Well, the always strange bedfellows of Fair Isaac, the mastermind behind the FICO score the credit reporting agencies (who are themselves made up of an odd alliance of TransUnion, Equifax and Experian) are at it again. Worse, we, as credit consumers, are all trapped in the same restaurant with little hope of escaping their quarrel. Whether the fuedin’ twosome will merely frustrate us or make us very uncomfortable remains to be seem.

The pair have always had a co-dependant, can’t-live-with-them-can’t-live-without them relationship. The credit bureaus keep a detailed record of your credit history. But the problem is, when a potential lender wants to check a client’s credit, they don’t want to filter through pages of raw data to determine if the client was a good credit risk. So to help with this, Fair Isaac developed several formulas algorithms to crunch this information and develop a numeric score to represent a person’s credit risk. The FICO score usually range from 300 to 850, the higher the number the better someone’s credit was.

While this arrangement is convenient for potential lenders, it wrangles the credit bureaus who have to pay Fair Isaac to use the bureaus’ own data and assign a number to it. The credit bureaus reasoned that it would be much easier (and a lot more profitable) if they developed their own scoring system, and weren’t forced to siphon off part of their profits to a third-party company.

Enter VantageScore, developed by the credit bureaus themselves. Like the FICO score, the new scoring system assigns a number value to your credit history. VantageScore’s scores range from 501 to 990. The score is further assigned a grade and is designed to give creditors and consumers a easy way to tell how good their credit is.

For example, a score between 990 and 901 represents an “A”, a score between 801 and 900 a “B”, a score between 701 and 800 a “C” and so on, down to a failing grade of F.

The VantageScore system is currently in the test phase and is not currently in use. But once the system goes on-line, the bureaus are hoping lenders will stop using the FICO scores and switch to VantageScore enabling them to keep their profits.

Though VantageScore was launched as a strike against Fair Isaac, it is easy to see how the duel between the two parties could catch a few consumers in the cross-fire. First consumers will have to learn a new scoring system. After 50 years of dominance, consumers understand a FICO score of 745 is a good score. But the same number with the new system isn’t so hot.

Further, while both scoring systems use similar scoring systems, differences between the two methodologies, so a consumer may have a better score on one system that an other.

What’s more, the VantageScore system promises lenders that the new system will do a better of job of rooting out bad credit risks than the FICCO system. Exactly how it does this has yet to be seen, but some financial analysts worry the tighter net for people with bad credit will also unfairly trap a those with an average or above average credit history.

But whatever happens, one thing seems clear—the duel between the co-dependant pair won’t go away soon. Currently FICO is used by 80 percent of the banks and 75 percent of the mortgage companies; the credit bureaus will no doubt be fighting hard to claim their share of the market. How uncomfortable the fight for become for consumers, the hapless bystanders, is unclear.

By David Plowman

While that may be a good option for some homeowners, others may not want to get one of these loans, either because they do not have a lot of equity in their home or because they do not want the hassle of applying for a new loan.

But that doesn’t mean a home improvement project has to be put on hold, there are several other ways of funding a renovation project.

• Cash. As with any other major purchase, paying with cash could save you a lot of money in interest and finance charges. While the option is not always viable, carefully weigh the pros and cons of financing your project versus waiting until you have saved enough money to pay with cash.
• Credit cards. If you don’t have a major project, you may be able to charge the expenses to a major credit card or an in-store charge card. Be cautious with this option however, because unless you can pay off the balance quickly, you may be charged a lot of interests. If possible, you may want to sign up for a low interest credit card and plan to pay the balance off before the interest rate spikes.
• Title I Property Improvement Loan Programs. These loans, available from most commercial lenders is insured through the Federal Housing Association (FHA) may be a favorable option for residents who do not have a lot of equity in their home. There are be some restrictions on the type of worker covered by the loan, and there strict loan limits. Check with your local bank for more information.
• IRA loans or borrowing from life insurance.  While these options sound like they are equivalent to “borrowing money from yourself” there are some very serious tax penalties to think of. Basically, these options should only be considered if all other potions have been exhausted and the work needed on your house is severe and cannot be differed until a later date.

