Here’s the Good, the Bad, the Ugly, and the Loopholes of the CARD Act of 2009.

THE GOOD:

Unexpected rate hikes, over-the-limit fees, and double-cycle billing are a thing of the past. But don’t think for a minute that you can’t get in some serious trouble with your credit if you don’t use your cards properly and follow your companies policies. The rules are hardly simple.

Finance Charges, Interest-Rate Hikes, and Notifications

• No rate increases for the first 12 months after opening an account.
• Rate increases can only be applied to new charges.
• Annual and application fees cannot exceed 25% of your initial credit line.
• No more double-cycle billing.
• A six-month minimum promotional-rate period.
• No more over-limit fees, unless the YOU opt-in.
• No fees to make credit-card payments online or over the phone, unless you make a payment on your due date.
• Must give 45-day notice of pending rate or fee increases or any other significant changes to the original credit-card terms.

GREAT! Right? Well…don’t get too excited just yet. There are some loopholes that the credit card companies found to these rules.

THE BAD:

Exceptions, Caveats, Loopholes:

• Rate hikes are allowed if you’re more than 60 days late with a payment.
• Some banks have already found a way around the rate-hike issue, by increasing card users’ regular interest rates to as high as 29.9% and then refunding a part of that rate for each month that the customer pays on time. Just another reason to pay your bills on time!
• Double-cycle billing, although prohibited, can technically still exist for credit cards that don’t have grace periods.

Credit card companies have already been calling consumers asking them to opt-in for over-limit fees in exchange for lowering that fee, says Chi Chi Wu, a staff attorney with the National Consumer Law Center, a consumer advocacy group. “What they’re not saying is that if people don’t opt-in, the transaction will be denied and they will not be charged over-limit fees in the first place,” Wu says.

So in other words, if you don’t have the available credit on your card, you can’t make a purchase that would put you over your limit. IF you are using that much of your available credit you don’t understand how to use your credit cards properly and should be denied. I know that may sting a little and upset you – get over it, suck it up, and learn to use them properly.

Don’t get discouraged, here are some more GOOD points.

Billing Statements, Payments and Disclosures

• Billing statements must be sent 21 days before the due date.
• Your due date should be the same date each month.
• Payments are considered on time when received by 5 p.m. on the due date or the next business day after a holiday or weekend.
• Payments above the minimum must be applied to the highest-rate balance first.
• Each monthly statement must include information on how long it would take you to pay off your balance if you make minimum payments only and the total you’ll pay, including interest and principal; and how much you need to pay each month in order to pay off your balance in 36 months and the total you’ll pay, including interest and principal.
• Statements must also include a warning that by making only minimum payments you will pay more interest and it will take you longer to pay off your debt, as well as a toll-free number to call if you want to be referred to a credit-counseling service.

THE UGLY (YOU KNEW IT WAS COMING):

Exceptions, caveats, loopholes:

If you make a purchase under a “deferred-interest” plan (such as “no interest for six months,” for example), the company may let you choose to apply extra amounts to the deferred-interest balance. Otherwise, for two billing cycles before the end of the promotional period, your entire payment must be applied to that balance.

“Carrying a “deferred-interest” balance is a risky proposition altogether, says Wu: Unless the balance is paid in full over the specified period, the company will charge all interest retroactively once the promotional rate expires. We think deferred-interest plans should have been banned,” Wu says.

THE GOOD, THE BAD, AND THE UGLY ALL ROLLED INTO ONE:

College Students and Young Adults

• No credit cards for college students unless co-signed by a parent or they can demonstrate “the ability to pay on time.”
• No credit-limit increases if you are under 21 and have a co-signer without that co-signer’s permission. That makes sense and I am sure a lot of parents are in favor of this one. Just wait though co-ed, they are going to go after your parents too!
• No credit-card marketing and freebies on college campuses. BOOO! How else are college students going to get a free toaster, beach towel, and set of beer mugs?

