Credit Scores

BREAKING NEWS: Medical Collections

The three nationwide credit reporting agencies - Equifax, Experian, and TransUnion announced some MAJOR changes on how and when medical collections can be reported. Starting July 1st of this year, all paid medical collection debt will no longer be included on credit reports. This is a HUGE victory! Paid collections continually linger and negatively impact a credit report long after it’s been paid and resolved. In addition, the credit bureaus are expanding the waiting period from 6 months to 1 year before an unpaid medical collection can be placed on a credit report. This means you will have more time to work with your insurance company or healthcare providers to find a solution before it is reported on your credit report. Also beginning in 2023, the credit bureaus will no longer include medical collection debt under $500 on credit reports. I talk to so many customers with minor medical debt that can’t qualify for a loan due to the minor medical debt affecting their credit scores. These joint measures will remove nearly 70% of medical collection debt from credit reports. This change will help so many people, especially those looking to buy real estate. Starting July 1st those who are stuck renting because of unforeseen medical debt that is beyond someone’s ability to control will now be in a much better position to purchase a home. If you’ve experienced this or you know anyone who has been through a tough time medically and haven’t been able to purchase a home because of it, please introduce us.

Budgeting in 2022

My goal to help all my clients make smart financial decisions, retire wealthy with their home paid off, and be able to leave their children's children an inheritance; setting up and keeping a budget is the first step to this. There are a lot of budgeting methodologies out there from the envelope method to the Zero-Sum Budget, to the “traditional” Line-Item Budget method. All budgets are good and can be great at different times in your life. However, my method is a little different. I believe that you should get to a place in life where you can have a loose budget. This is where you review your spending at the end of every month and compare your spending categories to your suggested budget categories. If any category is over the budgeted amount look through all expenses in that category and understand why. Ask your self is that ok? Did you overspend and need to work on reducing that category? Is the budgeted amount for that category not realistic for your lifestyle and needs to be increased? In general, it is best to stick to the budgeted amount, however life happens, and life doesn't stick to a budget. Sometimes events out of your control will cause your categories to be lower and some higher. The important thing with a budget is to review it monthly and understand where you are over and under spent. The ultimate goal is to live within your means and spend less than you make, while saving 20% of your income. If you save 20% of your income for your entire life you will be set for retirement. My rule of thumb is if you save 20% of your income you can spend the rest on whatever the hell you want. But the first step to get there is setting up a budget. My favorite budgeting software is Quicken. There are a lot of other more modern or online tools out there and they basically all do the same thing. Whatever program or system you choose to use here are the steps to help you get started: First - create your budget categories. These are all categories that you are going to spend money on every month. Every dollar you spend needs to fit into one of these categories. It is ok to create a miscellaneous category as a catch all. The software you select should come with a default category list. You’ll want to edit and rename the categories to fit your lifestyle. For example, one category for "Bills and Utilities" rather than multiple categories for, cell phone, internet, power, gas, sewer, garbage, etc. There are other things I want to get more granular on and track, for example eating out. I use a few categories, "coffee shops", "fast food", "restaurants". I do this because I want to track and improve the amount I spend on fast food. For both financial and health reasons I want to make sure I limit myself in these areas. Remember, keep your budget simple, do not include categories you are not actually going to use. Second - Set up your accounts and import all transactions for the past 60 days. All software will allow you to connect to your banks and import your transactions. Import the last 60 days’ worth of transactions. Once all of your transactions are in the software you will need to go through and categorize them to the categories you set up. If you run into some transactions that don't fit into any category but will occur regularly, make a new category. If it will happen rarely add it to the misc. category to keep things clean. Review that and determine what your monthly budget should be for each category. Some should be what you have averaged spending the past two months and others you will instantly see that you are spending too much and needs to be lower. (For many it’s the fast-food category) Create general monthly budget amounts in each category in your budgeting software budget tool. Set up a reoccurring reminder on the first of each month to remind you to go into your budgeting software and review all transactions. In the future most transactions should auto categorize so it should only take 15 minutes to review the transactions that were auto categorized as well as categorize anything new or anything that didn't get categorized. Once everything set up in the proper categories then go run the previous month budget report so that you can see what you spent in each category next to what your budgeted amount was. Print this out and spend a few minutes reviewing it. The last step once your budget is set up is to create your financial goals. This could be a certain savings amount by the end of the year, paying off any loans you have or paying down a credit card. Most budgeting software will have a goals section where you can input a goal and then visually watch your progress. You always need a goal. Having goals paired with a budget will change how you look at your money. You'll start to see how every decision you make matters to your greater financial health. Again, there are times in your life where a strict envelope or other budgeting style is required. My goal is to get you to the point in your life where you are saving 20% of your income, living under your means, and can buy whatever you want with the other 80% of your income. Once you get to this point, a loose budget and a budget review every month is all you need. If you need advice on what you can do to fit your real estate or investment goals into your planning for the year, reach out! I would be happy to review your situation to get you where you want to be at the end of 2022.

