Tracy Becker Credit Expert and Author

Co-signing Student Loans

Co-signing on student loans means the co-signer who may not have control of the payments will still have the updated payment history on their credit record.

The CFPB says, “Outstanding student loan debt has now crossed the $1 trillion mark. Student loans have eclipsed credit cards as the leading source of U.S. household debt outside of mortgages. This is a major issue for students, recent graduates, and their families”.

We are finding that student loan defaults and delinquencies are at an all time high and those who have co-signed are, in many cases, left with the scars on their credit causing great problems moving towards the future.

Anonymous asked: I have finally paid off in full, a 5m mortgage after 2+ years of default and have one Amex balance of 30k left which was charged off 2 years ago. GC services will take half but CR will show Settled. If I pay full amount I get a Paid. All other mortgages, car loans and credit cards have alway been paid on time. Will one Settled hurt me much when the account has already been charged off, versus all the other accounts having been fully paid with significantly more dollar volume?

A mortgage that has been in default for two years and an already charged off account have dropped your scores dramatically. If you pay less than the full balance on your Amex account it will not make the score much worse but if you pay the full account it is easier for us to repair your credit. Whatever you save will be added on to your income at the end of the year and is taxable. To give you the best feedback I would have to see your full credit reports and scores (myfico.com Fico scores) to tell you what I think as well as finding out what your long and short term credit goals are. Once I have all this info I can give you better advice.

Feel free to email your reports over info@northshoreadvisory.com.

Can one more credit review or “hard inquiry “ have a major impact on credit scores and cause problems when trying to get loan approval? The answer is YES it could.

For Example:

John was about to purchase a condo in NYC. The mortgage he needed approval for was 1.2 million. In the last 5 months he had shopped for a car over a period of 4 months, asked for limit increases on 2 credit cards, and he had his credit pulled for a preapproval letter when first going out with his realtor. In total he had 5 inquiries in the past 7 months. His current Fico score is a 742. He is planning on applying for the mortgage next week. John and his wife are shopping at Bloomingdales and his wife requests they purchase a sofa and put it on his Bloomingdales credit card. John agrees and when he gives his card to the cashier the card is denied due to the purchase being more than the cards limit. The cashier informs John she can request they make an exception and give him a limit increase. John agrees and the transaction is approved. He and his wife are thrilled. Unbeknownst to John, when he applies for the mortgage a week later his score is now a 710. John had no idea that six “hard inquiries” are considered extreme and could drop his scores 20-40 points. John can no longer qualify for the same mortgage. That one extra inquiry changed his plans completely. Potential loan applicants should be informed that “hard inquiries” or “third party credit reviews” could have a negative effect on credit scores and should be kept at a minimum one year prior to applying for a loan. Third party inquiries for mortgages are viewed in 45 day periods as one inquiry. These groups of inquiries (as long as they are less than 6) only drop scores 2-5 points each 45 day window.

Stay at home spouse can now use their partners income to get approval for credit cards

The Credit Card Act of 2009 has been amended to help “stay at home spouses” who are working in the household raising children or are addressing other issues that need full time attention. In the past spouses who are working hard to care for an ill and aging parent, raising children, or even going back to school for a better education have given up the ability to get approval for credit due to lack of income. In the past non income earning spouses were in a vulnerable position since their ability to cultivate and manage their independent credit and scores was limited to the individual income they could prove. Without the ability to get your own credit and continue to build it actively when faced with a divorce, death of spouse, or the loss of the income earning partners position, a dead end quickly presents itself. Now with the ability for consumers over the age of 21 to use their spouses income as part of the qualification for a primary credit card approval, independence plus the development and nurturing of credit can continue. You never know when an opportunity will arise where credit is an essential part of participating. It is extremely important to keep excellent credit and scores. Having credit and using it well is a key factor in having high credit scores.

Anonymous asked: My FICO score is 720. My total debt is $38K (student loans, car, and credit cards). My annual income is about $33K, and I've held my job for about 2yrs. Do you think I can qualify for a home loan? What should I do to get to that level?

This is a mortgage question not a credit question. If you would like to speak with a banker about a loan, please let us know where you live and your email address and we will refer someone to you and send you their contact information and phone number.

Thanks,

Tracy
914-524-8300
tracy@northshoreadvisory.com

Credit Tip: Thirty day late payment on a mortgage due to change in service provider could cause a rejection for a refinance or purchase!

