My Credit Plan Blog

Washington, We Have a BIG Problem

Sat, 04 Nov 2023 14:54:00 GMT

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.

Millions of Credit Reports are Being Unfairly Treated

Mon, 11 Sep 2023 22:54:18 GMT

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.

How to Lower Your Insurance Premiums

Sat, 08 Jul 2023 14:43:50 GMT

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.

Is Now the Time to Purchase a Home?

Fri, 16 Jun 2023 23:27:52 GMT

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.

What Consumers Think They Know & What They Actually Know are Two Very Different Things

Fri, 12 May 2023 18:35:49 GMT

In a recent survey on credit scores, those between the ages of 25 and 70 graded themselves as having a “B” grade understanding about credit scores. When they took a subsequent questionnaire, their passed rate was 29%. Do consumers really think they are much smarter than what they really know about credit scores? The correct answer is a resounding “Yes” and this costs every such consumer a lot of money.

How, let’s look at why.

Let’s take a look at some of the question in the survey. 47% said they track CreditKarma to track a credit score. CreditKarma provides a consumer credit score – one that is different and not used by lenders. A consumer thinks their credit score is say “740” only to find out it is “715” when they take out a loan. That leads to much higher interest rates y misled to the actual lender’s credit score.

The survey also shows that 59% of consumers checked their score within the last week. But, if it is not accurate, what real purpose does that bring to the consumer? CreditKarma can be used for a view from 40,000 feet. But if you are takin gout a loan, you need precise credit scores. You cannot afford to be guessing or you will pay much more for loan fees and rates.

53% of respondents say they will track a credit score for free, even if the consumer knows it is inaccurate. This highlights the lack of awareness by many consumers how credit scores impact their purchasing power and their payments for different loans. This isn’t hand grenades or horseshoes. One point in a credit score can cost any consumer lots of money on a loan.

Most consumers think one of the three major credit agencies can provide the same credit scores lenders use. Experian®, Equifax®, and TransUnion® do not provide the 3 lender’s FICO® Credit Scores. You have to go to MyFICO.com or a certified credit counselor such as MyCreditPlan.org to access those outside of a lender.

Only 6% correctly responded to how long an inquiry lowers the lender’s FICO scores of 12 months. 41% put 6 months and another 35% put 3 months. Finally, 18% of consumer correctly answered that there are up to 33 (one is 33, one is 32, and the third is 31) different measuring factors in a lender’s FICO Score. 53% put 24 different measuring factors. The bigger issue is knowing how different issues impact a credit score.

Knowing correct information about credit scores will help you from being misled. This survey simply identifies many deficiencies about a consumer’s understanding (or lack thereof) about their credit scores as viewed by lenders. In actuality, most consumers have a failing or “F” grade. Following correct information will help all consumers

Dave Ramsey is Flat-Out Wrong!

Sat, 22 Apr 2023 13:34:34 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.

Loan Officers Cost Consumers Lots of Money with Bad Advice

Sat, 15 Apr 2023 14:47:08 GMT

I recently walked in another loan officer’s office when I overheard his conversation with a client he was on the phone with. He was trying to tell her how to raise her FICO® Scores. However, the information he gave was inaccurate. After he finished the call, I asked him about his incorrect credit score comments to the client. He responded, “It doesn’t matter. She won’t know the difference.” This is not out of the ordinary. Loan officers too often give bad advice that end up hurting their clients. Why does this happen?

Another loan officer called me several weeks ago to ask me some specific questions a lender gave at a luncheon to several agents. We went through two issues and both times, the luncheon speaker gave substantive incorrect information. Then the caller said he told his clients something completely different and wanted to verify that the speaker was incorrect. But then he told me what he tells his clients, and it is something completely different. I was stunned. His suggestions were not accurate either. He has been costing his clients many credit score points!

Why does this happen? Because the client doesn’t know, and second, most consumers think loan officers know credit scores very well – especially the more experienced one. Additionally, there is no one there to call out the loan officer to tell them that the information is incorrect. So practically any loan officer can say anything, and many consumers can consider it Gospel, when often, the suggestions are incorrect.

The Difficulty of Validating Loan Officers

Finding the right answers to a credit score question is very difficult. Sometimes a person can ask multiple loan answers and then quickly discover, that the initial answer may or may not be correct. There is no one there to back check the information given to anyone.

