Q:I am very interested in building credit. I am getting married next year and want to get prepared. I make good income and am very responsible. I have a mortgage through PNC,and one minor credit card. How can I clean up my credit and take a diligent approach to cleaning up and approving my credit score?

A: Hi Ryan,

Here is a article we wrote a while back that will give you all the direction you need.

CreditScoreQuick.com

Fifty years ago, when credit bureaus were local, almost anything could be in your credit file. In fact, credit bureau employees were paid to scan the local newspapers to gather information that the credit bureaus thought potential creditors had a right to know.

That might include anything from a drunk driving arrest to a divorce proceeding to a lawsuit over a property line. It might show that your spouse passed away or that you were hospitalized after a heart attack.

In short, your credit file was a gross invasion of privacy.

But that invasion of privacy is no more. Here’s a quick run-down on the personal information that your creditors and would-be creditors will no longer find on your credit report:

Your employment status. If you’ve lost your job recently, potential creditors won’t find out from your report.

Your credit report may list current and past employers – if you’ve listed them on credit applications. But it won’t show employment dates, or if that employment has been terminated.

Your income. This item was dropped back in the early 1990’s. Now your credit report won’t show income from your employment, unemployment benefits, alimony, child support or public assistance. Individual creditors will ask, of course.

Your arrest record. Credit reports today deal only with financial obligations. So if you were arrested for shoplifting or underage drinking as a teen, don’t worry.

The only time legal matters show up on credit reports is when they involve liens and judgments.

That means child support payments will show up as a debt, and if you’re given a fine and don’t pay it, it could show up as a collection. However, the reason for the debt will not be revealed.

Medical information: The Fair Credit Reporting Act prohibits credit bureaus from listing any information on your report that jeopardizes your medical privacy.

That means that in most cases, medical debt will not show up unless it goes to collections. Even then, it is listed merely as “medical debt” and no details are given. Often, doctors wishing to adhere strictly to privacy rules will report those debts under a company name that “does not appear to be medical.”

Your marital status: Contrary to what many believe, married couples don’t share joint credit scores. You each have your own. However, if you live in a community property state and your spouse defaults on his or her individual debts, those debts could be considered yours also. In that case, a collection action for the debts, could show up on your credit report.

Note: While credit reports lenders use will not show your spouse’s name, some versions will. Thus, the credit report you pull yourself may very well list your spouse.

Signs of a cash crunch: If you’ve gotten into a bind and had to take drastic measures to meet some obligations, don’t worry.

Your creditors won’t know if you’ve taken out a payday loan, pawned some valuables, or signed for a title loan on your car. If you default on one of those loans, that will show up on your credit report, but as long as you make repayment, no one will be the wiser.

Late payment of utility bills: This one depends upon your utility company, but in most cases, your late payment won’t show unless it goes into collection. The reason is that most smaller utilities don’t want to pay the fees associated with reporting to the credit bureaus.

Your net worth: What you’re worth is nobody’s business, so assets you own outright will never show on your credit report. This includes your bank accounts, stocks, bonds, and real estate you own with no mortgage. Even if you do have a mortgage, the value of your home will not be listed.

CreditScoreQuick.com

Credit-worthy consumers are paying the price for the sub-prime market collapse, making it more important than ever to build and maintain high credit scores before purchasing a home.

According to FICO, the best rates and terms go to those consumers with all credit scores form the “Big 3” credit bureaus (Experian, Equifax, and TransUnion) at 760 or above. And close doesn’t count.

Even though a score of 756 puts you in a category where only 2% of consumers in your FICO^® Score range ever reach 90 days past due, you need those extra 4 points in order to qualify for the best rates. Earning them can save you thousands of dollars per year, depending upon the size of your loan.

How can you inch those scores up a notch?

Your credit report itself will give you some clues. Look for the section that tells you why your scores are as they are. The solution may be as simple as using a dormant account, or transferring part of a credit card balance to a different account, to lower the “use to limit” ratio on one card. Of course, paying down balances is always helpful.

