Category Archives: Credit

How to Use Seller Financing to Your Advantage

Sandy Gadow

Seller financing can be a useful tool to not only the Buyer but also to the seller. With unpredictable loan rates and difficult qualifying criteria, seller financing can bridge the gap for a short-term (3-10 year) period of time.

Two significant advantages to the Seller who offers a convenient and flexible financing package to prospective Buyers is that it makes the property more marketable and defers the Seller’s tax liability on the profits. Not only does the Seller avoid the entire profit tax due in the year of the sale, but the seller earns interest on the portion of the note principal that represents the tax not yet due and payable.

Closing can be faster in Seller-financed properties due to the conventional rule that Borrowers must be given a Closing Disclosure form three days before closing.  If the loan would need to be modified, the three-day waiting rule would start over and and cause further delay.

The mountain of legal disclaimers and paperwork involved in a conventional mortgage can slow the process down, and conventional lenders can — and often do— change their terms days before closing. 

Buyers save on the typical lender costs such as loan origination fees, discount points, mortgage insurance premiums, processing fees, and other added expenses. When the Seller acts as the lender a lower downpayment is possible and is negotiable between the Buyer and Seller— where as most conventional mortgages require a 20% downpayment. Sellers can dictate the qualifying process for the potential Buyer and shorten the typical closing time significantly.

If a seller-financed sale seems appropriate for your circumstances, have a title company check for any outstanding liens or other title issues, and hire a lawyer to prepare the paperwork, including the note, deed of trust, or mortgage documents. Consult with your CPA or tax attorney for the best way to structure the loan to be tailor-made for the your individual financial situation and tax responsibilities.

Will My Ex-Husband’s Debts Show Up on My Credit Report?

Sandy Gadow

Your divorce decree does not relieve you from joint debts you incurred while married. You are responsible for joint accounts, from credit cards and car loans to home mortgages. Even when a divorce judge orders your ex-spouse to pay a certain bill, you’re still legally responsible for making sure it is paid because you promised – both as a couple and as individuals – to do so.

The credit grantor (a bank, credit card issuer, mortgage company or other credit-lending business) also has a legal right to report negative information to a credit reporting agency if your ex-spouse pays late on a joint account. If your ex-spouse doesn’t pay at all, you’ll probably have to pay – or the grantor can take legal action against you.

Copyright © 2004 Sandy Gadow. This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

What Is the Best Way to Improve My Credit Score?

Sandy Gadow

While there is no “best” way to improve your credit score, as each of the three main credit reporting bureaus may give a higher value to one type of action over another, there are several steps you can take, which done together, can potentially raise your score 75 points or more. These steps are not difficult, but they do take planning and perseverance. You don’t necessary have to pay off all your debt, but rather you may need to reposition some debt, while paying down higher balances on other obligations. The reward is great, and can potentially save you thousands of dollars in lower-interest rate loans and time saving qualifying requirements. Most lenders base the interest rate they offer on the FICO score derived from the results found in the borrower’s credit report. The higher the FICO score, in most all cases, the better the interest rate offered. Although determining your FICO score may seem arbitrary and complicated, there are still things you can do to improve your over-all score.

