Todd Eastman's Mortgage Matters and More!

Eradicate that unsecured credit card debt.

Nobody likes credit card debt, but sometimes it is necessary.  Recent studies have shown that Americans spend $104 dollars for every $100 they make.  This is resulting in another statistic that shows that the average American has over $8,000.00 in credit card debt. If this is you or one of your clients, there are some things you can apply to your course of life to get to the point of being credit card debt free.  There are tons of people that have dug out of this debt ditch and you can too.

Follow these 5 steps to be on your way to being credit card debt free.

1. Stop using your credit cards!  This is the most important step.  If you cannot use your bank card or money you make every month, then that means you need to reassess your budget.  If you simply like using your card, but cannot pay it off every month, you are living above your means.  If this appears to be tough for you, try taking the cards out of your wallet or even cut them up until you can get things under control.
   
   
2. Reduce your interest rates! This is probably the second most important step. If you have lower credit scores you probably will find yourself or your clients with high interest rates, in upwards of 20%.  A good rate is anywhere from 0% to 9%.  A lot of people are scared to call and ask for a lower rate, but remember the person you are calling will very well have the same situation and feel sympathetic to you.  Don't let yourself be intimidated; these people are working all hours of the day so they aren’t someone you have to feel inferior to. If you are a long term customer with a good history, then they should accommodate you.  Tell them you might switch and transfer your balance otherwise, which will hopefully get them into action.
   
   
3. Always pay more than the minimum amount!  Credit card companies have recently moved to something that fascinates me.  They are offering consumers the option to not pay for a month and pay next month.  That is just more interest for you to pay.  Same goes with only paying the minimum.  Remember that the balance is calculated based on a system so that they can extend your payment plan as long as possible to make optimal profit.  If you get extra money, put it towards your card; setup online payments so it is easy for you.  Get a second job if needed, but get rid of that debt.
   
   
4. Stop the credit card offers.  If you know your credit scores are lower, then you are going to get offers for cards with high rates.  If your scores are good, then you will get good rates or 0% balance transfers.  Keep your eyes out for those, but for the most part if you are tempted, get into a company which will eliminate your junk mail or call the three bureaus and make sure they don’t sell your information.  You can search on the web for the numbers to call as well; there are a lot of them.
   
   
5. Consolidate all your unsecured debt.  After you feel that you have a handle on things and the interest rates are better, try consolidating all the debt.  Don’t close out of your other cards either; you could be erasing important history for your credit scores.  Remember there is hope; you have to work at it just like a diet.  A little bit at a time, but start now.  Not only do you lose money with the interest you pay on credit cards, but you lose the potential for future earners where that money could be invested. 

Putting these steps into place will get you or your clients on track.  I know a lot of real estate agents that will call me and say “I have a good candidate to purchase, but they said they have a lot of credit card debt”.  Well put them on this action plan and they will be in a house sooner then they think.  You can also read my Blog about credit reports to help you out with some credit card secrets at: http://toddeastman.typepad.com/todd_eastmans_mortgage_ma/credit_reports/index.html

The Wild World of Credit Scores

Most people, including those of us in the business, do not know a lot about the credit scoring algorithms.  Those are considered industry secrets and intellectual property by the three big bureaus.  That being said, I wanted to demystify some assumptions that you might have had about credit scores and the ways they are determined.  Armed with this information you should be able to go out and make changes to positively improve your scores.

First things first, your income is not taken into account when your score is pulled.  To some people that may seem to be a flawed system.  Bill Gates could have some credit dings that lower his score to say a 620.  Even though he is the richest man in the world, he would be paying in the 7’s for an interest rate. Doesn’t make sense right?  So remember, you can make $30,000 and have 800 scores or make $300,000 and have 500 scores.

Secondly, paying off and closing a credit card completely is a bad move.  The only time this would make sense is if you had a bad history with the card.  Otherwise what you are doing is erasing that good history you had with that card.  Closing a newer card, 6 months old or sooner wouldn’t be so bad, but closing your Visa you have had since you got out of college could be erasing some of the best aspects of your credit.  Remember, your credit score is based on how you can handle debt. So, paying a card in a lump sum and closing it isn’t creating a pattern that the credit bureaus deem to be good debt management behavior.

