Dear Liz: I have an adjustable-rate mortgage that is currently at 3.125%. I’d like to fix the rate, but no one will even discuss it with me because my house has been appraised at less than $100,000 and the balance of the mortgage is $144,319. I have never been late, and my credit scores are above 800. What can I do? I don’t want a mortgage modification. I just want a fixed rate.
Answer: If your loan was backed by Fannie Mae or Freddie Mac, and if it was originated before June 1, 2009, you may be in luck, thanks to recent improvements to the federal government’s Home Affordable Refinance Program, or HARP.
Federal officials eliminated certain fees and barriers that made lenders reluctant to refinance underwater mortgages. They also eliminated the limit on how far underwater you could be to get help. In the past, you could owe no more than 125% of a home’s value.
You’ll first need to find out whether you have a Fannie Mae or Freddie Mac loan. You can visit http://www.fanniemae.com/loanlookup or call (800) 7FANNIE ( 732-6643). You’ll find information for Freddie Mac at http://www.freddiemac.com/corporate or by calling (800) FREDDIE ( 373-3343). The toll-free numbers are open from 5 a.m. to 5 p.m. Pacific time.
Borrowers must be current on their mortgage payments with no late payments in the previous six months and no more than one late payment in the previous 12 months. Loans that have been refinanced under the old HARP guidelines aren’t eligible for another refinance.
If your lender isn’t offering HARP refinances, you can search for others that are. You may want to contact a counselor approved by the Department of Housing and Urban Development (referrals at http://www.hud.gov) to help you through the process.
Don’t make the mistake of entering “HARP” or “Home Affordable Refinance Program” into a search engine. Most of the links that will turn up will be to for-profit sites, not all of them reputable. For the real deal, visit http://www.makinghomeaffordable.gov or call (888) 995-HOPE ( 995-4673).
Dear Liz: Here’s a cautionary note you may want to share. I filed for bankruptcy almost three years ago. Many sites recommend taking a small personal loan or purchasing something small, like furniture, to pay for over time and improve your credit. So I bought a sofa from a local retailer with a no-interest loan deal. It is now almost completely paid off. When I checked my credit report recently, I noticed the installment loan wasn’t there. I called the retailer and found that they didn’t report to any credit bureaus. The lesson, of course, is to not presume that just because you can get a loan from somewhere, it will be reported on your score. I now have a sofa I didn’t really need and no benefit to my credit. And I feel stupid for not thinking to ask.
Answer: Plenty of lenders don’t report to credit bureaus. Even some credit unions, which are normally consumer-friendly, opt to report to only one credit bureau.
If you’re trying to rehabilitate battered credit scores, you want accounts to be reported to all three bureaus so that all three of your FICO credit scores (one from each bureau) can benefit. It doesn’t do your scores any good if a loan you’re paying on time isn’t reported to any bureau, and it does you only limited good if it’s reported to just one bureau because your other two scores won’t benefit.
You typically can find out simply by asking before you apply for a loan whether the creditor reports to all three bureaus.
The fastest way to improve your scores is to have both installment and revolving accounts. Revolving accounts include credit cards, but you don’t necessarily need to borrow money to improve your scores. Using a credit card and paying it in full each month also can help. If you don’t have a card, consider applying for a secured version, which gives you a credit limit equal to an amount you deposit with the issuing bank. But again, make sure the issuer reports the account to all three bureaus before you apply. You can find secured-card offers at LowCards.com, CardRatings.com, CreditCards.com and other sites.
I’m giving away two copies of the latest edition of my book, “Your Credit Score: How to Improve the 3-Digit Number that Shapes Your Financial Future.”
This is the fourth edition, rewritten from stem to stern to reflect big changes in the credit laws and practices since the financial crisis. If you need to improve your credit after big setbacks or you just want to know how to keep your scores high, this is the book for you.
To enter, leave a comment here on my blog (not my Facebook page). Make sure to leave your email address (which won’t show up with your comment, but I’ll be able to see it). The winners will be chosen at random.
The deadline to enter is midnight Pacific time on Friday Jan. 6. So–comment away!
The Capital One Venture and Chase Sapphire Preferred are two of the best travel cards on the market, declares comparison site NerdWallet.
Both offer pretty sweet deals. The Venture card has a 2% rewards rate on all purchases, and you don’t have to deal with blackout dates or other typical redemption hassles. Instead, you book your flight or hotel room directly, and use your rewards points to pay for it. The $59 annual fee is waived the first year.
The Sapphire card is offering a 50,000-point signup bonus that can be worth up to $625 of free travel. You can earn a 2% rewards rate on travel and dining purchases and 1% everywhere else. Plus, you get an annual rewards bonus equal to 7% of the points you’ve earned for the year. The annual fee of $95 is waived for the first year.
A notable feature for travels: neither card charges foreign transaction fees, which typically add 3% to the cost of spending abroad (or ordering from foreign companies at home).
I still like my Starwood Amex card–mostly because we’ve been able to wrangle redemption rates of 4%+by using our points to book Hawaiian resort hotel rooms and sleeper-car accommodations on Amtrak. But we recently added a Venture card to our mix for those occasions when a merchant doesn’t accept American Express.
Remember, rewards cards only make sense for those who pay off their balances in full every month, and you need excellent credit scores to score these deals. Also, you shouldn’t apply for new accounts if you expect to get a major loan, such as a car loan or a mortgage refinance, in the next few months. Wait until that deal closes before you seek any more credit.
If you’re trying to pay off credit card balances, and don’t have the good scores needed to get low-rate balance transfer offers you find on NerdWallet and other sites, consider getting a three-year fixed-rate personal loan from a local credit union to help you pay off your debt. FindACreditUnion.com can help you if you’re not already a CU member.
