Don’t Risk Your Credit Score In Retirement – WBRC FOX6 News – Birmingham, AL

Cancelling infrequently used credit cards may seem like a good strategy, but your credit score may be adversely affected. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, explains: “When you have a long-standing trade line, which is what a credit card is considered on your credit report, and you cancel that card for whatever reason, your score will actually go down as a result because one of the main impacts on your credit score is the length of credit history.” A shorter credit history translates to higher risk in the eyes of lenders.

Sean McQuay, Credit and Banking Expert at NerdWallet, agrees but includes another reason to keep older cards, noting that closing a card account results in “decreasing your overall credit line, which basically signals that a bank trusts you less.”

In addition to decreasing your overall credit line, closing an infrequently used account raises your credit utilization your total credit in use compared to your cumulative credit line. High credit utilization suggests a greater chance of falling behind on payments and/or defaulting on debts.

To avoid these pitfalls, make periodic small purchases on all your open credit cards to keep them active and pay the balances in full at the end of each billing period. By keeping credit spending low, you can still address debts while getting the full benefits of your credit account.

It’s okay to concentrate most of your credit spending in one account to maximize rewards. Just use alternate accounts often enough to keep them from being closed for lack of activity.

Source: Don’t Risk Your Credit Score In Retirement – WBRC FOX6 News – Birmingham, AL

Misconceptions thwart successful retirements | Pacific Coast Business Times

Just The Facts

“…Home equity is the largest asset of American families. Both retirees and their financial advisers may not understand that a reverse mortgage is a retirement strategy. The Home Equity Conversion Mortgage is the Federal Housing Administration’s reverse mortgage program that allows qualified retirees to stay in their own home by withdrawing some of the home equity. My study found that it improved 10 percent of the couples’ households and 9 percent of singles’ households in California. In California, 64 percent of couples’ households and 53 percent of singles’ households are eligible for HECM.”

Source: Misconceptions thwart successful retirements | Pacific Coast Business Times

 

 

Financially Speaking™ James Spray, RMLO | CO LMO 100008715 | NMLS 257365 | February 18, 2020

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

New FICO Score 10 Suite May Impact Your Credit Score

Coming Summer 2020

New FICO Score 10 Suite May Impact Your Credit Score Among other enhancements, including trended credit, “...FICO Score 10’s backward compatibility to previous FICO Score versions ensures continuity, ease of use and stability for lenders and investors. Lenders can more easily transition to FICO Score 10 since it includes standard FICO reason codes, a similar odds-to-score relationship as prior versions and consistent score ranges…” 

The FICO Press Release January 23, 2020: FICO Introduces New FICO Score 10 Suite

The following column was published by Steve Altonian, The Credit Cowboy, on January 29, 2020. His insights and research on the new FICO Score 10 Suite are quite valuable.