BAD NEWS FOR PARENTS:

Exceptions, Caveats, Loopholes:

• Issuers will likely start appealing to parents to co-sign their children’s credit cards. And the Federal Reserve has specified that issuers have the option of keeping the parent on the hook even after the young person turns 21, Wu says. “If that younger person keeps the credit card for 20 years, the co-signer is liable that whole time.”
• Issuers are not allowed to give out freebies for signing up for a credit card on or near a campus — which still allows them to set up shop near popular off-campus venues and offer freebies to everyone, whether or not they apply.

Most likely if you still get snail mail and read everything your credit card company sends you, the chances are pretty good you knew all this was coming. Credit card companies have been mailing out their change-of-term notices for weeks now.

I hope this helps you wade through the credit card cesspool. I am sure there will be many articles that you can reference in the next few days. Of course, you just got all the best information here!

1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7.  The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. No credit is available if the purchase price of the home exceeds $800,000.
9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
10. A dependent is not eligible to claim the credit.

And you know what the IRS wants you to know about the expanded tax credit.

Your debt-to-income (DTI) is calculated, basically, by taking the amount of money you earn each month versus the amount of money you pay out on your obligations.

The underwriting changes go into effect the weekend of Dec. 12 as part of an update to Desktop Underwriter, the GSE’s automated underwriting system.

“The adjustments reflect careful analysis of a borrower’s ability to repay their mortgage obligation over the life of the loan,” said Fannie spokesman Brian Faith.

Fannie claims that borrowers with scores below 620 are generally nine times more likely to become seriously delinquent than other borrowers. Faith went on to say that, “in modifying loans, we have seen too many borrowers where their other consumer debt has jeopardized their success at home ownership.”

Now, more than ever, is the time to get your credit under control. If you have issues, you need to deal with them now! FICO ‘08 is only going to make things worse for those people who have credit challenges.

According to Sallie Mae, in 2008 the average student carried an average balance of $3,173 on their credit card.

Now that may or may not seem like a lot to you. Young people on their own for the first time need to pay tuition, buy books, buy food, pay their rent – oh and don’t forget about the alcohol (more on that in a minute).

I went to one of my favorite websites to calculate how much interest that would cost and how long would it take to payoff. The numbers were staggering!

I made some assumptions about these students to determine the payoff. First off, I used 9.9% as the interest rate. Not great, but remember these are college students. I also used a payment of 3% of the balance. That is higher than what would seem to be the minimum monthly payment.

Here are the facts: It will take the average college student over *600 payments to pay that card off! They are going to spend $1,204 in interest. That is almost 40% of the total balance.

Sit down before you look at the calculation of $25 as the minimum monthly payment.

OVER $34,000 IN INTEREST AND OVER *50 YEARS OF PAYMENTS!!! That means the average college student will be past the retirement age before they are able to pay off that credit card.

I know credit cards are a necessity when you a cash poor college student. Take a break from the malted hops and clear out the bong resin for just a minute and decide just how long you want to be paying for that pizza you ordered at 3 a.m.

I’m no saint, I was there, but I also knew what the affects of using a credit card were going to be and had to make an adult decision – will you make the right one? Only time will tell…

Facts on college students and drinking.

According to the Harvard School of Public Health’s College Alcohol Study – 44% of college students are classified as heavy drinkers (5 or more in a row for men, 4 or more for women).

The average college student spends $900 annually on alcohol, twice what they spend on books.

159,000 first year students will drop out before they are sophomores due to alcohol and drug related reasons.

I am curious to know what type of credit card debt those 159,000 people have and how they expect to pay it back after having just dropped out of college?

*The calculator used had a max of 50.088 years in both examples used. That means it could really take longer?!

Jack M. Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, and founder of GHR Systems, Inc., a mortgage technology company. Click here for more information from The Mortgage Professor.

A credit report is a report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual’s credit history.

