Out and About Yukon and OKC : January 2011

Credit reports. We all have them. They became so important in our lives. The score either rewards us financially or can bite us in the pocket....

It seems like every business decision in based on our credit report rating.

Are we credit worthy? How our credit report will affect our pocket? From lenders, creditors, insurance agencies to landlords and such - almost everyone has the right to access our credit report file.

There is so much confusion and plenty questions about who can access our credit, what inquiry affect my credit score, can I monitor my credit and many, many more...

As a real estate consultant I work with a lot of consumers who depend on a good credit. I thought I would share some interesting information I read on one of the credit websites. Let's start with inquiries. Hope you will find the information helpful ...

ALL ABOUT INQUIRIES.
We all have them. Most of us aren't sure where they came from or how long they are staying. No, we're not talking about in-laws! We're talking about inquiries on our credit reports. Inquiries are one of the most confusing and least understood aspects of the credit reporting system.

What are inquiries
An inquiry is a record of someone checking your credit information. Inquiries come in two distinct categories: "hard inquiries" that occur when a business views your credit report for the purpose of an application and "soft inquiries" that occur when your credit is checked for other reasons. If you apply for a new credit card, a hard inquiry record will appear on your credit report and may impact your credit. When you check your own credit report, or when it is checked for a pre-approved marketing purpose, it is considered a soft inquiry and will not harm your credit score.

Will checking my own credit harm my score?
Checking your own credit data online through a service like TrueCredit will not harm your credit score. You can check your credit regularly or can sign up for a monitoring program to automatically review your data without worrying about causing any damage to your credit score.

Why are inquiries recorded?
Inquiries are recorded so that potential creditors and lenders can view how often you have applied for new credit. Potential creditors may think you are trying to spend beyond your means if there are too many inquiries on your credit report. You can still shop around for a loan; multiple inquiries for the same purpose in a short amount of time are commonly grouped into one less harmful inquiry session. Inquiries are also helpful for consumers because they can notify you of a potential identity thief applying for accounts in your name.

How long do they last?
Most hard inquiries remain on your credit report for two years from the original placement. All inquiries must stay on your credit report for at least a year. You are allowed to dispute inquiries on your credit report, but it can be difficult to prove that the inquiry is indeed inaccurate. If you are unsure of where an inquiry came from, try contacting the company listed before sending off a letter of dispute.

Who can place an inquiry?
According to the Fair Credit Reporting Act, only people with legitimate business needs can access your credit information. This includes creditors, lenders, insurers and landlords who need to review your credit as a part of an application process. Each inquiry record will only appear on the credit report that was checked for the application. For example, if a lender checks your TransUnion credit history to help determine your rates, this inquiry record will only appear on your TransUnion credit report.

How can I limit who makes inquiries?
You may request that consumer reporting agencies do not distribute your name on lists used by creditors and insurers to make unsolicited offers of credit and insurance. Requests can be made by telephone or in writing by filling out a form available from each credit reporting agency.

Phone - Call (888) 5-OPT-OUT to notify all three credit bureaus (Experian, Equifax, and TransUnion) that you wish to opt-out of pre-screen offers. Telephone requests last for two years.

Online - Opt out of pre-approved offers of credit or insurance at www.optoutprescreen.com. The level of opt-out permanence can be chosen on the site.

Mail - Opt out of pre-approved offers of credit or insurance via written request using the following address:

TransUnion Name Removal Option
P.O. Box 505
Woodlyn, PA 19094

Written requests are permanent.

 

Source: TrueCredit.com

4 Tips to Determine How Much Mortgage You Can Afford

By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.

1. The general rule of mortgage affordability

As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.

To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. Factor in your downpayment

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home's cost, you may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

3. Consider your overall debt

Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.

Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in our example.

4. Use your rent as a mortgage guide

The tax benefits of homeownership generally allow you to afford a mortgage payment—including taxes and insurance—of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calcuation instead.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

Source: G.M. Filisko. G.M. Filisko is an attorney and award-winning writer who’s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.