This topic is a really hot one right now. People are falling victim to so many scam artists out there who are taking people's money and offering false hope.
What is credit restoration? It is a means by which one can have negative information removed from one's credit file by using the more than 300 different laws contained in the Fair Credit Reporting Act (FCRA). If you know how to use and manipulate those laws, you can successfully remove any information from your credit report, even if it is legitimate. This is possible because of many factors, but chief amongst these is that there is no law in any jurisdiction in the United States which REQUIRES information about you be reported for seven minutes, much less seven years. The truth is that anyone can write to the credit bureaus to have negative information removed from their file. But, like fixing your car's engine, it is usually better to have a professional do it for you. If you don't know what you are doing, you can end up doing more harm than good.
That is easier said than done. Currently in the United States, there are ONLY A FEW legitimate credit restoration companies. Each has their strengths and their flaws, but they are professionals with many years of experience backing them up. Unfortunately, this cannot be said about most people in the country who are performing credit repair. What has happened in many cases that I have investigated is a person bought a do-it-yourself kit over the internet and had some success with their own credit file. Problem is, now they think they can repair anyone's credit. This is what worries me most. An untrained, unlicensed, un-bonded and uninsured person handling other people's credit files. There is absolutely NO accountability if, or rather, when this person screws things up.
It is up to you to do the research. You should ask a lot of questions and perform your due dilligence. If you can't do the bare minimum to protect yourself, then don't come crying to me if you are taken for all of your money. But, to help you determine the scams from the legits, I have compiled 10 tips on how to tell the difference:
1: If they advertise that they will repair your credit in anything less than 18 months, you are not dealing with a legal company. The LAW requires that any credit restoration agency cannot advertise or represent that they can restore or repair your credit in less than 18 months. (Remember this number, it is going to come up again later.)
2: Check on how long the company has been in business. If they have been around for more than 10 years, you are probably dealing with a reputable company.
3: Do your due dilligence. Check with the BBB. The BBB will provide an unbiased report of how many complaints have been filed against the company in the previous three years. There are two things that you want to consider here. First, if there are more than a dozen complaints over the previous three year period, then this company has serious issues and you should be concerned. Also, if the BBB has no file at all on the business, just walk away from the business. Anyone who is hiding from the BBB should be looked upon with suspicion.
4: Ask for pricing when talking to one of their reps. If they hem and haw about what they charge, or say that it depends on how much they have to remove from your report, they are hiding something from you. A good rule of thumb, if the rep is unwilling to answer any question of yours up front and with honesty, you are not dealing with a legitimate company. This does not mean that if the rep states that they will answer the question in a moment, that they are hiding something. It just means that they are getting there and just need to lay a little groundwork first. Remember, reps are all salespersons. They are there to sell you their service. This is good, believe it or not. This encourages competition in the business and keeps costs down. (Which reminds me: DON'T PAY MORE THAN $1200 PER PERSON FOR THE SERVICE.)
5: Ask if the company is licensed, bonded and insurred. Ask for proof. If they will not provide you with their bond information, (which they MUST have in order to obtain their license and insurance) this should raise alarm bells.
6: Ask for examples of successes the company has had. A legitimate company will have copies of investigation results (with personal information blacked out of course) that will show you how successful they can be.
7: How long are they going to work for you? Yes, that's right, remember that these companies work FOR you. If they are just going to maintain a business relationship with you for the length of time it takes to repair your credit, beware. What often happens in these cases is that after the company has cleared negative information from your credit report they sever their relationship with you and a couple of months later the information returns to your credit report. Now what are you going to do? Your options are to leave the negative information and suffer for 7-10 years or hire someone, again, to remove the information, again. A reputable company will stay with you for the FULL 18 months (I told you this number would come up again). This allows them to continuously monitor your credit reports and remove any negative information that may re-insert itself after the initial sanitizing.
