Credit Repair/Dispute Basics

Use Care – Be Patient – Think

Let’s begin with the US Government’s official position on Credit Repair. As stated by the Federal Trade Commission (FTC), which we will summarize only time and the proper use of credit will improve your credit rating.  While there is merit to this statement, the logic behind the statement assumes a perfect system. Let me assure you, the credit reporting system is far from perfect. In fact, CBS News found that nearly 80% of all credit reports contain errors.

The good folks at the FTC may be unaware of how difficult it is for most consumers to get the three credit reporting agencies (CRAs): TransUnion, Experian and Equifax to correct errors. In my experience, a consumer must engage in the challenge of correcting credit errors with great persistence in order for the correction and/or deletion to be made. This can take months of continuing to send the same challenge(s) with the same properly written very brief letter.

It has been said that insanity is doing the same thing over and over again and expecting different results. However, in the case of getting corrections and/or deletions made on your credit report, you must do the same thing over and over in order to get the desired results. This is a situation where, in many cases, one must make continual identical challenges to achieve the desired results.

Beware – The on-line links to the credit bureaus’ auto dispute systems will encourage you to sign up for their expensive subscription service. Be very wary of their systems of gotchas. In our experience, these subscription services are a waste of both time and money. As discussed in this blog, these links lead only to what we call FAKO scores. These are not the real deal! Frankly, we can find no good reason for consumers to improve the profits of any of the mega corporations also known as the CRAs.

Step one, get a copy of your official free credit report by clicking on www.annualcreditreport.com. Step two, begin disputing the items you believe are incorrect. Step three, repeat step two as necessary – generally every 30 days.

Sample Dispute Letter

Date

Your Name

Your Address,

City, State, Zip Code

Name of CRA

Dispute Department

Address

City, State, Zip Code

Dear Person:

Pursuant to the Fair Credit Reporting Act 15 § USC 1681i, I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditor name, and account number, judgment, and case number, etc.) is (inaccurate) because (describe what is inaccurate). I am requesting that the item be deleted to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,

Your name

Enclosures: (List what you are enclosing if anything.)

Before you send your dispute letter, reread it to make sure you are not admitting the fault is yours, and not that of the credit reporting company or creditor. If you do make an admission, you are providing evidence against yourself. Think of the Miranda Warning as you write your letter. Everything you write can and will be used against you. So be careful with what you write. The fewer words written, the better. Less is more.

Resend your dispute letter every 30 days until you achieve the results you want. You need to understand that you will get the standard reply letters and occasionally a letter saying the dispute is not correct. You don’t want to become discouraged.  Ultimately, persistence will help the system work for you.

Copy the creditor (e.g. ABC Mortgage Company) you are disputing with the letter you send to the CRAs. Most creditors have a particular dispute or legal address which is easily found with a little research (Google it). To be clear, the dispute address is not the same address to where you send your payment. You must use the legal address such as where a legal document would or will be served.

Avoid credit report scams by heeding this FTC information for credit consumers. Legitimate credit repair firms operate in compliance with the Credit Repair Organizations Act and do not charge fees for work not yet done.

If you have an IRS Lien on your credit report, check this recently launched IRS Form which, if utilized properly, could eliminate an IRS Lien from your credit report. This will not eliminate the tax debt. You should enlist professional help in completing this form.

Don’t become discouraged you can get corrections and deletions accomplished however; I encourage you to read the following post from the Consumer Finance Protection Bureau (CFPB) and in particular some of the comments tendered by other consumers. Is your credit report wrong? How to find out and fix it.

Know what you are doing and what the potential ramifications are when it comes to applying for a mortgage. Any dispute must have been resolved and withdrawn from your credit report prior to being approved for a mortgage.

Caution – “We’ve Never Seen a Legitimate Credit-Repair Operation,” is an apt observation tendered by Steven Baker, Director of the FTC’s Chicago regional office.

Final Caution – For so long as there are unresolved disputes reported on your credit, you will be locked out of getting a mortgage loan approval. On this, also see the comments section of this blog as well as the comments section for the up to date particulars.

We wish you success!

John Oliver on Credit Reports. The iconic comedian takes a serious yet, humorous view of credit reports. You may need a smile as you deal with any of the three institutions of credit reporting and the creditors reporting data to them.

