Disguised credit card statements: How “junk” mail can destroy your credit

January 27th, 2010

Gina Roberts-Grey
Jan 19th 2010 at 12:00PM

The next time you’re sorting out your mail, you’d better give everything a thorough scan before tossing out what appears to be junk mail. Some credit card issuers are sending cardholders their statements in plain white envelopes that appear to be nothing more than a solicitation — or junk. And since the average American throws out their fair share of junk mail, many don’t realize they could be tossing their credit score right into the trash. Redesigned envelopes are absent of the bank or creditors logo. Something card holders say they look for when sorting their mail. “I threw away the statements month after month because I thought it was just junk. It looked like all the other junk solicitations I get and who has time to open up and scrutinize all that junk mail,” says Meryl Brown of Tulsa.

Sure, statements that don’t look like statements can cut down the chances your credit card bill will be swiped out of your mailbox by an identity thief.

But experts say consumers should worry about another problem related to the statements that are hiding in plain sight. And that the envelope makeover can lead to big credit troubles. Brown agrees. “I incurred late charges because by the time I realized I hadn’t paid my bill one month, the payment was late.”

Payment history is responsible for about 35% of your credit score, a missed payment resulting from misunderstood “junk” can be costly.

Betty Reiss, spokesperson for Bank of America, says “Our statements include a notice on the envelope that says “statement enclosed” to alert customers and help ensure that it’s not overlooked.”

Here’s what you can do to keep unmarked bills from destroying your credit score.

Choose a route that’s safer than the Post Office, go paperless. Since most credit issuers provide historical statements online, this also lets you track purchases and expenditures.

Open all your mail, even if you think it may be junk. Yes, it’ll take an extra few minutes, but it could save you more than a few credit points.

Make a list of all of your accounts and monthly expenses. Include the bill’s due dates to remind yourself of when you should be dropping a payment in the mail, or hitting “pay now” to process an online payment.

If you need help understanding your credit contact: www.creditbureauexperts.com

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Credit: Know Your Limits

January 20th, 2010

by Jessica Dickler
CNN Money

You may not spend much time mulling your debt-to-credit ratio, but it weighs heavily on your credit score and can determine your ability to get a loan.

Consumers know all too well that going over their credit limit can mean a nasty fee, a higher interest rate and maybe even a lower credit score.

But few people are aware that merely approaching their limit can have costly consequences as well.

That’s because your debt-to-limit ratio, or “debt utilization,” is a key component of your credit score. Your debt-to-limit ratio is calculated by dividing what you’ve spent by your total credit limit.

If you have a $5,000 limit and you’ve charged $4,000 this month, your debt-to-limit ratio is 80%, which is enough to signal to lenders that you are a high risk borrower.

As a result, lenders may increase your annual percentage rate (APR) or deny you a loan - even if you pay off your credit card balance every month and have never exceeded your limit.

About 14% of Americans use at least 50% of their available credit, according to Experian’s 2007 national score index study. But, experts recommend keeping your debt-to-limit ratio under 30%, or even under 10% if possible.

That means if your limit is $5,000, then you should aim to charge less than $500 a month.

The lower your debt-to-limit ratio, the better your credit score will be. And to that end, there are two basic ways to improve your debt utilization: raise your credit limit or lower your debt.

Raise Your Limit, Lower Your Debt

Your credit card limit is listed on your monthly bill, but it can change from one billing cycle to the next. That’s because credit card issuers can raise or lower your limit as they see fit.

But even though credit card issuers generally dictate what your limit is, consumers do have a say. You can call and request that your limit be raised, as the more available credit you have, the better your debt-to-credit ratio will be.

“If you have a good credit history your credit card issuer will up your limit, but if your history isn’t great then they can say ‘No,’ which isn’t necessarily a bad thing,” according to Bill Hardekopf, CEO of LowCards.com.

“Getting turned down for a higher credit limit may be a blessing in disguise,” Hardekopf said. Chances are it’s a signal that you should reduce your spending or pay down your credit card balances instead.

When paying down debt, it’s important to consider that your debt utilization is calculated per card and cumulatively. That means that leaving one card nearly maxed out will negate all the hard work you’ve done paying down the balances on other cards.

And a higher limit isn’t always better. “If you are a spender and the temptation is there to spend more than what you can really afford, [then a higher credit card limit] can send you into the debt spiral,” Hardekopf said.

