My Credit Plan Blog

Yet to be Seen if Biden Can Remove Medical Collections from Credit Reports

Fri, 29 Sep 2023 21:38:34 GMT

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.

Largest Credit Repair Companies Fined Billions for Illegal Fees

Fri, 01 Sep 2023 19:53:16 GMT

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.

The Federal Reserve is Adding to the Housing Problem

Fri, 21 Jul 2023 21:28:36 GMT

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.

Biden's Student Loan Debt Debacle was a Crazy Proposal

Sat, 01 Jul 2023 13:17:49 GMT

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.

Looking for Options Repaying Your Student Loans

Mon, 12 Jun 2023 18:00:23 GMT

Almost 44 million Americans have had their student loans in deferment since March 2020. Those payments will start up again the end of this summer – around September 1, 2023. Many of these borrowers have not had to budget for the student loan payments, possibly creating some real challenges. There is fear that student loan delinquencies will jump to 10% or more. What can you do if you are one of these borrowers that need to start paying? There are some options.

Unless the U.S. Supreme Court unexpectedly rules in favor of the Biden’s Administration’s loan forgiveness program, student loans will be an extra heavy burden for many borrowers. Many borrowers have dropped out of school, but yet still have to pay their student loans back. The day of reckoning is fast approaching. An estimated 18 Billion dollars in payments will be made each month.

Oftentimes, refinancing the multiple student loans into one provides a better opportunity to lower the monthly payment. You need to ask if the student loan consolidation will push out the term of the student debt.

Another option is to refinance the student loans into your mortgage if you have sufficient equity. The good side of this option is the major lenders consider this as a “Mortgage Balance Refinance” which is a lot cheaper than the “Cash-out Refinance”. The bad side is your current first mortgage may have a really good interest rate from refinancing a few years ago, and interest rates today are much higher.

The Graduated Repayment Plan allows a payment that starts out lower and then increases every two years. The loans term remains at t10 years. It just starts off with lower payments and ends with much higher payments.

The Extended Repayment Plan allows the term of student loans to be up to 25 years. This allows lower payments, at the expense of having payments over a longer period of time. You will pay more interest over that time frame, but it may be a better option if you cannot handle the current payment.

There are the income repayment options including a couple of income repayment programs such as Pay As You Earn Repayment Plan. This keeps your payment at 10% of your discretionary income. The Income-Based Repayment Plan keeps payment under 15% of your discretionary income. Payments are recalculated each year based on income and family size.

There are some options and it best to contact your loan servicer as soon as possible because the longer you wait, the more difficult it could become to try to reach someone as that September 1, 2023 date is fast approaching.

How Those Loan Fees Determine Your Interest Rate on a Mortgage

Fri, 05 May 2023 21:40:38 GMT

The FHFA has responded to criticism about their new fee structure. How does the fee structure for a conventional mortgage work and how does these changes impact a homebuyer’s interest rate?

LLPAs – also called Loan Level Price Adjustments

LLPAs have been in the news a lot lately. What are they and how do they work?

When you apply for a mortgage, there are several criteria the lender looks at to evaluate your credit worthiness. Different issues will increase your risk. Those risk factors (also called LLPAs) set out by Fannie Mae and Freddie Mac – the two biggest institutional mortgage agencies – are:

Credit Score
Down Payment
Living in the House or Rental Property, or even a Second Home
The Purpose of the Loan – Purchase a Home, refinance the Mortgage or take Money Out of the Equity
The Type of Home – Stand alone home, Condo, townhome, or Manufactured Home
Fixed or Variable Interest Rate
Property a Single Unit, a Duplex, a Tri-Plex, or a 4-Plex
Term of the Mortgage – 30 year, 20 year or 15 Year

All these factors will impact the interest rate on a regular conventional mortgage. How?

Since these issue are predetermined by Fannie Mae / Freddie Mac, the lender identifies all the appropriate risk factors before you close on the loan. The lender then knows what fees Fannie Mae or Freddie Mac is going to charge the lender -- and ultimately the borrower - for that loan. If there is 1.50% in loan fees (LLPAs) for example that need to be paid (in addition to the regular closing fees), the lender makes adjustments to the loan interest rate or fees to offset those LLPAs.

Those LLPAs fees are paid within a couple of weeks after you close on your mortgage. On a $400,000 mortgage, 1.50% is $6,000 in LLPA fees. The lender has to pay that money upfront. In turn, the mortgage lender will go back to the borrower and charge higher fees, or a higher interest rate.

