On January 29th of this year, the Florida Bankers Association presented a bill to the state legislature. This bill, titled The Florida Consumer Protection and Homeowner Credit Rehabilitation Act, will turn the State of Florida into a non-judicial foreclosure state.

What this means, in real terms, is that banks would no longer be required to go through the courts in order to carry through with a foreclosure. The biggest result of this overhaul would mean a much quicker rate of foreclosures, as the non-judicial nature allows banks and lenders to expedite the process and have a foreclosure in as little as 90 days (and up to a maximum of one year, instead of the current 18 month maximum). Many states, including Alabama, Georgia, California, and Texas currently maintain non-judicial foreclosures, and as a loss mitigation counselor I can tell you that it can be a nightmare trying to prevent foreclosures in those states. 

The bill would also effectively terminate the current mediation process that exists within the state, thereby removing another outlet for clients trying to prevent foreclosure on their homes. A transition to a non-judicial foreclosure system would provide banks with the opportunity to seek defiency judgements in more cases, meaning that even a foreclosure would not prevent consumers from continuing to owe money to lenders.

The banks claim that all of these changes will serve to reduce the number of homes in Florida stuck in legal limbo and clogging the system.  Once the Florida Legislature convenes on March 2nd, they will determine whether or not this bill is in the best interests of their constituents.  I personally can only hope that they will find a better way to resolve this mortgage crisis than speeding up the rate by which people see their homes foreclosed.

The next segment on Mery Fetzer’s “10 Falsehoods about Credit that can Cost You.” In this edition I will discuss different types of credit and what it means to pay off your cards each month.

While it would certainly make sense that having several credit cards in use under your name would be a great way to help you build your credit score, this may not be the best way to improve it. Ten percent (10%) of your score is determined by the variety of credit you use, so having only credit cards may actually hurt your score, albeit not by a very noticeable amount.  In order to maximize this number you must use a few different types of credit, including: installment (car payments, furniture, etc.), loans (secured or unsecured), and credit cards. Even different types of credit cards (secured, unsecured, revolving, et al) may factor into your calculation, and since the credit-scoring systems focues on credit cards, this may be preferable to attaining a completely new type of loan.

One of the most common misconceptions is that paying off your cards in full every month will improve your credit score. And while that does seem like solid logic, the truth is a little different. There is no report or notation made on your credit score when you pay your account in full, although it is factored into your payment history. The other noteworthy fact about this is that if your account shows a balance when it is reported to the credit bureaus by the credit card companies then you will be reported as having that balance, even if you’re paying it on-time every month. Since the credit card companies usually report your account once a month, this date may not coincide with when you make your payment. The only surefire way to prevent this from affecting a purchase involving your credit report (ie car loans, mortgage, new credit card) is by not using your card for at least one month prior to the purchase. It is rules like these that make everyone wonder why their credit reports never seem to match up with their payments.

 The original article can be found here: http://hope4usa.com/10-myths-about-credit-scores/

This penultimate segment on Mary Fetzer’s “10 Falsehoods about Credit that can Cost You” deals with the impact of personal information on your credit report and/or score.

The first falsehood is the idea that having a debt-to-income ratio below thirty percent creates a positive notation on your file. While it is certainly a personal benefit to have a debt-to-income ratio below thirty percent, your credit is not affected by this number. The reason for this is that your credit report and score do not account for your income, so your ratios have no impact.

Her second falsehood is the common misconception that having incorrect personal information on your file can lead to a lower credit score. While it is very important to review the personal information on your credit reports and make sure it is accurate, the information itself has absolutely no effect on your credit score. As credit administrator Michele Brander says, “Income, employment history, race, religion, national origin, gender, marital status, and age are not factors in credit scoring.”

Here is my breakdown on the next two falsehoods (closing credit cards and not using credit) presented by Mary Fetzer’s article “10 Falsehoods about Credit that can Cost You.”

The first concept, that closing out any credit accounts that you are not using will help increase your credit score, is a flawed idea. While it may seem like it makes sense (an unused card doesn’t seem like it would help your credit score), there are actually two reasons to NOT close those open accounts. The first is that one of the major factors in determining your credit score is based on your credit history. As your payment history accounts for thirty-five percent of your total score and another fifteen percent is based on the length of your credit history, closing a card can impact both of those areas. Once that card is closed, for example, the payment history of that card will be removed from your calculations, which can be a big negative if you’ve always paid the card on time in the past. It will also remove the history of that card’s usage; so you may want to reconsider if you’re debating closing one of your oldest cards, as the longer your history the better your score. The second drawback is that your credit score also keeps track of how much credit is available to you. So by removing a card from your report, you are also removing that credit limit from your record.

