Fannie Mae Deepens Credit History Checking

Like most Americans, you’ve accrued some credit card debt. You’re paying it off, but mostly sticking to just making the minimum payments so that you’re able to meet your other financial obligations. No big deal, right? Sure, you’ll pay more in the long haul because of interest, but credit card companies set minimum payments for a reason and you’re still making your monthly payments on time. Noting all of this, and considering that your credit score and credit history is in pretty good shape, you figure now is the time to apply for that home loan.

Surely you’ll be approved on your credit history and creditscore , right?

Not so fast.

Fannie Mae, the entity responsible for the issuing of government mortgage loans, is digging deeper into the credit history of applicants beyond just their credit history and credit score. That’s right, Fannie Mae is now taking into consideration how applicants are managing their debt as it pertains to approving or denying mortgage loans.

 

Fannie Mae’s trended credit history check

The latest version of Fannie Mae’s underwriter software is designed to more carefully analyze what it refers to as “trended credit data,” or details about how consumers are specifically managing their debt. Instead of just analyzing whether or not consumers are making their payments on time, the new software version also takes into consideration the following:

  • How much consumers are paying monthly toward balances.
  • The frequency that they are making their payments.
  • Their ability to properly manage debt overall.

For instance, consumers just making the minimum payments on their credit cards aren’t going to be seen as favorably as consumers making more significant payments toward debts or consumers that pay off credit cards each month. This new judging system, in turn, could prevent mortgage applicants from being able to buy a home. Arguably most alarming about these new standards is that Fannie Mae offers government-backed home loans to help make housing more affordable for low- to middle-income Americans. Chances are it’s these low- to middle-income Americans that have these types of debt repayment practices.

This is still in the early phases of rollout and unlikely to take effect immediately. However, Fannie Mae’s new standards may become routine before too long. It could even snowball so that other lenders judge consumers similarly, which could really make things difficult for Americans.

Navigating Fannie Mae

So how can you work around Fannie Mae’s more in-depth consumer considerations if you don’t qualify for a conventional mortgage? It’s all about enacting a viable credit repair plan. To show that even if you have a balance, you’re doing your best to eliminate it from your credit history check and credit score. Here’s a look at some tips for how to eliminate debt and improve your consumer status:

  • Pay off high interest cards first.
  • Contact lenders to see if they’ll give you a lower interest rate.
  • Consider debt consolidation so that you’re only paying off one balance as opposed to several balances.
  • Only spend what you know you can immediately pay off to avoid accruing more debt.
  • Stay disciplined.
  • Come up with a plan: In addition to a base budget, consider putting any additional income (i.e. performance bonuses, tax refunds, cash back rewards, etc.) toward debt repayment.

All credit cards have some sort of a credit limit, which is the maximum amount that you can charge to the respective account before any charges are void. However, this credit limit isn’t information that consumers are typically privy to – unless they apply for the card, that is. That’s largely because before a creditor can issue any sort of a limit, it has to know your credit score as well as other crucial information, like how much money you make, your monthly debt obligations, credit report history and more.

The Rule of Thumb

Just because you won’t get the specifics of your credit limit until you’ve gone through the application process – and become approved – doesn’t mean that you can’t have a general idea of what it’s likely to be. Generally speaking, your credit limit is about double your monthly income, minus any debt obligations you have. So, for instance, if you make $5,000 a month and have debt obligations of $2,000 per month, your credit limit is likely to be in the $6,000 range. While this is the general rule of thumb, the key word is “general,” as there’s no true universal method and each creditor typically uses their own respective formulas.

Anatomy of the Credit Limit

There’s typically a lot that goes into the credit limit that creditors issue when you apply for a credit card. Here’s a brief overview of what helps make up this limit, aside from your monthly income and debts owed:

  • Credit score: The better your credit score, the less interest you’re likely to pay on purchases. You’re also more likely to have a higher credit limit, as a good credit score shows that you’re a reliable, responsible consumer that can adequately repay any credit card debt. Data shows, for example, that consumers with a FICO score of 720 or greater had an average credit limit of at least $8,000. Conversely, those with FICO scores at or below 620 had a significantly lower limit at an average of $700. So if you want a high limit and your credit score is sub-par, we’d recommend enacting some credit repair best practices prior to applying.
  • Payability: Credit limit is also largely contingent on a consumer’s ability to pay. Noting this, things like debt-to-income ratio, debt-to-asset ratio and consumer income after any debt is paid are all major factors that play into credit card limit.
  • Risk: This factor isn’t so much pertaining to your potential risk as a consumer, but any economic risk based on what’s going on in the world. For instance, during the Great Recession, credit cards were issued with much lower limits than what was issued before and after the economic downturn. Creditors often don’t want to chance a situation where you’ll max out your limit and be unable to repay debt.