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

CO LMO 100008715 | NMLS 257365 | March 11, 2012 | Updated April 10, 2016

 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.

 

Refinance After Chapter 7

US Customs House – Bankruptcy Court Denver, Colorado

 

You filed a Chapter 7 Bankruptcy and all debts were discharged. You selected not to reaffirm mortgage(s). You have continued paying on your mortgage(s) and now you want the payments reported on your credit report. With one exception that is not going to happen. The fact is that there is but one permanent way to get your mortgage payments reported on the credit reports and that is to refinance your mortgage, when possible. When your bankruptcy was discharged, the Promissory Note portion of the mortgage was legally eliminated. As a result, the mortgage payments will no longer be reported to the credit reporting agencies. Consumers, for obvious reasons, cannot self-report their credit history. For further information as to why the bank or mortgage company doesn’t report your payment, refer to an earlier post I wrote on this subject.

How To Get “Credit History” For Your Mortgage Payments In Order To Refinance

How can you refinance when your present mortgage servicer does not credit report your mortgage payment? There are a couple of ways to do this. The least expensive is for you to obtain proof of your mortgage payments for the past twelve (12) month and provide this to your mortgage broker.  A temporary way to pull the mortgage payments onto the credit reports is via a proprietary system such as Rapid Rescore which is available only to mortgage brokers. Your mortgage payment history can be pulled onto the credit reports for the purpose of mortgage refinance by a mortgage originator in cooperation with a credit reporting service through a credit rescoring system. This is a temporary fix only; a bridge to refinancing once all other factors are in place. The only permanent way to get your credit report to reflect your mortgage payments is to refinance if and when you are eligible.

How To Qualify For Refinance After Chapter 7

• You have been paying your housing expenses [rent or mortgage(s)] on time every month for at least the last 24 months – in rare circumstances, 12 months.
• There have been no 30 day late payments on your mortgage(s) since filing bankruptcy.
• The CAIVRS Authorization system  provides a clean report regarding default on an applicant’s past Federal government loans or guarantees.
• Your current taxable income as well as that of the past two years proves you can pay your mortgage and your debt ratio is acceptable to the lender.
• The taxable income used to qualify for the home loan will continue for a minimum of three years.
• You did not have a junior mortgage prior to filing or it is also current with no late payments or see (*) below.
• No other real estate was included in your bankruptcy or was foreclosed, short sold or surrendered such as investment property or second home within 4 years.
• You have no new bad credit whatsoever and no open credit disputes.
• Your present property value is 10% greater than what you owe on your mortgage(s), i.e., the house can be sold to payoff the mortgage(s), in full, including the cost of sale.
• You have minimum 700 middle FICO® Score (not FAKO scores). To get an idea of your score range use the FICO® Score Simulator (garbage in = garbage out).
• All borrowers must have established new good credit and exhibit that they are managing it very well.
• If the property is a Condominium, it must be FHA approved for FHA home loans or VA approved for VA home loans.

Investor Overlays

Investor overlays are measures lenders take to manage risks. You may need to shop around as, some lenders require 36 months from the Chapter 7 Discharge. Most lenders require higher credit scores, say in the plus 700 range before considering a new loans. The higher the FICO® Score, the better the rate and the lower the cost of the rate will be offered. There is much more to be discussed on the subject of lender overlays

Reaffirmation Is Not Necessary To Refinance

If your mortgage lender/servicer/bank insists that the mortgage must be reaffirmed, you simply need to call on a more seasoned mortgage banker or broker. There are those who will tell you that you must reaffirm the debt. Neither your attorney or I would recommend doing this; nor should you, in any case, do so without seeking the advice of your bankruptcy attorney. Keep in mind that the reaffirmation must be done prior to the Discharge and that is only your bankruptcy judge that can approve a mortgage reaffirmation – my understanding is that many will not.

Readers of this blog most often read Credit Union Power and New Credit During And After Bankruptcy too.

(*) The junior or second mortgage lien was legally stripped from the property in the bankruptcy. Note: this is a very, very rare circumstance. Another option is: the mortgage has been settled, such as via a short payoff in which case a further time-out period may be required.

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

CO LMO 100008715 | NMLS 257365 | January 12, 2012 | Revised October 5, 2014

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.

