The Best Way To Improve Credit Scores

The Best Way To Improve Credit Scores

What I am about to share with you is what I believe to be the most valuable tool for credit-challenged people. It’s a website that will give you just about all you need to improve credit.

Our credit scores determine so much for us that one slip up and scores drop. But it’s not as simple as that – the fact is that the three major credit-reporting agencies, Experian, Equifax and Trans Union are not reliable. For the most part they are merely databases collecting information that creditors provide. So what if the creditors report incorrectly? Well, tough luck! The bureaus go by what they get from creditors and collection agencies.

But we can report errors, right?

Let me tell you what I found out the hard way. In layman’s terms, this is how the conversation goes:

Tchaka: Hey Bureau, Company X is wrong, I was never late on that account.

Bureau: Ok, we will investigate your claim.

-

Bureau: Company X, was Tchaka ever late on his account?

Company X: Yes, he was 30-days late in November.

Bureau: Thank you.

-

Bureau: Tchaka, we verified the account and you were 30-days late in November.

Ok, so it doesn’t transpire as a conversation, rather it’s a dispute, electronic transmissions and so forth. But the point I’m making is that the so-called dispute resolution is worthless. The vast majority of the time you get nowhere. One day I might blog about my grandfather’s Amex that showed up on my credit which I disputed. Equifax responded with a letter that says they verified the account and it is mine. Even though the credit report listed my DOB, the month and year the Amex was opened (4 years before I was born) and the fact that my grandfather was no longer alive – it even said account holder deceased on the report. But Equifax deemed it to be my account. Any more questions?

So what’s my secret? Go to http://www.creditboards.com/ and sign up. It’s that simple.

CreditBoards is a bulletin board that has sections including Credit, Mortgage, Automobile Buying/Leasing, Business Credit, Student Loans and so forth. Members share information on how to successfully deal with the bureaus, collection agencies, etc. The days of paying a company $400 to dispute your blemishes are over. The bureaus look out for frivolous disputes so save your money, get on CreditBoards and start reading. I cannot stress this enough. I have sent a number of clients there and will continue to do so. Other loan officers should do the same. Realtors, if you have a credit-challenged buyer, instead of dropping him, refer him to CreditBoards and revisit in 6-months. Chances are you'll be pleasantly surprised.

- Tchaka Owen
http://hooslending.blogspot.com/

PS - Right after posting this, I noticed Julia Segovia (ActiveRain member) also posted on improving scores. Her post is http://activerain.com/blogsview/42875/Tips-for-Improving-your

Buy or Rent?

With the slowdown in most markets, a common question that potential buyers have is whether to make the plunge and buy or if they should continue to rent. In many cases buying is the right thing to do, but there are situations when continuing to rent is the right choice. This article from the NY Times is a good primer in helping decide which option is he best:

NY Times: Is It Better to Buy or Rent?

I am not suggesting it because I'm featured in it, rather it's an unbiased article by David Leonhardt that aims to help with making the decision. You'll see that although I am a proponent of buying, I nevertheless was featured as a renter - and my reason is explained.

In our business we want to get buyers, however I believe it's best to look out for a client's best interest. And in my opinion, the best is to help them decide for themselves which is best. And I often prescribe this article as a good read.

Enjoy.

- Tchaka Owen
http://hooslending.blogspot.com/

Is Closing Your Card The Right Thing?

How many times have you spoken with a person who has climbed out of a financial hole and closed a credit card (or two) in order to increase his/her credit score? I cringe every time I hear that! In most cases it does NOT help your credit score to close off your cards.

The exact formula for determining FICO scores are kept secret but we do know that cards affect those scores and one of the criteria is utilization. In other words, if you have a credit card with a $5000 limit and you’ve charged $4500 on it, it will affect you negatively in comparison to if you’ve only charged $1000 on it. So let’s go back to the when the person is in a financial hole – it’s likely that cards were maxed out. Once the cards are paid off, the utilization is excellent as far as the FICO is concerned. But if you close off the card(s) you now no longer have an underutilized card to help raise your scores. Yet so many potential borrowers are unaware of this.