Why use a dormant account? Because your score is based on your bill-paying habits. If you use the account, you can’t demonstrate that you make payments on time.

35% of your score is based on payment history, and you can’t change history. If you have late payments or other negative information, you’ll have to wait for time to lessen the impact.

But another 30% is based on the amounts you owe relative to what you could owe. And this is one area where you can take control. Strangely enough, this is calculated on a per-account basis rather than overall.

Thus, you could have six cards with little to no balance, but if one card is at 80% of it’s limit, your score will be negatively affected. Unless you can pay it down, it’s wise to move that balance to another card or cards to get your usage under 30% on all accounts.

15% of your score is based on the length of your credit history. Obviously, you can’t alter that. But you should be careful not to close an unused account that you’ve had for several years. Instead, use it occasionally to keep it active.

10% is based on “new credit,” and that includes the number of hard inquiries on the file.

A hard inquiry is one made for the purpose of making a credit-granting decision. It counts against your score even if you did not open a new account or take a credit line increase as a result. Inquiries you make yourself are not considered.

This portion of the score is the reason why real estate agents and mortgage lenders advise their clients not to apply for new credit cards or to allow any retailer or service provider to check their credit in the months preceding a home purchase.

The final 10% looks at the kinds of credit you use. For the best scores, you should have a mixture of revolving and installment debt. But if you don’t have it already – now is not the time to go open a new account.

For consumers, the frustrating part of all this is that we don’t know the formula. We can’t say that one specific action will raise (or lower) our scores by 3 points or 5 points.

Why? Because the formula looks at the overall picture and weighs the various parts against each other. And because the gain or damage for one consumer will be different than for another consumer, depending upon their credit score at the time.

For instance, a consumer with a low credit score and a history of 30-day late payments will be slightly penalized for a new 30-day late – while a consumer with high scores and a clean payment history will be penalized severely.

If the proposed QRM (Qualified Residential Mortgage) rules under the Dodd-Frank Act go into effect, standards will be even tighter. So if you want to buy a home,  start now to work on raising those scores.

CreditScoreQuick.com

And what is QRM anyway?

QRM is short for Qualified Residential Mortgages.  Under proposed new federal regulations, loans that meet the QRM guidelines would be exempt from the Dodd-Frank risk retention requirement that a bank must retain 5 % of the risk when they securitize mortgages.

Banks would, of course, prefer to avoid retaining 5% of the risk, but since they do want to make loans, they are also opposed to the QRM guidelines.

These guidelines include 20% down payment, stringent debt-to-income ratios, and rigid credit standards.

Organizations such as NAR (National association of REALTORS®) contend that the new regulations would prevent millions of hard-working, creditworthy consumers from owning a home.

Why? According to NAR figures, it would take a family on a median income more than a decade to save the 20% down payment required for a QRM mortgage. However, if the economy turns around and prices begin to rise, that magic 20% could remain forever “just out of reach.”

Non-QRM mortgages (the ones that required banks to keep 5% of the risk) would be subject to higher rates and fees – which many believe would also put home ownership out of the reach of many aspiring home owners.

Regulators believe that the higher down payment requirement would reduce the risk of default. However, NAR and others in the Coalition for Sensible Housing Policy say that the true key to safe lending is sound underwriting and documentation – not the size of the down payment.

By way of illustration, they point to Federal Housing Administration and Veterans Administration loans. These both have low down payment requirements and relatively low default rates.

Ron Phipps, President of NAR, believes the proposed rule should be withdrawn and revised. Then it should be published for comment. A regulation calling for lending standards that ensures a borrower’s ability to repay and avoids product features such as teaser rates and balloon payments would do far more to lower the risk on mortgage loans.

