Ways to build credit without relying solely on credit cards

For those who prefer to pay with cash and avoid the credit card debt cycle altogether, building a solid credit history and high FICO score can be a challenge – but it doesn’t have to be. Only a small portion of your FICO score is based on having and using revolving credit.

The first step is to understand what goes into your score. The majority of your FICO score is based on your payment history and your balances. Pay your bills on time and avoid carrying credit card balances, and you’re well on your way to an excellent score.  

Where credit scores come from

Payments – 35%. Your payment history is the most significant factor in your credit score. A single late payment can stay on your credit report for two years. Collections, bankruptcies and other negative items can remain for even longer.

Debt load – 30%. This portion of your score reflects how much debt you carry. This is where credit cards can really hurt you. The people with the highest scores carry balances equal to no more than 10% of the limit on each card. Don’t charge up or max out any one card. 

File age – 15%. The older your accounts, the more points you will receive.

Inquiries and account variety – 10% each. Each time you apply for new credit, you ding your score. (Exception: if you’re shopping for a mortgage, all inquiries within a 45-day time frame will count as a single inquiry.) Also, consumers with the best scores hold a variety of credit accounts – for example, a mortgage, an auto loan and a credit card.

Your score

Now that you know what goes into a credit score, you need to analyze your own score and determine the reason it isn’t as high as you’d like it to be. Visit AnnualCreditReport.com to obtain free copies of your credit report each year from all three of the credit reporting agencies (Equifax, Experian and TransUnion). First, correct any errors. Next, examine the reports in light of the bullet points above.

For one person, a low score might be due to late payments or collection accounts. For someone else, high balances. Another person may have “thin” credit – that means insufficient information has been reported and FICO is unable to assign a score. Building your credit means addressing the specific issues that affect your score. If you’re unsure what factors are causing your score to dip, contact the reporting agency and talk to a customer service rep.

Strategies for building credit

Address the specific reasons your score is low. If you prefer to pay cash and avoid revolving debt, that’s great. Don’t change! Just use that conservative financial attitude to your advantage.

Report your rent. Experian and TransUnion now accept rent payments for inclusion on your credit report. Rent payments must be uploaded by third-party service like RentalKharma (currently free),  RentReporters ($10 per month) or WilliamPaid (free when you pay your rent from your bank account via the site). None of these services depend on landlord participation. Note that although the rent payments will show up on your credit history, they do not yet factor into your FICO score.

Put at least one household bill in your name. In general, utility, internet and phone service providers only show up on your credit report if the account is in collections. This is starting to change, though. Some major providers are experimenting with payment reporting. Find out if yours does.

Don’t ask anyone to co-sign for you. A better way to establish your financial independence and build a healthy score and history is to start with a bank account and a secured credit card.

Maintain a bank account. Bank accounts don’t factor into your credit score, but the relationship you have with your bank might lead to financing opportunities. Consider opening an account at a local credit union. They tend to offer more generous terms (i.e., no-fees) on checking and savings accounts. And they might be a good resource for a small car loan or for that credit card you hope to obtain. Or you could apply for a secured loan, using your cash assets as collateral, which will show up as an installment account on your credit report.

Get a credit card. If you can’t get a traditional card, get a secured card (not a prepaid debit card). Before you apply for any card, be sure the card issuer will report your payment behavior to all three credit reporting agencies.

Use the card sparingly. Pay one bill each month – your cell phone, for example – with your credit card, and pay off the credit card balance each month. Set them both up as automatic payments and you won’t have to worry about due dates. Avoid paying for everyday expenses like groceries with a credit card until you establish a proven track record of paying off the balance every month. 

Maintain steady employment. Employment is not part of your credit score, but it does show up on your credit history. When the time comes to apply for a mortgage, stable employment for at least two years – in addition to a good score and a clean credit history – is required by most lenders.