I even spoke to someone recently who had been advised by one of those ‘credit assistance’ type companies to close off a card she had just paid off. How can such a company be allowed to operate? This woman’s scores would have likely been 20-30 point higher. Please advise your potential clients who find themselves in a similar situation to merely cut their cards but not to close them. Otherwise they’re doing themselves a disservice.

- Tchaka Owen

Oversensationalizing

I understand the need to create a buzz when writing an article, however I feel some publishers mislead with their headlines. I wrote to Money once over a headline that did not in any way convey the message in the article. The author responded and informed me that the editors did that (I noticed a few hours it was changed). Just this morning I ran into another such scenario:

http://money.cnn.com/2007/01/16/real_estate/December_foreclosures_up_from_2005/index.htm?postversion=2007011706

Look at that headline: Foreclosure rates up big in December

Menacing, isn't it? My first reaction was one of concern - as a loan officer, licensed real estate agent and investor, I prefer to hear positive news. Upon reading the article, I noticed that the second sentence read "The number of homeowners entering into some stage of the foreclosure process in December was 109,652, down 9 percent from November but up 35 percent from December 2005, according to RealtyTrac"

Sure the numbers are much higher than last December, but isn't it more important to look at the trend? The trend is that foreclosures are DOWN 9% from the month before. No wonder the public is on edge and rather scared to buy!!

- Tchaka Owen

A Farewell To ARMs?

As we enter the information age, it is very easy for anyone to pick up a newspaper or browse the internet to find information on mortgages. And given that there are so many types of loans available, the uninformed can easily get confused. So it is the responsibility of loan officers and writers to provide clear and precise information to aid borrowers in determining the best loan program for their given situation.

Unfortunately, it is too often that readers are misinformed. I read an article at the end of 2005 in the Washington Post in which the author mixed the concepts of an Interest Only ARM (adjustable rate mortgage) and that of an Option ARM and used that to justify why all such ARMs are bad. I wrote to her and mentioned that she did a disservice to the readers by combining these two types of loans. There are many instances where an Option ARM is not the right choice, but an Interest Only ARM is perfect. But the author practically scares off anyone who had looked at either choice.

I read an article within the last week (I wish I’d bookmarked it for reference) where the author, who is an alleged renowned financial guru, advised that no one ever select an ARM. My first reaction was, “how did this guy obtain credentials as a guru?”!! Granted, the gap between ARMs and FRMs (fixed rate mortgages) is not much right now, but that does not mean you exclude ARMs. One still has to consider the situation. In June 2004 I closed a mortgage for a buyer, a captain in the US Army who had just returned from a tour of duty in Afghanistan. Here’s how our conversation went a month earlier as we set up his loan:

Tchaka: Captain, how long do you intend to live in this house?

Captain: My tour in DC is for 36 months and then we’ll move to another location.

Tchaka: What’s the chance you’ll retain this home as an investment property?

Captain: Zero.

Tchaka: Well that’s easy, we’re getting a 3-year ARM!

Note: For those in the business, 3-year ARMs were lower than 5-year ones back at that time.

Putting the Captain in a fixed rate mortgage would have given him a rate about 1% higher with no benefit to him. Given that same scenario today, the variance might only be 0.25%, but still, why not give him the lower rate since he knows exactly what his intentions are when he moves?

Here’s a very brief explanation of 3 types of ARMs:

1. Fully-Amortizing ARM: this is an ARM that has a fixed rate for a specific period of time then adjusts (usually once per year) and payments go towards principle and interest.
   
   
2. Interest-Only ARM: this is identical to the fully amortizing ARM except that no payments are made towards principle.
   
   
3. Option-ARM: this is a type of ARM that provides up to 4 types of payments, i) 15-year fully-amortized, ii) 30-year fully-amortized, iii) Interest Only (based on a 30-year amortization), and iv) Minimum Payment - a payment often lower than interest-only, thus potentially resulting in negative amortization.

- Tchaka Owen