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Do not co-sign on a credit card for your college student

Wednesday, March 24th, 2010

Zac Bissonnette
Mar 2nd 2010 at 2:45PM

One of the results of the credit card reform legislation that recently went into effect was a dramatic change in the ability of college students to access credit. Anyone under the age of 21 will now need, according to the bill, “financial information. . . indicating an independent means of repaying any obligation” in order to sign up for a credit card.

What exactly that even means is ambiguous. Ben Woolsey of CreditCards.com tells WalletPOP that “The Federal Reserve hasn’t explicitly defined income requirements but rather has left that up to the individual issuers.”

Some banks may require a payroll stub or bank statement, and others may ask the applicant for the name of the employer and annual income. According to Woolsey, a full-time student with an annual income of $5,000 could “probably” qualify for a credit card — but with a limit of no more than $500.
Given that, most parents probably won’t need to co-sign for their kids to get credit of some kind — and given that many parents really only want their kids to have cards to start building credit, there’s really no reason to have a balance of more than $500.

But parents of students who are unable to get credit cards because of the new law will face a quandary that was non-existent just a month ago, when banks were handing 754 credit cards to any student who could name one member of the cast of Jersey Shore.

To co-sign? Or not to co-sign?

I’ll make this easy: No, you should absolutely not co-sign on a credit card for your college student, ever. Never. Surprisingly, the Bible actually has advice on this topic. Proverbs 17:18, in the New English Translation, reads “It’s poor judgment to guarantee another person’s debt or put up security for a friend.” But if you’re still not convinced, here are a few more reasons not to co-sign:

* If Junior is late on the payments, your credit score will get hit — which could cause you to pay higher interest rates on other loans you might take out — if you can get them at all. Wouldn’t it be funny if you couldn’t buy a house because your kid decided to play the “I’m going to throw all my mail from Bank of America in the trash and see what happens” game?

* If your kid decides not to pay, you will be 100% responsible for the bill. If he files for bankruptcy, he’s off the hook: but you’re not.

* You establish a bad precedent. You want to be a source of financial help and wisdom for your kid: not the person who helped him start his relationship with an industry that has led more Americans down a path toward poverty than any other. If you want to help your kid, give him cash and/or advice: not credit!

Here are the two most common arguments people make for co-signing loans/helping their kids get credit:

* “What if he needs the credit card for emergencies?”

If he needs access to cash for emergencies, set up an emergency fund with $1,000 in cash and give him a debit card with strict instructions never to use that card unless he’s in a jam with a baseball bat wielding bookie and he’s tapped out all other sources of cash. If you can’t trust him to do that, then ask yourself: Why would you trust him to use a credit card “only for emergencies?”

* “He needs to start building up his credit history.”

No, actually he doesn’t. Here’s the truth. Good credit scores get people into at least as much trouble as bad credit scores. Consider these lists:

Smart Things You Can Do With a High Credit Score
* Buy a house (and for first-time home buyers with FHA loans, you don’t even need that high of a score). There will be plenty of time to build up credit history after he has a source of income and doesn’t need a co-signer.

* Possibly get marginally lower rates on car insurance and a cell phone plan. But mainly, consumers are likely to be penalized for having a bad score (repossessions, defaults, etc.) as opposed to a limited credit history. According to Consumer Reports, drivers with top scores pay up to 31% less on their insurance premiums, but people with bad scores can pay as much as 143% more.

* Rent an apartment, but here again, what landlords are looking for is the red flag of a history of defaults and landlords left high and dry — not a recent college grad who never had a credit card. Having a limited credit history will not be a problem in the search for an entry-level apartment for a recent college grad. Alison Rogers, a real estate agent and the author of “Diary of a Real Estate Rookie,” recommends that recent grads without credit may want to offer landlords some additional evidence of responsibility like a reference character reference from a teacher or spiritual leader.

Stupid Things You Can Do With a High Credit Score

* Cancun!
* Buy a boat/car you can’t afford to pay for with cash
* Get one of those TVs they have in airport sports bars
* Lease anything
* Absolut Vodka? Abso-freakin-lutely!
* Birthday parties at high-end restaurants with fifty of your closest friends
* Dolce & Gabbana, Fendi and Donna Karan
* Pec implants
* Take out a private student loan.
* Post ex-boyfriend’s bail
* Co-sign loans for people

And remember: Your college student probably can start building his credit — if he thinks that’s a smart thing to do and can manage the card responsibly — with a small limit based on whatever part-time work he has — without a co-signer.

Bottom line? I’ve talked to lots of rich people and I’ve talked to lots of broke people. I’ve never met a rich person who is rich because he had a credit card during college.