While a home equity loan might be an option for may people looking to fund a home improvement project, it is not the only option.

By David Plowman

• Know your credit history. Any lender you work with is going to check your credit history and your credit score, so you should do the same, long before you fill out a loan application. Errors can and do happen, so should be familiar with your history and correct any errors before potential lenders look at your history.
• Know if you eligible for homebuyer programs. Most areas will offer government-sponsored first-time homebuyer programs that may offer better loans rates than you’d find elsewhere. Some programs may also offer loan options for people with damaged credit.
• Get pre-approved for a loan. There is a big difference between “pre-qualified” and “pre-approved.” A pre-qualification is a general review of your income and debts, usually based solely on information you provide the mortgage company which gives you an idea of how much of a loan you could receive. The process to be pre-approved is more complex. You will generally have to provide proof of your income and debts (in the form of tax returns, pay stubs and credit information. The potential lender will also check your credit history. If you complete this process successfully, the lender will provide a written verification that they will actually loan you the money, pending appraisal, title report and purchase contract. In almost all cases, a seller would opt to sell to someone who is pre-approved for a loan as opposed to someone who is just pre-qualified.
• Borrow what you can afford to pay back. Just because you are approved for a loan, doesn’t mean you can afford the monthly payments. Don’t opt to get the maximum loan amount you can only find every cent you make has to go back into making your mortgage payments.
• Shop around for the best rate. Just as your would shop at different retailers for different rates for similar products, lenders may offer different rates for the same loan. Check with several companies to know you are getting the best deal.(Click here for more information on shopping for a loan.)
• Know what you are getting charged for. Lenders may add a litany of fees to their loan amount. When you shop for a loan, ask about any miscellaneous fees in addition to the interest rate and any points you may have to pay.
• Budget for closing costs. It is a reserve corollary of the adage “you need money to make money.” When it comes to getting a home loan, “you need to pay money to lend money.” The day you close on your home and sign the final loan papers can be a very expensive day. You may need to pay for attorney’s fees, taxes, prepaid homeowner’s insurance, the miscellaneous lender’s fees discussed above and points. Your lender should give you a solid estimate of all the closing fees involved, but you should start a savings fund for those fees well before then.
• Keep a savings reserve. With all of the home buying charges and the monthly payments, it might seem like you are hemorrhaging money. While that may be the case, you should also make sure you have some emergency reserves. You need to be prepared if the roof on your new home suddenly springs a leak or if the air conditioning goes on the fritz. If you are already tapped out by buying the home, e such an emergency could turn into disaster.

When looking for a home mortgage, being prepared could save you time and money.By David Plowman

But the fact is all bills are not created equally. While failing to pay any bill will undoubtedly hold negative consequences, some of the consequences may be more severe than others.  When deciding who to pay, prioritize you bills by ranking  the penalties of not paying the bill, and take care of the ones with the most dire consequences first.

Here are some of the bills you should consider paying first:

• Rent or Mortgage. Miss some of your housing payments, and you could be thrown out of your home. While failing to pay your credit card will put a ding on your card that may later make it more difficult for you to get a low mortgage rate or a favorable background check on rental application; paying to keep a roof over your head in the here-and-now is more important. Beside, a foreclosure or evection will put a larger ding on your credit report than being late on credit cards will.
• Child Support. Miss a few of these payments and the only house you’ll be living in is the big house. If you are destitute and truly can’t make your payment, go before the judge. Only the court can grant you a reprieve from your child support payments.
• Utility Bills. A house isn’t very useful without electricity, gas or a phone. But in this day-and-age, remember that you need only one phone, having both a cell phone and a home phone is a convenience, not a necessity. Consider canceling one of the two. Since many cell phone providers carry contracts with hefty cancellation fees, it may be less costly to cancel your home phone.
• Taxes.  One of life’s two certainties, the taxman doesn’t take a break when you’re down on your luck. Failure to pay could result in garnished wages. If you can’t pay, contact a friendly IRS agent and ask to work out a payment arrangement.

