Get Smart About Credit Day

October 16, 2014

Get Smart About Credit Day was originally created by the American Bankers Association to teach young people how to use credit wisely and why it’s so important to do so. I see every day just how important your credit score can be, so I created GetTheFICOFacts.com.  It’s a quick read, and will help you understand why your credit score is important, where to get a truly free credit report, how FICO really works, and what it means for you. If you have questions about credit, drop me a line and I’ll be happy to address them.

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Divorce Series: Managing Credit During Relationship Changes

September 5, 2014

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Managing through a relationship transition can be challenging enough without worrying about how such a change might impact you financially. Over the years, I’ve seen some of those closest to me go through these kinds of changes and have always been in awe of their strength.

Whether you are facing a permanent change or considering something more temporary, it’s important to evaluate how these changes might impact your credit. After speaking with my good friend Darren Coakwell, owner of Crossover Credit Solutions, here are some things to consider:

  1. Current Credit Picture
    Understanding the current state of your credit , and what debts you owe together, can help you know what will have to be unraveled if you separate. It can also help provide insights around the state of your credit as an individual and (if needed) help you design a plan to improve it.
  2. Shared Assets
    If you have a home, retirement, or other assets acquired during your marriage, itemize them to understand what will need to be divided amongst the two of you. If you use a financial planner, he/she can be a good source for this information.
  3. Managing Current Credit Lines
    In most circumstances, shared credit lines will be closed once a divorce is finalized. When this happens, the closing of these accounts can negatively impact your credit. With this in mind, it’s important to consider the timing of things that are credit sensitive – such as financing the home solely in your name – before you close these lines.
  4. Protecting Credit with a Credit Freeze
    One way to prevent new credit lines from being opened without your knowledge is to put a credit freeze in place. With a freeze, the bureaus will not release your credit information without your consent. While this might be a bit of a pain if you want to open a legitimate account, it can help mitigate the risk that your credit could be damaged should things become contentious.
  5. Details Matter
    If you decide to move forward, it’s important that the divorce decree is as detailed as possible around what will happen to debts/assets–and when these changes will occur. As someone who regularly sees decrees when helping folks finance their homes, the more explicit here the better for all involved.

During times of change, keeping things as straight-forward as possible can help ease the burden. Arming yourself with knowledge around what you should do legally (via an attorney) and what you can do financially (via a mortgage lender or credit consultant) may help reduce your stress.

 

p.s. Here is a good amount of information about how FICO works if you were wondering.


Divorce Series: Should you keep the house? 4 things to consider

August 19, 2014

divorce decreeIf you are facing a divorce, you will have to sort through the debts and assets you share with your spouse. One of the hardest decisions can be landing on “who gets the house?” and getting the property into the right person’s name.  As a mortgage lender, one of the ways I can support my clients through this transition is by partnering with them to evaluate whether keeping their home is an option and what’s required to obtain financing. Over the next few weeks, I will be sharing insights regarding the process.

There are two key terms that are consistently used:

  • Divorce Decree This is the final document issued by the court and signed by the judge, that makes the divorce final and details the specifics (e.g., child custody, palimony, division of assets) associated with it.  The decree will also include obligations that you, and your spouse, have to each other. This document will be used by you and your lender to demonstrate to creditors that you are no longer accountable for certain debts and/or your ex-spouse’s activities.
  • Community Property If you live in a community property state, like Texas, all items acquired during the marriage belong to both spouses regardless of who purchased or earned them. This includes things like pensions/retirement funds and any property. The divisions of these assets, and debts, has to be deemed as equitable by the court who may change who receives what based upon the circumstances involved (e.g., child custody, earning potential). If you and your spouse purchased your home together, you will both technically own the property until the divorce decree issued.

Think about these four things when you contemplate whether or not you want to keep your current home:

1. Do you really want the house?

This is a time to get practical around whether it serves your interests and long-term needs to keep the house. Homes come with costs outside of taxes, insurance and paying the monthly bills. Will you be able to afford the long-term maintenance items such as upkeep and major repairs (e.g., AC units, new roof, exterior painting) in addition to your planned monthly expenses? Are these the kinds of things you want to take care of or would you better off in a townhouse where exterior maintenance is managed for you?