One recent 30 day late payment on a mortgage will cause a rejection for a refinance or purchase and will drop scores over 100 points for many consumers. This impact to the credit score can last for years costing dramatic financial losses, frustration, and a failure to meet personal and financial goals. For many loan officers and real estate professionals it will mean the loss of an opportunity to fund a loan or sell a property. Consumers need to be very careful reading their mail since many loans are being transferred to new service providers. If consumers miss notification thinking a letter is junk mail or a promotional offer they can easily find themselves in this position. If the consumer never received notification we can begin the fight with the creditor to remove the late. BE SURE TO WARN YOUR CUSTOMER BASE OF THESE POTENTIAL PITFALLS!

Leased cars and credit scores

A popular cause of huge decreases in credit scores are collections at the end of a car lease. Many consumers roll in to the car dealership looking to turn in their car at the end of the lease. Some return to the dealership looking to negotiate for a new car while others just want to end the relationship and move on to another brand entirely. Once the dealer accepts the car, even if they say it looks “ok”, it does not mean the consumer will not be billed for damaged discovered later on when the car is inspected by the experts from the “official” home office. In many cases with varied types of cars we have seen collections update on credit destroying scores. When asked consumers usually say, “the dealer told me everything was fine when I handed the car in”. We have also heard, “the dealer told me not to worry about the damage since I was getting a new car with them they would have it waived”. Some did not agree with the charges and refused to pay. In any or all of these situations the dealer is not the bottom line or the decision maker since the car goes back to the company in most cases where they make the ultimate decision. If you are turning a car in make sure to call the official leasing or financing division and get feedback from them on any charges that might be outstanding. Always get a letter from the leasing company acknowledging closure of the lease and zero balance owed. Following up and doing your own homework can save a great deal of frustration and protect your credit.

Is It True That Credit Card Grantors Can Close An Individuals Accounts Without Notice?

Many of us have found ourselves in a position over the past 5-7 years where one or more of our credit cards were surprisingly closed by the creditors. It is usually a shock and never seems to come at a good time. Even those with excellent credit and no need for the extra credit card feel slighted when they find out they have been rejected for continuing use of a credit card. Some even try to fight the creditor to re-open it with no success. The worst is when a creditor closes a credit card on us right before we are applying for a mortgage, causing our score to plummet. When balance to limit ratio’s change due to a reduction in the aggregate limit, it could drop scores substantially, depending on the current balance.

For example, if we have $50,000 of credit card debt with a $25,000 balance and a card closes that has a $25,000 limit we have gone from 50% balance to limit ratio to 100%. This action could drop our scores 50-100 points depending on our current Fico scores. This drop could cause a rejection for a mortgage or a much higher interest rate, costing us hundreds of thousands of dollars over the term of the mortgage.

How could this be that creditors are allowed to just close credit cards on us without notifying us in advance? Isn’t this wrong and illegal? Unfortunately, the answer is that it may be wrong to us but it is completely legal. Since the Credit Card Act of 2009, many changes were made to protect the consumers interest but not regarding creditor’s closing credit cards.

Creditors can close accounts for many reasons and some seem quite legitimate, like late payments occurring, going over the limit, and filing a bankruptcy. Creditors can also watch your credit reports and assess your spending, payment patterns, and management habits. If they feel you are carrying balances with other creditors that might make you a riskier bet they can shut you down without warning. Inactivity of credit is a common reason creditors close accounts as well, so if you don’t use your credit card accounts at all they may pull the plug. Also, if you open too many accounts in a short time your ability to manage all of that new credit at once may be questionable.

A creditor can close a credit card account for a delinquency, inactivity, or default without informing the consumer. When creditors close accounts due to poor credit they have to notify the card holder 30 days after the closing. Although it may seem wrong to take this action against the consumer without warning, there are valid reasons. Although many consumers would not take a negative action some would spitefully rack up charges once they know the account is closing, having no intention to pay them back.