But I have heard from literally hundreds of people in their 20s and 30s who are still digging out of the financial mess they created in college with the help of credit cards. And if you think you’re doing your kid a favor by helping him jump in front of that steam roller before he has any income, you better think again.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Good Credit Score Not Good Enough Anymore

Wednesday, January 6th, 2010

by Melissa Ezarik
Tuesday, December 29, 2009

With historically low rates, many homeowners are watching closely for the right time to refinance their mortgages. Those with good credit may well recall being showered with praise by a mortgage broker during the initial purchase for that solid credit score.

That was then. This is now.
A few years ago, a score of 620 or higher was good enough. That increased to 680 in early 2008. Then it jumped to 720 in April last year and 740 in August, says Rodney Anderson, senior managing partner of Plano, Texas-based Rodney Anderson Lending Services.

In the past, any score of 700 or higher would get a double thumbs-up from credit experts. Now, rate adjustments begin kicking in at 740, with every 20-point drop adding another adjustment.

In other words, many people who were taking pride in their credit habits either must pay significantly higher or try to make quick changes to nudge their scores upward. “What used to be great is now only good,” says mortgage broker Todd Huettner, president of Denver-based Huettner Capital. Refinancing that would have worked a year ago might well not make sense, he adds.
“I have clients all the time who literally wind up with a score of 739, 719, 699, 679 … and it costs them money to either fix it or pay for it,” Huettner says.

One of Huettner’s clients, who always had a score of about 740, went to do a refinance and found her current score at 719. “The reason was, she put a new washer and dryer on a store credit card,” he says. Many store cards are actually revolving credit, and your limit may well be equal or about equal to the purchase you’re trying to make that day.

Take the application that Stamford, Conn.-based Luxury Mortgage Corp. got recently. Interested in lowering the rate on an existing mortgage, the borrower could verify substantial income, assets and personal credit history, says chief executive David Adamo. But the borrower’s credit score had taken a hit after co-signing an auto loan for his son that had not been paid timely.

“As a result, the borrower, who otherwise met every other criterion, was unable to refinance the loan at a rate that made economic sense,” Adamo says.

Another wrinkle in today’s market: Even those with FICO scores of 740 or higher are penalized for buying in a geographic market on the downswing. “This adjustment affects all borrowers, regardless of score, if in a declining market,” says mortgage broker Jim Heidelberg, president of Heidelberg Capital Corp. in Tampa, Fla.

In many cases, the added costs of rate adjustments are “enough to make a refinance that would otherwise make sense have no benefit to the borrower,” Huettner says.

The road to new scoring

How did we get to this new reality?

The nation’s two largest mortgage lenders, Fannie Mae and Freddie Mac, suffered major losses in the market last year and then redefined risk, announcing price adjustments for borrowers with FICO scores below 720, says Sean Cragg, vice president of sales for Ann Arbor, Mich.-based Gold Star Mortgage Financial Group.

And, in case you were wondering, “these fees have nothing to do with your mortgage company or its various products and cannot be negotiated away,” Cragg says.

All mortgage bankers, brokers and credit unions must comply with the higher interest rates and delivery changes in all traditional mortgages, says Heidelberg. Only entities intending to hold the mortgages in their own portfolios can follow their own guidelines.

Worse news may be on the horizon. “There are many factors, including proposed legislation and regulation, that continue to change the mortgage lending landscape,” says David Chung, managing director of Towson, Md.-based CreditXpert Inc., which provides credit analysis services to consumers. “In the near term, it is more likely that this benchmark will continue to rise than fall.”

Surprise, surprise

Joe and Jane Homeowner have likely heard of the new credit restrictions. But the actual cost to them is often a surprise when they sit down with a broker.

“Often, lenders will quote rates that include the adjustments, without calling attention to them in order to avoid a negative reaction from their customer,” says James Guthrie, a partner in New Home Finance in Suwanee, Ga.

Less surprising are other factors that go into securing financing for a new or existing mortgage. Paola Kielblock, national products manager for Sun Prairie, Wis.-based Fairway Independent Mortgage Corp., clarifies today’s requirements:

• Good credit.
• Stable job, with a minimum of two years of employment.
• Reserves after closing, including a minimum of two to six months of mortgage principal, interest, taxes and insurance.
• Down payment from the borrower’s own funds.
• Low debt-to-income ratio. The required ratio varies between banks but is generally less than 40 percent, according to many in the industry.
• Good loan-to-value percentage. It also varies, but it’s often cited as less than 80 percent.

Having equity in your home is a major factor in getting approved for a refinance and in finding the best rate, says Cameron Findlay, chief economist for LendingTree.com. The more equity in the home, the less risk there is to the lender if the home is repossessed.

Taking action on your score

What can a homeowner who wants to refinance do with a good FICO score that’s not good enough?

