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Posts Tagged ‘credit crunch’

Congratulations on eliminating your debt. You should be proud of that accomplishment – and of saving $4,000. As of early 2010, Capital One is offering an attactive savings account that you should investigate. It’s the InterestPlus Online Savings Account. For those who keep $2,500 in the account, It pays a very competitive Annual Percentage Yield and it gives you the opportunity to earn a 10% quarterly bonus. Get more information online at www.CapitalOne.com/DirectBanking.

To find a good credit card, also take advantage of the power of the Internet. Go to www.CardRatings.com to find a competitive credit card that fits your needs. There are all different types of cards: for students, frequent travelers, people with excellent credit, those with bad credit, etc. The “best” credit card is the one that suits your spending habits and financial profile. Only you know how often you will use the card. No matter what card you choose, only
charge what is absolutely necessary and what you can reasonable pay off quickly – ideally every month. This will be the single best thing you can do to boost your FICO credit scores.

As a general matter, no one credit bureau report is “more important” than the others. In today’s economic environment, they are all vitally critical to your personal finances. However, whenever you are seeking credit – perhaps a mortgage, car loan or student loan – then the most “important” credit report or credit score is the one that a lender pulls to determine whether or not to approve your loan. Some lenders only pull one credit report. So let’s say you want to purchase a car and you require financing. If the lender considering your car loan only pulls an Experian credit report, then that’s the most critical report. The challenge, of course, for consumers is that you never really know which bureau report a lender will pull. It could be Equifax, Experian or TransUnion – or perhaps all three.

Tri-Merged Credit Reports

For most mortgages, lenders pull something known as a “tri-merged” credit report, which gives them information from all three of the major credit bureaus. Additionally, mortgage lenders typically use the “middle” score of your three credit scores to determine the rate and terms for a home loan. For these reasons, you should always ensure that all information on all three credit reports is accurate and up-to-date, and that all your credit scores are as high as possible.

As of early 2010, I don’t know of a single mortgage lender who will approve a home equity loan on investment or rental property. They may exist, of course. But I’m simply not aware of any. Before the market downturn, banks would readily extend loans and lines of credit on rental real estate. Lenders typically stipulated that those properties could have no more than an 80% loan-to-value ratio. In the current market and amid the credit crunch, however, it’s very difficult (if not impossible) to find such a lender for three reasons:

• declining property values in many parts of the United States

According to the Case/Schiller housing index, home prices have fallen 30% since their peak in April 2006. And in many regions of the country, the declines continue.

• increasing foreclosures throughout America

There were more than 9 million foreclosure filings in the U.S. between 2007 and 2009. Moreover, experts at RealtyTrac predict we’ll see another 3 million foreclosure filings in 2010.

• more rental properties falling into default

It’s not just mom and pop rental property owners who are getting into trouble as landlords. In New York, the owners of the biggest apartment complexes in Manhattan even recently defaulted on their loan. Those apartment complexes, known as Stuyvesant Town and Peter Cooper Village, were bought in 2006 by real estate investors/property managers Tishman Speyer and BlackRock for a record $5.4 billion. Less than four years later, the property is now valued at less than $2 billion. The rental income never covered the mortgage/monthly debt service. But the investors had bet that New York’s normally solid rental market would help them attract tenants willing to pay higher rents, as the owners intended to convert the units from rent-regulated apartments into pricier apartments. Unfortunately, they bet wrong. Plans to convert apartments were thwarted. Plus, average rents are down in New York – just like property values.

Easier to Get an Equity Loan On Your Primary Residence

Lenders know that in a tough economy and a rough housing market, most owners of investment property will walk away from those properties, or go late with their payments, before those owners will sacrifice their own homes. Thus, if you need a home equity loan, you’ll get better interest rates, more available financing, and find more willingness on the part of lenders to get a deal done by taking a home equity loan on your primary residence – as opposed to the rental property you own.

When people get turned down for a bank loan, the natural tendency is to think that the bank is wrong – and isn’t giving your application proper consideration. Realize, however, that bankers specialize in making loans for profit. In the current economic climate, they’re doing everything in their power to limit losses, especially by being picky about to whom they lend money. A low credit score is a big red flag for a mortgage lender, particularly when the borrower isn’t seeking money for his or her principal residence, but for an investment property. Bankers know that owners of investment properties tend to have higher mortgage default rates than do owner-occupants. That’s logical, when you think about it. After all, if times get tough and something has to be sacrificed, the average real estate investor will sacrifice his rental property by paying the mortgage on it late, or not at all. However, that same real estate investor will try his very best to pay his own mortgage on time, in order to keep a roof over his head.