It’s also possible that potential lenders will view a sky-high credit limit as potential debt, which can count against you if you are trying to get a mortgage or a car loan.

Ultimately, “it boils down to how you handle debt. If you handle debt responsibly, then go for a higher limit,” said Greg McBride, senior financial analyst at Bankrate.com. But, consider whether “that higher credit limit is going to represent temptation to run up additional debt.”

Ideally, you want to illustrate that you can keep your spending under control, and that means “your focus should be on paying down debt, not racking up more,” McBride said.

Pitfalls to Avoid

Signing up for new cards to boost your total available credit and make your debt utilization appear lower can work against you, experts say. In fact, opening new accounts can even lower your credit score.

“Recent credit inquiries constitute 10% of your score,” McBride said. And each new inquiry means potential points subtracted from your total.

Additionally, closing unused cards is also a bad idea.

“When you close an account the amount of ‘overall’ available credit decreases, which could cause an increase in your [debt] utilization and inadvertently lower your score,” said Deanna Templeton, director of consumer education for Credit.com.

Templeton also recommends using old credit cards periodically, just to prevent your issuer from closing them because of inactivity. “Every so often charge something small like gas or dinner, and then pay it off when you get the bill,” she said.

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Fed finalizes credit card rules, limits teen cards

January 12th, 2010

WASHINGTON (AFP) – The US Federal Reserve finalized new rules aimed at protecting credit card holders Tuesday that also make it difficult for anyone under the age of 21 to obtain a credit card.

As part of a series of new rules aimed at protecting consumers, the measure forbids banks from issuing a credit card to anyone under 21: unless the consumer has the ability to make the required payments or obtains the signature of a parent or other cosigner with the ability to do so.”

The new rules, effective February 22, also prevent lenders from unexpected increases in interest rates on card balances, and limit fees and certain types of interest calculations.

The new measures implement a law passed last year by Congress.

Fed governor Elizabeth Duke said the effort “marks an important milestone in the Federal Reserve’s efforts to ensure that consumers who rely on credit cards are treated fairly.”

“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts,” Duke added.

The American Bankers Association praised the new regulations.

“These rules — the most comprehensive ever seen — herald a new era for America’s credit card customers,” said Kenneth Clayton, senior vice president at the ABA.

“Many practices that frustrated customers have been eliminated, and credit card users will now benefit from greater control and clearer terms for their accounts.”

The ABA said the new law “ends confusing billing practices, instituting new rules that are easier to understand.”

Due dates will be the same every month, and interest charged on a so-called “double-cycle billing” will be completely eliminated.

The measure bans fees for payment processing — such as surcharges for paying by telephone, and requires that promotional interest rates on new cards stay valid for six months.

It forbids rate increases on existing balances unless consumers are at least 60 days late paying their bill or the initial rate was a promotional rate that has expired, and requires 45 days’ notice to raise rates.

The credit card industry argued the bill could result in a tightening of credit at a time when a credit crunch is already depressing spending amid an economic crisis.

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Fitch: Late credit card payments rise to record

January 6th, 2010

AP
Tue Jan 5, 2:11 pm ET

NEW YORK – Consumers still struggle with debt and it’s likely to be a persistent problem this year as unemployment remains high, analysts with Fitch Ratings said in a report released Tuesday.

Delinquent balances on credit cards reached record levels and defaults surged higher in December, Fitch said.

The rate for payments more than 60 days delinquent reached an all time high of 4.54 percent for the December index, which is based on performance data through the end of November. The rate surpassed the previous high of 4.45 percent set in June.

Charge offs — loans that won’t be repaid — crept up to 10.68 percent from 10.09 percent in the prior month but remained inside of the record high of 11.52 percent set in September 2009.

Charge offs are poised to trend even higher in the coming months as consumers struggle with debt burdens in the still challenging employment environment, said Fitch Managing Director Michael Dean.

Fitch analysts expect unemployment to peak at 10.4 percent in the second quarter of this year and remain above 10 percent throughout the year.

Charge offs peaked in the third quarter of 2009 with Fitch’s index reaching 11.52 percent in September 2009 before receding in recent months. While recent trends point to higher charge offs, future deterioration is not anticipated to be as severe given that unemployment is expected to plateau, the analysts said.

