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.

The 4 C’s of Credit

4Cs-LinkedIn.com

The following is written primarily for those wishing to obtain a mortgage. However the same dynamics apply to credit cards, vehicle loans, insurance, employment opportunities and even dating eligibility.

Character – Reputation is a key factor in obtaining new credit. Bankruptcy, foreclosure, late payments, settlements, collections, judgments, charge-offs and other derogatory events weigh how your credit character is measured. A short-cut for evaluating character is the credit score.

Capacity – Is the ability to repay the obligation provable with third party documentation? This is measured by the stability of the income, and how long the wage-earner or self-employed has generated that income.

Conditions – What is the purpose of the loan? If the purpose is to refinance for a rate or term improvement, a simple letter stating such suffices. If applying for a cash-out refinance, how are the proceeds to be used? Documentation is required to explain the perceived additional risk. In situations where Character is less than stellar, a cash-out refinance for the purpose, for example, reimburse a family member could jeopardize loan approval.

Collateral – How much equity is available to protect the investor? In a purchase or refinance, this is the percentage of Down Payment/Equity vs Appraised Value and the loan amount. The lower the loan amount to the equity, the stronger

For example, when the character and/or the credit are challenged a down payment/equity position of about thirty percent can mitigate two of the “C’s”.   The greater the collateral/equity, a lesser weight may be given to Character, Capacity.

What is your credit score? Use this credit score simulator to find out. It’s free and it will give you a good idea of what your score range is right now.

Caution – Finally, be very wary of credit repair schemes, many are designed to part you from your hard earned money. Most of these “service providers” are scams. It’s easy to see if they are running a scam. The scammers require cash up-front; this is not legal. Pursuant to the Credit Repair Organization Act (CROA), any credit repair work must be completed before a consumer may be charged for the work. For more information, see: Credit Repair Basics.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |October 19, 2015

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.

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 2)

believe-in-yourself_ www.buzzle.com

 

 

 

 

 

 

As discussed in Credit: Use It To Build It -Part 1, it is essential to qualify for and properly use credit in order to have credit. A thin credit file does little good to help one build or rebuild credit. Thin credit is described as a file lacking in length and depth of credit history. Thin is not a good thing in the credit sense.

The length of a credit history is a matter of time. A short credit history may have accounts that have been open for a matter of months or one or two years. A long credit history may span decades because open, active accounts remain indefinitely.

The depth of a credit report is an issue of the number and types of accounts you have. A credit history with only one or two accounts will likely be considered thin, even if it spans many years. A “thick” file would have several accounts of different types. For example a credit history could include credit cards, installment loans and a mortgage.

The Basics

Let’s start with the basics, understand the mechanics of the FICO Pie Chart as well as the art and science of Rebuilding Your Scores. Credit scores are not a big mystery; they are simply a measure of the information reported to the credit reporting agencies by your creditors. Learn about your credit reports control that which you can as to what is reported and your credit scores will follow.

Credit Score Facts

On credit scores, how do they work? What you can do to raise your scores is discussed in this blog. It is necessary to understand there is a difference in the credit scores one may obtain for free via the Internet. These are not the scores used by lenders. They may not even be close to those used by lenders. In this blog we discuss the difference between what we call FICO or FAKO Scores?

Join a Credit Union

Not just any credit union will do. Some credit unions are so large they act more like a bank than a credit union. To learn a little more about credit unions and to find one you can join, read our blog titled: Credit Union Power. This is a key step to reestablishing your credit. Once you’ve become a member, ask for help to set up a $500 secured installment loan. Next, utilizing some of your savings, as much as possible, set up a secured credit card account and use it properly.

Beginning Anew or New?

Whether beginning from scratch as a young person with no credit or whether starting again, the tasks are quite similar. Read through both Part 1 and Part 2 of these blogs to learn more of what to do and not do as you begin this new journey. If you have a family member with excellent credit, read and share this blog on this which we call inherited credit. You have the opportunity to learn about how it works and how it doesn’t work.

Credit Utilization

Anyone who uses credit cards could have high utilization, particularly those which pay off their balances in full each month. This is because balances are often reported to the credit bureaus mid-billing cycle. So if you have a $5,000 limit and you charge $4,000 in a month, you could be reportedly utilizing 80% of your available credit. The result is most often dramatically reduced FICO™ Scores.

We wish you success!

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Financially Speaking  James Spray, MLO, CNE, FICO Pro
CO LMO 100008715 | NMLS 257365 | September 21, 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 Score Facts

 

Am I a Fact or a Myth

Am I a Fact or a Myth

 

Myth – The more money you have or earn the better your credit scores.

Fact – One can be incredibly wealthy or high paid and still have not good credit scores. Your credit scores do not reflect your income or assets. Your credit scores reflect your wise use and management of credit or not.

Myth – Cell phone, cable and Internet companies all regularly report payments to the credit bureaus.

Fact – They only time you can count on these service providers to report to credit bureaus is when you do not pay them.

Myth – Marrying someone with lower credit scores than yours will lower your own credit scores.

