I am often asked about credit reports, how credit scoring works, and how to raise the credit score.  In some cases, only 1 point can make the difference between a loan approval or a denial.  Sometimes, 1 point can raise or lower your monthly payment by hundreds of dollars, especially in todays more stringent lending environment.  So it pays to take some preventive medicine and try to keep your credit clean.  In some credit scenarios, I have some tricks that can raise the scores quickly to help salvage a loan, or close quickly, but often, the process can takes several months or even a year or two to have a significant impact on your credit score.

I recently came across the attached article, which gets to the point on how to improve your credit score.

It’s surprising how many consumers make the same credit scoring mistakes
over and over again. In an effort to educate consumers on credit and credit
scoring, we’ve compiled 5 common credit scoring mistakes into a list that
defines each mistake and explains why they are bad and how to avoid them:

Credit Mistake #1: Closing Credit Cards Accounts

This is probably THE biggest credit mistake that consumers make. What you
may find surprising is that closing credit card accounts can hurt your
credit score almost as badly as missing a payment.

Not only is this the number one on the top five credit scoring mistakes,
it’s also number one on the list of credit myths.

Ironically, most consumers make this mistake based on poor advice from a
mortgage lender as a strategy for improving their credit scores. A word of
advice people, when you’re dealing with something as sensitive as your
credit and credit scores, make sure you do your homework before trusting
some of these so called ‘industry experts’ before following through with
their advice.

There are two important reasons why you should not close credit card
accounts:

1. Eventually, the accounts will fall off of your credit reports - The
information in your credit reports are subject to certain rules in regards
to how long it can remain in the report. In most cases, credit information
will remain in your credit reports for seven years from the account’s DLA or
date of last activity.

When an account is open, the DLA will continue to update each month and the
open account will never reach that seven-year mark.

If you close the account, the DLA will stop updating and the clock will
start ticking. Eventually the account will be completely removed from your
credit reports.

Why would this be a bad thing?

It’s simple - you never want to get rid of old, positive information in your
credit reports. This information actually helps your credit scores.

Credit scores want to see this positive account information. They want to
see your long, perfect history of making your payments on time because this
information significantly helps your credit scores.

This information significantly helps your credit scores so why would you
ever want that history to disappear? You wouldn’t! Here’s an analogy for
you: let’s say you made straight A’s in high school. What if the record of
that perfect scholastic accomplishment were permanently deleted seven years
after you graduated? Would you ever want that history deleted? Of course you
wouldn’t. The same is true for the credit reporting environment.

So, what should you do with old credit cards that you don’t use any longer?

What you don’t want to do is to let the account become inactive. When this
happens, the credit card companies aren’t generating any revenue for your
account.

Eventually they’ll close the unused account because you’re more of a
liability than an asset. You can prevent this from happening by using the
card every few months for low dollar purchases like dinner or a tank of gas.
When the bill comes in, just pay it in full. If you do this, it will ensure
that the account will never be closed and you’ll always get credit for your
good payment history.

2. You could cause a spike in your revolving utilization and tank your
scores - The percentage of your available credit in comparison to the debt
you owe is a very important factor in calculating your credit scores.

This is often called “revolving utilization,” or your debt-to-limit ratio.

For example, if you have an open credit card with a $1,000 credit limit and
a $500 balance then you are using 50% of your available credit. This means
that you are 50% utilized on this particular credit card.

Now lets add a second credit card to the mix.

Let’s say you have another open, but unused credit card account with a
$1,000 limit and a $0 balance. This would put your total revolving
utilization at 25% because you have $2,000 in available credit limits and
$500 in total balances.

If you divide your total balances by your total credit limits, you’ll get
your total aggregate revolving utilization: $500 divided by $2000 equals .25
or 25%.

So how will closing unused credit cards hurt your credit score? When you
close an account, the amount of available credit decreases, which could
result in a higher revolving utilization and lower your score.