A typical credit report includes the following:

Personal information. This is to identify the individual, hopefully distinguishing him or her from every other individual on the planet. It includes social security number, current and past addresses, and current employment.

Information from public records (states and counties). This includes liens, garnishments, foreclosures, bankruptcies, law-suits and judgments.

Information from collection agencies. This consists of past due debts that have been given to collection agencies to collect.

Information from creditors. This includes the identity of the creditor, the date the relationship began, the current status of each account including the amount outstanding, the maximum line if any, current status of the account, and past delinquencies.

Information about inquiries. This identifies companies that have requested the individual’s file within the last two years, distinguishing those authorized by the consumer and those not so authorized. Only the former affect credit scores.

There are three major repositories of credit information: Equifax, Experian and Trans Union. The information provided by the three is not exactly the same because not all credit grantors report information to all three.

At one time, underwriters with responsibility for determining whether or not a mortgage applicant was “credit worthy” spent much of their time studying and interpreting credit reports. Increasingly, however, this judgment is being based on credit scores, which are derived mechanically from information in the credit reports. Credit scores are discussed later.

Errors in Credit Reports

The credit reporting system is imperfect. Credit grantors, which are the source of much of the information that goes to the three credit bureaus, make mistakes. Some are due to sloppiness, some to confusion over names, and some are intentional. Some lenders deliberately withhold information on timely payments and maximum credit lines to prevent a customer’s credit score from rising, because it might result in losing the customer.

The credit bureaus also make mistakes. They have no financial interest in keeping anyone’s credit score low, but they do have a financial interest in managing their enormous databases at the lowest possible cost. The more common is your name, the higher is the probability that your file contains information pertaining to someone else with the same name – and that information about you has been inserted into someone else’s file.

Errors from credit grantors and credit bureaus are of both omission and commission. An error of omission is a piece of information which should be in your file but isn’t. An error of commission is the placing of information in your file that doesn’t belong there. Whatever the source, errors can adversely affect your credit report. The last section is a guide on how to remove errors.

What Is a Credit Score?

A credit score is a measure of your credit worthiness. The most common credit score is called the FICO score because it was developed by the Fair Isaac Company. The higher the FICO score, the greater the likelihood that the debts of the borrower will be repaid on time.

FICO scores range from 350 to 850. According to Fair Isaac, the median score over the entire population is about 715, with 20% above 780 and 20% below 620. The minimum score required to qualify for the lowest mortgage rate is about 740, but it varies from lender to lender, and often depends on other characteristics of the transaction.

Credit scores have speeded up the process of making loan decisions, and have largely eliminated personal bias and subjectivity in the decision process. The major downside is the possibility of data error. FICO scores are based entirely on information taken from credit reports. If the credit report is contaminated by erroneous or incomplete information, the FICO score will also be contaminated.

In 2006, Equifax, Experian and Trans Union set up a rival credit scoring system, VantageScore, in competition with Fair Isaac’s FICO. Vantage Score uses a scale that ranges up to 1,000, with 900-1,000 representing an “A” credit, 800-900 a “B” and so on. This type of ranking is akin to that used in academic tests, which may make it intuitively more appealing to users. On the other hand, having two different scaling systems could result in confusion. A score of 750 is an “A” with FICO but only a “C” with VantageScore.

Will the Passage of Time Improve Your Credit Score?

The Federal Fair Credit Reporting Act puts father time on your side by setting limits on how long negative information can appear in consumer credit records. Once a piece of information has been on a consumer’s record for the prescribed period, it is supposed to drop off. Once off, it will no longer affect your credit score.

The prescribed periods are as follows: inquiries about you from credit grantors, 2 years; late payments, mortgage foreclosure, collection accounts and chapter 13 bankruptcy, 7 years; chapter 7 bankruptcy, 10 years; unpaid tax liens, forever.