Next, there are several other bills which may or may not be considered essential, depending on your situation: 

The Fair Debt and Collection Practices Act, puts limitations on what third-party collection companies can do. (A third party collection company is an agency that attempts to collect on another person’s debt. The law does not apply to a creditor’s in-house debt collectors.) If you fall behind on certain bills and are being contacted by a collection agency, understand there are certain things bill collectors can not do:

• Call you at inconvenient times. Generally, bill collectors can only call you between the hours of 8am and 9pm, unless you agree to be contacted at other times. However, “inconvenient” can vary from person to person. For example, if you work the third shift and sleep during the day, an 11am call can be inconvenient, and you can ask collectors not to call you at that time.
• Call you at work if you advise them your employer does not allow such calls. It is generally up to your discretion to decide if your employer allows such calls. You do not need your supervisor to tell the collector the employer frowns on the calls.
• Inform friends and family members about your debt. Bill collectors can only report specific information regarding your debt to the original creditor, credit reporting agencies, or your attorney. While they may contact your friends and family members to get limited information such as your contact information and where you work, they cannot inform these parties any details of your account.
• Contact you if you have an attorney. If you have an attorney, a bill collector must deal with your attorney, the collect cannot contact you directly.
• Make false claims. Bill collectors can not claim you may serve jail time if you don’t pay, threaten to garnish your wages, liquidate your property, or file a lawsuit if they have no legitimate plans to do so.
• Make threats or harassing statements. Collectors are forbidden from making any threats of violence against you, nor can they use profane language.

Finally, according to the Act, you can contact a collector in writing and tell them to stop contacting you. The collector may then can communicate with you to verify they will cease contacting you or to inform you that the creditor or collector intend to take a specific action. However, this does not absolve you of the debt, nor does it prevent you from being sued by either the creditor or collector.

By knowing your rights, and what bill collectors can and cannot do, you may relieve some of the stress of this situation and keep your focus on your primary goal of getting out of debt.

By David Plowman
 411Web provides finance ideas for its readers. Our postings, articles and e-mail responses are not meant as to serve as personal advice, nor are they endorsements of any investment or personal finance strategy. Any financial or investment plan must take into consideration an individual’s personal experience and circumstances. Individuals may want to contact their investment or tax advisor on these subjects.

But financial hurdles, just like other problems, are best faced head-on with a definite, slow-but-steady plan.  Remember, your goal is not to be debt-free tomorrow, but to be less in debt than you were a month ago. With the right amount of discipline and planning, you can gain the upper hand with your debts.

The first step to becoming debt-free is probably the most emotionally taxing one, figuring out exactly how much you owe. This step can be as painful as it is necessary. Take a hard look at all of your bills. When listing your credit card debt, note the total balance due, the interest rate and the minimum payments. While it may be depressing to take this step, remember that you are doing this to drive yourself out of debt, not into despair. In order to develop a strategy to solve this problem, you need to shine a harsh light on your finances, and look at the cold, hard numbers.

Once you have your credit card bills gathered in one place, your next step should be to break up your collection of plastic. Keep only the two cards with the lowest interest rates, and commit yourself to using them only in cases of emergency. Your goal of getting out of debt will be nearly impossible if you pile new debt on top of old.

Next, if you have any credit card balances with low balances that can be paid off in one or two payments (as you continue to make the minimum payments on your other cards), consider paying them off first. This may provide a much needed, well-deserved motivational push if you are able to quickly eliminate one or two credit card balances.

When tackling credit cards with significantly higher balances, take another look at your debt tally sheet and attack the credit card with the highest interest rate. Continue paying the minimum balances on the other cards. One simple way to keep up on the minimum balances to sign up for an automatic bill payment service, so the minimum fee is deducted from your checking account automatically.

