We educate consumers on budgeting, money management, debt education, housing counseling, and the wise use of credit. Our mission is increasingly vital because these days, because consumer education regarding housing, being financially organized, and the health of your credit report affects your ability to get a job, buy a home, a car, get insurance, or even open a bank account.
The following “How-to” sections address a few of those major life activities: understanding your credit report, buying a home, buying or leasing a car, and avoiding foreclosure rescue scams.
• Coping With the Credit Crunch
• How to Avoid Foreclosure Scams
• How to Protect Your Identity
• Understanding Your Credit Report
• Buying a Home
• Buying a Car
• Leasing a Car
Coping with the Credit Crunch
George Chamberlin hosted a special edition of Money Matters on NBC 7/39
to discuss events of the recent credit crunch. Guests on the show
included Melinda Opperman, counselor and Vice President of Community
Outreach for Springboard. Melinda visited with George Chamberlin to
talk about help for people having a tough time with budgeting and
paying off credit cards.
How to Avoid Foreclosure Scams Here's an informative video that can help you know if you might be a victim of mortgage fraud. It only takes 2 minutes to watch and is essential viewing if your mortgage might be in danger. Produced by Freddie Mac.
How to Protect Your Identity More than
eight million Americans have their identities stolen each year.
Springboard is working daily to build awareness of this problem and educate
consumers. National “Protect Your Identity Week” took place
October 19-25, 2008 and you may listen to an October 2008 Southern
California KOGO Radio interveiw conducted by Business Editor and host
of "Money in the Morning" George Chamberlin with Springboard on this
important topic here.
Understanding Credit Scores A credit score is derived from information in your credit report. Your credit report reflects how you have handled your available credit in your past, and your credit score predicts how likely you are to pay your bills in the future based on information in your credit report.
What is a Credit Score? You have three credit scores, one from each national credit bureau, which are a measure of your financial responsibility, based on your credit history. The score most often used by lenders is the FICO score, developed by Fair Isaac Co. FICO scores range between 300 and 850, although other bureau ranges may be higher or lower.
How Does Your Score Affect Your Buying Power? Most lenders will look at your FICO scores when evaluating your credit report or loan applications. Here’s how your FICO scores could affect your interest rate. Example shows an illustration for a 30-year fixed rate mortgage.
The Higher Your FICO Score, the Lower Your Payments **
Fico Score
Interest Rate
Monthly Rate
$300.000 Mortgage loan amount: based in California
760-850
5.43%
$1,691
• 9.05% would be a $2,425 payment (580-619 score)
700-759
5.66%
$1,734
• 5.94% would be a $1,789 payment (660-699 score)
660-699
5.94%
$1,789
• $636 per month savings
620-659
6.77%
$1,950
Better credit translates to reduced interest rates and lower payments- this may
580-619
9.05%
$2,425
mean the difference in qualifying to make the payment to obtain the loan. Poor
500-579
9.50%
$2,523
credit may increase your interest rate and erode your buying power.
**Source: www.myfico.com. This is not a guarantee of rates, or terms. Example for illustrative purposes.**
FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO scores to help them make lending descisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders use to determine your actual interest rates. Credit bureau scores are not the only scores used. Many lenders use their own scores, which often will include the FICO score as well as other information about you.
Your credit scores may be different at each of the three main credit-reporting agencies because the score only considers the data in y our credit report at that agency. If your scores from the three credit reporting agencies are different it’s probably because the information those agencies have on you differs. Your FICO score changes over time as your data changes at the credit reporting agency, so your score from a month ago is probably not the same score a lender would get from the credit-reporting agency today.
You may monitor your own credit reports – call 877-322-8228 to get your free annual credit report (one report per bureau, per year). Go to www.annualcreditreport.com but BEWARE of imposter websites that are “phishing” to steal your identity. You may want to opt out of pre-screen credit card offers by calling 1-888-5OPTOUT or visit www.optoutprescreen.com. To avoid unwelcome phone solicitations you may call 1-888-382-1222 to register on the Do Not Call Registry. What Makes Up Your Credit Score? There are five main categories that determine your final FICO score. Your score takes into consideration all positive and negative information in each of the following categories:
35% Payment history measures how your have paid in the past, and the equation includes both positive and negative information. You gain points for not having missed any payment and lose them if you have missed some.
30% Amounts owed measures debt owed against the credit limit. If you are maxed out on 3 credit cards the FICO scoring model will pay attention to that. A $10,000 debt load measured against a $10,000 credit limit will score lower than a $2,000 debt load against a $10,000 credit limit.
15% Length of credit history is an average. If you have had one account for 20 years (240 months) and five other accounts for one year each (5 times 12 months) the formula would calculate as follows: 300 total months divided by six credit accounts equals an average of 50 months or four years two months. Be cautious about closing accounts you opened many years ago, and even more cautious about opening too many new accounts, as this can impact your credit history average. Older accounts kept open with occasional use each year help retain valuable credit history and may help your score.
10% Type of credit used reflects the mix of your credit accounts and how you manage different kinds of credit (credit cards, auto loan, installment loan, home loan); lenders usually like to see a good mix of credit types, used responsibly.