Your credit score — that all-important passport within the financial world — is about to change. And it won’t necessarily be because of anything you did or didn’t do.
The Fair Isaac Corporation, the company that creates the widely used three-digit FICO score, is tweaking its formula. Consumers in good financial standing should see their scores bounce a bit higher. But millions of people already in financial distress may experience a fall — meaning they’ll have more trouble getting loans or will pay more for them. Initial projections are consumers with a 680 plus FICO should get a 20 point increase….600 & below a 20 point decrease.
The changes don’t alter the main ingredients of your score, but they do take a more finely tuned view of certain financial behaviors that indicate signs of financial weakness.
For example, consumers who consolidate their credit card debt into a personal loan and then run up the balance on their cards again will be judged more severely.
“The new scores reflect nuanced changes in consumer credit trends that we observed from our analysis of millions of credit files,” said Dave Shellenberger, vice president of product management at FICO, whose scores generally range from 300 to 850 (the higher, the better).
What’s changing?
Some of the changes, like carrying a personal loan as well as credit-card debt, affects both new scores. But there are more substantial changes involving the FICO 10 T version. The biggest shift, however, concerns the amount of debt you carry, experts said. In the past, people trying to polish their scores right before applying for loans were told to pay off their credit cards or get the balances as low as possible a month or two before submitting an application. That won’t work as well now.
1. Trended Data– Instead of looking at just a static month of your balances, FICO 10 T will look at the past two years or more, which will give lenders more insight into how you’re managing your credit over time. That should mean your scores will better reflect the trajectory of your behavior. This also means late payments will now have a bigger increase on the scoring model. (Incidentally, VantageScore, a lesser-known score provider that is a joint venture of the three big credit-reporting companies, has already incorporated this into its formula.) I am wondering if this will close the scoring gap between a “soft-pull” & a “hard-pull”. Say, for example Credit Karma. It seems to me that gap may close point-wise. We shall see….
Trended data gives lenders a different view of borrowers
FICO 10T will use trended data to show lenders something different about borrowers from their traditional information. Trended data gives prospective lenders borrowers’ key balance and payment data for the past 24 months, which enables them to see consumers’ behavior trends and determine if they’re carrying balances, consolidating or paying off their balances each month. “Many lenders want to leverage the most comprehensive data possible to make precise lending decisions,” Jim Wehmann, executive vice president for scores at FICO, said in a news release. “By offering a score that taps further into trended data, we’re able to give lenders greater flexibility and predictive power, as well as ease of integration.”
A high credit utilization ratio (the percentage of total debt you’re carrying compared to total available credit) isn’t a new red flag for lenders, but the FICO 10 T score gives that statistic even more weight if credit card balances hover close to set spending limits for an extended period of time. It’ll also look at how your debt balances have changed—and if they’ve been climbing over time.
“Previously we have only really looked at the most recent balance for that important information,” Shellenberger said. “Whatever has been reported by the credit card company is what that score is based on. But now we can look at how that has trended over the past 24 months. It looks at averages rather than one or two points in time where your balances were higher.”
Paying off your card a month or two before you apply for a Mortgage loan? That’s not the best advice anymore, & The Credit Cowboy has been giving that advice to his clients for years. Now, my advice is changing: You want to get your credit card balances down multiple months in advance, or at least have them trending down for months in a row and then have balances at a low before you apply. You need to plan ahead, whereas before you did not. THE FUNNY THING IS: When I first got into the credit repair business as a young man, I erroneously believed they used TRENDED DATA at the time. I stopped telling people that about 8 years ago, and now today that is EXACTLY the scoring model we have in place….I just made sense to see a trend than to allow someone to all of a sudden pay down a credit card and all is good.
2. Installment loans carry LESS weight on the FICO model
This is the first time a FICO scoring model looks closely at how consumers are using personal loans to see if there is reason to penalize a borrower. 
“We are now able to distinguish personal loans from other credit obligations, so we can look at personal loans along with everything else that’s going on in your credit profile,” Shellenberger said. 
For example, if you transfer credit card debt to a new personal loan account but then use your freed-up spending limits to accumulate even more debt, that may ding your FICO 10 T score.
“The FICO score has always taken balance-type information into account and that’s still a critical component.” 
Why change scores now?
FICO adjusts its scores every few years, drawing on consumer behavior and patterns that emerge from the vast trove of data it tracks. This time, the company is offering two new scores, FICO 10 and FICO 10 T, and both differ from the previous formula.
Given the strength of the job market and other factors, many consumers are managing their credit well. Late payment rates across all household debts are at their lowest levels since at least 2005, according to a recent analysis from Moody’s Analytics, and credit scores have been trending higher
Even so, a significant number of lower- and middle-income Americans are struggling, and consumer debt levels are quite high. And lenders are always trying to shield themselves from losses, should economic conditions deteriorate. FICO says the new scores will make it easier for lenders to gauge a borrower’s risk.
How and when will the changes affect me?
Most consumers, or 110 million people, will see modest swings, if they see any change at all, according to FICO. But about 40 million people who already have favorable scores are expected to gain about 20 points, while another 40 million with lower scores will probably see a drop.
But not every lender will use the new scores right away.
People applying for most mortgages will not be affected, at least for now. That’s because home loans guaranteed or backed by Fannie Mae and Freddie Mac, which include the vast majority of mortgages, are still required to use older versions of the FICO score.
Many other lenders are also using older FICO formulas, and it remains to be seen how quickly they adopt the new scoring method — or if they will decide to change.
The big credit-reporting companies — Equifax, Experian and TransUnion — will all offer the updated scores by the end of the year. Equifax will be first
How can I improve my score?
Because the FICO 10 T calculation has a longer field of vision, it pays to get your financial life in shape as early as possible before applying for a loan.
You still want to review your credit reports, which contain the raw data that power your scores, at each of the three big reporting companies. But now you should plan further ahead and check them even earlier, because an error about a missed payment can hurt you more, and correcting the mistake can take time.

