• Paying your bills on time (Late payments are HUGE credit killers)

• Don’t get in over your head (A good rule of thumb is never use more than 45% of your income on Housing and Transportation expenses combined) This actually has little bearing on your actual credit score, but the implications are obvious, people in over their head tend to get in trouble, have late payments etc.

• Get on a Budget (Like the old saying goes, those that fail to plan, plan to fail) Its hard…I KNOW it is, but this is one of the single greatest indicators of financial success. Those that dont have discipline in their spending rarely have a good credit score for long.

• Use credit as a tool. (It is a means to an end. ALWAYS have your outcome in mind when you use credit. Using it without a purpose is a recipe for disaster) Building a credit score by charging items that you HAVE the cash to pay for, or supplementing cash flow for a business are valid reasons to use a credit card. Christmas spending that you didn’t save up for…is NOT.

Dave Ramsey often refers to credit scores as “I Love Debt Scores” and he is right. He is the prototypical “millionaire next door” meaning despite him having an above average income, he lives below his means, saves money, invests it well, follows a budget and DOES NOT USE CREDIT AT ALL. For this reason, he does not have a credit score.

Credit Cards: Your Best Friend…Your Worst Enemy

This scenario plays out at least 3-4 times a week when I meet with people about getting a home loan.

I ask the borrowers if they know anything about their credit. If it is good they tell me how they ALWAYS pay everything on time and always have since 1982 and they have cut up all their credit cards because they don’t believe in them.

I then pull their credit and they are dismayed to find that they do not have amazing credit scores. They might be average, or low, or non existent.

“WHY!?” they ask.

And I tell them; You don’t believe in Credit cards.

There are essentially two factors that come in to obtaining and maintaining good credit. Depth, and Credit usage. These are my own terminology, and are not actual words used by the credit bureaus or the industry at large per se. I simply use them to illustrate ‘how it works in the real world’.

You see paying your house or car on time every month is OUTSTANDING…when a human looks at your credit. It says you are responsible, it says you care about paying your debts.

On the other hand the mathematical equation used to determine your credit score (called an Algorithm, and typically provided by FICO or Fair Issacs Corporation) looks at this factor with little weight in the over all big picture.

On the other hand, a person with the very same credit profile who also has 3 revolving (read credit cards) lines of credit that had perfect payment histories over a 5 year period, who never carried more than a 30% balance (this number is somewhat debated amongst credit experts and varies from 10-45%) would likely have a much higher credit score.

So in laymans terms…a Credit score is an indicator of who borrows money and pays it back the most often. Or who makes the banks a lot of interest. THEY will have high credit scores.

Why? Because Credit Bureaus are in the business of selling information.

They sell YOUR information to lenders.

Lenders want to know who will make them money.

Credit scores indicate who will make them money.

Thus, having and using credit cards will get you a high credit score.

Lesser Known Facts

Here are some pointers that are not quite so commonly known about obtaining and maintaining a great credit score

• Never use more than 30% of your available credit (It’s a good rule of thumb for your spending, but its crucial for your credit score) There are times when you actually need to “go into debt to go into debt” meaning if you know you are coming up on a large purchase such as a house, refinancing or a car it might be worthwhile to put a balance on your credit card(s). This needs to be done well in advance of applying for the new credit because creditors typically only update once a month. So if you charge your groceries on the 20th, and go apply for credit the next day, it won’t show up and your credit score won’t be affected.

• Open and Maintain 3 revolving lines of credit for 5 years (Often opening a new revolving line of credit for a borrower with zero credit cards will provide an immediate boost to their scores) Having said that, over time they will need two more to establish good credit depth in the eyes of the credit bureaus. The longer this history is reported the better credit scores tend to be.

• Become an Authorized User (This was supposedly done away with, but we have proven it still works with certain companies) The idea comes from a law that was passed in the 1970′s to allow parents to help their kids build up a credit history. Essentially you can take and add your child or spouse (or relative, or…well anyone) and add them as an authorized user to an existing credit card account. Once this information reports to the credit bureau they “piggy back” on your account and your good credit history would report on your report AND theirs. In theory this could allow whoever was added to the account to make charges. However if the card holder provides their own address for the new authorized users card to be delivered to, they can destroy the card and make it impossible for the authorized user to make any charges to the account. For those looking to build a credit history this can be a valuable tool.

• Open an Overdraft Protection Line of Credit Often people who “dont believe in credit cards” will simply refuse to give in, even for the sake of getting better credit scores. If you fall into this category, one option is to apply for an overdraft protection line of credit. Yes it is still technically a credit card. However its purpose is very different. It merely protects you in the event that you ever go beyond your checking account balance. However the bureaus see it as a credit card. This is a great strategy for building a credit score without having to give in to the evil forces of capital one.

• Stay Away From Store Credit Whether its a Jewelery store, Home Depot, Best Buy or Sears…just pass. Not only are the rates and fee’s often exorbitant, even in comparison to some major credit cards, but they are not “created equal” in the eyes of the credit bureaus. For the purposes of building credit stick to good old fashioned credit cards.

• DON’T dispute every single thing on your credit report Often so called credit repair companies will dispute everything on a persons credit that isn’t a perfect account. This can do more harm than good at times. The math behind your credit score is complex to say the least. It is heavily weighted towards the newest items, and as things age they become less important to how your score is calculated. One curiosity is that sometimes removing a negative item from your credit can LOWER your score. One example is a satisfied collection account that was revolving. Odd as it may sound, sometimes these get reported as open and revolving accounts. Losing that history will lower your score.