If the lowest interest rate available at a particular moment is 5.00%, the lender will raise the interest rate to offset that 1.50% fees from Fannie Mae or Freddie Mac. The lender may raise the interest rate to 5.75%. The payment jumps $187 a month. The lender will recoup $187 a month to repay the $6,00 back.

This leads to another question. Once the $6,000 is paid, does the lender automatically lower the interest rate? No. The lender will continue to take that higher payment until the loan is paid off.

That is how LLPAs work.

Consumers with Higher Credit Scores Set to Pay Higher Interest Rates than Those with Lower Credit Scores - WHAT?!?

Fri, 28 Apr 2023 19:19:13 GMT

The FHFA – the federal regulator for Fannie Mae & Freddie Mac -- set out new guidelines for interest rates and one part of the change has certain consumers with lower credit scores qualifying for lower interest rates than other consumers with higher credit scores. Someone with a 640 credit score in essence will qualify for about ¼% lower in interest rate on a 30 year mortgage than someone with a 740 credit score. This is flat-out wrong! How does this happen?

The FHFA issued new directives in a 2-part series. First in November 2022, the FHFA pulled back all additional fees – called loan level price adjustment fees – for first time homebuyers below 80% of the average medium income. There is a lot there.

Based on Average Household Income

For example, Salt Lake City, Utah has an average medium income of $102,200 while Chicago Illinois has an average medium income of $105,350. Take 80% of that income and it comes to $81,760 in Salt Lake City and $84,560 in Chicago. Every city and county has an average medium income. As long as the household income is below the average medium income, those prospective homebuyers will most likely qualify for the lowest interest rate and fees for a conventional (Fannie Mae / Freddie Mac) loan.

It doesn’t matter if their credit score is 700 or 640. As long as they meet the other loan qualifications, that prospective homebuyer will get a better interest rate and lower fee than someone with an 800 credit score. This is not a joke. Here is the link to the story that broke in from WBZ in Boston.

Click or copy and paste the following link -

https://www.cbsnews.com/boston/news/mortgage-fee-changes-good-high-credit-scores/

Rewarding Bad Behavior

Why is this happening? FHFA put out a press release with the following:

FHFA launched such a review in 2021. The objectives were to maintain support for purchase borrowers limited by income or wealth, ensure a level playing field…

Basically, the objective was to force those with higher credit scores with higher rates and fees, and those with lower credit scores with lower interest rates and fees. In short, someone with a 640 credit score putting 3% down will qualify for a 6.25% interest rate. While someone with above average income and a 740 credit score will qualify for an interest rate of 6.50% -- a full ¼% high.

All to try and equal out the playing field. This will not end well.

Dave Ramsey is Flat-Out Wrong!

Sat, 22 Apr 2023 11:34:34 GMT

For many years, Mr. Dave Ramsey, debt solutions guru, advocates a position that no consumer needs a credit score. He claims that you can purchase a house or anything else without a credit score. He basically tells his followers that a credit score is a bad thing. Since he doesn’t understand FICO credit scores, he pushes a position that is financially illiterate.

Mr. Ramsey has some great points of emphasis to help consumers get out of debt. They should be applauded. It is always a good position for consumers to get out of debt. That should be the ultimate goal for every consumer. Find ways to pay off debt sooner rather than later. Following such sound advice, consumers can put more money towards their retirement at a faster pace and attain greater returns, and more wealth.

Mr. Ramsey’s Position

However a FICO® credit score still matter even to those who have all the money in the world. I often am questioned by thousands who have followed Mr. Ramsey’s financial tools. They always ask me, “Is not having a credit score a good thing?” My answer is that anyone who follows this poor advice will be limited in their financial decisions and end up paying much more (even if they can qualify for any loan) for a mortgage, an auto loan, and even their insurance premiums.

Mr. Ramsey states to his followers, “Want to know how to improve your credit score? It’s simple: Pay off your debt, don’t add any new debt, and let your credit score dwindle until it’s completely extinct.”

He continues, “Not the answer you were expecting? If you’re like most people, you’re probably shaking your head in disbelief wondering, How can I improve my credit score by letting it go extinct? And don’t I need a credit score to buy a house? Trust us: Not having a credit score is a good thing—a really good thing! And you absolutely don’t need a credit score to buy a house.”

