So you have filed for a bankruptcy, now what? Probably the first question in your mind is how will it affect my credit score? There are too many factors to accurately predict the fallout on your credit report. If you had a pretty high score prior to filing you may find that your score is still hovering around in the 600’s. However most people’s credit gets pretty trashed from lates and charge offs, so their score after filing is closer to 500 than 600.

The total number of credit accounts you have is a factor as well as the ratio of debt to available credit. Both those can sink your score in a hurry, especially when you pile up a chapter 13 or 7 on top of it.

So, which is better, chapter 7 or chapter 13? I am not a lawyer so I cannot answer that question and it should be put to bankruptcy lawyers.

What I do know is that there are a few advantages to chapter 7 over chapter 13. If you file a chapter 7 the process is quick, usually from 3 to 6 months. You get your discharge date rapidly and you are on your way to starting over, and with no debt hanging over your heads. If you file chapter 13 you are required to pay off your debts in 3-5 years. Most people who file chapter 13 do not complete the program and find themselves in hot water again. If you file chapter 7 you still get to keep most of your assets including the home you live in. Keep in mind, not everyone qualifies for chapter 7 and that is something you will have to research with bankruptcy attorneys.

Remember, just because you have a BK on your report that doesn’t mean you cannot refinance or purchase a new home. Check around with different lenders and let them know all the facts up front before you allow anyone to check your credit. You may be in for a pleasant surprise.

Related Link: Bankruptcy and Your Credit — Part 1

This is a big topic so I will try and break it down in a couple articles. Rather than focus on what your score may be after going through a bankruptcy, I am going to tell you how lenders view a borrower who has a BK (bankruptcy) on their report.

Of course everyone wants to know, how long do I have to wait before I can refinance or purchase a home? The answer is, quite often there is no set time you have to wait. Bear in mind that it will stay on your credit report for up to 10 years so get used to it.

All lenders have a bottom credit score they work with and that is usually 500. As long as your bankruptcy doesn’t lower your score beneath that floor, you may be in business. In fact, many lenders will still work with you even if your BK has not been discharged yet. Make the call and you will find a consultant that will be eager to push your loan through if there is any way possible to do it. If you filed a chapter 13 it will have to be paid off with the loan. You will also have to get a rating from the Trustee. That rating is much like your mortgage rating and if you do not have any late payments you may still be able to get your loan. However, if you do have late bankruptcy payments, that is kind of your last chance and you will have a tough time getting the loan.

The one factor that prevents many borrowers from getting a loan is the LTV (Loan to Value) that is allowed under the underwriters guidelines. If you have a recent BK many lenders will not let you borrow more than 60% of the home’s value. Some lenders are a little more forgiving so you will just have to check around. Some lenders will not let you get any cash out which will not work if you have filed a chapter 13 because you have to pay off the debt you own to your various lenders. If you have filed a chapter 7, wait till the discharge date has passed and it will be a lot easier to get the loan and you may find lenders who are willing to give you cash out, or at least let you borrow up to 80% of your home’s value.

Bottom line, having a bankruptcy does not necessarily prevent you from getting your loan. If you can wait, the one year mark is a magic number for many lenders and you will find them more agreeable after that date has passed.

Related Link: Bankruptcy and Your Credit — Part 2

Everyone knows bait and switch is illegal but that doesn’t mean it is not practiced, especially in the mortgage industry. Here’s how it works.

Mr. Client makes a call to Lender B and asks what their rates are. After answering a few questions the mortgage consultant for Lender B asks what rates other companies have offered Mr. Client. After hearing what his competitors are offering Lender B will beat the lowest rate and the lowest points, no matter how low Mr. Clients says he’s been offered. Lender B knows there is no way he can close the loan at the rate he promised and it doesn’t matter that he can’t. His client will take whatever he offers.

I know that sounds crazy but it works nearly all the time. All Lender B has to do is wait until the loan is set to close, then he calls Mr. Client with some reason why he can no longer offer the rate he sold. He can offer a different rate, even if that new rate is as much as a percent higher. So how does Lender B get away with it?

This really only works with non prime lending and works best when they have a client that is paying off revolving debt with the loan. Many clients, confident the loan will close in time stop making car payments, card payments, and sometimes mortgage payments and they pocket the saved money. They are that sure that the loan will close and pay all that debt off.