Credit card providers, anticipating regulatory changes that take effect in February will restrain their ability to control risk through fees and interest rates, have boosted interest rates ahead of the new laws.

As a result, the gross yield — the measure of interest, fees and other revenue collected on outstanding balances — continued to increase, reaching 20.2 percent. It’s the first time since April 2001 that Fitch’s Prime Gross Yield index has surpassed 20 percent.

Monthly payment rates, a measure of how quickly consumers are paying off their card balances, fell to 17.64 percent from 18.57 percent the month before. The rates are low compared to 2006 and 2007, when the MPR index routinely topped 20 percent.

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On the Fence About Refinancing?

December 18th, 2009

Janene Mascarella
December 15th, 2009

David Politis was struggling with his home’s towering interest rate when he settled on a strategy for saving money: refinancing. But first, he had his work cut out for him.

“We had terrible credit scores a few years back,” says Politis, president of Politis Communications in Draper, Utah. “After discussing our finances with our son-in-law, a loan officer who works for a mortgage broker, we made sure we made all of our house payments on time for 12-plus months — as well as everything else.” That smart step got Politis and his spouse back in the good graces with the credit bureaus, and into a fixed-rate Federal Housing Administration loan.

A year later, with an extended good-payment history, Politis pushed a streamlined refinancing through with FHA. His new rate: 5.75% fixed — down from 9.85% fixed, and a huge improvement over his 13.99% variable rate. The Politis family, now saving more than $300 each month, plans to parlay the savings to pay down consumer credit. It all came down to striking while the iron is hot: cashing in on a great opportunity to refinance last summer.

To refi, or not to refi? If you’re on the fence, wondering whether to refinance now with rates near historic lows, or wait it out to see if rates drop further, Woody Alpern, a CPA and cofounder of Capital Investment Advisors, is unequivocal: “Now is the time.”

Here’s why: the first time homebuyer’s credit has now been extended, through sales contracts written by April 30 and closed by June 30. That credit has been reduced to $6,500, but the adjusted gross income limit was raised, so many more buyers qualify. “We’re still near all-time lows, but eventually inflation will come back, and rates will creep up,” Alpern says. “Don’t try to guess the bottom. We may have already hit it.”

A (Brief) History Lesson
What does “historic lows” really mean? Mortgage rates fluctuate day-to-day, based on the performance of the bond market, because that’s where they correlate, says Karie N. Herring, senior consultant at Southwest Direct Mortgage in Scottsdale, Arizona. It all depends on supply and demand.

“Mortgage rates have gone as high in the past as 10%, 12%, or higher, especially in the 1980s,” Herring says. “Historically, rates now are super-low. You’re looking at 5% to 6%, where 20 and even 10 years ago, we were still pushing upwards of almost 10% for a standard conforming loan. Right now, for a standard 30-year conforming mortgage, you’re looking at 4.875% — still fairly phenomenal.”

But such low rates are reserved for a customer with a strong credit score of at least 720, Herring says. Beneath that, the rates would rise a little bit —- a quarter of a percent, or maybe an eighth, depending on your credit profile and how big a loan you’re seeking.

Score the Best Rates
A low credit score can keep you from taking advantage of these record lows, Alpern says. “More than ever, banks are being very careful about who they lend to. The days of ’stated’ income — when you didn’t have to prove what you earned — and lending to those with credit scores below 700 are pretty much gone,” he says. “Banks have lost literally billions of dollars by making bad loans, and they now have ramped up their lending guidelines significantly.” That’s why it’s that your credit is flawless.

If you have even one blemish on your credit report — say, you paid a credit-card bill late — be prepared to write a detailed explanation of why it’s there, and how you’ve taken measures to ensure it won’t happen again. Some underwriters accept a one-time slip and override their guidelines to get you the preferred rate, Alpern says. But in general, the better your credit, the better the rate you’ll get.

But all’s not lost if your credit score is less than stellar. Refinancing options still exist. “People who are shooting for that 4.875% are shooting for something that isn’t always obtainable,” Herring says. “If you have a credit score of 620 or 640, you can still get a low rate. You’re going to get a lot better rate than you could have a couple of years ago. We still have the FHA lending program — ideal for folks who may not have perfect credit, but who do pay their bills.”