It’s also important to note that the credit limit you initially receive should be thought of as more of a starting point. If a creditor sees that you’ve been responsible with your card, you’ll often see your limit increase over time. If the creditor doesn’t do this for you, you can even put in a limit increase request.

Better rates and more rewards entice us to apply for better credit cards. But what should you do with an old card? Debt management can be tricky if you’re tempted by all your cards.

It seems like the obvious solution is to just cancel the old card. But before you do that, it’s important to understand how canceling a card can impact your credit.

How Credit Reports Work

cancel old credit card?

Credit reports look at five important areas:

  • Payment history
  • Credit utilization
  • Credit history
  • New credit
  • Types of credit

Some of these will be directly impacted whenever you close a card.

Payment history will stay on record for up to 10 years, so you don’t need to worry about that.

Credit utilization, however, will be directly affected. This looks at your debt-to-credit ratio. If the card you’re canceling had a $10,000 maximum, your total credit maximum will also drop by that amount, which can make any used-up credit seem worse.

Credit history will also be impacted, especially if the card was an old one. If this was your first source of credit opened 10 years ago, that means your history spans 10 years. If the next card you got was only five years ago, closing the older one will shorten that credit history by five years.

Peace of Mind

Despite the potential blow to your credit report, your unique situation may warrant canceling a credit card.

If you’re no longer using the account, you might not log in regularly to view activity. If you’re not paying attention to what’s happening to that card, you’re at greater risk for identity theft. If the card doesn’t have a lengthy credit history or high limits, it might be safer to close it.

Whether or not you close a card should also be dependent on your behavior. If you know you’ll have a hard time resisting using that card, you’ll probably be better off removing that temptation entirely.

Important Things to Consider

  • It’s fine to have several credit card accounts open, as long as you’re not tempted to use them all
  • If you do close your card, be sure to pay off the balance and redeem rewards prior to canceling
  • Don’t forget to change any automatic payments on your old card
  • Don’t close a card before a major purchase

Do You Need Help with Your Credit?

If you need to repair or improve your credit, or simply have questions, we offer free consultations. We’d be happy to walk you through the credit repair process and get you back on track. Feel free to give us a call at 617-265-7900  or schedule a free consultation below. 


There are various types of debt that a person can rack up. But, Credit Card Debt and Depression is scary. There’s what’s considered long-term debt, which is characterized as bank loans, student loans and mortgages. There’s mid-term debt, such as auto loans and personal loans. And then there’s short-term debt, such as credit card debt and overdue bills. According to a new study by the Institute for Research on Poverty and the Center for Financial Security at the University of Wisconsin, it’s this short-term debt that researchers have found is linked to depressive symptoms, especially if the individual is single, near retirement or uneducated.

And if you think about it – the results make sense. Long-term debt, such as a mortgage, can be thought of as an investment. So can mid-term debt, like student loans – it’s essentially debt with a purpose. However, lofty credit card debt and overdue bills – in this study, overdue bills are characterized as being more than two months late – more reflect one’s financial irresponsibility.

Study Details

The study measured 8,500 consumers over two time periods, from 1987 to 1989 and then again from 1992 to 1994 through the National Survey of Families and Households. The two time periods reflect spans where unsecured debt escalated in the United States. Respondents were asked to identify how many days per week they felt 12 depressive symptoms, of which a significant relationship was discovered between depressive symptoms and short-term debt, especially of the unmarried, near retirement or uneducated crowd, of which limited resources might exist for breaking out of such habits.