  1. Obtain a free copy of your credit report from www.annualcreditreport.com. You can also call them at 877-322-8228 or write at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. If you have recently been denied credit, you have the right to request a free credit report from the bureau who reported your bad credit.
  2. Check and repair incorrect information. Look over the report carefully for errors or information which is outdated or not correct. Are there collections or past-due debts which have been paid off? If so, contact the creditor and ask that they send a correction to the credit reporting agencies. Are there items listed in which you perhaps were a co-signor on a credit card, for example with a parent or former spouse? Can these be removed? Are there items listed as open, yet you have closed out those accounts? Are any previous mortgages which have been paid noted as paid in full? Are there any late or delinquent payments which you can dispute? Are there any creditor items which you can write a letter of explanation to be attached to your credit report? If you failed to pay off an account and it went into collection, pay it off as soon as you can. These accounts hurt your score and remain on your report for seven years.
  3. Keep your balances low in relation to your credit limit. Do you have any credit cards in which the balance owing is close to the credit limit on the card? If so, try to pay down this balance. Try to limit the balance owing to no more than 40% – 50% of the credit limit.
  4. Make payments when due. Even if you carry roll over balances on a credit card, be sure to make that payment on or before the due date. Set up an automatic payment for at least the minimum payment. Your credit card company will send you a form to sign up for this feature. This will prevent you from ever being late on a payment. Delinquent payments, even if only a few days late can have a major negative impact on your FICO score.
  5. When possible, pay more than the minimum amount due. Even a payment of $20 or $20 over the minimum due will be helpful.
  6. Pay down any large credit balances.  Paying down a balance is one of the fastest ways to improve your credit score. Can you tap into your savings to pay down or pay off a high interest or high balance card? This step can improve your credit score by up to 100 points by paying off some credit items completely and paying down the balance on others.
  7. When you pay off a credit card, don’t necessarily close it down but rather keep a small balance so that your positive payment history will continue to show up on your credit report. Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report, and may be considered by the score.
  8. Prevent numerous credit report searches. A credit search can be performed on your report without your knowledge. Chose to “op-out” by contacting (www.optoutprescreen.com) and request that unauthorized persons not be allowed to access your credit report. Oftentimes repeated credit searches will lower your over-all FICO score. Your score is not affected when you check your own credit. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.
  9. Payoff or renegotiate bad credit debt. These could include such as medical collections, delinquent credit cards or past-due school fees. Work with the creditor and request a new pay-off figure which they will accept if you pay off the debt in full. If that is not possible, request a lower interest rate and realistic due date. Get any promise to remove bad credit in writing from the creditor.
  10. Only apply for credit cards which you absolutely need. Resist the temptation to take advantage of any offers for credit unless you are sure you need that extra credit. Opening new cards can lower your score and will result in additional credit searches showing up on your report.

Copyright © 2012 Sandy Gadow. All Rights Reserved. This article may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

Related Question

Can you give me an example of how a better FICO score will save me money?

Lenders base their lending criteria on your FICO score. The higher the number, the easier it will be for you to obtain credit. “Preferred borrowers” with FICO scores of  720 and higher, may typically pay less in closing costs, and be allowed to provide less documentation than a borrower with a lower credit score. Certain requirements may be waived for the preferred borrower, such as prepayment penalties and required reserves or “escrows” held by the lender.

For example, on a $300,000, fixed rate mortgage, for a 30 year term (rates may vary as to current market conditions):

If your
FICO score is:		 Your interest
rate may be:		 Monthly
payment:
760-850 3.602% $1,364
700-759 3.824% $1,402
680-699 4.001% $1,432
660-679 4.215% $1,470
640-659 4.645% $1,546
620-639 5.191% $1,646

For your individual loan criteria, go to www.myfico.com and select the “Loan Savings Calculator.” You will be asked to specify your loan type, the loan details, and the state in which you are applying for a mortgage. You can then choose your current FICO score range to see the potential savings you will gain from improving your score.

How To Remove Errors on your Credit Report

Contact the credit bureau in writing of your request and the reason why the error or misinformation should be removed. The information may be found on one or all three of the credit reporting bureaus. TransUnion,  Equifax, or Experian.  Clearly identify the item you dispute in your report. Enclose a copy of the report with the item in question circled or highlighted. State the facts and explain why you dispute the information. Request deletion or correction. Send your letter via certified mail, return receipt requested. Keep copies of your letter and any back up evidence.  Further, write the creditor and explain that you are disputing the information they provided to the bureau. Be persistent. This process may take time, but you are allowed to request errors be removed.  Don’t give up until the bureau or creditor complies. An improvement in your credit score will be well worth your efforts.

What makes up a credit score?

A credit score is made up of five components. Payment history (35%), balances carried (30%), credit history (15%), mix of accounts (10%), and inquiries (10%)

Trans Union uses the Emperica Score Fico range
Equifax uses the Beacon Score Fico range
Experian uses the Fair Issac or Fico Score range

TIP
70% of your FICO score is based on the time period two years back from today.  Your score is figured on 7 years worth of data, but anything older than 2 years is only figured in the 30 percentile of the calculation. This is one reason why it is important to keep at least 3 lines of open good credit on all 3 reports.

How Do I Get a Copy of My Credit Report?

Sandy Gadow

If you have been denied credit in the past 30 days, you have the right to request a free copy of your credit report. Beginning December 1, 2004 in the Western states, and nationwide in 2005, the three main credit reporting bureaus, Equifax, Experian and TransUnion will be required to give you, upon request, a free copy of your credit report once every 12 months. Once set up in your area, you will be able to obtain your free copy by calling (877) 322-8228, or on the internet at www.annualcreditport.com. If you prefer, you can write to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Georgia 30348-5281. You are assured of your free credit report by the Federal Trade Commission’s ruling last year under the Fair Credit Reporting Act.