Mr. Ramsey adds, ”We’ve said it before, and we’ll say it again: The best way to really increase your credit score is by ditching your credit altogether. Peace out, credit score—you’ve been dumped!

Oh, and don’t worry about a credit score when it comes time to buy a new home. You don’t need a stinking credit score for that either (despite what people might tell you). There’s a process called manual underwritingthat looks at the full picture of your financial stability, rather than just your credit score. See? You can breathe easy.”

Breathe easy? I have been a mortgage lender for over 30 years. Manual underwriting was done over 20 years ago. I have not seen a mortgage be approved without a credit score for all these years. It is a non-starter. It could possibly happen somewhere. I don’t know anyone who does it. Even if some underwriter or lender approves a loan without a credit score, that lender has put themselves in a precarious financial position of trying to get a loan insured (sold off) through major investors without a credit score. That usually doesn’t happen. All these investors require credit scores. The lender would then just have to keep the loan on their own books potentially costing them $10,000’s of dollars – and there are not many lenders who want to do that. If they do, the borrower ends up paying a higher interest rate and higher fees, costing themselves a lot more money.

It's a Marketing Theme, Not Reality

Why does Mr. Ramsey advocate such a position? To maintain a certain position with his philosophy. It is all about selling books and his own programs. He makes more money selling such points of view and he doesn’t want to run counter to this. Imagine if he came out and said to use some debt to do something. It would run counter to everything he advocates for. He would lose money.

He may be rich and not need a credit score to take out a loan. For the millions of other common consumers, they do not have the same financial position. Mr. Ramsey is putting such consumers in a worse financial position. His position doesn’t make financial sense. It is our financial reality today. He is advocating a position from many years ago that was possible then, not now. Since Mr. Ramsey doesn’t know how credit scores work, he just says you don’t need one. But Mr. Ramsey won’t admit that he doesn't understand FICO scores, or he would lose credibility. But he doesn’t realize it, he has already lost credibility advocating such poor financial advice.

What do you do?

Getting out of debt is a good thing. I have done my financial instructional, The Drive to 850, with thousands of those who have taken financial instruction from Mr. Ramsey. I am always asked the question, “Is a credit score a bad thing like Mr. Ramsey advocates?” I reply his position is unrealistic. Simply having a credit card, using to charge monthly expenses, manage it properly and pay that debt off before the due date the following month to avoid interest is sufficient to build and maintain a really good credit score. This is sound advice that will save you a lot of money.

When you go to purchase a house, auto or other type of loan, you don't have to be on pins and needles begging to be approved for a loan. You won't have to beg or face the prospects of being denied for a loan. In most cases, you can also qualify for lower auto and homeowners insurance premiums. This way, you can breathe easier.

Playing Politics with Credit Scores

Fri, 06 Jan 2023 22:28:23 GMT

Things are changing in the consumer world. For the last couple of years, auto lenders have become more aggressive in their lending practices, making loans to those with less than-below average qualifications. Now, many consumers are defaulting on their auto loans, even after just one payment. It is raising alarms across all lenders.

Over the last three years, homeowners have skipped many mortgage payments without any late payment being reported to their credit report. Many consumers have deferred their auto loan payments for an extended period of time. Millions of consumers have delayed their student loan payments, thinking now unrealistically, that their student loan debts would be forgiven. Other personal loans have been modified to help all consumers.

What has this done?

It has given higher credit scores to millions of consumers and now, they appear much more qualified than what they should be. As a result, new loans have been made and many more-than-expected loans have gone into default within a few months of inception of the loan. Additionally, many more homes are going into default and, along with higher interest rates, the housing market is heading for a hard landing.

Lenders and consumers will both pay a price for the federal policies over the last several years. If credit scores are artificially high for millions of consumers, it will take some time to reset them to their correct levels. In the meantime, many more loans have been made, and will be made for some time that will go to undeserving consumers. It will create additional chaos in the markets from higher levels of loan defaults, foreclosures, and repossessions, especially with the U.S. economy probably heading into a recession.

Markets need to operate more freely. If someone is going to lose their home to default, it is better to do it now than to expend additional resources on a losing cause. That person than can take some time to reset their finances and get into a better financial situation. But if the U.S. government and the Biden administration will not let markets function, the falls will eventually happen and they will be greater and the loses much more severe when they happen.

