Ask The Money Coach

Posts Tagged ‘bad credit’

As a Money Coach, I am often contacted by someone who claims to be a hot financial mess. In fact, many people think that they’re financial train wrecks just waiting to happen.

Actually, some of them are right: their economic circumstances are indeed dire. But some people are simply excessively worried, at a loss for how to fix a problem, or are being overly dramatic about their situations. How can you tell the difference?

Continue reading “3 Signs You’re a Financial Train Wreck Waiting to Happen” »

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Q: We own an old house that needs 100k worth of work. Should we get a construction loan or a mortgage loan? My husband has a paid IRS lien on his credit report. I have great credit.  Should I get a loan in my name only?  Should I title the house in my name only?

A: To fix up an existing property, you will likely need to get a mortgage on it, or to refinance the home if there is already a mortgage on it. Most banks issues construction loans primarily to build new structures and to finance that construction cost over a set length of time.

Since you said you have great credit and your husband has bad credit, including the IRS lien, it would be wise for you to seek a mortgage in your name exclusively. Otherwise, you may get turned down for a mortgage, or you may have to pay a much higher interest rate than you could obtain on your own.

Regarding your husband’s IRS lien, I assume a couple of things about it. First, that the two of you don’t file joint taxes, and therefore that lien is only against him — not you. I also assume that the lien is not against the home in question that you want to improve. If so, that you’ll have to satisfy that IRS lien before any bank will give you a $100,000 mortgage to fix up the home and rehabilitate it.

Given the economic circumstances, I would also title the house in your name alone for the time being. Once your husband cleans up his credit, you can later add him onto the mortgage and the deed/title. If you do, you’ll both be economically responsible for the home and both will technically/legally be owners of the property. Get A Free Credit Evaluation Now.

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Question:

Someone had a question that they posed regarding closing one of their credit card account, and here’s what they asked me. They said, “Lynnette, I have a credit card for bad credit that I opened several months ago. I did it to help me build credit. I paid a one‑time fee and an annual fee, the whole thing was about $100. Now I’ve got an offer from Capital One and I got approved for a traditional credit card. Should I go ahead and cancel the first card and activate the Capital One card?”

Answer:

My answer is, yes, you should go ahead and open the new account with Capital One, especially since it’s a traditional credit card that will help you establish a more solid credit history. Make sure you pay those credit card bills on time to Capital one, and only charge a modest amount, an amount that you can reasonably pay off every single month, so that you don’t hurt your credit.

Now the first credit card that you say you opened for “bad credit,” this sounds to me like you had a secured card. In other words, you paid the one‑time fee, as you indicated, you put up a certain amount as a deposit, and then that amount essentially became your credit limit.

A secured card can also help you to build credit, so no, do not go ahead and cancel that credit card. The idea here is that you want to start to build a lengthy credit history. And typically what happens when people close out a credit card, it does the exact opposite of what they think its’ going to do.

Many people erroneously think that closing a credit card account will boost their credit scores. In reality, you frequently hurt your credit rating by closing out accounts. So the short answer is, no, do not close out your initial card that you opened. Just either refrain from using it if you don’t need to use it, but do pay off any balance that you have on it on a regular basis.

And then, yes, go ahead and accept the traditional mainstream MasterCard or Visa or whatever that card was that you got approved from, from Capital One, and just be diligent in its usage, don’t overextend yourself, and pay that bill every single month.

If you do that, you definitely will start a rebound from your past credit mistakes, and you’ll see your credit rating and your FICO credit scores improve over time.

Related articles

• How a Credit Card Balance Transfer Can Improve Your Credit Score (walletpop.com)
• Key Differences Between Equifax, Experian and TransUnion Credit Reports (askamoneyexpert.com)

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