 

Credit Cards – Special Promotion Credit Cards, Credit and Charge Cards, Debit and Prepaid Cards

Recently, I received the following email comment from a potential client. She had, among other things, this to say on the subject of a Special Promotional Charge Card: “Just an FYI. I had my credit pulled by Chase about 6 weeks ago, and got a shock. My scores had dropped anywhere from 75 to 100 points. It turns out that I got dinged by [XYZ] Company earlier this year. I bought a new cell phone from then in January. They said if I opened a charge account with them, I could get a discount on accessories I needed for the phone. [XYZ] opened the account, then failed to send me a statement until the 3^rd billing cycle, and when I got the 3^rd one, I paid the $30 + $20 in fees immediately and asked them to send me the first two statements. I thought that was the end of it, but apparently they then reported me to the Credit [Reporting] Agencies.”

She protested the lack of statements and was able to get her credit reports corrected but it caused her great inconvenience as well as lost time and may have cost her the opportunity to obtain an improved mortgage credit rating and a lower housing payment. In retrospect, it appears those were pretty expensive cell phone accessories. The problem with this situation was not the promotional credit card, it was the 30 day late payment.

Should one take advantage of promotional charge or credit card offers?

As with nearly all business decisions, there is a risk -v- reward evaluation needed.  Keep in mind that opening new accounts can indicate increased risk to lenders and can hurt your credit score. Everyone’s situation is unique, but as a general rule, you should only apply for credit when you need it. Should you go on a shopping spree, and take advantage of all special credit card offers during that spree, one should expect to get reduced credit scores. This is part of the risk. So the question is: was the special  promotional reward worth it?

What’s the difference between charge and credit cards?

It is important to know the difference between a charge card and a credit card.  The Federal Reserve offers this brochure explaining the difference. In short, a charge card is payable in full on receipt of the monthly bill and most charge cards have no limit. A credit card  may have a high balance limit and can carry a balance at interest with certain minimal payments. On this, it will be helpful to review the ‘new’ rules governing how a balance on a credit card must be treated by the creditor.

What is a private label (store) credit card? 

The largest provider of store credit cards is General Electric Consumer Finance. A historic example of a GE store credit card is J.C. Penny. This particular private label credit card will display on a credit report as GE/JCP or GEMB/JCP. There are similar cards offered by many retailers from a variety of banks.

What is a pre-paid credit card?

First one needs understand that a pre-paid credit card is not a credit card; it’s actually a stored value card. In 2012, nearly 12 million consumers loaded more than $64 billion onto pre-paid cards. The main reason some consumers to this is they want to avoid going into debt. Pre-paid cards help folks with this goal because when the money stored on the card is gone, it gone. To be clear, the pre-paid issuer of the card does not report the  payment history to the credit reporting agencies.

What is an affinity credit card?

An affinity credit card is offered by an organization that the user recognizes and supports such as a travel club, alumni, university, social club, airline or other entity.

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

CO LMO 100008715 | NMLS 257365 | November 3, 2011 | Updated April 3, 2014

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.

HARP 2.0?

What is HARP? The short answer is this is not the musical instrument but rather it is an attempt by the US Government to breathe new life into the distressed US housing market by trying to revamp the Home Affordable Refinance Program.

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”

DeMarco made it clear in this article that there would be no principal write-downs, simply the possibility of mortgage payment reductions for those that qualify for this special refinance.  It also maintains a choice President Obama made in the early days of his administration to focus on reducing monthly payments rather than on the amounts that borrowers owe, the latter being what a growing number of  both liberal and conservative economists consider necessary to bring resolution to the problem.

Why would any lender want to refinance an underwater mortgage and in particular one that is up to One Hundred and Fifty  percent upside down? Good question. One answer is that the lender gets to be forgiven for any earlier representations and warranties issued in conjunction with the initial mortgage loan. This is a free legal time out and a reduction in potential liabilities for the lender.  Another answer is to continue cash flow on a mortgage that may sooner default.

On October 28, 2011 it was reported in this article that each of the big four banks in the USA announced they would participate in HARP 2.0. When will this program be available? Possibly by the end of November, 2011, providing the FHFA has issued
the guidelines for the lenders to follow by then. As of this publication, the guidelines do not yet exist. Though the specific guidelines are not yet published, the general qualification guidelines were published in this document.