Before swinging the pendulum too far toward preventing home ownership, regulators should step back and remember that it wasn’t sensible lending practices that caused this crisis. It was nonsensical lending practices that encouraged home purchases by consumers with no ability to repay the loans.

The Coalition for Sensible Housing Policy includes 46 organizations representing housing,  consumer advocacy, and banking. Of these groups, the National Association of REALTORS® is the largest, representing  1.1 million members.

CreditScoreQuick.com

You’ve been taking good care of your credit. You’ve been diligent about paying all your bills on time, keeping your credit card balances low, and avoiding inquiries into your credit. Then suddenly, your previously good scores take a nose dive?

Two possibilities could be the cause of your troubles:
•    You’ve become the victim of Identity Theft
•    A ghost from the past has come back to haunt you

To learn which possibility is causing your credit score reduction, you’ll need to get a copy of your credit report and read it carefully.

Read the section that reports recent inquiries. If you haven’t authorized an inquiry, but someone has made a “hard inquiry,” it means that someone else is attempting to get credit in your name. Explore further, because they might be using your good credit at this very moment. Go over every account listed, checking to see that it actually belongs to you.

If you find an account that isn’t yours, contact the credit reporting agency and follow instructions for disputing the account. You’ll also have to file a report with law enforcement agencies, because you’re now an official victim of identity theft.

Something else you might find is an old ghost – in the form of a collection on a debt you didn’t even know you had.

This can happen when people move and mail is not correctly forwarded. Utility companies send a final bill but payment is not forthcoming because you never receive the bill.

After a while, your account goes into their bad debt file and because utility companies don’t routinely report to the credit bureaus, it never shows up on your credit report. Then, perhaps years later, the debt is sold or forwarded to a collection agency. They still don’t have your current address, so don’t write you. Instead they report it to the credit bureau under your social security number.

The good news is that an old debt such as this is far easier to resolve than identity theft.

First contact the supervisor at the collection agency. Explain that this debt came at you out of the blue and that you intend to pay it off. Ask to have it removed from your credit report in exchange for prompt payment.

Of course, if you believe the debt is not valid, you’ll need to send a request for verification. Use certified mail, with a return receipt requested. If you still believe it is not a valid debt after receiving their response, dispute it with both the collection agency and the credit bureau that reported the collection.

If the bureau can’t confirm it as a valid debt, they’re required to remove it from your credit report.

CreditScoreQuick.com

After watching failed program after failed program, many in the housing industry wish that the government would stop trying to “fix” the mess and leave real estate alone.

But instead, they’ve come up with a new plan. Right now it’s in the concept phase, but if carried out, it could mean that the Federal Government will be the proud owner of thousands of rental homes across the country.

One reason given is that rents are rising while home prices are continuing to fall.

The theory behind this plan is that Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development would hold these homes as rental properties until the market turns around and prices rise. Renting them out would offset the costs of holding them. Some believe they could actually turn a profit.

However, the cost of setting up rental management offices across the U.S. and maintaining good accounting records could quickly eat any profits. Perhaps if they turned management over to private rental management firms and paid the going rate for professional management, it could work.

Fannie and Freddie are already in the rental management business. At present, they rent a few thousand homes to former owners and tenants.

Another angle under consideration is that these entities would sell the homes to private investors who would agree to rehab and rent them, rather than putting them back on the market for sale.

Meanwhile, removing these homes from the glut of under-priced bank-owned properties could have the effect of allowing prices to stabilize.

Depending upon which analyst you listen to, taking these homes off the market could prevent an additional drop in home prices of from 3% to as much as 20%.

Because of the number of foreclosures over the past 5 years, the demand for single family rental homes has grown at 5 times the pace of demand for overall shelter.

While the Obama administration is promoting this plan, it cannot go forward without the approval of the Federal Housing Finance Agency. At this time, their spokesperson said the agency is “open to considering initiatives that are consistent with the goals of the conservatorship.”

