Long Beach, Ca. After President-elect Obama's aggressive speech about how the government needs to intervene quickly before the United States slips into a tail spin that, "we may not recover from," and begins to detail the multi-trillion dollar bailout plan that he plans to implement, one begins to wonder how we can go from only 45 days ago when the Government announced that not only were we in a recession but we have been in it for over a year!, to well what looks like the Depression of 1932.
This is mind-boggling and troublesome; nevertheless, many American Families are truly, "distressed." When moves made by the Democrats to have Bankruptcy Judges empowered to readjust mortgage payments, combined with the fact that 10% of all mortgages are in default (that's approximately 5 million mortgage out of fifty million), we know that we are in for some serious licks. For families suffering from job loss or other set backs, it is important that they understand what actually qualifies them for a hardship. If there is a legitimate hardship, banks may allow the family to sell their property through a short sale which would be better for them then losing the property through foreclosure.
The following are acceptable examples of Hardships wherein if proved would more then likely give the bank a green light for a short sale:
1. The property has more mortgages on it then what it is actually worth
2. The property is owned by a person going through economic hardship and instability, possibly a loss of a job, reduced income, failed business.
3. Death of a spouse, co-borrower or family member.
4. Incarceration.
5. Job relocation.
6. Divorce or Marital Separation.
7. Military Duty.
8. Medical Bills or prolonged illness.
9. The property is about to be in foreclosure or is; in fact, currently in the foreclosure process.
10. A property that is in damaged and poor physical condition.
Specifically, there are many American families that need to sell their homes through short sales rather then lose them to foreclosure so that they can situate themselves for repurchasing real estate after the eventual stabilization of the markets.
Kirk Mulhearn is a licensed real estate broker and mortgage planner. He may be contacted at 866-961-8042 ext. 110 or e mail him at kirkmulhearn@gmail.com
Long Beach, CA. We are very concerned about this development for future mortgage pricing. In what appears to be a reversal in position for the banking industry, Citigroup Inc. is in talks with lenders regarding legislation to permit mortgage restructuring in bankruptcy court. The industry previously has warned that "cram downs" would boost borrowing costs, but such bankruptcy reform has the support of many Democrats as well as President-elect Barack Obama. Sen. Dick Durbin, D-Ill., introduced a bill on Jan. 6 to allow bankruptcy judges to restructure mortgages, and similar legislation was also raised in the House. Some estimates say this will increase the cost of a mortgage by 50 basis points in rate to one point. The Mortgage Bankers Association is opposed to this, but given the democratic controlled Congress, this appears likely to become passed.
As we all know by now, CalHFA has stopped lending and is working to de-leverage their balance sheet. Yet this is at a time when we expect a government agency to support the credit crisis, not curtail their lending. Why has this happened? Apparently the agency faces a credit rating downgrade and must work through a half billion of bonds that have been put back to their banks which forced the agency to focus on their balance sheet rather than lend. Meaning no money for prospective borrowers.
Finally we are seeing this morning comments about the need to address Fannie and Freddie. President-elect Barack Obama has little time to decide the fate of Fannie Mae and Freddie Mac as bank regulators warn of the drag the government-seized mortgage- finance companies are having on the U.S. economy. Federal regulators are concerned that if the new Obama administration doesn't act quickly enough it may miss the opportunity to resolve the ambiguous government backing of Fannie and Freddie, an arrangement that has scared away many foreign investors the companies rely on to fund new loans. Throwing the full faith and credit of the U.S. behind Fannie and Freddie may almost double the $5.8 trillion in federal debt, pushing Treasury rates higher, raising the government's borrowing costs, and boosting inflation. Regulators may be ready to pay that price, with some pushing for an explicit guarantee for the companies and others seeing the need for nationalization. We need to watch this as it would clearly impact the drop in rates we have received.
U.S. stocks have slid for a second day after retailers from Wal-Mart Stores Inc. to Limited Brands Inc. said profit will trail forecasts as the recession limited holiday spending and sent jobless claims to a 26-year high. Equities have fell three of four days this week as the recession forced the biggest U.S. companies to acknowledge that forecasts made last year were too optimistic. The five-quarter slump in profits at S&P 500 companies is projected to last two full years before a rebound in the second half of 2009, according to most analyst estimates.