How To Qualify – One must have provable income. There must be a history of sufficient income as proven by the last two years of filed 1040’s. There also must be third party provable current year to date income sufficient to make the modified mortgage payment. Keep in mind this is applicable only to first mortgage loans, not second mortgages.  An upside is that one need not obtain an expensive appraisal as an Automated Valuation Model authorized by either Fannie Mae or Freddie Mac will suffice. Of course, appraisers will disagree with this determination by FHFA.

HARP 2.0 is available only for Fannie Mae and Freddie Mac owned mortgages. How do you know if your mortgage is owned by either of these mortgage giants?  Click here and follow the prompts to see if your mortgage is owned by Fannie Mae.  Click here and follow the prompts to see if your mortgage is owned by Freddie Mac.  Should the owner be one of these institutions, you may be able to get a lowered payment for the remainder term of your loan. Or you may reduce the remainder term of your loan if it makes sense to you to so do.

One need not use any of the big four banks as any mortgage loan originator may offer the HARP 2.0 program providing they have access to a lender that will underwrite these loans.

FNMA Update: October 1, 2014- Mod Rate Increases Get Underway.

This could be a great time to contact your HARP authorized lender.

Art Credit: Google Images

Financially Speaking – James Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | November 1, 2011 | Rev. October 1, 2014

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.

Zombie Mortgages

The Note’s Dead – The Lien Lives

FACT: This article has nothing to do with the zombie fiction currently populating bookstore shelves.

FACT: I am not an attorney; I do not provide legal counsel. In addition to being an expert witness, I am an expert credit advisor as well as an expert on refinancing home loans following Chapter 7 Bankruptcy and while in Chapter 13 Bankruptcy.

What is a Zombie Mortgage?

Zombie Mortgage Notes are the Promissory Note(s) of home mortgages which have been Discharged in Chapter 7 Bankruptcy and continue to be paid (or not) on a purely voluntary basis by the debtor. In many cases, I see folks paying both the Discharged 1^st mortgage as well as the Discharged 2^nd mortgage. I am prompted to expand on this subject due to the number of recent callers who do not understand that the Note(s) was(were) legally nullified. Regular readers’ likely recall that I first wrote of this phenomenon in December of 2010 in an article titled Living Underwater After Bankruptcy.

Zombie Notes Do Not Credit Report

Given that the Note is, umh… dead, the credit reporting agencies have nothing to report. There is no credit instrument against which the creditor can report. And, this is a biggie, if the Discharged mortgage servicer were to report the mortgage as still paying late, that could be considered as attempting to collect a Discharged debt. This is a big legal no, and no or no. Should you discover such on a valid credit report, you may wish to consult your bankruptcy attorney for a referral to a consumer protection attorney.

Can A Zombie Note Be Refinanced?

Yes. However this depends on several limiting factors which are discussed in my blog titled Refinance After Chapter 7?.

Question – Can this be done by any licensed, bonded and insured mortgage loan originator?

Answer – Not realistically. You need a specialist. This will require a highly seasoned lender who knows how to document, package and process a Zombie Note for a  rate/term refinance loan approval. There are no cash-out refinances of Zombie Notes.

Living With A Zombie Note

Those in Zombie Note situations must really like love where they live. There are no home improvement loan opportunities available. If there is no equity, there is no opportunity to refinance, so you should truly prize your current monthly housing payment. An ordinary sale will be difficult if not impossible so, in effect, one is frozen into their present location and housing. For some, this works. For others, it is merely prolonging the end of a cycle, and avoiding the opportunity of gaining a new beginning. And perhaps it is simply about keeping up the “image”, as though no one else in the country is in trouble financially. Good grief.

Caution: One of the highest needs is to make sure the personal property, real property and liability are insured against loss. Openly discuss your situation with your insurance agent. Understand you may need a specialty insurance agent due to the particulars of living with a Zombie Mortgage.

Zombie Note Equals “Renting” Without Benefit Of A Landlord

In many cases, one choosing to live with a Zombie Mortgage has, in effect, become a tenant without the benefit of a landlord. Should the water heater need replaced the resident is responsible for all upkeep and maintenance as an out of pocket expense. How would you feel about replacing the HVAC system to benefit the bank or the next owner?

A Fresh Start – How Now?