8: What other services do they offer? If they are a legitimate company, they will have rescources that will help you to re-establish yourself in the financial world. Things like the ability to help obtain a debit card even if you can't open a checking or savings account. (Yes, believe it or not, it can be done!) Can you call their credit advisors any time for advice? Is legal representation available if you have to go to court against the credit reporting agencies? ASK! If the company is letgitimate, they will have a team of lawyers that will handle these kinds of legal matters for the duration of your contract.
9: Does their contract advise you of your rights? If not, why? Because they don't know the laws! And if they don't know the laws that are designed to protect you, how can you expect them to know the complexities of the Fair Credit Reporting Act which has over 300 laws?
10: Is there a money back guarantee? In this business refunds are usually prorated. In other words, if you have 50 negative things on your reports and they can only have 30 removed, you are refunded 40% of your money since they were able to get 60% of the information removed. If there is no money back offer, run away! A company that has faith in their services will offer to refund the money if they can't do the work.
I hope this information helps people out there who are confused about credit restoration programs. In a future article I will discuss who should and should not use credit restoration.
Wednesday, January 24, 2007
Applying for credit cards
In my line of work I am always having to explain to people how to properly use their credit cards so as not to negatively affect their credit score. In a future article we will discuss what does and does not affect your credit score. But for this article we are going to discuss how to apply for a credit card and how to properly use them to accellerate your credit score up into the 720's and above. As you are probably aware, those who have a credit score of 720 or greater are considered to be a person who walks on water.
First let us assume that your credit score is not in the "A Paper" range (667 or higher). You are probably inundated daily with junk mail and junk email offers for credit cards. These offers range anywhere from secured cards that require you to maintain a certain balance on your card in order to use it to offers of 0% interest for x numbers of months rising to as much as 29.9% after that period. Some of these are scams and others are legitimate, albeit expensive, offers. Let's first examine the offers that require you to maintain a balance.
It is usually not a wise decision to accept offers of this kind. These offers require you to send in a certain amount of money (let us say for purposes of this article $300) that is the "credit balance" available to you. In other words, if you send them $300 you should have a credit limit of $300, right? WRONG! Most people don't read the fine print on the reverse side of these credit offers. There is usually an account setup fee, a maintenance fee, a membership fee and sometimes (believe it or not) a low balance fee if your credit balance drops below a certain level. This is a scheme they have borrowed from Credit Unions. Usually what happens is that you send in your initial $300 from which they deduct the activation fee, maintenance fee and membership fee. These fees often add up to more than your initial $300. So now you are hit with an over the limit fee and that low balance fee. Now, before you have even had a chance to use your new credit card, you owe them an additional sum of money beyond the $300 you sent in to start the credit line.
No problem, you say. Live and learn. At least I am only out $300 and I will cancel the card and walk away wiser. Remember that fine print? In that fine print that you did not read, there is often a clause which reads that you have to maintain the card with minimum balance for at least one year. And don't forget that you are already over your limit so you have to make up that balance as well as another $300 to maintain your balance. So you say, fine, I will send in the money and just not use the card. When your next monthly statement arrives, you find that you are again below your minimum balance because of the monthly fees. So now you have to send this company money each month to maintain a card that you cannot use. And for a year you are stuck doing this because it is cheaper to do so than it is to hire a lawyer to fight the scandelous fiends. Finally your year is up and you cancel the card expecting your $300 back. You will never see it. It goes to your card cancellation fee which will somehow be exactly whatever the balance remaining is after their monthly fees. Funny how that works, isn't it. I hope you never get caught in a situation like this.
Now let's look at the pros and cons of the legitimate credit card offers. You get a bunch of these also. They say that you can start a line of credit because you are already pre-approved. They will set you up with a line of credit ranging from $300 to $5000. Of course you are interested because $5000 dollars is a lot of money to have available to you. So you fill out the application and a couple of weeks later you receive your new credit card with a $300 line of credit. You are obviously disappointed. The $5000 dollar line was never really available to you. That is just a marketing scheme to get you to apply. Hell, I have fallen for that one myself. But $300 is better than nothing. And chances are that if you are wize and handle your credit correctly, that limit should start to rise in a few years. This is a great place to start to improve your credit standing.