Based upon the high jobless claims, treasuries and mortgage backed have held and MBS are up 4/32nds from yesterday at the moment or about .125% in price. But as you all know by now, our investors are not necessarily following this one for one for a variety of reasons. Such as taking in too many locks, limited staff or their capacity. Currently, the Ten Year yield is at 2.44% (2.48% yesterday). On Tuesday, Chase wholesale went so far as to send this out from their wholesale channel, "Due to high registration volume, effective 3:00 PM Eastern Time, Chase is temporarily suspending all new registrations and locks until the next business day's rate sheets are delivered." Couldn't they just price themselves out just like other lenders? Yet the headlines like the link below continue to show borrowers that they can find 30-yr mortgages below 5%, especially at bank branches. http://www.bloomberg.com/apps/news?pid=20601103&sid=abG3KpLnk0IE&refer=us
Kirk Mulhearn is a professional mortgage planner and real estate broker, he may be reached at 866-961-8042 ext. 110 or Kirkmulhearn@gmail.com
Long Beach, CA. Will 2009 bring economic collapse or will markets begin to mend? Two reliable predictors give hope. First, the spread between LIBOR and Treasury yields, which measures global risk. The spread ended the year tighter than when it began, and far tighter than the extreme levels of late summer. Second, volatility embedded in stock option prices is a good predictor, and is referred to as the "fear index." While still elevated, it ended the year reflecting much less fear than the worst seen in 2008. Both indicators lead us to believe that the economy has backed away from the brink.
While the economy may not collapse completely, we have some tough work ahead of us. Recessions brought on by financial crises (rather than typical business cycles) are severe, reports John Mauldin. In past such recessions, real housing prices declined 35% over six years, while equity prices collapsed 55% percent over three and a half years. The unemployment rate rose by 7% over four years and output fell 9% over two years. And government debt increased massively. By these historical measures, we have a long way to go.
The good news for home buyers is that mortgage rates are low, and are likely to stay that way. Fallout - of the 50% variety - and early loan payoffs have become the problems du jour. In spite of Barron's warning to "get out (of Treasuries) now," there is little economic reason for mortgage rates to rise. Nary a holiday party went by without someone asking when they could have their 4.50% mortgage rate (in the near future, we think). Mortgage demand is strong. The New York Fed "began purchasing fixed-rate mortgage- backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae," the Fed bank said in a statement released by e- mail.
So severe is the concern over lower rates, fallout, and refinanced mortgages, that the lack of premium mortgage pricing is as much an impediment to the refinance boom as anything else. You can pick any premium mortgage rate you want and your loan officer price struggles to get to par. This will continue I am afraid until the housing market is steadied for prices and buyers other than the Federal government begin purchasing mortgage backed bonds.
The Fed began their MBS buying program yesterday; they will announce the amount purchased each Thursday. The mortgage basis tightened off of this purchasing pressure. Oil is now at a five week high as OPEC's production cuts are starting to have an effect on the market, oil is now above $50/barrel. Right now the futures market is pricing in a 76% chance that the Fed keeps rates somewhere between 0 and .25% until at least April 29th, 2009. Currently, the Ten Year yield is at 2.56% (2.47% yesterday)
Speaking of rates, the historical link between Treasury rates and mortgage rates is practically non-existent. Yesterday, for example, Treasury rates moved up since Construction Spending fell only .6%, less than half as what was forecast, and before the $54 billion in government securities to be sold this week ($8 billion in 10-yr TIPS today). The government's sale of notes this week is causing impacting the supply side of the equation, moving Treasury rates higher. So this morning we find the yield on the 10-yr up to 2.56%, but mortgage prices are better than yesterday afternoon by .50% and continuing to show improvement. Remember, investors have been very slow to reflect, but I would wait one hour or so and most investors should begin to reflect the improving price. However, as I have said over and over, the market is artificially being impacted and can quickly retreat.
