Why It’s Important to Have Good Credit

tums.jpgA few days ago I opened a new checking account for a very nice lady that came in asking about our free checking accounts. As I was talking with her about her lending needs, she asked me about “the loans that let you make flexible payments”, AKA home equity lines of credit. I was telling her about how they work; the minimum payment is interest only, so if you only pay the minimum payment you won’t get anywhere, but if you pay the amount you pay now on your mortgage, everything above the minimum payment goes towards principal. She thought it was a great idea, she’d be paying less than she pays for her mortgage payment each month, and it would free up some money for her and she’d be not as strapped for cash each month. I put an application in for her.

Declined.

I was a little taken aback, until I looked at her credit report. Her credit score? 494. That is the lowest credit score I’ve ever seen! I took a look and realized why it was so low. She had been 60 days late on her mortgage 3 times, and 90 days late 9 times. I was shocked. When I called her to let her know the decision, she acted surprised. I asked her if she had been late on any of her payments lately. She told me she’d been late a few times. A few times?? How can you be 90 days late 9 times?

This example is a perfect example of one of the sub prime loans and why it is a good idea to not get into a mortgage payment you can’t afford, and also why it’s important to make your payments on time. Because of her being late so many times, her credit score is trashed. I feel sorry for her, but on the other hand I don’t. She is the one that got herself into the situation, and she’ll have to get herself out.

Do you feel sorry for people like this who have overextended themselves?

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Smarty Pig®: Simple. Smart. Savings.®

Smarty Pig is a new idea, started by two individuals, Mike Ferrari and Jon Gaskell. The basic gist of it is this: you want a new ipod, a Hawaiian vacation, a new bike, etc. First you start a profile on the site, then you establish your savings account and goal, and figure out your monthly contribution. Then you have the option to share with friends and family your savings goal so they can track your progress and make donations if they would like. Start saving, and before long you’ll meet your goal!

There are no fees, you earn interest on your balances, and it’s FDIC insured, just like a high yield online savings account. What a great idea! The minimum savings goal is $250, and the maximum is $100,000. To get the account started, there has to be a deposit of $25 made to the account. Interest accrues daily but is posted quarterly. Once you reach your savings goal, you can request a Smarty Pig MasterCard® Debit Card which has the funds loaded on that you’ve saved up. You can then use your card to book your vacation, buy your bike, or do whatever you’d like with it. You also have the option to get a retail gift card to a retailer and get up to 5% additional boost on the money.

I wouldn’t recommend using Smarty Pig as your emergency fund. I think you should have your emergency fund easily accessible to you at all times. After all, that’s why it’s called an emergency fund!

There are a few points I did not like: you can’t stop the transfer once you’ve started it, but you can change the funding source. <s>There is a $25 fee if you would prefer a check be mailed.</s> They have done away from the $25 fee for a check! I think this shows how wonderful the people are at Smarty Pig. They heard people didn’t like the $25 fee for the check, so they did away with it. Great job, Smarty Pig!

Otherwise, there are no monthly fees. I think Smarty Pig is a great idea for anyone who is trying to save for a goal. Give it a shot!

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What Your Bank Doesn’t Want you to Know about Lending Standards

dv630003.jpgIt’s no secret that since the economy took the plunge banks have started tightening up on their lending standards. Many people are excited about lower rates, but just exactly how many of them can get approved for a loan in this economy?

In February of this year, many banks were still lending at 100% loan to value (LTV). Basically what this means is that they would allow you to tap into more equity in your home, but it would cost you a higher rate than if you went with the standard 89.9% LTV.

For example, if your house is worth $300,000, and you don’t owe anything on it, before you would have the possibility of a Home Equity Line of Credit or a Home Equity Loan of $300,000 if you wanted to go 100% LTV. Today, the most you could borrow out of your home’s equity would be $269,700, which is 89.9% of $300,000.

The reason banks are doing this? To cover their assets. I know many banks went crazy lending money to anyone who wanted it about 1-2 years ago. Now they are seeing the repercussions of this in today’s economy. Banks were lending too much money and consumers just couldn’t handle it. Here came the foreclosures.

If you were to go into the bank today and ask about home equity lending, you would probably be asked a couple questions: how much do you think your home is worth, and what is the total amount of any mortgages on the property? From there, the banker would tell you what amount you could get financing up to.

Banks are using the same lending procedures for auto loans, unsecured loans, and lines of credit. If you don’t have good credit and a good income, you’re probably not going to get approved. Use common sense when you are applying for any type of loan. Make sure you ask questions first before you sign. If you have any questions about lending, I’d be happy to help!

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