RSS

How to save $100’s to $1,000’s: 11 tips to manage your credit score



Credit scores have become one of the most important factors in today’s financial environment. Credit impacts: the amount you can borrow; if businesses will lend you money; how much it will cost you to borrow that money; the cost of homeowners and car insurance; and it may even affect your ability to become employed. For example, in conventional mortgage lending, these fees may range from 0 to 3.25% of the loan amount. So, for a $200,000 loan amount at 3.25%, the fee would be $6,500. Good credit means freedom to choose lenders, lower fees, multiple credit card offers and lower insurance rates and fees. Maintaining your credit rating is also very important. If your credit score drops, businesses may increase fees or close credit lines. Either way, everyone should be spending time using the techniques below to manage their credit.

Ways to manage your credit score:

  1. Pay all bills on time and before the due date. The best way to consistently help your credit score is to pay all your bills on time. Paying bills, such as utilities, credit cards, etc. by the due date may be difficult, but it is extremely important and is a great indicator that other more important credit payments will be made on-time. Cash flow can be challenging, but planning ahead and setting aside money to pay the bills will help you manage this and avoid costly late payment fees and finance charges.
  2. Keep balances low by paying off as much of the balance as possible. The second best way to improve your credit rating is to keep balances low compared to the credit limit, also known as your utilization rate. In general, if your monthly balance is 30% or less of the limit, it looks more favorable to the credit agencies.
  3. Keep old unused credit accounts open, if they have a positive history. This decreases the utilization rate, also known as balance to limit ratio. Even though you may not be using the account(s), holding it open keeps your credit score higher.
  4. Multiple credit cards with balances is good.  Contrary to belief, people with high credit scores are not debt-free.  But, they manage their accounts responsibly, even if they have had mistakes at times. Per a recent FICO report, “they hold an average of seven credit cards, four with balances. The average account is 11 years old, the oldest credit account on file was opened an average of 25 years prior, and the most recent credit account is an average of 28 months old. Some 58% of high achievers did not open an account in the prior year, and 26% opened only one new account.”
  5. SPECIAL TRICK – Paying off as much of the balance before the statement closing date. If possible, five days before each credit card closing date, payoff as much of the balance as possible. When the balance is reported to the three credit agencies(Experian, Transunion and Equifax), it will be lower than the amount you actually spent and thereby lowering the utilization rate.
  6. Request a current credit report and dispute inaccurate information. It may take months for items to be removed from the report, so immediately dispute, keep meticulous notes and keep checking to confirm it was removed. It may be worthwhile to pay for a new credit report every couple months in this case.
  7. Avoid applying for credit too often. If you plan to buy a car or home, multiple inquiries in a 30 day period will be counted as 1 inquiry by the credit bureaus. Each time you apply for a credit card or loan, the creditor requests a current report from one of many reporting companies.  They then review your credit score, payment history, balances, etc. These inquiries remain on your report for up to two years, the credit score will probably be lower, will look damaging for the first year, and alert potential lenders of possible lending risks, whether it exists or not. After you have purchased your home or bought a car, at a time when a drop in your credit score matters less, then apply for a new credit card(s). Or, apply for new credit after 6 months, so as not to adversely impact your score.
  8. Explore all options and resources before bankruptcy or foreclosure. These are devastating to your credit score. Reach out to creditors to negotiate better rates or terms or ask for temporary reduced payments or loan modification, etc.
  9. Pay by cash, debit card or check when possible. Even though you have credit cards and other loans, it looks much better to the credit bureaus and lenders if you do not need to use them.
  10. Getting married? Since the divorce rate is 50%+, you might consider adding your spouse as an authorized user or as an additional cardholder. If you separate or get a divorce, it will be easier to remove the spouse, without requiring to close the account and keeping your score higher.
  11. Be careful co-signing on a loan. Avoid co-signing on another person’s loan, as it may lead to missed payments or default. Lending money to relatives can be very risky. Unless you are prepared to help make the payments if the primary borrower can’t, then be very careful.

Managing your credit takes time and effort, but the rewards are lower expense and financial freedom.

 
 

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

How to improve your credit score: Simple payment trick


According to Experian, one of the three credit reporting agencies, “your utilization rate is the second most important factor in credit scores.” Most people do not realize this, as it is often not discussed or explained. Putting this in simple terms, the utilization rate is the amount of credit used (current charges & previous balance) divided by the credit limit. If you payoff as much of the balance as possible before the credit card statement closing date, a lower balance is reported to the credit agencies (Experian, Transunion and Equifax) and the utilization rate is lower. Please note, the closing date is different from the payment due date and can typically be found on the first page of the monthly statement or within the online statement. In general, if your monthly balance is 30% of the limit or less, it looks better to the credit agencies and will thereby increase your credit score over time. To send the payment earlier may be difficult at first, as requires good cash management and takes a little more time to review and send the payment, but when it becomes a habit the rewards are great. Other benefits:

  • It may allow you to qualify for a higher home loan payment because your debt-to-income (DTI) ratio is lower.
  • If you raise your credit score by 20-40 points, it may mean $1,000’s in savings on your next home, car, boat or RV loan.
  • It may be the difference of being approved or denied on your next loan. In today’s lending environment, the average minimum credit score required to become approved is higher than it has ever been.