Kirk Mulhearn, A professional Mortgage Planner, may be contacted at 866-961-8042 ext. 110
Long Beach, CA. Will 2009 bring economic collapse or will markets begin to mend? Two reliable predictors give hope. First, the spread between LIBOR and Treasury yields, which measures global risk. The spread ended the year tighter than when it began, and far tighter than the extreme levels of late summer. Second, volatility embedded in stock option prices is a good predictor, and is referred to as the "fear index." While still elevated, it ended the year reflecting much less fear than the worst seen in 2008. Both indicators lead us to believe that the economy has backed away from the brink.
While the economy may not collapse completely, we have some tough work ahead of us. Recessions brought on by financial crises (rather than typical business cycles) are severe, reports John Mauldin. In past such recessions, real housing prices declined 35% over six years, while equity prices collapsed 55% percent over three and a half years. The unemployment rate rose by 7% over four years and output fell 9% over two years. And government debt increased massively. By these historical measures, we have a long way to go.
The good news for home buyers is that mortgage rates are low, and are likely to stay that way. Fallout - of the 50% variety - and early loan payoffs have become the problems du jour. In spite of Barron's warning to "get out (of Treasuries) now," there is little economic reason for mortgage rates to rise. Nary a holiday party went by without someone asking when they could have their 4.50% mortgage rate (in the near future, we think). Mortgage demand is strong. The New York Fed "began purchasing fixed-rate mortgage- backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae," the Fed bank said in a statement released by e- mail.
So severe is the concern over lower rates, fallout, and refinanced mortgages, that the lack of premium mortgage pricing is as much an impediment to the refinance boom as anything else. You can pick any premium mortgage rate you want and your loan officer price struggles to get to par. This will continue I am afraid until the housing market is steadied for prices and buyers other than the Federal government begin purchasing mortgage backed bonds.
The Fed began their MBS buying program yesterday; they will announce the amount purchased each Thursday. The mortgage basis tightened off of this purchasing pressure. Oil is now at a five week high as OPEC's production cuts are starting to have an effect on the market, oil is now above $50/barrel. Right now the futures market is pricing in a 76% chance that the Fed keeps rates somewhere between 0 and .25% until at least April 29th, 2009. Currently, the Ten Year yield is at 2.56% (2.47% yesterday)
Speaking of rates, the historical link between Treasury rates and mortgage rates is practically non-existent. Yesterday, for example, Treasury rates moved up since Construction Spending fell only .6%, less than half as what was forecast, and before the $54 billion in government securities to be sold this week ($8 billion in 10-yr TIPS today). The government's sale of notes this week is causing impacting the supply side of the equation, moving Treasury rates higher. So this morning we find the yield on the 10-yr up to 2.56%, but mortgage prices are better than yesterday afternoon by .50% and continuing to show improvement. Remember, investors have been very slow to reflect, but I would wait one hour or so and most investors should begin to reflect the improving price. However, as I have said over and over, the market is artificially being impacted and can quickly retreat.
Kirk Mulhearn, A professional Mortgage Planner, may be contacted at 866-961-8042 ext. 110
Long Beach, CA. You might not have caught key details that could have personal impact on you or people you know-now or in the recession months ahead. One of the most ambitious mass-market "loan modification" programs was outlined recently by the Federal Housing Finance Agency-overseer or Fannie Mae and Freddie Mac-along with the 33 banks and mortgage servicers who make up the private-sector Hope Now Alliance.
The program, which started nationwide December 15th, is for thousands of subprime and other borrowers who are seriously behind on payments-three months or more-and are slipping fast toward foreclosure. To be eligible for intervention, owners need to document that they can handle mortgage payments with up to 38 percent of their monthly gross income.
They also need to demonstrate that they have experienced some form of financial reversal that made them delinquent on their payments, and prove that they did not intentionally go into default just to get better terms.
If they can pass through these hoops, borrowers may qualify for sharply reduced interest rates, deferrals of principal payments or extended loan terms-whatever combination it takes to get them an affordable payment with their current income.
Participating lenders say they want to hear as early as possible from potential beneficiaries. If homeowners can't connect directly, they can work through the Hope Now Alliance (www.hopenow.com) or through the U.S. Department of Housing and Urban Development (www.hud.gov/foreclosure).