Even before negative information drops off a credit report, credit scoring will give it lower weight as it ages. However, this doesn’t do borrowers any good unless they generate new positive credit information. Old bad stuff plus recent good stuff generates a rising credit score. Old bad stuff followed by no credit activity results in a continued low score.

Will Paying Off Delinquent Accounts Improve Your Credit Score?

No. Delinquencies reduce your credit score because they are viewed as evidence of a weak commitment toward meeting your obligations. This evidence of your attitude toward debt is not wiped away when you repay the delinquent loans. They stay on your record for 7 years. However, their weight in your credit score gradually declines with the passage of time, provided your recent payment record is better.

Do Credit Inquiries Hurt Your Credit Score?

Credit inquiries reduce credit scores because credit scorers have found that multiple inquiries are associated with high risk of default. Distressed borrowers often contact many lenders hoping to find one who will approve them.

But multiple inquiries can also result from applicants shopping for the best deal. To avoid catching shoppers in their net, credit scorers ignore auto and mortgage inquiries that occur within 30 days of a score date. To avoid biasing the credit score from earlier shopping episodes, the scorers treat all auto and mortgage inquiries that occur within a 14-day period as a single inquiry.

The upshot is that credit inquiries will not significantly impact your credit rating if you do all your shopping in a short period. Since the market can change from day to day, this is the only effective way to shop anyway.

Consumers should not be concerned about inquiries they make, such as ordering a credit report. Self inquiries don’t affect the credit score. Neither do inquiries from your existing creditors, potential employers, or businesses considering whether or not to solicit you. The only inquiries that affect credit score are those by new credit grantors who you have explicitly authorized to check your credit.

How Much Debt Is Too Much?

The two major components of a credit score, which on average account for 2/3 of the total score, are payment history and amounts owed. Where the first is a record of how well you have met your obligations over the years, the second is a snapshot of your indebtedness right now. If your credit history is short, your current indebtedness can be the most important factor determining your credit score.

The approach that FICO credit scorers use to determine whether you are living beyond your means is to compare the outstanding debt on each of your accounts with the maximum amount of debt that the credit grantor has set for you on that account. This generates a set of “utilization rates” for each of your accounts.

For example, if you have two credit cards with maximum balances of $4,000 and $5,000, and if the actual balances are $3,000 on both as of the most recent date of record, the utilization rates are 75% and 60%.

Other things the same, the higher the utilization rates, the lower the FICO score.
[Note: Don't run out tomorrow to open some more lines, so your balances can be spread over a larger number of accounts. The FICO genie has a strong distaste for multiple new accounts in a short period of time, which can be an indicator of financial distress.]

Consumers should be aware of potential problems in connection with the utilization rates that affect their credit score. The data on debt balances as reported by credit grantors isn’t always correct. Furthermore, for various reasons, credit grantors do not report maximums on all revolving accounts. Where no maximum is reported, the largest balance ever to be reported on the account is used in its stead. Since the highest balance is below the maximum, often substantially below it, this necessarily results in higher utilization rates for such accounts.

Before going into the market, it is a good idea for consumers to check their balances and their credit limits. If an account has no reported limit, you can either ask the credit grantor to report the limit, or terminate the relationship. In the unlikely event that the credit grantor won’t report the limit but you want to maintain the relationship anyway, you can shift all your balances into this account temporarily so that the highest balance comes closer to the unreported maximum, then quickly reduce them.

What Is a Delinquent Payment?

A delinquent payment is one that is 30 days or more past due. This is not the same as a late payment, which is one received beyond the grace period granted by the lender. If a mortgage payment due on the first of the month is received on the 20th, for example, it is late and will incur a late charge, but it is not delinquent and will not appear as such on the credit report.

Don’t Try to Skip a Mortgage Payment

A single skipped mortgage payment can mushroom into a cascade of delinquencies if you don’t cure it immediately.

