Credit Card Mistakes to Avoid

As of April 2015, Americans had racked up $900 billion in revolving debt. While that is less than the $916 billion in 2009, consumers will not be putting away the plastic any time soon. Credit cards, when used wisely, can help save money and improve your credit score.  This is vital for obtaining the best interest rate and for qualifying for loans. However, buying things with a credit card can be a financial disaster if you’re not careful.

Mistakes to Avoid  When Using a Credit Card

  • Late payments or no payments.If you don’t keep track of your bills, its easy to credit-cardforget or miss a payment. You may think that paying a credit card late or skipping the payment isn’t a big deal, but you could seriously damage your credit score when you don’t pay on time.  About 35% of your FICO score is based on your payment history.
  • Maxing your cards and paying the minimum only. Card utilization ratio is another factor into calculating your credit score. This is the amount of credit card debt you have compared to your total credit line. Lenders prefer you to use 30% or less of your total available credit. Maxing out your card can also hurt your credit score. The total amount owed accounts for 30% of your FICO score. One of the biggest allures to having a credit card is making payments on things, rather than buying outright. While paying the minimum seems manageable, your balance will continue to creep up. Your monthly payments will continue to increase. The debt continues to increase and eventually you have a pile of debt and you can’t afford the payment anymore.
  • Taking out cash advances. When short on money, taking a cash advance may seem like a good idea. However, its a temporary fix. The advance may allow you to cover the gap you run into, but borrowing against your credit line typically comes at a high cost. You not only have to pay interest on the transaction,, but you likely will have a fee.

Landlords and Credit Checks

If you’re in the market for an apartment, you may have been told that the landlord will need to check your credit before you sign a lease. In addition to contacting references, landlords will often run a credit check to ensure potential tenants are responsible. You may have been curios as to what landlords look for when reviewing credit reports.

What do Landlords Look for in Credit?

landlordsWhen landlords run credit checks, they’re wanting to learn as much as then can about your financial habits. They do not expect tenants to have perfect credit scores, but having a good score can make the application stand out. In a lender’s eyes, applicants who have a good credit score seem more reliable and responsible. There are, of course, other credit-related factors that landlords consider. Credit checks can reveal if someone has been evicted, sued, or has a history of making late payments. These issues, along with others, like delinquent accounts, foreclosures, or bankruptcy filings, can make your application unattractive.

While your entire credit history can be viewed, landlords often focus on recent transactions. Someone who has a lot of open credit accounts is likely to use a large percent of their income to pay off debt. This may be a red flag. However, keep in mind not all landlord care about the same things when running credit checks. FICO scores are most widely used, but some use other credit scores like VantageScores. There are multiple tools when looking to run credit checks. Once you have provided permission, they can get credit reports and credit scores through tenant screening services.

For a landlord or property manager to run a credit check, they will need your name, social security number, and current address. In some cases, you can provide your own credit report, and landlords must accept these if they were pulled within the last 30 days.

Repossessed Homes, What Happens?

A repossessed house is a house where the mortgage has fallen into default. If a homeowner is unable to keep up with mortgage payments, the bank then may repossess the home. This is a foreclosure. What happens to homes once the bank takes them back? This does depend on what the bank decides to do.

What Happens to Repossessed Homes?

ReposessedBanks like to use foreclosure as a last resort. Lenders prefer to keep homeowners in their properties. If a homeowner falls behind on mortgage payments, they may be able to work out a forbearance or a payment plan with the lender. If the lender is unable to work out payment options, they will issue a notice of default. This puts the home on the path to being repossessed. This is not an automatic process. In many states, it requires a lengthy notification period and order from a judge.

When a bank repossesses a property, it becomes known as real estate owned property or REO. Investors and homebuyers looking for a bargain may try to buy real estate owned properties at a foreclosure auction. Banks will often sell repossessed property for less than it’s worth, they want to rid themselves of the burden of keeping it and make a quick sale. If you’re considering buying a foreclosed property, it is a good idea to work with a real estate agent with experience with foreclosures. Unless you have enough cash on hand, you will still need to prove your creditworthiness to qualify for a mortgage.

Banks don’t put repossessed homes up for sale right away. They may sit on the property hoping to get a better price down the road. However, no matter how long it takes they are responsible for maintaining the property. It is up to the bank whether to sell or hold repossessed houses on its books. In some states, homeowners whose homes have been foreclosed retain the right to redeem the property if they can come up with the funds within the time frame specified in the law.

No-Doc Loan, What Does It Mean?

A no-doc loan is a mortgage loan that requires limited income documentation. Normally when applying for a home loan you disclose your assets and employment status. This shows lenders you’re capable of keeping up with the mortgage payments. No-doc loans waive this requirement.

What is a No-Doc Loan?

no-doc loanSo, what is a no-doc loan? The term can be misleading. It is not a document free process. There are however, less documents than a typical mortgage application. When it comes to a no-doc loan, you don’t have to show proof of employment or tax returns to verify income. However, you do have to submit to a credit check. The lender will use this to determine your credit worthiness. The home will have to be appraised and checked for any title claims. In some cases, you may be asked for proof of income. However, it will be less detailed than you would have to provide for a regular mortgage.

There are a few reasons to be wary of no-doc mortgages.  Lenders who offer these mortgages target customers who worry they may not qualify for a regular mortgage. These lenders often provide mortgages at a higher interest rate. They may also come with a higher down payment. Requiring a borrower to put more down is another way lenders hedge their bets when taking chances on an applicant who can’t or won’t provide income and assets.

If you don’t have a source of income or assets to make a large down payment, you may be better off waiting to purchase a home. However, with self-employment or non-traditional income sources, investments for example, you may have better luck than a traditional mortgage. No matter the route it’s important to shop around and choose one you’re comfortable with and can afford. Generally, lenders call loans with less strict documentation requirements for income no-doc. However, true no-doc loans are rare.