The same day the new federally assisted mass modifications effort was announced, one of the largest lenders and servicers-Citicorp-unveiled a program designed to catch at-risk home owners before they fall behind.
Beginning last month, Citicorp will reach out to an estimated 500,000 mortgage customers who are not currently delinquent but who appear to be at risk-either because their credit files show tell-take signs of financial stress or because their homes are located in markets Citicorp believes face serious economic strains and job losses in the coming year.
Although most mortgage industry executives and economists believe that today's foreclosure crisis is so serious that only wholesale remedial approaches can prevent home losses from piling up, not everyone agrees with the new programs or the loan modification options they throw to homeowners.
Bottom line for borrowers: Definitely pursue a loan modification if you qualify and need one. But talk with your servicer or loan officer to make sure that the revised terms you're signing up for are realistic for your long-range economic situation, and not likely to be just a temporary patch.
Kirk Mulhearn is the co-owner and manager of the Bixby Knolls' Prudential California Realty branch, and the co-manager of G.E.M., Golden Empire Mortgage, also located at the Bixby Knolls' office. He can be reached at 866-961-8042 ext.110 or on his cell @ 562.965.0054.
Long Beach, Ca. There is no news today, aside from Construction Spending. Tomorrow we have the Commerce Department's November Factory Orders data. This data gives us a fairly important measurement of manufacturing sector strength, both in durable and non-durable goods, and is expected down 2.6%. Also Tuesday will be the release of the minutes from the last FOMC meeting. This will give market participants insight to the Fed's thinking and concerns regarding inflation and monetary policy. The usual Jobless Claims on Thursday, and then the final report of the week comes Friday morning when the Labor Department will post December's employment figures. Current forecasts call for a 0.3% increase in the unemployment rate up to 7.0%, and Nonfarm Payroll -500,000.
Not much happened to the economy in the last 4-5 days, aside from dire numbers coming from retailers which ordinarily would help rates. Yet we find the 10-yr Treasury hit 2.50%! It has come back down slightly from there, but keep in mind that a) The market was overbought, suggesting that a correction was due, b) we have supply ahead with a 3-yr and 10-yr auction this week on Wednesday and Thursday, and a 10-yr TIPS auction tomorrow, c) how much lower did anyone think that rates were going to go, in the near term? Fortunately mortgage rates and doing better than Treasuries, which makes some sense given that they did not participate in the big move down. Currently the 10-yr is at 2.43%, and mortgage prices are perhaps .5 better in price than late last week until the last 30 minutes where are pricing has faded to no improvement. Our window of the FED buying mortgages seems to be lifted as pricing quickly has faded in the last 30 minutes.
According to Democratic aides, President-elect Obama's $775B economic stimulus plan will include more than $300B in tax cuts. The proposal appears to have the support of both parties. The dollar rose on speculation that the plan will help the economy recover from recession. Right now the futures market is pricing in an 82% chance that the Fed keeps rates somewhere between 0 and .25% until at least April 29th, 2009.
The Federal Reserve Bank of New York said Monday it has begun purchasing mortgage-backed securities in an effort to bolster the battered housing market. The program, initially announced Nov. 25, allows the Fed to spend $500 billion to buy mortgage-backed securities guaranteed by mortgage giants Fannie Mae and Freddie Mac and another $100 billion to directly purchase mortgages held by Fannie, Freddie and the Federal Home Loan Banks. The program is aimed at driving down the price of mortgages and making home loans more available. When the government comes into our market, we see improvement in pricing and as quickly as it does, it begins to fade. As I said last week, I believe rates will relax somewhat further but is driven by the only buyer we have, the Federal Government for mortgage backed securities.
To apply for a mortgage, contact Kirk Mulhearn at 866-961-8042 ext.110
Long Beach, CA. In even, "normal" markets, there are always families and individuals that suffer from hardship. According to most investor publications, the default rates should only be between 1-3% in a healthy and normal economy. However, in the current real estate malaise in Southern California approximately 55% of all properties sold are considered, "distressed." Out of these properties, over two thirds of these distressed properties end up selling through what is known as, "Short Sales."