Practice great financial habits. Pay all of your bills on time. Your payment is reported by a computer to a computer. While it’s true that in some cases later payments carry worse consequences, ultimately late means late. A payment will be marked as “past due” if it is late at all, even “only” one day late. Also, your credit report cannot explain to a reviewer that you had extenuating circumstances. Only whether your bills were paid, and whether they were paid on time. If you run into financial difficulties, work out a payment plan with your creditors before you miss a payment.

The truth is that it’ll be hard to have a top credit score without using credit cards to some extent. But remember that they are only one small element of your score, and you certainly never have to carry a balance.

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How to Interview Your Mortgage Broker

Getting a mortgage can be a long and tedious process. Not only that, but a mortgage is one of the most important financial products you will have in your life. It is important to get mortgage broker who can get you the best deal, while walking you through the process. Asking your potential mortgage broker a few questions can help separate the great from the good.

Interest Rate

The most important aspect of a mortgage loan is the interest rate. The difference in interest rates can change the cost of the loan thousands of dollars over the life of it. Remember to ask what the APR (annual percentage rate) is, because this interest rate includes the fees from the lender. Also, ask if the mortgage rate is adjustable or if it is locked in. With interest rates at such low levels, locking in is probably a good idea.

Total Cost

Sometimes fees are tacked on when obtaining a mortgage. For example, points, origination fees, and even underwriting fees. Not only that, but costs such taxes, insurance costs, and escrow fees. The total cost of the loan is an important factor to look at. This is important to determine. If you see a cost that you do not agree with or think is excessive, do not feel bad about asking for a reduction. Otherwise, you of course can walk away before you obtain the loan.

Documentation

Ask the mortgage broker what kind of documentation you need to provide. Of course most loans require income and assets. It is best to ask ahead to avoid surprises, making it much easier to be prepared. Make sure to be completely honest, and back up any income statements with paperwork. The days of loans with overstated income and no documentation are over.

Prepayment Penalty

Many loans have a fee for a prepayment penalty, which can hurt your effort to pay down the loan quicker. Unless the loan rate is much lower than others, if a loan has a prepayment penalty, it is best to avoid. Most loans have prepayments within it's life. Whether the borrower is retiring and wants to pay it off quicker, or in most cases, the house is sold before it is paid off.

Down Payment

Find out how much the down payment is, and if adjusting the size of the down payment can help you get a lower rate. Not only that, but inquire in regards to PMI (private mortgage insurance) the majority of lenders require PMI with less than 20 percent down. If possible, putting 20 percent down is great, to get the best mortgage rate, and to avoid paying PMI.

How Long?

Inquire how long the process takes. Usually the closing time is about 30-90 days, depending on the complexity and size of the loan. This will help you when closing the purchase of a property. When dealing with a mortgage broker, remember to provide all documentation and work with them quickly. This will help the process go smoothly and and quickly.

Overall, finding a great mortgage broker should not be too difficult. It should be easy to find one, either a reference from a real estate agent or bank, or through a friend. Most will be happy to answer any questions and compete for your business. If possible, interviewing a few mortgage brokers is an ideal idea. Do not be afraid to walk away if you do not feel comfortable with the mortgage broker or fees associated with the mortgage. 

Britney Cameron writes about finance, consumer advocacy & more at http://www.homeequityloan.net.

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Income Protection- An Essential Purchase in the UK?

Income Protection Protects You and Your Family

It is estimated that you are 20 times more likely to be off work for six months because of sickness or injury than you are to die before reaching retirement. Few people question the need for life insurance to protect their dependants if they were to die, but only one working person in ten has any specific long-term financial protection if they are unable to work because of sickness.

Government figures show that about one in five people report having an illness or disability that limits their activities and about two million people each year claim benefits for long-term sickness or disability. Few people would find it easy to cope with the financial impact of a prolonged illness. So why is this area of financial planning so often neglected? There are three main reasons:

• A mistaken belief that the state and employers will provide. A 2008 survey by Norwich Union Healthcare found that a quarter of the UK workforce believe they would receive their full salary from their employer or be supported by the state if they fell ill.
  