The Stunning Results

I have been on the SAFE MORTGAGE test writing committee since 2009. About 50 of us are scattered throughout the country and have to come together every few years to help write and review national test questions. Those that deal with credit and credit scores are particular interest to me, and to many other of the committee members.

One particular session, we reviewed several questions on credit scores that were very basic. There was nothing remotely advanced or required a lot of experience. The success rate was varying between 21% and 42% passage rate. The testing company wanted to discard the questions because the pass rate was so low. The committee members pushed back and the questions remained in the exam. It was the first result to show that loan officers are quite inept with understanding credit scores.

Other surveys I have done have validated those results. The passage rate is slightly higher to the low 40s. The questions being missed are basic questions like how long an inquiry impacts a credit score. Or how long does someone have to shop an auto loan or mortgage to have it only count as one hard inquiry for the Classic FICO® Scores. How long does a bankruptcy stay on a credit report. These are not hard questions, but loan officers are failing at remarkable levels.

Some lenders have told their loan officers to not give credit score advice because of some of the complaints that have come in.

The problem with credit scores is they are multi-dimensional in that there are an array of possibilities. In one instance, a suggestion could be true. While another situation, that suggestion could be totally false. But lenders tend to give the same suggestion regardless of the differences or changes in circumstance from one client to the next.

What tends to happen is that a lender may give a suggestion that improves a credit score a few points – say up to 10 points, when the score could have improved 40 or 50 points if the lender could recognize all the issues. But lenders practically never recognize all the underlying issues and leave the consumer short of where they could have been.

What Can You Do?

Recognize that loan officers are not credit score experts! They are not. They make too many mistakes and a consumer will be hard pressed to see that. It does not matter how long they have been in the business. They don't take the time to learn all the ins and outs about credit scores.

My Credit Plan has done a fantastic job in identifying all the underlying issues in a credit score. The average score improvement for 2022 was 76 points. When a program has such stellar results, you can tell they are hitting all the relevant factors and provides clear and precise answers for consumers.

Want to improve your scores? That is what you need.

How a Bank Failure can Lower Your FICO® Credit Scores

Fri, 31 Mar 2023 23:55:38 GMT

Bank failures have captured the headlines over the last few weeks. Silicon Valley Bank and Signature Bank along with a few others have been taken over the U.S. government. How does that impact you when you have an account with one of these failed banks. It can have a huge impact – almost always lower – on your lender’s FICO Scores.

There are three concerns from when a bank fails in how it can impact your credit scores. I will walk through them.

Loans being transferred to High-Risk Lenders
Credit Cards being Closed
Credit Cards Lines being Reduced

Loans Being Transferred to High Risk Lenders

When banks go under, their personal, auto and other types of loans have value. They are usually sold off to other lenders. Most of the time, they are sold to other banks or depository institutions. Periodically, they are sold to higher risk lenders who are willing to pay a higher premium for those loans. However, for consumers, the damage to the FICO scores can be for up to ten years after the loans are paid off.

To the consumer, you have done nothing wrong. However, the damage is very extensive for years.

Credit Cards Being Closed

Fellow banks and other depository institutions are usually the first in line to purchase credit card accounts. They are not however so willing to keep those lines open all the time. Depending on the quality of credit cards issues by the failing bank, the new bank could simply close down the line of credit. How does that impact FICO Scores?

If someone has a credit card balance of $2,000 with a credit limit of $5,000, that person would have a utilization ratio of 40%, not ideal but not suffocating to the scores either. If the new bank drops that line of credit down to $0, now it appears the person is overdrawn by $2,000. That is not good. It will drop FICO Scores 40, 50 points and even more real quick.

You will also lose any depth to your credit history as a credit card is closed. Many credit cards have been opened for many years. If the new bank closes that credit card, you have lost that depth.

Credit Lines Being Reduced

In the previous example, if the new bank dropped the credit line down to $2,000 – which is a common occurrence – the utilization ratio goes from 40% up to 100%. That is not a good thing.

How to Protect Yourself?

It is always wise to have your credit cards with different lenders. In this case, if a lender has a problem, they do not totally tank your FICO Scores. You would have other credit card that could stem any real impact to your credit scores.It is always best when you first open any credit card. Spread them out with different lenders. Don't wait until there could be an issue. Better to do it now than wait to do it later when it is a bigger problem.