This week’s second falsehood is how paying cash for your purchases and therefore not having credit card debt will help your score.  The problem with this concept is that it does not help you establish a credit history, which is a huge calculation in your credit score.  So while paying cash may seem like a good idea, the fact that you’re not building your credit history will have a big difference in how credit worthy you appear in the future. 

While this may not be an original post, it is definitely information that everyone should be able to use: 

IRS Presents: Top Ten Tax Time Tips  While the tax filing deadline is more than three months away, it always seems to be here before you know it. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.
2. Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.
3. Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.
4. Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more.
5. Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
7. Visit IRS.gov again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.
8. Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

That’s right. I said you should not be outraged by 79.9% interest rates. I am saying that even after reading an article titled “79.9 Percent Interest Credit Card From First Premier Bank Skirts New Regulations” in the Huffington Post online. You can read the article by clicking on the title.

Not only do I say that you shouldn’t be outraged, but I say that you should be grateful. This is not a result of a creditor skirting the new rules on credit cards in the CARD Act. It is the result of a creditor COMPLYING with the act. Read this closely and carefully: Now you will have a better idea of the true cost of credit.

The purpose of the act was to end abuses by the credit card industry. If your credit score is low, it is almost impossible to get a card with decent terms. Even so, you would get offers for cards with rates as low as 9.9% like the current offering described in the above referenced article. Along with that low rate, however, you would also have astronomical fees.

Those fees added up to much more than 79.9% interest plus the $75 annual fee being charged on the card unless you keep the card maxed out all year long. If you use the card for everyday purchases, and pay the card in full and on time every month YOU WILL NOT PAY ANY INTEREST!

You will still pay the annual fee of course, but considering that the same company is currently offering a card with $256 in fees in the first year (on a card with a $300 credit limit), and $143 in fees every year after, a responsible cardholder will pay considerably less annually with the new high rate card.

The new regulations state that scheduled fees are not to exceed 25% of the credit limit in the first year. This is the reasoning behind the $75 annual fee on a credit line of $300. Don’t get me wrong. That is still a hefty fee for such a small limit. At least with a 79.9% interest rate, you will be less likely to carry a balance, and that is a good thing. Buying credit has always been expensive, but the high cost was not obvious enough. Now it will be.

Should you get one of those cards? I still say that you are better off going to a major bank and getting a secured credit card. I say go to a major bank, because they will report to all three major credit bureaus and the annual fee will be more like $29 to $39. After a year with a good payment history you will usually have a chance to convert it to an unsecured card (meaning you get your deposit back and continue using the card) and may even get the bank to waive the annual fee.

Should you choose to obtain one of the new 79.9% cards, you will know what you are really paying and you are also going to be highly motivated to maintain a zero balance. If the high rate makes you stay away from the card and use a better method to establish credit, then knowing what you are really paying helped you make a good decision. So I say again, why be outraged?

Author: Kevin Maher

I am very proud to report that earlier this month my agency, Consumer Credit Management Services, Inc. (or CCMS) went over ten thousand pieces of financial literacy that we have given out to clients this year alone.  That number only accounts for our Education department, so there are likely at least another thousand pieces that are not recorded.  As a small agency we take tremendous satisfaction from knowing that we are able to reach that number of consumers and provide them with free tools for financial education. Here’s hoping that next year will bring an even greater number of consumers positively affected by our programs and information.

Over the next few weeks I will be doing a multi-part breakdown of Mary Fetzer’s article “10 Falsehoods about Credit that can Cost You.” Today I’ll discuss the first two falsehoods: locked credit scores and self inquiries.

Many people wrongly believe that they have a universal credit score and credit report, but the reality is very different. Each of the three major credit bureaus (Equifax, Experian, and TransUnion) keeps its own records, and therefore you actually have THREE unique credit reports and scores.  This is why it’s so important that you check your credit reports with all three companies at least once a year, and the major reason that the government created the Fair and Accurate Credit Transactions (FACT) Act  of 2003.  The FACT Act allows you to pull your credit report from each of the three credit bureaus once a year, for free.  The other important fact is that your credit score is recalculated every time your credit report is pulled, which means that in a busy year your score can change multiple times.