So now we know, the rest of the mortgage (the Deed of Trust) still needs to be reckoned with. It is still attached to the property, and requires legal resolution before one can begin mortgage credit recovery. The longer it takes for the foreclosure or short sale to occur, the longer it takes for your credit to heal. There may come a time, so to speak, to remove the life support system of voluntary payments on Zombie Notes and allow the natural financial/legal actions to occur.

Update March 2, 2016 – When the Bank Discontinues Foreclosure Proceedings per the FDIC.

Update October 30, 2021: Colorado Judicial Law | https://scholar.google.com/scholar?q=Silvernagel+v.+US+Bank+National+Association&as_sdt=2006 |

SILVERNAGEL v. US Bank National Association

2021 COA 128 – Colo: Court of Appeals, 1st Div., 2021 – Google Scholar

A division of the court of appeals considers whether a discharge in bankruptcy has any effect
on the time within which a bank may foreclose on a deed of trust given as security for a debt.
The division concludes that the discharge in bankruptcy of a borrower’s personal liability on a …

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Financially Speaking™ James Spray, | October 1, 2011 | October 30, 2021

CO LMO 100008715 | NMLS 257365 |

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.

Renting after Bankruptcy and/or Foreclosure

It’s a fact, many homeowners are being foreclosed leaving them to rent while recouping and rebuilding. Having a recent foreclosure can make renting hard because landlords fear you might have a problem paying rent or late paying the rent. Fortunately, you can still rent after a foreclosure and/or bankruptcy.  Many landlords are undeterred by foreclosed former homeowners as long as other types of credit are good. Many landlords will understand the need of a bankruptcy and such eliminated most other debt leaving the prospective tenant a lesser burden to pay the rent.

Still, you need to be selective on your prospective landlord, too. Follow the tips in this guide and you will certainly have your first line of defense against residential rental scams reasonably well covered.

Find No Credit Check Apartments and Houses

Large apartment complexes are typically owned by companies that have strict corporate approval criteria. Ask the manager if they exclude folks that have had a foreclosure or a recent bankruptcy. Again, you, too, need to do some screening of your potential landlord.

You’re more likely to get a credit check at one of these complexes (and denied if you have a foreclosure) so don’t apply where you know you are going to be denied. Why suffer the brain damage and humiliation?

Instead, look for houses, condos, townhomes, duplexes, and small apartment buildings that are owned by a single landlord. These types of landlords are less likely to do credit checks. Look for these types of residences:

• Check for signage by driving or walking the neighborhood you like.
• Ask friends and family. Ask social media friends.
• Check craigslist but be very careful as there is a great deal of fraud in this public arena. Here is a decent search engine which can verify the average price of rentals in different markets

Bring a Co-Signer

You can get approved for an apartment, even one of the larger apartment complexes, if you have a co-signer or guarantor. Keep in mind your co-signer will be responsible for any unpaid rent or damaged done to the apartment when you move out. I am one of those who refer to cosigning as financial ‘suicide by pen’.

Offer a Larger Deposit

Depending on the rental market conditions, offering a larger deposit could make your application more appealing to the management or landlord.

Purchase a Lease Guarantee Insurance Policy

On January 4, 2017, the Washington Post reported on a new business which underwrites an insurance policy guaranteeing the renter will pay the lease payments. The WAPO report is titled How to secure an apartment when you have bad credit. The subject of the report is a company named LeaseLock,

Keep Paying Your Other Bills

A foreclosure or bankruptcy might set you back, but it won’t ruin you, unless you let it. Continue paying your other bills. People with foreclosure often have more 90-day late pays to explain on their credit reports than those who haven’t gone through foreclosure. Those late payments make you even riskier in the eyes of a landlord. If you can prove to a landlord that defaulting on your mortgage was an isolated incident, you may be able to rent despite your foreclosure.

Rent To Own

Sounds too good to be true?

As I’ve previously written about this subject, this is very often a terrible idea. With very few exceptions, I have never seen a financially advantageous rent or lease to own contract. This is not to say they don’t exist. This is to say you need an experienced real estate attorney to review the document(s) for you prior to your entering such an agreement. I have seen back to back fraudulent lease-to-own situations. Use care, you do not need to buy someone elses problem unless it is good for you.