Tips to Improve Credit

Let’s talk credit, it’s so important! It can determine whether you get that home or not, and save you a lot of money on the rate you'll pay if your credit score is good.
Of course, you want to make your payments on time, but how can you actually improve your credit score? What can you do?
Here’s a couple of tips to help you boost your credit score this summer:   
First, keep the balance you owe on any of those accounts below 30% of the credit line. For example, if you have a credit card with $1000 limit on it, keep your balance to $300 or less.
Second, what if your balance is higher than that and you can’t bring it down? Well, go to that credit card issuer and ask them if they’re willing to give you a higher limit. By bringing the limit up, the amount you owe becomes a smaller percentage of your limit.
Lastly, don’t close off any credit lines that you have from the past. This is good history that you’ve built up. You want to keep that good history. It’s like getting straight A’s in high school, but throwing away the report card. Keeping good history will help your credit score.
These were only a few tips, there are many other strategies that can help boost your credit score. If you would like more information or tips for your credit score give me a call, I’d love to review your situation and help you formulate a plan to improve your credit this summer. 

How to Improve your Credit Score

Let’s talk credit. It’s very important! It can determine whether you get approved for a home loan or not, and can save you a lot of money on the rate you’re going to pay if your credit score is good. Of course, you want to make your payments on time, but how can you actually improve your credit score? What can you do? Here’s a couple of little known secrets: First, keep the balance you owe on any of those accounts below 30% of the credit line. For example, if you have a credit card with $1,000 limit on it, keep your balance to $300 or less. Second, what if your balance is higher than that and you can’t bring it down? You can go to that credit card issuer and ask them if they’re willing to give you a higher limit. By bringing the limit up, the amount you owe becomes a smaller percentage of your limit. That will help increase your score. Lastly, don’t close off any credit lines that you have from the past. This is good history that you’ve built up, you want to keep that good history. It’s like getting straight A’s in high school and not wanting to show the report card. Keeping good history will help your credit score. These are only a few quick tips for you, and I hope they help! If you need any more information, give me a call, I’d love to review your situation and help you formulate a plan to improve your credit so you can get in a home. 801.206.4343