Home Warranties are Practically Worthless

Sat, 03 Dec 2022 00:10:08 GMT

When you purchase a home, agents will usually sell their clients on a Home Warranty. Unfortunately, I often hear horror stories of consumers trying to file a claim with a home warranty company. It can be a roof, an appliance, or a pipe, home warranty companies find every way to NOT cover the costs of repairs. There are more claims that are never covered. Why?

Chase had a water leak in his new home just a few months after purchasing the home. Thinking he had insurance coverage was incorrect and led to additional uncovered costs.

Chase notices his carpet next to his wall in his basement was wet. He wondered what the source of the water. He did a little more investigating to find out the problem.

After pulling back the carpet and the drywall, he discovered a drain line was not set correctly on the drain into the floor. He contacted his home warranty company who he paid just eight months prior. The company came out and declared that the home warranty company would not cover the costs nor the damage to the home. The company claimed it was set wrong into the drainage pipe, and thus would not fall under its warranty.

Chase is not the first, nor the last. I have had dozens of consumers who have contacted me about the failure of their home warranty company to cover a claim. In the past 20 years, I have witnessed only two claims being covered by homeowners. These companies have denied claims for all kinds of reasons. This can easily add thousands of dollars and additional debt to your budget.

Do not think that you have coverage when something breaks with a home warranty company when you purchase a house – even when a premium is paid by the seller. It is better to count it as being on your own if something goes sideways.

If I had to pay for one, I would not pay for it. If the seller throws it in for nothing is the only time I would even consider it. Even then, I would not count on the home warranty company. If you have one, make sure you understand full well what is covered and what is not. Be detailed, don’t assume. Know what is covered, and what is not.

Where are the First Time Homebuyers?

Sat, 05 Nov 2022 00:08:43 GMT

Over the last three months, first time homebuyers have canceled new construction contracts, have canceled existing home contracts and basically no longer engaged in purchasing a home. They are MIA. It has gone from bad to worse with rates jumping so high. When are the first time homebuyers going to come back?

The real estate market is going into a substantial recession. Home prices are dropping 10, 15 & even 20% in many parts across the country and there is little incentive right now for any homebuyer to purchase a home. High home prices and high interest rates – it’s a bad combination.

When is the first time homebuyer going to reengage? Not until home prices come down to a point where it can offset the increase in interest rates. It could be awhile. For many, they have little to no money down. This makes it especially difficult because mortgage payments tend to be higher for those with minimum down payments.

As one lender noted, the only potential homebuyer right now is one that has some decent money down. Such homebuyers are few and far between. They have more flexibility to negotiate a deal and find a lower payment.

For the first time homebuyer with little down, it could be awhile until such consumers come back into the market. The housing market will really struggle until they reengage.

CFPB Directs Credit Bureaus to Clean Up Credit Reports

Fri, 21 Oct 2022 23:49:52 GMT

There have been plenty young adults, those just turning 18, with several credit profiles in their credit report. How does that happen if any 18 year old cannot take out a loan before 18 in most states?

Parents will oftentimes put their teenager on one of their credit cards. Sometimes, the credit card company will show the opening date of the credit card several years prior. If for example a credit card was opened by a parent in 2010, the date opened for an 18 year old will also report 2010 – when the teenager was 6 years old. In some instances, an 18 year old can have an 800 level credit score before he / she has even taken out a loan for themselves.

The Consumer Financial Protection Bureaus has issued a directive to the three major credit bureaus to remove such “junk” data from consumer’s credit reports. They want the credit bureaus to provide accurate information and not allow inconsistent and impossible information to appear on a person’s credit report.

“When a credit report accuses someone of defaulting on a loan before they were born, this is nonsensical, junk data that should have never shown up in the first place. Consumer reporting companies have a clear obligation to use better procedures to screen for and eliminate conflicting information, or information that cannot be true,”said CFPB Director Rohit Chopra.

The CFPB referenced children whose parents have stolen their identity for their own personal purposes. Especially vulnerable, the CFPB report says, are adopted children whose personal information is shared among numerous individuals.

This directive will make the playing field more even for those establishing their credit and also provide better oversight of misuse or identity theft.

Foreclosures and Rental Delinquencies Surge Higher

Fri, 07 Oct 2022 23:04:22 GMT

Inflation is really starting to show its ugly face in the latest housing numbers from ATTOM Data Solutions and CNBC. Home foreclosure activity surged in the last few months and is 153% higher than last year at this time. MyEListing reports that almost 15% of all renters are behind on their rent payments. There appears to be considerable trouble brewing in the housing market.

