Monday, October 20, 2008

How to Refinance with Poor Credit

Mortgage interest rates have greatly decreased over the past seven or eight years, mainly due to the economy sagging. If you got your mortgage before the interest rates went down, you're probably envious of the people who have the same amount of mortgage you have, except their payments are far cheaper due to the lower interest rate. However, you don't have to be envious, as you can get the same interest rate they have—or perhaps an even lower one. All it takes is refinancing your mortgage, and you can accomplish this even if you have poor credit.

What Refinancing Is

Refinancing is can be used for debt consolidation, but also different. When you refinance your mortgage, you essentially take out a new loan to pay off the existing mortgage. This loan comes with a cheaper interest rate and—typically--cheaper monthly payments.

Refinancing can also help you to better your poor credit score, if you decide to refinance for more than the mortgage is worth and use that money to pay off other existing debt. This is known as wrapping your credit card debt into your mortgage, which is a bit like consolidation.

4 Steps to Refinance with Poor Credit

1. Shop Around. Many people believe that in order to get good refinancing, you need to have good credit. That's simply not the case, as in this economy, lenders are more willing to extend refinancing to those with fair or even poor credit. The key is to simply shop around and be willing to do a bit of research before you refinance.

2. Look for Lenders that Specifically Offer Refinancing to Those with Poor Credit. Some of the big name lenders only publicize that they refinance to those with good credit. But most of them also offer plans for refinancing for those with poor credit. Seek those out, and if you find a lender that says they only offer refinancing for people with good credit, ask them if they offer anything at all for people with poor credit. More than likely, they will, especially with how this economy is.

3. Don't Fear the Higher Interest Rate. Let's set one thing straight right now: you will not get the same interest rate refinancing as someone with a better credit score would. You should see a rate that is lower than what you currently have, though, and it's important to realize that even if it's a little lower than you'd like, you can always refinance again in a few years once you've bettered your credit score.

4. Apply Over the Phone or Via Mail. When you apply for refinancing over the internet, the application is usually reviewed by a computer, which can spell automatic bad news for refinancing if you have bad credit. That's why you should apply by the phone or via mail, as you'll be turning your application into an actual human being. Again, with how bad the economy is, and how desperate lenders to loan money, you'll have much more favorable results as the person who is reviewing the application will see that you are genuinely interested in getting a lower interest rate and in making your refinanced mortgage payments on time.

Sunday, October 12, 2008

Hidden Credit Card Fees: Where to Find Them

If you have above average credit, you probably have at least one no fee credit card. Credit card companies reward individuals, who have good credit, with this type of card. Should you be appreciative? In a word no.

All credit cards have hidden fees. Financial institutions issue the cards to make money. Money is made on both sides of the transaction. The merchant pays a per sale fee and a percentage of the total sale as well as a monthly service fee. And of course the consumer pays fees as well. These hidden fees alone add up to millions of dollars each year. Some of them include:

Cash advance fees. There are very few credit cards that don't charge for obtaining cash from an ATM. In reality, these cash advances are considered loans. So, not only do you pay a fee for withdrawing the money but you are charged interest from that moment on. Rates vary, but typically range from 3% to 24%. Your payment usually goes to pay off the balance first before any cash advance is paid back. And that's because the interest rate on cash advances is normally higher than that on merchandise and services purchases.

Pay-by-phone fees. If you usually pay your bills by phone, you may be charged a convenience fee, by your credit card company. Some credit card companies charge an even larger fee if you are paying your bill on the actual due date.

International fees. If you travel abroad and use your credit card, chances are you will be charged an international or foreign transaction fee. The only good news is that this fee is typically lower (1% - 3%) compared to other fees.

Late fees. Don't assume that if you get your payment to the credit card company on the due date that it will be processed that day. Late fees are regularly assessed on payments that were received on time, that way you are not reported for a late payment, but that the company processes the next day or so, that way they can charge the late fee. Check your bill because the due date can change without notice.
Convenience check fees. If you use the convenience checks that are usually included as a perk with many major credit cards, you are probably in for a big surprise. These checks are considered another form of cash advance, so there are fees attached to using them.

Worse yet, in the event that the check is returned because your available credit balance won't cover the amount of the check, you will be charged additional fees, as well.

Look closely at the terms and conditions your credit card company offers and make sure you understand the fee structures so you don't get caught paying extra money.

Tuesday, October 07, 2008

Do Credit Scores Really Make a Difference - 3 Tips to Improve That Score

If you have ever wondered if your credit score makes a difference, in day to day credit situations, the answer is a resounding... yes. In fact, the lower your credit score the harder it will be for you to obtain any type of credit. However, it is not impossible as long as you are willing to pay the price.