So what is the first thing you do? You go out and buy that $250 widget you have always wanted because you can buy now and pay later. You get your monthly statement and you say, well I will make the minimum payment. This is fine because the credit card company will report you as "paying as agreed" to the credit reporting agencies. This is good, right? WRONG! The moment you go 50 cents over 1/2 of your credit limit, your credit score starts to DROP! Even though you are making your payments on time, every month that you maintain a balance that exceeds 1/2 of your limit, your score goes down. So it is wize to remember to STOP using your credit card when you are at 50 cents BELOW 1/2 of your limit. This will keep your score from dropping and as long as you continue to make your payments on time, your score should rise.
So you opted to get this card because they promised you 0% interest for nine months! This is great! Nine months that I can borrow money for FREE! Now let's look at what happens in month ten. Your interest rate skyrockets to 20%! Now when you make those minimum payments, most of the money is going to interest and very little is going to principle. And if your balance is at or just below 1/2 of your limit, the interest charges can put you over that 1/2 mark and your score starts to drop.
No problem, right. You will just apply for this other credit card that is offering a 0% interest for nine months and transfer the balance. This seems like a reasonable thing to do. Now you have extended the amount of time that you can borrow money for free to 18 months. You pat yourself on the back for your ingenuity, as well you should. So nine months later, you do the same thing again, transfer the balance to card number three. This is so successful that you decide to do it yet again, a fourth time. Then you notice that your credit score drops. Why? Because you have more than three credit cards. This will also cause your credit score to plummet. The reason for this is that it is assumed by the creditors of America that if you have more than three credit cards you are living beyond your means.
You should consider all this as you are applying for credit cards.
1) Are they requiring me to pay for my credit limit? If the answer is yes, then wait until you get an offer from a reputable credit card company such as Capitol One or Discover.
2) What are the anual membership fees? If you are not ok with the amount they are charging for the anual fee, then just wait, another offer will be coming along tomorrow.
3) What is the interest rate after the initial 0% period? It is unlikely that you will get an interest rate of less than 19.9% if your credit score is under 660 so just take what you can get and understand that you are only using this credit card until you can get your score up to "A Paper" rating when you will qualify for the 3-5% interest rates. Remember to cancel your high interest credit cards BEFORE you send in your applications for the low interest cards. This will help prevent a serious drop in your credit rating score.
4) Keep your active credit cards to three or less.
5) When using your credit cards, keep your balance LESS than 1/2 of your credit limit.
6) ALWAYS make your payments on time. And pay more than the minimum whenever you can.
And one last thing to remember: Always pay all of your bills on time, especially the ones that report to the credit bureaus. Credit card companies will periodically check your credit to see if you have any late pays, charge offs, etc. If they see any, they can take any course of action ranging from raising your interest rate to canceling your credit card. This is obviously not the direction you want to take your credit profile.
First let us assume that your credit score is not in the "A Paper" range (667 or higher). You are probably inundated daily with junk mail and junk email offers for credit cards. These offers range anywhere from secured cards that require you to maintain a certain balance on your card in order to use it to offers of 0% interest for x numbers of months rising to as much as 29.9% after that period. Some of these are scams and others are legitimate, albeit expensive, offers. Let's first examine the offers that require you to maintain a balance.