Inflation has really hit housing process over the last couple of years. Federal government programs kept many tenants in homes for a couple of years without paying a single dollar. For homeowners, many mortgage lenders allowed homeowners to forego mortgage payments for an extended period of time.

With the expiration of COVID-19 government programs and the eviction ban, many consumers are now falling behind on their rent payments and homeowners cannot afford their mortgage payments. Millions cannot simply afford their house payment.

Rental Delinquencies

Almost six million tenants are now behind on their rent payments. How did that happen? Landlords could not evict tenants during COVID. In addition, many tenants did not have to make rent payments as part of the federal government’s COVID relief package. It wasn’t until this last May (2022) that that relief expired and tenants had to make their own rent payments.

Mortgage Foreclosures

This is a big concern going forward. Foreclosures have been below historical averages through the COVID period. However, with homebuyers stepping to the side because of high prices and high interest rates, more and more foreclosures are starting to appear. Some think we will face a surge in foreclosures in 2023. This could get really ugly for many. It could also create opportunities for future homebuyers.

The housing market is under a lot of strain. The next three to six months will provide a clearer picture of the housing market for the next two to three years.

Cancelling Student Loan Debt is Just Wrong

Thu, 25 Aug 2022 18:47:01 GMT

President Biden has simply blown it with trying to cancel student loan debt. This is just flat out wrong and its repercussions will last for generations. I see the problems with student loan debt every day and the financial devastation it is causing. This is a real mess and it all starts with the change in the law with the Affordable Care Act, and ends with a disastrous proposal to try and cancel debt. How does the law with insurance coverage impact student loans and Biden's proposal to cancel its debt? Let me explain.

In 2012, I was invited as a main presenter to the AFCPE annual conference, an association of professors and deans in family science and financial literacy, and financial counselors. At the end of my presentation, I warned them about the problems of growing student debt wrecking the financial lives of many past students. The total student loan debt at that time was just under $1 trillion. It is now approaching $2 trillion.

The problem I highlighted was the takeover of the student loan program by the Congress as part of the Affordable Care Act. It was wrong then and it is wrong now. The problem is universities just send their students to the “Financial Aid” department and that usually means signing on loans they have no idea how they work, when they have to repay them, and the total amount they will ending up borrowing. It is a recipe for financial disaster. That is exactly what has happened and it will continue to happen. There is no accountability by the universities. I see it all the time. That's a great deal for the universities!

Then Senate Majority Leader Harry Reid and then President Barrack Obama said that this federal takeover of the student loan would save $68 billion to taxpayers, and “…improve the lives of our people for generations to come.” President Obama continued, “That's real money -- real savings that we'll reinvest to help improve the quality of higher education and make it more affordable.” Did that happen? Absolutely not. The opposite happened. We went from saving $68 billion to being charged $330 billion or so.

Nevertheless, salaries of all university employees keep going up on the backs of these student loans that are now guaranteed by the taxpayers. If people really knew how much these professors, deans, and vice presidents make, there would absolutely be a community uprising. There are university vice-presidents, professors and other university employees that are making twice what members of the legislature thought they were making. They have raised their salaries to levels unreal -- all primarily on the backs of student loans. There is nothing to keep them in check. Their money tree is the student loans. I have seen very few at the university level care about the future financial well-being of their students. It is sad to see.

Now Biden is trying to cancel out $330 billion in student loan debt? What does that do? We still have the same problems today and more coming tomorrow and this cancellation does nothing to solve it. The $330 billion estimate is about $2,200 in cost to every American taxpayer. That is a lot of money. And there is more to come. Why don’t colleges have to make big changes? Then to have his press secretary, Ms. Jean Pierre say that the $330 billion in new spending will be offset from $4 billion payments made on interest payments from student loans next year – and is ”economically responsible”. What? As one person commented about this and other economic policies of this administration, "Biden makes Jimmy Carter look like Winston Churchill."

I agree with several legal experts that don’t think this will hold because Congress must approve it and the Courts will be involved, and eventually put a kibosh on it. But at the very minimum, the damage is done to think that no one has responsibility to pay their debts and continually ask for loan cancellation at any time is going to be multi-generational to correct. I have been seeing for a couple of years and this sentiment has got to stop. I don’t want other people paying for my debts and most people don’t want to be paying other people’s debts.