These are clearly an astonishing figures and extremely troublesome considering that unemployment figures seem to be getting worse daily. Wherein you have government officials complaining that in order for the economy to get better, we have to have even more consumerism and spending, they seem to forget that that is impossible for Americans to spend money without Americans having jobs, more on that in a later blog.
Furthermore, in some neighborhoods in California, Florida and Nevada, we are seeing foreclosures of 50% or more, the shear tidal wave of foreclosures of this magnitude is unheard of in the history of in the Republic.
It is no longer an option for real estate agents and home owners alike to be ignorant of these trends, especially considering that everyone in one way or the other is affected by them because when your next door property sells on the courthouse steps due to foreclosure, it immediately affects the value of your own home.
The fact is that the entire landscape of the residential and commercial real estate markets have completely changed due to defaulting and distressed properties. Understanding what is acceptable to a bank when proposing to list the said property is a must in the current situation.
Imagine for a moment, that you are a real estate agent sitting down to list a property for sale when, after reviewing the latest mortgage statement from the home owner it is discovered that the property is "upside down" by over $100,000.00 Then, the home owner confides that he is 2 months behind in the mortgage payments. Basically, the wheels have fallen off the traditional SUV-like real estate market. There really are few "normal" sales here in Southern California. In fact, the definition of "normal" in real estate is wide open to interpretation:
What is a normal listing? What is a normal short sale? What is a normal REO? What is a normal mortgage? What is normal devaluation? What is normal inflation/deflation?
As 2009 unfolds and we all experience the new economy wherein frugality is in and blind consumption is out, we are forced to understand that we are all in this together. That the pressure on the middle class is easily felt in your children's school yard, just talk to the other parents, or in the work place or family gatherings, just converse with your extended family about these challenging times and you will soon discover how universal are the problems facing America today.
As distressed as America is, the natural reaction is to bond together with each other and turn to people and professionals that you can depend on to help resolve whatever difficult situation you might be facing. We must learn to get along with each other again. Wherein in the past you might not cared about your neighbor, in the future, for survival's sake you must get to know all of the people around you and engage them in a positive manner.
Kirk Mulhearn is a Certified Distressed Property Expert. He runs Prudential California Realty, "The Bixby Knolls Branch," in Long Beach, California. To contact him,
Long Beach, CA. There are many consequences to having a foreclosure or opting for a short sale. A foreclosure is when you let the property, "go back to the bank," a short sale is when you sell the property for less then what is owed on the property. The following summarizes the potential effects to the home buyer:
Sercurity Clearances If you are considering a foreclosure, this is a very important factor to consider if the current home owner is employed as a civil servant. It is a most serious issue if you are employed as a Federal, State, or Municipality. Especially, if the client is in the Military or Police Department, Central Intelligence Agency, Security, or any other position that requires some type of security employment. In almost all cases, the security clearances will be revoked and the position could be terminated. Conversely, a short sale does not challenge security clearances.
Current Employment While considering foreclosure vis-à-vis retaining your employment, it must be noted that depending on how sensitive your position is, employers do have the right to consider termination if you opt for foreclosure wherein if you go through a short sale, it will not be on your credit report and; therefore, will not be a challenge for your continued employment.
Future Employment Many employers require stiff back ground checks on all job applicants. A foreclosure is one of the worst things that can be noted on your credit report wherein if you had a short sale, future employers will not be aware of the transaction unless you disclose it.
Deficiency Judgment In 100% of foreclosures(except in those state wherein there is no deficiency) the bank can pursue a deficiency judgment. In some successful short sales, it is possible to negotiate with the lender not to go after the home owner for a deficiency judgment.
Deficiency Judgment(amount) In case the property does go through foreclosure in a State that can go after a deficiency judgment, the property will have to go through a long and extended REO process; thus, increasing the losses to the bank and increasing the amount of the judgment against the home owner. However, if the home owner goes through a short sale, the property will be sold faster and the judgment will be normally less then if you went through a foreclosure.
Future Fannie Mae Loan- Primary Residence If a home owner loses a property to foreclosure, he will not qualify for a new mortgage with Fannie Mae for up to 5 years, but if the home owner successfully negotiates a short sale, this time can be reduced to 2 years from the time the short sale closed.
