Experian ‘Boost’ Adds a New Way to Strengthen Your Credit

The idea is to help thin-file customers — those who have less experience with credit — by incorporating signs of responsible financial behavior that traditionally aren’t seen by credit reporting bureaus. Boost also may help people who are rebuilding their credit after financial setbacks. Experian estimates the product could affect up to 100 million consumers’ scores.

Consumers who want to use Boost must allow the product to scan their bank account transactions to identify utility and cell phone payments. Information about payments will appear in their Experian credit report and be used when certain credit scores are calculated from that data.

Boost will count only positive payment history, Experian says, so missed utility or cell phone payments will not hurt your score. That’s different from how credit scores usually work, where late or missed payments are recorded in your credit report and can reduce your score.

Consumers can register on Experian’s website to get early access to Boost, and the product will roll out more widely in early 2019, the bureau said in a news release…” http://bit.ly/2V1nq9P

Image Credit

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | December 20, 2018

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.

UltraFICO®An Initial Discussion

While this new alternative “credit” algorithm is not set to roll out until sometime in 2019, included below are my initial thoughts based on the BIAA press release and the below referenced articles from the Wall Street Journal, Consumer Affairs and USA Today.

Experian, FICO and Finicity Launch New Ultra FICO Credit Score

With Ultra FICO® Score, a consumer grants permission to contribute information from banking statements, including the length of time accounts have been open, frequency of activity, and evidence of saving, which can be electronically read by Finicity and combined with consumer credit information from Experian to provide an enhanced view of positive financial behavior.

Experian, FICO and Finicity estimate this new score has the potential to improve credit access for the majority of Americans and is particularly relevant for those who fall in the grey area in terms of credit scores (scores in the upper 500s to lower 600s) or fall just below a lender’s score cut-off. Consumers who are relatively new to credit with limited history or those with previous financial distress that are getting back on their feet stand to benefit the most.

This new system will roll out next year. Initially, the most likely use will be for beginner credit cards. The UltraFICO® is an add-on feature some lenders will offer to enhance a prospective borrowers credit profile and score.

The prospect must provide access for a one-time snapshot of their banking/bill paying account. The data analyzed will be regular payments of rent and utilities. The expected average balance in the account should be $400 or more. There should be no overdrafts or NSF checks in recent months. It’s expected there will be more income than outgo to the account. Discussed is that the checking/bill paying account must be established for some undefined time.

The above referenced WSJ article captures the essence of what the new credit score enhancing tool is expected to be. It will not, in the immediate future, be used by mortgage lenders. I expect that it may be used by some auto dealers.

UltraFICO® score takes into account how much money you have in the bank

According to the Journal report, the new UltraFICO® would be a tool for consumers whose credit scores are not that great. If they have a few hundred dollars in the bank and have had the bank account for a number of [undisclosed] years without overdrawing they might see their credit standing rise.

But in practice, the new formula is likely to be of greater benefit to consumers who already have high credit scores because they are the consumers most likely to have accumulated some cash in the bank. Consumers with low credit scores are often in that situation because they lack the extra cash to meet an unexpected expense.

Based on practicality and experience, I believe this Consumer Affairs writer is off-base in his analysis of who this will help the most. Someone with >760 FICO® Scores has no need for a bump of a few points whereas someone with a 620 score most definitely has the need. We’ll soon figure out just how many months one must have $400 or more in their account to gain the bump.

New FICO system could lift credit scores by including checking and savings history

Finally, from the above referenced article from USA Today: “...it remains to be seen how fast lenders will adopt this supplemental scoring system. For instance, FICO’s latest credit score – FICO 9 – was released four years ago, but the previous version of the score – FICO 8 – remains the most widely one used.

Consider the fact that neither FICO 8 or 9 are used in the mortgage lending industry. UltraFICO® may be used by certain credit card issuers as well as some vehicle lenders. We’ll know more next year.

Video Update 1/16/19

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | October 29, 2018 | October 30, 2018

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.

The State of Lending: Debt Settlement | Center for Responsible Lending

Debt settlement companies offer the promise of settling a consumer’s debt for a fraction of what they owe. The idea is simple: debt settlement companies offer to negotiate down the outstanding debt (usually from credit cards) owed to a more manageable amount so that a consumer can become debt free. Unfortunately debt settlement carries significant risks that may result in consumers becoming even worse off.