Don’t Lie

“Don’t ask, don’t tell” is a good philosophy to follow when it comes to renting after foreclosure. However, lying about it will probably cost you a rental opportunity. If you’re asked if you’ve ever had a foreclosure, be honest. Explain the situation and focus on how you’ve turned your finances around. Make sure the landlord understands that what caused the bankruptcy and/or foreclosure won’t cause you to be late on your rent.

Take a proactive stance by explaining your situation, be brief and forthright with the property owner or manager. You can also sign up for a service such as Transunion’s SmartMove . “Your credit rating is completely unaffected. The screening process is quick, easy—and all online. Only limited information is provided to the Landlord – your SSN and account numbers are not provided.”

Rental Payments and Credit Reporting

Rental Karma, a Denver based company since 2012 will report your rental payments to two of the three national Credit Reporting Agencies. A more recent addition to this arena is Phoenix based credit rent boost. They too report to TransUnion and Equifax.

As of June 2016, Experian RentBureau affiliated with Yardi, a real estate software solutions provider, to initiate an interface which will allow renters to build ‘credit’ history by having their rent payments reported. The converse is also true.

What You Can Expect to Pay

Landlords and tenants may use the free software provided by RentMetrics to get a sense of market rates by entering an area or an address and reviewing reasonably accurate pricing information of comparable units in the address’s neighborhood.

Better to Rent or Own?

I must start with the answer: It depends. It depends on your employment, income, goals, expectations and many financial factors not all of which are related to the cost of housing. How certain are you of your ability to earn the same or more money if your employer relocates or closes? What are the long term aspects of the housing market where you wish to live? On May of 2014, the New York Times published an article in The Upshot section which contains a very useful and easy calculator. This is the link to their Rent or Own calculator.

I am not paid by nor do I endorse any business or website referenced in my posts.

For Rent Image Credit

Too Good to Be True Image Credit

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | September 2, 2011 | Updated August 6, 2022

 

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.

Credit Cards After Bankruptcy

Secured Credit Cards – Why would you wish to consider setting up a secured credit card? I discuss a few of these reasons in this, this and this blog. The reason is quite simple – You wish to rebuild your credit scores and reestablish your credit reputation following a personal financial disaster.

Those who read my posts know I am favorably predisposed toward credit unions for consumers. So it stands to reason I would lead this list of secured credit cards with that which is offered by my own credit union.

With my credit union, as with most, there are no fees. The interest rate is fixed at 7.90% (the effective rate is actually 7.40% as we earn .50% on our pledged/secured savings). The way it works is the member pledges 110% of the requested credit limit. For example: The member pledges $1,100.00 in savings for a credit card with a limit of $1,000.00. The credit history you establish with your secured card is reported to the credit bureaus. As previously posted you, too, are eligible to join your own credit union.

Applied Bank^© offers a secured Visa^© with a fixed rate of 9.99% and no fee. This is a 100% pledge of savings to credit limit. So for a credit limit of $1,000.00 the customer must pledge $1,000.00. On average, the current savings account rates are paying .48-.50%. As of publication, this return is true with most similar savings accounts in the country. Shop the Applied Bank offers (and others) with care, while one has no fee, another of their secured cards has an annual fee of $119.00 and may have higher rates.

Amalgamated Bank of Chicago^© secured Master Card^© has an adjustable rate ranging from 9.25-14.25%. The annual fee is $50.00. As with the other bank secured cards, they offer a 100% pledge of savings to the credit limit.

Capitol One^© Secured Master Card^© has an annual fee of $29.00 and an adjustable rate of 22.90%. Here also the customer pledges 100% of a savings account deposit of the credit limit.

Last but not least of this group is the Orchard Bank^© VISA^© Card. The fees are not disclosed unless one applies. As discussed below, hard credit inquiries scratch and dent your credit scores. Their adjustable interest rate varies 7.90-19.90%.

A good source to search for the smaller limit secured cards is bankrate.com. On a recent search I found these as the featured cards. You may note that some have no fee but a higher rate. Another has a low rate but a high annual fee. I do not endorse any of these cards. Nor do I demean them. They are what they are. Finally, you may wish to do your own search for the latest offerings.

Another good source for information on starter or restarter credit cards is: My Bank Tracker.

