The Secrets To Building An Awesome Score

Your mom never told you because she didn't know, either.

Mom never told you as she didn’t know either

The not so  Secret Formula

Use your credit cards properly to build an awesome FICO© Score. An awesome score will give you the best advantage for the best rates on insurance, credit cards, vehicle and other installment loans and home loans. As well, having a great score will give you a distinct advantage for certain employment opportunities. Having a great score will also help you to screen potential long-term partners to determine the likelihood of a successful relationship. Let’s face it, having a great score means you keep your commitments.

By way of proper use, let’s explore what it is that is rewarded by the scoring system. Two cardinal rules are never exceed using 30% of your available credit on any card in any month. Ever. Never maximize the usage of your credit limit on any card. Ever. Better is to not exceed using 20% of your credit limit. For example, the credit limit is $1,000.00. Do not exceed $300 in use and better do not exceed $200 in use. This accounts for about a third of your total credit score.

For best results, pay off the balance monthly. In addition to never maximizing the usage of your credit limit, never exceed the limit. Ever. For your best advantage do not ever close a credit card. The aging of your credit profile is essential to having a great score. The longer you have good credit, the better for your credit history and as a result your credit score. This accounts for a little more than a third of your score. In this and the previous paragraph we have discussed that which makes up about sixty-five percent of your total credit score. Such is illustrated in the following pie chart.

FICO Pie Chart

At each opportunity you get, or at each opportunity you can make, increase the amount your available credit. Once your credit card issuer sees you are managing your account well, they will offer to increase your credit limits so long as you have the ability to repay. Don’t be shy, after about 6 months, contact your card issuer and ask when you may qualify for an increase.

Keep in mind that a single 30-day late payment will ding your credit score by 90-115 points. Boom! The time it takes to recover from this one 30-day late payment will take from one to three years depending on your score at the time.

If you wish to take the time, the author of this article captured the reality of building a perfect score.

With all things, including credit cards, TANSTAFFL applies. TANSTAFFL was a term coined by Robert Heinlein in his 1961 novel Stranger in a Strange Land. There Ain’t No Such Thing As A Free Lunch.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | June 24, 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. 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.

Purchase or Refinance During a Chapter 13 Bankruptcy

Chapter 13 Plan

Chapter 13 Plan

This post is written for folks currently in a Chapter 13 Plan. It is also helpful for those contemplating filing a Chapter 13 Bankruptcy Reorganization Plan. This post is also helpful for those recently Discharged from Chapter 13. A mortgage refinance or a home purchase, while still in a Chapter 13 bankruptcy, is possible; it is also a complicated financial and, legal transaction. To do this requires a highly specialized mortgage professional experienced with both FHA lending rules and Chapter 13 bankruptcy as well as local court rules.

The Chapter 13 Payment

One of the most important things to understand is the importance of on-time Chapter 13 Payments to the mortgage underwriting process. I strongly encourage you to read this: The Chapter 13 Payment. Your Chapter 13 Trustee payment is given the exact consideration as your housing (mortgage/rent) payment in underwriting. From the underwriting perspective, one thirty-day late payment of either the mortgage or Chapter 13 Trustee payment will sink your prospects of getting mortgage loan approval for at least a year. Mail your payment early or set your on-line bill pay or direct payment to the Trustee so that you always know your payment has had time to get to the Trustee’s office and be posted by the staff at that office. Too many times, on review of the Chapter 13 Payment history, we find a payment was posted on the 2nd day of the month. One day counts as a late payment. An experienced mortgage lender can help you check your Chapter 13 payment history in real time.

Mortgage Choices for Chapter 13 Debtors (purchase or refinance)

The only mortgages available, either for refinance or purchase, for those in a Chapter 13 Plan are those insured or guaranteed by the Federal government. These mortgages are either: insured by FHAguaranteed by VA or the USDA. Each

Any mortgage so long as it’s FHA, VA or USDA.

of these home loans are underwritten with the same guidelines as set forth in the FHA Handbook. How does a bankruptcy affect a borrower’s eligibility for an FHA mortgage? From the FHA Handbook:  “A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction.*”  Most underwriters will consider the Chapter 13 Trustee’s approval as permission from the court.

Application to Incur New Debt

To get underwriting approval for a Chapter 13 Debtor to refinance the Chapter 13 Trustee (in Colorado) or the Judge must approve your application to incur new debt. Contact your attorney to determine how and when to best proceed, or not. There are situations when it may not be in your best interest to purchase or refinance while in Chapter 13. This is a process which you can only do with the advise and assistance of your attorney. Your attorney must prepare the financial statements to submit to the Trustee in order for authority to be granted for a lender to offer new credit. Your mortgage loan originator should be able to assist your attorney in completing the Application to Incur New Debt.

Mortgage Refinance After Chapter 13 Discharge?