Considerations

One important to consideration about this study is that depressive symptoms and clinical depression are not the same thing. So, it’s not accurate to say, according to this study at least, that those with short-term debt are more likely to be depressed. Depressive symptoms include the likes of:

  • Sleep changes
  • Self loathing
  • Feelings of helplessness/hopelessness

Another important factor to take into consideration regarding this study is that it was conducted well before the national mortgage crisis and subsequent economic recession of 2009, when long-term debt was the pitfall of many people’s difficulties and many were forced into filling for bankruptcy as a result. That’s not even taking into account how much student loan debt, mid-term debt, has ballooned over the past two decades. So while this study links short-term debt with depressive symptoms, it’s a good bet that if it was held during other years, say 2009-2011, long-term debt and mid-term debt would also likely show some sort of correlation.

Regardless of what you make of this study, you shouldn’t take short-term debt lightly. For instance, payment history is the single largest factor into the makeup of your credit score. Failing to pay bills on time can directly impact that – and not for the better. Excessive credit card debt can also be a credit score killer, as generally it’s advised to keep such debt under 30 percent of your total credit allotment in order for your credit score not to take a dip.

One of Every 10 American Consumers Doesn't Have A Credit Score

No Credit Scores – 45 Millions Americans

No Credit Scores
No Credit Scores- America is a country made up of about 319 million people. However, according to a new report recently released by the Consumer Financial Protection Bureau (CFPB), up to 45 million Americans either have no history with the major credit reporting bureaus or No Credit Scores that’s so outdated or limited that they’re classified as unable to be scored.

Think about that: that’s 45 million Americans, or roughly one out of every 10 individuals in the country.

Report Details of No Credit Scores

According to the report, 26 million Americans don’t have history with the major credit reporting bureaus and another 19 million have outdated or limited credit history. The African American and Hispanic demographics were found most likely to be classified in one of the two aforementioned groups, with a 15 percent rate of credit invisibility compared to 9 percent for Caucasians. Furthermore, low income consumers are 30 percent more likely to have credit invisibility, compared to just low single digit percentages in upper income areas. No Credit Scores for 45 Million Americans.

Young adults ages 18-19 make up the majority of this “no credit score” stat at about 80 percent, as the study indicated that many had little time to build credit history or use debit cards instead of credit cards, among other reasons. Credit invisibility or lack of adequate history is also high among those 60 years old and greater.

Importance of a Credit Score

Those 45 million who don’t have an adequate credit score are obviously at a major disadvantage when it comes to getting a loan – whether it be a home, auto or student loan. But thankfully, there are a number of ways one can either build – or rebuild – credit history:

  • Get a secure credit card: These cards draw on money that is deposited in a bank and don’t require a credit score to obtain. Just be sure the card you choose reports to the three main agencies, as not all of them do.
  • Credit builder loans: These are loans where the lender makes payments over a loan’s life and then receives the money, along with any accrued interest, after this time period is over. If you belong to a credit union, you should qualify for a credit builder loan.
  • First credit cards: Remember, about 80 percent of those without a credit score are 18-19-year-olds. Make sure you get your kids an entry-level, low limit credit card before they go off to college or after they graduate high school so that they can begin to build credit and learn about managing it responsibly.

 

So if you’re among the 45 million Americans with No Credit Scores, now is the time to do something about it. And once you do, don’t forget that in order to attain the low interest loan – and loan approval altogether – benefits that a good credit score permits, it’s essential to keep it in tip top shape so that a lengthy credit repair process isn’t necessary.

Notre Dame Federal Credit union

Student Operated Credit Unions – Provides Financial Education

by Nikitas Tsoukalis, President

Key Credit Repair

Students at the Notre Dame-Cathedral Latin (ND-CL) School of Chardon, Ohio, are taking money matters into their own hands with Student Operated Credit Unions. In a collaboration with the Cardinal Community Credit Union of Mentor, Ohio, students have the opportunity to run a credit union.

The program is headed by Cardinal CEO Christine Blake, who supervises the program. Blake notes in Crain’s Cleveland Business News, “The timing [of the program] could not be better. Students who are exposed to financial education in preparation for college are better prepared for life outside of the classroom. Learning how to manage their finances early on is a critical part of their long-term success.”

To participate, students must be active members of the ND-CL Business Club. The program serves as the foundation of financial literacy education for business-minded students. However, all interested students have the opportunity to be a part of the program in the form of banking customers. By using this innovative method for learning banking principles and money management techniques through hands-on simulated practice, students stand to gain valuable life skills.