Under the accounting rules used for amortized mortgages, lenders always credit a payment against the earliest unpaid obligation. If you skip your payment in April, you will record one delinquency. If you make your payment in May, it will be applied to April, making you delinquent for May as well. When you make your payment in June, it is applied to May, making you delinquent for June. The delinquencies accumulate until the skipped payment is made good.

Copyright Jack Guttentag 2006

No one knows when there may be an accident, a loss of a job – especially in today’s volatile economy – unexpected health issues, or any other unfortunate event. You need to establish a cushion so that you can offset any decline in income. I am going to say that again. You need to establish a cushion so that you can offset any decline in income!!!

If you are taking out a new loan to cover your expenses until the next pay check, like a pay day loan, you are in what some would say to be serious trouble. Before you incur any debt, it is best to set aside a sufficient cushion that can be readily accessed in case trouble arises.

If you start missing payments on your mortgage, car loan, or credit cards, you can watch your credit score tank faster than the Titanic (which I just watched last night).

Credit scores were designed to “predict the statistical likelihood of a consumer becoming 90 days late or more on a particular obligation.”

Credit scoring models lend more weight to your recent activity rather than to the mistakes you have made in the past, you can change your habits right now and begin re-establishing yourself as a good credit risk. This will greatly increase your chances obtaining new credit or a refinance loan 6 to 12 months down the road. If you are hoping to qualify for the $8000 Tax Credit there is not much time left…SO GET MOVING!

Here are a few Do’s and Don’ts when it comes to rebuilding your credit.

Three months prior to securing new credit, like a mortgage, DON’T apply for, close, or pay off any collections, charge-offs, loans, or other kinds of credit without speaking to a professional first. Any one of these actions, as innocent as they might seem, could seriously affect your credit score, adding significant costs to your mortgage should your score suddenly drop.

If you have any credit card accounts with excellent credit histories, DO use them. But use them strategically. Keep your balances around 10%, and NEVER, above 30% of their limits 3-6 months prior to entering into a loan transaction. Use them only for small purchases that you can easily pay off completely at the end of the month. Remember, creditors like to see evidence of stability, so the goal is to keep the good reports coming month to month without falling into the same financial traps that led to credit challenges in the past.

If you don’t have a credit card, DO get a secured card immediately. This is a great way to rebuild or establish credit quickly. Because this account is secured by funds that you deposit (typically between $100 and $400) you’re not seen as a great risk to the card issuer because of your initial investment. Again, use this card strategically to build a strong credit history. Pay your bill on time every month, and it won’t be long before you qualify for an unsecured credit account.

For some, opening a credit account with a co-signer could be a better alternative, but it’s important to note that both you and your co-signer are equally responsible for any activity on this type of account, good or bad, so this strategy could backfire in the end if you or your co-signer makes poor decisions. DON’T mistake authorized-user for a co-signed account.

Finally, DO monitor your credit. If you don’t know how – click on the FREE!!! Credit Score Guide to learn.

Here is my response.

Janet,

The simple answer is Yes and No. Let me explain.

Yes – If the item is a satisfied account, such as a collection or charge-off, then it should fall off after 7 years. Items can remain on your credit report for longer than 7 years, if so, dispute the accuracy with the credit bureaus and they will have to remove it per the FCRA (Fair Credit Reporting Act).

No – If the item has not been satisfied, such as an open collection account, then it will remain on your credit indefinitely. The statute of limitations for the company to collect on the debt may run out, however, it will stay on your credit report.

Good accounts will remain on your credit forever. You want this. Never have good standing accounts removed from your credit report. It would be like getting an A removed from your report card.

If you have any other questions or a follow-up question please feel free to contact me. Have a great weekend!
–
“Creating a Fantastic Day!”

Benjamin Kruell
Nationally Recognized Credit Expert

My Goal: To help you understand what is on your credit report, how it affects you, and what can be done to improve your capabilities.

Please visit 720creditguru.com for great credit tips and information.