What do you think? Should the Federal Government become a large-scale landlord to consumers who have lost their homes through foreclosure? Or will their involvement simply depress rental fees in the free market rental market?

Have they finally come up with an idea that has merit? Or not?

Or should the Federal Government back off entirely and let a free market take it’s course?

CreditScoreQuick.com

When the Obama administration offered $75 billion as an incentive to lenders to modify mortgages and help homeowners keep their homes, they overlooked one important fact: The plan was a suggestion, not a requirement.

So in spite of the fact that the banks received bail-out funds, they were under no obligation to return the favor by assisting troubled homeowners. To date, only 100,000 homeowners have been offered loan modifications, and fewer have taken the offer.

Why? According to “tales from the front,” one reason is that many of those loan modifications come with the requirement of a large lump sum payment. If those homeowners had the money for a lump sum payment, they wouldn’t have needed help with monthly payments.

Subsequent “fixes” have been equally ineffective. The Federal government has essentially said “Our regulations now allow you to do this to help. You don’t have to, but we hope you will.”

Why don’t they accept the incentives to help homeowners?

Because in their estimation, they will see a greater profit from taking the homes in foreclosure. Mortgage insurance, government guarantees against loss, and monthly profits for asset management companies apparently outweigh the incentives offered for helping homeowners.

As of now, approximately 4.2 million properties have been foreclosed, and experts forecast that the total will come to 10 million by the end of 2012. According to the Mortgage Bankers Association, 5.4 million mortgages are currently delinquent or in the formal stages of foreclosure.

But this could become more severe. Experts estimate that 16 million borrowers owe more on their homes than those homes will bring in today’s market. In addition, one third of homeowners surveyed say they’ll simply walk away from their mortgages if values continue to fall.

The latest regulation directs banks to offer 12 months of forbearance for unemployed homeowners. Unfortunately, this regulation is also filled with loopholes that allow banks to ignore it. We can only hope that this time they will cooperate, since forbearance means postponing collection rather than forgiving balances due.

Is the solution more government programs? Not unless banks are required to participate.

Is the solution a halt to all government participation in the housing market – including both guarantees and incentives? Many believe so, but we’re not likely to find out.

CreditScoreQuick.com

Financial analysts are now predicting that 25% of all U.S. mortgage holders have faced or will face foreclosure by the end of 2012.

Since banks are not in the business of owning property, these bank-owned homes have been and will be offered for sale. And while getting those properties to market has been slow due to paperwork backlogs, once they’re listed, the banks want them sold and they’ll drop prices to get it done. In fact, with each month that a bank-owned home stays on the market, the price is almost automatically reduced.

Now rumor has it that banks are lowering their minimum price threshold on these homes – and will go as low as needed to get them off the books. That’s not good news for the real estate market.

These bank owned homes (REO’s) have a negative effect on the housing market for three reasons:
•    Their condition and lack of exterior maintenance make nearby homes less desirable, and thus lower their values.
•    Buyers, seeing the lower prices and overlooking the differences in condition, expect to pay “REO prices” on well-maintained homes.
•    The low selling prices of bank-owned homes become the “comparables” used when appraising nearby homes.

This last item is the most dangerous, especially combined with reports coming in from appraisers working in the field.

Some underwriters are now refusing to accept appraisals that come in higher than the most recent selling prices of nearby homes – even if they were bank-owned homes in poor repair. Appraisers who point out the important value differences in maintenance and condition are told to disregard that difference.

Thus, some banks seem to be working both sides of the issue to further deepen the housing crisis and create even more downward pressure on home prices.

We can see a frightening long term affect as homeowners who must relocate  join the ranks of underwater homeowners who either short sell or walk away.  Those who aren’t forced to sell may well try to ride out the crisis – removing their well-maintained homes from the market.

Let’s hope that those underwriters who wish to keep prices down are in a minority, and that home prices are once again allowed to appreciate normally.

CreditScoreQuick.com

Lenders can no longer deny you credit or offer you credit at less than favorable rates without telling you why.