Look Before You Leap
Before you refinance, get your paperwork in order and make sure you’re prepared for full-documentation loans. You’ll need to provide proof of income, W-2s, and your prior three years’ tax returns, Alpern says. Alpern also advises you don’t carry more than three mortgages, including any rental property you may have; new guidelines prohibit approval for Freddie Mac or Fannie Mae mortgages for anyone with more than three mortgages in their name.

If you’re hesitant, talk to a local mortgage broker or a banker who can provide you with interest rates and a quoted payment. You can also compare quotes from different banks online, so you can review all options.

But above all, you should decide whether refinancing makes sense for you. Even though the rates are low, Herring says, be sure you’re reducing your interest rate by at least one percent. Using that industry standard as a guideline, the cost effectiveness of a refi — boosted by new options and availability — may work out to your benefit.

Janene Mascarella is a New York–based freelance lifestyle writer. Her work has been published in The Washington Post, Self, Glamour, Woman’s Day, Parenting, Parents, American Baby, American Way, and many other publications.

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Tips for applying for a new credit card

December 11th, 2009

Lita Epstein, Wallet Pop
Dec 3rd 2009

While many shoppers are planning to use cash or a debit card this holiday season, some will still find they need to apply for new credit. I know many at Wallet Pop will tell you that you should just spend less, but just in case you do decide to apply for credit, do it wisely. You also may find it harder to get.

“Shopping and applying for cards isn’t as easy as it used to be,” Bill Hardekopf, CEO of Lowcards.com and author of The Credit Card Guidebook, told me by e-mail interview. “Consumers should now expect higher rates and lower credit limits. Approval is no longer a sure thing.”

If you still want to apply for a new credit card, here are a few tips to think about first:

1. Start with your credit score. Lenders make their judgment about your credit worthiness based on your credit score. A FICO score of 700 or more is considered very good; over 760 will usually qualify you for the best rates (which is up from 720 several years ago).

If your credit score is less than 640, you’ll probably land a high interest rate and limited credit options. Your credit score will also be used to determine the features of your card, such as the credit limit and balance transfer terms. If you’re surprised by your credit score, check it for errors. Correcting mistakes is the fastest way to raise a credit score.

2. Before you get a credit card, be sure you know how you’ll pay off the credit card. You need to take a hard look at your financial habits to determine what kind of credit card customer you are. Will you pay off the entire balance each month on time, or will you carry a balance? Knowing the answer will help you determine the type of card you need.

If you plan to pay off your balance each month, then pay close attention to the rewards offered. The best type of rewards cards out there are those with no annual fee and cash back rewards. Rewards are skimpier than in previous years, so expect a 1% cash back reward rather than 2% or higher.

You may also find there are reward tiers based on your spending level. If you carry a balance most months, than apply for a card with the lowest possible rate. The less you pay for interest, the more you can pay toward your balance and the faster you can pay off that card. Whatever you do, do not pay a higher rate just to get rewards.

3. Transfer your balance to a card with a lower rate. It used to be easy to get a low teaser rate for a year so you could transfer your balances, especially when 0% balance transfer were common. People even used this tactic to make money. But issuers lost money on the deal, and 0% interest transfers for 12 months are nearly impossible to find unless you have a credit score that’s over 760.

Balance transfer fees have also jumped from 3% to 4% and in some cases even 5%, so don’t expect to play the transfer game as easily as you once did. If you’re thinking of doing a balance transfer or applying for a new card to get a balance transfer, Hardekopf has a recommendation: “Before you begin the process of transferring your balance to another card, contact your issuer and ask them to lower your current rate. This doesn’t happen as often as it used to, but it doesn’t hurt to ask.”

4. Pick one card and apply for it. Compare three or four cards by studying the terms and conditions of these cards. Then select the best one and submit an application. “Limit the number of applications you submit because each application is recorded as a credit inquiry on your credit report,” Hardekopf informed us. “Multiple applications are a red flag that can lower your credit score because people actively seeking credit are typically a higher risk to lenders than people who are not seeking credit.”

5. Avoid store cards. Don’t apply for a store card just because the store gives you an immediate discount on your purchase. The rates are usually much higher than an average card, and if you don’t pay off the balance in full the first month, you could pay much more in interest than the money you saved.