During their days operating the credit union, students will learn the basics of checks and balances as they handle financial transactions. Additionally, they will be exposed to the operating system of banking institutes while gaining priceless training that they can use for supplementing their work experience when applying for college. Students in the program will also receive lessons in money management in the classroom setting, which will then be applied when they are working in the credit union. Topics to be covered include credit card debt and student loan defaults, which will provide students with useful debt management information.

ND-CL will also receive long-term benefits from the establishment of this student-run credit union. Thanks to the connection with the Cardinal Community Credit Union, the school’s state standards are set to increase. Blake adds, “Our community benefits when we can foster a new generation of savvy, money-smart savers. They’ll not only reap the benefits of smart money management, but through the process, they’ll learn to successfully manage their lives by making responsible choices.”

For more information on how to deal with student loan debt you may contact our office at 877-842-5214 or fill out the form below.

hard inquiries truth

Credit Inquiries – How do they affect my scores?

How Do Inquiries Affect My Credit Score?
Each time someone views a copy of your credit report, an inquiry is added to your record to indicate that it has been viewed. While some of these inquiries are completely harmless, others will lower your credit score.

Types of Inquiries

  • Hard inquiry: A hard inquiry occurs when a potential lender pulls your credit report with your express permission. Because this type of inquiry indicates that you are trying to borrow money, it can count against your credit score.
  • Soft inquiry: A soft inquiry occurs when someone who is not a potential lender pulls your credit report. For example, a soft inquiry may appear when an employer pulls your report or when you check your own credit. Soft inquiries appear on your report, but they won’t affect your score in any way.

Understanding the Effects of Inquiries

According to FICO, the effect a hard inquiry has on your score depends on a variety of factors, including the amount of time that has passed since the inquiry, the number of inquiries and other such information. For some people, a single inquiry will have no effect at all. For others, the credit score may decrease slightly. Hard inquiries will have a more dramatic effect on your score if you have other negative indicators on your credit report, such as a short credit history. Likewise, a large number of inquiries may be viewed as a sign of poor debt management.

TransUnion reports that most credit inquiries remain on your report for one year. However, some inquiries may remain for up to two years.

Rate Shopping

One of the most important credit tips you will hear involves finding the best interest rate for long-term loans, such as mortgages, student loans or car loans. If you are shopping for financing in one of these categories, it’s possible to apply for a loan from multiple lenders without incurring extra inquiries on your credit report. FICO reports that all hard inquiries made to finance an automobile, obtain a mortgage or take out a student loan within a 30-day period are typically counted as a single inquiry when your credit score is calculated.

Inaccurate Inquiries

In some cases, inquiries you did not solicit may appear on your credit report. Even though you did not approve these inquiries, they will still harm your score if they are not removed. For this reason, it is important to check your credit score regularly and use credit repair strategies to eliminate any inaccuracies. If you need help to repair credit problems, contact our office at 617-265-7900.

Bankruptcy Vs. Debt Settlement

Debt Settlement Vs. Bankruptcy

Think of it as a debt management conundrum – should you file for bankruptcy or try to strike a settlement agreement with your creditors? Depending on your situation, either one can be a viable route if you can no longer make payments on a loan or credit card. But it’s important to carefully analyze both courses of action, not only in terms of cost, but impact on your credit score. Here’s a closer look at both debt settlement and bankruptcy:

Bankruptcy

Generally speaking, filing for bankruptcy – whether it’s Chapter 7, 11 or 13 – negatively impacts your credit score for longer than a settlement would. A Chapter 7 bankruptcy, for instance, would remain on your credit report and be reflected in your credit score for up to 10 years. A Chapter 13 bankruptcy, for seven years. But the big thing about bankruptcy is that there’s really nothing you can do to repair credit after you’ve filed – you just have to endure until the bankruptcy is removed from your credit report after seven to 10 years.

Settlement

Debt settlements typically require you to work with the creditor to see what they’d be willing to accept to settle an outstanding balance. While in many cases, they’ll accept less than what you actually owe, there are a few things to consider when it comes to settlement:

  • You’ll likely have to make a lump sum payment.
  • Your credit may still be damaged if you’ve failed to make on-time payments. Therefore, you’ll still have to enact a credit repair strategy to raise your score following settlement. (Credit tip: If a payment goes to collections, it isn’t removed from your credit history until it’s reached seven years from the time of last delinquency. So if you just now settle a debt you stopped making payments on 4 years ago, you’ll only have 3 more years before it’s wiped off your report.)
  • The IRS considers forgiven debt as taxable income, which means that federal debt collectors might be coming after you for more money if you don’t file your income taxes properly.

