Many lenders advertise that they offer “Credit Builder loans”. This is just a blatantly false advertisement. The sole purpose is to get you to open a credit card or take out a loan with them. Don’t do it. I’ll explain why.

There are several different lenders who advertise that they can build your credit – meaning your credit score. These are the different lenders and their advertisements to us:

Chime / Lyft states, “Start building your credit for free.”

Self states, “A fast, free way to improve your credit score.”

Creditkarma, “With Credit Builder, you could improve your credit score…”

Republic Bank states, “Our credit builder program may help you improve your credit

score within as little as 12 months.”

            UUCU, “Credit Builder Loan…will increase your credit score.”

There are many more.  You would think that everyone has a credit builder program.

Opening a new loan in most cases will not improve your credit scores. That is a true statement. Jason had mid-600’s credit scores and he went to Creditkarma to get help with improving their credit scores. Creditkarma suggested he open three credit cards with Upgrade and WebBank. His scores dropped and would only barely nudge higher month after month.

The problem? There are several problems here that are common for most consumers.

1. Jason did not need to open any accounts.

He had sufficient credit. In fact, he needed to close some of accounts that were hurting his scores from being derogatory, or recently opened. Opening new accounts only prolonged his efforts to improve his scores.

2. The wrong type of lenders

Opening the credit cards Creditkarma also recommended lowered his score even more because they are with “high-risk” lenders or as the FICO Score refers to them, “Too many finance company accounts.” Once these accounts are on a person’s credit report, they drop a lender’s FICO credit scores for ten years about 12 to 20 points.. That is a long time.

3. Too many active accounts.

One of the greatest, yet widely unknown, factors in a lender’s FICO Scores is the number of accounts open and the number of accounts with a balance. This will lower scores even more.

What does Jason have to do? He has to payoff and close those three accounts and his scores will recover to levels prior to taking out those accounts.

Credit builder programs are designed to have you open a new account in that lender’s name. In 90% or more of the cases, it will not improve your credit score until it has established a decent history which can mean at least one year.

Don’t fall for these mis-advertisements. They benefit them, not you.

If you think you need to open an account, go to MyCreditPlan.org and get your analysis. It will tell you explicitly that you need to open an account. Otherwise, you are wasting your time and money.

This past weekend when no one was looking, the U.S. Treasury revealed how much in interest the government is paying on the ballooning national debt. With higher interest rates, the numbers were eye-popping. It will have the following repercussions going forward for all Americans.

 

For the first time ever, the interest paid by the federal government is more than the entire defense department budget. The interest on the debt for the last year was $879.3 billion – almost a trillion dollars. The entire defense department budget was $775.9 billion.

The first problem is the government brings in only $4.4 trillion annually which was considered a good year this past year. That means almost 20% of the budget is paying for interest for past borrowing. No benefit comes from that. For personal finances, that would not be considered bad . However, with personal finances, the debt is being paid off. For the U.S. government, that is just interest and no debt is being paid off.

The second problem is the expenditures. The U.S. Treasury is spending about $5.3 trillion and IT CONTINUES TO INCREASE. That means the U.S. Treasury is running about a 41% in deficit spending. The reason the deficit is high is  from higher interest rates and escalating spending levels. And President Joe Biden wants to pay off $100 of billions in student loan debt, and leave the underlying problem continues to get worse?

Think about it for a second. If you made $50,000 annually, but were spending $70,500 each year, how long would that last? Not very long. Your money would dry up fairly quick as you head to a bankruptcy court. You would have to cut spending dramatically and probably sell possessions. The cost to borrow money would skyrocket for you as you are a definite risk of default.

It is the same problem here. The U.S. Treasury is not immune to the principles of borrowing and paying interest. We are heading for a government financial disaster unless interest rates come down dramatically and the government cuts back on spending A LOT. Social Security? How does it continue as is when there are huge deficits. It is a good question. Be prepared for a future time when the U.S. Government will be limited in providing resources to us the citizens. This is a self-made disaster made by the leaders in Congress and the President such as Schumer, Pelosi, Biden, McConnell, with Trump, and Obama not far behind in responsibility.

