Archive for the ‘Credit’ Category
If you’re denied a loan or credit card because you have no credit history, consider establishing one. The best way is to apply for a small line of credit from your bank or a credit card from a local department store. Make sure you list your best financial references. Make payments regularly and make certain the creditor reports your credit history to a credit bureau.
If your spouse dies
Under the Equal Credit Opportunity Act (ECOA), a creditor cannot automatically close or change the terms of a joint account solely because of the death of your spouse. A creditor may ask you to update your application or reapply. This can happen if the account was originally based on all or part of your spouse’s income and if the creditor has reason to believe your income alone cannot support the credit line.
After you submit a re-application, the creditor will determine whether to continue to extend you credit or change your credit limits. Your creditor must respond in writing within 30 days of receiving your application. During that time, you can continue to use your account with no new restrictions. If you’re application is rejected, you must be given specific reasons, or told of your right to get this information.
These protections also apply when you retire, reach age 62 or older, or change your name or marital status.
Kinds of accounts
It’s important to know what kind of credit accounts you have, especially if your spouse dies. There are two types of accounts – individual and joint. You can permit authorized persons to use either type.
An individual account is opened in one person’s name and is based only on that person’s income and assets.
If you’re concerned about your credit status if your spouse should die, you may want to try to open one or more individual accounts in your name. That way, your credit status won’t be affected.
When you’re applying for individual credit, ask the creditor to consider the credit history of accounts reported in your spouse’s or former spouse’s name, as well as those reported in your name. The creditor must consider this information if you can prove it reflects positively and accurately on your ability to manage credit. For example, you may be able to show through canceled checks that you made payments on an account, even though it’s listed in your spouse’s name only.
A joint account is opened in two people’s names, often a husband and wife, and is based on the income and assets of both or either person. Both people are responsible for the debt.
Account “users”
If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse’s name as well as in yours (if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user.
If you’re denied credit
The ECOA does not guarantee you’ll get credit. But if you’re denied credit, you have the right to know why. There may be an error or the computer system may not have evaluated all relevant information. In that case, you can ask the creditor to reconsider your application.
If you believe you’ve been discriminated against, you may want to write to the federal agency that regulates that particular creditor. Your complaint letter should state the facts. Send it, along with copies (NOT originals) of supporting documents. You also may want to contact an attorney. You have the right to sue a creditor who violates the ECOA.
The Blue Sky from American Express is a rewards card designed for those who have very good credit. With this program, cardholders earn one point for every dollar they spend on every purchase. There is no limit on the number of miles that can be earned, and they do not expire as long as the card is active and in good standing. Points can be redeemed for any flight, hotel, rental car, or cruise with no blackout dates or restrictions on travel. Only one purchase can be made at a time in 7,500 increments, equivalent for a credit of up to $100.
There is a 0% introductory rate for purchases that is valid for six months, and a 4.99% introductory rate for balance transfers that is valid until the loan is paid in full on transfers that are initiated when an online application is submitted. After the introductory period, the rate on purchases is a variable rate of 12.99% and 22.99% variable for cash advances contingent upon credit history. There is no balance transfer fee, but future transfers may incur a fee and will be disclosed at that time. No annual fee is charged for the Blue Sky from American Express Card.
This card is most advantageous to those who plan to utilize the rewards program and pay in full each month after the introductory rate expires. It’s important to keep in mind that not all applicants quality for the introductory rate.
Some of the benefits a cardholder can expect to receive with this card include the following:
• Online access to account information
• Protection of purchases
• Financial statement at year’s end (online)
• Return protection
• Extended warranty for purchases
• Insurance for car rental
• Emergency assistance and travel-related services
• Emergency card replacement
• Travel accident insurance up to $100,000
If the borrower has a satisfactory credit history and the ability to pay timely payments, the borrower may be considered a prime borrower and rated as an “A” borrower. In this case the loan will be closed using standard mortgage documents referred to as “A paper”. If he does not qualify for an “A paper” loan, the borrower may seek financing with companies known as “sub prime lenders”.
The mortgage industry has adopted a credit risk scoring method. Credit scores reflect credit patterns over time. Lenders frequently use a scoring system known as FICO scores. FICO is an acronym for Fair Isaac Company, the company that created the original scoring system.
A credit report is ordered by the lender and the credit reporting agency establishes a score to help a potential lender determine the risk of granting the loan. The scores range from 375 to 900 points, and in general, a score of 650 or above indicates a very good credit history. Average scores fall into the range between 620 and 650. Several factors can have a negative impact on a credit score:
o History of nonpayment
o Adverse Public record information
o Evidence of collection accounts
o Recent delinquent accounts
o Credit cards charged to their limits
o Too many new accounts
A lender will evaluate a credit score based on the following:
Credit
There are three primary categories for considering a credit rating: Mortgage Credit, Consumer Credit, Public Records
The more serious the credit problems, the further the grade decreases. As the grade on the loan decreases, lenders generally assess higher rates and fees.
Debt Ratio
Lenders calculate the debt ratio by dividing the total monthly debts (the housing expenses for the proposed loan plus the borrower’s other monthly credit obligations) by the total monthly income. If a borrower has a low debt ratio, the credit-scoring grade will be higher. Conversely, if a borrower has a high debt ratio, the grade will be lower.
Maximum LTV
Loan-to-Value Ratio, or LTV as it is commonly referred to, is the ratio of loan amount to the appraised value (or the sales price, whichever is less) of a property.
If the credit history, debt ratio, and loan to value ratio are unsatisfactory, the quality of the loan may be downgraded to an A-, B, C or D. “D Paper” loans refer to loans known as hard money loans that are mostly based on the equity in the home and not on the borrower’s credit. A lender who is making an A-, B, C or D paper loan is taking a higher risk since there is an increased likelihood of the loan defaulting. Additionally, these loans are not insured or guaranteed. The lender is compensated for higher risk by charging the borrower a higher interest rate:
If current interest rates were 7%, and the borrower is considered a prime borrower, the loan would be granted by a prime lender at 7%. However, if the borrower is not a prime borrower, he may seek financing elsewhere and be charged a higher rate of interest.
The interest rates quoted for A-, B, C or D paper loans vary among lenders. An example follows:
A-paper could have rates 1% – 1.75% higher than A paper
B paper could have rates 0.25% – 0.75% higher than A- paper
C paper could have rates 0.75% – 1.5% higher than B paper
D paper could have rates 1% – 1.75% higher than C paper
Using the higher end of the scale above for each rating, and starting with a 7% interest rate, the following chart is an example of the interest rate a borrower may pay:
A- 8.75%
B 9.50%
C 11.00%
D 12.75%
Yes, it matters!