Let’s use the example from above and close the second unused credit card
account. When you close the account, you remove it from any utilization
calculation and now you’re stuck with one open credit card account with a
$1,000 limit and a $500 balance.

This caused your utilization to go from 25% to 50%.

Remember, you divide the total balance by the total available limit so $500
divided by $1,000 is .50 or 50%. As this percentage increases, your credit
score decreases.

When you’re talking about several unused credit cards with high limits, you
can just imagine what closing credit card accounts could do. I’ve seen
consumers go from a 10% utilization to almost 100% utilization because they
closed all of their credit card accounts except the one they were currently
using.

Big mistake.

Credit Mistake #2: Missing Payments

It doesn’t take a credit scoring expert to tell you that missing payments is
a bad thing. The only reason I made missing payments second to Closing
Credit Card Accounts is because this one is a no brainer.

It shouldn’t take a credit expert to tell you that missing payments is bad.
Common sense should tell you that missing payments is bad. Credit scores are
designed to predict how likely you are to miss payments in the future.

This means that they look at your credit history to view how you’ve managed
all of your credit obligations.

Missed payments is the most powerful predictor of future late payments. The
FICO score evaluates previous late payments in three different layers:

How Severe - How severe is the late payment? It doesn’t take a statistician
to tell you that a 30-day late isn’t as bad as a 90-day late. The more
severe the late payment, the more damaging it is going to be to your credit
scores.

Consumers who have missed payments by a few weeks and then bring their
accounts current score much better than consumers that have gone 90+ days
past due. In fact, a 90-day past due is the threshold that will wreak havoc
on your scores.

If you are unable to avoid a late payment, the next best option is to get
those accounts current as quickly as you can.

How Recent - How long ago did the late payment occur?

If you’ve read some of my previous articles on credit scoring, you’ll know
that the last 24 months of your credit history are critical because the FICO
score places more emphasis on your recent credit patterns.

This means that a late payment 6 months ago is going to carry much more
weight than a late payment from 4 years ago. To recover from late payments
it’s important that you get current and stay current.

How Frequent - How often have the late payments occurred? Consumers that
miss payments frequently are penalized much more severely than those that
have missed a payment here or there in their past.

If you have a tendency to make late payments your credit scores will reflect
your bad habits. Make your payments on time and you’ll never have to worry
about losing points in this category.

Credit Mistake #3: Settling Accounts

One of the most common mistakes consumers make is assuming that ’settling’
with a lender is a great way to save a little cash.

Unfortunately, they don’t realize what that a ’settled’ indicator in their
credit reports is actually derogatory.

“Settling” is a term used in the consumer credit industry that means
accepting less than the amount you owe on an account. For example, if you
owe a credit card company $5,000 but you can’t pay them the full amount then
they will likely make you a deal for less than that full amount. They have
“settled” for less than the full amount, which is likely much less than you
contractually owe them.

This may seem like a good idea because you save quite a bit of money but as
far as the credit scoring models are concerned, this is just as negative as
other severe late payments.

The only way to avoid the damage to your credit scores is to arrange a deal
with the lender to report the account as ‘paid in full’ as opposed to
’settled’. If they don’t agree then it’s in your best interest to figure out
how to pay them in full or else be prepared to suffer the damage to your
credit for the next 7 years.

It’s also important to understand that if the account has already made it to
the collection phase, the damage is already severe and settling won’t really
make a difference. Settling is only an option if the account has already
made it to a severe delinquency state.Â

Credit Mistake #4: High Revolving Utilization on Your Credit Cards

Most consumers believe that making your payments on time is all it takes to
have good credit and earn great credit scores.

What they don’t realize is that almost a third of your score is determined
by how much you owe on your credit card accounts. If you have high balances
on your credit card accounts, you’re credit scores could be severely
impacted by your revolving utilization.

In order to score the most possible points in this category, I advise
keeping your revolving utilization at 10% or less.

