Lowered Credit Card use

I was surprised, and happy, I’ll admit to read in Yahoo Finance that more than 8 million consumers stopped using credit cards in the last year.

Written by Eileen Aj Connnely, an AP Personal Finance Writer, the article details the decline as

a combination of consumer choices and bank actions.  [bank actions being lowered available credit and closed accounts]

And, she goes on to say

TransUnion found . . . the use of general purpose cards such as MasterCard and Visa, Discover and Amex, fell more than 11 percent in the third quarter of 2010, compared to the third quarter of 2009.

While I was in the business of finance for many years, in residential mortgages and securities finance, I found the overuse of credit cards to be frequent in homebuyers, so I’m happy that the American population has found a way to ‘just say no’ to instant gratification.

Are you sure you want to do that?

The worst case I ever saw was a purchaser who had NO money for a down payment or closing costs, so he was going to have the seller pay the closing costs and he wanted to make the down payment WITH A CREDIT CARD.

He did not take it kindly when I suggested perhaps he could not afford rental property if he was going to put it on his VISA.

Reduced Debt at Year’s End?

Well, some of the population has slowed down.  We’ll see what is reported for the fourth quarter, after everyone buys Christmas.

Read the full article at More than 8 million drop out of credit card use

Higher credit scores needed for FHA Loans

FHA guidelines we’ve been told to look forward to in the Spring are

  • The requirement for higher credit scores to qualify for the low down payment option. In fact, scores under 600 may knock you out of the running immediately; and it isn’t just FHA loans, it is also conventional mortgage loans.
  • Higher mortgage insurance premiums. The upfront mortgage insurance premium will go from 1.75% to 2.25%.
  • Fewer seller concession. Historically six percent seller concessions were acceptable across the board, FHA and conventional. Now the FHA is expected to allow only a three percent contribution from the seller.

So, in order to get a mortgage, you’re going to need more cash (higher down payment and covering the closing costs with reduced assist from the seller) and, maybe even more importantly, a higher credit score. Look for articles on upping your score here in the next few weeks. We’re doing a ten part newsletter called “Credit Score Survival for the American Consumer”.

As for having more money . . . Well, we’re all working on that one, aren’t we!

Credit Card Reform of 2010

Today a law goes into effect that could actually help your financial profile.  The credit card reform laws are designed to protect consumers, and they may in fact do so.

  • A newly opened account must keep the opening interest rate for 12 months; if it changes after the first 12 months, it is only for future purchases, not the balance you may be carrying for your first year’s purchases. Delinquencies on the account, hardship arrangements on past dues may be exceptions, so pay those bills on time.
  • College kids will find it harder to get credit (HOORAY). You’ll probably need a co-signer or a job that will pay enough to support your bill.
  • Over-limit fees are out of the ballgame unless you opted to have the protection and consent to pay for it.
  • If you don’t like the new terms on your credit card, opt out of the contract. They can close your account, but you will be given options regarding paying off the debt.
  • Changes to the terms of your agreement must be given to you 45 days in advance, instead of the previous 15.
  • Your bill is now due on the same date every month. No more calculating billing period from month to month!
  • Universal default, raising your interest rate on one card because you were late on other bills, is out the door.
  • Statements must be mailed 21 days ahead of the due date.

These are very positive changes to the way the American Consumer has been treated in the past. Use the assist wisely!

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