Credit Repair Habit #2 – Increase Available Credit

FICO calculations favor those who have more credit available than they need. This indicates that you are not “on the edge” and likely to default on payments. CR Habit #2 has two parts – 1) pay-down you balances and 2) consistently apply for higher credit limits.

For years I have advised that clients pay down their account balances to no more than 30% of available credit. That is, if you have a $2,000 credit limit at Sears, use no more than $600 of it. However, experts tell me that, for best results in this credit environment, it is best to keep balances below 8%. On the $2,000 Sears card that’s a whopping $160.

There is a “gotcha” here. You can never be sure of the day during the month when your creditor will report to the bureaus. Most often, it is at the same time that your monthly statement is calculated and printed. But, not always. In fact, if you pay careful attention to your credit report and bills over a period of time, You will see that the reporting date changes from month-to-month.

So, if you charge $900 at Sears this month and pay it down to below $160 when you get your statement, you will be reported as having a $900 balance – not what you want. The only way to handle this effectively is to simply never use more than $160 on such an account.

The second part of this CR Habit is to consistently apply for higher credit limits with your existing accounts. I emphasize existing accounts because whether/not it is advisable to open new accounts to expand your available credit is separate question addressed in a later CR Habit.

Your creditors want to extend additional credit to you. That’s what they are in business to do. So, even though you may have had a rough spot in your financial and credit life, you can begin at once to take the actions they require to raise your credit limits.

Contact each of your credit card and installment loan accounts and ask them to raise your credit limit. You might be surprised that they just do it! You will find that, in general they all have the similar requirements: frequency of use, dollar value of use, no missed payments, and a certain FICO score. But, you need to know specifics for each creditor…how long, what frequency of use, what dollar amount of use (and how is it calculated) and what FICO score.

Capture all that data for all your creditors and it will be clear to you where you have near-term opportunity to increase your credit limit and where you will have long-term opportunity. You will not make fast progress on this BP. Some of your creditors will require 6 months or more of certain credit performance before they will increase your limit. But, some will do so easily. These are the ones to keep in touch with routinely to check on your progress. Jump through the hoops they set out for you. And, when you’ve met the requirements ask for the increase and push hard for it.

The foreclosure rate continues to climb to record level – now nine consecutive quarters. The trial modification bubble of July-September was thought to be an encouraging sign that the money was getting to the needy instead of sticking with the greedy. However, shortly after achieving the govt’s targeted 500,000 trial mods the banks slammed on the brakes and returned to their delay tactics.

Let’s hope that the administration hits a home run this time. Let’s give them more than three strikes!!! After all, we WANT them to win!

Best Practice #1 – All accounts, on-time, always.

Never make a payment late – not ever again. Start writing your new credit history. No single BP can help you more than this one. So, take it seriously.

Be honest with yourself about why you have late payments on your credit report. If you only have the recent lates…from your recent financial turmoil…and you otherwise have a great record of on-time payments, then you will likely master this BP easily. It’s already part of the way you handle your finances.

On the other hand, if you see from your credit report that you routinely are late with payments, you have some serious habit-changing to do. And, we all know how hard it is to change habits.

Start by identifying the excuses you accept for failing to make payments on time. Some people blame their spouse for being disorganized, or their kids for expensive tastes that cause them to get overextended and short of cash. Others blame the “cost of living” or exorbitant finance charges or financial emergencies (that seem to occur routinely). And, some people just “don’t care” about paying on time. It’s never been a priority and they don’t realize how important it is in terms of FICO score and in terms of late fees and penalties. One of my clients was amazed to discover that she had paid nearly $3,000 in one year in overdraft charges and late fees on credit cards!

Whatever excuses you accept, I challenge you now to consider that, somehow most people manage to overcome those same challenges and make their payments on-time. People who are poorer than you, less intelligent than you, less organized than you and less well-intentioned than you are making their payments on time. Stay with this thought for awhile. Stay with it until you really accept it and are embarrassed enough to muster the will to change. It’s up to you.