Fast forward three weeks into the loan process and they are told the rate will be significantly higher, but will still close on time. Mr. Client can either stop the loan process and go to another lender or go through with the loan. The problem with starting over with another lender is the client hasn’t been making their debt payments and may even incur new late payments on their report. That could easily lower their score enough to where they cannot get a rate that even equals the new rate their lender changed on them. They may be out of money because they have begun spending expecting cash out at the closing and suddenly they are in a position where they cannot afford to start the clock ticking with a new lender.

Lender B has his client over a barrel and they both know it. So how can you prevent the above scenario? Number one, do not stop making any kind of payments. Pay them up until the loan funds. That will alleviate most of the problems. When Lender B quotes a rate, if it sounds too good to be true, it probably is too good to be true. Trust your gut. You have to find a broker you can trust and that is a subject for another article.

What happens to my credit score when a mortgage lender checks my credit? The old answer used to be, “your score drops.” Not so any more.

If you are getting ready to purchase a home, or refinance an existing home, do all of your investigation within a thirty day period. The law says your score will only drop one time in a thirty day period if you are getting a home loan or purchasing a car. If you have the first potential lender run your credit on March first, make sure that at the end of the month you don’t allow any other lenders to check your credit. That of course could lower your score, maybe enough to disqualify you from the low rate you could have had.

“But my lender warned me not to let anyone else check my credit or my score will drop.” That’s a common sales tactic to scare borrowers from shopping around; don’t believe it. The next question people often have is, “How much could my score drop if I apply for a loan outside of my thirty day window?”

I had the opportunity to ask a representative from TransUnion that very question and received the following answer. “There is no way to tell for sure.”

Before I could object, he qualified his answer and here it is in a nutshell. How much ones score will drop is dependent on a number of factors. Some of those being; number of revolving accounts open, debt to available credit ratio, length of time accounts have been open, and of course adverse factors like late payments on accounts. Those are just a few factors that influence how much you score will drop.

Be safe, do all your searching for lenders in the thirty day window and you won’t have to worry about your score dropping fifteen points and disqualifying you from the best possible rate you qualify for.

Don’t tell your appraiser about the leaky faucets: Or the mildew on the ceiling and the water stains on the wall. If you have any similar issues there is no point in having an appraisal done. Your appraiser will notice these issues however minor and he will include it in his report. Your lender will of course see it and halt the process. You’ll have to fix the issues then have the lender send the appraiser out again to verify the problems are taken care of. You will probably have to pony up another $100. Once your loan has been pulled out of the line in the funding process it could easily cost you fifteen days or more.

Leave the five broken down cars on your lot: Okay, so maybe you are not operating a car repair shop on your off days, but your appraiser and lender don’t know that. If it is decided that you have income producing property there are different guidelines and it may cost you points and a rate. It may even cost you the loan. Clean up your lot and clear out anything that may be misconstrued as a side business on the premises, either inside or out. I’ve had borrowers who failed to mention they operated a daycare in their home and the lender was not happy to find that out late in the funding process. I was not too thrilled either.

Occupy your owner occupied home: Everyone is looking to get the lowest possible rate and no one wants to pay that extra one percent in rate because the home they are refinancing is a non owner occupied home. Quite often borrowers will tell the lender and the appraiser it is occupied by them but there are ways the lender can find out. For example, the docs you sent in all had a home address different than that of the “owner occupied” home they are refinancing. That one catches a lot of people. If the appraiser inspects the house and strangely finds pictures of the Ramirez family on the walls instead of the McKenzie family you’ve got a problem. You may still get away with it. Bear in mind most lenders require you occupy an owner occupied home for one year and if it is found in that time that you do not live there the entire balance of the loan can come due. Just don’t take the risk.

There are any number of ways to derail your loan process and those are just a couple common ones. Be honest and upfront with your lender in the entire process and you will find you are having a much better experience.

A loan is defined as an arrangement between a lender and a borrower through which the lender will give the borrower money or property and the borrower agrees to repay the debt, with interest, in a specific period of time. Over the course of your life it is almost a certainty that you will have to take out some kind of loan at one time or another. Most commonly a home equity loan or some type of home mortgage loan will need to be taken out. When these loans are taken out you need to make sure you are getting low interest loans, and receiving the best deal possible. Though some loans are inevitable, a wise consumer will be very cautious about using loans.