As a result of these misguided actions, someone well-qualified is going to pay more while many others that are less deserving, will get a free ride and pay less. For this reason, it is right to push back on bureaucrats eager to enforce their will on lenders. Their political decisions have got to stop because it has created distortions in consumer's credit ratings. Consumers have got to be held accountable for their own actions. Otherwise, lenders will lose faith in the system and it will be much harder to qualify for certain loans.

Housing Market is Giving Great Opportunities to Home Buyers

Fri, 16 Sep 2022 20:21:15 GMT

Interest rates have jumped from the low 3’s to the low 6’s just this year. Principal and interest payments have jumped over 40% for many prospective home buyers. Many homebuyers have now been pushed to the side while more and more sellers try to move their homes. As a result of the sudden change, the housing market is truly in a recession and it will be creating more opportunities for many future home buyers.

Go back to the first of this year and many prospective home buyers were hard pressed to find a home to purchase. Many were facing a home seller as one of several offers. It made the price of a home increase more and more as prospective buyers offered higher and higher prices. That has all changed as interest rates have surged higher.

According to Realtor.com, the average day on market for a home in August 2021 was 37 days. In August 2022, that number has jumped to 42 days and is expected to climb even higher in the coming months. In some markets the number of homes on the market has surged. This is starting to force downward pressure on home process for many sellers trying to get their home sold.

Where does it go? Many housing markets could see price declines of at least 20%. That means a home priced in January 2022 of $500,000, could drop in value to $400,000 in the not so distant future. That is a housing crash.

For many sellers, this market is really rough and it could be very difficult to sell your home unless it has good value. For prospective home buyers, you could see many new opportunities that have not been seen in several years. It is a change in fortune that has just happened in only a few months.

To read more from CNBC, please click on the following link.

https://www.cnbc.com/2022/08/23/what-a-housing-recession-means-for-homeowners-buyers-sellers.html

$4 Billion for Cow Burping Studies?

Fri, 12 Aug 2022 18:58:22 GMT

Congress is on the verge of passing the Inflation Reduction Act of 2022. In this bill, it levies over $700 billion in new taxes and increase spending over $500 billion. Then it puts $200 billion towards “Deficit Reduction.” However, there is a lot of questionable spending. Part of this legislation includes $4 Billion for “A Study on Cow Burping.” Not joking.

When social security is expected to be depleted in 13 years (2035), along with Medicare, rising interest payments on the debt, and a host of other future obligations, why is not the Congress focused on these issues instead of cow burping?

This is just absurd.

Social Security is hurdling down the road to insolvency within 13 years – 13 years. Medicare is upside down and headed for insolvency in 2028 – just six years away. Interest payments on the trillion dollars of debt keep going higher – closing in on $600 billion. Imagine what Congress could do with that $600 billion now?

Then to spend $4 billion on how cow burping impacts the environment? Cows have been around since the earliest of times. Why are cows the problem now? They are not. Congress is.

With so many future obligations for the government coming up, how can it pay all the bills? Our bigger problem is the potential depreciation of the U.S.’s currency – the dollar. This puts huge future obligations on the taxpayer to cover the out-of-control spending of Congress.

If something doesn’t change fast by Congress, this government is going to drive the dollar into a 4^th world currency. When markets change against an asset, it can be brutal. Remember the financial crisis when no one wanted to buy mortgages any longer? What happened to all the banks and lenders?

If Congress doesn’t get it senses fast, Social Security, Medicare and a host of other benefits will be limited. The average American consumer could face many future financial challenges. Best to save money now because there may be a lot less of it later.

Auto Prices Could be Coming Down Soon

Fri, 15 Jul 2022 20:17:35 GMT

The price of automobiles over the last 18 months has skyrocketed – some over 50% in value – with the slowdown in auto manufacturing along with some other factors. However, a change is happening that could bring a lot of cars on the market. With a slowing economy, that could mean more opportunities for consumers looking to purchase a new auto.

During the pandemic, many banks, credit unions, and auto lenders allowed many consumers to skip their auto loan payments for an extended period of time. It has only been recently that many have had to start making payments again. The problem? Tens of thousands of consumers are now unable to make those payments and many of those car loans are falling behind. It is a really big problem and only those within the auto lending industry know about this growing problem.

As a result, auto repossessions by lenders is now skyrocketing. With a slower economy, it could add additional gas on auto repossessions. One analyst predicted that there will be an excess of cars available to purchase within the next 12 to 18 months. We will see.