• A lack of understanding about how you can arrange protection privately.
  This is not helped by the somewhat obscure name 'permanent health
  insurance' often given to the main tool for protecting your income.
  
• The relatively high cost of this form of protection.

Warning: Do not rely on the state to provide you with a reasonable income if you were unable to work for a long period due to illness or disability. You have to pass strict medical tests to qualify for incapacity benefit. The alternative-means-tested income support-does not give you much to live on.


Protection from the state:
Most people assume that the state provides a safety net to catch anyone who is unable to earn a living and has no other income to rely on. After all, is that not why we pay National Insurance? However, you might be surprised at how little the state would provide if you could not work because of a long-term illness or disability. Since April 2005, the main help you can expect if you are off work sick is incapacity benefit.

For the first 28 weeks:
No benefits are payable for the first three days of illness. After that, most
employees qualify for Statutory Sick Pay (SSP), which is paid by your employer. If you are self-employed or you are an employee who does not get SSP, and provided you have paid enough National Insurance contributions, you can claim the lower rate of short-term incapacity benefit. In 2011 this was a tax-free £50.90 a week. There is no extra if you have children. You can claim an increase for your husband, wife or partner, but only if

• You have dependent children in the family (an increase of £31.50 a week
  in 2011), or
• Your spouse or partner is over pension age (an increase of £38.80 a week in 2011), and
• If working, your spouse or partner earns no more than the amount of the increase.

During this first stage, you can qualify for incapacity benefit because you are
unable to do your normal job; you will need sick notes from your doctor.
However, from week 29 onwards, you must pass a strict medical test. In the
past, this has been called the 'all work test' but it has being renamed the
'personal capability assessment'. In both guises, it looks at your ability to perform certain functions, such as standing, seeing and reaching. You'll have to be found incapable of doing any work, not simply your normal job, in order to continue getting benefit. The personal capability assessment also focuses on what work you could undertake, despite your illness or disability.

From week 29 to week 52:
Provided they satisfy the medical assessment, both employees and the self-
employed switch to higher-rate short-term incapacity benefit (£60.20 a week in 2011). Although the amount is higher, it is now taxable. This means that, if you have income from other sources, you could actually receive less than you did during the first 28 weeks. If applicable, you still get the increase for your partner. You can now also claim extra (which is tax-free) for any children in your family:

• £9.85 a week in 2011 for your only or eldest child, and
• £11.35 a week for each additional child.

These additions for children are lost or reduced if your husband, wife or partner earns more than a given amount (£145 a week in 2011 if you have one child, increased by £19 for each additional child).

After a year:
You switch to long-term incapacity benefit (£67.50 a week in 2011 ). If you are terminally ill or you are very severely disabled, you can get this rate of incapacity benefit from the twenty-ninth week onwards.

There is also an increase if you are under age 45 at the start of the illness. If you are under 35, you get an extra £14.20 a week in 2011 . Between the ages of 35 and 44, you get less - £7.10 a week.

If you have children, you still get extra for your husband, wife or partner, though this is paid at a higher rate than previously (£40.40 a week in 2011 ) provided he or she earns no more than £52.20 a week. The same additions as before are payable in respect of children. Benefit (apart from increases for children) continues to be taxable.

Long-term incapacity benefit is not payable if you are over state pension age, but you will usually qualify for state retirement pension instead.

Other help from the state:
Various benefits are available if you are deemed to be long-term disabled.
Whether or not you get illness, disability or related benefits, if your income is low, you might qualify for means-tested benefits to top up your income. If you are available for work, this will usually be non-contributory Job Seeker's Allowance. If you are not able to work, you might be able to claim income support. You will not be able to get means-tested benefits if you have savings of more than £8,000 (or £16,000 if you live in a nursing or residential home). The benefit you get will be scaled down if your savings are less than this but still more than £3,000 (£10,000 if you live in a home).

