Save Your Credit

To File Bankruptcy Or Not To File. That Is The Question.

Dear Friends

I have a very dear friend, let’s call him Ken. Ken is hardworking, educated, talented, and owns his own business. Ken has been a very successful business owner up until the last couple of years, during which he lost almost 75% of his business. He has also acquired $40k in unsecured debt and has a business space mortgage payment of around $2500. Ken’s net income last year was about $10K. As you can see, Ken is not making enough to cover his monthly expenses. Ken has been trying to sell his building for the last 2 years with no offers. He owes $325,000 on it, is under-water (owes more than it is worth) and will be lucky if he gets $250,000.

Ken has been trying to do all the RIGHT things. He has been talking with his bank and making arrangements for a short sale. The problem being short sales are a case-by-case deal. So Ken isn’t sure if the $75,000 difference will be his responsibility or not. Ken is also saddled with a $700 a month payment on his unsecured debt, which he acquired trying to keep his mortgage current. Ken’s debt is creating a moral dilemma for him, which is making him depressed and confused. His guilt is keeping him from making good decisions regarding the proper way to save his credit. Remember that every person on the planet has different credit, situations, morals, goals, and income. So one has to take into account all these factors when proceeding. Remember also that bankruptcy laws were put into place to help people when they are in a nonreversible credit state. If you find yourself in a position of debt that affects your family, and your health and mental welfare, or there is no way out-then it is time to consider a bankruptcy. Ken obviously is completely out of budget and qualifies for bankruptcy.

Picking a good bankruptcy lawyer is very important. When finding a lawyer make sure you try to get a referral and interview at least 3 before deciding on one. Ken went through several before finding one he felt was compassionate to his situation. I recommend staying away from ones you don’t connect with on the phone, or feel they are not listening to you. Important note: Bankruptcy chapter 13 is completely different than bankruptcy chapter 7 know the difference when you go in. Chapter 13’s stay open for years and are very difficult to close. You would ONLY want to file a 13 if you are trying to keep your house or your retirement. I do not recommend them. Basically chapter 7’s are when you have nothing left no savings no equity in your house no paid off car, you’re just broke. You can file a bankruptcy yourself but i don’t recommend that; the laws are getting more and more complex and you don’t want to miss anything. An interview with a good, competent bankruptcy lawyer will iron out all your questions and they will be able to calculate your budget and situation to see if bankruptcy is the way to go.

The future after bankruptcy is up to you. A BK stays on your credit for 10 years, so every time you apply for credit it will come up. One note: I had a friend say once to me, “Well you can’t get a job if you file a BK”. I almost fell over. It is not against the law to file a BK, that would be discriminatory hiring practice. Also, 2009 is going to go down in the history books for record amounts of filings for BK’s. It will not be shocking for underwriters to see millions of them in the future on people’s credit. So they will be way more lenient when they see them. If you do file a BK, credit reestablishment is very important, so staying on top of your credit afterwards is crucial. Never have a late payment after your BK has discharged and don’t start the cycle of debt again. Also, if you have a car loan when you apply for a chapter 7 you can keep it out of the BK, depending if there is equity. If you owe more money on it than it is worth you may want to include it in the BK. Remember you may have a problem getting another car after you’ve filed your BK, so you may want to keep it. Also by keeping it and paying on it after the BK is closed it is already reestablishing your credit.

Shakespeare wrote mostly tragedies and everyone more or less died in his plays. The bright-side here is - IT’S ONLY CREDIT.

Automated Banking and you.

