Nope, I’m not selling anything. And please, don’t send any money. Instead, consider spending $25 or so with your checking account. Here’s why:

How Credit Scores Work

Your credit score is a reflection of the way you handle debt. It is NOT a measure of your income — rich people often have lousy credit and the poor can have great credit.

Fair Isaac, a major credit score developer, says on its MyFico site that there are five major considerations which go into determining a credit score.

1. Payment history — 35 percent
2. Amounts owed — 30 percent
3. Length of credit history — 15 percent
4. New credit — 10 percent
5. Types of credit used — 10 percent

The list above is like a credit scoring road map. It tells you that the greatest good comes from paying bills on time and in full. You get points for having credit that you don’t use — that is, if you have $10,000 in credit and use $3,000 that’s good, if you have $10,000 in credit and use $9,800 that’s bad. The longer you have accounts the better.

Credit Reports

An important point about credit scoring is that it reflects only the items shown on your credit report. For this reason it’s important to check your credit report to assure that all entries are factually correct and not out of date. Generally, items stay on a credit report for seven years but some items — such as a bankruptcy — stays on a credit report for 10 years.

You can get three copies of your credit report every 12 months, FREE, and without the need to purchase any kind of add-on service by going to AnnualCreditReport.com. If you go to this site every four months you will be able to check your credit status easily and without charge by using a different credit reporting service each time. This site has been, er, encouraged by the Federal Trade Commission and is worth looking at for credit report information.

The Real World

Credit scoring and credit reports reflect factual events — what you owe, when you pay, etc. The catch is that you are not always the master of your financial universe and the credit system does not reflect how credit events occur, especially negative ones.

Imagine that you pay bills with checks. You pay bills knowing that there’s a given balance in your checking account. But suppose one of your deposits bounces. As a result several of your checks are returned. You now have bank fees to pay AND you may have missed due dates for several bills. Those missed due dates can set off a separate bunch of late fees and charges, especially with credit cards.

In terms of credit reports this is not generally an problem. Why? Because credit reports only show items which are at least 30 days late. However, if the bounced check was big enough and remains unpaid for enough time it could impact your account for days if not weeks — and perhaps trigger a 30-day late.

A Credit Strategy

So, what to do? The answer works like this: Go to wherever you maintain your checking account — your bank, credit union or S&L — and get overdraft protection. This is essentially a line of credit attached to your checking account.

It will likely cost some money, say $25 a year, and the amount you can get will vary depending on your credit status and relationship with the depository institution.

If you then have a situation where a deposit to you bounces or a payment is delayed, any unexpected shortage in the account up to the limit of the line of credit will be instantly and automatically covered. This means no late charges for credit cards or mortgage payments, no bounced check fees from the bank, etc. You pay back the line of credit with interest as soon as the bounced check is covered or a payment to you is received. Because the line of credit advance is only outstanding a short time the interest cost is likely to be minimal.

Equally important, once you get a line of credit for your checking account be sure to never use it. Think of it as a life raft, something needed only if you’re drowning.

The result of having a line of credit for your checks is that you now have a new credit account — and you have credit that you’re not using. That should be very good for your credit score over time.

How To Raise Your Credit Score For $25 is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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But in this case, what’s happened is this: Out of the blue and without any other notice our lender has cut off our home equity line of credit (HELOC). Why? Nope, we haven’t missed a payment. It’s because our lender says the value of our property has fallen.

Committed Lender?

The letter was received yesterday, April 6th, explaining that our lender is “committed to helping customers achieve and sustain homeownership, and we’re doing everything we can to help homeowners ensure that they don’t borrow more than their home is worth.”

It should be fairly obvious that the party being helped here is the lender. If the borrower can make their payments — and we make ALL of our payments in full and on time — then just like a first mortgage there’s no issue for the lender. As the lender’s letter says, “we appreciate that you have handled your home equity loan account responsibly, and want to make sure you know that this change is occurring because of the significant decline in your property value.”

However, with a home equity line of credit the rules allow lenders to ignore payment patterns and block or reduce credit lines if there’s been a significant fall in property values. Given that home values nationwide are down 13.2 percent since April 2007 according to government figures, it’s easy for lenders to claim that equity has fallen enough to justify cutting off cheap financing.

Consumer Imbalances

So what’s wrong with this system?

First, the cut-off date was March 5th — and the letter was received April 6th. Potentially, all checks written against the account for the past month could bounce. In other words, notice arrived AFTER access to the account was cut off. You can guess how many attorneys represented borrowers when this rule was made up.

Second, you can appeal the lender’s decision by getting an appraisal at your cost from their appraiser. However, even if the property’s value is higher than the computer model used by the lender, the letter does not actually say how much equity you need to reinstate the loan. Do you need 20 percent? Thirty percent? Fifty percent? You need to know both the equity value of your home and the acceptable loan-to-value ratio. The second figure is not disclosed and can be whatever the lender wants.

Third, many people paid an up-front fee for their home equity loan based on the size of the line of credit. Obviously if the amount of credit has been reduced the cost for the line should also be lowered but you can bet that no check is in the mail.

Fourth, and lastly, you have to wonder how many lenders are reducing low-cost home equity lines of credit — while increasing limits for high-cost credit debt from the very same borrowers.

The whole point of a line of credit is to have funds instantly available in the case of an emergency and for other reasons. Otherwise, why bother? Is it any wonder that of the 10 most disliked companies in America, seven are financial giants?

The Mortgage Modification That Hurts Borrowers is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: appraisal, credit card, cut off, delayed notice, HELOC, home equity, line of credit, loan to value ratio, LTV, mortgage modification

Earlier this year the Federal Reserve explained that there were several conditions under which banks could reduce or freeze HELOC loan limits including a decline in the value of your home or a change in your financial circumstances.

The government says that “your lender must reinstate your credit privileges when the conditions permitting the freeze or reduction no longer exist. You may need to put in writing your request to have your line of credit reinstated. Once your lender receives your written request, they must promptly investigate and determine whether your HELOC can be reinstated.”

Of course, to get your HELOC loan limit back to where it was the lender has the right to charge you a fee. The Federal Reserve says “your lender may charge you fees to cover the costs for an appraisal and credit report when they consider your request for reinstating your HELOC. Your lender cannot, however, charge you a fee to reinstate your credit line once the condition that caused them to freeze or reduce your HELOC no longer exists.”

Why then would a lender restore any line of credit until a borrower makes a request for restoration? Once the request is made then the lender can change fees to consider the matter — and there is no requirement that the request will be granted.

The case was filed on behalf of Pascal Majon, 30, of Zion, Ill., who claims Chase denied him access to his HELOC account due to a purported substantial decline in the value of his home. In reality, alleges his law firm, KamberEdelson LLC, Majon’s home did not decline in value.

Mortgages: Lender Cut-Off Goes To Court is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: HELOC, home equity, JPMorgan Chase, line of credit, mortgage, Pascal