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Build Credit With a Secured Credit Card

Build Credit With a Secured Credit Card

Build Credit with a Secured Credit Card

Many of us have trouble with the idea of using a credit card to build credit.  Credit Cards are dangerous to some people, and many of us have experienced trouble with them.  But if managed correctly, using a Secured Credit Card will build credit scores fast – at the least faster than most other opportunities to do so – and for that reason using a secured credit card is the most common method used to build credit.

Secured Credit Cards work just like a Traditional Credit Card, except they require a cash deposit that serves as collateral if the card’s monthly payment is not made on time.  Most of the time, the initial deposit amount is also the introductory credit limit.  The credit limit can be raised over time without adding additional funds, and eventually the entire deposit may be allowed to be refunded.

Bending Over Backwards Using a Secured Credit Card to Build CreditNow, there are moments in life when we are willing to bend over backwards to build good credit, but using a secured credit card to build credit is a pretty straightforward proposition. The most important element to building credit through any type of credit card is to manage it correctly.  There are 3 major “To Do’s” you must adhere to if your goal is to add points to your score:

  1. Always maintain a balance on your credit report that is less than 30% of the credit limit.
  2. Never “flat-line” the card, or let it report a zero balance month over month.  This will indicate non-usage, and you will not be rewarded for not using the credit card.  Although credit reporting agencies are beginning to consider the amount of payment you make every month, which will give credit scoring opportunities for full payments, the FICO scoring model does not currently account for this (as of May 23, 2014 – we expect it soon will, but as for advice relevant to today: keep a small balance).
  3. Never, never pay late.

Before consumers apply for any Credit Card, especially a Secured Credit Card, shop around – and be aware of the opportunities in the marketplace for the best deal.  It pays to read the fine print, and if you know the complete rules for how your credit card company works then you will pretty much know the rules for how you are going to increase your scores.  Always compare the terms.

Here is what to consider:

  • Compare the Annual Fees – There is no typical annual fee.  Although the industry says the average annual fee is $75, you can find many with much lower annual fees, but you may have monthly fees too.  APR (annual percentage rate) can help you identify the impact of fees.  APR is a calculation that adds the required fee(s) to the interest rate.  Look for cards with a small variance between interest rate and APR.
  • Compare the Deposit – Generally speaking, the deposit amount is up to the consumer, but most Secured Credit Cards have a minimum deposit of  $200 or so.  Remember:  the deposit will be your initial credit limit, and you only want to use 30% of it.
  • Ask for the Refund Terms – Most secured credit cards are converted to unsecured credit cards after a period of good standing.  But when and how that occurs is another variable.  Also note that when the refund of your deposit is triggered, your credit card company will often apply it first towards paying down your current credit card balance.
  • Reporting to Credit Agencies – When using a secured credit card to build credit scores you must ensure the credit card company reports to all three of the credit bureaus (many will only report to one).  Read the terms of the agreement of call the credit card issuer if you have any question(s) about this.
  •  Pre-paid Credit Cards are not the same as Secured Credit Cards –  Pre-paid Credit Cards will not build credit scores.  Pre-paid Credit Cards apply money in advance to all charges occurred, while secured credit cards work more like Traditional Credit Cards.

What Credit Card Fees to be aware of ?

  • Some cards charge an Activation Fee the 1st time you use the card.  A Bankrate 2014 Prepaid Debit Card Survey showed that 53 percent of Secured Credit Cards charge an activation fee, with ranges from $2.95 to $9.95; but often the activation fee can be avoided if you activate the card online.
  • Failure to use the card may result in an Inactivity Fee.  Although most don’t have this fee, know the rules to the card you are choosing.
  • Customer Service Fees are sometimes charged if you dispute or need an item researched.  Although the Bankrate 2014 Prepaid Debit Card Survey indicated 73% of cards don’t charge this fee, you must research the full fee schedule.

Using a Secured Credit Card will build credit.  It works.