Dear Friends,
Welcome to the world of automation and computers making decisions on your loan applications. It’s not artificial intelligence yet, but it still sucks. Let me give you a brief view of how bank automation works. When you apply for a loan, whether it’s online or with a handwritten credit application, all of your information is sent via internet or fax to a data entry person. This person probably gets paid minimal money. If you apply for something online, you are the data entry person. Now comes the interesting part. All the banks in the USA have different internal scoring systems. What this means is your information, your credit score, your job, your residence, your depth of credit, open accounts, late payments, installment loans etc. are all put together to create some magical internal banking score. I’ve spoken to many underwriters/loan officers and most of them have no idea how the internal bank score works. I’ve spoken to representatives from Equafax (the credit reporting agency) they say it’s a mystery how the computer comes up with your credit score. Now, there are basic credit score parameters that create the CREDIT SCORE. If you have had credit for a long period of time; credit cards, auto loans, home loans etc., and everything is paid perfectly and your debt is not too high, you will have a high credit score. Anything over 700 is considered A-type credit. But here’s the catch - I’ve seen 700 credit scores on kids with one account with $100 dollars on it. So, with an automated banking system this type of person could slip through the cracks and get the same loan as someone with real credit. I’ve seen it happen many times. Whenever you take the human element out of loan decision making you set yourself up for fraud. Everyone knows now that the mortgage industry pushed a bunch of unqualified loans through in recent years. How do you think they did that? My theory is the automation. Computers don’t know that a guy that works at McDonald’s doesn’t make $7,000 a month, a human would. So you got a guy that scores 700 and works at McDonald’s and makes $85,000 a year. The computer takes all this information and spits out a loan approval. The beautiful part is that as a underwriter you just blame it on the computer. When you let computers make your decisions for you no one has to take the blame. In the old days the underwriter and manager would have to analyze a application and sign off. Now it’s all done through automation, and computers aren’t very savvy so it’s easy to work around a set system with no human element.
Just remember when applying for a loan, don’t take it personally when you are turned down, the computer doesn’t.

Produce The Note

Dear Friends,
If you’re past due on your mortgage there’s a way to stall a foreclosure. First of all try to negotiate with your bank. If they refuse to negotiate and are sending your house to auction, there is a way to stall it. Go to your county courthouse and ask them to “Produce the note.” Then call your mortgage company and ask them to show proof of the original contract or who owns the loan. If they can’, which most banks can’t because they have sold off the loan, this will provide you with more time, because until they provide the original paperwork they cannot by law foreclose on you.

It’s working for some people who have been laid off and are trying to save the house until they get back to work.
This is only a delaying tactic but it may provide you with enough time to regroup, etc.

During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse, or destroyed.

Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.

9000 forecloses last month in the USA, hold on its going to be a bumpy ride.

Auto loans and purchasing

Dear Friends,
Oh, the headache of buying and financing a car. First, remember that a car is a depreciating item, it is not an investment. Before you go out and do the test drive, do your research. Every possible piece of information about the car is on the internet. Different models lose there value differently. Luxury cars lose the most value the fastest. While Japanese cars hold their value very well, even in the current market. The value of a car is called the Blue Book, which is a guide to the open market on buying and selling cars. The Blue Book tracks
selling, auction, buying and maintenance trends. Remember, it is a guide and it is also based on mechanical and visual condition of a vehicle. There are retail and wholesale values in the Blue Book. Car dealers only deal in the wholesale market and so should you. The Blue Book only rates used cars. Buying a used car is very difficult because of all the possible problems that could come with the car. Always have a car checked out by AAA before you purchase it. They are a non-biased company and they check the car completely. If the car passes inspection there’s still the issue of value. The mark up on used cars is higher than on new cars. Don’t buy a used car without running a CARFAX. CARFAX checks the DMV records of all cars in the US. It can tell you if the car has been in an accident or if it has been salvaged. NEVER buy a salvaged car they are worthless and you can’t finance them.

New Cars go by prices set by the factory. Buying a new car is much easier than it used to be, all the big companies have Internet sales departments now. You can negotiate the deal over the phone, order the color, arrange for pickup, and get interest quotes. Also, dealers have too much inventory right now. They are willing to deal more than ever, and the factories are offering all kinds of incentives. Don’t buy a car emotionally, it always gets you in trouble - like the baby-poo yellow convertible you just had to have. But it’s also important that you enjoy your car, that it’s comfortable, affordable, covers your driving needs, and is economical.

If you have to finance a car try to finance as little as possible. Before shopping for your car, go to a credit union and get pre-approved . Credit Unions are not for profit so they usually have very good rates. Check the factory incentive rates on certain cars, sometimes you can get rates as low as 1.9%, etc. Do not lease a car unless you’re rich, it’s a business deduction, or someone else is making the payments. They are very difficult to get out of and there are mileage limitations, and a host of other hidden things.

Try not to take out a loan for too long on a depreciating item - they are so hard to pay off.
When you go into the finance department of a dealership they will offer you a bunch of aftermarket items. Some are good and some are worthless, depending on the consumers needs.
Be wary of what extra things you are buying. All those items are being offered at a retail price, they are also negotiable.

Later I’ll write about buying a car with a credit problem.