What does it mean for you and I.

It means less government spending and higher taxes in the future to make up the difference if we are going to get out of this. Otherwise, the disaster waiting I am afraid will be much worse than the financial crisis. And I was one of a small group that warned Congress and state politicians of the problems leading up to the Financial crisis during my presentations to them in San Francisco in 2006 and Washington D.C. in 2007. Many thought we were off the rails, and then quicky ran back to us when the problems started to unfold.

This is a serious problem and unless someone takes action real quick, a financial waterfall could be just around the corner.

Over the last 18 months, interest rates have taken a hard hike higher evaporating the dreams of many. The question is asked, when will interest rates decline?  There are some indicators to give everyone some ideas.

Many consumers falsely believe that mortgage interest rates are tied to the Federal Reserve. They are not. The Federal Reserve has a direct impact in short term lending to banks, while long term interest rates are indirectly impacted from the Federal Reserve. 

There are times that the Fed’s interest rates are low, and mortgage rates are much higher, like we saw in the first part of 2022.  Other times, the Fed's interest rates are higher than the long term interest rates such as the beginning of the pandemic, when mortgage rates plunged below the Fed's rates for a period of time.

When will mortgage rates decline?

Obviously the Fed keeping short term rates high around 5.00% has an impact. However, the Fed also owns over $2 trillion in mortgages they purchased primarily during the pandemic that the Fed wants to sell.

This creates upward pressure on mortgage rates because there is an oversupply of mortgages being potentially sold on the market, and an insufficient number of buyers. What happens? Mortgage rates go higher in order to keep attracting more investors to purchase mortgages. Higher interest rates attracts more investors (buyers).

In addition, Congress and the Biden administration are running between $2 to $3 trillion dollars annually in the red. Where does that money come from? The U.S. Treasury issues government bonds to cover the shortfall.  It is like a line of credit for the U.S. Treasury. Unfortunately for homebuyers, those U.S. bonds compete with mortgages for investors. In order to attract the investors, all interest rates go higher because of the excessive supply and lack of demand from investors. It is basic supply and demand.

There are wars now that the U.S. government is funding hundreds of billions more annually. That adds additional pressure because the U.S. Treasury does not have the money.  It has to borrow for it. Which leads to higher interest rates for the foreseeable future. 

How long could this last? Good question. Mortgage rates could stay relatively high for a year or two settling somewhat in the high 6.00’s to 7.00’s as the economy slows down – slightly lower than the current levels. Nevertheless, the fact that interest rates are high because of the amount of debt being issued, means many homebuyers dreams will either have to pay an additional “tax” in higher interest rates, or postpone that dream as it gets pushed farther away.

The one good news? There is some hope. Home prices are starting to decline and we should see some more settling for the foreseeable future.    

The Biden administration is trying to eliminate medical debt from your credit report. Is it true? There are many players in this and it will yet to be determined if that will be true. What will happen to the medical service providers? Will they be willing to provide services and not have an avenue to collect payment? That is a very good question.

The U.S. government first allowed consumers to miss payments on various types of loans without those missed payments showing up on their credit reports. The next phase removed most past due taxes and any judgments from the credit report. Now, the Biden administration wants to remove all medical collections form the credit report. There will be a fight on this one and it will create additional secondary consequences.

Hospitals, doctors and other medical providers are not going to just allow the Biden administration to take away tone of their best methods to collect payments. Just like the student loan debacle, there will be legal action because it impacts many more people. 

Medical collections are primarily the result of a failed medical system that pays too much with too little benefit. Many families with at least a couple of children end up paying over ten thousand dollars annually for medical coverage. For some, it is the cost to go the doctor a couple of times a year. For others, it is the coverage to prevent a massive medical bill.

Whatever the situation, the insurance premiums for a regular size family are extraordinarily too high for the benefited that are provided. With the U.S. government subsidizing insurance premiums for millions of Americans, the root cause of the problem becomes more difficult to address because it is just covered up by more government involvement. Throwing more money is not the solution, it just exacerbates the problem.