We all know multiple stories of friends and loved ones who have ruined their credit and racked up too much debt with their usage of credit cards.  Credit cards can be dangerous.  But, for that very reason, if you properly maintain a Secured Credit Card, you will receive high consideration for your ability to manage credit.

 

Copyright 2014 John Regur All Rights Reserved – Originally Posted at: Tulsa Oklahoma Mortgages – John Regur

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How to Use a Goodwill Letter for Credit Enhancement

goodwill letterHow to Use a Goodwill Letter for Credit Enhancement

If you are told your credit score is too low, you have to quickly make a choice:  is this OK with you, or do you want to fix it.  I mean to say, you have  to take action, with absolute decisiveness; you have to stand up and make it the time to do something.  And sometimes you have to ask for forgiveness.

In certain situations, we may be able to fix credit with a goodwill letter.  Take this for example: let’s say you have been a Lowe’s or Home Depot  customer for years, and a few years back you took out a credit card to take advantage of 6 months of no interest or 20% off purchase or whatever.  Imagine you paid your  bill timely for several years and then you had some health or family problem that really got you off track.  Let’s say two months went by without you making a payment, but since then you have been on time – however, with one or more 30 or 60 day late items hurting your credit report.

SquirrelThis could be a big problem to you if you were applying for a mortgage.  Now mortgages can be qualified for with scores as low as 560 (for FHA to 560 click here), but let’s continue our example by saying your credit score is 717.  A 717 is a fine score, but actually 2 pricing bands behind a 740 credit score.  This could mean up to a .25% price increase to the interest rate you qualify for.  On a $300,000 home loan in today’s market, the cost would be around $50 per month.  That’s for 30 year mortgages.  But 23 points to your credit score could solve this problem for you.

If you need a free copy of your credit report, click here, or contact me with any questions regarding credit scores and credit reports.

This is the kind of situation where a goodwill letter would work effectively.  The basic idea is about asking for forgiveness from the creditor.  You can try a goodwill letter for anything, but it will work best in the cases where you have 3 to 12 months of good payment history following the report of late payment.  It is important that the creditor wants to maintain a good relationship with you.

You are dealing with real people at the other end, so a humble approach with a polite request serves the purpose.  There is no guarantee for success, but a goodwill letter is so easy to write and fast to mail out.  And they do work very often.  But it takes time.

Now if you contact me, I have three sample goodwill letters I can send you to create your own personalized letters.  Or if you are in an extreme hurry, you can use them as your own.

  • It will be best if you can  write a genuine request about your own unique situation.
  • Give a good reason why it happened last time, how the situation has changed and why it won’t happen again
  • Give a good reason why you are writing right now.  Let them know you are buying a home and improving your situation.
  • It’s helpful you have been a loyal customer and wish to continue to be so for years to come
  • Take responsibility for the Late Payment.  Mention you should have been more careful and don’t apply entire blame on the situation

Now, let’s go back and I’ll give the number one rule:

Don’t write a goodwill letter for a payment you know is late but is not on your credit report.  Sometimes a creditor may not report a late payment at all.

If you need a free copy of your credit report, click here, or contact me with any questions regarding credit scores and credit reports.

Best Practice: Start the process early and invest in yourself the time necessary to maximize your scores.

Copyright 2014 John Regur All Rights Reserved – Originally Posted at: Tulsa Oklahoma Mortgages – John Regur

Posted in: Credit

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How Are Credit-Score Points Earned?

FICO ScoresHow Are Credit-Score Points Earned?

The official FICO scoring model runs from 300 to 850 points.  But your score will very based on the type of credit you are applying for.  There are differing score-models for each type of inquiry:

(in order of risk preference)

  1. Credit request for a mortgage – BEST
  2. Credit request for a car loan
  3. Credit request for a credit card account
  4. Credit request for a store credit card or consumer loan – Worst

Mortgage and Auto Loans are considered more positive because the debt they create will reduce as monthly payments are applied.

