Ask The Money Coach

Posts Tagged ‘secured credit card’

Q: I Filed a Chapter 7 in 2001. I Have a Couple of Other Things on My Credit. Where Do I Need to Start to Get My Credit On the Right Road?

A: A Chapter 7 Bankruptcy filing from 9 years ago is still on your credit records and thus impacts your credit rating. But frankly, it should have a limited overall impact on your credit ranking, given the long-ago time frame of your bankruptcy. Fortunately in another year or so, that bankruptcy will be dropped from your credit reports. In the meantime, the best thing you can do is to focus on paying all your bills on time and trying to clean up those other things on your credit you mentioned. If you have fairly recently collection accounts or late payments (i.e. within the past two years), try to bring them up to date. Reduce your credit card debt (if any) because that will almost certainly boost your credit score. Also consider getting a secured credit card, if you’re not able to get a regular credit card. That secured card is a good way to rebuild credit after you’ve had credit problems in the past.

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Q: How Can I Re-Establish Credit With Bad Credit? No One Will Give Me a Credit Card.

A: To re-establish credit after you’ve had credit problems in the past, try these three strategies:

1. Open a Secured Card.
With a secured card, you put up a certain amount of cash into an account – perhaps $500 or so – and that becomes your credit limit on the secured card. Apply for a single secured card; you’ll get it just by forking over the cash as I described above. Then simply on-time payments for 6 to 12 months. This will definitely help you boost your credit scores because it will generate some positive payment history for you. It will also help to offset somewhat the past negative marks in your credit files. Before opening a secured credit card, just make sure the bank that issues the card does, in fact, report to the credit bureaus.

2. Clean up Negative Information and Mistakes in Your Credit Reports.
Get your TransUnion, Equifax and Experian credit reports. You can get one of each report free each year from www.AnnualCreditReport.com. Dispute any mistakes you find. Also, contact your previous creditors and offer then a small lump sum payment to settle your debts, in exchange for them removing the negative information on your credit reports. Only do this for recently delinquent accounts (i.e. those from the last two years). Also, only give up cash payments to those creditors who agree, in writing, to delete black marks from your credit. If they simply note the account as “Paid” but leave the old, negative information there, that won’t help your credit.

3. Pay Your Existing Debts on Time.
I know you said that no credit card companies will give you a regular card. But it’s likely that you have some existing credit accounts. Whether you have other credit cards, a mortgage, an auto loan, student loans, or other debts that are being reported to the credit bureaus, be sure to pay all those bills on time – every month without fail. The single biggest determinant of your credit score is your payment track record. That accounts for 35% of your credit score. So simply paying your bills in a timely fashion will improve your credit rating over time.

By using these three techniques, you will see your credit scores improve in a year or less.

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• Key Differences Between Equifax, Experian and TransUnion Credit Reports (askamoneyexpert.com)

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Q: I am a 44 Year Old Man Who Has Never Had Credit. The Last Time I Financed Anything Was in 1991. I Pay All My Bills (Including Rent) on Time. Now I Want To Purchase a Home, But I Have No Credit Score. What Can I Do and Are There Programs to Help First Time Home buyers Like Me?

A: This is a two-part question related to both credit and home-ownership programs. Let’s tackle the credit dilemma first. To establish a credit history, and generate a FICO credit score, you need to have at least one credit account that is reported to the credit bureaus, and that account must be opened and tracked for at least six months. So start by applying for a single national brand credit card, such as a Visa, MasterCard or Discover card, before you apply for something major like a mortgage. If you can’t get a regular card, open a secured credit card. That’s where you put up a certain amount of money, perhaps $500, into an account. That $500 essentially becomes your credit card limit on the secured card. Pay the secured card on time, and after those payments are reported for six months, you’ll meet the minimum requirements to get a FICO credit score.

Federal/National Home-ownership Programs You Should Know

Regarding homeownership programs, there are scores of programs available for first-time buyers. I don’t know what state you reside in, so I’m unable to tell you of specific local programs. However, I can tell you about a handful of federal home loan programs, and point you in the right direction to find state and local options in your area.