If you’re hoping to improve your scores, check out my book “Your Credit Score,” which recently came out in its fourth edition.
Dear Liz: My elderly mother lives in another state and her health is deteriorating. We want her to come live with us, but her home has been on the market for more than a year and hasn’t sold, even after several price cuts. She’s depressed and we’re getting frantic. What can we do?
Answer: If her goal is to sell the house, she probably needs to cut the price even more. In most real estate markets today, what gets a home sold is a truly competitive price.
You also might consult an experienced real estate agent about what low-cost improvements could speed the sale. If the home is cluttered or stuffed with furniture, for example, removing one-third to one-half of the household contents can make the space seem dramatically larger. Your mom will be packing and discarding all this stuff anyway, and starting the process now can help sell the home. If she’s not able to manage this alone, consider taking a week or so off to help her or hiring a professional organizer to assist with the process.
Other relatively inexpensive fixes can include minor repairs, refreshing the landscaping, washing the windows and deep cleaning the house. Your mom shouldn’t embark on any major projects because she’s unlikely to recoup the expense. But the money she spends getting her home ready for sale can be deducted when she determines whether she has any taxable profit on the sale. (Typically $250,000 of home sale profit is tax-free. The limit is $500,000 for married couples.)
Another alternative is to simply move her in with you and rent out the home, but trying to manage a rental long distance can be a hassle. If that turns out to be your best option, consult the real estate agent for referrals to good property management firms.
Dear Liz: How do you recover from bankruptcy? My daughter lost a very good job and got upside down with her house, so she had to file for bankruptcy. She is working now in a very low-paying job but cannot find a good job in her field of finance. Everything goes well in the interviews, but then they check her records for bankruptcy. Once they learn that she was bankrupt, they will not hire her. How can she dig out of this predicament?
Answer: Federal law prohibits employers from using a bankruptcy filing as a reason not to hire (or to fire or decline to promote) someone. However, most states allow employers to check credit reports, and employers are allowed to use the negative marks they find there as a reason to not hire someone. Since most people who file for bankruptcy have plenty of late payments and charge-offs leading up to the filing, that gives employers the legal cover they need to refuse to hire someone with a checkered financial past.
Interestingly, there’s no research or other evidence that indicates bad credit leads to problems on the job, such as theft or even poor performance. Yet employers continue to use credit checks to screen out job applicants for a wide variety of jobs.
Only six states — California, Connecticut, Hawaii, Maryland, Oregon and Washington — restrict employers’ ability to check credit reports, and often there are exceptions for jobs in finance or those that involve access to large amounts of cash.
Unfortunately, that means your daughter’s troubled financial past may continue to haunt her for years to come unless she finds an employer willing to overlook it. Most negative marks stay on credit reports for seven years, while bankruptcies can stay on for up to 10 years.
Dear Liz: I would like to get my interest rate reduced on a couple of my credit cards. I’ve never been late on a payment and have decent credit scores. But the last time I called to ask for a reduction, the credit card company raised my rate and lowered my limit. I’m hesitant to call and try again. Any suggestions?
Answer: Unless your credit scores are excellent (typically FICO credit scores of 740 or above), these days you probably shouldn’t waste your time trying to negotiate a lower rate with your current issuers.
People with great credit have some leverage, because they can easily transfer their balances to competitors offering low rates. People with only “decent” credit usually can’t qualify for those offers.
You may be able to get a better deal by transferring your balance to a three-year, fixed-rate personal loan. Check with your local credit union first, as these member-owned organizations often have better rates and terms.
I’d like to claim to be a model of economic efficiency, but that would be a bald-faced lie. This year, I’m running even farther behind than usual.
So I’ll be scurrying around tomorrow, making sure to take advantage of the last day to squeeze in some important 2011 money tasks. Among others tasks, I will:
Make a Goodwill run. We itemize our deductions, so donations of clothes, toys and household items in good condition win us a tax break. This year I’m using the iDonatedIt app to keep track of our donations.
Make some last-minute charitable donations. I just checked Mint.com to see how much we gave this year, and the total is lower than I intended. So I’ll be making a few donations to our favorite charities.
Set up automatic contributions for next year. The easiest way to give is automatically. Some of the causes we benefit (Save the Children, public radio, the Los Angeles Food Bank) are charged every month to our rewards-earning credit cards, which we of course pay in full. I’m going to look for opportunities to set up a few more automatic donations so I won’t be scrambling at year-end next year.
Create my tax file. I’ll pull out the file where I’ve been tossing 2011 tax information and organize it a bit, including a list of tax documents we’re expecting that we haven’t received yet. As those arrive, I can check them off—and follow up with the issuers if we haven’t gotten the documents by mid-February, when we typically file our return.
Get ready to enjoy a happy new year. In the first days of 2012, I’ll be jotting down some personal and financial goals for next year, since putting our intentions in writing is a powerful first step to achieving what we want. For tomorrow, though, we’ll just be kicking back as a family, ringing in the new year at home. May your celebrations be as peaceful and happy, and may you have a wonderful, prosperous new year.
Dear Liz: I’m working off credit card debt. I have two cards down to a zero balance. Which will improve my FICO credit scores the most: leaving the cards open but not using them or using them minimally and paying the bills off in full each month?
Answer: Congratulations on your progress paying off your debt. Erasing your debt on those two cards is doubtless already helping your scores. You can continue to improve your numbers by using the cards lightly but regularly, paying the balances in full each month.
Credit scoring formulas want to see you actively, and responsibly, using credit. Shutting the cards in a drawer won’t demonstrate that you can do that. You’re also running the risk that a card issuer will shut down your account because of inactivity.
If you discover you can’t use the cards responsibly, however, then locking them in that drawer (or freezing them in ice) is better than running up credit card debt again.