Future Fannie Mae Loan-Non Primary Residence On future loan applications, after a forclosure, it must be noted that there was a previous foreclosure on the 1003 form. This could affect what interest rate that you get on your new purchase. A short sale question is not asked on the current 1003 forms; therefore, you will not pay a higher interest rate on your future mortgage.
Future Loan with another Mortgage Company
Credit Score With a foreclosure, your credit score could fall between 250 and 300 points! This could affect your score for as long as three years. A short sale will definitely show late mortgage payments, but this normally will only lower your score 50 to 100 points and will only negatively impact you for 12-18 months.
Credit History. Foreclosures will be reported for 10 years on your credit report. Short sales will not be reported on credit history at all, the loan shows, "paid in full."
Kirk Mulhearn is a Certified Distressed Property Expert, you may contact him for a free consultation on the disposition of your property at 866-961-8042 ext.110 or contact him directly at kirkmulhearn@gmail.com, Mr. Mulhearn's blog: www.longbeachrealestateandloans.com contains information on distressed properties.
Long Beach, Ca. What is a "Full Doc" Loan? In the last two years we have seen an evaporation of almost all "stated income" loans. These loans enabled home buyers to purchase properties without disclosing their actual incomes. Partly, because of these types of loans, the sub-prime loan melt down was conceived, born, and died, throwing the financial markets into a tailspin. As a reaction to the housing collapse, the pendulum has completely swung to the other the opposite side of the banking world.
This means that in the current market, you now have to prove income in order to purchase a home and qualify for a mortgage. In the lending business, we call these, "Full Doc" loans, short for, "full documentation," loans. Historically, banks like to see the following items to document your income:
•1. Federal Tax returns for the last two calendar years.
•2. The latest pay check stub from all of the signers on the loan.
•3. The last two months of Bank Statements from all buyers.
This will be required from all signers that go on a loan application. Note, that if a person in not employed or is a homemaker, they may still go on a loan application but typically will not add to the viability of a loan. In truth, a non-employed spouse may actually hinder the loan origination in that the bank will take into account all of their debts which makes the ratios of income to future housing payment higher; thus, making a higher risk loan.
There are four items that any lender needs to accurately pre-qualify a buyer:
A). Gross income from the entire household.
B). Total monthly debt obligation of all parties on the loan.
C). Available liquid cash that can be used for the purchase.
D). An accurate and recent credit report.
If a lender is set up properly, he can run the above information through an Automatic Underwriting System(AUS) like Fannie Mae's "Desktop Underwriter," which will give a computerized approval within minutes. However, remember the old adage here, "Junk in junk out." If the information was not properly inputted into the computer software, you may have a faulty approval or worse, a loan rejection when you could have actually have qualified. You may take a free loan application by contacting:
One of the Fastest Ways to Increase Your FICO® Credit Scores
Long Beach, CA. Please take the time to read the following article on how to improve your credit score. My friend and Credit Clean-up Professional: Steve Manos, is one of the most talented fellows that I have ever met in this field. Home buyers and refinanciers alike need to know how to make their credit look golden, especially when applying for a mortgage. I can't tell you how important it is for everyone to be aware of their current credit score and to know what little things to do to quickly improve these same scores:
Wouldn't it be great if you could just pick up the phone, make a toll-free call and, like magic, your FICO credit scores would go up? Well, you can. And the call isn't to the three major credit bureaus asking them to remove inaccurate information from your credit reports... ...or to lenders who have put negative information on your credit reports. This credit scoring technique is often overlooked. I've used this strategy to increase my FICO credit scores on many occasions-and it's easy... All you need to do is pick up the telephone and dial a few toll-free numbers. Within a few minutes you'll have started a chain of events that may quickly increase your scores. Intrigued yet? The technique is to simply increase your credit limits on your credit cards. Credit Mistake #8 Not Increasing Your Credit Limits
Increasing your credit limits is one of the fastest and easiest ways to increase your credit scores. When you increase your credit limits and your spending patterns remain the same you end up using a smaller percentage of your combined credit limits. This increases your scores. Make it a practice to ask for higher credit limits on a regular basis, usually every 6 to 12 months. When you ask lenders for a credit limit increase, the credit inquiry will lower your scores, but a credit inquiry is usually less damaging than a maxed out credit limit. Lenders periodically review your account to determine whether or not to increase your credit limit. This type of credit inquiry will not lower your scores.