Credit Card Consolidation

Dear Friends
I’m going to tell you a bedtime story about my friend, let’s call him Ken. This is a true story but the name has been changed. My friend Ken is a great guy; loyal, trustworthy, stubborn, and has some credit card debt. One day he asked me to look at his credit. He had a credit score of about 680, which is pretty good. He had never missed a payment on his history. Ken has several credit cards with different banks. Most of his high credit has been used. Because he has maxed out his credit lines, his score is starting to suffer. Now that he has maxed out his lines the banks are upping his APR on the accounts. He had two separate credit lines with Citibank. One card with 18 percent one with 9 percent. Many times my friend Ken has tried to consolidate his balances into one account with one lower rate. Of course, the banks want to keep him in a high rate even though Ken has good credit. Well, the other day Ken got fed up, and called Citibank like I told him. He asked them if they could consolidate both lines into one account at 9 percent. The person at the end of the line said they could not help him. Frustrated he hung up. Later when he was telling me the story he said “Ann you would have been so proud of me, I called them back.” Guess what the next person he got on the line said? “No problem.” Thus transferring his high rate card over to the lower rate. Another nice thing is now he will have a additional paid account with Citibank which will raise his credit score.
I just wanted to give this example because the banking institutions are so complex and automatized. You never know what will happen.
Persistence seems to be the best defense in this world of big banking, don’t take the first no as a answer.

On my next blog I will be talking about auto loans and auto purchasing.

Students loans

Dear Friends
Surviving the student loan meltdown. I feel like were going back to the 70’s and 80’s. Remember those days when you had to pay cash for school? First off there are many different types of student loans, so I’m not going to go into them all. Applying online for a student loan is silly since most banks are automated. If you make a mistake you will get turned down automatically.

If you’re planning on going to a school, the first thing you need to do is get accepted to that school.Once accepted, you can move forward in the admissions process. There are so many student loans and grants available that you MUST meet with the school’s adviser. My advice on student loans is NEVER give up. Some career schools will give you a direct loan. Also, most of the banks now are automated; if you get turned down the first time, try again for a lesser amount. Schools don’t want to leave students behind; find out all the programs available for that particular school.

The government has just passed a bill that has a lot of money going out for education. If you were turned down in 2008 wait a few months and try again in 2009. Banks constantly change their loan parameters. Consider getting a co-signer if you are having trouble qualifying on your own. A co-signer dose not have to be a family member, and some banks will take up to 3 co-signers together on one loan.

Once you get an education, no one can take it away from you, not like a house or a car. It is the best investment out there, it doesn’t depreciate.

Tomorrow I talk about credit card consolidation, and getting a lower APR.

Emergency credit situations and survival

Dear Friends

I’ve decided to start blogging due to all the emergency credit phone calls I have been receiving. First don’t panic, remember it’s only credit. It’s not your health or your job, it’s just a database somewhere keeping track of your payment history.

My name is Ann, I’ve been a financial director for 15 years. I have probably interviewed and analyzed 10,000 people and their credit bureaus. I realized the need for this blog because so many people don’t understand their own credit or the ramifications of late or “charged off” credit.

First - let’s start with the basics. Your credit history is a data record of your credit payments-credit cards, auto loans, home loans, student loans, furniture loans etc… These are called applied credit. Applied credit means you signed an agreement to pay the loan back with a monthly payment - you signed a contract. There are two types, revolving and installment credit. Revolving are credit card. The monthly note can change when the balance on the card changes. Installment loans are homes and cars mostly. Installment loans have a fixed pay period and the payment is always the same, except adjustable rate mortgages or ARM’s. Those are different, but they are still called installment credit.

Installment credit is more important for your credit bureau than revolving credit, mostly due to the amount of the loan. Homes and cars are large loans. When analyzing credit, underwriters look for paid installment loans before they look at revolving credit.  In the old days of credit analysis, paid installment credit was a reflection of the customer being more credit mature.

This may help you analyze your own credit and your current situation. Many people I know are at the point where they can’t pay all their bills. So remember INSTALLMENT credit effects you history the most. Installment credit is usually your most important loan for survival; your home and your car. If you are in a emergency credit situation, remember survival is key, first pay the things you can not survive without.

It’s getting ugly out there. You are not alone, so don’t be intimidated or embarrassed. IT’S ONLY CREDIT.

Tomorrow I’ll blog about student loans.