With many auto manufacturers working to catch on demand, it could really change the auto market in the coming year. So if you are looking to purchase a car, it may be better to wait and see what the market does over the next 12 months. You might be able to walk in and find a much better consumer situation for a new auto.

Working Through a Bad Credit Situation

Mon, 27 Jun 2022 18:23:04 GMT

Millions of consumers have missed payments on loans and their credit rating has taken a deep dive. The feeling is all-too-often overwhelming. Where do you start to try and rehabilitate a poor credit rating?

Each credit situation is different. However, there are some general guidelines to follow.

First, how much debt is currently past due? Look at the balances, not just the payments. You want to total the balances on all the past due accounts so you have a better idea the amount to pay in order to bring your accounts current. You want to look at any debt, past due utility payments or medical expenditures.

Second, How much extra money each month do you have to pay towards this debt? Is it $50 or $200. You want to be conservative too. Too often, consumers think they have $350 extra each month to pay off debt. After a few unexpected expenses arise, it ends up being $150 and the plan is blown up. Give yourself a little room and then if you have extra, you can apply it to the debt at that time. It is easier to exceed e4xpectations than to come short of expectations.

Third, how long will it take you to pay off the past due debt and bring everything current? If you have $3,000 in past due debt and can pay $200 a month towards that debt, it will take you 15 months to bring things current. If it is going to take you longer than 36 months, or three years, it might be better to look at a debt management program either through a consumer credit counseling service (such as Family Financial), or a Chapter 13 bankruptcy. If repayment of debt is going to take you several more years, a Chapter 7 bankruptcy might be an option to get you back on your feet.

Once you have a plan, start with the small debt. It is best to take out the low hanging fruit as fast as you can so as to get to the next step. Your credit score will improve faster. Also, be discipline in your approach by making sure not to deviate too much from your plan. Don’t take on new expenditures unless you absolutely have to. Finally, create an account to put some money in for those unexpected expenses. This way, you can keep to your plan and meet many of the surprises that can come along with life.

Once you are well on your way to resolve your debt issues, your credit score will improve and there will be a great feeling of financial relief. Following a viable plan is a great step to your financial freedom.

The Better Plan for Investing into Cryptocurrency

Fri, 03 Jun 2022 20:58:28 GMT

Everyone knows a friend or two that have invested into cryptocurrency. They have told many of their friends and family all the money they have made investing into cryptocurrencies. For the last couple on years, many investors have made some money. That has all changed recently when such investments have lost lots of value. Now, we don't hear so much about the exciting news. Rather, we hear many facing the realities of losing all their cryptocurrency investments from its recent decline. Finances can be very brutal.

A couple recently walked into my office. They were both in their mid-20s with three young children. They applied for a mortgage to purchase a very expensive home – one that would push the budgets of most families. They did not have much savings, only a n investment in crypto. Then the husband made an interesting statement. He said, “I’ll have this mortgage paid off within two to three years.”

Many people in their 20’3 and 30’s have invested in crypto thinking it will be their ride into early retirement. Many crypto currencies have suddenly taken a deep dive in 2022 and lost 40% of its value. Some investors have attributed crypto currency to the early days of the dot.com bust when values dropped suddenly and many investors lost most of their money.

One billionaire, John Paulson, has stated that cryptocurrencies will eventually be worthless. Mr. Paulson shorted the housing bubble in 2008 while most lost hundreds of billions riding the housing market crash. Despite many warnings, young investors have had high dreams to make lots of money to become early millionaires. Those dreams have taken a big hit this year.

Cryptocurrencies investors must realize that their road to retirement will probably not go through cryptocurrencies. There are a few stories of a few people making some money from them. However, wise investors are best to realize that such investments are very risky – and can drop substantially as has been seen recently.

No one should assume like the young couple that you will be paying off a very expensive house within a year or two. You could also lose everything you have put in it. It is best you only put money in cryptocurrencies that you can afford to lose in case things turn bad. If you make some money, feel fortunate. There is a some valued cryptocurrency guidance; “Pigs get rich, hogs get slaughtered.”

A Startling Economic Number Just Came Out

Wed, 11 May 2022 16:13:47 GMT

Everyone is impacted from higher gas, food and other commodity prices. How is each consumer responding to this pressure on their finances? A number just came out that will have longer term implications for many into the future.