“Virtually everyone can raise their scores by at least 10 (points) to 20 points, sometimes significantly more in 30 days,” Anderson says. Here’s what to do.

1. Find out what might have gone wrong. Applicants should know their credit score, understand what it means to their loan rates and ask their loan officers to use credit analysis on their behalf, says Chung. Credit analysis tools are a simple way to identify key score influencers by scrutinizing the information contained in each of an individual’s three credit reports to look for inconsistencies, errors and omissions that may artificially depress the score.

2. Correct any inaccuracies. Although consumers can improve scores on their own, Kielblock notes that credit agencies offer services to mortgage brokers to help consumers raise their credit scores if something is reported inaccurately and there is proof of a discrepancy.

3. Decrease the percentage of available credit used. This can be done by paying down balances or increasing credit limits, says Guthrie. Ideally, this means keeping balances as close to zero as possible, and definitely below 30 percent of the available credit limit, experts say.

“We’ve seen people increase their scores by as much as 90 points or more, simply by paying off the right cards,” Anderson says.

4. Move things around. If one income can be used to qualify for the loan, transfer accounts to “park” the debt in the other party’s name, Guthrie says.

5. Get a rapid rescore. It’s the only way to find out fast if an attempt to improve a score was successful. It’s done through your lender and a rescoring company. The process takes about a week, but it can get the loan process back on track. The downside is it costs a few hundred dollars. The credit bureau Experian has seen an increase in rapid rescoring requests, says spokeswoman Cynthia Baker. “While we haven’t done a direct cause-and-effect analysis, anecdotally, the volume does appear to have increased as interest rates have dropped in March,” she says.

Aside from working toward a better score, there are two additional options. One is paying points to buy down the interest rate. “This is only a good idea if the borrower will then live in the house beyond the break-even point, meaning the time where the money they’ve paid in points is made up for by way of less expensive monthly payments,” says Findlay.

The other option: shopping around. Some lenders, such as Palo Alto, Calif.-based Addison Avenue Federal Credit Union, have loans, known as “portfolio” loans, that aren’t subject to blanket rules on credit scores because the lender intends to keep them rather than sell the loans in the secondary market.

Michelle Edwards, national mortgage sales director, reports that for these loans, her company increases the cost of a mortgage only for consumers whose credit scores are below 680. One customer looking to refinance avoided a pricing adjustment because of compensating factors such as loan-to-value ratio, assets and length of employment.

In a perfect world, anyone contemplating a refinance or a new mortgage anytime within the next year or so would start working on getting the ideal credit score now.

But what if that didn’t happen? Try not to let your emotions drive how you feel about your interest rate. A mortgage is a financial decision that should be driven by economics, “not the pursuit of the world’s lowest rate because having it would make you feel good,” Heidelberg says.

He also says some consumers wait six months for a slightly better rate when a refinance could save $500 a month means missing $3,000 in savings. As Heidelberg says,

“This is foolish.”

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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FICO Reveals How Common Credit Mistakes Affect Scores

Monday, November 30th, 2009

by Jeremy M. Simon
Sunday, November 29, 2009

Disclosed for the 1st time, ‘damage points’ taken off for late payments

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.

‘Help People Understand’ Scores

“I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble,” says FICO spokesman Craig Watts. “Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. ”

The greater transparency about FICO scores is important because American consumers’ ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO’s version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.

FICO’s credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they’re figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The “damage points” information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its myFICO.com Web site starting this weekend.

FICO’s information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit — so-called prime borrowers — put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.

The Cost in Dollars

In order to show just how badly a drop in your FICO score can hurt your wallet, we spoke with members of the home mortgage, auto and credit card lending industries. We presented hypothetical scenarios of a consumer who decided to apply for a $200,000, 30-year mortgage; a $20,000, five-year auto loan and a credit card. While all the industry insiders stressed that a FICO score isn’t the only factor in determining who gets credit and at what cost (other factors they cited include the borrower’s debt-to-income ratio and whether they have already established a relationship with the lender), they were able to provide an idea of what a borrower who had the following credit scores could expect.

For a Consumer Who Started With a FICO Score of 780:

Following a 30-day late payment, the consumer’s car loan rate would jump nearly 3 percent, costing the borrower $26 more each month.

Following a debt settlement, the consumer would pay as much as $109 more each month on a home mortgage.

For a Consumer Who Started With a FICO Score of 680:

Following a 30-day late payment, the consumer would pay $41 more each month for a car loan.

Following a 30-day late payment, the consumer would pay as much as $95 more each month on a home mortgage.

Following a debt settlement, the consumer would no longer qualify for a credit card.