A short sale just suggests that your outstanding mortgage balance is more than the present market value of your home. Homeowners undergoing financial hardships and facing impending foreclosure frequently choose a short sale for the intention of preventing the foreclosure proceedings. At present, this is exactly the condition all over the United States, where the subprime mortgage market meltdown has resulted in a record number of foreclosures and substantially lowered real estate prices.

A short sale happens when the lender is ready to receive a lower amount than what you are obliged to repay them since you do not have adequate equity for selling the home and making payments for all the expenses of the sale. You must make it very clear that the lender should agree or you are unfortunate.

The Impact on Your Credit Report

The extent of damage caused to your credit report by a short sale is much less than a foreclosure. When your financial problems are sorted out following a foreclosure, it would take more time to reinstate your credit rating. On the whole, this is what takes place:

1) Mortgage Foreclosure or Deed In Lieu of Foreclosure

Frequently, this signifies a deduction of about 200-280 points from your FICO score. A FICO score of 675 can slump to as little as 395 and this basically hinders you from future credit sanctions. It might be as extensive as 7 years before you might be eligible for another mortgage loan.

2) Short Sale

You can anticipate that short sale would spoil your credit score, but not like foreclosure. You can lose about 75-125 FICO points and it would be demonstrated in your credit report enumerated as a “pre-foreclosure in redemption”, which is not so detrimental. It is most likely that you can obtain a new mortgage loan within 1½ to 2 years.

Whatever the case may be, it is always advisable to seek guidance from a CPA or tax accountant, an attorney or a realtor who has a lot of knowledge on short sales. They might ask for some fees, but their advices can help you save a lot. Therefore, don’t go alone. Always seek assistance.

A tax credit of up to $8,000 or 10% of the purchase price is at the heart of the 2009 American Recovery and Reinvestment Act (ARRA). According to lending guidelines, a 1^st time homebuyer is someone who has never owned a home, or someone who has not owned or co-owned a house in the last three years proceeding the date that you close on your 2009 purchase.

The tax credit is an attempt by the Federal Government to spur a flurry of home buying in 2009. According to Lawrence Yun, chief economist for the National Association of REALTORS®, he predicts homebuyers will purchase an additional 300,000 homes in 2009 as a result of the tax credit. “The impact will likely not be felt for at least three or four months, because it generally takes buyers that long to qualify for a mortgage and search for a home,” says Yun.

Gibran Nicholas, chairman of the Certified Mortgage Planning Specialists Institute (CMPS), which certifies mortgage banker and brokers, said his group was in favor of a more generous tax credit. “This tax credit is more of a half-step, but at least it is in the right direction,” says Nicholas.

Here are some of the rules for the 2009 ARRA first-time homebuyers’ tax credit:

• Does not have to be repaid, unless the home is sold within three years.
• Applies only to first-time homebuyers, defined as those who have not owned a home within the previous three tax years.
• Available only for homes purchased between Jan. 1, 2009, and Dec. 1, 2009.
• Restricted by income; phases out for individuals with an adjusted gross income of $75,000 or above and for married couples with a combined adjusted gross income of $150,000 or above.
• Tax credit is for up to 10 percent of the purchase price.
• The credit can be taken on 2008 taxes even when the purchase is made in 2009.

According to the 2009 ARRA, the house you buy must be used as your primary residence. Sorry investors and second home buyers. According to IRS rules, houseboats, house trailers, cooperative apartments and condominiums are acceptable.

If you bought a home in 2008 using the $7,500 tax credit, you will have to repay that credit, or loan as it were, over the next 15 years with no interest. However buyers in 2009 will reap the benefits of the 2009 ARRA first time homebuyer’s tax credit by not having to repay the $8,000. You will have to pass most of the eligibility requirements imposed under the 2008 program and those listed above.

So that means that only those buyers who close between January 1^st and December 1^st of this year will qualify for the new, no-repay credit.