For example, on one of my credit cards I purchased $924 worth of clothes and food from 9/1/12 to 9/25/12. My credit limit is $1,500 and closing date is the 2nd of every month. On 9/27, five days before the credit cards closing date, I accessed my account online and electronically paid $700, which is to be received and applied by the credit card company closing date of 10/2. So, my balance was $224 and utilization rate 224/1500 = 14.9% when it was reported to the three credit agencies and much lower than what I actually charged for the month.

If you take control of the factors that impact your credit score, you will better control your score and the fees that lenders can charge.

Industry quotes. According to:

Transunion: “Outstanding debt: High balances in relation to your credit limits can lower your credit score. Aim for balances under 35%.”

Experian: “Your utilization rate is the second most important factor in credit scores. Also called your balance-to-limit ratio, your utilization rate is the ratio of your total balances compared to your total credit limits.” “Work on reducing your debt so that you’re utilization rate is under 30% on all your revolving credit accounts.”

Equifax: “The amount you owe accounts for 30 percent of your score, and so you want more available credit than debt.”

Per Bankrate.com, “scores of 620 or lower usually place a borrower in the “subprime” category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans.”

Per the LATimes article, “How about the profiles of people who applied for conventional loans to buy a house but were rejected or didn’t get to closing? By historical standards, they were a fairly impressive group on average as well, with 732 FICO scores, 19% down payments and debt-to-income ratios of 24% (housing costs) and 41% (total debt). ”

http://articles.latimes.com/2012/apr/15/business/la-fi-harney-20120415

 
2 Comments

Posted by on September 26, 2012 in mortgage, mortgage refinance, refinance

 

Tags: , , , , , , , , , , , , , , , ,

Why refi from 30 year fixed to 15 year fixed?


Mortgage advertising is everywhere these days. Sometimes a 15 year mortgages is mentioned instead of the traditional 30 year mortgage.  Before I give you reasons why it will save you money, let’s first discuss your overall financial plan. Do you have credit card balances, paying finance charges of 10.99% or more? Do you have 6 months cash reserves for living expenses? Have you started saving for your kids college expenses? Do you have large car loans? Do you owe anyone money? If you answered yes to any of these questions, refinancing from a 30 to a 15 year fixed may not be in the best decision. Interest rates are at historical lows, so borrowing money is cheap right now. To view the current average U.S. 30 year mortgage rate, look at http://www.bloomberg.com/markets/rates-bonds/key-rates/ Even though you would save money on interest paid and pay the loan off sooner, it is more important to save money for children(s) college, saving 6 months cash reserves, or paying off expensive credit cards and car loans is a much better use of funds. Ask a certified financial planner to determine the right answer for you.

Reasons why it will save you money:

  1. The mortgage loan will be paid off 15 years faster.
  2. In the 15 year loan payment, more money goes toward the principal portion of the loan sooner. As a result, equity is built-up more quickly.
  3. Making higher payments during a shorter timeframe will save tens, even hundreds of thousands of dollars in interest.
  4. A shorter term can also provide a tax break. The New York Times recently noted, by restarting the mortgage you’ll pay more in interest in the loan’s early years, which will increase the mortgage-interest deduction as compared to the waning years of a 30-year loan.
  5. Rates on 15 year fixed are currently lower than 30 year by approximately .50% – .625% or more, which will save money.
  6. At times, investments are losing money. By paying more on the mortgage loan, you may be earning a higher return.

Reasons to refi from 30 year to 15 year fixed:

  1. Pay-off your mortgage before retirement.
  2. Build equity in your home twice as fast compared to refinancing back into a 30 year mortgage.
  3. Save more than 1/2 the interest paid. Per Bankrate.com, on a $100,000 loan, 30 year fixed at 6% versus 15 year at 5.75%, the savings is $66,364. http://www.bankrate.com/calculators/mortgages/15-year-30-year-mortgage-calculator.aspx
  4. Lock in a 15 year mortgage rate at historical lows, as borrowing money is cheap currently.
  5. Financial and payment stability, knowing the mortgage payment will not change for 15 years.
  6. Often, when borrowers choose the 15 year term, they usually have a better understanding of their finances, better budgeting and more organized cash management to afford the higher payment. Described in another way, they are spending less on frivolous things.
  7. If the 15 year fixed rate is lower than your current 30 year rate by .75% or more, it may be more cost effective to refinance. See my earlier post about when you should refinance and the breakeven analysis, found at: Bankrate.com mortgage calculator

Reasons NOT to refi from 30 year to 15 year fixed:

  1. The 15 year payment is higher by more than 35%, which may be difficult to manage.
  2. If you have a prepayment penalty on your current loan which is excessive and increases the cost of refinance this could make it difficult to recoup the cost by the time you plan to sell the home.
  3. If you do not have a steady job and income, than committing to a higher payment may be too risky. It would be better to commit to a 30 year loan, then if possible, pay the higher 15 year amortized payment as much as possible, thereby reducing the term and interest payments.
  4. If you are trying to qualify for a streamline refinance, which is less loan information and documentation, it is not possible when changing from a 30 to a 15 year fixed rate.
  5. If you know you are moving in a few years, it does not make sense to refi to a shorter term.
  6. If you are a first-time home buyer, you may not fully understand the costs involved in home maintenance and taxes. So, committing to a higher 15 year payment may limit other spending on your home.
  7. The expense to refinance versus simply paying the 15 year payment instead of the 30 year payment.