Debt settlement is inherently a risky venture: in order to enroll into debt settlement programs, consumers are required to default on their debt which often results in fees, increased interest rates, and sometimes even lawsuits from creditors. Even after assuming all this risk, consumers are offered no guarantees; in fact, some creditors refuse to negotiate with debt settlement companies at all. Even if a settlement is reached, a consumer unable to keep up with the new settlement arrangement risks falling back into default – and now without the fees paid to the debt settlement company for negotiating the agreement. CRL finds that consumers must settle at least two-thirds of the debt they enroll in a debt settlement program to benefit, a result that many will not achieve.

This chapter examines the debt settlement industry, the risks to consumers, and recommends actions at both the federal and state levels to reduce the potential harm to consumers.

The chapter finds:

  • Debt settlement is a risky strategy for debt reduction – and often leaves consumers more financially vulnerable.

  • Consumers must settle two-thirds of their debt to be better off than they were before – and many consumers are unlikely to reach that level of success.

  • Strong state and federal laws could curb risks associated with debt settlement.

Source: The State of Lending: Debt Settlement | Center for Responsible Lending

The PURCHASE Reverse Mortgage (H4P)

What Is A Purchase Reverse Mortgage?

By way of background, a previous blog on reverse mortgages discusses the general facts regarding reverse mortgages. Let’s talk specifically about the purchase reverse mortgage, which is otherwise known as the Home Equity Conversion Mortgage (HECM) for purchase [H4P]. This product was created by the Housing and Economic Recovery Act of 2008 (HERA). The product is insured by the Federal Housing Administration (FHA) and guaranteed by the US Department of Housing and Urban Development (HUD). In short, the purchase reverse is a way to purchase a home with only a down payment. In addition to the down payment, the buyer is responsible for paying the homeowners insurance, property taxes and (if applicable) Home Owner Association (HOA) fees. There are no principal or interest payments required. However, one may make principal and interest payments by choice not necessity. Finally, if the loan balance on the reverse mortgage eventually exceeds the home’s value, the lender is insured against that loss.

Who Is It Good For?

BORROWER: Age 62 and older based on the youngest titleholder. A non-borrowing spouse under the age of 62 may be added to the loan providing the spouse is over the age of 18. There is no credit required, nor a credit score requirement and only minimal income requirements. This is a minimum documentation loan.

PROPERTY: Single family homes as well as 2-4-unit residential properties and all FHA approved condos are eligible. Title may be held as fee simple, a living trust, and leasehold or life estate. The property must meet FHA appraisal requirements. If the property does not meet FHA criteria (health and safety issues), a set aside account will be established for up to six months while the health and safety requirements of the FHA appraisal criteria are met. The property may be either an existing home or a new build home, so long as the property meets FHA standards.

Examples by Age and Purchase Price of a Home Equity Conversion Mortgage

Purchase Price Age Down Payment HECM Funds
$300,000 62 $174,688 $138,300
74 $153,088 $159,900
80 $138,388 $174,600
86 $118,888 $194,100
$679,650 62 $427,230 $274,180
74 $381,427 $319,983
80 $349,620 $351,790
86 $307,634 $393,776

January 1, 2018 – Pricing is subject to change at any time.

To illustrate – let’s look at the example of a $300,000.00 purchase at age 74: To purchase the residence, the HECM borrower would need $153,088 to close on the purchase of a $300,000.00 property. The balance of the proceeds is provided with the HECM as a benefit of the HECM program and include closing costs. In all examples of HECM purchase mortgages, no mortgage payments are required. All that must be paid out-of-pocket on an annual basis are real estate taxes, homeowners insurance and HOA fees (if applicable). There are no required payments of principal, interest, or other mortgage costs (including upfront costs) until termination of the HECM.

Who Likes Reverse Mortgages The Best? The Borrowers Who Have One!