2. Do you qualify?

If you will be receiving child support, and historically have received no or little personal income, you will need to demonstrate your ability to keep up with the payments autonomously. The baseline lending guidelines that lenders use are the same in this area, although they will often feel more stringent than what you have experienced in the past during a purchase or re-finance.  I recommend meeting with a mortgage lender to walk through your particular situation as there are very specific nuances that must be taken into account. You shouldn’t be worried about having all the answers (e.g., child support, who will get house). Part of the reason to talk with a lender is to better understand your options so you can make the best choices possible.

3. Should we transfer ownership before or after the Divorce is Final?

While you can do it either way, I recommend shifting any ownership between spouses prior to the Divorce Decree to provide a level of credit protection. This moves the financial responsibility to the person who wants the house, and removes the responsibility from the other spouse while waiting for the divorce to go through.  If you wait until after your divorce is final to shift home ownership to a single spouse, it can create some issues downstream if your or your spouse don’t meet the commitments outlined in the divorce decree.

4. Pay attention to the details:

Tracy Horne, SVP/Branch Manager at Republic Title, says, “Make sure the final decree identifies the property AND legal description-and awards the property to one party while also divesting the other party of ‘all rights, title and interest’ in the property.”  According to Ms. Horne, it’s also key to make sure that a General Warranty Deed is executed at time of divorce. Otherwise, when it’s time to sell, the home-owner will have to involve the ex-spouse. If the ex-spouse is not cooperative, it may require you to make your divorce decree public which would be less than ideal for many folks.

A divorce can be a difficult situation. Let me help ease some of the burden by demystifying the options available to you if you are considering shifting ownership of your home to you or to your spouse. Please call me at 214-52-9622 to talk live or set-up a time to meet in person.


FICO Updates Credit Scoring System

August 13, 2014

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FICO announced last week that the newest update to its credit scoring system will include changes that could help raise the credit score of millions of people. According to this article in the Wall Street Journal, records of unpaid bills will be removed from consideration once those debts have been paid or settled with a collection agency. Additionally, unpaid medical bills will carry less weight against credit scores than previous versions. People who have been hit with unexpected medical emergencies or were unaware that balances were left unpaid by insurance but have otherwise clean credit could see their scores rise as much as 25 points under the new system. Ryan Smith, of Mortgage Professional America, is optimistic that the adjustment will increase access to home ownership. Even those who qualified for a home loan under the previous version could benefit from lower interest rates, saving considerably over time.

If you have questions about how these changes could impact you, I’m here to help.

 


The Importance of Pre-Qualifying for All Home Buyers

March 18, 2014

stamp of approvalI remember when Julie and I bought our first home. We really weren’t sure how much we could afford-and how large of a loan we could get. I think both of us were a little nervous. As we went through the pre-qualification process, we were put at ease because it helped us understand exactly what kind of loan we qualified for and what the payments would look like.

Fast forwarding over fifteen years later, it might seem silly for us to get “pre-qualified” for a loan but even experienced buyers should get pre-qualified. The reality is that if you’re really serious about buying a home, you are going to have to provide some level of financial information to get the process started. Getting pre-qualified kicks-off the inevitable review of financial papers and can give you time to address issues before you put in an offer.

Why?

Credit Report Errors
As a person who sees credit reports daily, I’m sure it won’t shock you to hear that they have errors. Some of these errors can be damaging to your credit score-which in turn affect the loan products and interest rates you can be offered. If you’re not checking your credit report regularly, the pre-qualification process can help us identify issues early on so you have time to correct your report and get into the loan product/rate you really deserve.

Credit Report Truths
At times, there are things that show up on our credit reports that we either didn’t know about-or somehow just missed. A classic example would be a random medical bill that was sent to a place you lived five years ago. Just like credit report errors, these situations need to be addressed. Otherwise, it has the potential to affect your credit score, and as a result, your interest rate.

Debt-to-Income Ratios
As a loan guy, I can tell you I live and breathe by Debt-to-Income (DTI) ratios. The amount of debt you carry, relative to how much money you earn, greatly impacts how large of a home loan you can have. As our lives change, the amount of debt we carry also fluctuates. It’s important to evaluate where your DTI is at whether you are an experienced or first-time buyer. You might be surprised what you find.