Don’t be fooled when you hear some of these celebrity experts telling you
that 50%, 30% or even 25% is best.

While 30% is considerably better than 50%, 10% or less is ideal. The lower
the utilization percentage, the better your score will be. (*To read more
about revolving utilization and how it’s calculated, please read the
revolving utilization bullet in Mistake #1.)

Credit Mistake #5: Excessively Applying for Credit

Whenever you apply for credit your application gives the lender permission
to access your credit reports. When they pull your credit reports, it
automatically posts an inquiry in your credit record. This inquiry is a
record of who pulled your credit report and the date it occurred.Â

Credit scoring models use inquires to determine if and when you shop for
credit. Statistics show that consumers who have more inquiries are higher
credit risks than those with fewer inquiries.

It is for this reason that the more inquiries you have, the more points you
lose in the credit score calculation.

The exact point value of inquiries is a much argued topic and is impossible
to give an exact point value because it really depends on all of the other
information included in your individual credit file.

The best strategy would be to only apply for credit when you absolutely need
to.

This means that you should avoid those in store offers of “10% off” in
exchange for applying for a store credit card. This may sound like a great
idea but the reality is that while you may save a few bucks on your
purchase, those inquiries could end up costing you a lower credit score
which could result in higher interest rates on auto or mortgage loans in the
future.

There you have it. Now that you know the top 5 credit mistakes, you can
avoid making the same mistakes that so many other consumers make.

The late breaking news on Friday was the the Fed’s taking over control of Indymac Bank, the largest bank to fail since 1991. 

“Federal regulators closed Pasadena, Calif.-based Indymac Bank late Friday — the shuttering of the largest bank nationwide since the Savings & Loan Crisis in 1991, and a move that will affect two Atlanta operations centers.

The closure also marks the second-largest closure of a bank since 1934, according to the Federal Deposit Insurance Corp.

In a unique twist, IndyMac Bank’s closure is blamed, in part, by the public disclosure of a letter by U.S. Sen. Charles Schumer (D-N.Y.), expressing concern about the bank’s ability to operate going forward.”

See “Fed shuts down IndyMac Bank, two Atl centers impacted” Atlanta Business Chronicle by Joe Rauch

If you are currently refinancing, or buying, and you are working with IndyMac directly or through a broker, you will need to act fast to get your financing switched over to a new lender that is still in business.  Check you loan status immediately to confirm that you are not affected by this closure. 

I have many great loan programs available, and can get started right away.  Rates have improved slightly over the past week, so you may have an opportunity to get a lower rate than what was previously offered.

If you need help, have questions, or need to have a loan placed quickly, please call for the latest news. 

Alaska and Hawaii are benefitting from a conforming loan limit of 625,000, but California is currently only 417,000.  Hawaii is expensive, and the residents of Alaska and Hawaii cannot be blamed for taking advantage of these favorable limits they have been granted by the powers of congress.   But finally, California and other high cost areas will receive the benefit of lower rates offered by GSE’s that was long overdue.  

From a CAR & Bloomberg update, Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies, will be allowed to buy loans worth as much as $729,750 for loans made between July 31, 2007 and Dec. 31, 2008, an increase over the current $417,000 loan limit, a move that could help struggling homeowners to refinance large mortgages at a lower interest rate. It will also allow the Federal Housing Administration to insure loans as high as $729,750 in expensive markets

Congress Sends President Stimulus Package — Final Bill Includes Increased Loan Limits

Final Details Will be Available Soon —

The Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008.  The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package.  The House just passed the Senate version of the bill  and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15^th.   The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform,  making these increases permanent.

 The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas.  By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales.  Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.

 Increasing the FHA loan limits is critical to bolstering California’s housing market.  Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan.  The proposed provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices. 

 Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets.  For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.

 The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today.  The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets.  Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.