How much help from the state?
Precisely what benefits you will qualify for and how much help you get will
depend on your particular circumstances. It is estimated that a single-earner
couple with two children would get about £7,000 a year if the breadwinner fell ill and couldn't work.

Reductions in incapacity benefit:
From April 2011 , any incapacity benefit you might have qualified for, will be
reduced if you have income from pension schemes (which could be personal
pensions, stakeholder schemes or occupational schemes) or income protection insurance (either your own policy or cover provided by an employer).

This income exceeds a given threshold. In 2011 , the threshold was £85 a week. For every £1 of such income above £85 a week, you will lose 50p of incapacity benefit.

Also applicable from April 2011, all new claimants for incapacity benefit will be
required to attend a work-focussed interview. This aims to identify work you
could apply for and to help you draw up a plan for getting a job or starting your own business. If you refuse to attend the interview, your benefit may be reduced or lost.

For more info on financial planning visit ePepi.com

Disregard for Home Maintenance Reduces Property Values

The Average cost of home repairs typically costs home owners about one tenth of one percent of the value of the property. For example, a home that is worth $100,000 will run $100 a month in maintenance costs.

Keep in mind this figure represents an overall average which means the property may not even cost anything in maintenance for five years and then it needs a new roof for $6000. Just know that home repairs are an actual and ongoing cost of home ownership. Sadly, many forget to think about this ahead of time and never remember to budget it in before or even after purchasing property, forcing them to take out a home equity loan just as soon as they had begun building equity.

In this bad economy the combination of high unemployment rates and the rising cost of living is creating thinner wallets all across the country. When pockets run thin, home maintenance easily gets tossed to the wayside. Unfortunately however when even the smallest of home repairs is ignored it can lead to much larger and costlier repairs in the long run. Some of which can start out as just a simple leak in the roof which my have only cost $200 to repair, but left ignored could ultimately lead to water damage and mold, which will then run tens of thousands of dollars to fix.

A homes exterior is exposed to the elements 24/7 and requires constant maintenance. When these types of repairs go undone it becomes easy for everyone in the neighborhood to notice. The curb appeal of the property quickly deteriorates and the home turns into an eye sore. Boarded up windows, uncut lawns, missing shingles, fading paint, rotting wood, and defective siding are a few things that can cause homes to rapidly depreciate.

Another downside of neglecting home maintenance is the loss of value to your property. If it's for sale and needs repairs then buyers are going to offer thousands less then asking price. There are so many homes on the market that buyers don't need to buy one that needs immediate repairs. This also forces sellers to drastically lower their sale price just to stay competitive with similar homes not needing repairs.

Homes are only worth what others are willing to pay for them thus the value of a home is strictly determined by it's sale price. Strangely however, a lack of home maintenance is one of the only things that can reduce a homes value prior to sale and worse yet it can reduce the value of the surrounding homes in it's vicinity. It only takes just a few deteriorating homes to reduce the value of an entire neighborhood.

Read the complete 2012 Real Estate Outlook for a more in depth look at the problems facing tomorrows market.

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The Mortgage Forgiveness Debt Relief Act of 2007-2012

Although the MFDR act has been in effect for the past five years, the majority of the public still remains completely unaware of its benefits. This act prevents underwater property owners from having to pay taxes on the difference between the amount of money owed to the bank on the property and the amount that it sold for in a short sale, foreclosure, sheriff sale, abandonment, etc.

If this act does indeed expire at the end of next year, many people will face outrageously large tax bills, for example consider someone in a 25% tax bracket that sells their home for $100,000 less then they owe the bank. The tax bill is going to be staggering and if the public becomes aware of this issue, all those people living in the shadow inventory will rush to short sale their homes next year to evade the tax man and his handy dandy 1099-c form. This will push a massive amount of new foreclosures into a market that’s already saturated with distressed homes for sale. Imagine a real estate market in which the majority of home sellers stand to make no profits what so ever from the sale of their homes, all racing against each other to lower their prices in order to sell out before the tax man returns in 2013. Home values will fall deeper and deeper at an even faster pace than we could ever possibly imagined.