Interesting fact:

Per Freddie Mac, the Government Sponsored Entity(GSE), “Of borrowers who refinanced during the second quarter, 30 percent reduced their loan term, while 67 percent of borrowers kept the same term as the loan they had paid off. So, almost 1/3 of the borrowers thought it was a good idea, based on their situation.

http://freddiemac.mediaroom.com/index.php?s=12329&item=131537

 
Leave a comment

Posted by on September 19, 2012 in mortgage, mortgage refinance, refinance

 

Tags: , , , , , , , , , , , , ,

When should you refinance?


While talking with a friend of mine last week, he asked if he should refinance.  There are many commercials about refinancing, but who can you trust and what information do you provide?  This is not my friends area of expertise, as he is unfamiliar with the analysis process.  So, he appreciated the help, as he did not want to be inundated with sales calls, extra questions, etc.  By analyzing his loan information in 5 minutes, it was determined that his payment would decrease by more than $250 in a 30 yr loan, and the costs would be recouped within as little as 11.2.  Wow, that is a great savings!  What would you do with an extra $250 per month?

Are you considering refinancing?  If you are, call or email your loan information to me.  I will help you determine if it is the right time to refinance.  Or, use the website below.

  1. Gather the following basic information:
    1. Original and current loan amount.
    2. Loan interest rate.
    3. Original and remaining term of your mortgage.
    4. Current income tax rate.
    5. Current estimated home value.  I suggest using Zillow at http://www.zillow.com/
    6. The proposed rate.
    7. The proposed loan term.
    8. Estimated closing costs.

Input information into the following website:

Bankrate.com mortgage calculator

The final determining question is how long do you expect to stay in the home?  If you are staying in your home longer than it takes to recuperate the refinance fees, then it is in your best interest to refinance.

The breakeven analysis calculator will provide the answers.

In general, refinancing when current rates are lower than your rate by .50% or more is when the benefit begins.

 
1 Comment

Posted by on August 22, 2012 in mortgage, mortgage refinance, refinance

 

Tags: , , , , , , , ,

11 suggestions for saving $$ on your mortgage


Usually the mortgage payment is the largest monthly expense, especially in California. After we receive the loan and begin making payments, we forget there are opportunities to cut costs. With a little effort we can all reduce our expenses.  This is the first in a series on how to reduce your mortgage costs.

Mortgage tips to consider:

  1. Refinancing when current rates are lower than your rate by .50% or more.
  2. Refinance from a 30 year loan into a 15 year fixed, thereby saving money on the total amount paid on your mortgage.
  3. Increase your credit score prior to refinancing or applying for a home loan, thereby qualifying for the best or lowest rate and fees possible.
  4. Compare mortgage lenders rates and fees when applying for a home loan.  See my tips on a future blog.
  5. Pay additional money towards principal balance, thereby decreasing the total loan balance and subsequent date when balance is paid-in-full.
  6. Pay 1/2 payment 15 days before it is due and the remainder on the due date, which decreases the overall balance paid over time.
  7. Drop monthly mortgage insurance coverage(MI or PMI), if it was originally required on your loan.
  8. Fight property assessment valuation by the state. (This saves money on taxes)
  9. Shop for lower priced home owners insurance.
  10. Recast your mortgage payment.
  11. Loan modification.

Fees and guidelines vary by lender, program, loan amount, loan-to-value(LTV), credit score, state, fixed rate loan versus adjustable, etc.

 

Tags: , , , , , , , , , , , , , , , , , , , , , , ,

There is a time to pay for service and a time to save your money!!


Are you considering applying for a home loan, either purchasing a home or refinance?

After the financial crisis, can you trust banks and mortgage lenders?

Is the mortgage process complicated, stressful, expensive and time consuming?

Would you like help comparing lenders rates and fees, understanding the loan process, and ultimately saving money?

Would you feel better if you had someone looking out for your best interests and enabling you to have peace of mind?

I can help.

My last client saved over $750 in fees and lowered her quoted rate by .125%, or will be saving $1,853 over 5 years.

I provide a spreadsheet comparison of mortgage lenders rates and fees, suggestions on how to negotiate for a lower rate based on market conditions, and information on how to close your loan with less pain.

Contact me at:

Dan@MortgageFeeCoach.com
 
Leave a comment

Posted by on April 12, 2012 in Uncategorized