Credit requests for credit card loans usually hit the scores the hardest.  This is because the debt balance is expected to go up every month until there is enough account history to show otherwise.

Once a negative condition hits your credit report, the damage is done. Paying a collection account will not regain the points you have lost.

Credit Score Breakdown

65% is tied to 2 things

  1. Payment History
  2. Credit Utilization
  • The amount of money you are borrowing and whether you are paying your creditors back is the primary source of high credit scores

15% is tied to the amount of time you’ve had credit in your name

  • The more time you have spent managing good credit the higher your score will be
  • First time borrowers bring an added layer of risk

10% is scored on the type of credit used

  • Auto loans and mortgage loans are scored as a positive.
  • Credit Cards are negative.
  • Pay Day loans almost ensure credit score deficiency.

10% is scored on a category deemed “new credit”

  • This is an assessment of the most recently opened accounts and the types of credit that have been applied for.
  • It also scores on how long it has been since you opened an account.
  • At the maximum this category is worth 85 points to your FICO.

A mortgage credit inquiry will lower your credit score by 5 points.  You can have as many mortgage credit score inquiries as you want for 14 days and you will only receive one reduction for 5 points.

Posted in: Condos, Credit, First Time Home Buyers, For Buyers, Household Finances

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How much do credit scores drop with a mortgage late payment?

FICOIn the last few years Trans Union, Experian and Equifax have disclosed more specific information about the damage to credit scores after mortgage late payments.  Here are some examples for a FICO credit score:

30 day late payment – damage to credit score

780 score drops to around a 670-690
720 score drops to around a 630-650

90 day late payment – damage to credit score

780 score drops to around a 650-670
720 score drops to around a 610-630

Foreclosure – damage to credit score

780 score could drop to 620-640.
720 score could drop to 570-590.

How much do credit scores drop with a mortgage late payment?

Notice how much risk is attached to a consumer with a recent 90 day late payment;  even with a start point of a 780 credit score, a 90 day late payment is not much different in impact than a foreclosure!

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Who Wants Credit?

Big WheelBeware of Danger.

 I was a kid my brother and I used to ride our big wheels up and down the driveway and sometimes beyond,encroaching the street and thereby terrorizing the neighbors.  You see, before we had moved in, another child, while riding his big wheel, had been hit by a car.   The big wheel, being so low to the ground, was considered by the neighbors to be too dangerous for children to ride.

Fortunately, my brother and I had nothing but fast times and race track memories of our Big Wheel rides.

Even so, I know several people who still believe Big Wheels are too dangerous.

There are also people who think carrying credit cards to be too dangerous.

I understand credit cards may cause problems, but I think they are something we all should be able to benefit from.  I have used a credit card since college and I do not have one single regret.  But who should use credit cards comes down to simple decisions:

Why you would want a credit card

credit card

  • Convenience – No need to carry cash – or the risk of losing it.
  • Peace of Mind – if you loose it, it’s simple to replace
  • Tracking you expenses – Monthly statements itemize your expenses so you can see where your money goes
  • Consumer Protection – If you don’t receive your item you ordered or the merchant won’t honor a return, your credit card issuer is usually the best fix for your problem
  • Insurance Benefits – Many cards offer product insurance, and many offer free car rental insurance
  • Extended Warranties – Some cards offer one on certain items
  • Rewards – what do you want?  Mileage, free gas, cash back – many thing can be rewarded to you for free by simply using a credit card for purchases.
  • Credit History – Nothing builds credit like properly managing a revolving  credit account.  Good credit history can save tens of thousands of dollars over the life of a auto loan, maybe more on a mortgage. Sometimes even employment can depend upon it

Who should not want a credit card?