6. Pay attention to your rate. Most rates are now variable, and they’ll increase in the future as the Federal Reserve raises the prime rate.

The bottom line is, only apply for credit if you really need it. Think about others ways you can work with your existing cards before seeking new credit. Most consumers carry too many credit cards which only lead to further temptations to spend.

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Government-backed loans will soon require you to have good credit and a decent down payment

December 7th, 2009

Ever get the feeling that sometimes, just sometimes, the universe is just not going your way? That after the Big Bang, the rest of the cosmos is speeding off in one direction, while you are stuck at a bus stop in Secaucus?

Well, if you are a potential home buyer, you may soon feel that way as the government announces it will cost you more — lots more maybe — to secure a mortgage backed by the Federal Housing Administration, which may put you and that home you want light years apart.

What’s happening is the government will soon require not only that you have a higher credit score (really, do you know anyone who actually has a higher credit score nowadays?) but that you put down more than the current 3.5% minimum down payment. Speculation is you may soon have to folk over at least 5% down to get an FHA-backed loan.

More than one real estate agent is expressing concern that higher credit scores and bigger down payments may keep many first time home owners on the sidelines. Should that happen, it could nip in the bud any hope of a meaningful recovery in the housing market in the U.S.

But the government apparently feels it has little choice: The FHA may itself soon require a government bailout.

The political and/or economic wisdom of the coming increases can be argued from here to eternity (or to that bus stop you’re still at in Secaucus); but the fact of the matter is, the bottom line is YOU are likely to soon have to pony up more money (not to mention get your fiscal house in order to help improve that credit score) for the government to lend you a helping hand and to hand over to you that 30-year, fixed rate mortgage.

Charles Feldman is a journalist , media consultant and co-author of the book, “No Time To Think-The Menace of Media Speed and the 24-hour News Cycle.”

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FICO Reveals How Common Credit Mistakes Affect Scores

November 30th, 2009

by Jeremy M. Simon
Sunday, November 29, 2009

Disclosed for the 1st time, ‘damage points’ taken off for late payments

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.

‘Help People Understand’ Scores

“I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble,” says FICO spokesman Craig Watts. “Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. ”

The greater transparency about FICO scores is important because American consumers’ ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO’s version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.

FICO’s credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they’re figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The “damage points” information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its myFICO.com Web site starting this weekend.

FICO’s information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit — so-called prime borrowers — put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.

The Cost in Dollars

In order to show just how badly a drop in your FICO score can hurt your wallet, we spoke with members of the home mortgage, auto and credit card lending industries. We presented hypothetical scenarios of a consumer who decided to apply for a $200,000, 30-year mortgage; a $20,000, five-year auto loan and a credit card. While all the industry insiders stressed that a FICO score isn’t the only factor in determining who gets credit and at what cost (other factors they cited include the borrower’s debt-to-income ratio and whether they have already established a relationship with the lender), they were able to provide an idea of what a borrower who had the following credit scores could expect.

For a Consumer Who Started With a FICO Score of 780:

Following a 30-day late payment, the consumer’s car loan rate would jump nearly 3 percent, costing the borrower $26 more each month.

Following a debt settlement, the consumer would pay as much as $109 more each month on a home mortgage.

For a Consumer Who Started With a FICO Score of 680:

Following a 30-day late payment, the consumer would pay $41 more each month for a car loan.

Following a 30-day late payment, the consumer would pay as much as $95 more each month on a home mortgage.

Following a debt settlement, the consumer would no longer qualify for a credit card.

Some Surprised By the Details

Consumer advocates say it’s important for borrowers to know what can damage their FICO scores. “If they know it in advance, they won’t go out and step in a pile of doo-doo. They won’t go out and do some of these things,” says Linda Sherry, director of national priorities with advocacy group Consumer Action. Even experts found some surprises in today’s news. “FICO imposes bigger hits than I would have thought for being maxed out or 30-days late just once, reinforcing my view that it is a cruder, blunter instrument than they like to claim. Nevertheless, it is a powerful, widely used crude blunt instrument,” says Ed Mierzwinski, consumer program director for the U.S. PIRG consumer advocacy group.

Of course, knowing the impact on a FICO score and actually avoiding these mistakes are two separate things: Amid rising unemployment and other daily financial struggles, paying bills and staying on-track financially becomes a much bigger challenge for many borrowers.