This will further add to the downward spiral of things by increasing the inventory of homes for sale, which will lower the start ups on brand new homes. This means fewer jobs, more layoffs, greater unemployment rates, weaker neighborhoods, less tax for state and government and increased taxes for existing homes and business. All of which will eventually turn into less potential buyers and lower home values as supply and demand is tipped further into the buyers favor and as home loans and home ownership become more expensive in neighborhoods that are becoming worse then they have ever been in the past.

Read up on the complete 2012 Real Estate Outlook to get a better over all picture of things to come.

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Lending Standards Continue to Tighten in 2012, Further Reducing Home Values

Obtaining a mortgage is the top concern among would be home owners in the nation and for good reason. All across the board the financial landscape is changing but none more rapidly than mortgage lending and so much so that it can be overwhelming even to industry professionals. Even though the mortgage industry tries to remain as lenient as possible it has no choice but to accept some of the changes taking place in this financial overhaul. They have been backed into a corner and placed under a microscope as mortgage defaults continue to rise and as they tighten up their standards, the mortgages are quickly becoming more expensive every year in an effort to recoup previous losses and to prevent additional ones.

Mortgage expenses can be broken down into three parts, the beginning, middle and end. The initial cost of a mortgage is comprised of about twenty different fees. They go towards things like attorney’s, appraisers, surveyors, clerks, title insurance, mortgage insurance, points, inspections, cert’s and doc’s. Put them all together and they encompass the loan origination, title work, and closing costs associated with the start of the mortgage. Every year these fees go up and cost buyers hundreds, sometimes thousands more out of pocket than in previous years.

Once the loan has been funded borrowers are now faced with rising ongoing costs like mortgage loan servicing fees, rising interest rates, tax hikes, rising home owners association fees, increased costs for home maintanence, furniture, appliances, handy men, and repair men, increases in home, flood, personal injury, disaster, and hazard insurance, and even higher mortgage insurance premiums just to name a few.

The back end of the loan is also becoming more expensive with increased fees for late payments, fines for delinquencies, higher legal fees for those who enter default, potential liens, and rising costs for refinancing. For the most part it’s pretty safe to say that in translation, tighter lending standards means more expensive mortgages and sinking home values making it more expensive to be a homeowner in any market in every little town or big city in the U.S.

Read the full 2012 Real Estate Outlook Now

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High Unemployment Rates Continue to Contribute to Declining Home Values in 2012

It’s very likely that unemployment rates will continue to hover just above 9% nationally and may even dip into the double digits in some areas of the country. Even though some jobs are being created, it’s hardly enough to offset the amount of jobs still vanishing. Many companies will continue to go out of business, others will try to downsize, some will have layoffs, and some will force their employees to take pay cuts while the remaining few companies must operate on skeleton crews just to get by. To make matters worse, those who do find work again are ending up with jobs that paid less then what they were making before, or their employers are cutting back health care and retirement benefits or passing the cost increases directly to the employee. Entire family's are finding themselves under insured, or with no insurance at all and without any money or plans for retirement. Unfortunately for these homeowners who can’t find work, lost their job, or took pay cuts may no longer be able to afford the house there in and will be forced to sell. What this ultimately leads to is more people looking to sell and fewer people looking to buy thus tipping the scales of supply and demand in favor of declining home values. One other very unfortunate side effect of increasingly high unemployment rates worth mentioning is the simultaneous rise of crime rates which also tends to reduce the value of real estate and weakens entire community’s whole. Crimes such as scrapping vacant homes, robberies, home invasions, and petty theft are skyrocketing like never before, reducing the public's trust and confidence in the police force and shaking the neighborhood to its core.

Read the Eniter 2012 Real Estate Outlook

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