Consumer debt exploded in March 2022 $52 billion, the largest increase in over a decade and follows a big increase of $42 billion in February. Revolving credit, or credit card debt, surged 21%. These numbers are usually associated with two options; a confident consumer who thinks his / her income will grow in the future, or a consumer who is trying to manage rising costs with limited income.

Many believe the economy is going from a confident consumer to a person that is trying to pay for rising costs in food, gas and other commodities. If more and more consumers are using credit just to cover expenses, there is a future cost associated to that. It only means that consumers has to earn more and more money to offset future expenses while paying for past expenses accrued with consumer debt.

It also means lower credit scores and higher charges when any future loan is taken out. Then, the consumer has to pay more to even stay on top of their finances. It is a vicious cycle.

What You Can Do?

Could you reduce your expenses by 15%? See what you could do?

Every so often, you should look at all of your expenses and determine if there are items that you are not using. Such things as a more expensive television package, a gym membership you don’t really use, or any other item that brings us no real benefit. Limit the extra drinks at the corner service station in the morning and any unnecessary trips, and extra food items.

It seems that the problems of inflation are not “transitory” as the Federal Reserve and President Biden stated last year. As a result, all consumers could be for an extended time of challenging economic conditions. That means everyone is going to have to find ways to manage and control these higher costs now.

Elected Officials Need to Have All Hands on Deck – NOW!

Americans cannot go down this road much further without feeling greater economic pain. Everyone hopes that this doesn’t get uglier, but some indicators are such that it is going in that direction for the foreseeable future. Inflation doesn’t just subside suddenly. It takes time and many argue that the economy has to go through a really tough period. Consumers don't need more free money, they need a stable prices and a good job.

The first step is a reduction in energy prices. President Joe Biden and Congress needs to find ways to reduce energy prices significantly. A reduction in the federal gas tax is just not real helpful since the savings is only 32 cents. When gas has increased over $2.00, more options need to be considered.

Green energy is a great idea – the economy is not ready to embrace it 100%. As a result, gas must be more readily available. Are more leases needed to drill, more pipelines needed to bring energy to market, and more federal regulations that can be lifted?

When energy prices go down, the costs for many products and services can stop going up and even possibly decline. But, most every option needs to be considered. The President should not hold a press conference just to blame others for inflation and higher costs. Elected officials are elected to resolve problems, not blame others for their problems.

Let Your Voice Be Heard

They need to hear from all Americans about the economic pains through emails and phone calls. Elected officials need to hear your voices, and they need to be held accountable if they are unable or unwilling to come up with policies that will better the financial situation for most Americans. Either current elected officials need to work on policies that reduce the inflation rate, or all Americans need to look for others who will work on reducing inflation, and identify policies to bring a more prosperous economic condition.

The inflation and consumer debt indicators are not good. The extra $52 billion in consumer debt last month is just a sign that many consumers are really struggling.

The Politicization of the Credit Score

Fri, 15 Apr 2022 22:37:10 GMT

Over the last 15 years, the credit score has become a vital part of every consumer’s financial life. Good or bad, politicians have recently got more involved to have their impact on consumer’s credit scores. As one observer correctly pointed it out, those with higher credit ratings are losing out while those with lower credit scores are benefitting.

There are several situations happening today that would never happen even a few years ago with you credit report. If past guidelines were followed, credit scores would have been much lower today for millions of consumers. Thanks to some favorable changes, many have been able to benefit from it. Let’s go through them.

Skipping Mortgage Payments

Throughout the financial crisis, many homeowners had to go into forbearance or other programs to lower their payments. Practically every time, late payments appeared on their credit report which impacted their credit scores.

Through the Covid-19 Pandemic, mortgage payments were skipped and such payments were not reported as late payments. Obviously, this has helped those with lower credit ratings achieve a higher credit score.

Skipping Auto Loan Payments

Skipping auto loan payments really was not an option through the Great Recession. If payments were missed, late payments were reported.

Through Covid-19, many consumers skipped their payments on auto loans without being reported as late to their credit reports. Again, this has benefitted those with insufficient means to pay their bills on time.

Skipping Student Loan Payments

Many students have utilized this program to skip their regular monthly payments. With President Joe Biden’s recent authorization, many borrowers have not made a student loan payment in almost two and a half years. Who is paying the interest? The taxpayer.