Some Surprised By the Details

Consumer advocates say it’s important for borrowers to know what can damage their FICO scores. “If they know it in advance, they won’t go out and step in a pile of doo-doo. They won’t go out and do some of these things,” says Linda Sherry, director of national priorities with advocacy group Consumer Action. Even experts found some surprises in today’s news. “FICO imposes bigger hits than I would have thought for being maxed out or 30-days late just once, reinforcing my view that it is a cruder, blunter instrument than they like to claim. Nevertheless, it is a powerful, widely used crude blunt instrument,” says Ed Mierzwinski, consumer program director for the U.S. PIRG consumer advocacy group.

Of course, knowing the impact on a FICO score and actually avoiding these mistakes are two separate things: Amid rising unemployment and other daily financial struggles, paying bills and staying on-track financially becomes a much bigger challenge for many borrowers.

“Some of these things are out of their control,” Sherry says of consumers.

Additionally, as Weston points out, consumers with identical FICO scores can have different credit histories. That means the same slip-up — such as maxing out a credit card — could have different impacts on consumers who have the same FICO score. In the examples they provided, FICO assumed each borrower had several active major credit cards, a mortgage, car loan and student loans.

Sherry acknowledges the benefit of putting a number to a financial blunder. “I don’t think we necessarily knew the numbers that a bankruptcy could apply to a credit score,” Sherry says.

Helping You Make Better Decisions

While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.

FICO scores — and the access to credit they provide — are a valuable asset to consumers and supply a safety net when incomes are stretched. It’s an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.

“In that period of time, paying down debt is the last thing on your mind. Paying the minimum payment may also be the last thing on your mind, but you’ll be doing yourself a big favor if you do,” Sherry says.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Mortgage delinquencies hit another record in 3Q

Tuesday, November 17th, 2009

Mortgage delinquencies peak again in 3rd qtr, but pace of growth slows for 3rd straight period

By Eileen Aj Connelly, AP Personal Finance Writer
On 6:50 am EST, Tuesday November 17, 2009

NEW YORK (AP) — The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.
For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That’s up 58 percent from 3.96 percent a year ago.

Being two months behind is considered a first step toward foreclosure, because it’s so hard to catch up with payments at that point.

The rate was up 7.6 percent from the second quarter. That’s a much smaller jump than the 11.3 percent rise in the second quarter from the first, and the 14 percent leap seen in the quarter before that.

While the slowing growth rate is a positive sign, the increase shows there’s still a lot of problematic mortgages out there, said F.J. Guarrera, vice president of TransUnion’s financial services division. The company doesn’t expect the figure to start declining until the middle of 2010.

Two things must get better before mortgage delinquency rates start reversing themselves, he said: home values and unemployment. “Until we see improvement in both of those areas, it’s possible that it will take longer for delinquency to improve,” Guarrera said.

The statistics, which are culled from TransUnion’s database of 27 million consumer records, show that mortgage delinquencies remain highest in the four states where the crisis has hit the worst.

– In Nevada, the rate reached 14.5 percent, up from 7.7 percent a year ago.

– In Florida, the rate was 13.3 percent, up from 7.8 percent last year.

– In Arizona, the rate hit 10.4 percent, up from 5.5 percent in 2008.

– In California, the rate jumped to 10.2 percent, from 5.8 percent last year.

North Dakota remained the state where mortgage holders most often paid on time, with just 1.7 percent delinquency, up from 1.4 percent last year.

TransUnion expects delinquency to rise to just short of 7 percent for the fourth quarter, compared with 4.6 percent for the 2008 fourth quarter. The rate may reach 16 percent in Nevada. Those states with the highest delinquency and foreclosure rates will likely continue to see depressed housing prices.

The average mortgage debt per borrower nationwide edged up to $193,121 in the third quarter, from $192,287 last year. The District of Columbia had the highest average mortgage debt per borrower at $359,788. The lowest average mortgage debt per borrower was in West Virginia at $97,265.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Credit-card countdown: Higher rates abound

Wednesday, November 11th, 2009

By Jennifer Waters, MarketWatch

CHICAGO (MarketWatch) — If you’re one of the millions of Americans holding a credit card, this isn’t necessarily news: Credit-card issuers are hiking interest rates, penalties and fees in full force ahead of stringent new laws that take effect in February.

In fact, some 400 credit cards from the nation’s 12 largest bank issuers — accounting for 90% of the $889 billion in outstanding consumer revolving credit in September — are still using most of the same tactics that the Federal Reserve has called “unfair or deceptive” and that will be outlawed in fewer than four months, according to a new report from the Pew Health Group’s Safe Credit Cards Project.

“Until the law takes effect we’re seeing that all the major credit-card issuers on the bank side are continuing to engage in these unfair and deceptive practices,” said Nick Bourke, project manager of the Safe Credit Card Project. “The numbers of unfair and deceptive practices have grown and in some cases are worse.”