The price you pay is the percentage of interest your loan or credit card will carry. Since financial institutions are in the business of making money, most don't think twice about issuing credit cards to individuals who have been deemed a 'high credit risk'. To say this practice is big business is putting it lightly.

Currently, the average credit score is 720. As a rule, if your score falls under 600 you will probably pay more in interest than someone with a higher rating.

Several factors are used to determine your credit score. They include: payment history, total debt owed, length of credit history, types of credit used and new credit.

The best thing you can do to improve your credit score is to pay your bills on time. As noted above, this is the most important criteria when it comes to determining your rating.

It is also important to keep your balances as low as possible. This will go a long way in improving your credit score. Why? When your credit cards are almost 'maxed out' you are considered a higher risk, because this shows you probably have a need to reach for a credit card, instead of paying with cash.
Just because you currently have bad credit doesn't mean that it cannot be improved upon. There are steps you can take to 'fix' the situation.

Unfortunately, this process won't happen overnight. Depending on the extent of your ailing credit it will take months, sometimes even years, until you are fortunate enough to have good credit. Look at it this way, it probably took quite a while for your credit to deteriorate... you can't expect the bad stuff to disappear in just a matter of weeks.

Step number one. Obtain copies of the credit reports. You will need one from each of the three major credit bureaus... Equifax, Experian and Trans Union. There are two ways to get your credit reports, at no cost. Every individual in the US is entitled to one free credit report per year, per credit bureau.
If you have already taken advantage of this offer, apply for a credit card. Obviously you won't be approved because of your credit rating, but the denial will entitle you to a free report.

Step number two. Determine a budget. This will give you some idea as to how much extra income you have that can be put toward your outstanding bills. It is always best to pay off higher interest credit cards first... even if the same amount of money will pay off two lower interest cards. You will end up saving money, in the long run.

Step number three. Change your shopping habits. Chances are impulse buying is what got you into debt in the first place. If you can curb the problem, it will make it easier to achieve creditworthiness in the future.

Follow these tips and you can repair your credit rating yourself.

Thursday, October 02, 2008

Debt Settlement Scams: What to Watch Out For

With the declining state of the current economy, more and more individuals are turning toward debt settlement as a means of eliminating their mountains of debt. Debt can cause stress and an overall decline in health. Creditors calling at all hours of the night even bothering you at your place of employment, no wonder many consumers reach a level of extreme desperation, even depression. Is there a light at the end of the tunnel?

There are many debt settlement companies that are completely legitimate. A debt settlement company will review your loans, your income, and assets, and determine a realistic level of payment for each debt you owe. They will then contact each creditor and negotiate a payment plan that's realistic.

Once you've made the lump sum settlement with your creditors you're out of debt. Debt settlement companies don't work for free. The fees can be based on a percentage of your loans, a set up fee, payment fees, and even closing fees.

Unfortunately, there are many debt settlement companies that are only after your money and have no intention of working with you or your creditors.

These companies exist only to bilk service fees out of desperate consumers who see no other way out. Instead of a light at the end of the tunnel there's only a brick wall.

They promise to contact your creditors in effort to lower your current balance and reduce your current payments as much as 50% or more. While legitimate debt settlement companies typically negotiate your balance scam companies offer empty promises, take your money and run!

One debt settlement scam that is gaining in popularity is the no hassle enrollment plan. This occurs when the company in question wants you to enroll in one of their plans over the phone, without any type of qualifying process or verification of your actual debts. Of course you have to pay a membership initiation fee and, most likely a monthly fee while they review your finances. If you decide not to continue in the program, too bad, there aren't any refunds.

Another popular debt settlement scam is one in which the company tells you that your creditors have agreed to the repayment plan and they haven't even been contacted. Or the settlement company has sent a letter to the creditor telling them the payments are being held in a trust account and have to reach a certain balance before they'll be paid. The consolidation company comes up with a monthly payment that the consumer pays them every month. A good chunk, as much as $50 to $100, goes to the settlement company as service fees. The money is held in a "trust" account until the balance reaches a certain level.

The consolidation company then pays the creditor. But if the creditor hasn't agreed to this plan, and most won't, they can continue to collect on the debt through whatever means legally available.

This type of plan could only make matters worse, because most creditors will not wait that long to receive full payment. In all likelihood, they could still take you to court.

Be aware that debt settlement is not the same thing as debt consolidation, or debt counseling.