We hear that medical debts are not a good barometer of a person paying on a loan. We also heard the same for tax liens and judgments. If a person didn’t make a house payment during the deferred payment period during the pandemic, don’t you think someone who did make their payment would be considered less risky. But yet they are all treated the same. When a debt is owed, it adds more risk to a consumers financial profile. There are repercussions for having all this derogatory information remove from credit reports.

The problem that is occurring is that credit score requirements keep increasing to qualify for the lowest interest rate and the lowest insurance premiums. Most mortgages raised their requirements from 740 to 780 in the Spring of 2023. Other lenders are following the same lead.

Those that make payments on time are wrongly hurt by not qualifying for the best interest rate because the goal posts have moved and become more difficult to reach. The end result is millions are paying more who have really good credit, but not excellent credit as now required.

It may make great headlines to say that missed payments, judgments or tax liens won’t appear on a credit report, or medical debt will disappear. When you turn around, we will all be paying more unless we have an excellent credit score. Additionally, you may be denied services because of these proposed changes. Unless we fix the problem, they are just putting a temporary band aid on the issue.

Over the last several years, there has been a substantial movement to allow consumers to miss payments, judgments and tax liens deleted form their report. Two states have now passed laws that create an unfair and uneven assessment with consumer credit reports. What is fairness? That some are treated one way and others are treated another way? That is unamerican.

Medical collections have been a hot topic for the last several years. Once a medical bill went six months past due, it oftentimes has been sent to a collection company. It then appears on the consumers credit report and can drop that credit score 70, 80 and even over 100 points.

Some states have stepped in to create an unfair advantage for some. Colorado and New York have recently passed state laws that restrict the ability of medical providers and collection companies to report past due medical bills to the credit agencies. What incentive does a consumer have to pay his / her medical bills now? Why do consumers in 48 other states have to pay their medical bill or that bill will show up as a collection, substantially hurting their credit rating.  Only in New York and Colorado, medical collections will not show up in the credit report.

State legislators have now created an uneven credit report. Those citizens in Colorado and New York gain an extra benefit millions of other consumers do not. Now it is going to be a race to the bottom. Other state legislators will step in and pass other restrictions.

This issue should be uniform across the country. States should not be allowed to dictate what goes into a credit report. It should be a federal issue so that it is applied evenly. Otherwise, there is inequality and that is what is happening now.

The credit repair industry just took a big hit. It is very doubtful you will be hearing about credit repair. With the two largest credit repair companies fined billions this week, the credit repair business is facing a big reckoning.

What happened?

Lexington Law and CreditRepair.com have been fined a $2.7 billion judgment and a ten year ban for illegally charging customers. They charged “Advanced fees” for submitting disputes to the three major credit agencies. They offered no real counseling or offer a bonafide plan-of-action to improve credit scores.

What is wrong with that?  Since the companies are for-profit, it is illegal for them to charge upfront fees to do credit repair. They cannot charge for services until the items they complete the services they offer to provide.

The companies are additionally assessed $64 million in civil penalties and must reimburse about four million consumers.

In March 2023, a federal court ruled that they charged fees that violated the Telemarketing Sales Rule. That law requires that a consumer may sign up for services, but must be given a 3 day right of recission, and may not be charged until six months after the contract has been signed when credit repair is offered. Lexington Law and CreditRepair.com charged consumer upfront and charged a monthly fee, oftentimes with little to no benefit many consumers complained.

The two companies have filed for bankruptcy and their solvency is questioned. They are also banned from engaging in credit repair for ten years.

Where does that lead them? How can you make money if you cannot make money? It appears their days are numbered and we won’t have to listen to those annoying radio ads how they can fix practically anyone’s credit.  

The best option is the non-profit certified credit counselors. Such entities as MyCreditPlan.org managed by Family Financial offers many more opportunities to improve credit scores.