Among the other findings:

99.7% of bank cards allowed issuers to boost interest rates on outstanding balances — a jump from 93% in December

95% of bank cards are applying payments first to low-rate balances, a practice the Federal Reserve has said will likely cause substantial financial injury to consumers

90% of bank cards had penalty rate hikes with the vast majority imposed by so-called “hair triggers” of one or two late payments in a year. The median bank penalty rate was 28.99%.

As of July, interest rates spiked an average of 20% across the board from December of 2008 with some issuers jacking up rates 30% and in at least one case 50% — even on their best customers.

Many — but not all — of the interest rate increases were tied to user credit scores, which have been dropping as many consumers’ credit lines have been cut or cancelled, Bourke said.

Credit-card losses mount
There’s no question that the economic malaise and the millions of people without jobs has had a damaging effect on credit companies too. Credit-card charge-offs and delinquencies this year have doubled, even tripled in some cases, and are still hovering in record territory at the nation’s largest banks with the outlook only worsening. Credit-card charge-offs retreated in September from August’s record high, but are still in double digits, according to Moody’s Investor Service.

Moody’s charge-off index, a measure of credit-card loans that aren’t expected to be repaid — slipped to 10.72 in September from August’s peak of 11.49. However, loans at least 30 days late, considered a gauge of future losses, climbed to 5.97 from 5.8. Charge-offs and delinquencies closely follow the jobless numbers: As unemployment rises so too does bad debt.

“Some of (those interest-rate and fee hikes) occurred because of the economic environment we’re in,” Bourke admitted. “But the timing is pegged at getting a lot of changes in before the bill takes effect.”

The American Bankers Association agreed that some higher rates are being pushed ahead of February, but said the embattled economy that is leaving issuers with boatloads of unpaid, unsecured debt is the real driver of such huge interest-rate increase.

“We have to take into account the losses in the credit-card space,” said Peter Garuccio, ABA spokesman.

Credit-card companies recognize the pain they are inflicting on many consumers. “We understand that customers don’t like price increases, especially in difficult economic times,” Citi said in a statement. “However, these actions are necessary given the doubling of credit card losses across the industry from customers not paying back their loans and regulatory changes that eliminate repricing for that risk.”

Moving ahead of law
The Pew study looked at rate and fee increases from January to July and doesn’t include hikes made since then as issuers press consumers before the law takes effect Feb. 22. Nor does the study take into account the initial credit-card legislation that took effect in August.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Fannie Mae asks for $15 billion in US aid after posting $19.8 billion third-quarter loss

Tuesday, November 10th, 2009

By Alan Zibel, AP Real Estate Writer
On 7:33 pm EST, Thursday November 5, 2009

WASHINGTON (AP) — Fannie Mae is asking for an additional $15 billion in government aid after posting another big loss in the third quarter as the taxpayer bill from the housing market bust keeps rising.

The government-controlled company continued to see a dramatic surge of borrowers fall behind as the unemployment rate climbs. At the end of last month, about 4.7 percent of Fannie Mae’s borrowers had missed at least three payments.

That’s nearly triple last year’s level. And the problem is worse in Florida and Nevada, where more than 11 percent of Fannie’s loans are in serious trouble.

Seized by federal regulators 14 months ago, the problems at Fannie Mae and sibling company Freddie Mac have proven far worse than most experts had foreseen. Fannie Mae’s request Thursday will bring the tab for rescuing both companies to about $111 billion. The government has promised up to $400 billion in assistance.

“There is significant uncertainty regarding the future of our business, including whether we will continue to exist, and we expect this uncertainty to continue,” Fannie Mae said.

Fannie Mae and Freddie Mac play a vital role in the mortgage market by purchasing loans from banks and selling them to investors. Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages.

The two companies lowered their standards for borrowers during the real estate boom and are reeling from the consequences. High-risk loans, now defaulting at a record pace, have come back to haunt the companies. Worse still, the recession is causing formerly reliable homeowners with good credit to default.

Fannie Mae posted a quarterly loss of $19.76 billion, or $3.47 per share. The loss includes $883 million in dividends paid to the Treasury Department and compares with a loss of $29.41 billion, or $13 per share, in the year-ago period.

The results were driven by $22 billion in credit losses as the company continued to build its reserves for sour mortgages.

Thursday’s request for financial aid — Fannie Mae’s fourth — brings the company’s total to about $60 billion.

To help reduce the number of homeowners evicted by foreclosure, Fannie Mae announced Thursday it would give some borrowers on the verge of foreclosure the option of renting their homes for a year.