Fact – That is simply not true. What is accurate is that if you open new joint credit accounts which are not paid on time or become abused this will reflect against both of your scores. This is simply co-signing for debt or as we call it committing financial “suicide by pen.”

Myth – Credit has nothing to do with your relationships or love life.

Fact – A good credit score is now considered sexy and bad credit can break a romance.

Myth – Your credit history is erased when you file bankruptcy. This is part of your Fresh Start in life.

Fact – When you file bankruptcy your creditors are to list your account as being in bankruptcy. Most creditor history is shown on your credit reports for 7 years. In the case of bankruptcy it can show for up to 10 years. In the case of judgments not discharged in bankruptcy these may show for up to 20 years. Errors can be corrected or deleted from your credit reports.

Myth – Creditors always play fair and credit reports report correct information only.

Fact – There are those creditors that simply do not play fair. The key rules for playing in the creditor and debt collection sandbox are the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA) and the Fair Debt Collections Practices Act (FDCPA). The sandbox monitors are consumer protection attorneys. Yes, a consumer is empowered by the Federal Trade Commission to correct errors but has almost no chance against the creditors or credit reporting agencies. Use great caution when doing this as you can do more yourself harm than good with a wrongly worded argument.  Keep the Miranda Warning, so to speak, in mind as you write as anything you say can and will be used against you.

Myth – There are incorrect addresses listed on my credit report and this is why my scores are so low.

Fact – These are simply clerical errors and do not reflect on your credit score whatsoever. Verily these are a nuisance but it may be more trouble to prove you never lived at a certain address than it’s worth in the time and energy invested. If you wish to dispute the errors, I suggest you read Credit Repair Basics.

Myth – All credit inquiries reflect against your credit score.

Fact – That is simply not true. The Social Security Administration has a great explanation for ‘soft’ credit inquiries: “Soft inquiries do not affect your credit score, and you do not incur any charges related to them. Soft inquiries are displayed in the version of the credit profile viewable only to consumers and are not reported to lenders. The soft inquiry will not appear on your credit report from Equifax or Transunion [or Experian], and will generally be removed from your credit report after 25 months.”

Myth – Cable/internet, utilities and cell phone accounts are regularly reported to credit bureaus.

Fact – These type of accounts are not regularly reported to the credit bureaus. The only time they are reported is when collection activity begins after payments haven’t been made.

Myth – All credit scoring companies are the same as are the scores they provide.

Fact – Companies that sell credit scores do not sell credit scores used by most lenders. See FICO or FAKO Scores?.

Myth – It’s fine to run a high credit utilization each month as long as you payoff the entire balance at the end of month.

Fact – On credit utilization anyone who uses credit cards could have high utilization, particularly those which pay off their balances in full each month. This is because balances are often reported to the credit bureaus mid-billing cycle. So if you have a $5,000 limit and you charge $4,000 in a month, you could be reportedly utilizing 80% of your available credit. The result is most often dramatically reduced FICO™ 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.

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Financially Speaking™ James SprayRMLO, CNE, FICO Pro
CO LMO 100008715 | NMLS 257365 | November 7, 2010 | Rev. 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.

FICO or FAKO Scores?

FAKO scores are not  used by your mortgage lender

What’s the difference between FICO™ Scores and the ‘free’ credit scores advertised on the Internet and television? The short answer is that lenders (especially home loan lenders) use only FICOScores to evaluate your credit. The advertised FAKO sites are a waste of both your time and money and they may put your private information at risk. Consider this as you think of the fake scores, would you want a watch that only gave you the approximate time? Would you trust a banker that let anyone buy your private information?

There are three national credit repositories known as credit reporting agencies. TransUnion, Equifax and Experian. All are for profit corporations. All have an agenda which is to sell you a subscription to something you truly do not need. They wish to sell you, among other things, access to useless monitoring services and FAKO scores. Lenders do not use FAKO scores.

There is a big difference. As reported by the Consumer Finance Protection Bureau, Buyer Beware!

FICO™ or FAKO Scores

Question: From which of these sites can you obtain FICO™ Mortgage Scores?

freecreditreport.com freecreditscore.com consumerinfo.com
creditexpert.com freescoreonline.com equifax.com
experian.com transunion.com truecredit.com
truelink.com creditkarma.com creditsesame.com
quizzle.com creditsesame.com creditreport.com
creditchecktotal.com creditprofinity.com  thinkcreditreport.com

Answer: This is a trick question. None of the above sites provide FICO™ Mortgage Scores. These are all what I call FAKO Scores. Note: This list is not complete.

Those buying credit scores tend to buy this.

Similar to FAKO Scores

What does FICO stand for? FICOis the company originally known as the Fair Issac Company which developed the mathematical models to predict credit behavior based on current and past credit usage. This company is as protective of their proprietary information as is Coca Cola of its formula.

You can obtain a free copy of your credit reports annually by logging onto this government created site free annual credit report. While these reports contain the information on your credit reports, they do not contain your FICO™  Scores. To obtain your FICOScores, you will need to purchase your FICO Scores as explained below.

