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Short sales and foreclosures equally lower FICO scores
I don’t pretend to be a credit expert and make sure to always consult someone who is but I found this to be a informative article especially since so many are experiencing short sales and foreclosures.
A short sale is better over time as long as you don’t have a deficiency judgment for the loss that the bank took with the sale.
“FICO said homeowners with short-sales and foreclosures on their records ended up with similar credit scores, assuming their scores were similar as distressed homeowners (see illustration below).”
http://www.housingwire.com/2011/04/22/short-sales-and-foreclosures-equally-degrade-fico-scores
Credit Score Tips For The Best Mortgage Rates
Just as the article below states there is so much to know about improving your credit score. It is important to keep your credit card balances below 30% of your credit limit. Another is to not pay off a collection account in the middle of trying to get a loan.
Credit reports are going to play an even bigger role starting June 1st due to Fannie Mae’s new Loan Quality Initiative (LQI). Starting June 1st lenders are going to have to confirm that the borrower did not take on any new debts. In order to prove this did not occur we are going to have to pull a new credit report right before closing. I am not sure if we will be pulling updated credit scores as of yet but what I can tell you is to not use your credit cards, buy a new card, apply for a credit card, etc. once your loan has started. Keep your credit report the same way other than making your monthly payment on time or paying down your debt. Do not close out any account either.
I just listed to a conference call yesterday on credit reports and they talked about how with a short sale you want it to show up as a paid account, not settled for less than owed, etc. On loan modifications, your credit score will take a hit as of right now. Very shortly they are going to change the credit score code from the current of AC, which does hurt your score, to CN which will not hurt your score as long as your loan has been paid on time. If you got a loan modification and have paid it on time but your score has been impacted ask your mortgage servicer to change the code from AC to CN.
I have a great handout that I can email to you if you want a lot of great information on credit reports and scoring. Just send me an email with the subject loan “Credit Report Handout” and I will send you a copy.
Life After Foreclosure
How long will you have to wait in order to buy again? It is going to depend on whether you can show a true hardship or not versus someone who just walked way, a strategic default. Another part that is going to play a large part is how much you are willing to put down.
Fannie Mae recently released their new guidelines for distressed sales such as a short sale. The new guideline basically says the more you put down the sooner you can buy a home.
Whether or not you had a true hardship is going to be to the underwriter’s discretion and I would have to imagine you better have a lot of documentation to back up the fact that you didn’t just walk away such as a job loss, health issues, a huge decrease in income, etc.
There is no telling what the future of mortgages holds for us but make sure to pay all of your other bills on time, start saving money for a down payment, and look into getting your credit repaired if it needs it.
Credit Card Disputes
It looks like Federal law allows it as long as you file the complaint correctly. I don’t have a lot to say on this because I don’t know much about it but I did find the article very informative.
For example, to challenge a “billing error” as defined under the Fair Credit Billing Act, or FCBA, you must send your dispute letter to the address for billing inquiries within 60 days of the first statement that contained the mistake. The issuer must acknowledge the complaint in writing within 30 days after receiving your letter, investigate the claim and resolve the dispute within two billing cycles or 90 days, whichever comes first.
http://www.bankrate.com/finance/credit-cards/how-do-i-win-a-credit-card-dispute.aspx
Should You Payoff Closed Credit Cards
The answer is no and you might want to call the credit card company right before you pay it off to ask them to reopen it. It is always good to talk to an expert because each individual’s situation is different. I am not an expert.
Last Minute Credit Reports On Mortgages
This isn’t meant to scare anyone nor should it have an adverse affect on the industry. It actually could be a good one because it is more due diligence that the banks are doing to make sure that borrowers aren’t taking out loans or credit cards that they don’t know about.
If you continue to pay your bills and not take on additional debts you will be fine. I am very confident if a credit score drops a few points it won’t change the loan unless it is due to a derogatory item. Make sure to not be running up your credit cards or opening new accounts.
Lifespan of Negative Credit
Here is another article with great information about credit reports.
Negative information is deleted seven years from the original delinquency date. Collection agencies are required to report the original delinquency date from the original account.
The original account and the collection account will be deleted at the same time. The original delinquency date does not change when the account is sold from one collection agency to another, according to Experian’s public education director, Rod Griffin, so the time does not start over each time the debt is transferred.
Last Activity On Your Credit Report
Yet another great article on credit reports. All I can say is to read it because I don’t even know where to begin with what I should talk about since I found all of it so important.
Your Credit Score Defined
This was a great article and so informative even for me who is in the business and understands credit scores and reports. The most important thing to point out is that “90 percent of all financial institutions in the U.S. use FICO scores in their decision-making process.” I bring this up because so many people pull their credit scores online not using the FICO model and can’t understand why what we as a financial institution pull are so different.
Make sure to take a look at the chart of what goes into a credit score and the percentages involved.
http://www.bankrate.com/finance/credit-cards/what-is-a-credit-score.aspx
Credit Bureaus Will Be Looking At Your Income
Just as banks are collecting more and more documentation so will the credit bureaus and credit card companies. And they should. The housing bubble in my opinion was created due to lax underwriting standards and not verifying income.
I have been saying for months now that I think what is more important than your credit score is your debt to income ratio and your assets. I understand as much as the next that your credit score shows your willingness to pay but at the same time I have seen many credit reports where someone with a lot of debt has a better credit score than someone with very little debt. That is where your income plays a part. And it looks like someone is starting to agree with me.
“Credit scores, which have been long a key factor in whether you get a loan or a credit card, may not be sufficient for many future credit decisions. With the new credit-card law requiring credit-card issuers to consider a customer’s ability to pay before opening new accounts, the Fed had proposed requiring people to report their own income or assets when applying for credit.”
http://online.wsj.com/article/SB10001424052748703672104574654211904801106.html?mod=rss_PJ_Main
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