It is usually not a wise decision to accept offers of this kind. These offers require you to send in a certain amount of money (let us say for purposes of this article $300) that is the "credit balance" available to you. In other words, if you send them $300 you should have a credit limit of $300, right? WRONG! Most people don't read the fine print on the reverse side of these credit offers. There is usually an account setup fee, a maintenance fee, a membership fee and sometimes (believe it or not) a low balance fee if your credit balance drops below a certain level. This is a scheme they have borrowed from Credit Unions. Usually what happens is that you send in your initial $300 from which they deduct the activation fee, maintenance fee and membership fee. These fees often add up to more than your initial $300. So now you are hit with an over the limit fee and that low balance fee. Now, before you have even had a chance to use your new credit card, you owe them an additional sum of money beyond the $300 you sent in to start the credit line.
No problem, you say. Live and learn. At least I am only out $300 and I will cancel the card and walk away wiser. Remember that fine print? In that fine print that you did not read, there is often a clause which reads that you have to maintain the card with minimum balance for at least one year. And don't forget that you are already over your limit so you have to make up that balance as well as another $300 to maintain your balance. So you say, fine, I will send in the money and just not use the card. When your next monthly statement arrives, you find that you are again below your minimum balance because of the monthly fees. So now you have to send this company money each month to maintain a card that you cannot use. And for a year you are stuck doing this because it is cheaper to do so than it is to hire a lawyer to fight the scandelous fiends. Finally your year is up and you cancel the card expecting your $300 back. You will never see it. It goes to your card cancellation fee which will somehow be exactly whatever the balance remaining is after their monthly fees. Funny how that works, isn't it. I hope you never get caught in a situation like this.
Now let's look at the pros and cons of the legitimate credit card offers. You get a bunch of these also. They say that you can start a line of credit because you are already pre-approved. They will set you up with a line of credit ranging from $300 to $5000. Of course you are interested because $5000 dollars is a lot of money to have available to you. So you fill out the application and a couple of weeks later you receive your new credit card with a $300 line of credit. You are obviously disappointed. The $5000 dollar line was never really available to you. That is just a marketing scheme to get you to apply. Hell, I have fallen for that one myself. But $300 is better than nothing. And chances are that if you are wize and handle your credit correctly, that limit should start to rise in a few years. This is a great place to start to improve your credit standing.
So what is the first thing you do? You go out and buy that $250 widget you have always wanted because you can buy now and pay later. You get your monthly statement and you say, well I will make the minimum payment. This is fine because the credit card company will report you as "paying as agreed" to the credit reporting agencies. This is good, right? WRONG! The moment you go 50 cents over 1/2 of your credit limit, your credit score starts to DROP! Even though you are making your payments on time, every month that you maintain a balance that exceeds 1/2 of your limit, your score goes down. So it is wize to remember to STOP using your credit card when you are at 50 cents BELOW 1/2 of your limit. This will keep your score from dropping and as long as you continue to make your payments on time, your score should rise.
So you opted to get this card because they promised you 0% interest for nine months! This is great! Nine months that I can borrow money for FREE! Now let's look at what happens in month ten. Your interest rate skyrockets to 20%! Now when you make those minimum payments, most of the money is going to interest and very little is going to principle. And if your balance is at or just below 1/2 of your limit, the interest charges can put you over that 1/2 mark and your score starts to drop.
No problem, right. You will just apply for this other credit card that is offering a 0% interest for nine months and transfer the balance. This seems like a reasonable thing to do. Now you have extended the amount of time that you can borrow money for free to 18 months. You pat yourself on the back for your ingenuity, as well you should. So nine months later, you do the same thing again, transfer the balance to card number three. This is so successful that you decide to do it yet again, a fourth time. Then you notice that your credit score drops. Why? Because you have more than three credit cards. This will also cause your credit score to plummet. The reason for this is that it is assumed by the creditors of America that if you have more than three credit cards you are living beyond your means.
You should consider all this as you are applying for credit cards.
1) Are they requiring me to pay for my credit limit? If the answer is yes, then wait until you get an offer from a reputable credit card company such as Capitol One or Discover.
2) What are the anual membership fees? If you are not ok with the amount they are charging for the anual fee, then just wait, another offer will be coming along tomorrow.