This never happened prior to the Covid-19 pandemic. Students could skip their loan payments under a few circumstances. Now, there are skipped payments with practically every federally-backed student loan no matter what the circumstance.

Now, President Biden is looking at removing all late payments from student loans.

Removal of Judgments and Collections

Within the last few years, the Consumer Financial Protection Bureau has required the credit bureaus to remove practically all judgments and tax liens. To give a background, there were some problems with accuracy. However, there was still a lot of accurate information reported. Judgements and tax liens are currently not reported on credit reports. This benefits those that are behind on taxes or have lost in court for a bill that is due.

Removal of Collection Accounts

Many medical collections are being removed from the credit report. Medical collections under $500 are not being reported. Also, medical collections are removed after they are paid. Finally, a medical bill cannot go to collection until they are at least 12 months old.

This has benefitted many consumers that do not pay their medical bills on time. As a result, more medical service providers are requiring payments up front.

Summary,

What has happened? Those that have missed payments or had tax liens, collections or judgements still have similar levels of loan default. Without reporting such information to the credit report, credit ratings for many consumers are higher than what they should be.

As a result, lenders and insurers are moving the goalposts and will require higher credit scores to get the lowest interest rate or premium. That means those will above average credit scores will be charged more in fees and higher rates from lenders because those with credit issues will have higher scores than what they should be.

For example, say 5% of borrowers with a 620 credit score default on their auto loans. Say only 2.5% of borrowers with a 640 credit score default on their auto loans. Obviously, those with 640 credit scores will get loans with lower interest rates and fees. However, if the 620 borrowers are now at 640, and still have the default rates of a 5% (for a 620 credit score), the rates and fees will go up for those with 640 credit scores too.

Those in turn will come back and cost everyone else with higher credit scores. Besides, what are we teaching? It is alright to take out a loan and not pay it back according to the terms. This could only end bad if it goes too far. At some point, we have to pay the bills that we say we are going to pay.

Many Medical Collections will Fall Off Credit Reports

Fri, 18 Mar 2022 20:55:58 GMT

Millions of consumers have been surprised to pull up their credit report and find a collection from a doctor showing up on their credit report. In a historic change, many of these past due bills will no longer show up on a credit report.

Back in 2015, the three major credit bureaus, Equifax, Experian and TransUnion, mandated to collection companies that they had to wait at least six months before they could report a medical bill to a collection company. That is the federal guideline, but medical collection companies were pushing collections on consumer credit report within a few months after a service had been rendered.

Today, there are $88 billion in unpaid medical collections showing up on 43 million American consumer credit reports – roughly 22% of all credit reports. The impact to a credit score from one collection is dramatic, no matter the size. A consumer can expect a drop of upwards of 100 points to their credit scores from the first collection.

Under an inquiry from the Consumer Financial Protection Bureau, the three major credit bureaus have elected to remove 70% of all medical collections. The process to remove these medical collections will start in July of this year, 2022. Some will not be removed until the first part of next year.

This is an outline of the collections that will be removed.

Any medical collections that have been paid will be removed.
New unpaid medical collections cannot be sent to a consumer’s credit report until one year removed from the time of service.
Any medical debts under $500.

What is the downside of this change? Medical service providers will have one less means to collect a debt from a consumer. It is a common understanding that around 30-40% of all patients do not pay their medical debts outside of insurance coverage. This number varies from state to state. But it is a substantial number.

For this reason, doctors, hospitals and other medical specialist will probably demand payment before services are rendered. It may mean a delay of services provided or even a possibility of having services denied. There is always an unintended consequence. Medical services will be tougher to attain in some situations.

Just a heads up when you go to the doctor or hospital in the future.

It takes a Lot Longer Now to get Your FICO® Credit Scores

Fri, 25 Feb 2022 23:11:59 GMT

It takes a lot longer now to get FICO scores to show up after opening the first new account. A change in recent times from FICO requires a longer wait before a person can generate FICO Scores.

In times past, a 18 year looking to get credit, get do a couple of things and within 60days, that teenager would have a FICO Score. Even though the score would always be around 680, it still gave that person the opportunity to take out a loan.

As long as a person had a couple of credit references, even though they would be only 90 days old, would give that person a FICO credit score. In many situations, that person could turn around and take out a mortgage, or purchase car. We have done this many times for the last 15 years.

A recent subtle change by FICO has made those days long gone. FICO does not usually report any changes to their algorithm that calculates the FICO credit scores.