Loans require that the borrower pay interest over the holding period, and that interest can build up quite quickly. While some people find using cash loans a wise choice, it really isn’t unless you have no other options available to you. The mindset of thinking of a loan as a normal bank account can really get a person into trouble. Taking that money out of savings to pay for a project may be difficult, but at least you aren’t having to pay any interest on a loan.

Sometimes it is better to take a step back and realize that this new project you are about to begin by taking out a loan really isn’t worth the debt it will put you in. Even if you get low interest loans, there is still interest that needs to be paid back and it will still put you behind financially.

Loans are a great product and something that can be a great help to people in need, but the reality is you should avoid using loans unless you absolutely must!

What do you do if you desperately need a loan or insurance but you have no idea about your credit score?

First, understand how the lending process works. Your credit score will determine whether or not a lender can give you the credit you need. In order to get a loan you need a good credit score.

What is a credit score? Basically it’s the score from FICO that tells the lenders about your credit worthiness. FICO Scores are calculated from a lot of different credit data in your credit report. Actual calculation of FICO score is a secret like Coke Recipe. Your payment history, length of your credit history and types of credit used play major role in deciding your credit score. 

How can you get your credit score? In order to determine your credit sore, you will need your credit report. This will be sent to you every three months by national credit reporting companies. You can get your credit report for free. However, if you wish to get your credit score, you will have to pay these companies a nominal fee.

Equifax, Experian and TransUnion are the three credit reporting agencies in the United States. They use the FICO software to generate credit scores which are then sold to lenders who wish to get data regarding the credit score of their customers. You don’t have to be a lender to get details about your credit score. FICO, Experian, Equifax and TransUnion also sell credit score to their customers. Besides national credit reporting companies, there are several other websites and tools that will enable you to get your credit report and calculate your credit score for free.

1. Quizzle.com – this web site enables you to determine your credit score, the value of your home, property etc for free.
2. Experian.com – Experian is a leading provider of analytical services and their web site has a feature which permits you to check out your credit score.
3. Freecreditreport.com – As the name suggests, this is another website for free credit reports. You can get credit reports from Experian, Equifax, and TransUnion through this web site.
4. Creditreport.com – Use this site to get both your credit report and your credit score for free.
5. myFico.com – You can get your credit scores directly from FICO at this website.

Now that you have an idea about your credit score, the next question is how you can improve it. If you have a good credit score, you won’t have much trouble getting a loan but poor credit has to be repaired. Start by paying your bills on time. Cut down expenses on food and clothing and focus on paying off your bills. Don’t max out your credit card. Credit card debt can wreck havoc with your credit scores so, use credit cards only if you have to. What can you do if you have already run up credit card debt? Work on repaying it as soon as possible. Try and pay at least the minimum amount each month so that you don’t have to pay higher interest.

If you have applied for credit from different lenders recently, that also can have a negative impact on your credit score. The kinds of credit accounts you have can also affect your credit score. Having a couple of established credit accounts can boost your credit score. On the other hand too many credit accounts can lower the score.

You will need a minimum credit score of 700 points if you plan to get a loan or mortgage. Experts feel that a credit score of 740 gives you the best shot at getting a good loan, insurance or mortgage scheme

Once you learn how to manage and improve your credit score, getting credit should not be all that difficult.

Today the Treasury market signaled a large shift in interest rates as the government auctioned off more than $19 billion in 10 year notes and they sold at a  higher than expected yield of 3.99%. Just a few months ago yields for the 10 year were almost down to 3%. Since that time the Federal Reserve has started purchasing treasuries in a big way, mortgage rates had fallen to the lowest levels in decades, and a refinancing boom was evident across the country. The whole refinancing boom and the low mortgage rates are now history themselves as these higher interest rates have driven mortgage rates up to over 5.5% on a 30 year mortgage, which was about 4.5% just a short time ago.