3) What is the interest rate after the initial 0% period? It is unlikely that you will get an interest rate of less than 19.9% if your credit score is under 660 so just take what you can get and understand that you are only using this credit card until you can get your score up to "A Paper" rating when you will qualify for the 3-5% interest rates. Remember to cancel your high interest credit cards BEFORE you send in your applications for the low interest cards. This will help prevent a serious drop in your credit rating score.
4) Keep your active credit cards to three or less.
5) When using your credit cards, keep your balance LESS than 1/2 of your credit limit.
6) ALWAYS make your payments on time. And pay more than the minimum whenever you can.
And one last thing to remember: Always pay all of your bills on time, especially the ones that report to the credit bureaus. Credit card companies will periodically check your credit to see if you have any late pays, charge offs, etc. If they see any, they can take any course of action ranging from raising your interest rate to canceling your credit card. This is obviously not the direction you want to take your credit profile.
Preparing for your first mortgage part one
As a Credit Advisor, I am often asked by many of the lenders I work with across the country, to assist my clients in properly preparing for their first mortgage. This is no easy task as it often requires people to change the way they think and the way they deal with their finances. I am often told by those who have failed to take my advice that they just did not want to give up that night out on the town or that dinner and a movie with their spouse. One even told me it was too diffucult to clip coupons and there was no way she was going to buy generic foods. Of course, they use these excuses to justify their failure, but the fact is, they were just too lazy or obstinate to take my advice. As a result, they are all still renting and paying someone else's mortgage.
When preparing for your first home mortgage there are some basic financial things you can do that will make it easier for you and your mortgage broker.
Start to collect and organize documentation:
· Start saving and organizing your pay stubs. Often you will need the past 30 days worth of stubs.
· Gather bank statements from at least the previous two months. You may need these to show money to cover down payment and closing costs.
· You will likely need the past two years W-2s/1099s and may need the past year's complete returns
· If you have a 401(k), mutual funds, stocks, life insurance, or other assets, you may also need the past 2 months statements from those accounts. These will be especially useful if you are trying to obtain a stated income loan.
· Check your credit. If you haven't checked it yet, now is a good time. You can get one free annually (more frequently in some states). If possible, go over your credit report with your mortgage broker or credit advisor as he or she may be able to offer you some insight to what will hurt your chances and what will help. Clean it up if you can. If you have charge offs, or collections that you can pay off, or have already paid off, make sure they are accurately reporting. Find a reputable credit restoration company and seek their help. They are often expensive, but the money you will save with a higher credit score will more than make up for what you spend. Northwest Business Advisors is a licensed, bonded and insurred company out of Oregon that is rated one of the top three credit restoration companies in the country. I have personally checked them out and they meet the criteria I set forth in my article "The Truth About Credit Restoration...".
· If you have any student loans that are still in deferment, contact the lenders and get a letter of deferment.
In the next installment of this article I will discuss why you should have significant savings and how to maximize that savings.
When preparing for your first home mortgage there are some basic financial things you can do that will make it easier for you and your mortgage broker.
Start to collect and organize documentation:
· Start saving and organizing your pay stubs. Often you will need the past 30 days worth of stubs.
· Gather bank statements from at least the previous two months. You may need these to show money to cover down payment and closing costs.
· You will likely need the past two years W-2s/1099s and may need the past year's complete returns
· If you have a 401(k), mutual funds, stocks, life insurance, or other assets, you may also need the past 2 months statements from those accounts. These will be especially useful if you are trying to obtain a stated income loan.
· Check your credit. If you haven't checked it yet, now is a good time. You can get one free annually (more frequently in some states). If possible, go over your credit report with your mortgage broker or credit advisor as he or she may be able to offer you some insight to what will hurt your chances and what will help. Clean it up if you can. If you have charge offs, or collections that you can pay off, or have already paid off, make sure they are accurately reporting. Find a reputable credit restoration company and seek their help. They are often expensive, but the money you will save with a higher credit score will more than make up for what you spend. Northwest Business Advisors is a licensed, bonded and insurred company out of Oregon that is rated one of the top three credit restoration companies in the country. I have personally checked them out and they meet the criteria I set forth in my article "The Truth About Credit Restoration...".
