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Did you know that many mortgage lenders view Consumer Credit Counseling as worse than bankruptcy? It’s true. Getting a mortgage loan approval for a client who has a bankruptcy is easier than getting an approval for a client who has been in a Consumer Credit Counseling program.

The revolving debt nightmare is faced by many Americans everyday. An entire industry has developed because of it. As with any industry, there are some good companies, many mediocre companies and too many very poor companies. In this industry, the mediocre and poor companies can make a bad situation significantly worse. The impact of this mediocrity shows up on your credit report. While you believe all your credit problems are under control, the reality is often quite different.

THE PITCH – When you see commercials for consumer credit counseling, the sales pitch is amazing.  “Consolidate your bills into one low monthly payment!”  “Never worry that this credit card bill can’t be paid or that other payment will be late.”  They promise that you will make one affordable payment to the credit counseling service, and they will divert the funds to all of your creditors as necessary to keep everyone satisfied.  You will have no more bill collectors calling you daily, hounding you for payment.  Is it to good to be true? Should you consider other alternatives? What are the alternatives?

WHAT HAPPENS – The way a credit counseling service consolidates your bills can actually be more damaging than helpful.  Initially, the service will have you collect information on all of the bills you wish to consolidate. You turn this information over to them.  They will request information on your income and help come up with a monthly payment that you can afford.  They will then contact your creditors, inform them of the consolidation, and set up slow payments.  This will get the bill collectors off your back and usually stop compounding of interest on accounts, but it can also affect your credit.  Also, rolled into this payment is a fee for the service that the consumer credit counseling service keeps for itself.

REALITY CHECK ON YOUR CREDIT – Understand that, if you allow the counseling service to “slow pay” your creditors, your credit score will be reduced, and your credit report will be severely tarnished.  While you will live more comfortably, knowing that all creditors are receiving payments, no one is hounding you for money, and you can afford your monthly payment, your creditors are reporting you as either a “charge off” or a “slow pay” to the credit bureaus. A charge off is the worst rating you can have on a credit line. Slow pays show up as current activity while you are in credit counseling. This information is rarely disclosed by Consumer Credit Counselors.

This article may be disturbing if you have been considering Consumer Credit Counseling. The point of the article is not to cause you concern, it is simply to make sure you are informed. There are other solutions to the debt trap. Consumer Credit Counseling is just one of the possible solutions. It is by far, in my opinion, the most heavily adveritsed solution.

You can find alternative solutions on this site as the site develops. These alternatives will all be in the Credit category that you can jump to from the sidebar.

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A foreclosure is not proof of a character defect!

The process of having your home taken away from you is demoralizing and demeaning. Homeowners are treated like credit criminals. Employees working in foreclosure departments often treat the debtor with disrespect and disdain. Yet many foreclosures are the result of some catestrophic event in the home owner’s life. Serious medical problems, loss of income, death of a spouse and divorce in a tough real estate market are all common situations that can lead to the loss of a home.

Despite the fact traditional mortgage lenders may not have an interest in working with you in the time following foreclosure, rest assured that there is an active, professional goup of lenders looking for your future business. 

While many lenders may refer to your situation as ‘credit-challenged’, other more creative lenders propose an entirely different and refreshing perspective. Countless lenders in the subprime mortgage industry agree that individuals who have endured financial mishaps, are among the most appreciative and loyal clients they have.  The subprime mortgage lender will not have the ability to offer you the lowest rate available due to your credit history, however, if you take a sufficient amount of time investigating the numerous available loan programs, you may be surprised to find lower-than-expected and competitive rates. And no matter what type of financing is acquired, the significant tax benefits of home ownership remain the same for all borrowers.

Among the various and imperative things you will need to do post-foreclosure, is begin the credit rebuilding process right away. It is simply impossible to start this course of action too soon.  Many mortgage lenders recommend that you take a two-year loan break and focus on credit concerns.  Be certain that you make payments to any and all creditors on time; perhaps even early.  Make every possible effort to avoid credit card balances; if you rely on your credit cards for monthly necessities, attempt to pay your balances in full at the end of each and every month. Often times consumers assume closing unused credit accounts will raise their credit score, on  the contrary, it is better that you simply do not use these sources of credit, but maintain them in good faith. Closing accounts can, in many cases, lower your already fragile credit score. Your focus point should be maintaining adequate employment, a satisfactory rental payment pattern, and optimal credit responsibility.  These few, but vital suggestions alone, will help you get back on the road to home ownership.

Here are the basic things to do to ensure the shortest amount of time between a foreclosure and the purchase of a new home.

• Credit cards — If you have one or more open accounts and can afford to keep them, pay promptly every month. In order to achieve the highest possible credit score, keep your balances at 30% of your available credit limit.
• Rent payments — Make sure this is the first thing you pay every month. Your rental payment history will be a big factor when you apply for your next mortgage.
• Other credit — Pay on time. If finances are very tight, make sure you pay each payment within 30 days of the due date. You may have to pay a late fee for late payments, but late payments are not reported to the credit bureaus unless the are 30 days or more late. Paying a bill 8 or 10 days late will not show up on a credit report.
• Savings — Begin a savings account immediately. Even a small amount of money deposited each month will add up in 24 months. These “assets” will be carefully reviewed when you apply for your next loan. Set a target of 2 full months of mortgage payments in the account. Once you have accumulated that amount, begin saving for closing costs.
• Payroll taxes — Review what is being withheld from your paycheck. If you are receiving a tax refund at the end of the year, you should consider changing your deductions. It makes no sense to offer Uncle Sam an interest-free loan while you struggle.
• Establish new credit judiciously — You will get credit offerings in the mail. Ask yourself first if you really need these credit sources. You really don’t need a bunch of credit cards to have a strong credit profile and there may be more efficient ways to build a good credit report quickly.