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | January 25, 2020

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

How Credit Actions Impact FICO Scores – FICO

How much does missing a payment impact a FICO® Score? What about reducing credit card balances? New FICO research simulated how different credit events may impact FICO® Score 9 for five different credit profiles, as seen in Figure 1 below. These representative profiles were selected because they had credit characteristics (payment history, utilization, etc.) that were generally typical of the five scores shown below.

Source: How Credit Actions Impact FICO Scores – FICO

Image Credit

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | July 9, 2019

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray

If my spouse dies or moves to a nursing home, what happens with my reverse mortgage?

If my spouse dies or moves to a nursing home, what happens with my reverse mortgage?

It will depend on whether you and your spouse are co-borrowers on the reverse mortgage loan, and when the loan was made.

Most reverse mortgages are Home Equity Conversion Mortgages (HECMs). The Federal Housing Administration (FHA), a part of the Department of Housing and Urban Development (HUD), insures HECMs. Under the rules governing HECMs, if you live with a spouse, it is a good idea to make your spouse a co-borrower when you apply for a HECM if you both meet the qualifying age of 62. If you are a co-borrower, you can continue living in the home even if your spouse dies or moves out to a nursing home. A surviving co-borrower can also receive money from the loan.

Sometimes, only one of the spouses is listed as a borrower on the loan. For example, one spouse might not have been 62 yet, and would not have been qualified to be a HECM reverse mortgage borrower. In that situation, what happens to a surviving non-borrowing spouse depends the timing of the HECM.

Any HECM loans with case numbers assigned on or after August 4, 2014, allow eligible non-borrowing spouses to remain in the home after the borrower dies if they meet certain initial and ongoing requirements. To qualify as an “eligible non-borrowing spouse,” you must:

https://www.consumerfinance.gov/ask-cfpb/what-happens-with-my-reverse-mortgage-if-my-spouse-dies-en-241/

Financially Speaking™ James Spray, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | May 13, 2019

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only.

Credit Score Myths: What Hurts You & What Doesn’t – Consumer Reports

Checking Your Credit Report Frequently

Myth
Ellman says a common misconception is that each time consumers check their credit reports, their credit scores go lower.

“If I had a nickel for how many times I heard that, I could retire today,” he says. “It’s an urban legend.”

You’re entitled to look at your credit reports as often as you like. Consumer Reports maintains that you should do it several times a year, if only to ensure that the information is accurate.

And you don’t have to pay a credit-monitoring service to do that for you. Instead, because you are entitled to three free inquiries a year—one from each of the credit reporting agencies—go to annualcreditreport.com and stagger your inquiries. Every four months, ask for one of the reports—say, Equifax in April, Experian in August, and TransUnion in December.

It’s also a good idea to check all three of your credit reports simultaneously before shopping for a major loan like a mortgage. Do it even if you’ve used up your free reports and have to pay a bit to get new ones.

That way, you can correct errors before applying for the loan. A 2013 report by the Federal Trade Commission found that about 5 percent of credit reports had errors that could result in less favorable loan terms.

If you find mistakes on any of the reports, you’ll need to ask for corrections from each of the credit-reporting agencies showing the error.

This post from Consumer Reports summarizes nicely what has recently changed for the benefit of consumers on credit reporting. I’ve posted on this as the changes were about to be implemented. This CR blog summarizes nicely the highlights of the changes.

Source: Credit Score Myths: What Hurts You & What Doesn’t – Consumer Reports

Financially Speaking™ James Spray, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | April 13, 2019

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.