect their credit rating. These disputes will be sent directly to Fair Isaac Corporation (FICO) for rescoring.

This study will estimate the number of consumers who will find errors and reveal the main types of errors, their frequency, and their impact on the consumer’s credit rating. This study will categorize errors by type and the seriousness of the error along with potential consumer harm.

As of 1/12/2011 the FTC stated 295 consumers had already participated in this study. The FTC stated the data collection phase should be done by October 2011. The next interim report to Congress is due on December of 2012 which will provide full analysis of the collected data.

When Does a Short Sale Make Sense?

Wednesday, January 12th, 2011

A short sale is where you sale your house for less than you actually owe. This process has to be approved by your bank. There are a great number of issues with this process. The main problem is while getting approved for a short sale the bank will require you to stop making your mortgage payments. The other issue is there really is not much difference between a short sale and a foreclosure on your credit report. To make matters worse while getting approved for the short sale and after you have quit making your payments the bank can deny your request.

John Ulzheimer has discussed how short sales affect your credit and how there is not much difference between the two according to Fair Isaac. Both are negative on your credit report. Also while in this arrangement you will more than likely get a 90 or 120 day late payment on your mortgage history. Most banks will consider a 120 day mortgage late payment a foreclosure anyways. So you might be asking yourself what is the benefit of a short sale? I have been asking this very question my self since the inception of this program.

According to John Ulzheimer’s article at a short sale is better than a foreclosure because the seller will keep up the home while marketing their home during this process. For example, mowing the lawn, keeping the house clean, etc….and avoiding theft of copper pipes in the home, etc…. While I partially agree, it’s still a lot of trouble considering the fact that when it comes to your credit report and scores there is not much difference between a foreclosure and a short sale.

I am not saying foreclose on your home, but keep in mind that either way it’s a tough situation on your credit rating long term.

Let’s assume you get approved for your short sale. You list your home on the market for $20,000 less than what you actually owe on it. Your home gets a contract in 15 days and you close on your home in 60 days. Now you have a 60 to 90 day late payment on your credit report. Keep in mind that you are not making your mortgage payments because the bank made you stop… I would have to say this is better than a foreclosure. At least you sold your home before you got a 120 day late on your report.

Let’s assume your company is transferring you out of state. Your home is $30,000 in the hole due to value issues in your area. This is another situation where you may not have a choice but to enter into a short sale arrangement. Now you could sell your home for $30,000 less without doing a short sale and pay the difference at closing…If you did this your credit rating would not be affected. Of course who is going to do that?

My conclusion, a short sale and a foreclosure are about the same. In a perfect scenario where you sale your home fairly quickly, then a short sale could be beneficial even though it reports on your credit report as a settlement or charge off. Which by the way…will affect your credit rating. But let’s face the facts. Homes are not selling quickly in this current market. The average home is taking around 6 months to sell and in many cases longer depending on what part of the country you are in. So either way it’s a tough decision that will affect your creditworthiness one way or the other.

Mike Clover

2011 Economic Forecast

Thursday, January 6th, 2011

I wanted to start out the year being positive, but I am a realist. I definitely don’t want to mislead people by not telling the truth. I believe we all would agree that times have been tough since 2007. With unemployment currently at 9.3%, you begin to ask yourself if and when are we going to recover from this economic downturn. Here is my prediction.

Job Creation

In order for this country to recover, jobs need to be created. The question I have been asking all along is how can we create jobs when our jobs are being outsourced over seas for cheaper labor? There is not enough data to give any statistics on outsourcing of jobs, but I would have to predict it is not good for our country. Until jobs are created in this country there will be no recovery. Corporate companies reducing costs to be competitive has caused the outsourcing of our tech jobs as well. This in my opinion is a reason to be greatly alarmed. The tech sector is a big part of our economy currently. We will see more people become entrepreneurs not by choice, but because they cannot find jobs.

Government Regulation

During the last two years we have seen businesses being over regulated by our federal government. This process of regulation has caused a bottleneck in economic growth. Like Ronald Reagan said … “Government is not the solution but the problem.” With the interference of government you can count on economic growth to be hampered. We will not see much growth in our free market until government gets out of the way.


We hear all kinds of statistics. I live in Texas which by the way is one of the best economies in the US currently. Don’t let anyone mislead you; the housing market is a major debacle. I will be the first to tell you that the real estate market has not hit bottom yet. I predict that interest rates will increase and values will continue to fall. I don’t see the real estate sector improving for the next 4 to 5 years unless we figure out a way to create jobs.

Credit Education

What is that old saying…? “I wish I knew back then what I know now….” Well when it comes to credit education there has been a lack thereof….I predict with all the financial turmoil amongst families, credit education will be top priority. We recommend staying informed about credit through our site. Credit education is the first step to financial freedom.

I am optimistic, but at the same time like I said earlier I am a realist…We as Americans cannot keep living on credit the way we have been. This also applies to our federal government. They need to stop the unnecessary spending as well. Until these changes take place, we have a long road ahead of us. Lastly credit education is crucial from here on out as well.

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.