At first when treasury yields started to climb investors and economists saw this as a very positive sign because it meant that the economy was beginning to stabilize and maybe things could start returning to economic growth. Fast forward a few weeks and now the higher treasury yields and higher mortgage rates are quite troubling to many economists and stock analysts. Why is it troubling? The recent refinancing boom has shut off and thoughts of a major housing recovery are now beginning to fade away by the day. It seems that the government is supplying a massive amount of new bonds, which in turn is pushing the yields higher and causing the concerns.

In the long run higher interest rates would be a good sign because it would indeed mean that an economic recovery has likely occurred. In the shorter time period the fact that rates are moving up so quickly could actually push back an economic recovery and leave our economy floundering around for a little bit longer than many expect. The truth is this is fairly normal occurrence on Wall Street, investors wanting some signs of a stronger economy, but wanting the signs to come at a slow pace. This is a classic case of not wanting something too cold, but also fearing that the fact it is heating up could make it too hot. Can rates find a happy medium? We will have to found out over the next few months.

Have you received e-mails or telemarketing calls that offer a one time chance to avail great student loans which you can never find elsewhere? The offer may be tempting but beware because the student loan industry has become a predatory one. Students who take loans find themselves burdened with debts amounting to thousands of dollars by the time they graduate. Not only this, if you default on loans, be ready to sacrifice the life and career you have managed to build up since college. Many people have their professional licenses revoked on account of defaulted loans.

Government sponsored federal loans have a fixed interest rate of about 6% to 6.8%. Private loans on the other hand work more like credit card debt. They have interest rates of 15% or more.  The problem here is that much of the federal loans are provided by profit oriented private lenders. So, students take loans from lenders like Sallie Mae thinking that it is government funded only to find out later that they actually hold a private loan. The difference is enormous and upsets whatever plans they may have had to repay the loan. Those students who have fallen into the trap of high cost private loans find themselves using more than 40% of their income to pay off these loans.

Unfortunately, with interest adding up by the minute, most people find repayment difficult. As a matter of fact, there are about five million federal student loans currently in default, amounting to over $38 billion in bad debt. The sad part is that students who have defaulted on loans find themselves at the mercy of lenders. This scenario prompted Alan Collinge to set up a grass roots organization called StudentLoanJustice.org.

StudentLoanJustice.org has a political action committee that aims to campaign for legislations which provide consumer protections, including full bankruptcy protections, statutes of limitations, and refinancing rights to all student loans. It also aims for legislations that will permit defaulters 5 years or more to repay the principal amount along with a reasonable amount of interest. Another goal of this organization is to provide long term repayment caps that will limit the amount that can be collected from borrowers over a period of 10, 15, 20 or 25 years. In this way, borrowers would be allowed some relief from the burden of debt. As mentioned earlier, defaulting on loans can result in cancellation of professional licenses. StudentLoanJustice.org aims to end this practice altogether.

StudentLoanJustice.org now has around 4000 members and still counting. This organization and the cause it supports have been credited as the inspiration for Hillary Clintons Student Borrower Bill of Rights. You can visit the StudentLoanJustice website to get an idea of how you can help in furthering this cause. For instance, you can learn more about the finer details of student loans or talk to reporters you know who would be willing to take up the issue or simply talk to others who are in the same situation as you are.

The question has been asked now for months and months, is now a good time to look for a loan? In the past few months interest rates have become more attractive and thus the cost of obtaining a loan has gone down drastically. Does this mean you should be looking to buy something and getting a loan while you can?

First of all it is important to note that now is most certainly a terrific time to do things such as refinance your mortgage if you can save some money by doing so. Now is also a good time to look for a loan to make a major purchase if you are financially able to make the payments necessary. With interest rates hovering new the lowest levels in 50 years or so, it definitely wouldn’t be wise to sit around waiting to get a better rate on loans. Now may well be the best rate you will see in quite some time.

On the other hand if you aren’t in a financially secure position you should not feel as if you need to find a reason to go searching for a loan to make a major purchase. Major purchases should be made either by necessity or because you are taking a chance on something like a small business and you have the ability to take a loss on the money you are investing.

Now is a great time to look for things like the best mortgage rates, best car loan rates, and the best student loan rates; but only if you or your family has a secure financial position. The worst mistake you can make is hastily purchasing something only to drive yourself into debt and need debt consolidation services. The bottom line is, now is certainly a good time to search for a loan or a great interest rate, but make sure you aren’t over extending your finances to do so!