What to Do if You Don’t Get Approved

So what should you do if one or more banks say “No” to your loan application, or they approve you for such a paltry loan amount that you can’t possibly afford to buy other homes/investment property in your area?  In my opinion, if you get a flat-out “No” from a bank, you should take that as a serious sign that you are not ready to acquire additional real estate because of one or more shortcomings. Don’t take a “No” personally and don’t feel like the bank is forever rejecting you. Look at a “No” as if they bank is saying: “No – not today.” That doesn’t mean you can’t come back later – in six to 12 months – with a much stronger application. If you are turned down, take the opportunity to ask the bank directly what deficiencies you have as a potential borrower and work at correcting them. Once you find out what areas you need to shore up, and take steps to do that, you’ll substantially increase your odds of getting approved down the road. In the vast majority of cases, you should be able to get approved in one year or less, if you do what is necessary to strengthen your mortgage application.

Take Time To Improve That Credit Rating

Let’s say the bank told you “No” because you have bad credit. Now you know that you need to pay off delinquent bills, reduce debt to boost your FICO score, fix any lingering errors on your credit report, or possibly negotiate with your creditors to have negative information deleted from your credit file. I also suggest you seek help from a reputable, free, or low-cost credit counselor. “If you get denied because of your credit, first go to a credit counseling agency, because sometimes in three to six months they can help you fix any credit problems you have,” says Bob Schultz, president of New Home Specialist Inc. in Boca Raton, Florida. Schultz started selling new homes in South Florida in 1968, and has been in the business for nearly 40 years. He now works with builders and realtors, and has been recognized by Builder Magazine as one of the “50 Most Influential People in Home Building.”

“Get your credit back on track, and while doing that, start disciplining yourself to save more money toward a down payment,” Schultz advises. “Six months later, when your credit is improved and you have more money in the bank, that looks good to the bank.”

Consider a Strong Co-Signer … But Know the Pitfalls

Take heart in knowing that by waiting just a short time to fix any problems in your loan application, you’ll actually wind up saving yourself many thousands of dollars. That’s because even if you did get approved for a mortgage with a weak application, you’d be forced to pay a higher interest rate and probably additionally fees just to get the loan.

If you absolutely dread the thought of waiting six months or more, here’s another possible strategy that Schultz recommends: “Get a strong co-signer: Mom or Dad, or someone who trusts you enough so that they’re willing to make the payments if you can’t.” Should you take this route, be absolutely certain that you can make your mortgage. If you don’t, you’ll jeopardize your own credit standing, and your co-signer’s – something that could ruin a relationship for life.

Sometimes, one easy phone call is all it takes to get the interest rate on a credit card lowered. However, many people are reluctant to make that call, because they mistakenly believe that creditors won’t be willing to negotiate. Even amid the credit crunch, however, banks and other credit card issuers are willing to consider your requests – for everything from getting a lower rate, to having late fees eliminated, to waiving over-the-limit charges. Your chances are better, of course, if you have a solid track record of paying your credit card bill on time, as well as a good credit rating overall. But even if your credit record isn’t pristine, here are some tips that can help anyone looking to negotiate with a credit card company.

14 Negotiating Strategies To Use With Your Creditors

If you find yourself calling your creditors for any reason to negotiate the terms of your credit cards, here are some time-tested strategies you should use:

• Call in the morning

Don’t call at the end of the day when customer service representatives are tired, more stressed and have been dealing all day with irate cardholders. Also avoid calling on the weekends; there may not be a supervisor there if you need one.

• Be polite in making any requests

Get the conversation off to a good start by using good manners. Say “hello” or “good morning” to the person you’re talking to and call her by name, as in “Good morning, Susan, this is Kim Jones, I’m calling about my account.” Make sure your tone sounds like you are making requests, not demands. Be friendly and conversational, not adversarial, to establish a good rapport and get the cooperation of the person on the other end of telephone.

• Request to speak to a supervisor if necessary

If you get nowhere with the person you’re talking to, don’t be afraid to “escalate” your phone call by asking to speak with a supervisor. Even if the conversation isn’t confrontational or negative, you may require a manager because some employees will say they don’t have the power to honor your request.

• Point out your length of time as a customer

For those of you who’ve been with a credit card company for a number of years, use your long-term status as leverage in asking for what you want. This can really work in your favor because most banks value loyal, long-term customers; they don’t want to lose them.