Unsecured Credit Cards – There are very few unsecured credit cards available within 5 years of bankruptcy. Given there is such limited competition, you will pay outrageous fees and rich double digit interest rates. There is no advantage to your credit report and credit scores by having such a card. A Secured Card will be reported to credit rating agencies exactly the same as an Unsecured Card. You may shop for unsecured cards on the Internet but be prepared to pay outlandish fees and absurd interest rates.  Hard credit inquiries are reported against your credit scores. Use great caution when you go to the sites offering free credit scores as many of them have very weak security and pose a great risk to your privacy. As always keep in mind TANSTAAFL.

Read your contract with the provider of the credit card. Know what’s in your wallet.

A Debit Card is simply a plastic check. It is linked directly to your checking account. Of and by itself it offers no benefit to your credit. To have credit with your debit card, you must qualify for overdraft protection which is an unsecured line of credit and reported on your credit report as a revolving (credit card) account. Debit cards don’t have the security of credit cards as is illustrated in this ABC News report. Use due caution with debit cards. In the catch phase of a ‘60’s TV show: Danger.

Art Credit: Google Images

Financially Speaking – James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | July 6, 2011 | Updated August 24, 2014

 

 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 full attribution is given to James Spray.

Impact of Bankruptcy Filing on FICO Scores

I was recently asked by a prominent Colorado Springs bankruptcy attorney to comment on the impact of filing bankruptcy and credit scores. The short answer is the greater the score at the time of filing, the greater the decrease. This is somewhat akin to the idiom the bigger they are the harder they fall. On the other hand, when it is inevitable that bankruptcy in necessary, the sooner one files, the sooner one will recover their credit scores.

On the lower end of credit scores, I have seen scores improve by 50 and more points on the filing of bankruptcy. Do know I am not extolling the virtues of having to file bankruptcy and I have never met a person that wanted to file bankruptcy.

A teacher once told me that there are two things in life: Those things you get to do and things you have to do. Bankruptcy is a ‘have to’ event. In the eighteen years I have helped folks rebuild their credit and their credit scores after bankruptcy, I have never met one that wanted to file bankruptcy.

In actuality, the overall impact will vary greatly from one individual to another as individual credit profiles differ greatly. If one wishes to get a reasonably accurate projection of what will happen to the score post-filing, one can manipulate this score simulator to “create” credit events. This simulator was built by FICO. One can also utilize this tool to get an idea of how to begin optimizing credit scores post-filing.

Adverse events and reductions in your FICO Score

	Effect on a 680 score	Effect on a 780 score
Maxed-out card	-10 to -30	-25 to -45
30-day late payment	-60 to -80	-90 to -110
Debt Settlement	-45 to -65	-105 to -125
Foreclosure	-85 to -105	-140 to -160
Bankruptcy	-130 to -150	-220 to -240

Source: FICO
To gain a greater understanding of how the FICO algorithms operate to score your credit, please review the ingredients that comprise your FICO score. I discuss this concept in plain English in this blog.

Those who get caught in the HAMP trap of month after month of having late or no mortgage payments while attempting to obtain a loan modification will have a lower credit score than those who file bankruptcy early in the process.

The same negative impact on scores will also show under the typical HAFA short sale or deed in lieu of foreclosure program. The exception to this is twofold: One is that the payments remain current during the HAFA short sale negotiation process and the short seller actually moves to another real estate market.

To sum up this blog, there is a new credit life for you after bankruptcy. I have been there, and come back from the land of no scores to now enjoy scores of the high 700 and early 800 scores.

As always do not hesitate to write back with comments or questions.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

Image credit: FICO

Financially Speaking – James Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | June 30, 2011 

 

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.

Credit Union Power

Credit unions are different from other financial institutions in that they are member owned and operated. And like for profit banks, your deposits are Federally Insured up to $250,000.00.

According to an April 3011 article in the Denver Post, credit unions are quite financially healthy in Colorado. I believe you will find this true across the Country and, frankly around the globe. It is quick and simple to check the easily understood financial rating of any credit union, click this link and enter the name of the credit union. Click here for an explanation of the star rating.

As well as being consumer friendly financial institutions for everyone other than large business organizations, as one starting out and building credit or in healing from a financial disaster such as bankruptcy, short sale and foreclosure, joining the right credit union is a marvelous first step in the building credit or recovering from a financial disaster.