  • Financially undisciplined people – if you do not have control of your spending, you should probably not apply for any type of financing.
  • You are unwilling to pay a bill completely every month – if you can’t make a purchase, wait until the monthly statement arrives, and then pay for your item, you would loose out onmost of the rewards and good credit history benefits.
  • You’re personally irresponsible – If you do not honor the terms you agree to when you sign contracts, or you are unwilling to read contract agreements before signing them, you should only pay with cash.

grow a credit score

 

Credit cards have been used poorly by some people and gotten them into trouble, but that is no reason for responsible people to miss out on the benefits that come with managing a credit card responsibly; and, properly managing a revolving credit account will build your credit faster than anything else you can do.

 

Want more information regarding the best cards available?  Call me at 918-949-7248 or email at jregur@midtownmtg.net.

 

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How to Maintain Good Credit Through A Divorce

How to Maintain Good Credit Through A Divorce

Divorce Credit Split

Maintaining your good credit rating through a divorce can require more forethought than some assume.   Even your credit report can’t tell you every account your spouse may have opened, but it is absolutely a report you want to see.  Debt should be divided evenly.

How to Divorce Credit that is not yours

When vacating a marriage you have communal property and communal debt.  When anyone in the marriage obtained credit during your marriage, you and your spouse became engaged in a contract agreeing to pay the creditor. A divorce decree does not change that contract. When you divorce, each of you remains fully liable for your all of the debts on each of your individual credit reports.  Make a list of all the accounts that need to be closed.

What Credit Will You Keep Through Your Divorce?

There are several ways to prevent credit obligations from making divorce more difficult than it already is.  There are also a few things you can do to re-establish your own distinct credit lines after divorce occurs.

  • Communicate with your soon-to-be-ex-spouse.

Make a clean and thorough financial list.  Order a credit report and take an inventory of all the accounts the marriage has created.  Make a post divorce budget for each with attention to each parties individual income and ability to make payments.  You may want to close joint bank accounts immediately.

  • Communicate with your creditors.

Decide which debt belongs to whom, and then ask each company and bank that extended you credit to transfer the debt to the name of the person who will be responsible. In some instances you may need to close the account entirely and open up new individual accounts, or freeze accounts that cannot be separated.  If you have to keep joint accounts, have the creditor send you statements even if your spouse is to make all future payments.  If your spouse fails to pay or declares bankruptcy you will be required to pay the joint debt.

  • Do the right thing for yourself.

Establish at least one new trade line as an individual.  Maybe get your own credit card but do not let the balance exceed 29% of the credit limit.

If you are worried about your spouse borrowing money in your name then you could enroll in a credit monitoring service so you will be informed of all changes to your credit report.

During divorce negotiations, keep your joint bills current, even if you ultimately will have no responsibility for the debt. If you don’t, the missed payments will become part of your credit history, and your creditors could become more reluctant to release one party from joint liability.  Remember, always receive monthly statements for every account you are on, and read them!

Ask the credit grantor to remove your spouse’s name as an authorized user or close the joint account to avoid additional charges.  Authorized users are able to charge onto the account but are not responsible for the repayment of the bill.

Inform all creditors, in writing, that you are not responsible for debts charged by your ex-spouse on joint accounts after the divorce and close as many of the joint accounts as possible. Follow up by calling the company and asking them to note your account.  Ask them to email you confirmation that they noted the account.  This may not prevent them from trying to collect from you, but it does show that you attempted to act responsibly.

Even if your ex spouse is responsible for payment of an account that you are on, if payment is not made or they file bankruptcy on the account, the creditors will come after you for repayment.  The creditors will not care what the divorce decree states if the debt was initiated by both of you.  You may want to include remedies in you divorce settlement to cover situations of this nature, such as having property or funds put into escrow until debts are paid.  But these ideas are for the purpose of discussion and do not constitute legal advice.  But I do believe the thought process ideally goes like this:

  1. Close all joint accounts
  2. If you can’t do that, have someone refinance the debt into their name alone
  3. If you can’t do that, sell the property
  4. If you can’t do that, cover yourself.  All of yourself.

With questions call me at 918-949-7248.  I can get you there!

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