When deciding how much to pay on your highest interest credit card, the key is to stretch yourself as much as you can, without going past your breaking point. Definitely cut back on some perks or extras in your life (For example, you can save as much as $3 a day by switching your daily latte habit for a regular cup of joe at the local coffee shop), or see if there are simple, everyday ways tosave money. But at the same time, remember that your credit card debt is not your most important bill. Definitely prioritize, put your mortgage or rent payments and transportation costs and food above your debt.

Once you have paid down the card with the highest interest rate, repeat the process with the next highest rate and on down the line until you have successfully paid down your cards.

Once you have successfully paid down your credit card debt, consider extending the same strategy for a few months to developing a savings account. Instead of paying your creditors, you will be “paying yourself,” and developing a nest egg so you will be able to weather future financial storms.

By David Plowman
 

411Web provides finance ideas for its readers. Our postings, articles and e-mail responses are not meant as to serve as personal advice, nor are they endorsements of any investment or personal finance strategy. Any financial or investment plan must take into consideration an individual’s personal experience and circumstances. Individuals may want to contact their investment or tax advisor on these subjects.

The answer to these questions depend on two things, the credit card offer’s fine print and how discipline you are with money.

Be read the fine print very carefully and watch for the following:

• Does the offer say “zero percent financing” or as low as zero percent? If it is the later, understand that only a very few people will qualify for the lowest rate. If you have a few dings on your credit report, your actual rate may be higher.
• Does the offer zero percent offer apply to all purchases or just balance transfers? If your rate for more purchases is higher, make sure you know what that rate is.
• Is there a charge to transfer charges? Even though the new credit card offers zero percent financing, they may charge a fee to transfer the charges from your old card.
• How long will the introductorily rate be in effect? The low rate will probably go up after several months. Find out when, so you can plan to have most, if not all of your transferred balance paid off before then.
• What will the rate be after the teaser rate expires? If the rate is higher than your old credit card, especially if you don’t anticipate paying off your balance during the low rate.
• Are there circumstances that can exempt you from the low rate? Some clauses in the terms and conditions section of the credit card offer may say that the teaser rate is contingent on paying your credit card bill on time. Failure to do so will result in a much higher interest rate. Further, some offers may even stipulate that you have to be current on all of your bills. Fall behind on your utility bill, and you could see your credit card rate go up.
• Another strategy some credit card providers employ is specifying not only a date the payment needs to be received, but also a time, usually in the morning, before mail is received. For example, they may require payment be received on the 8^th of the month at 8:00 a.m. If your payment arrives in the mail that day at 1:00 p.m., it is “late.”

While the specific terms and conditions vary depending on your credit card provider, the message is clear: Many of these companies hope to entice you with low or no interest rates introductory, they are hoping that you won’t pay off your balance before the teaser rate expires or that you will violate one of the terms and conditions to void the rate.

However, if you are discipline with your payments and closely adhere to all of the stipulations, you can take advantage of the “too good to be true” credit card offers to pay down your debt without getting hit with high interest rates.

David Plowman
 

By pre-qualifying for an auto, loan you are able to shop for the best rate and don’t have to rely on the dealer’s financing package. Just as important, if you walk in to a dealership already knowing you are pre-qualified for a loan, you will be in a better position to negotiate the best price on the car, knowing you won’t have to worry about financing,

Remember, finding the best interest on your car loan could literally save you a thousand dollars or more. For example, on a typical 48-month loan, each percentage point you shave from an ARP equals savings of a little more than $20 per $1,000 of your loan. That may not sound like much, until you do the math. Say you find one loan with an ARP of 9% and another of 5% on a $19,000 car. By taking the lower interest rate, you save $1,040.

There are several places you can shop for competitive auto loan rates. Your bank, credit union or an internet-based lender may offer all reasonable rates.

Even after shopping for the best car loan rates, you may still find that your dealer offers the best rate, especially if they are offering low interest financing to its qualified buyers as a promotional tool. If that’s the case, definitely take their option. You have gained a competitive advantage just by having done your homework and knowing what financing options are available to you.

