Jan 04 2008
Getting Healthy in the New Year
2008 - What’s your New Year’s resolution? To get healthy? What about your credit health? Those credit cards came in very handy for all those last minute purchases. You’d forgotten all about Aunt Irene until she called December 23rd to see how you liked the fruitcake she sent – didn’t you? So you had to get her a last minute gift! But now come the bills…
Your credit score is your lifeline to getting the best rates on mortgages, auto loans and even credit cards. And there are some changes coming up this year that will make that score even more important if you are planning on purchasing or refinancing your home. The most significant of these is beginning on March 1st when Fannie Mae and Freddie Mac are adding, “credit score-based fees” to their loan level pricing models. This also includes a quarter-percent “delivery fee” effective on all loans. The fees will run as follows:
* Credit scores from 660-679 will require a delivery fee of 0.750% of the loan amount
* Credit scores from 640-659 will require a delivery fee of 1.250% of the loan amount
* Credit scores from 620-639 will require a delivery fee of 1.750% of the loan amount
* Credit scores below 620 will require a delivery fee of 2.00% of the loan amount
This means the borrower will either have to bring more money to the closing table or settle for a higher interest rate.
Now is a great time to make that resolution to build and maintain a good credit score in 2008. Most consumers don’t realize how important it is to keep low balances on credit cards. We have seen credit reports with no late payments, no collections, no public records but with scores in the upper 500’s simply because they have high balances on their credit cards. Optimally the bureaus want to see no more then 3 revolving debts with balances and those balances below 30% of the high credit.
So what’s the best way to tackle your debt? First call your credit card companies and ask if they will lower your interest rate. These companies periodically raise your interest rates without your knowledge. If you are in good standing with them there is a good chance they will agree to lower the rate. At the same time ask if they will raise your credit limit. If cash is tight and paying the credit cards off in a short amount of time is not feasible, raising your limit could change your ratio to where the balance is below that 30% mark. However, don’t charge up more debt on this additional limit.
Attempt to pay at least double the minimum payment or more on your credit cards. If you just make the minimum payment you could be paying off that debt for years. Many people will put extra money into their retirement funds, but instead of doing this for a few months put that extra money towards your credit card debt.
If the debt seems too overwhelming to handle, consumer credit counseling is also an option. But be careful! Sometimes lenders look at this the same as a Chapter 13 bankruptcy. And some of these companies will actually end up doing you more harm then good. So make sure you are dealing with a reputable company. Some tips:
* Make sure the company is non profit
* Make sure they have been in business at least 10 years
* Check them with the Better Business Bureau
Once you’ve started on a plan to resolve your debt don’t use the credit cards. Don’t close them, but don’t use them. One trick people use is to freeze them – literally. It makes impulse buying a lot less tempting if it means you have to stand over a block of frozen ice with a hair dryer to get that credit card out.
And when you open those bills every month, don’t panic. It will get better. Be diligent, keep your goal in mind and slowly but surely you will be able to eliminate those debts.
Let’s all have a safe and happy New Year and add that one more resolution to have a great credit score by 2009!