How can you get a copy of my credit report with the mortgage FICOScores? You can get a copy of  all three of your mortgage FICOScores with the error codes (very important) from only one place – your favorite mortgage loan originator (banker or broker); they may not mark up the price you pay for the tri-merged reports including your FICOScores. The company myFICO can provide access to all three FICOScores however it is quite likely that these will not be the same version of FICO™ Scores as used by mortgage lenders. The fact is that mortgage lenders use your middle FICO™ Score. This leaves you with the risk of not knowing where you stand until your mortgage professional pulls your tri-merged credit report.

The marketers of the generic scores are almost as good at marketing as the bottlers of “brand name” tap water.

FAKO Score Ranges v FICO

You can you get an idea of what your FICOScores are without spending any money? The short answer is FICO Scores are not free. You can, however, use the FICO™ Score simulator to get a good idea of what your FICOScore range. I preface this with a word of caution; the FICOsimulator will act as any computer program, in other words garbage-in = garbage-out. The free FICO Score Estimator will give you a fair idea of your FICO™ Score range.

httpen.wikipedia.orgwiki 60_Minutes

In September 2012 the Consumer Finance Protection Bureau released a 42 page report explaining in great academic detail much of what I touched on in this blog. Twice now, CBS 60 Minutes has reported on the situation of ego scores vs. the scores lenders use.

Be aware of the data miners which are, through these type of services, tracking what you are doing regarding credit. All of the above are data miners and will obtain Non-Public Personal Information (NPPI) from you. Are you sure their business is hacker proof? The Federal Trade Commission found that at least one of these business exposed NPPI. Do you want them to have your Social Security Number and other personal information for life?

On to reality, I strongly urge you to read this brief post to learn how it is the FICO Score is built. Knowing this and understanding how to interpret this information is your key to rapidly building and maintaining a good credit score and be on the way to building a great credit score.

January 3, 2017, HOUSINGWIRE News CFPB fines TransUnion and Equifax for deceiving consumers with their marketing

  • Deceiving consumers about the value of the credit scores they sold: In their advertising, TransUnion and Equifax falsely represented that the credit scores they marketed and provided to consumers were the same scores lenders typically use to make credit decisions. In fact, the scores sold by TransUnion and Equifax were not typically used by lenders to make those decisions.
  • Deceiving consumers into enrolling in subscription programs:  In their advertising, TransUnion and Equifax falsely claimed that their credit scores and credit-related products were free or, in the case of TransUnion, cost only “$1.” In reality, consumers who signed up received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program. Unless they cancelled during the trial period, consumers were charged a recurring fee – usually $16 or more per month. This billing structure, known as a “negative option,” was not clearly and conspicuously disclosed to consumers.

HOUSINGWIRE News  February 10, 2017, “VantageScores are no substitute for FICO Scores”.

HOUSINGWIRE News March 23, 2017,”CFPB fines Experian $3 million for lying about consumers’ credit scores. Told consumers that purchased credit scores were same ones that lenders used.”

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Financially Speaking™ James SprayCNE, RMLOFICO Pro
CO LMO 100008715 | NMLS 257365 | September 18, 2010 | Revised March 23, 2017
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.
 
 

FICO Score Facts and Myths

Myths Facts Black n Blue
 
FICO Facts and Home Loans
What is the difference between FICO Scores and the free credit scores advertised on television? The short answer is mortgage lenders only use FICO Scores to evaluate your credit so the FAKO sites advertised on TV are a waste of both your time and money.

There are three national credit repositories which we know as credit reporting agencies. Trans Union, Equifax and Experian. All are for profit corporations. All have an agenda which is to sell you a subscription to something you truly do not need.

What does FICO stand for? FICO was the publicly known name of the Fair Issac Company which developed the mathematical models to predict credit behavior based on current and past credit usage; they are now known as FICO. This company is as protective of their proprietary information as is Coca Cola of its formula.

You can obtain a free copy of your credit reports annually by logging onto this government created site free annual credit report. While these reports contain the information on your credit reports, they do not contain your FICO Scores. As of this publication, you will need to purchase your FICO  Scores as explained below.

How can I get a copy of my credit report with the FICO Scores? You can get a copy of your FICO Scores with the error codes (very important) from only three places at varying costs – none of the reports with your FICO Scores are free: 1] Your mortgage banker – who may not mark up the price paid for the tri-merged reports with your FICO Scores – is the only one that can get all three of the credit reports with the explanatory codes. 2] My fico again provides all three FICO Scores as of September 2014. The costs are not insignificant and the scores you purchase may not be the ones your mortgage lender utilizes.

Can I get an idea of what my FICO Scores are without spending any money? Yes. But with a word of caution; the FICO simulator will act as any computer program, in other words garbage in garbage out. The free FICO Score Estimator will give you a good idea of your FICO Score Range. I do not encourage you to purchase any of the products offered as you utilize the FICO simulator.

In future articles I plan to discuss: How you can improve your FICO Scores; understanding how your FICO Scores are earned as well consumer credit topics suggested by readers.

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Financially SpeakingJames Spray, CNE, FICO Pro 
CO LMO 100008715| NMLS 257365 | May 24, 2010

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.