Secured Credit Card

Homeowners across the nation continue to turn to cash out refinance and home equity loans for paying off high rate credit cards that are escalating out of control. The Federal Reserve lowered key rates again yesterday, but many homeowners just can’t take the combination of rising adjustable mortgage rates at the same as the increasing interest rates from their credit card companies. Unfortunately, recent changes to the bankruptcy laws have led to minimum credit card payments being doubled by the bank lenders who issued the credit. As consumer debt grows so to do the worries of homeowners across the nation who may be facing a foreclosure on their home. It makes sense to utilize the equity you have left to help refinance an eliminate the debts that are causing you the most pain.

Bankruptcy used to be the way people got out from under burdensome credit card debt. But, under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 filing for bankruptcy is prohibitively expensive, complicated and time consuming. This may be why fixed rate home equity loans have become popular methods for refinancing high-interest credit card debt, particularly for those with low credit scores.

Critics suggest that credit card accounts are not secured by your home. But then, the interest is not tax deductible. Most first or second mortgage loans carry mortgage interest that is tax deductible. Home equity loans are calculated with simple interest terms and revolving credit cards are calculated with compounding interest.

While credit card advocates point out that the loan terms for refinance and home equity loans are typically longer than credit cards, they are not forthcoming with the penalty rates and additional costs added to the compounding interest. Many consumers are beginning to realize that fixed interest terms are more realistic for actually paying off your debts.

Borrower like the home refinance loans, because they can get a reduced interest rate that offers an affordable payment. The adjustable rate mortgages have caused a real stir in 2008 as foreclosure and payment default rates have reached record highs in states like California, Florida, Indiana, Michigan, Virginia and Massachusetts. With new FHA initiatives, homeowners can refinance their ARM with a FHA home mortgage that now allows cash back and debt consolidation. FHA used to limit home refinancing to rate and term guidelines that prohibited any cash back or bill consolidation. FhA also allows bad credit, limited credit and loans for first time home buyers.

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Find Out Your FICO Scores

Your mortgage lender will underwrite your loan application using the middle of your three FICO scores. If you expect to purchase a home or refinance your current mortgage you should know your FICO scores in advance. If there is a problem it is best that you discover it, rather than your mortgage lender. Plan your credit repair strategy today.

Get the Right Scores

The credit scores sold by Experian and TransUnion are their own proprietary scores and can differ from your FICO scores by a significant amount. Equifax sells a true FICO score, but will apply the FICO model only to its own data, and it is not enough to have one FICO score. Your credit repair effort requires reliable information. The only site consumers can purchase their three FICO scores is myfico.com.

Check Your Revolving Balances

Your revolving balances have a dramatic impact on your credit scores. Many people in credit repair programs assume incorrectly that if they make their payments on time their scores will be fine. Later they wonder why their scores are languishing. A high balance on a credit card may cause a drop of over one hundred points your scores. You cannot afford for this to happen. When it comes to your mortgage, every point counts.

Bring Your Balances Down

Plan in advance and bring your balances down as much as possible before your make your mortgage application. The FICO scoring model recognizes five levels of credit card usage: 20, 40, 60, 80, and 100 percent; the lower the balance the higher the score. Here is some great credit repair advice, if you have the ability you should reduce your balance below 20 percent of your credit limit.

Proofread Your Reports

Once you have all three of your credit reports you should take the time to proofread every bit of information. Remember that you may be living with your new mortgage payment for many years to come. Don’t make the mistake of believing that if the information on your report looks familiar it is accurate. Credit repair requires a bit of healthy skepticism. There are many types of errors possible; not all errors are obvious. I suggest that you spend a couple of hours examining your reports. It may be the best investment of time you ever made.

Fix the Derogatory Information

Look carefully at the derogatory information on your reports. Common errors include duplicate accounts and accounts that are reporting beyond the seven year reporting period limit. Keep in mind that the reporting period for a collection starts with the first missed payment in the sequence that led to the collection status. Collectors often reset the clock accidentally, or otherwise, and report well beyond the expiration of the legal limit. You should also know that when a collector sells a debt, or returns it to the original creditor, they are supposed to cease reporting, but rarely do. This is a great credit repair opportunity.

Fix the Positive Information

Many of the errors that can hurt your credit scores are not derogatory and are harder to spot than a thirty day late payment or a collection. A patient credit repair effort will pay off. Some of the errors that commonly go unnoticed include under-reported credit limits and misreported account opening dates. Under-reported credit limits can make it look like your credit card is maxed-out and your score will reflect this. Misreported account opening dates can make it look like your account is newer than it really is and you will lose points.

The Power of a Rapid Rescore

If you find yourself needing to improve your credit score quickly, try a Rapid Rescore. A Rapid Rescore is a tool offered only by mortgage brokers. It allows you to furnish documentation that balances have been paid down, or that derogatory information has been resolved or is reported in error. The mortgage broker provides the documentation to the credit bureaus. They in turn recalculate your score within three days. Instant credit repair. There is a small cost involved, but it can be well worth it.

Hold off on New Purchases

Too many people make the mistake of making large purchases before they apply for a mortgage. The effect is to inflate revolving balances and deflate saving accounts, thereby lowering credit scores and weakening the mortgage application. Wait until you close on your new mortgage before purchasing your new furniture. Hold off on all significant transactions. Save your money and preserve your credit scores.

New Credit and Your Credit Repair Effort

Your credit score is determined by both the negative and positive information on your credit report. If you do not have any open credit your credit score will suffer. Many people in credit repair programs open secured credit cards to start the rebuilding process. That’s a good idea, and very effective. But be careful of the timing. The first month a new account appears on your credit report your score will fall. If you need to build new credit don’t wait until the last minute.

Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.

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