95% Partially to fully meets my financial needs

93% Positive effect on my life

89% Would refer a friend

94% Report peace of mind

89% Report a more comfortable lifestyle

87% Report a better quality of life

Source: AARP December 2007. Survey of 1500 HECM Borrowers

Why The H4P Can Be Good

A reverse mortgage for purchase allows older Americans to buy a house that better suits their needs without dumping all their retirement assets into it, which would be the case in an all-cash transaction. It also lets them avoid dipping into their monthly fixed income, which would occur if they took out a traditional mortgage. It provides more purchasing power  and doesn’t drain all of the assets. It allows a buyer the luxury to get a better lot, to add all the upgrades they want and to still have no mortgage payment.

The home is titled in the owner’s home; as with all mortgages, the lender retains a security interest in the title. There are no monthly mortgage payments. Instead, the loan is repaid when the home is sold or the borrower no longer resides in the home. The repayment to the lender includes the amount borrowed, plus accumulated interest. Any remaining equity belongs to the borrower, heirs or estate. The heirs may purchase the property for the balance due or 95% of the value, whichever is less.

TIPS: There are no concessions allowed by sellers, builders or agents; this includes any personal property. As well, the buyer must pay for the title insurance. There can be no repair set-asides; all repairs, where major property deficiencies, such as

  • No running water
  • Leaking roof
  • No primary heating source
  • Inadequate electrical system (including lighting)
  • Inoperable doors and windows (inhibited ingress and egress)
  • State or local code violations

which threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property, must be completed by the seller prior to closing. (H4P FAQs per HUD).

NOTICE: (1) Rates are subject to change without notice. For specific and current information contact me or your H4P Specialist. (2) The illustrations in the above chart titled: *Examples by Buyers Age and Purchase Price, are representative examples only. The figures are not intended to be anything other than representative illustrations in order to convey the concept of the purchase reverse mortgage.

DISCLOSURE: The information provided herein is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

DISCLAIMER: This post does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

Financially Speaking™ James Spray, RMLO, CNE, FICO Pro

CO LMO 100008715 | NMLS 257365| First Published 01/11/10 | Updated January 1, 2018

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.

Timeline: Bankruptcy to Mortgage Chart

Experiencing a severe credit event such as foreclosure, short-sale, deed-in-lieu of foreclosure or bankruptcy does not mean you will never be eligible to get a home loan. This chart provides the time-out periods required by event. The assumptions are that you have established acceptable credit scores and meet underwriting guidelines. In certain circumstances, one may qualify for a mortgage upon discharge of a Chapter 7 or during a Chapter 13.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Originally published in 2010 and updated regularly | September 19, 2017 Contact me to obtain a pdf copy of this chart.

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.

Obsessives Have Cracked the Perfect FICO Credit Score of 850 – Bloomberg

Kudos to Suzanne Woolley for authoring an article which accurately portrays how one can improve their credit.

Source: Obsessives Have Cracked the Perfect FICO Credit Score of 850 – Bloomberg

Do you prefer a ReLOC or HELOC? – Tools for Retirement Planning

Tom Davidson has written and illustrated another great article which I know you will enjoy reading. Here are the first few paragraphs which lead into the link to his wonderful presentation:

“HELOCs (Home Equity Lines of Credit) are widely used. Simply having one makes many people more comfortable. My wife and I had a standby HELOC for many years – ready to use as a convenience or in an emergency. Luckily that emergency never happened, but we felt well prepared knowing we had ready access to a substantial amount of cash that could be used for anything we needed. When I was a financial advisor, a HELOC was on my checklist to discuss with every client – at least those who were prudent with their money.

ReLOC: A Retirees Line of Credit

Is there a better alternative for homeowners over age 62?  A ReLOC may be a far better choice for many retirees. ReLOC is a nickname that stands for either Retirees Line oCredit or Reverse Mortgage Line of Credit. While ReLOCs share many features with HELOCs, three unique features make a ReLOC a line of credit designed for retirees:

  1. The amount you can access grows every month
  2. You don’t have to make payments until you permanently leave your home
  3. The loan can’t be canceled, reduced, or frozen as long as you keep up with basic mortgage obligations (property tax, homeowner’s insurance, basic maintenance, and Homeowner’s Association dues).

Here’s the borrowing limits for a ReLOC and a HELOC for a 63-year-old in a $400,000 house who lives to age 99:”

Source: Do you prefer a ReLOC or HELOC? – Tools for Retirement Planning