“Some of these things are out of their control,” Sherry says of consumers.

Additionally, as Weston points out, consumers with identical FICO scores can have different credit histories. That means the same slip-up — such as maxing out a credit card — could have different impacts on consumers who have the same FICO score. In the examples they provided, FICO assumed each borrower had several active major credit cards, a mortgage, car loan and student loans.

Sherry acknowledges the benefit of putting a number to a financial blunder. “I don’t think we necessarily knew the numbers that a bankruptcy could apply to a credit score,” Sherry says.

Helping You Make Better Decisions

While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.

FICO scores — and the access to credit they provide — are a valuable asset to consumers and supply a safety net when incomes are stretched. It’s an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.

“In that period of time, paying down debt is the last thing on your mind. Paying the minimum payment may also be the last thing on your mind, but you’ll be doing yourself a big favor if you do,” Sherry says.

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Mortgage Window Shopping

November 24th, 2009

Rates have been volatile, but get ready — they may fall again

After a recent spike seen in mortgage rates, some consumers are wondering whether they’ve missed their chance to refinance into an ultra-low rate.

Fear not: While the conforming 30-year fixed-rate mortgage hit a daily average of 5.81% last Thursday, it averaged 5.53% on Tuesday, said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information. And it’s possible that rates could continue to fall.
“Predicting interest rates is like predicting who is going to win the World Series in January,” said Guy Cecala, publisher of Inside Mortgage Finance. That said, he calls the recent spike “somewhat of an aberration,” and expects rates will continue to drift down.

Why the recent run-up in rates? Over the past month or two, “the economic skies have brightened somewhat,” Gumbinger said in an email, and the threat of “trillion-dollar budget deficits for the foreseeable future, the potential for significant inflation, and few clues as to how the government might extricate itself from intrusions into markets” created a landscape that was not appealing to investors.

But now, rates are retreating partly because inflation doesn’t seem as immediate a threat as investors feared, Cecala said. In his opinion, nothing fundamentally has changed in the economy over recent weeks to warrant the rate rise, yet he expects volatility through the remainder of the year as investors debate the economy’s health.

“Realistically, I think that the rates will drift under 5% again. It may take a month, may take two months,” he said.

It’s also important, however, to realize that extremely low rates likely won’t be around forever, said Bob Walters, chief economist of Quicken Loans, in a statement.

“Luckily, we have seen rates drop some this week, which should help many consumers breathe a little easier,” Walters said. “But the fact remains, the government’s plan of purchasing mortgage-backed securities cannot go on indefinitely, and when it ends, we will most certainly see a spike in rates. The hope is that the Fed can keep rates low long enough to kick-start a housing recovery. Whether that will work remains to be seen.”

“Volatility is the key word in the mortgage industry these days when it comes to rates,” said Kyle Kerwin, senior vice president of mortgage lending for Signature Bank of Arkansas.

Here are five tips for those shopping for a mortgage today, particularly those who need to refinance an existing loan:

1. Get started on paperwork. Once you’ve found the mortgage professional you’d like to work with, get started on the necessary paperwork, said Dan Green, loan officer with Waterstone Mortgage in Cincinnati and author of TheMortgageReports.com. Rates move regularly, and if paperwork has been started your file can be processed more quickly when rates hit a low. When you start the application process, your credit score will be pulled and you’ll need to submit support documentation including W-2 forms and pay stubs. You might be asked for updated documents nearer to closing.

2. Make sure your credit is in good shape. Check credit reports and fix problems as soon as possible, said Mary Curran, president of Highland Financial Mortgage Corp. in Northbrook, Ill. Even seemingly small charges can haunt a borrower: A forgotten, unpaid parking ticket, for example, can noticeably affect a credit score, she said.

3. Decide at what rate it makes sense to pull the trigger. If you have a 6% rate now, rates would have to hit 5% or lower for it to make financial sense to refinance, Cecala said. Talk with your mortgage professional about what’s best for your particular situation.

4. Stick to your guns. Once you determine the rate you’d need to get, it’s probably wise to stick to that decision. Consumers sometimes gamble that rates will go lower, and the plan can backfire if rates reverse course, Kerwin said. A couple of weeks ago, rates were close to 4.5% in his market, “and people wanted to hold out for an extra eighth of a percent.”