Yes. One may refinance or purchase within 2 years following the Discharge. BUT, it is easier to get approved for a mortgage while still in Chapter 13. This is because, following Discharge, a manual underwrite is mandated. Few lenders are willing to take the risk of not having the safe harbor provided by Automated Underwriting. Begin reestablishing good credit as soon as your Chapter 13 Plan is confirmed and continue this discipline while your case is still open so by the time your Discharge enters, you have solidly reestablished good credit.

Two years following Discharge, with reestablished credit, one may qualify for a conventional or Qualified Residential Mortgages (QRM) to purchase or refinance a home loan.

Preliminary Requirements for Purchase or Refinance While in Chapter 13

  • Twenty-four months of current housing payments with no 30-day late payments and, the likelihood of the income continuing for at least three years.
  •  Two years IRS Returns showing your income is sufficient to pay the mortgage as well as your Chapter 13 payment and any debt not included in the bankruptcy payment.
  • Minimum middle FICO Score of 620 . Most will need to practice what I’ve previously posted as FICO  101a, 101b and 101c for several months prior to making a successful application for mortgage credit.
  • For anyone with a fear of having credit make time to read both Credit: Use It to Build It (Part 1) and Credit: Use It to Build It (Part 2).
  • Begin rebuilding your credit as soon as your Chapter 13 Plan is Confirmed/Court Approved; this is when your property has been revested to you.
  • The maximum limited-cash out loan to value on an FHA appraisal is presently 95% – Refinance.
  • The minimum down payment is 3.5% of the purchase contract or appraised value whichever is less. – Purchase
  • The maximum Debt to Income Ratio is 45%. This is pushing the envelope. While in Chapter 13, it is mandatory to have Court approval (in Colorado, the Trustee approval suffices) to obtain a mortgage.

There is more detail to this process than can reasonably be discussed herein but this is the essence of purchasing or refinancing while in Chapter 13.

*Reference: FHA Handbook 4000.1 II.A. 5.a.iii (H)(2)(3).

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

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Financially Speaking™ James Spray, RMLO, CNEFICO Pro |  CO LMO 100008715 | NMLS 257365 | November 1, 2010 – Revised May 2, 2018 | Copyright 2010-2018
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.

Credit: Use It to Build It (Part 1)



Embarrassed: Believes No One Will Grant Credit

My very good friend, we’ll call him Ramsey (not David), does not use credit. Mind you, he’s not just a simple follower of some nameless cult leader advocating that no one should ever use credit. Ramsey’s a regular fellow, professional, married with grown children and grandchildren, too. Ramsey simply does not use credit and has not used credit in the past 8+ years. The only credit he’s had in the past several years is bad credit due to medical bills. These are the type of medical bills CFPB studied and recently discussed. These are the medical bills which have ruined credit for so many for so long. This is compounded if one is not offsetting the bad credit with good credit. And he wonders why he has such poor credit scores. One must use credit to get credit for using credit.

Fear of Credit

Tips for overcoming credit phobia – Although you intellectually understand that using a credit card is beneficial, you might still have emotional concerns. Perhaps you misused or didn’t understand how to use and not use credit when you were younger. Perhaps you had a bad experience. Start over and don’t make the same mistakes, you’ve learned what not to do.

The good news is that you can take steps to get more confident about the proper use of credit.

Check your attitude and thinking – One reason people overspend with credit cards is they are thinking incorrectly. Internalize the idea that credit cards provide short-term loans. When you swipe your card, you’re borrowing money – and you’ll have to pay it back. Plastic isn’t free money or additional income. And it does not replace income.

Confront your fear – Ignorance breeds fear, so the best way to overcome a fear of credit cards is to become more educated about them. The Board of Governors of the Federal Reserve System put together this wonderful guide to help you learn more about credit cards.

Make a budget – The best way to keep your spending under control is to make a plan for how you’ll use your funds. Be realistic about your budget and stick to it. You can use this budget form from Google for free. TIP: The most restrictive budgets usually fail.

Track spending by keeping receipts – After setting up a budget, keep tabs on how you’re doing by tracking your spending. You can use online banking or any other method you’re comfortable with, just do it.

Sign up for alerts – Most credit card issuers give you the option to set up text or email alerts to be reminded of billing due dates, your current balance, etc. Even though you’re keeping track on your own, setting up an alert adds an extra layer of protection against overspending or not timely paying.

Learn the facts –. Do not let your in-use credit be more than 20% of the available credit, ever. Better is to have no more than 10% of your credit limit in use as you are building or rebuilding your credit reputation. To learn more click and read this and then this.

Next, we heartily suggest you read: Credit: Use It to Build It – Part 2

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Financially Speaking™  James Spray, MLO, CNE, FICO Pro
CO LMO 100008715 | NMLS 257365 | September 19, 2014 | Revised March 31, 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.

Refinance After Chapter 7

US Customs House Denver

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.

FICO Score % by population

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 3rd billing cycle, and when I got the 3rd 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.