Here's How Increasing Your Credit Limits Increases Your Credit Scores
"One of the quickest ways to increase your credit scores is to increase your credit card limits." Pretty simple, huh? Now let me explain why something so easy can have such a great impact. Let's imagine you have 10 credit cards each with a $1,000 limit. So you have a total (or aggregate) credit card limit of $10,000. Now let's assume that five of these credit cards are maxed out. In this case, you have a total (or aggregate) credit card balance of $5,000. Your balance-to-limit ratio is now 50%. You've used $5,000 of your $10,000 total credit limit. This is called your "revolving utilization.." It's the total amount of your credit limits that you are currently using. Being 50% utilized is considered high by most lenders' standards...and more importantly...by the creators of the FICO credit score. But now watch what happens. You pick up the telephone and ask for a credit limit increase on each of the five credit cards you haven't maxed out. Let's suppose each of the five lenders doubles your credit limit. So now you have 5 credit cards with a $2,000 limit and a $0 balance. But you also have 5 credit cards with a $1,000 limit with no available credit. By increasing your credit limits you've just reduced your balance-to-limit ratio from 50% to 33%. And if you doubled the credit limit on the other 5 cards in this example, your balance-to-limit ratio would be 25%. That's a significant decrease in your ratio! Bravo! You've just increased your credit scores by making a few free telephone calls. However, there are some potential pitfalls with this strategy. When you ask for a credit limit increase it will cause a credit inquiry...the type that lowers your credit scores. So, to be safe, apply for all credit limit increases within a 14-day period. Here's why. Great Credit Scoring Tip Revealed... When calling to increase the credit limit of credit cards issued by banks and credit unions there's a good chance multiple inquiries will be counted as only one, minimizing the impact several inquiries could have on your credit scores. In the past, you may have seen me write about how, when you apply for a mortgage or comparison shop to buy a car, you should always do it within a 14-day period since mortgage and auto inquiries made within this time-frame count as only one inquiry. Well, the same can be true when you ask your bank or credit union to increase your credit limits. The reason this works is because the FICO credit scoring models can't usually distinguish why a bank or credit union is inquiring about your credit. In other words, there's no way to tell if the bank is inquiring about your credit in order to approve you for a mortgage or because they want to increase your credit limit. So it errs on the side of the consumer because you COULD be applying for a mortgage or auto loan from a bank or credit union. In this case it groups all inquiries within 14 days and counts them as only 1. This is very much in your favor. But even if you do get stung by a few credit inquiries, generally your reduced utilization percentage will outweigh any negative effect of the inquiries-as long as you don't go on a shopping spree after wards! That brings me to the second pitfall...
Increasing Your Credit Limits Is a "Score Increase" Strategy, not a "Spend More Money" Strategy If you go out and use up the newly available credit you'll be back in the same situation with your scores (and you will owe even more money). So don't make that mistake. Think of your increased limit as overdraft protection on a checking account. You're not supposed to ever use it...but it's nice to have just in case. You Can Use This Technique to Increase Your Credit Scores Every Six Months From personal experience, I've found that you can request that your credit limits be increased about once every six months-as long as you put yourself in a position to deserve an increase. In order for the credit card companies to increase your credit limits, you obviously need a good payment history with them. If you continually make late payments or have a large balance, odds are they won't increase your limit, so keep this in mind when you ask for limit increases. At minimum you should: pay your bills early or on time, pay more than the minimum amount due, and/or pay off your balance each month.
Sincerely;
Steven J. Manos President
Center For Better Credit 3857 Birch Street No.630 Newport Beach, CA 92660
A Non-Profit Corporation Dedicated To Informing And Helping Consumers Deal With Their Credit Issues & Resolve Their Credit Problems.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
Prudential California Realty/Bristol Home Loans
;)
;)