• Emphasize how much business you’ve done

Many of you might have racked up a lot of charges over time. If you’ve been a valued customer by virtue of having charged many goods and services, make that known. And state that you also value the relationship with your creditor and would like to remain a customer in good standing.

• Stress your willingness pay what you owe

Creditors may not be inclined to be flexible with individuals they perceive as trying to “get over.” The worst thing you can do is to convey the impression that you’re a “deadbeat” who is out to weasel out of paying your obligations. A better strategy: stress that you are, in fact, willing and desirous of paying your bills.

• Reveal any extenuating circumstances

In cases where there have been out of the ordinary circumstances, let your creditors know this. For instance, if you lost your job, suffered a death in the family or something major happened in your life that caused you to miss a payment, tell them. Also make it clear if something happened that prevented you from getting your bills, such as you moved addresses or got divorced and your ex-got the statements. Creditors may be willing to waive late fees in such cases.

• Directly refer to your credit report

Don’t be ashamed to say that a negative mark from the creditor could hurt your credit report – especially if you’re in the market for a new car or house. Tell them your situation, and say something like, “I’d hate for this one blemish from your company to damage my credit standing or my ability to get a loan.” Tip: only do this with your original creditors, who will likely be more sensitive to your predicament. Don’t try this tactic with collection agents. That’s giving them too much information, and they’ll just turn that information against you, saying, in effect: “If you don’t pay up, you won’t get that new house.”

• Make “first-time” cases work in your favor

If you’ve never been late before or you’ve never had an over-the limit fee assessed, ask directly for a removal of a late fee or over-the-limit charge. A little-known fact is that most credit card companies give their employees the authority (without even getting a supervisor’s approval) of waiving late fees once every 12 months. If this is the case for you, do ask to get those fees removed.  You might be surprised at how easily they will agree.

• Mention their competition

As a last resort, when you’re negotiating for a lower interest rate mention that you might be inclined to take your business elsewhere. The point here is not to make an idle threat. And I wouldn’t start the conversation off with talk about you possibly going to a competitor. But you’d certainly be justified in exploring your options – and telling the creditor about other companies’ balance transfer deals or lower interest-rate offers – if they won’t budge on high interest rate cards.

• Document all conversations in writing

In the event you have to go back and get something corrected, or removed, it helps your case if you can refer to your written notes and say, “I spoke to XYZ person on this date, and was told such and such.”

• Initiate requests immediately

Anytime you see there’s an issue you want resolved, contact your creditor immediately. Don’t wait a couple weeks, or even worse, a few months to ask for a rate reduction or removal of late fees. That works against you because it seems like you didn’t care enough about the situation to do take instant action. It also reflects well on you when you initiate the call regarding late payments, as opposed to them having to contact you.

• Explain online payment discrepancies

If you were paying a bill online and for some reason payment didn’t go through, that could be a legitimate reason for late fees to get removed. Another possibility: say you were making minimum payments on a credit card that had a teaser rate of 0% interest for six months. And assume you were paying $100 a month on that card via automatic online payments. Six months later, your teaser rate expired and the normal 14.9% rate kicked in. All of a sudden, your new minimum payment might be $115 a month. If you weren’t keeping up with things, you would still be automatically sending in $100 payments online. The first time that happened, you’d likely get dinged with a late payment, for being $15 short in your payment. If you call the credit card company and point this out to them, they’ll see your online payment history and will likely waive the late fee.

• Use the 6-month rule

Lastly, if all these efforts fail, you can always ask for a review of your account again in a few months. For example, if your request for a lower rate is denied, ask a supervisor if he or she would be willing to reconsider their position in, say, three or six months. If they agree, document the person’s name, and put a reminder on your calendar to call back at the appropriate time. And here’s some good news: If your interest rate was high because you made a late payment in the past, some relief is on the way. That’s because in May 2009, President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act, also known as the Credit CARD Reform Act. One provision of the law, effective as of Feb. 22, 2010, imposes limits on how long banks can slap you with so-called “default rates” (i.e. higher interest rates) after you’ve been late paying a bill. Under the law, default rates can only be charged for six months, provided you pay your credit card bill on time during that period. After six months, your credit card issuer must restore your rate to its previous level.

So don’t fall into the trap of thinking that you don’t have leverage in negotiating with your creditors. Follow these tips and you should be fine when trying to wring lower interest rates and other concessions out of your creditors.