Congressional leaders and the White House today reached agreement on a proposal to increase conforming loan limits as part of a larger economic stimulus package. Raising the conforming loan limits to more accurately reflect the cost of housing in California and other high-costs areas of the nation will provide tremendous relief for those that will now qualify for lower interest rates.

Currently, Californians are forced into more expensive non-conforming jumbo loans, decreasing homeownership opportunities for many and forcing others into more costly – and often riskier – loan products.

The Associated Press reported that House leaders of both parties have agreed to increase the conforming loan limit to $625,000 for one year, although Senate lawmakers and the Bush administration had not signed off on the idea.  Under the terms of the proposed stimulus package, the conforming loan limit — the maximum loan amount that government-sponsored enterprises like Fannie Mae and Freddie Mac may purchase or guarantee on the secondary market — will be raised from $417,000 to as high as $725,000 in high-cost areas.

 I will continue to follow this story, and report back as the details get worked out. 

Interest rates on home mortgages have hit a two year low for conforming loans with balances up to 417k.  30 year fixed rates for a no cost refinance are at 5.625% a true no point/no fee loan and 5.25% for 15 year (4.875% available at 1 point)  Jumbo rates are very attractive with many options as lenders start to make many programs available that were temporarily unavailable.

If you are considering refinancing, you should look at the no cost option.  In a period of declining rates, it is very often the best option.  You pay no costs, and have nothing added to your loan.  The interest rate is about .25%-.375% higher than if you paid these costs.  If rates continue to go down, then you can simply “refi again” to move down to the lower rate.  It is an easy process that can repeat itself as rates drop, and will ultimately get your rate down as low as they go.

The best rates require good credit, but even without perfect credit, rates are still low.  If you need to check your credit, or find out how to improve your credit score, I have 15 years experience in raising credit scores.

As anticipated by the markets, the Fed has cut both the Fed Funds rate and the discount rate by .25% triggering a strong rally in the bond markets.  The 10 yr bond yield is back under 4% with a current yield of 3.96%.  

What does this mean?  Rates are continuing to fall making financing more attractive for both refinances and purchase financing.  For an instant rate quote for your specific scenario, please call Scott Osborne at 415-734-8005.  If you are buying at Infinity or One Rincon Hill and closing in February, or any other new development around town, please compare our rates to the in house lenders to see how much you can save!  Lowest rate guarenteed!

Press Release

Release Date: December 11, 2007

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks.  Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.  In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were:  Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh.  Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent.  In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

2007 Monetary Policy Releases

December 03, 2007

Kick ‘em when they’re down

Unions representing hotel and textile workers have created a Web site advocating a boycott of Countrywide Financial Corp.’s banks and financial institutions. Countrywide’s not doing enough to help out troubled borrowers, the unions claim, so consumers shouldn’t let the lender use their savings to make more loans.

Contributing to Countrywide’s deposit base, the unions say, “will potentially help them issue more controversial loans. Tell Countrywide that you won’t deposit until it ensures that all subprime borrowers with interest rates that have reset in 2006 or 2007 can keep their homes!”

If Countrywide can be accused of kicking borrowers while they’re down, the same might be said of the boycott, depending on your point of view.

Countrywide shifted loan production over to its banking division, Countrywide Bank, in August after turmoil in credit markets made it impossible for it and other lenders to issue short term “commercial paper” debt. Countrywide was able to fund more than 90 percent of its mortgage loans through the bank in October, cutting subprime production to 0.2 percent.

Whatever your feelings about the UNITE HERE union boycott, it’s got to feel like a knife in the ribs to Countrywide executives, who have embarked on a do-or-die campaign to build the bank’s deposits. The campaign not only averted a run on the bank, but helped boost its assets by 28 percent from a year ago to $106 billion.

Of course, Countrywide’s got other, potentially more pressing problems, such as its $1.2 billion third quarter loss, class-action lawsuits by investors including large state pension funds, and allegations by the justice department that the company has been inflating claims against debtors in bankruptcy.

 From a post by Matt Carter at Inman news