Foreclosure can be a emotionally crushing experience. But it is not the end of the world. A baby may take very small steps but, string enough of those steps together and you can cover quite a distance. The time after foreclosure is a time for baby steps. They will add up.

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Posted in Buyers, Credit Bites, Foreclosure, Miscellaneous, Mortgage Bites | 19 Comments »

Divorce is a terribly difficult situation to face. You are losing something that you once valued. There are numerous financial and legal considerations. There may be children to think of. And of course you must give some thought to your future, after the divorce. 

When it comes to a divorce you have every right to think about the mortgage. If you don’t think that you’d be able to pay the mortgage on the home, then you should not try to keep the house. If you want to get out of the mortgage you may have some trouble. Every state with community property laws is slightly different. Some states are known as non community property states, where they believe that someone always owns everything; it’s just a matter of determining who.

When it comes to the lenders, they aren’t going to be happy having to rewrite the mortgage on your home. However, even if you are in the middle of the divorce, the mortgage payment still needs to be paid. In fact, it is up to the creditor to allow you to get off the mortgage or keep you on. If your wife or husband can not get the loan by themselves, then you are more than likely going to have to make sure that the mortgage is paid regardless of whether you live there are not. Late payments can really mess up someone’s credit.

If you want to get out of the divorce without the mortgage, you are going to have to think about a few things. You are going to have to either ask your spouse to buy it out, or you will have to ask them to sell. Depending on the state and your circumstances, you may have to sell the house regardless.  Remember, if you put your house up for sale, you still have to pay the mortgage until the day it is signed over to a new couple or person. You are still the legal owner of the home.

If you are worried about your credit rating you should do some work or investigation before you enter the divorce process. You will need to know what credit cards that you two have and the balances on each. Not only do you have to worry about the liabilities that you two have accumulated during the marriage, you have to think about all the money that you have saved on account. You may end up having to repay your spouse from the account and pay for your credit debt.

When you file for divorce you will want to close all joint accounts. Make sure that everyone knows that it was by request, not because of other circumstances. You will want them to note that so that it shows up on your credit report and has no negative impact on your credit when you  apply for new credit.

If there is any possible way to maintain civil communications with your soon-to-be ex-partner, you will both benefit from working together to protect each person’s credit profile after the divorce. You will both want to move forward with your lives. It is much easier to move forward with a clean credit report.

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Posted in Credit Bites, Miscellaneous, Mortgage Bites, Real Estate Bites | 10 Comments »

I learned this technique for building a credit report 15 years ago when I was doing Credit Repair from a company in Florida that no longer exists. I have used it countless times. It works, it costs very little and has a marvelous impact on a credit report.This is not a tool for an immediate improvement to a credit file. This takes 6 to 12 months to have it’s full benefit. This technique is for clients who are determined to improve their situation and willing to work at it.

Cash Collateral Loans

They go by several names but, the details are simple. Rather than using the title to a car or a mobile home or real estate to secure this type of loan, the borrower uses cash. This may seem out-of-reach to a client with credit issues but it usually is not. Consider this; the borrower simply need to have access to some money for about 2 hours to make it work.

Step 1 — Find a local lender who allows these kind of loans. Just pick up the yellow pages and call the loan department of local banks and credit unions. I have found a lender to do these loans in each town where I tried. I always had better luck with small local banks and credit unions.

Step 2 — Borrow some money from somewhere. Maybe a family member, maybe an employer, just remember you only need it for about 2 hours and it will be paid back in full. Make the amount a substantial amount, but any amount will do. Try for $1500 or higher. You want as large a loan as possible to go on the books. For this example, lets use $2500.

Step 3 — Take your $2500 to the lender you found in step 1 and apply for a Cash Collateral Loan. The lender will take your $2500 and open a savings account to deposit the money into. This account will be locked. You will not be able to withdraw the money from it. At the same time the lender will issue you a new loan for $2500. The collateral for the new loan will be the cash you just deposited. With most lenders you can request that the payments be automatically deducted from the savings account. In some cases you will need to “prime” the account with one full payment. In other cases you will need to deposit the amount of interest that will be charged on the loan. In every case that I have seen, you will be paid interest on the savings account. Choose a term of 12 or 18 months.

Step 4 — Leave the bank with the $2500 proceeds from your new loan and pay back whoever you borrowed it from.

Step 5 — Go on about your life and let this little credit engine work it’s magic on your credit report. At the end of 12 months (for example) the loan will be paid off and the savings account will be empty. Your credit report will have an account showing a new loan with a perfect payment history.

The Details

You will have to fill out a short credit application, what is typically called a “5 Liner” (Name, Address, SSN, Birthdate and Employer). Your credit report will not be pulled (there is no need for this, you are paying the loan in full up front). Your income will not be verified (again, there is no need, all the payments are sitting in savings). The interest you earn on the savings account will offset the interest you pay on the loan. The interest rates you will pay on this type of loan is very reasonable. After all, it is a very safe loan for the bank. You should expect to pay between 7% and 8% on the loan and earn 2% to 3% on the savings account. Your effective interest rate will be around 5% to 6%. That is a great rate for someone with credit needing improvement!

Make sure to account for the interest the loan will cost you. This is not a free loan. It is very cheap. This technique is very effective. It is not an overnight fix, it takes a little time. When you consider that it takes some time to mess up a credit report, it makes sense that it will take a little more time to get it back on track. This also works well for business that are trying to establish credit in a company name.

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