FICO now requires at least six months of account history before the 3 Classic FICO scores (including the FICO 8 scores) will show up in a credit report. If a person opens a credit card in January, it will take until at least July before a FICO score will be calculated.

That means no quick fixes for millions of consumers. It requires better planning. Consumers can’t wait until the last minute and open an account and expect FICO Scores to show up within a couple of months. They have to plan ahead now.

Also, consumers cannot be fooled by those consumer Vantage Scores. They will generate within 30 days after a new account has been established. This can fool many people. They will see those Vantage Scores somewhere else, and then go to a lender and realize they have no FICO Scores.

If anyone is looking to purchase a house, a car, and planning on taking out a loan, it is critical to get some credit references in your credit report now. Otherwise, you could be waiting a few more months.

Following Credit Karma Credit Scores can be a BIG Mistake for Every Consumer

Fri, 04 Feb 2022 19:47:34 GMT

Many realtors and brokers tell their clients to get their “Free” credit scores at Credit Karma to know their credit qualifications. The problem is, what is provided them from the Credit Karma Credit scores is never reliable.

Credit Karma provides a credit score created from the three major credit bureaus; Experian, Equifax and TransUnion. It is called the Vantage 3 score.

Lenders utilize the Classic FICO® Credit Score created by FICO. There is a difference between VantageScores and the Classic FICO Scores.

Here’s a look.

1st Question: Does Vantage Scores look at lender types such as banks and finance companies?

Answer: No. FICO Scores do look at types of lenders. It is upwards of 10% in a FICO Score.

2nd Question: Does FICO Scores follow the 30% utilization rule for credit card utilization?

Answer: No, Vantage scores do. Anything under 30% utilization gets the same credit score points. Stay at 30%, and your FICO Scores will drop.

3rd Question: Does Vantage Scores have the four levels of delinquency?

Answer: No. FICO Scores have four distinct levels of delinquency. A 60 day late payment drops a FICO Score more than a 30 day late payment. Vantage Score follows no such rule.

4th Question: Does the Classic FICO Score have a 45 day window to check different lenders?

Answer: No. Classic FICO Scores have a 14 day window to check different lenders for the best rate / terms.

As we can see, there are differences between the Vantage Scores and the lender's Classic FICO Scores that provide different results. There are more than four - there are dozens of differences. Even more deceiving, Vantage Scores can go up while your Classic FICO Scores could decline. Happens a lot.

For this reason, it is best NOT to follow Vantage Score on the Credit Karma website to gauge your credit worthiness.

Only follow the lender's Classic FICO Scores as found at My Credit Plan.

Some Claim the U.S. Government is Rewarding "Bad Behavior"

Fri, 02 Apr 2021 18:38:36 GMT

A startling directive came out this week from Education Secretary Miguel Cardona. Any consumer who has defaulted on a federally-backed, privately serviced student loan will have their education loan interest rate drop to 0%, and there will not be any collection or repayment requests by lenders.

On the other side, those consumers who are current on their federally-backed, privately serviced student loans, are still being charged their normal interest rates and are being required to continue to make payments.

Isn’t this backwards many say? Are we promoting bad financial behaviors by offering better incentives to default on loans than those paying their loans?

A driver is penalize when he goes over the speed limit with a speeding ticket. That incentives a driver to conform to the driving laws. What if there was no consequence for speeding? There would be a lot more reckless behavior out on the roads. If there is a better incentive to not follow the traffic rules, what consumer would follow them? It is the same principle here.

When the government gets involved, there are winners and losers. The winners are consumers defaulting on student loans, and those losing are consumers making their student loan payments on-time. Why cannot there be a better reward for those making payments on-time?

If the government keeps going down this path of rewarding "Bad behavior", then many less consumers will want to make on-time loan payments? If less and less consumers make on-time payments, investors will pull back, loan guidelines will tighten such as higher credit scores and interest rates and fees will increase.

Think about it - who will want to lend money to a person who will not make their payments back in a timely manner? Lenders lend money to be repaid. As a possible result of this directive, many consumers may not be able to get access to loans to pursue opportunities given to them.

The U.S. Government is playing with a combustible fire that could potentially negatively impact future borrowing opportunities. Someone in government has to think about that. Who will end up losing – many more consumers – when they are denied future opportunities to take out a loan.

This is backwards. There will be a Big unintended consequence for this type of directive.