In order to begin a new habit – on-time payments on all accounts always – you’ve got to start new behaviors. Don’t expect the old behaviors to get you there. Make behavioral changes and stick with them for at least 90-days. Here are some ideas:

• Simplify – get fewer bills by paying-off small ones, consolidating others. Stop junk mail and emails (ongoing process, I know) to get less cluttered. Maybe get a P.O. Box to keep USPS clutter away until you are ready to deal with it?
  
• Get organized – either on paper or online…get your budget items and due dates clearly stated in one place and identify how you will make the payments each month – by phone, by mail, or online. Have the payment tools you need easily available.
  
• Use whatever means is effective for you – to be reminded of your due dates. Use your own calendar, try email notifications from each account, use online services that send emails, tweets, etc.
  
• Establish an emergency fund – start small, but be consistent. Even just $10 per paycheck into a savings account that is difficult to access will enable you to build a stash of emergency cash to help you stay on-time with your payments.
  
• Use online budgeting tools like www.mint.com
  
• Automate payments from your checking account or at your creditor
  
• Get an overdraft protection on your checking account
  
• Hire a bookkeeper and bill payment service
  

When you are organized enough to know in advance that you may be late on a payment (short of cash) contact that lender immediately by phone and grovel like your FICO score depended on it. Your creditors will appreciate your resolve to pay on-time and sometimes, on an exception basis, they will extend additional time without reporting the payment late.

Reinforcing the new behavior (All bills, On-Time, Always) requires the power of “public confession”. That’s right, this one is so important that I recommend you turn to others for help to reinforce it for at least 90-days.

Choose three people who are close to you and whose opinion you really care about. Choose a spouse, parent, adult child, friend, sister, brother, co-worker or an online forum friend from www.Credit CardCure.com.

Here’s how it works:

Explain to your friend that you have committed to making on-time payments for 90-days on these accounts (name them specifically). Ask for their help in holding you accountable. Tell them to expect an email or phone call from you each week to report on that week’s payments. Ask them to support you by asking for an update if you do not send one.

Now, simply send three emails or make three phone calls right after your weekly review of your budget. Be honest with your supporters. If you fail to make a payment on-time, simply state it and start the 90-days over again. Start ALL the accounts over again – remember, your goal is All Bills, On-Time, Always. Accomplishing the feat for 90-days will go a long way toward making it a habit for you.

Bob Hunt said it well in a past article in RealtyTimes. “Those with a moral sense know that, on the face of it, it is morally wrong to break one’s promise. But conditions, most would agree, have a bearing on that judgment. Promise-keeping is not the highest moral value. If I promised to lend you my gun, and you are now in a clearly dangerous psychotic stage, breaking my promise would be the right thing to do, not a wrong.

Here, the duty to keep a promise is outweighed by the duty not to put others – perhaps even one’s self – in preventable danger.”

And, “Beyond the observation that promise-keeping is not the highest moral value, it is also important to remember that a mortgage note is not like a typical promise. To be sure, almost all notes contain the phrase “I promise to pay…” Still, with a mortgage, the borrower and the bank make a deal. The deal is: “if I don’t pay, you can have the property.”

Mortgages are secured notes. They are not like borrowing from your grandmother. If you willingly default to her, shame on you. She has no recourse. But, if you default to the bank, they can take your property. That is the deal they made. The property may not be worth what they lent you, but whose fault is that? They are big boys and girls. They made a business decision, and in today’s market, they lost.”

Moral considerations are one of the chief barriers to strategic defaults. They probably exert more weight than they should. The lender made a deal. If you don’t pay, he gets the property. So now, in 2009, he gets the property; and he doesn’t like it. That is regrettable; but a deal is a deal.”

This is a new times that require action on your part to steady your financial ship. If you use old paradigms to guide your actions, you will be left behind. Rather, use your moral compass to deal effectively with this new reality.

Wow, that sounded a whole lot more philosophical than I meant it to be!

This strategy is not for the naive…so, if you are thinking that these fellows (they are all men) really care, forget it. They care about their own success so craft your interaction with them accordingly. They’d love to help you if it shows they can make their organization hum, or that they can “feel” what the common man feels. But, do not present them with bombshells that middle managers and directors will snuff-out.