Recent FICO Credit Score Changes Help Borrowers

main-image-FICO-standardThe Fair Isaac Corp., better known as FICO, is the most widely recognized and used credit score in the nation. They have recently adjusted their metrics in a way that helps borrowers qualify for loans much easier than in the past, since the recession. This action should help Salt Lake City Realtors sell more property, as mortgage money will be more available and more buyers will qualify. The Primary FICO Changes FICO carefully protects its algorithms and formulas to thwart people from "beating the system." However, the major changes announced recently are more straightforward and clear than the consistent "tweaking" that FICO typically makes in its calculation formula. The significant changes center on two issues that have been debated for eons, it seems.
  • FICO will no longer consider paid collections in their credit score calculations. Consumer credit scores have historically been hurt by collections even after these collections were paid in full.
  • FICO will now apply less weight to unpaid medical bills that have been given to collection agencies. In the past, FICO penalized consumers for even the smallest unpaid medical bills.
For decades, consumer supporters and experts have argued these points with anyone or entity that would listen. They have maintained that penalizing consumers for unpaid medical bills of a few hundred dollars, often just the patients' health insurance deductibles, the same as having a delinquent $40,000 auto loan or a six figure home mortgage loan, was unfair. Similarly, penalizing borrowers settling their debts, whether in full or for less than the full outstanding balance, was equally unfair and excessive. It appears that lenders and the CFPB agreed with this position. FICO either will no longer penalize consumers, in the event of paid collection debts, or greatly reduce score penalties on the over 64 million Americans that have one or more medical collection accounts on their credit report, or the over 100 million consumers that have a collection account on their report, if the collection has been paid or settled. These enhancements help lenders because they result in greater precision. At the same time, the median FICO Score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points. This is good news for people trying to get a loan. They will either receive better interest rates or now they will qualify when they didn't qualify before. Effect of FICO Changes These changes should elevate the credit scores of millions of prospective borrowers, allowing them to qualify for loans and mortgages previously unavailable since the recession. You won't be surprised that critics of the new features are exercising their dissension. At least one critic chacterized these changes as something like a "sharp knife--if you don't know how to use it, you can cut yourself." Most critics fear that more consumers, inexperienced or uneducated in managing debt, will only dig deeper holes in their debt profile, making them less able to handle credit. However, most consumers will sleep more soundly knowing that, even if their credit reports formerly had some warts, they may now qualify for financing for autos, homes and other financing. The minimization of settled collection accounts, which formerly negatively counted as much as home foreclosures, from credit score calculations will help many borrowers meet lender qualifications. Supporters of these changes foresee no significant increase in risk for lenders using the changes wisely and liberally. It appears they are correct, as the elimination of medical collections and the penalty minimization of paid collection accounts should not increase the repayment risk to unacceptable levels. Lenders and Consumer Financial Protection Bureau (CFPB) The FICO change culminates months of discussion and debate between some top lenders and the CFPB. Their joint goal was to fuel more lending without increasing lender credit risk. During and after the recent recession, most lenders have made loans only to the best quality borrowers having blemish-free credit reports. Consumer lending, including home mortgages, has suffered greatly. Many borrowers, previously shut out by lenders, may now qualify for the loans they want. Instead of facing rejection or, at best, higher than market interest rates, these borrowers may now receive approvals because of the agreement between lenders and the CFPB. These changes should enhance all banks' ability to make loans to previously unqualified borrowers since credit standards were severely tightened during and after the recession. The key FICO changes in their score calculations should ensure that millions of borrowers will now qualify for bank loans, without forcing the lenders to dramatically loosen their credit standards. sources:  

How to Qualify for a Mortgage After Chapter 7 Bankruptcy

mortgage after bankruptcyWhen you file for chapter 7 bankruptcy, otherwise known as liquidation, a creditor seizes all but certain exempt assets and forgives most of your debt in return. Bankruptcy is a legal acknowledgement that you were unable to meet your financial obligations. Thus, your credit rating takes a big hit -- usually a 100 points or more. A bankruptcy also remains on your credit report for 10 years. Bankruptcy affects your ability to qualify for a home mortgage in the following ways:
  • You need to wait four years before a lender will qualify you for a conventional mortgage loan with market rates.
  • Two years is the waiting period for Federal Housing Administration (FHA) loans.
It is possible to get a mortgage loan from a hard money lender as soon as six months after bankruptcy, but these loans require a down payment of at least 30 percent, and the interest rates are high. While you are waiting, there are some steps you can take to improve your chances of receiving favorable loan terms once you do qualify for a mortgage.

Check for Discrepancies in Your Credit Report

As soon as the bankruptcy has been discharged, you need to get organized. Order a credit report from each of the major agencies -- Equifax, Experian and TransUnion -- and look over the information carefully. You can dispute any errors online on the agency's website, and this process lets you know where you stand. Awareness is an essential first step in financial responsibility.

Repair Your Credit 

You then need to focus on repairing the hit to your credit. An important thing to keep in mind is that, while the bankruptcy itself remains on your report for a long period of time, most negative information goes away after three years. Thus, your goal should be to make the bankruptcy look like a solitary event rather than part of a general disqualifying pattern. Here are some ways to repair your credit:
  • Limit the amount of credit applications you make even if you qualify. Each time you apply for credit, the lender runs a check, and that itself lowers your score.
  • Use a secured credit card that reports directly to the credit bureaus, and always pay your bill on time.
  • Use installment loans with retailers to demonstrate that you are capable of making regular payments.

Cover Your Bases

While important, your credit score is not the only thing lenders look at. After a bankruptcy, you want to project stability.  Paying above the monthly minimum on installment debts and sticking to the same job throughout the waiting period both reassure lenders. Finally, keep in mind that the more money have to put on a down payment for the new mortgage, the better your negotiating position will be. Saving money is one of the most important ways you can qualify for competitive mortgage terms after a bankruptcy.