· If you have any student loans that are still in deferment, contact the lenders and get a letter of deferment.
In the next installment of this article I will discuss why you should have significant savings and how to maximize that savings.
Preparing for your first mortgage Part Two
Start saving.
I know that this seems like a no-brainer suggestion but you would be surprised by how few people actually try to build any savings. Having additional funds strengthens your ability to be approved. It shows that you have reserves and can also be used for the down payment and closing costs. In addition, there are also several out of pocket expenses you can expect, such as the earnest money and appraisal and/or inspections costs.
Ways to start saving:
· Pay your self first: This is probably the most common savings technique. The first thing you do on payday is put some money in your savings account. Be careful to make all of your monthly obligations as you don't want to run the risk of ruining your credit. If your credit is good, you want to keep it that way.
· Clip Coupons: Don't tell me that it is too difficult or time consuming. If you are serious about obtaining that mortgage, you will do whatever it takes.
· Eat at home rather than dining out. It is cheaper. Curb other activities such as movies, sporting events, etc. Your favorite sports team is going to be there next year, you can wait until then to see them. Also consider brown-bagging it at work rather than eating in the cafeteria or buying from the roach-coach.
· Quit or cut back on your vices: Quitting smokingis more than a healthy decision, it is a smart financial decision. Avoid playing the lottery or purchasing those little scratch off tickets. These are just games with a very slim chance of winning anything substantial. Your home is an investment in your future and the future of your children.
· Take shorter showers and turn off the lights when you leave a room: Consider whether or not you need all the bells and whistles with your phone service. 512kbps high speed internet is not significantly better than 256kbps and is much more expensive. You can always upgrade later.
If you just take a minute to think about it, I am sure you can think of several other ways to cut back and save a few extra dollars. What it all comes down to is desire. If you are really motivated to purchase a new home for you and your family, you will find a way to make it happen. I have only offered a few suggestions that I have gathered over the years. It is up to you to do the work.
I know that this seems like a no-brainer suggestion but you would be surprised by how few people actually try to build any savings. Having additional funds strengthens your ability to be approved. It shows that you have reserves and can also be used for the down payment and closing costs. In addition, there are also several out of pocket expenses you can expect, such as the earnest money and appraisal and/or inspections costs.
Ways to start saving:
· Pay your self first: This is probably the most common savings technique. The first thing you do on payday is put some money in your savings account. Be careful to make all of your monthly obligations as you don't want to run the risk of ruining your credit. If your credit is good, you want to keep it that way.
· Clip Coupons: Don't tell me that it is too difficult or time consuming. If you are serious about obtaining that mortgage, you will do whatever it takes.
· Eat at home rather than dining out. It is cheaper. Curb other activities such as movies, sporting events, etc. Your favorite sports team is going to be there next year, you can wait until then to see them. Also consider brown-bagging it at work rather than eating in the cafeteria or buying from the roach-coach.
· Quit or cut back on your vices: Quitting smokingis more than a healthy decision, it is a smart financial decision. Avoid playing the lottery or purchasing those little scratch off tickets. These are just games with a very slim chance of winning anything substantial. Your home is an investment in your future and the future of your children.
· Take shorter showers and turn off the lights when you leave a room: Consider whether or not you need all the bells and whistles with your phone service. 512kbps high speed internet is not significantly better than 256kbps and is much more expensive. You can always upgrade later.
If you just take a minute to think about it, I am sure you can think of several other ways to cut back and save a few extra dollars. What it all comes down to is desire. If you are really motivated to purchase a new home for you and your family, you will find a way to make it happen. I have only offered a few suggestions that I have gathered over the years. It is up to you to do the work.
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