Let’s Get or Keep Your Credit Score High!

You know, I’ve always had one question: How do credit bureaus figure out credit ratings and how are those scores affected by late mortgage payments, foreclosure, etc.?

I’ll bet you had the same question as well! Part of the reason the question arose was because the bureaus seemed so secretive about the process.

Well, as it turns out, another part of the reason was because it’s difficult for Fair Isaac and other credit reporting agencies to explain the rating process because they have to consider so many variables!

That is, the ratings all depend on factors like:

• Length of credit history
• Payment history
• Number of credit card accounts open
• Number of negative reports on credit card accounts, etc.

Generally speaking, negatives in any of the above areas will drop your credit score to one degree or another, depending on your history! However, it’s when your mortgage payments start getting past the 90-day due mark, that your score really falls.

The reason for the drop is that the bureaus know people are much less likely to pay their overdue mortgage obligations after the three month period! That’s when it’s possible to be heading into foreclosure and bankruptcy territory.

The, result, as you can see in the list below, is a big drop in a credit score:

• 30 days late: 40 - 110 points*
• 90 days late: 70 - 135 points
• Foreclosure, short sale or deed-in-lieu: 85 - 160

• Bankruptcy: 130 - 240

*Source: Fair Isaac

Now, how much your credit score drops depends on your particular situation.

For example, if you have a long, solid credit history with no really serious blemishes on it, then you’ll probably take a smaller hit because lenders see you as, overall, a reliable borrower.

However, if you have a short credit history with a few blemishes, then you’ll take a bigger hit since they see you as a bigger risk.

Conversely, those individuals who have very high credit scores have more to lose than borrowers with low scores.

For example, one black mark on the record of a person with an 800 score has a greater impact than that of an individual with a score in the 500 area. In other words, high-credit-score individuals have farther to fall than low-credit-score borrowers.

So, here’s my question: how much credit do you have and how well do you manage it?

If you’re a person with credit challenges, then I can help you improve that score with proven methods. And I’ll be able to do that through a highly effective credit-education program called 720score.com that I’ll be bringing to the Omaha market very soon!

Hey, if you’d like to talk about methods of improving your credit score or on any topic related to real estate, call me today at 402.301.4500 or contact me at terry@terrywilliams.com.

Get Your Mortgage Approved!

Of course, I’m all about mortgages – I’ve been doing them for a long time – and I absolutely know the things that can hinder you from getting the home mortgage you deserve!

So, below, I’ve listed 8 “Do not” rules that are a result of the tightening of guidelines in the market. Follow these rules, and you’ll get that mortgage (or get one refinanced) when you expect to! Here we go…

“Do Not” Rule 1:

Don’t go out and buy big-ticket items (cars, boats, etc.) that will affect your credit score. Lenders frown on too much debt since it makes you look like a greater credit risk in their eyes.

“Do Not” Rule 2:

Don’t quit your job or change to a new industry or become self-employed. Again, this says “big credit risk,” to lenders because it won’t look like you have job stability in your life.

So, for example, if you switch from, say, being a nurse to outside sales, you can bet an underwriter will frown on it.

“Do Not” Rule 3:

Don’t switch from a salaried job to a commissioned job. Again, for lenders, this is an issue of risk.

By nature, commissioned jobs are less reliable in producing income than salaried positions. Lenders will want to a minimum two-year history of success in a commissioned position.

“Do Not” Rule 4:

Don’t transfer large amounts of money between bank accounts. This can raise suspicions as to where the money originated.

If you have to do transfers, have a complete history of how they were transacted; that is, deposit slips…canceled checks…wire transfers… and two months’ documented history of how the money came to be in the account.

“Do Not” Rule 5:
Don’t forget to pay your bills! This may sound like an obvious rule, but people often forget or are late in making payments due to various factors in their lives. Lenders don’t like a history of non-payments or late payments.
And, even if you have a dispute with a company’s bill, I recommend you pay it and then resolve the problem after the fact so no history of non-payment shows up on your credit report.

“Do Not” Rule 6:
Definitely, definitely, don’t open new credit cards! This action will likely drop your credit score because it means you’re adding more debt – something that lenders really frown on in terms of granting mortgages.

“Do Not” Rule 7:
When you get a gift from a relative, document the deposit and don’t co-mingle that gift with other funds. If a parent or other relative wants to contribute gift money for a down payment, then you must be prepared to show where that money is coming from.

You must include the provision of investment account or bank statements. And gifts above $13,000 are taxable, according to Internal Revenue Service rules for 2010.

“Do Not” Rule 8:
Don’t make random, untrackable deposits that could be seller-induced expenses. So, be sure to document every deposit you make!

So, there you have it – eight “Do Not” rules to follow when applying for a mortgage. Of course, I can’t guarantee that you’ll get a mortgage; however, I can guarantee that the whole process will be made a whole lot easier and smoother than if you didn’t follow the rules!

If you want to learn more about today’s mortgage process (and I know you do), give me a call today at 402-301-4500 or contact me at terry@terrywilliams.com

P.S. It’s April 15th – get those taxes filed now!!!!!!

3 Great Things to Do with Your Tax Refund!

I’ve got three financially-sound ideas for making the most of your tax refund!

First, I wanted to let you know about an item related to the home mortgage market. FHA upfront mortgage insurance premiums are rising from 1.75% to 2.25%.

That means, for example if you’re buying a $100,000 home, you’ll be paying an extra $500. You have until April 5 to get the contract submitted, so get cracking!

Now about that tax refund and the three financially- sound strategies for using it! Hopefully, you’ll get that average $2,800 refund or even higher!

First, if the recession has depleted your savings, then it’s time to use that tax refund money to rebuild your emergency fund! Remember, you should always have enough money in savings to pay all your bills for six months in the event of an emergency, layoffs, etc.

Now, this is money you may need to get at quickly, so you don't want to take any risks with it. Therefore, you want to stay with highly-stable investments. This includes insured savings accounts, short-term CDs, or high-quality money market funds.

Second, high-interest credit card debt sucks the life out of your financial well-being, so you want to make paying that debt off a very high priority.

Let me make this point clear. Remember that average $2,800 refund I mentioned above? Well, for the sake of an example, let’s assume you have that same amount on a credit card.

And you’re paying 16% interest on a yearly basis. The card requires a minimum payment of 4% of the balance. If you make that minimum payment, do you know how long it will take you to pay off the debt? 105 months!

But if you applied your $2,800 tax refund to the account, it would eliminate the balance right away and save you $1,297 in interest. You could then invest that money to…make more money!

The best way to eliminate high-interest credit card balances is to take your lowest debt and pay it off. Then, take the savings from paying off that debt and apply it to the next smallest debt…and so forth. Psychologically, this is easier to do, and it makes the whole process less painful.

Now, here’s the third thing you can do with your tax refund – invest it! You need to look to the future as well as the past in order to create financial security for you and your family.

The wisest strategy is to create a mix of investments (“diversified portfolio”) so you spread risk around. This usually includes stocks, bonds, or mutual funds. And, if you don’t have a diversified investment portfolio yet, then it’s time to begin one with your tax refund!

In other words, use a wise investing method to plan for the future and build your net worth! Use money to make money! Remember, if you don’t measure and track your income, how can you be successful?

I hope you enjoyed – and will implement – these three methods of using your tax refund wisely.

If you’d like to talk more on this topic or on any topic related to real estate, call me today at 402.301.4500 or contact me at terry@terrywilliams.com.