Archive for the ‘When it Comes to Borrowing Money…’ Category

How Financial Mistakes damage a Credit Score

In When it Comes to Borrowing Money... on November 4, 2012 at 5:17 pm
 Nobody knows exactly how a FICO score is computed except for the people who do the computing. It is often said that FICO guards their formulas as zealously as Coca-Cola guards the formula to its soda. The reason is simple, it’s a trade secret, and an extremely valuable one. Just like the recipe for KFC chicken.
But in the fall of 2009, amid the public anger directed at the credit and financial industries, FICO disclosed for the first time ever the numeric effects that things such as bankruptcy and missed payments have on a FICO credit score. Until then, FICO never would reveal just how many credit score points a person stood to lose for even the most common financial mistakes.
According to one news report, FICO disclosed that a person with a credit score of 680 would see their score drop by the following number of points based on the following mistakes:
Bankruptcy – 130-150 points
Foreclosure – 85-105 points
30 days late on a payment – 60-80 points
Debt Settlement – 45-65 points
Maxed out credit card – 10-30 points

Banks still giving out Unaffordable Mortgages

In When it Comes to Borrowing Money... on October 12, 2010 at 5:35 pm

Will they ever learn?
  The biggest cause of 2008’s financial meltdown, we are told, was mortgage loans not being paid back. Our leaders and media tell us that all those mortgages being defaulted upon nearly caused another Great Depression.
Well, there must be something really attractive about giving mortgage loans to people who can’t pay the money back. Because apparently, it’s still happening. It’s nearly 2011, and I am speaking to people who are defaulting on mortgages they got after the economy collapsed in fall 2008 — from all the defaulting mortgages. 
  For example, there was a man named John who got his mortgage in January 2010. This man has never made even one payment on this loan because he simply has never been able to afford it. The budget we put together shows his monthly expenses are $1,000 more than his income. John told me that now, 10 months after taking on this debt, he is actually making more than when he got the loan. His finances were even worse when the bank gave him the money!
  Another client named Donna told me how she is planning to refinance her condo, and how the mortgage broker setting her up with the loan plans to submit income statements she filled out five months earlier, back when she had a second job. Donna had always relied on that second job to live, but she was laid off from it in the time since getting approved for the loan. She told me the broker assured her there would be no problem; the bank giving her the money wouldn’t request up to date proof of her income.
The payment on the new mortgage would be $1,200; her income from the one job is $1,600. Donna is actively looking for another second job, but if she takes out this loan, and doesn’t find another job quick, she’ll probably default, possibly follow John and never make a payment.
  My last example is a woman named Margo who got her mortgage in the winter of 2009 when the stock markets were in a tailspin. In the year and a half she’s had the mortgage, she’s made only 10 payments. She made the first five payments on time but then she started to be late or miss payments altogether. The payment on her mortgage is $900; her monthly income is $2,000. Margo’s budget shows that her expenses are $100 more than her income. And nothing about her finances had changed since she got the mortgage, she told me.
  “I was really surprised they gave it to me,” she said.
  So if you’re in the market to get a home loan, be sure you know the most you can afford in a monthly house payment. Because as you can see from these examples, the person setting you up with the mortgage isn’t going to tell you.
  Just a thought…current and former Federal Reserve Chairmen Ben Bernanke and Alan Greenspan, along with all the CEOs in the banking industry say there was no way to forsee the disastrous effects of the mortgage meltdown, or to know there was even a problem.
Perhaps they read this blog.