The new “Deed for Lease” program will allow homeowners to transfer title to Fannie Mae and sign a one-year lease, with potential month-to-month extensions after that. It also helps save money because the lender does not need to complete the often lengthy and time-consuming foreclosure process.

The program helps “eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” Jay Ryan, a Fannie Mae vice president, said in a statement.

Critics, however, say the company is simply gambling that the properties will eventually sell for a higher price.

“Taxpayers are now going to own all these houses that (Fannie Mae) should have unloaded,” said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. “It’s going to cost a fortune.”

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Credit: Know Your Limits

Thursday, November 5th, 2009

by Jessica Dickler
Monday, September 29, 2008

You may not spend much time mulling your debt-to-credit ratio, but it weighs heavily on your credit score and can determine your ability to get a loan
Consumers know all too well that going over their credit limit can mean a nasty fee, a higher interest rate and maybe even a lower credit score.

But few people are aware that merely approaching their limit can have costly consequences as well.

That’s because your debt-to-limit ratio, or “debt utilization,” is a key component of your credit score. Your debt-to-limit ratio is calculated by dividing what you’ve spent by your total credit limit.

If you have a $5,000 limit and you’ve charged $4,000 this month, your debt-to-limit ratio is 80%, which is enough to signal to lenders that you are a high risk borrower.

As a result, lenders may increase your annual percentage rate (APR) or deny you a loan - even if you pay off your credit card balance every month and have never exceeded your limit.

About 14% of Americans use at least 50% of their available credit, according to Experian’s 2007 national score index study. But, experts recommend keeping your debt-to-limit ratio under 30%, or even under 10% if possible.

That means if your limit is $5,000, then you should aim to charge less than $500 a month.

The lower your debt-to-limit ratio, the better your credit score will be. And to that end, there are two basic ways to improve your debt utilization: raise your credit limit or lower your debt.

Raise Your Limit, Lower Your Debt

Your credit card limit is listed on your monthly bill, but it can change from one billing cycle to the next. That’s because credit card issuers can raise or lower your limit as they see fit.

But even though credit card issuers generally dictate what your limit is, consumers do have a say. You can call and request that your limit be raised, as the more available credit you have, the better your debt-to-credit ratio will be.

“If you have a good credit history your credit card issuer will up your limit, but if your history isn’t great then they can say ‘No,’ which isn’t necessarily a bad thing,” according to Bill Hardekopf, CEO of LowCards.com.

“Getting turned down for a higher credit limit may be a blessing in disguise,” Hardekopf said. Chances are it’s a signal that you should reduce your spending or pay down your credit card balances instead.

When paying down debt, it’s important to consider that your debt utilization is calculated per card and cumulatively. That means that leaving one card nearly maxed out will negate all the hard work you’ve done paying down the balances on other cards.

And a higher limit isn’t always better. “If you are a spender and the temptation is there to spend more than what you can really afford, [then a higher credit card limit] can send you into the debt spiral,” Hardekopf said.

It’s also possible that potential lenders will view a sky-high credit limit as potential debt, which can count against you if you are trying to get a mortgage or a car loan.

Ultimately, “it boils down to how you handle debt. If you handle debt responsibly, then go for a higher limit,” said Greg McBride, senior financial analyst at Bankrate.com. But, consider whether “that higher credit limit is going to represent temptation to run up additional debt.”

Ideally, you want to illustrate that you can keep your spending under control, and that means “your focus should be on paying down debt, not racking up more,” McBride said.
Pitfalls to Avoid

Signing up for new cards to boost your total available credit and make your debt utilization appear lower can work against you, experts say. In fact, opening new accounts can even lower your credit score.

“Recent credit inquiries constitute 10% of your score,” McBride said. And each new inquiry means potential points subtracted from your total.

Additionally, closing unused cards is also a bad idea.

“When you close an account the amount of ‘overall’ available credit decreases, which could cause an increase in your [debt] utilization and inadvertently lower your score,” said Deanna Templeton, director of consumer education for Credit.com.

Templeton also recommends using old credit cards periodically, just to prevent your issuer from closing them because of inactivity. “Every so often charge something small like gas or dinner, and then pay it off when you get the bill,” she said.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Credit-card rates up before new law

Friday, October 30th, 2009

NEW YORK (AP) — Have you checked the interest rates on your credit cards lately? Odds are they’re going way up.

That’s because credit-card companies are rushing to raise rates and tack on extra fees ahead of a law slated to take effect Feb. 22 that is supposed to limit such moves in the future. In some cases, rates are doubling to as high as 30 percent or more, even for people who pay their bills on time.

The current maneuvering by the card companies is serving up another blow to American consumers who are already struggling with their finances. U.S. lawmakers let that happen by giving the card companies nine months to prepare for the rules.