10% New credit/inquiries reflects your interest in or propensity for getting new credit. Too many inquiries can lower your credit score.
Improving Your Score and Payment History Tips: This takes time. There are no quick fixes. Your credit score is your financial DNA; it affects many areas of your credit life, but it takes time for the effects—both good and bad—to be seen and felt.
There are no quick fixes; it takes time for the effects—both good and bad—to be seen and felt. Review credit reports regularly
Pay your bills on time. If you’ve missed payments, get current and stay current. Tip: The weighting of late payments of the 30, 60, and 90 - day type are strongly influenced by the item’s severity, frequency and how recent. As derogatory information “seasons out” (i.e. 2 years) and you begin to utilize “revolving” credit responsibly you can improve a negative score.
Keep balances below 25% of line of credit on cards and other revolving credit accounts.
Pay off debt rather than moving it around. Don’t close unused credit cards as a short-term strategy to raise your score. Keep old credit “active”.
Limit inquiries. Don’t open too many new accounts too rapidly. Apply for and open new accounts only as needed. (Mortgage / auto inquiries within 14 – 45 day window are “clustered” to 1 inquiry). For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Ask your lender which version they use to calculate your FICO score.
Revolving, installment, mortgage – don’t concentrate all credit to one type.
Be aware that paying off a collection account will not remove it from your credit report; it will stay on your report for seven years.
Junk Debt Buyer alert – also called “zombie” debt. Understand your rights prior to communicating with and/or making any payment commitment to a Junk Debt Buyer.
Ask your local bank or credit union for information on a secured credit card (that reports the payment history to the credit reporting agencies) to re-establish your credit.
At a macro level, public records (e.g. foreclosure filing, tax liens, judgments, bankruptcy) and collection items are regarded by the FICO model as very serious (compared to 30, 60, or 90 days late).
If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
Buying a Home As a HUD-certified housing counseling agency, Springboard is here to help you make the most out of your homebuying experience. It's a very good idea to schedule a counseling session with us if you're planning to purchase a home soon. Just call us at 1-877-Wise-Plan (877.947.3752) and we'll be there to help.
We've also prepared some tips to help you as you begin your journey toward home ownership.
Before You Buy A Home Make a wish list of what you would like in a home (remember your wish list sometimes exceeds your budget, so be prepared to make some compromises if necessary).
Your wish list should include the following: number of bedrooms and bathrooms, family room or den, size of kitchen, room for expansion, two or three-car garage, fireplace, swimming pool, air conditioning, storage space, etc.
Now you are ready to start looking for a home:
1. Hire an agent to help you with your search. 2. Tell your agent what price range you can afford, the area you are interested in, show your agent your wish list, indicate which things on that list are "must have" and which are "nice to have." Spend some time talking to your agent about what kind of house you envision yourself living in. Make sure your agent knows you are pre-approved. 3. Have your agent show you some recent sales in the neighborhood where you are looking to buy. 4. Make yourself available as much as possible to look at homes. 5. Don't make an offer on the first house you see, spend some time looking at what else is available in that neighborhood. 6. In a hot market, however, be prepared to make a quick decision or else your dream home could be sold before you know it. 7. When you make an offer, suggest a short escrow period; this will help sell your offer. 8. Once the offer is accepted, hire a competent and independent home inspector. 9. Be present at the inspection and don't be shy to ask questions.
Before You Start Looking For A Home
1. Establish a budget of what monthly mortgage payment you can afford. 2. Establish how much you can put as a down payment. 3. Go to a lender to get pre-approved; it will make your search for a home much easier, and sellers are more willing to negotiate if they have a qualified buyer. 4. Check out the various neighborhoods in which you would consider living. Go at different times of the day to check traffic and traffic noise. 5. Check the schools in the neighborhood of your choice (a good school district adds value to your home when you are ready to re-sell).
Top Ten Mistakes Homebuyers Make
1. Don't buy a home until you have sold your current home, unless you are willing to make two mortgage payments. 2. Don't look at houses you can't afford. After you have been looking at homes out of your price range, it seems that nothing else is quite good enough. So figure out how much you can afford ahead of time. 3. Don't move into a neighborhood you know nothing about. Spend some time getting to know the neighborhood to which you want to move. 4. Don't buy the first house you see. If you like the first house you see, don't be tempted to make an offer right away. Look at a minimum of ten other homes before you make that offer. 5. Don't spend more than you feel you can afford. Even if you qualify for a larger mortgage, find what you are comfortable with and stick to it. 6. In a hot market, do your homework. Then when a house comes on the market you really like, you'll be ready to make an offer. It is a heartbreaker to find a home you really want but were too late making an offer on because you were indecisive. 7. Don't buy the wrong size house. Try to look ahead 4 to 7 years from now; will that house be big enough for you? Are you planning for more children? Are elderly parents going to move in with you? Think about that, and plan accordingly. 8. Don't buy a house that is difficult to resell. If a house has been vacant and for sale for a long time, find out why. When buying a house, think about how hard it will be to sell when you are the seller. 9. Make sure you get the right mortgage for your situation. Start by knowing how long you think you will live in that home, then choose the right mortgage that will give you the best terms. 10. Get the right homeowner's insurance. You should always purchase guaranteed replacement insurance. Make sure you have enough coverage on the contents. Also check for special government-sponsored disaster insurance for some areas: earthquake, flood insurance, etc.