Every party involved needs to be at the table on this including the universities. The government cannot continually give away money without something in return. The taxpayer’s voice needs to be heard now requesting substantial changes to student loans, or this could be another “financial crisis” which could end up costing many more trillions, further jeopardizing everyone's financial future.

The Missing Story about the Inaccurate Equifax® FICO® Credit Scores

Tue, 09 Aug 2022 21:29:39 GMT

Equifax admitted to providing inaccurate FICO® Scores from March 17, to April 6, 2022 from a coding error. How did this impact you as a consumer? If you bought a home or a new car, the impact could cost you a lot of money. How much? In some instances, it could cost you a higher payment on any loan including mortgages and auto loans.

What can you do? This is a really tough question to answer. To read about the possibilities, click on the following article from CNBC.

https://www.cnbc.com/2022/08/04/how-to-check-if-you-may-be-affected-by-wrong-equifax-credit-score.html

The Real Concern with Rising Interest Rates

Fri, 08 Jul 2022 23:52:53 GMT

As the Federal Reserve raises its interest rates, the impact to the rest of the economy is yet to be determined. However, one area that will have a profound impact is the national debt at $30.5 trillion. The cost of borrowing money will become much more expensive. It is not just the increasing cost of personal borrowing that is impacted, but also the future impact on other programs such as Social Security and Medicare.

It is easy for the Congress over the last couple of years to borrow money when the given interest rate is near 0%. The national debt has exploded from $23.2 trillion at the start of the pandemic, to $30.5 trillion today – that is an increase of $22,121 per American over the last 30 months.

In 2021, the interest payments on the national debt were $303 billion. As interest rates rise, any new debt and debt that has to be refinanced must pay a much higher interest rate. That just means the U.S. Government has to pay more in interest and will have less money to pay out. It is widely expected to have interest payments on the debt to exceed $500 and even $600 billion annually.

The total revenue for the U.S. Government usually comes in around the mid $3 trillion annually. At 2021 levels, almost 10% of the budget covers the interest on the debt. With interest rates rising, the interest on the debt will be fast approaching 15% and closing in on 20% of the total revenue of the U.S. Government.

What does that mean?

It means the interest on the debt will be squeezing the federal budget even more at a much more rapid pace. It means that borrowing money, like has been over the last two and a half years, will be at a much greater cost. It really places limits on what can be done going forward. It could mean limits to future social security benefits and other government benefits that have been paid by the taxpayer.

As Congress has borrowed money at such a rapid pace, it means we as taxpayers will have to pay more and more in the future to pay for the interest on that debt. When there is more debt, there is less future purchasing power and less financial freedom. That is the real concern.

Your Credit Utilization Ratio is NOT 30% of Your Credit Score

Fri, 01 Jul 2022 18:08:34 GMT

Nicolas Vega, a business reporter at CNBC, misled thousands of consumers by his recent article that credit utilization ratio makes up 30% of your FICO credit scores. His statements are incorrect, inaccurate, and misleading. There are several other debt-related factors that have an impact on FICO credit scores.

Credit utilization is the amount borrowed on a credit card and its credit limit. If someone has a balance of $5,000, and a credit limit of $10,000, the credit utilization ratio is 50%. If on the same credit card the balance drops to $2,000, the credit utilization ratio is 20%.

Credit utilization ratios can have a significant impact on FICO credit scores. Scores can drop upwards of 40-50 points from just one account with a high utilization ratio over 100%. That means a consumer has borrowed more than the credit limit. When multiple credit cards and utilization ratios above 50%, the drop can be 60, 70, and even upwards of a 90 point drop.

Additionally, those consumers just trying to establish their credit profile or reestablish their credit profile will see b roader score changes than those that have a deep credit profile. For example, an 18 year old who opens their first account, that being a new credit card, can see FICO points decline of 30 to 40 points if that consumer borrows right up to the credit limit. A person, with a credit card opened for 20 years, can borrow right up to the credit limit and the drop will not be as much – say 15 to 20 points lower.

However, utilization ratio is NOT 30% of FICO credit scores. It can drop FICO scores fairly quick when multiple credit cards balances are high. However, the drop in FICO scores is not solely to the utilization ratios. There are eight measurements of debt that determine the impact on your FICO Scores.