Following these tips will help anyone get the best rates on any type of loan be it a Mortgage or a Car Loan. Credit is increasingly used in Insurance as well to help determine risk. Not to mention by prospective employers for Job candidates.

We Finance Anyone

But I digress. In recent years since the sub prime melt down, this has started to change. Initially FHA began requiring a minimum 580 FICO score. Many lenders moved their own guidelines to 620, in spite of FHA’s lower mandate. Now, we are seeing many lenders inching towards the 640 mark as a minimum credit score requirement to get a loan.

So what does this mean for anyone looking to buy a home or refinance in Utah?

Well, first you need to know that not ALL lenders are requiring a 640…YET.

We can still help even if you have NO credit score, below a 600 Credit score, and of course if you have great credit we can help you.

What you need to remember is that it is crucial that you are very diligent about protecting your credit rating. If it is good now, make sure it stays that way by following our tips on how to get and keep a great credit score. If you have poor credit but want to buy a home, we are just the guys you want to talk to. We have over 8 years of experience helping people improve their credit so they can buy a home.

Call or Email us today and we will show you how we can over come credit issues and help anyone own a home.

My Friend Justin McHood over at Mortgages Unzipped humorously explained how most people end up choosing a title company when they purchase a home or refinance. In the end the answer is, they rarely do…choose that is.

This is something that has bothered me for a long time, so I wanted to take a moment and clarify REALLY who “GETS” to choose the title company.

YOU DO. The guy paying the charge for the services performed.

Not your Agent

Not your Agent’s Broker

Not your Mortgage Broker/Loan Officer

YOU.

Now having said that, how would you know which one to choose? Lets talk about that for a moment. This is where our discussion becomes about roles. See, sometimes how things ought to be, are often close to how they are…but like my 5th grade teacher used to always say (and I mean always) Close only counts in Horseshoes and Hand Grenades.

He also would say “You want me to turn you into a water buffalo?” Why a Water Buffalo you ask?, “Because a Water Buffalo’s hind quarters are up higher than its ears…after I kick your @** yours will be too”

Yeah, those were the days. When teachers could say that kind of stuff and not have the ACLU and the evening news there an hour later.

So back to how it ought to be. Professionals in the Real Estate industry are trusted advisers. We should know who you would want to use, not because we were “Bamboozled”, but because you will get the very best service you could get, for a reasonable price.

I will add as a disclaimer, that where you obtain title is a negotiable item in a contract. A seller can specify that if you wish to purchase their property you must use the specific title agency that they require. This is perfectly legal, and common when purchasing bank owned properties. However, in any other circumstance it is your right to choose as the buyer or seller. You might even ask your agent, or loan officer why they chose the agency they are recommending. A good loan officer or Agent will have done their homework and will be recommending someone based on Competency, Service, Communication, Efficiency and Speed, and of course price, but not at the expense of the other necessities…the last thing you want when dealing with the most expensive purchase you will ever make is the guy that is the cheapest just because they are the cheapest.

Someone other than my 5th Grade teacher said “The bitterness of poor quality remains long after the sweetness of a low price is forgotten” -Benjamin Franklin

When it comes to a good Title and Escrow officer, I couldn’t agree more with good old Ben.

Now, I’m off to Walmart…I need milk.

Anyone living in Utah who owed more than 105% couldn’t refinance their home — before today’s announcement by HUD Secretary Shaun Donovan. Today, it was announced that anyone who wanted to refinance but was previously prohibited because they owed more than 105% of what their home was worth could now refinance up to 125% of the home’s value. The change from 105% to 125% in the Making Home Affordable plan is just another step that the Obama administration is taking to help prevent foreclosures across America.

Both right here in Utah as well as all over the US, there will now be thousands of people who currently owe more than 105% of their home’s value take advantage of lower rates while they are available. Now, with the Obama 125% refinance people living in Utah can refinance their home as long as they don’t owe more than 125% of what the home is worth.

According to a story found in CNN:

The move acknowledges that home prices in many areas have fallen so far that many people were shut out of the program. Some 67% of homeowners in Las Vegas — one of the hardest hit areas where Housing Secretary Shaun Donovan announced the expansion Wednesday — owe more than their homes are worth.

More than one in five borrowers are now underwater, with homes in parts of California and Florida losing more than 50% of their value, according to Zillow.com, a real estate Web site. Some 20 million people own homes worth less than their mortgages.

“The president’s Making Home Affordable plan is already helping far more than any previous foreclosure initiative and with today’s announcement we will extend its reach still further,” said Donovan.

A story at Bloomberg said:

The decision to change the allowable ratio is part of an effort to “adapt to an ever-changing housing market,” Treasury Secretary Timothy Geithner said in the HUD statement. “By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly.”

Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia, said mortgage brokers have told him that many aren’t sending borrowers through the program because it’s cumbersome and the loan applications “still have a lot of bells and whistles, which makes them difficult to do.”

What This Means For People In Utah

Although it is somewhat difficult to tell exactly how many people in Utah will benefit from this change, there are surely many people right here in Utah who will now be able to refinance and be able to affordably stay in their homes. To find out if you qualify under the recent Obama refinance guideline changes, be sure to contact your local Utah mortgage expert today.