David Plowman
411Web provides finance ideas for its readers. Our postings, articles and e-mail responses are not meant as to serve as personal advice, nor are they endorsements of any investment or personal finance strategy. Any financial or investment plan must take into consideration an individual’s personal experience and circumstances. Individuals may want to contact their investment, tax or legal advisor on these subjects.

For example, the simple-is-as-simple-does theory of credit card management says that you should have one credit card, use it sparingly and pay off the entire balance every month. Such fiscal responsibility has to reflect well on your credit score, right?

Well, not exactly. Though it may seem counter-intuitive some, your credit score—the all important number usually between 300 and 850 that is used by creditors to determine your creditworthiness—may not rise as quickly as you like if you use this logic, according to many credit counselors. By their point of view, if you only have one credit card, you are not giving them many opportunities to demonstrate your credit worthiness.  

Instead, credit counselors suggest that you have two or even three credit cards that you can successfully manage. Additionally, your credit score will improve if you successfully make payments on different kinds of debts such as credit cards and installment loans, like a loan for a car or any other loan where you make regular, monthly payments.

Of course, the key word is to successfully make payments on these credit cards and loans. If you take on more debt than you can handle, you will hurt your score.

Conventional logic also suggests that it is always best to pay off your balance in full every month. If you maxed out your credit card with one large purchase, and paid the balance five days later, you would be both money ahead and demonstrate your credit worthiness, basic logic would seem to suggest.

While that may be a sound financial decision and one that could save you from having to pay finance charges, that line of thinking may not boost your credit score as much as you would think. Instead, what matters to those keeping score is the amount you charge much lower than you credit limit.

Ideally, credit counselors say, you shouldn’t charge more than 30 percent of your credit limit. What’s more, your credit insurer takes note of your balance and sends a report to the credit bureau once a month. If that snapshot of your account happens immediately after you have made a large purchase, but before your credit company received your payment, it may give potential lenders the impression that you are overextended on your bills.

Though it may be counter-intuitive at first, it may make sense to determine how your credit score is calculated so that you can boost your credit rating, and potentially be able to secure a lower interest loan. That’s a strategy that makes sense and could save you more than a few cents.

By David Plowman

But consider this decision very carefully, as consolidating your debt may create a ding on your credit report. However, it is better than declaring bankruptcy, which remains on your credit file for ten years,

Not everyone who is in debt will qualify for debt consolidation. The counseling company may not be able to negotiate a better deal with your lender, and consequently would not be able to offer you significantly lower payments.

When looking for a credit counselor, it is a buyer-beware market. Once a field dominated by non-profit agencies, credit counseling has become a $7 billion industry with many for-profit agencies looking for a piece of the action. While there are certainly many legitimate credit counseling agencies, there are some bad fish in who may be operating a scam that takes your money and leaves your bills unpaid.

When shopping for a credit counseling service, keep in mind the following:

• Be skeptical of organizations that charge high up-front fees. This may be a scam to take your cash without performing any service.
• Check their accreditation. Most credit agencies will belong to The National Foundation for Credit Counseling (http://www.nfcc.org) or the Association of Independent Consumer Counseling Agencies (http://www.aiccca.org).
• Avoid agencies that charge a month’s “processing fee” instead of forwarding the money to your creditors. Some agencies will simply pocket your first month’s fee instead of forwarding it to your lenders. Remember, you are still ultimately responsible for making payments, not the agency. Check with your creditors to ensure they are receiving your payments.
• Have realistic expiations. Organizations that promise to settle your debt with little or no money are probably not legitimate. While most consolidators will be able to negotiate lower interest rate, none will be able to settle for “pennies on dollar.”
• Find out if any complaints were filed. Check with the Better Business Bureau or your local attorney general’s office to see if the organization you are considering has had any complaints filed against them.

While it is not a solution for everyone, signing up with a credit counselor may be effective way for you to get caught up on bills.

By David Plowman