The second falsehood focuses on the idea that checking your own credit report too often can hurt your credit score.  The truth is that it can’t hurt your score, because anytime you pull your own credit report it is considered a “soft inquiry,” which just means that it won’t impact your score.  A “hard inquiry,” on the other hand (like applying for a credit card or having a car dealer pull your credit report) will have a negative effect on your score.

So last week it was announced that the Fair Isaac Corporation, the company behind the infamous FICO credit scores, would finally be revealing some information about how the scores were determined.  This announcement was huge news within the credit industry, as FICO has kept their formula a closely guarded secret for years, forcing everyone else to wonder how much a certain action would hurt or help us.  Sure enough, they then showed exactly how much your credit score can be hurt by negative activities ranging from a missed payment to bankruptcy.  One of the most surprising details they shared was that the negative impact varies depending on your individual score, which means that the higher your score, the more you’ll lose if you make a mistake.  This discovery has a lot of people up in arms, and that’s not too hard to imagine.  Why should people who have handled their credit excellently to that point be penalized MORE than someone who has struggled in the past? The logic behind this practice is tough to figure out. I understand that there are many companies (realtors, credit card companies, car dealerships, etc.) who increase prices or rates based on a lower credit score, but I would like to think FICO hasn’t been influenced by those industries.

To go on about the article, FICO gave an example of a person with a credit score of 680 (about average), and showed how different actions could impact their score.  A single missed payment, for example, would cost between 60-80 points off, while a bankruptcy would remove a whopping 130-150 points.  Two of the more relevant examples for the current economy were that maxing out a credit card could damage your score from 10-30 points and a foreclosure could cost anywhere in the area of 85-105 points.  Grim news for consumers facing tough choices in the coming months. Hard to believe that one month’s missed payment could potentially wreck your credit score, but it seems to be the truth.

Well there you have it folks: we finally have some understanding of how those mysterious credit scores work. And while they didn’t explain how positive notes like paying bills in full or making consistent monthly payments can help your score, this is a big step towards knowing how our actions affect those numbers which are so important in the modern world.  Good information to have, and maybe this will be a good reminder not to max out your credit cards this holiday season.

Carrying a balance on your credit cards can become more costly than it was before the new credit card act was created. The worst part about that statement is that the people with the best payment histories are likely to suffer the most.

The intention of the act was to protect consumers from some of the more abusive or at least misleading actions from credit card issuers. While this is generally true, the fact is that the creditors are making up for the lost future revenues in other ways.

Most of the provisions of the new act will go into effect in February of 2010. Among them are restrictions on how quickly rate increases can be instituted when consumers make late payments and a requirement that the old rate be reinstated after 6 months of on time payments.

Another change concerns the way your payment is applied when there are balances on a card with different rates. Instead of every last penny of your payment going to the balance with the lowest interest rate, your minimum payment will be distributed proportionately among the balances and anything extra that you send will go to the balance with the highest rate.

So, how can I say that credit cards can become more costly? Have you ever heard the basic law of Newtonian physics? For every action there is an equal and opposite reaction. The creditors have been raising rates on millions of cardholders and also changing people over from fixed rates to variable rates. If they can’t make as much money from the people who are a couple of days late once in a while or that have multiple rates on their cards, they will make up for the lost revenue on the people who pay perfectly but carry a balance.

But wait! Doesn’t the new law also give you the option of opting out of the rate increase? Yes it does. It allows you to close the account and continue paying the remaining balance at your old, better rate. But there is a loophole that is being used by many card issuers. They are allowed to base your minimum payment on a 5 year repayment schedule, or they can require a minimum of 5% of the outstanding balance as a minimum payment.

What this means to you is that you may actually have a higher payment if you choose to close the account. For those who are on a shoestring budget, they may not have any choice but to agree to the rate increase to keep payments affordable.

Of course you always have the option of going to a legitimate credit counseling agency to see if a Debt Management Program will bring the accounts to a reasonable rate and payment, but that is an option you should only consider if the new payments or rates are creating a hardship. If you can pay extra and eliminate the debt easily on your own, do it.

The bottom line always comes to this: pay your credit cards off if you have balances, and then get into the habit of using them only when you have the ability to pay them in full each month. When you pay them in full within the grace period, you will not be charged interest, and then the rate really doesn’t matter.