They are:

Number of accounts open.
Number of accounts with a reported balance.
The reported balance on a line of credit (not utilization ratio).
The ratio from the balance in relation to an initial loan amount on an auto loan or other types of loans.
The number of bank credit cards open
The number of bank credit cards with a reported balance.
The balance to credit limit or utilization ratio on a credit card or other lines of credit.
The total utilization ratio of all consumer debt as a percentage of the total credit limits and initial loan amounts.

Mr. Vega does add correctly that raising a credit limit will help lower a credit utilization. A person can also make payments before the lender reports to the credit bureau, usually a day near then end of each month. A consumer can also get quick FICO score points by paying off most small balance credit cards.

Mr. Vega also write the following incorrect statement:

"Experts generally recommend keeping your utilization rate under 30%, ideally closer to 10% if you can. That’s because credit card companies view high utilization rates as a red flag that you might not be able to reliably pay back the money you owe."

For FICO Scores, it is below 5%.

FICO Scores are very complicated. Stating that utilization ratios are 30% of a FICO score is not accurate and keeping a utilization ratio at 30% of a credit limit is also wrong. It is just not that simple. Knowing all the factors and the correct guidance can help consumers better navigate to higher FICO scores over a shorter period of time.

CNBC is much better than this. Make sure correct content is put on such platforms so consumers can know the accurate information. If a reporter does not know it, don't put anything out there.

Here is the link to Mr. Vega’s article.

https://www.cnbc.com/2022/06/29/how-to-calculate-your-credit-utilization-rate.html

The Housing Market Takes a Dramatic Shift

Mon, 20 Jun 2022 18:05:27 GMT

The last few weeks have seen some of the highest interest rates for mortgages seen in almost 15 years. Rates jumped from the low 5.00% on a 30 year fixed rate mortgage to about 6.50% before settling back closer to 6.00%. With rates jumping so much, where does the housing market go from here? There are already some signs.

The problems are many. With home prices rising over 30% in many areas of the country, and now with interest rates have increasing since the start 2022, it puts many American dreams on hold. As one real estate broker chimed in, the market has rapidly changed from a seller’s market to a buyer’s market.

New home construction has come to a screeching halt. Some homebuilders are not taking any new applications because they have many homes under construction, and have lost lots of those homebuyers from an inability to qualify now with higher interest rates. Most homebuyers are losing more sales than picking up new contracts. A measure from two fairly big regional builders shows that cancellations outnumbered purchased contracts 4 to 1 in the month of May. That means many homebuyers are walking from their new homes, even if the home is in the closing phase of construction.

Many families waited until school got out before listing their home. More and more homes are showing up on the market. Unfortunately, many listing realtors are seeing very few prospective homebuyers walking through. Just 12 months ago, a newly listed home would often see multiple offers within a day or two in many parts of the country.

Those homes with higher sales prices are definitely sitting now with little activity – close to a million dollars. The only activity – albeit very restricted – is the homes with sales prices in the lower end of the market.

What does this mean? An experienced appraiser said that more expensive homes are showing some minimal declines in value in certain parts. He also said the declines could hit all types of housing. He even referenced a some purchase offer that were in the lower range where the buyers ended up just purchasing the homes for less than the asking price.

If you are going to be a home seller, there could be some challenging days ahead. If you are looking to purchase a home within the next 6 to 12 months, there will be some possibilities come up. Don’t panic. Prices look to adjust some and could very well create an attractive opportunity for you at the right price.

Remember, it looks to be a buyer’s market for at least the rest of the year.

Effective Steps to Combat Higher Inflation Costs

Fri, 10 Jun 2022 21:21:48 GMT

Consumers are under pressure like never seen in almost 40 years. I am seeing it more and more, and it is very concerning for millions. To combat high levels of inflations, many consumers have resorted to credit card and other consumer debt trying to navigate through these record inflation rates. Every person has an opinion. What can you do more? Here are some ideas that I have helped out many others over the last 30 years.

A few years ago, I was asked to meet with an older husband and wife who were trying to right-size their finances. He was spending a lot of money and she was trying to save money to prepare for retirement. I never like to get in the middle of a couple’s fight on finances, but I will give suggestions and the couple has to find the best path forward.

I went through the previous two months of credit card statements. There were a lot of drinks at the local gas station, an elevated cable bill, and some items for hunting. It went further – there was much more. After each charge, we either acknowledged its purpose or I asked questions to that charge and identify if it was a need or something that could have been done without.