In an effort to address the inflation problems, the Federal Reserve has been on a march to higher interest rates. This powerful counter action over the last year has had unintended consequences and has lead to a housing deficit. It is impacting millions across the country and will take a generation to resolve unless the Federal Reserve takes some counter actions.

When the Federal Reserve pushed long term mortgage rates into the 2’s, it failed to realize that it would create a future housing conundrum where millions of homeowners could ill-afford to sell their home and move into a smaller home, but yet pay more for it. That is exactly what has happened. Most homeowners are unable to purchase the very home they currently live in because the interest rates are so much higher, they could not afford the payments.

Since more homeowners cannot afford to move, less homes come onto the market. With less homes on the market, less number of new homebuyers can afford to purchase a home. Which leaves home prices artificially high because less homes are coming on to the market.

The Federal Reserve thinks it is curtailing housing inflation, when if we really look at it, it is actually adding to it.

What Needs to Be Done?

The Federal Reserve needs to try and help mortgage rates come back to a normal range. U.S. Treasury interest rates are currently between 3.90%. The normal spread between U.S. Treasury rates and mortgage rates is about 1.75%, which would put mortgage rates at around 5.65%. But that is not happening. Demand is building up and when rates do come down, home prices will shoot up because the demand has been stifled for a period of time. It is not like young families can rent forever.

The current spread between U.S. Treasury interest rates and mortgage rates are at historic highs around 3.00%. That makes the mortgage rates be around 6.90%.  The difference in payment for a $450,000 mortgage is $365 a month in principal and interest ($2,965 vs $2,598). That is a lot of money.

The Federal Reserve needs to lower mortgage rates through a commitment not to sell their mortgage securities, held by the Federal Reserve, on the market for the foreseeable future. It is driving up mortgage rates to unhealthy levels. It also need to work the monetary policies that will lower the mortgage rates to healthy levels.

Failure to act now will lead to future and more challenging housing crisis down the road. The Federal Reserve will just be chasing fires from one house to the next without end.

And we will have a growing number of potential homebuyers who will be renters for many more years.

 

It seems like year after year, auto, home and other insurance premiums keep going up. How can you fight back and lower your insurance premiums?  There are a few steps to follow to try and lower the pain.

Insurance companies will usually increase your rates every year unless you are proactive and fight back. Recent increases have surpassed any increases over the last 15 to 20 years. I have seen insurance rates jump 20 to 30% in the last 18 months, even when there were no claims, accidents or other concerning issues arise.

Why? Homes and cars are becoming more expensive. When there is a claim, it is more expensive to rebuild or fix them up. Additionally, it is taking longer for auto repair shops to get parts for vehicles, there is a higher labor cost component, and certain housing materials are much higher. It can take upwards of 90 days for a car or truck to be repaired, all while the insurance company is paying for the rental car.

So what can you do?

Check for comparisons on rates on your renewals and any differences should be taken back to your original company to see if they can match the price and coverage. If they cannot, it is probably worth changing insurance companies.

Raise your deductible. If you calculated the difference on premium from a $250 deductible to a $500 or even a $1,000 deductible, you could save yourself some decent money sometimes. Basically, the difference in deductible for a $250 and a $1,000 is $750. But the cost for the lower deductible is quite one-sided. You could easily pay $300 for that $750 of extra coverage. Is it worth it? Probably not.

Adjust your coverage on home and auto. If you have an average older vehicle, (something over 8 to 10 years old), collision coverage is probably not worth the extra costs because the value of a vehicle has depreciated so much, you are not going to get much out of it. Lok at the entire coverage and see what makes sense and what does not and eliminate those unnecessary items.

For homes, review your entire coverage and know what coverage you would have for different situations. Ask questions and you make elect to drop some of the coverages.

Raise your FICO® Credit Scores. Remember credit plays a huge factor in an insurance premium. If you have raised your scores $50 or more, it is worth checking with your insurance agent to see if you can qualify for a lower premium of $30, $50, or even a $100 or more . It is worth it.