A significant key to rebuilding your credit is to prove you are properly managing same. The best way to do this is to establish a significant deposit in your savings account with the credit union. A great benefit of a credit union is direct deposit and you can direct a certain amount to your savings on a regular basis which allows you to save significantly without ever missing the money you are saving.

Most credit unions will issue at least a $2,500 secured credit card, and one I have researched will issue a $50,000 secured credit card. The credit union will report your good payment history on the credit card which is of great help while you are healing your credit. Keep in mind the key 10% rule as discussed in my blog titled Fico Facts 101b.

Free checking with no strings attached is a standard benefit for credit union members. This is also true for ATMs as opposed to paying nearly $5.00 per transaction according to a recent report. If you are still with a for profit bank, check your monthly statement to see how much the fees are as of 2011.

Vehicle lending, Home Equity Lines of Credit, personal signature loans, and credit cards are very strong features of credit unions. Many credit unions are simply third-party originators of first mortgages and fixed rate second mortgages and tend not to have the most highly seasoned or experienced mortgage loan officers.

How do you go about joining a credit union? As discussed in an earlier blog there are numerous ways to join a credit union. One may do so by employment, profession, geographic location, an affinity group, family, organization, association. I joined Coors Credit Union due to the fact I live in Jefferson County Colorado. And to illustrate how many credit unions are available to most of us, I am also eligible to join The Credit Union of Denver, Westerra Credit Union, Elevations Credit Union, Bellco Credit Union and Public Service Credit Union. If I researched further I would find even more credit unions for which I am or could easily be eligible.

Here is how I learned which credit unions were available to me. I clicked this link and reviewed the membership eligibility in my zip code. This is yet another link which just needs your home or work address zip code to look up the credit unions nearest you. And this is another link to credit unions in the USA.

It is quite easy to find a cooperative credit union that acts very much as a a branch office of your ‘home’ credit union. You can conduct transactions, pay bills, make deposits, cash checks, etc.,  as though you were at your home credit union. You may need to speak with a supervisor if the front line teller is not familiar with the concept of Credit Union Shared Services. I’ve found that management is always happy to help the teller learn how to do these transactions.

As a final observation, many of my clients have had greater results by seeking a credit union that is simply too big to offer personalized service to help one build or rebuild credit.

I wish you the best success with your credit union experience. I certainly enjoy doing business with my CUs!

Image attribution: National Credit Union Administration and Co-Op Shared Branch

Financially Speaking™ – James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Updated September 16, 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.

Stripping a 2nd Mortgage?

What does stripping a second mortgage mean? Stripping a second mortgage as part of a Chapter 13 Bankruptcy means that on completion of the Chapter 13 Plan the second mortgage deed will be removed and the lien is voided. For those who may not know of me, I am not an attorney and I am not providing legal advice. I am simply explaining a second mortgage strip from a debtor’s point of view.

Following is a hypothetical illustration of a situation that will benefit from a second mortgage lien strip:

• Current Market Value $290,000
• First Mortgage Balance $295,000
• Second Mortgage Balance $75,000

Upon completion of the Chapter 13 Plan the second mortgage in the above illustration, the second mortgage would be stripped away from the property. This would leave only the first mortgage secured against the property. In other words $75,000 of debt would be stripped from the debt against the property. On the other hand if the current market value is determined to be $290,001, the second is secured and can’t be stripped. You need the best valuation available in your market area.

How does one determine the current market value of your house? Let us start with how you do not determine the current market value. It is not the value as determined by your county tax assessor. To be taken with a grain of salt are the on-line automated valuation systems such as Zillow and others. Among the reasons the automated valuation systems are not reliable is they cannot take into account sales concessions or condition of property. The best way to determine how to obtain a valuation is to talk  with your attorney for a referral to do a fair market value analysis.

For a thorough legal discussion of stripping a second mortgage in Chapter 13 bankruptcy, I recommend this white paper by Professor Adam Levitin. However the best and simplest way to discover the facts surrounding a second mortgage strip in your particular situation is to discuss the particulars and details with your bankruptcy attorney.

On selecting a bankruptcy attorney: Keep in mind you get what you pay for. Look at how much debt you are legally shedding and get the best counsel available to make sure it is done right. Read the retainer or representation agreement. The best attorneys will meet with you personally. Ask questions.

Art Credit: Google Images

Financially Speaking – James Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | April 8, 2011 

 

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.