Here’s what to do: Once you have crafted your strong argument for assistance and mailed same to the CEO (via certified mail…as described in my last post to this blog), dial the bloke! That’s right, call him up! Find the phone number for corporate headquarters and say: “Please transfer me to the office of Mr. _____”. Once you reach the staff assistant, secretary or office operator, say “Hello, my name is ________. I’m one of your customers, and I would like to speak to Mr._______ because I’m really having trouble getting a problem resolved, and I know that he doesn’t want me to feel that way. In fact, I read where he says “_____________________________”.

There is absolutely no chance you will speak with the man, but you will be treated cordially and a return call will be promised. A staff person will return you call – then, say exactly this…”Thank you for returning my call! I am so hopeful that Mr. ___ can help me. I sent a letter to his office recently, by certified mail. Do you know if he has read it yet? I need assistance because I don’t know where else to turn.

NOW TELL YOUR STORY VERY BRIEFLY…no more than two points of frustration and 30 seconds!

NOW ASK FOR SPECIFIC HELP…such as 1) could Mr. ____please ask the lawyers to re-evaluate my assertion that _________________, and _____________________…or 2) could Mr. ___please ask loss mitigation if they understand my husband is disabled or… 3) would Mr. _____ please clarify to the customer service person that we DO qualify for the President’s Program.

I will publish some of the succinct and effective scripts we’ve written with clients.

One approach is to appeal to the CEO of the lender/servicer. This method will get you nowhere if your case is not strong – but, if your application is solid, your hardship is real and you have the income to get the loan back-on-track with a modification, this approach may be effective for you. Here’s an example of such a letter, sent via certified mail. I changed the names to protect the innocent.

November 15, 2009

XXXXXXXX

XXXXXXXX

XXXXXXXXXXX

Mr. XXX, CEO

XXXXXXXXX

1XXXXXXXXXXX

XXXXXXXXXXX

RE: Our loan #XXXXX

Dear XXX,

I want so badly to believe what I read about you. We need someone in your company to try to help us. We have been trying to get help for over 7 months but no one seems to care enough to help us. I don’t even know what are the right questions to ask you people any more. We just need help so that we will not lose our home of 25 years, just when we are getting ready to retire!

We are hard-working, penny-wise people who aren’t asking for a lot, but we do need some help. For months I have been unable to get any of your employees to stick with our case long enough to help us.

We feel so much anxiety over the situation because we were only three years from paying off our home mortgage when a family emergency caused us to take out a loan through Ameriquest in 2002. Luckily, you company offered us the opportunity to get out of that bad loan two years later, although your company charges us over 8% interest and took high fees.

Health problems have caused me to rely on disability income only. Thank God my husband’s job is secure for now. Our health problems in the past 2 years have caused such a financial burden that we struggle to make our payments. But, with credit cards and our savings (we have now depleted our 401K retirement accounts) and XXXXXXXXXXXXXXXXXXXXXXXXXX we were able to mostly keep up until last spring.

Last spring we could not make the full payment to your company on our mortgage XXXXXXXXXXXXXXXXXXXr

(List what actions you took, how often you would call, how many agencies and departments you worked with, etc. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

On (fill in date), (fill in what happened, with whom you spoke with, contact information for that person and any other information.)

(Repeat until you have finished the time line.)

Aren’t we exactly the type of family that the bailout funds were given to your company to help…struggling to make payments on high interest loans on the home we live in? We are able and willing to resume reasonable payments immediately…but cannot get your company to help us do so.

Please ask your managers to review our situation again and offer us a reasonable payment. I don’t know where else to turn for help. I am sleepless at night from anxiety over losing this home at this point in our lives.

You can contact me at XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Sincerely,

Short sales are a great workout option if you are just too underwater or just can no longer afford your home (or both) – better than foreclosure because they can preserve the borrower’s credit rating. While primary lenders typically realize steep losses, their recovery is typically far better than under foreclosure…which typically means getting money later and risks damage to the home during vacancy, etc.

But short sales have been frustrating for everyone , especially in high foreclosure states, often hung up by negotiations with multiple lien holders and especially if mortgage insurance companies are involved. Sales often fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Program requirements include that mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt. It also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

This is nothing but good news for all of us concerned about our fellow citizens in foreclosure!

Here are some examples of scams related to mortgage modification and foreclosure avoidance.