Shopping with Money is Better
When you are pre-qualified for a loan; it’s almost like shopping with real money. It also gives you a price point to work from, so you’re looking at homes that you can actually buy. Sellers typically take buyers more seriously if they know that you are in a financial position to afford the home. A pre-qualification letter can give your offer an advantage over other buyers, and many Realtors will not submit an offer without one.

Bye-Bye Earnest Money
As part of making an offer, buyers often give a sum of cash that the seller gets to keep if the deal doesn’t go through. If you make an offer on a home, and you cannot qualify for the loan amount you need to purchase it, the seller will get to keep your money if you notify them after key dates in the contract. Getting pre-qualified can help you avoid throwing away your money…instead of using it to buy a home.

Question about this? I am here ready to help!


A Six Month Old with a 770 FICO Score?

March 5, 2014

fico scoreYes, it’s possible. Even a baby can begin to establish credit at a tender age.

As a parent, I want to teach my kids to leverage credit to achieve certain goals (e.g., home ownership), but to keep a “cash” mentality similar to that of Dave Ramsey to be “debt free”. Right after my eldest son was born, I added him as a authorized user to one of my credit cards. After six months, he had an amazing credit score-but why does it matter?

The reality is that having a good credit score, whether you choose to use credit or not, is a helpful tool in our society. Beyond letting you buy a car or home with better interest terms, a good credit score can also help you when it comes time to look for a job.  Many employers now run a candidate’s credit to look for any high risk behaviors or delinquencies that may indicate he/she is not a good fit.  Cash is always king, but having some credit history showing that you can responsibly take and pay-off debt, helps lenders better assess your ability to meet the terms of major loan products (e.g., buying a house). How far back, or how long your credit history is accounts for 15% of your total score-so, it certainly doesn’t hurt to start early. While this doesn’t seem important now, eventually it will matter.  As a parent, you always want to set your child up for success and helping them establish a good credit score before they leave the nest is a gift.

To be clear, I’m not advocating the use of credit cards by children or teens. What I’m suggesting is that you leverage your good credit and payment history as a parent to help start your children off on the right foot credit-wise. Here’s how to begin:

Step One:  Select one credit card where you have a solid payment history and have never had a late payment

Since your payment history, and overall credit use on this card, will become your child’s credit it is key that you ALWAYS pay this bill on time. If you’re not willing to commit to this step, you should not begin this process until you’re in a place where you can. Otherwise, you are likely to hurt your child with a sub-par credit history.

Step Two:  If/When a card arrives in your child’s name, destroy it

Given they will not be actively charging with the card I suggest destroying it, or at a minimum, putting it in a safe. If the credit card was to “disappear” or go missing, you would be unlikely to notice it since you don’t use it on a regular basis. If the card was to get into the wrong hands, you could be dealing with fraud issues-which is never fun.

Step Three: Consider a Credit Monitoring Service

The downside of setting up credit for your children is that it also opens them up to the same sort of fraud we experience as adults. You will even start to see new card solicitations hit your mailbox! This means that you have to commit to checking their credit report twice a year for fraud or even easier, set them up on a credit monitoring service. You don’t need to spend a bundle, but do look for one that provides you with a credit report/update more than once a year.

Step Four:  Brace yourself for this question….Should I give my teen a credit card?

When your child becomes a legal adult at age 18, he/she will be able to apply for their own credit.  The question then becomes, should they be able to use a co-signer credit card from your account when they are teens?  I think every child is different, so it’s completely subjective. I would suggest that if you do give your teen a credit card to use that it come with an extremely explicit set of rules, and consequences, related to its use.  I also recommend reducing the credit limit, to shield you and your teen from incurring too much debt.

If you have any questions about my experiences in this space, or around credit in general, please feel free to call me or email me to discuss.


What to do after Target breach?

January 12, 2014

Now the news for the Target breach of their computers and what the hackers got is much larger than we first thought. Are you worried now about your credit and any possible identity theft?

I built a page that will have you understanding more about your credit and FICO score in less than 30 seconds! And the links and info for how to get your free credit report.

Log on to http://www.GetTheFICOFacts.com now and start to feel better after this latest mess!