“The delay allowed them to restock their arsenal with weapons,” said Lloyd Constantine, an attorney who has spent 22 years litigating cases tied to the credit-card industry and is the author of the new book “Priceless: The Case that Brought Down The Visa/Mastercard Bank Cartel.”

It’s hardly surprising that banks and other credit-card issuers would use a grace period afforded to them by Congress to their advantage.

The changes required under the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, could go a long way to stop deceptive practices in the card industry. But before that happens, card issuers are grabbing what they can from the millions of Americans who are their customers.

Constantine is one of them. The interest rate on his Chase Visa card doubled to 17 percent earlier this month. He got a notice announcing the change and couldn’t figure out why. Constantine, who has a high net worth, rarely uses the card, and when he does he pays his bill on time.

Come late February, the CARD Act will prohibit lenders from raising rates on outstanding card balances. In other words, if you have a balance of $1,000 and the company wants to change your rate, it only applies to new purchases. It wouldn’t be retroactive on old debt.

Card issuers also won’t be able to change the terms of a contract so long as the cardholder makes a minimum payment on time.

The rules ban a practice known as “universal default.” That’s where lenders raise a cardholder’s interest rates when that person misses payments to other creditors or takes on new debt like a mortgage or a car loan.

The card companies lobbied Congress hard for the delay. They argued they needed the time to overhaul their computer systems, craft new sales’ pitches and rewrite disclosure documents to be sent to customers.

While all that may be true, the facts indicate that they are using the time for something else.

Even though interest rates set by the Federal Reserve are at historic lows — which has let banks and other issuers borrow cheaply — cards have become more costly for Americans, according to research released Wednesday from the Pew Charitable Trusts’ Safe Credit Cards Project.

The nonprofit organization found that credit-card companies boosted interest rates on new cards by an average of 20 percent from January to July. That data doesn’t include increases over the last four months when many lenders stepped up their pace of raising rates and fees.

The study reviewed nearly 400 cards offered by the largest 12 U.S. card issuers. It found nearly all contracts still allow banks to raise interest rates on outstanding balances. Card companies also have added or raised fees for things like balance transfers, cash advances and overdraft protection.

Representatives of the card business say the increases reflect the realities of the recession, not an attempt to gouge customers. The weak economy means a greater risk that all cardholders could potentially default, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group.

Banks and other card issuers have been seeing more late payments, and industry forecasts call for at least 10 percent of cardholders to default on their unpaid bills.

Bank of America’s annualized default rate in September was 14.25 percent on its credit cards, while payments more than 30 days past due were about 7.5 percent, according to LowCards.com. Capital One’s annualized default rate in September neared 10 percent, while 5.38 percent of cardholders were delinquent.

Now U.S. lawmakers are waking up to what they let the card companies do.

The House Financial Services Committee recently introduced legislation to move up the effective date for the credit card law from February to Dec. 1. But Federal Reserve Chairman Ben Bernanke, while acknowledging that change would benefit consumers, rejected the idea. He said it would force the Fed to implement provisions of the new law without adequate public comment and could lead to “unintended consequences.”

There have been bills introduced in both the House and Senate to immediately freeze interest rates on existing balances for the estimated 700 million credit cards in circulation.

“We worked long and hard to enact the safeguards included in the Credit CARD Act,” Sen. Chris Dodd, a Democrat from Connecticut who had introduced the bill in 2004, 2005 and 2008 before successfully passing last spring, said in a statement. “But as soon as it was signed into law, credit card companies were looking for ways to get around the protections this Congress and the American people demanded.”

His spokesman declined further comment about why Congress is being so aggressive with its actions now. Too bad they couldn’t see this coming a lot earlier.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Credit Card Mistakes - Grade Yours on a 10-Point Scale

Thursday, October 29th, 2009

by Erin Peterson
Wednesday, October 21, 2009

Grade yours on a 10-point scale

Nobody’s perfect. When it comes to our financial lives, we’ve all done things we later regretted — whether it’s getting slapped with a $3 fee for using an out-of-network ATM or going on a Las Vegas bender and losing the house on an overly aggressive poker bet.

The key is to understand the scale of the transgression. With credit card blunders, that’s no easy task — is it worse to take a cash advance or to pay a bill a day or two late? Experts graded a range of credit card mistakes on a scale from 1 (losing a few bucks to a cash machine) to 10 (losing the house). Find out which worry the pros most — and which may (almost) get a free pass.

Paying Late
How bad is it? 6
The details: Credit card companies are notoriously prickly about late payments — even a payment that’s late by a few minutes can pile up fees, interest charges and other penalties. Depending on how late the payment is, your card issuer may also report the problem to any of the credit bureaus, which can wreak havoc on your credit score. The good news, says Stacy Francis, president of Francis Financial, is that the error may be reversible. “You do have the option of giving the credit card company a call and asking them not to report it,” she says. “If you’ve generally been an on-time payer, they may waive the fees and not report it.”