5. Remember, rates are still good. Yes, rates could fall and create another record low as a result of a swoon in the stock market, a collapse of a major bank or a deepening of a recession, Gumbinger said. But it isn’t likely that many consumers would crave those economic shocks. “Why would anyone wish for those things again to simply get a rock-bottom, ultra low mortgage rate? If it means saving $250 per month on your mortgage but it costs you $50,000 in your 401(k), how could this be seen as any kind of benefit?” he said.

Amy Hoak is a MarketWatch reporter based in Chicago

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Five Ways to Harm Your Credit Score

November 20th, 2009

1. Paying Your Bills Late

Ed Quigley meant to pay his Visa bill online. But the retired resident of Springfield, Missouri, found himself blocked from logging onto his bank account in October, due to a security issue on his computer. He used a friend’s computer to pay the bill — but two days later, he realized he hadn’t received an e-mail confirmation. At that point, Quigley was slapped with a late fee. Now he says he plans to check his credit report this fall — for the first time in four years — to see whether the late payment lowered his score. Paying debts on time accounts for 35% of the credit-scoring model, the single largest factor. But a late payment might not be reflected in the score for 60 days, says Barry Paperno, consumer operations manager at Fair Isaac Corp., which created the FICO score.

Getting Back on Track

If you miss just one payment and catch up the next month, the damage could be minor, says Credit.com’s John Ulzheimer. On the other hand, if you have good credit but miss a payment that turns into a collection or charge-off, your credit score could go down by as much as 200 points. “It’s kind of a no-brainer — everybody knows it — but it’s the one that matters most,” Paperno says. “Don’t even be a day late.” If you’re late a couple of times in paying anything — credit card bills, mortgage, even parking tickets amounting to more than $100 — then consider requesting your credit report from the three major credit bureaus to see if it’s affected your credit score, says Gail Cunningham, a representative of the National Foundation for Credit Counseling in Silver Spring, Maryland.

2. Opening Accounts, and Making Inquiries

Opening a new credit account and adding a new plastic card to your wallet can bring your credit score down a peg, Paperno says. An inquiry by anyone other than yourself — say, a potential creditor — can also erode your score. “If you open a new account but don’t open another one for at least a year or two, you can recover those points in six months to a year,” Paperno says. And excessive credit inquiries can drop a good credit score by as much as 40 points in a worst-case scenario, Ulzheimer says. (For someone with bad credit, the damage might be less.)

3. Holding the Wrong Cards

There’s nothing wrong with using department-store cards or gas cards, Paperno says — but bank-issued credit cards are better for your score, so if you don’t have one, your score might suffer. But consumers can improve their scores by being smart about how they allocate their debt payments, he adds. “If you have high credit card balances,” Paperno says, “paying those down will improve your score more than doubling up on your mortgage payment.” Monitoring your credit score on a regular basis will illustrate just how effective paying down your debt can be for improving your score.

4. Shutting Down Your Accounts

Danielle Beauparlant Moser, a career coach in Asheville, North Carolina, shut down her Air Tran Visa account in September after getting hit with what she calls fraudulent charges. “I felt like I had no other choice,” says Moser, who had had the card for a year and a half. “Why would I anticipate that closing a credit card that’s fully paid off would impact my credit score?” And yet it does. Closing any card can ding your score. If you’re frustrated by a creditor’s policies or procedures or fraudulent charges, or if you’re trying to streamline your finances by shedding a few cards, it’s wiser to let an account lie dormant than shut it down. “By closing an account, you’re actually lowering the amount of available credit you have,” Paperno says — and increasing your balance-to-limit ratio, which accounts for about 30% of your score. “You’re also decreasing your average length of credit history.” In a worst-case scenario, closing an account could cost your score more than 100 points.

5. Losing Track of Your Limits

Purchasing a big-ticket item using a buy-now-pay-later financing deal could dent your credit score. But daily decisions add up, too: Using the same credit card for both a major purchase and a daily cup of coffee could inch you closer to your limit — and lower your score. That’s why it’s essential to be aware that such actions can amount to a credit mistake, Cunningham says. Your first step toward avoiding credit-score pitfalls is to read over your credit reports, to see which actions are costing you valuable points. You may think you’re doing something financially savvy, when in fact you’re damaging the very score that’s used to help you land a loan — or even a job.

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