To contact the credit bureaus individually:

  1. Experian
    P.O. Box 2106
    Dallas, TX 75002-9506
    (888) 397-3742
    www.experian.com
  2. Equifax Information Services, LLC
    P.O. Box 740241
    Atlanta, Georgia 30374
    (800) 685-1111
    www.equifax.com
  3. TransUnion, LLC
    Consumer Disclosure Center
    P.O. Box 2000
    Chester, PA 19022
    (800) 916-8800
    www.transunion.com

Related Question

What should I look for in my credit report?

Once you have obtained a copy of your credit report from the three main credit reporting bureaus, look for potential problem areas which could impact your over all credit score. Look carefully for inaccurate information, such as late payments which may be reported which are not correct. It is not uncommon for a creditor to show a delinquent credit card payment, for example, when you are know you have paid your bill on time. You should also check the public records section of your report which will show any tax liens, bankruptcies or default judgments which have been levied against you. Check the credit card accounts listed in the report carefully to be sure there are not any accounts which don’t belong to you. If you find errors, you will want to report them as soon as possible. You can learn more about disputing incorrect information at www.ftc.gov/credit.

Copyright © 2004 Sandy Gadow This column may not be resold, reprinted, resyndicated, or redistributed without the written permission of Escrow Publishing Company.

TIP
Consider ordering your free credit reports one at a time. For example, order your report from Experian one month, from Equifax the next month, and TransUnion the following month.

Why Is My FICO Score So Important in Getting a Mortgage?

Sandy Gadow

Most lenders rely on a credit score, called a “FICO score” to determine a Borrower’s credit worthiness when applying for a mortgage. Your FICO score or number may determine what type of interest rate and loan program you are likely to be offered from any one lender. Each lender may have different guidelines and requirements to fit their individual loan programs. Your FICO score is comprised of a compilation of your credit history from the three major credit reporting bureaus, Equifax, Transunion, and Experian. Since each credit bureau may collect your credit data differently, an average score of the three bureaus is deemed the most accurate. In general terms, a score of 720 or better will mean that your credit risk is very low and you may be offered a preferred low interest rate and several loan program options. A FICO score in the range of 660 to 719 is still acceptable for several different loan programs. A score of 620 to 659 indicates a Borrower shows a higher degree of risk to default on a loan, so different guidelines may apply than for a Borrower with a higher FICO score. Under 619, a Borrower is generally considered a high risk for default. A high risk Borrower may still qualify for a loan, but the interest rate or terms may not be as favorable as of those offered to a low-risk Borrower.

How do I establish credit to qualify for a mortgage?

If you are a young Borrower, or a new Borrower, with little or no credit history you can establish credit by working for two years, paying off something small, like a student loan each month, and get one debit card and pay it off each month.

Most lenders rely on a credit score, called a “FICO score” to determine a Borrower’s credit worthiness when applying for a mortgage. Your FICO score or number may determine what type of interest rate and loan program you are likely to be offered from any one lender. Each lender may have different guidelines and requirements to fit their individual loan programs. Your FICO score is comprised of a compilation of your credit history from the three major credit reporting bureaus, Equifax, Transunion, and Experian. Since each credit bureau may collect your credit data differently, an average score of the three bureaus is deemed the most accurate. In general terms, a score of 720 or better will mean that your credit risk is very low and you may be offered a preferred low interest rate and several loan program options. A FICO score in the range of 660 to 719 is still acceptable for several different loan programs. A score of 620 to 659 indicates a Borrower shows a higher degree of risk to default on a loan, so different guidelines may apply than for a Borrower with a higher FICO score. Under 619, a Borrower is generally considered a high risk for default. A high risk Borrower may still qualify for a loan, but the interest rate or terms may not be as favorable as of those offered to a low-risk Borrower. To order a copy of your FICO score, contact Fair, Isaac Corporation at: www.myfico.com

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To improve your FICO score, avoid opening new charge accounts, buying a car or furniture on time or looking on the internet for low rate credit deals between the time when you receive a loan commitment and the time you close.

Copyright © 2003-4 Sandy Gadow. This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

Related Question