So how can consumers protect themselves from credit cards closing by the grantor?
1. First keeping low to moderate balances is a great help. Trying to stay at 20-40% aggregate and individual balance to limit ratios on credit cards is a good way to keep the credit risk alarms from going off.
2. Making sure all credit cards are active a few months out of the year is a great idea. Consumers don’t have to charge a lot of money in those few months they just need to make a small purchase.
3. For those who have many cards and only carry a few with them they can put recurring auto pay memberships on the cards they don’t carry like EZ pass, gym memberships, etc.
4. Making sure your credit is excellent and keeping it that way will also insure you look your best for those watching. Those with poor credit should search out an excellent credit repair company and get a free assessment of what can be done.
5. Many credit monitoring products help you daily, weekly, monthly to evaluate your credit standing while watching your balances. This is a great way to stay on track of your credit activity.
6. Only opening new accounts when you have strategically decided it is the right time and the right credit account. Randomly opening credit is never a good thing.

Some consumers are under the false impression that if credit is closed by the consumer it impacts them less than when the creditor closes the account. This is totally false. The scores can drop just as much depending on many factors including the balance to limit ratios on revolving credit.

Spring is in the air!

This is the season for romance but with romance comes relationships and for many marriage. Although we all have the best intentions and high hopes for the future of our relationship we all know the reality could be very different from the original dream. When a relationship ends in divorce or a break up, many successful individuals have assets to split which may include a property with a joint mortgage. If the property is given to one of the parties in the divorce agreement the mortgage must be refinanced into their name. Many divorce agreements state this must occur but if it is not done immediately there is no real way to enforce it. If the party who is taking over the property cannot qualify for the mortgage, due to lack of income or poor credit, the original mortgage will remain. Both parties will be responsible no matter what the divorce decree states unless the loan is refinanced. If the mortgage is not refinanced the individual that no longer reaps the benefit of the property will still incur delinquencies associated with the mortgage on their credit, remaining legally responsible if the loan defaults. If that individual wants to buy a property of their own in the future and they need mortgage approval their income will have to cover both the old and the new mortgage. This could be another issue since their income may be inadequate to cover both.

A $60 Collection Account Can Cause Huge Credit Score Drops

A collection account can be placed on credit reports for something as minor as not paying a parking ticket, library book fee, or a magazine subscription. If a creditor is not paid within a period of time the debt owed by the consumer gets passed on to a collection agency. Many of these agencies purchase or borrow the debt hoping to make a profit by collecting a commission once the debt is paid by the consumer. Most consumers do not realize that just because the debt is paid it does not mean the delinquent account will suddenly correct itself. In many cases, if the debt is a small amount of money, paying it off could reduce the score even further.

Medical collections, for example, are a popular cause of credit score reductions since many very responsible consumers expect their health insurance to cover the costs of service and send payment in a timely manner to the physician. Sometimes the physicians billing department makes an error as well and the health insurance company may not receive the claim, kicking the outstanding invoice back to the insured. Once the insurance claim is made we usually forget about it thinking all is well. When a thin letter arrives in the mail with an unrecognizable return address most would shred it thinking it is junk mail. Months go by and what wasn’t covered by the insurance company is now a collection being updated on credit which can easily cause an excellent 780 Fico score to drop down to a 680. This could mean a much higher rate or a rejection for financing.

Besides medical collections, parking tickets, magazine subscriptions, and library book fees, there are utility bills. Cell phone services, land line phone services, TV, and wireless bills that consumers refuse to pay due to poor service, erroneous overcharges, or just not agreeing with the statement, can wreak havoc on credit. These types of collections can be very difficult to remove depending on the situation. In many cases they could be as little as $60 yet end up costing over $100,000 in extra interest and fees on a mortgage. It makes sense to pay the extra $60 before it becomes a collection and hurts credit scores, even if you don’t agree with the creditor.

There are many situations that could cause credit score drops that most would not even think of.

For example:

1. An individual finds they are leaving a roommate situation early or a couple is splitting and the person leaving neglects to take their name off the cable or FIOS account. Later the bill is left unpaid by the user of the service and the collection is updated on the account holders credit.

2. Once an account is closed if there is an outstanding fee that was generated later on with the utility company if a new address is not given to the service provider and the final bill is generated the invoice will never be received by the account holder who has moved on.

3. A ticket is generated through a camera violation. The driver shreds the ticket thinking it is frivolous junk mail.

These situations occur often and most of us just don’t realize how much this can cost us. In most cases we are able to fix these problems. If you are in a situation like this do not rush to pay the collection until you speak with one of our experts.

If you have experienced something like this in the past please share!