(These tips brought to you courtesy of Allstate Funding)
Buying a Car Start before you leave your house.
Look over your budget and determine what you can afford to pay per month, decide whether you want to buy a new or used car, and do some research on the kind of car you want.
If You Are Trading In Your Car If you have a car you're thinking of trading in, determine its wholesale value. You can start at an automotive web site like Edmunds.com or Kelly Blue Book, but be careful. Use the prices you get at these places only as a rough guide.
Then it's time to hit the road. Clean up your car and take it straight to the used car department of a local dealership. Tell them you are interested in selling your car, but not in trading it. Be firm, no matter how they try to wheel and deal you. All you want is an offer on your car.
Now head to another dealership and do the same thing. Be sure not to tell them what the other dealership's offer was. Then get a third bid from an exclusively used-car dealership. When you have those three firm offers on your car, then you'll know your car's wholesale value. It's the highest bid you received.
Now you'll want to check the local paper and see what cars like yours are selling for in your area. See what dealers are asking for your car. The average dollar amount you come up with will be your car's retail value. Now you may want to reconsider trading your car for wholesale or selling it yourself instead. It is a bit easier to trade your car, but remember you'll pay for that convenience.
Financing The last place you want to secure financing is at the dealership where you're buying the car. Start with your local credit union and/or bank. Do your best to walk onto the car lot with your financing already in place. Start by applying for a loan with a credit union. If you are rejected, you'll want to review your credit history. Springboard's certified counselors can do that with you for a small fee. Try to resolve the problems that kept you from securing financing and keep trying. Odds are a dealership will be able to get you financing regardless of your credit history, but the loan will be at very unfavorable terms. Stick with the bank if you can.
Time To Shop When you're ready to go shopping for that new car, it's time to put on your game face. You want to be confident and in charge when you walk onto a car lot. And don't get enthusiastic about any car you see. You have to be patient and careful not to let the salesperson take advantage of you, because that's what they're trained to do.
Don't be a payment buyer. Remember, everyone buys his or her car with cash. Sometimes you take out an auto loan to get that cash, but you're still paying for that car in full when you buy it from a dealer. Don't even talk about monthly payments with the dealer; for now, concentrate on getting the best price for the car you want.
Walk onto the lot armed with as much information as possible. Try to find out the invoice price of the car you're interested in. Edmunds.com can provide that information, but be careful to avoid the advertising and hyperbole on that site. Consumer Reports is a more reliable source, but they will charge you a fee for their services.
Time to Negotiate Find more than one dealership that is selling the car you want to buy. Don't be shy about getting up and walking out on either one of them; you don't have to put up with high-pressure tactics if you have another dealership eager for your business.
Getting the Best Deal
1. Always bargain up from the wholesale price of the car you're buying, not down from the sticker price. 2. Never pay sticker price for a vehicle from a dealer. 3. Try to come up with a fair price for the vehicle. The dealership is entitled to a small profit, and the salesperson will have earned a commission if you've driven a hard bargain. 4. Be wary, though. The dealership may try to sell you extended warranties, undercoating, rustproofing, fabric protection, etc. All of these items are worthless and overpriced. Just say no to them. 5. If you're trading in your car, have the dealership appraise it, but only after you've agreed on a price for your new car. If their offer doesn't match or exceed the wholesale value you determined, refuse to do business with them until they offer you a fair price. 6. Read everything you are asked to sign very carefully. Don't take anyone's word for what the contract says. Read it for yourself.
Drive Home in Your New Car If you've done it correctly, you'll be pretty tired by now. Negotiating for the best price on a car is hard work! If it was easy for you, then you didn't get the best deal. Trust us - that extra work is worth the thousands of dollars you can save.
Leasing a Car Leasing isn't for everyone. It's a rare individual for whom leasing will be a better arrangement than buying outright. If you're one of those individuals, great. But if not, be very careful. Never let yourself be talked into a lease unless you're absolutely sure that's what you want.
If you want to own your vehicle, obviously a lease is not for you.
And if you're considering buying the car at the end of the lease, think again. You'll be able to do so, but you'll pay far too much for the car. If you always trade for a new car before your old one is paid off, then you might be a candidate for leasing. You should have a stable income if you're going to lease.
If you anticipate ever having trouble making your payments, avoid leasing. You won't be able to get out of the lease without paying severe penalties. If you're buying a car, you can always sell it if you can't handle the payments. So before you lease, make sure your job situation is certain.
Avoid leases designed for people with poor or non-existent credit. They're always sub-prime leases, and they're usually on used clunkers.
If you drive a lot, be careful. There are mileage allowances built into lease agreements, and if you put too many miles on your leased car, it will cost you.
Shop at two different leasing agencies. Make them compete for your business.
As always, read everything carefully before you sign it. Only if you do your homework and you're careful can you get a good deal on a lease.