Finally, don’t file a claim unless you really have to. For homes, you could face substantially higher claims because insurance companies know which homes have had claims, and those that do not. They will charge more for those that have a recent history of any claims, or in some instances, not offer any coverage at all.

I told you so last year.

https://mycreditplan.org/Blog/what-to-do-with-your-student-loans

 

Biden’s student loan relief disappeared like a bubble in a gusty wind. Giving something for nothing in return makes no practical sense. Now, President Joe Biden has put more people in a bad situation by giving them a false hope for something that the Courts determined has to be approved by Congress.

Imagine what the Biden administration was wanting. They wanted to be able to spend money whenever they want, to however they want and to whoever they want. The Supreme Court said it is the Congress’s responsibility to do that. In fact, President Biden when he was in Congress spoke about the responsibility for the budget remains with the Congress. Now he’s president, he thinks it does not apply to him. Now President Biden said that the Court “misinterpreted the Constitution.” What part of the Constitution says that? I’m looking -- and I am sure I will still be looking at the end of Biden’s term. There is NOTHING in the Constitution that says anything about student loan debt.

There is none. Biden was trying to buy votes. This was stupid policy that was going nowhere.

Let’s look at who Biden was trying to help.

Former New York state Democrat Sen. Alessandra Biaggi, who purchased a $1.2 million home recently, took to social media to complain about the Supreme Court’s decision, "In 2012, I graduated from Fordham Law School with $180,000 is student loan debt, (and) I’ve been paying loans for 11 years. Even paid two of them off completely. In 2023, my balance is $206,000.”

Who responsibility is it to pay your debts? Every American taxpayer? I don’t ask others to pay my debts. My debts are my debts to pay, and your debts are your debts to pay. Someone who supposedly got a law education almost assuredly is demonstrating that she didn’t get much of a quality education about the Constitution.

From then House Speaker Nancy Pelosi,

“People think that the President of the United States has the power for debt forgiveness. He does not.  He can postpone. He can delay. But he does not have that power. That has to be an act of Congress."

That pretty well says it all. So why is anyone complaining?

For those with student loan debt who want the government to take this responsibility from them – don’t ask other people to pay your own debts unless you are willing to pay theirs? You signed on the bottom line, not the American taxpayer. You pay your debts even if you have to pick up a second and even a third job. I, along with many others have too. That is America.

That is only fair - and the U.S. Supreme Court confirmed it.

There are other methods Congress can look at to help students work off their student loan debt. Just forgiving that debt without something in return - is not an option. 

The housing market has been going through a substantial reset in most parts of the country over the last year. With interest rates high, is this a good time to purchase a home?  

Interest rates are high and many homebuerys are sitting out right now. They are not even looking. They think that they will wait for interest rates to settle before they start looking for a home – along with the hundreds of thousands of other potential homebuyers.  

Is now the time to buy a home? 

Home values have settled in most areas and have come down tens of thousands to hundreds of thousands of dollars. What happens when interest rates go down? Those thousands of homebuyers will start looking for homes and the challenge to get an offer accepted will elevate. It will become a bigger challenge. 

With the Federal Reserve approaching the end of its cycle of raising short-term interest rates, long term mortgage rates are set to decline some in the coming months. Unless something unforseen happens, interest rates could be much better within the next few months. With that decline, more homebuyers will enter the housing market.  

It is always best to have little competition in purchasing a home. If a home is on the market, but there are no potential homebuyers, the homebuyer has the leverage to the home sale. There is where you can possibly find a steal-of-a-deal when someone is anxious to sell their home. You could save tens of thousands of dollars. 

This could work as long as you could afford the higher payment. When rates come down, you could refinance to a lower interest rate. This way, you could get a better price on a home and end up with a lower payment. That could be a better opportunity than waiting for interest rates. 

Now could very well be the best opportunity to purchase a home through this interest rate cycle. When the numebr of buyers are down, is usually the best time to make a jump. Savvy consumers often make smart decisions when a good prospect is nearing the end of a down cycle.  

The next month or so may be the best opportunity to purchase a house.