Try to reopen a closed credit card
Dear Liz: I was traveling and forgot to pay my credit card bill last month. Instead of just charging a late fee, my issuer closed the account. I have high credit scores and had a high limit on this card. What can I do?
Answer: Write the issuer’s chief executive. Most credit card issuers are trying to reduce their risk, but slamming shut an account for a good customer with high credit scores is ridiculous. The decision was probably made by a computer, but you’ll need human intervention to get it reversed. Good luck.
P.S.: Consider setting up automatic bill payments so this doesn’t happen again.
How can I get a bigger home loan?
Dear Liz: I’ve heard that some lenders offer mortgages where the payments represent 60% of the borrower’s income. I am in over my head financially because of recent hospitalizations and as a result have been late on my mortgage. I’m currently on a payment plan that is difficult for me. I have been juggling expenses every month and cannot catch up. I’m trying to find a second job but no luck at this point. I don’t want to sell my home nor do I want to lose it, so can you send me a list of lenders that allow 60% debt to income ratios?
Answer: When the mortgage market was booming, there were a few lenders that signed off on loans that ate up 50% to 60% of the borrowers’ monthly income. But those borrowers typically had sterling credit and substantial resources. That’s clearly not your situation.
Your late payments have substantially damaged your credit score, which means lenders aren’t going to cut you much slack. You might want to try your current lender again to see if lowering your payment is possible, or work with a seasoned mortgage broker who can help you evaluate your options.
It could be, though, that you simply can’t afford your house. If that’s the case, it’s better to sell now before a foreclosure makes your credit even worse.
Can Credit Misdeeds Be “Erased”?
Dear Liz: I filed a personal Chapter 7 bankruptcy five years ago to erase my debts. The reason I filed wasn’t because I lived beyond my means, but because I used my personal credit to finance my business, which fell apart after the Sept. 11 terrorist attacks. Since that time, I have emerged with credit scores in the 665 to 700 range. My problem is that when I apply for loans, I’m sometimes denied because the creditor says I have too many late payments on my credit cards. Those late payments are all from my previous life and the debts were wiped out in the bankruptcy. Now I pay everything off in full every month. How can I get these late payments off my credit reports?
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Answer: You’ve restored your credit scores, the three-digit numbers lenders use to help gauge your credit-worthiness, to near-prime levels. Typically, scores of 720 and above are considered “good” under the FICO scoring system used by most lenders. Scores in your range are acceptable to many lenders as well, although you’ll typically pay higher interest rates than if you’d had unblemished credit.
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Still, as you’ve discovered, your scores and credit history aren’t acceptable to some lenders. You may feel that the five years that have passed since your bankruptcy are an eternity, but these potential creditors obviously don’t. Your problems paying bills in the past lead them to suspect you may default again. (Most lenders don’t care why you were late, by the way; they just care that you were.)
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If you want a loan from these particular lenders, you’ll probably have to wait until the late payments drop off your credit reports–typically about seven years after the delinquencies occurred. The bankruptcy, which also will discourage some lenders from accepting you, legally can stay on your credit reports for 10 years.
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Some fly-by-night credit repair outfits promise to “clean” your report of negative marks. Don’t fall for their scams, which usually involve committing fraud or trying to overwhelm the credit bureaus with disputes that often result in only temporary improvement, if that.
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A better course is to continue using credit responsibly, as you evidently have since your bankruptcy, and to shop around when you need a loan. Just because some lenders have turned you down doesn’t mean others will.
Why is My Credit Score Off?
Dear Liz: I’m slightly confused on FICO scores. I’ve been paying for a service from one of the credit bureaus, Experian, that tracks my credit score. Two of my credit cards provide updates on my credit scores from the other two bureaus, TransUnion and Equifax. I thought, based on the information provided from these three sources, that I had improved my scores sufficiently to apply for a mortgage. Wrong! My credit union says my FICO credit scores are on average 50 points lower than the numbers I’ve been looking at. Why is there such a disparity? I have heard since that the scores you pay for aren’t the ones lenders use. How can this be??
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Answer: Of the bureaus you mentioned, only one, Equifax, typically provides FICO credit scores to users. (FICO is the leading credit scoring formula, created by Fair Isaac Corp.) Experian and TransUnion typically sell consumer education scores, which aren’t widely used by lenders. Experian and TransUnion reason that because there are more than 100 credit scoring formulas in use, and you can’t predict which one a lender will use, consumer education scores are a reasonable proxy.
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Perhaps. But FICO credit scores are the ones used in most mortgage lending decisions, so if you’re in the market for a home loan, you’ll probably want to buy FICO scores so you’ll know where you stand with lenders. One Web site sells FICO scores from all three bureaus: MyFico.com.
Does Amortization Loans Affect FICO Scores?
Dear Liz: Are credit scores negatively affected by so-called negative amortization loans? I’m talking about the mortgages that allow you to pay less than the minimum interest due on your loan. Any unpaid interest is added to your principal so that your mortgage grows rather than shrinks. Would this rising balance hurt your scores?
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Answer: The short answer is no. Negative amortization by itself won’t damage your credit scores, even if your balance goes above the original balance shown on your credit reports.
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If the increase in the amount owed “is permitted by the way the loan was structured and the borrower is meeting all her loan payment obligations, then the FICO score won’t be affected by the higher balance,” said Craig Watts, spokesman for Fair Isaac Corp., which created the FICO score, the leading consumer credit gauge.
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If, however, your balance is rising because you’ve missed payments and you’re accumulating overdue interest and penalties, then your FICO score almost certainly will drop, Watts said.
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Clearly, the FICO scoring system treats installment loans like mortgages quite differently from revolving accounts such as credit cards. If your credit card balance rises higher than your credit limit (or even comes close), your FICO scores will indeed suffer.