Starting on July 21, 2011, they’re required to provide you with a letter explaining the reason for their decision, and to include the credit score they used.

This law was enacted in cooperation between the Federal Reserve Board and the Federal Trade Commission in an effort to create more transparency in the lending market. And indeed, it will prevent disreputable credit issuers from falsely putting consumers into high-interest loans when their scores don’t warrant such treatment.

Still, it’s better to be prepared and to know your credit scores before you go shopping for a car, a student loan, a small business loan, or a credit card. Extra inquiries on your credit report serve to lower scores, so find out how you stand ahead of time.

You can access your own credit scores in several ways – and checking your own credit doesn’t count as an “inquiry” to lower your scores.

If you want to learn your FICO score, which is the one used by most lenders, you can go to myFICO.com and order your full credit report from either Equifax or TransUnion. This comes at a cost of about $20, and includes a report telling you the positive and negative factors that are affecting your credit score.

To get an approximation of your credit scores, you can use a free mobile application called myFICO that gives you a score based on your answers to questions. This one is not absolutely accurate, because you don’t give your Social Security number. That means anything negative that you don’t know about or don’t reveal won’t be considered.

For a score that’s very close to the FICO score but at no cost, make your request at a site such as CreditScoreQuick.com. Here you can get a full credit report with scores from all 3 bureaus. You’ll be signing up for monthly credit monitoring at a fee, but you can cancel before the first billing if you don’t want to pay for monitoring.

Lastly, if you belong to a credit union, you may be entitled to free access to your credit scores on a regular basis. Some banks also offer this service to preferred checking customers.

CreditScoreQuick.com

In yet another change to FHA regulations, the administration announced on July 7, 2011 that the minimum forbearance period for unemployed homeowners will be extended to 12 months, effective August 1. Servicers will have 60 days to implement the change.

This adjustment affects only FHA loans, however the administration intends to require all servicers participating in the Making Home Affordable Program to implement the same change.

This FHA Type 1 Special Forbearance is explained in MORTGAGEE LETTER 2002-17, dated August 29, 2002. Under its terms, a homeowner must show proof of unemployment and must be actively seeking a job. The borrower must be an owner occupant, committed to occupy the property as a primary residence during the term of the special forbearance agreement.

However, the borrower is not required to have a long-term commitment to the home. This  special forbearance may be used to reinstate a loan to facilitate the eventual sale.

While all FHA approved servicers are required to participate in FHA’s loss Mitigation Programs and must adhere to the new regulations, this program, like the Making Home Affordable programs, is not without loopholes.

Note that the Mortgagee Letter states that the lender must exercise “good business judgment in determining that the borrower has the capacity to resume full monthly payments, and eventually reinstate the loan under the terms of the plan.”

Even the July 7 announcement states that this extension will be granted to eligible unemployed homeowners, “whenever possible subject to investor and regulator guidance for each mortgage loan.”

In other words, servicers must comply – perhaps.

At the end of the forbearance period, servicers will be required to conduct a review to evaluate the borrower for additional foreclosure assistance programs. If the borrower doesn’t qualify, the servicer must provide the reason why and give the borrower at least 7 days to submit additional information that may reverse the decision.

Forbearance doesn’t equal forgiveness or debt reduction.

During a forbearance period, the homeowner may or may not be expected to make reduced monthly payments. If payments are required and are not made, the agreement will end.

Meanwhile, all those principal, interest, tax and insurance payments that are not being paid in full will be added to the principal balance of the loan. These will be repaid over time when the homeowner is once again working and able to make payments.

The real saving grace is that while interest will accrue, the lender may not assess late fees during the forbearance period, nor may it proceed with a foreclosure. And, since the homeowner is not required to make a long-term commitment to the house, forbearance can give them the necessary time to get the house on the market and sold without threat of an impending foreclosure.

CreditScoreQuick.com