•    FHA Loan Programs
With the help of the Federal Housing Administration (FHA), you can buy a home with just a 3.5% down payment. The FHA itself doesn’t lend you money. Instead, it “guarantees” your mortgage. This means that the FHA promises your lender – either a bank, credit union, mortgage banking company, or another institution – that if you default on the loan for any reason, the FHA will step in, pay off the mortgage, and take over the house. With FHA backing a loan, lenders are willing to make mortgages available to borrowers with modest down payments.

To qualify for an FHA loan, you need to have a steady income, one that is sufficient to support your mortgage loan. In fact, because the FHA has no maximum income limits, FHA loans are available to practically all working home-buyers. The house you select must be up to code and “suitably located as to site and neighborhood.” Of course you must come up with the 3.5% down payment and your closing costs. On this last point, the FHA is quite lenient. Your down payment doesn’t have to come out of your own pocket. You can receive gift funds from family members, housing grants from city housing programs, or down payment assistance from non-profits and other entities. Also, you can roll your closing costs into your mortgage, so you pay those expenses over time, rather than all upfront. Another advantage of FHA-backed loans is that they frequently carry lower interest rates than conventional, or non-governmental, mortgages.

•    Fannie Mae’s HomePath Program
The national mortgage programs offered by government-sponsored entities such as Fannie Mae and Freddie Mac, hold particular appeal for many first-time homebuyers. Fannie Mae (http://www.fanniemae.com) is a government-sponsored entity created in 1938 to help make homes more affordable. Fannie Mae doesn’t lend you money. Instead, it invests in mortgages that lenders originate, and then Fannie Mae sells those loans to investors on Wall Street. With Fannie Mae’s HomePath Program, home buyers currently receive assistance totaling up to 3.5% of the final sales price. The money provided by Fannie Mae can be used to pay for your closing costs, or for new appliances for a home.

Finding State Programs
In addition to the federal programs, there are numerous state programs directed at first-time home buyers. Start by turning to State Housing Financing Agencies (HFAs). These are state-chartered authorities established to help meet the affordable housing needs of the residents of their states. Although they vary from state to state, most HFAs are independent entities that operate under the direction of a board of directors appointed by each state’s governor. Their reason for being is to help would-be homeowners like you, so they can often tell you about incredible housing and development programs that you never dreamed existed. There is a National Council of State Housing Agencies (NCSHA) active in Washington D.C. to keep the issue of affordable housing high on the government’s list of national priorities. Housing Finance Agencies and NCSHA (http://www.ncsha.org) can help you. Go to their website to find your own state housing agency, and then contact that agency to learn about current first-time homebuyer programs.

•    Housing Redevelopment Offices
In addition to state housing finance agencies, contact the Housing and Redevelopment Office in your state, county, or city. Members of the National Association of Housing and Redevelopment Officials (NAHRO) (http://www.nahro.org) champion the cause of adequate and affordable housing for all Americans – especially those with low and moderate incomes.

Be mindful that state housing agencies and redevelopment offices across the country can use lots of different names. One might be called a “Housing Finance Agency,” as is the case with the Vermont Housing Finance Agency, while another one is dubbed a “Housing Development Authority,” as is true of the Virginia Housing Development Authority. Any agency with the name “Home” “Housing,” “Community Development,” “Mortgage Finance” – or similar words – is a good place to inquire about home-buyer assistance programs.

County Programs
You’ll have to do a bit of homework to track down county-initiated or county-sponsored home-ownership programs that can help you as prepare to go from renting to owning. To make your job easier, though, here are two organizations you can contact to locate county housing initiatives in your area:

•    The National Association of Counties; visit their website at: http://www.naco.org. Click on “About Counties” then click “Find Counties” to locate a county of interest.

•    The National Association for County Community and Economic Development; visit their website at: http://www.nacced.org and click on “County Websites” to find links to certain member counties, as well as cities and other development agencies near you.

Finally, To learn more about other potential grant money, visit: http://www.downpaymentsolutions/com. It’s one of the single-best resources I’ve come across to help buyers, sellers, lenders, and others learn about down payment assistance programs via charities.

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