Today, the economy has changed from 18 months ago and the stress for many families is really high. With the Biden administration telling Americans they are doing everything to bring down high prices, and then saying there is not a lot that they can do, it leaves most Americans feeling hopelessly desperate. An investment advisor along with a business reporter both told me the same thing this past week; markets have lost confidence in the ability of the Biden administration and the Federal Reserve to bring inflation under control. That is very concerning. We could face this crisis for another year or two.

What can you do? Start with your credit card bill. Be honest and go through each transaction for the last 60 days. Separate them into categories and total them. Identify what areas can be reduces. Can you avoid extra drinks at the gas station, lower your cable subscription to a basic package, reduce your auto insurance coverage by raising your deductible or park a car and not drive it? Drive the vehicle that gets the best gas mileage even if you don’t have the room of a SUV or minivan? Can you look to purchase in bulk for group savings, reduce your extras at the grocery store?

Most consumers can lower their expenses by 10-12% without a lot of sacrifice. Find areas to reduce your outgo. Don’t keep adding more charges to your credit cards – doing that will just reduce your future purchasing power.

If you need to reduce 20-25% of your expenses, that is going to take more effort and discipline. You should watch every dollar expended.

Whatever your situation, others are feeling it too. Stay above water, don’t go down the easy road of more consumer debt. Have a real good financial review with yourself. It is the easiest method to fight against the high costs we see today. Then, create a plan and follow through on it. Give yourself some room in case of an unexpected expenditure.

There will be better days. We just don't know when. For today, those that are more financially disciplined will be much better off tomorrow.

What’s Next After Rent Assistance Comes to an End?

Fri, 29 Apr 2022 23:32:33 GMT

Federal rent assistance for millions of Americans comes to an end starting May 1, 2022. For many, the challenges of affordability and of having to start making payments that have increased exponentially since the start of the pandemic, are way beyond reach. So, what is going to happen?

Many renters have not had to make a rent payment for over two years. It has given millions more freedom financially during this time. Imagine not having a house payment for two years. Some have had on-again, off-again income while others have increased their personal debt. The challenges now are many.

Adding fuel to the fire, the housing market is very rigid. Many homeowners do want to move up, or down because interest rates have climbed so much within the last three months. As a result, less homes are and will be on the market unless a homeowner really needs to move. So for many renters, the options of purchasing a home are very limited. With millions now forced to start making rent payments, a couple of scenarios could play out.

First, many individuals cannot make today’s rent payment for which rent payment assistance has been provided. This could force many individual renters to move in with family or relatives, or combine resources and invite roommates. Either way, this could increase the number of rental units on the market, and possibly partially alleviate the pressure on rents.

Second, some could just decide not pay their rent payments and wait until for the eviction process. This would take a few or several months to play out, depending on the state where the renters live. The problem for the renter is trying to find a new home and then having a property manager / landlord coming after the renter for past due rents.

The government rental assistance has had one bad unintended consequence; more renters staying in an apartment or home, leaving less rental properties on the market. Subsequently, the market rents have gone up. The question now is what happens to the market as all the free money is pulled away. More opportunities to rent should come on the market in the coming months and possibly, rents will settle and not continue to increase.

Why Monitoring Your Credit is Wrong

Fri, 22 Apr 2022 23:34:33 GMT

The three major credit bureaus, Experian®, Equifax®, and TransUnion® have marketed different credit monitoring tools to help you track the credit information in your credit report – as long as you pay something. But, why don’t the credit bureaus do it? It is their information. I’ll explain.

The three major credit agencies have created agreements with lenders both large and small to send your loan information to them. This information includes all your personal information, including address and social security number, loans that have been opened and paid, balances, along with other types of information.

The three major credit bureaus have amassed a lot of personal and credit information which they in turn, sell to companies for profits. This includes credit reports requested, and marketing for different loans and financial services. The information in their credit reports is their information. Even though it contains your information, it is considered to be their information, or their “asset”.

As a result, you have limited access to our information. You oftentimes have to pay to get a copy of your credit report (unless you go to the free annual website).

A Backwards Business Model

Which brings us back to the original question. Why are you paying to monitor something (your credit information) that isn’t even considered your property?

That is the problem. If your personal and credit information are the property of Experian, Equifax and TransUnion, they should have systems in place to make sure your information is correct.

The only reason to monitor your credit is if you receive something in return of value to you – like your actual “lender’s credit scores”. It would not make any sense to just monitor your credit without that, because you are in essence, doing the job for the credit bureaus.