Paying Only the Minimum on Your Card
How bad is it? 4
The details: Credit card companies love it when you pay off your debt slowly, but you should loathe it. It won’t necessarily affect your credit score, but that doesn’t mean it’s a good practice. Sending in only the minimum payment “is definitely going to keep you in debt longer, and you’re going to pay a heck of a lot more in interest,” says Francis. “You may be paying twice as much — or more — as you would by paying in cash.”

Buying On a Card Just For Rewards
How bad is it? 1
The details: If you’re paying off your balance on time and in full, using your cards to grab extra rewards isn’t necessarily a bad plan, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. “You can win the rewards card game if you know how to play,” she says. “But you do have to know yourself.” Because most people spend more when they’re paying with plastic than with cash, be cautious and recognize when you’re buying something only because plastic makes the purchase painless.

Missing a Payment
How bad is it? 9
The details: Not only are you going to be slammed with fees, interest charges and other penalties when you miss a payment, but you’ll likely see a rise in your interest rates. If that weren’t bad enough, you’ll also have to contend with a significant hit to your credit report — about 35 percent of your credit score is based on your ability to pay bills on time. As a result, you’ll pay more when you try to get a loan. “Missing a payment has both immediate and long-term consequences,” says Clarky Davis, Care One Debt Relief’s Debt Diva. “You may be dealing with the fallout for years.”

Having Too Many Cards
How bad is it? 6
The details: If you’re the type to apply for a card just so you can grab a discount on clothes or other merchandise, you likely have a huge stack of cards in your purse or wallet. You’re probably not getting enough value from the card to make it worth the high interest rates or additional complications from additional bills and junk cluttering your mailbox — and you’re increasing the likelihood that a payment slips through the cracks or that you’ll be a victim of identity theft. “There’s rarely a good reason to get a new card if you’ve already got a general-purpose card, a rewards card and a low interest card,” says Cunningham.

Maxing Out a Card
How bad is it? 7
The details: Maxing out a card can have a serious impact on your credit score, since about 30 percent of your score is based on “credit utilization” — the amount of credit you’ve used relative to the amount you have available. More important, says Davis, is the fact that it likely signifies a distressing trend in your personal finances. “Maxing out a card may not have an immediate financial pull, but it’s a sign that you’re not budgeting or spending your money wisely,” she says. “It means you don’t have enough saved up to cover unexpected expenses.”

Playing the Balance Transfer Game
How bad is it? 5
The details: Moving your debt from a high-interest card to a low-interest card with a balance transfer isn’t as smart a move as you think, says Francis. “About 15 percent of your credit score is affected by your recent credit applications,” she notes. Pile up a few transfers and your score will take a hit. “Credit bureaus don’t (differentiate) that these cards are for the same [debt], they just see it as you getting pre-approved for more and more credit.” Add in the fees that generally accompany balance transfers and you’re not gaming the system — you’re getting hammered by it.

Debt Settlement Plans
How bad is it? 9.5
The details: If you’re overwhelmed by debt, negotiating down your balance with the credit card company (also called debt settlement) sometimes helps you pay pennies on the dollar on your debt — but you’ll pay a steep price. First, there’s the tax hit you’ll take for the amount of debt that’s forgiven — it will count as income during that tax year. And your credit score will be decimated, so don’t expect you’ll be able to take out a loan soon after consolidation. Next to bankruptcy, debt settlement “is the most negative thing you can do to your credit score,” says Francis.

Getting a Cash Advance?
How bad is it? 8
The details: It may feel like free money, but the truth is that it’s anything but: You’ll likely have a fee associated with the advance, and you’ll likely pay a higher interest rate than you would by using the card associated with it. “You also have no grace period,” notes Cunningham. “You’ll start accruing interest from the moment you get the money.” While these are all dangerous attributes in and of themselves, they’re not the worst part, says Cunningham. “When you start using cash advances, you have to understand why you’re using them as they’re likely symptomatic of a deep financial problem.”

Using a Card in a Pinch
How bad is it? 2
The details: If the fridge went on the fritz or the furnace conked out in mid-January, you might not have the means to fund its immediate replacement. Putting the bill on a credit card — and paying it off quickly over the course of a few months — is a pretty solid option, says Cunningham. “You don’t want something like that to become standard operating procedure,” says Cunningham. “But it’s OK to have a balance on a card for a few months when you’re going through a rough patch in your financial life. Just make sure it’s on a card without an annual fee or with a very low annual fee.”

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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