So if you’re caught in a financial pickle, be sure to do your homework before you settle or file for bankruptcy and what it may mean for your credit future.

For any additional information on how to repair your credit after a bankruptcy or settlement, please contact us at 617-265-7900 or request a free consultation below.

Inheriting Dead Parent's Debt

Inheriting Debt

Pop quiz: What happens to your debt after you die?

  • A) If you have a co-signer on your mortgage or credit cards, debt collectors will come after him/her for finance payments.
  • B) Your estate will pay off the remainder of your debt.
  • C) Certain debt is passed on in your will.
  • D) Creditors have to eat remaining debt.

Depending on your situation, all of the above may be true, whether you’re dealing with medical debt, mortgage payments or credit card debt. That’s because there are a lot of different scenarios that can play out depending on what arrangements a certain person has made – or didn’t make – when they were still alive.

Hypothetically speaking, say your spouse of 50 years passed away suddenly. You co-signed with your significant other on a home loan, which is paid off, and on a credit card, which has a $3,000 balance on it. Because you co-signed on the credit card, you’re responsible for paying it off. Failure to do so will be reflected in your credit history and credit report.

But say, for instance, that your 85-year-old mother passed away, leaving behind medical debt. Her estate would be responsible for settling this debt and then everything left over would go to her heirs. So, for example, the valuables your mother accrued over her lifetime – car, home, etc. – would be used to settle any outstanding debt. If there isn’t enough money to pay debt off, then her estate is declared “insolvent” and her creditors would have to eat the outstanding debt. So here’s a credit tip – if an estate is declared “insolvent,” heirs don’t have to worry about how any outstanding debt will impact them, meaning that no lengthy credit repair measures need to be enacted on anyone’s behalf – even if aggressive debt collectors still come knocking.

In some cases, however, someone may pass along a home with a balance on it to a loved one in their will. If that’s the case, this loved one is the new owner and can either decide to enact a debt management strategy to finance the remainder of the home or they could sell it and pay the remaining balance off with what it is purchased for.

For additional information on how to repair your credit, please contact our office at 617-265-7900 or request a free consultation below.

Bad Credit Home Loan

Fix your credit – Get approved for a loan!

In today’s world, credit scores are more important than ever. Without a good credit score, it’s virtually impossible to attain a house, car or anything that requires long-term repayment. The good news is, while a good credit score is crucial, a bad score can get fixed more quickly than you might think. Here are some good credit tips for shaping up your credit score as you prepare to purchase a house. Improve and Get Approved

The Big Picture

Before you can repair credit, you have to understand exactly what you’re repairing. For most people, this means fixing a spotty payment history and a high debt-to-credit-limit ratio. These two factors comprise 65 percent of your FICO score, with payment history being a slightly more important factor.

Credit Report Review

Your first step in the credit repair process is pulling your credit report and looking for errors. An estimated 80 percent of credit reports have errors, and a quarter of these errors can impact your ability to get a loan. It’s important to take note of any inaccurate information, particularly late payments that weren’t truly late. Disputing these errors and getting them removed will improve your credit score significantly.

Reducing Debt

When applying for a mortgage, the bank wants to assess your debt management skills. Carrying large credit card balances isn’t the way to show that you’re a responsible money manager. Get your balances as low as possible before beginning the mortgage application process. You’ll want to have card balances no higher than 30 percent of your credit limits.

Managing Inquiries

Every time you apply for credit, an inquiry is noted on your credit report. This normally isn’t a big deal, and counts for just 10 percent of your FICO score. That said, too many inquiries in a short period of time makes you look like you’re desperate for cash, and it might turn a bank off from lending to you. Make sure you have as few inquiries as possible as you prepare to buy a home.

Why Credit Scores Matter

You might be able to get a mortgage with a credit score of 660, but you won’t get as good a rate as someone with a score of 740. That difference could add up to thousands of dollars in finance charges over the life of the mortgage. It’s in your best interest to get your credit score in the best shape possible before you apply for a mortgage. The higher the score, the less you’ll end up paying for the house of your dreams. For additional information on how to repair your credit, please contact our office at 617-265-7900 or request a free consultation below.