• Foreclosure rescue and refinance fraud. The scammer offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. This, in itself is not illegal or unethical…or even a bad idea…BUT, if you are told to make mortgage payments to the scammer directly — or to pay significant, up-front fees — and trust that that the scammer will forward the payments to your lender – run! In reality, the scammer will pocket your money and leave you in worse shape on your loan. The scammer also may tell you to stop making payments or stop communicating with your lender. Make those decisions for yourself.
  

  Your mortgage servicer can be a good starting point for information about programs available to you…but, do not mistake them for an ally. You will eventually be dealing with them “across the table”, in negotiations…to workout a solution best for you. Do not fall for their siren song of benevolence. They are your adversary and they hold all the cards…you can deal with them effectively, but do not be naïve.
  

• Fake government modification programs. Unscrupulous scammers may pose as being affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scammers’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs.
  

  The scammer’s name or Web site may be very similar to those of government agencies. The scammer may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs. These tactics are designed to fool you into thinking the scammer is somehow approved by, or affiliated with, the government.
  

• Leaseback/rent-to-buy schemes – run if you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. If you do not comply with the terms of the rent-to-buy agreement, you will lose your money and face eviction. The agreement may be very hard to comply with, because it may require, for instance, high up-front and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. They simply want your home and your money.
  

  Remember that transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home. If payments are not made on the mortgage, your lender has the right to foreclose, and the foreclosure and any other problems will appear on your credit report.
  

• Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.
  
• Debt-elimination schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.
  

Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure.

• Make all mortgage payments directly to your lender or to the mortgage servicer. Don’t trust anyone to make mortgage payments for you, and do not stop making your payments.
  
• Avoid paying up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services. Make sure you are dealing with a legitimate organization.
  
• Know what you are signing. Read and understand every document you sign. Do not rely on an oral explanation of a document you are signing — make sure that you read and understand what the document actually says.
  
• Do not sign over your deed without consulting a lawyer you select. By signing over your deed, you lose the rights to your home and any equity built up in the home — and you are still obligated to pay the mortgage.
  
• Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Protect your rights with a written document or contract signed by the person making the promise. Keep copies of all contracts that you sign.
  

You will face these, because they will be “thrown in your face” by banks to leverage your personal dignity for their own gain. That is, having stolen your financial future they now attempt to take your dignity as well by humiliating and disgracing you with credit score haranguing and verbal harassment from their agents.

These little minions will question your very “personhood” and your worth. Interestingly, you would not think of accusing them of immoral, unethical or undignified behavior if they failed to suspend payments during a time of your unemployment or during your chemotherapy. It’s a business transaction for both of you. But a one-sided moral obligation for you – an unfair “asymmetry of values”.

Don’t take it. The ultimate defense is to change the paradigm, to truly “not care”. Anyway, if your self-worth is dependent upon what some global financial juggernaut “thinks” of you then you’re in trouble.

Use this checklist to help you gather your thoughts about whether/not you were a victim of predatory lending. Watch this site and participate in our telecons, etc. to learn about how to conduct your own audit of your loan to identify violations.

60 Minute Loan Modification……………..Legal Loan Mod Checklist

1. Is the loan a Adjustable-rate, Neg-Amortizing, Interest-only, Pick-a-Pay…or does the loan have a balloon payment? Explain.
   

1. Did you get the loan as an original purchase or as a refinance…and, is it a 1^st , 2^nd or HELOC?
   
2. Is the home your primary residence?
   
3. How much is the current interest rate? What was the original rate?
   
4. What was your FICO score at the time of the loan?
   
5. Did you get the loan through a broker or directly from the bank?
   
6. Did you get the loan between 1/1/2003 and 1/1/2007? What was the exact date of the loan?
   
7. How much was your down payment?
   
8. Were Points charged? How many?
   
9. Are you over 65, disabled or a vet?
   
10. How much was the original loan amount?
    
11. Were there any prepayment penalties?
    
12. Do you recall anything about getting the loan that made you feel intimidated, unsure or uneasy about any part of the deal?
    
13. Is the original loan originator still in business? How about the original lender?
    
14. Was/is this a sub-prime loan (is the rate more than 3% points higher than the best)?