Third, the simple act of raising your credit card limits could improve your scores.  In our industry, we work a lot with ratios.  For credit scoring, they like to see your balance to limit ratio under 30%, and preferably between 30% and 50%, but not over 50%.  Say your balance is over 50% (or you have a limit of $1,000 dollars and your card balance is at $501).  Assuming you have had good history with the credit card company, it is simple to call the card and ask for a limit increase.  They will perform an underwrite on your account to see if this makes sense to do.  If you want to assure yourself of getting the increase then you tell them you recently got a raise.  They do not cross check this, but remember to make it reasonable because at some point they should’ve gotten a salary from you.  This always ensures a bump up and now you are at a limit of $2,000 dollars, and your balance is still $501.  Therefore, your ratio went from 50% to 25%, which in turn will raise your credit score the next time this is reported.  I have seen this raise scores in upwards of 20 points.

Fourth, try to do your best to limit the amount of inquiries.  An inquiry is when a financial institution pulls your credit.  A way to limit pulls is if you know you are shopping for a car soon, call your lender or pull your credit yourself and then walk into the dealerships with credit report in hand and then when they say we are going to need to pull your credit, you hand them the file and they can look at it right there.  Then if you don’t move forward, there is no pull on your file.  A typical inquiry can harm a score 3 to 5 points.

Fifth, do everything in your power to fight erroneous information or negative information.  If you happened into a collection and finally paid the bill, call the collection company up, put on your sweetest voice and create a story.  You just had twins and you are doing everything in your power to buy a house, but you have this collection showing up and you really, really need a deletion letter to remove this mark from your score and move on with a home purchase.  Sometimes this works, sometimes it doesn’t, but be proactive and try.  You can only be mad at yourself if you don’t try.  I would say in my experience this works 50% of the time. 

Lastly, pull your report every 3 to 6 months.  With your information being out there and all over the internet, you want to make sure nothing funny is happening.  Your credit is your lifeline to good interest rates and if that gets damaged whether it is your fault, your ex-spouse, or your kids, you need to be informed so you can get it fixed right away.  Look into the identity theft prevention companies as well; they will do a great job at protecting your best interests in the credit world. 

Good luck and get those scores up!! We like to see 680 or higher in this industry and a 720 and up is like an A on a paper, so do all you can to achieve that. Your reward will be saving hundreds of thousands of dollars over the life of a loan in interest payments.  Now that is retirement money.

What to do in a slower mortgage market!

One might wonder what it is like to be in the mortgage industry and as a seasoned vet, I can tell you that it is just like any other industry.  We have the highs, (1999-2005) and we have the lows, (late 80's, mid 90's, and now).  We are cyclical like anyone else. 

While you might also wonder how we stay afloat during the hard times, it is really about being consistent and doing what you have always done.  A lot of industry professionals feel the need to adjust and change when the market changes.  While adjusting can make sense, it does not make sense to change your business practices that were working for you before the downward turn. 

What was successful in a good market is still going to work and continue to be successful in a down market. The only difference is that you are just dealing with less consumers that need your product.  It is not that you are doing something wrong; the market has just scaled way back.

I have found from personal experience that it is not wise to sit back and hope and wait for the market to improve.  You have to make sure to keep yourself busy.  That could mean creating that website that you have always wanted or doing what I am doing now and getting into the whole blogging craze.  What better way to directly reach out to your peers, competitors, vendors, and customers than to put it right out there and give them the ability to respond to you.  It is truly an invaluable tool.

Take the slower times to create business strategy for when the market goes crazy again.  Being prepared will help eliminate business that would normally pile up and sit on your desk for hours on end.  Try to reform and reengineer some of your current practices that maybe weren’t working the best before.

Getting organized is one of those things that a lot of people take for granted, but if you are getting hundreds of emails a day and you just throw then all into one folder, you are going to find yourself hunting down emails.  In the end, that wastes valuable time.  Time is so valuable, too; the longer you are at the office ,the less time you will have for your family, friends, and kids.  Organization and time management rule this business.