Zac Hill

Many people believe that the pathway to a great credit is to not have much of it. Unfortunately, this lack of credit can have the opposite effect. Credit scores are numerical predictors of how likely a borrower is to default on a loan. They are designed to measure how well a borrower manages credit, not how little of it they have or how quickly they can eliminate it.

Having fewer credit accounts leaves a person with less room for error. 35% of a one's credit score is based on their payment history. As an over-simplified example, let's say a borrower makes a late payment to one of four creditors because of something unexpected in life. This can have a much smaller negative impact on their credit score than someone who makes a late payment to the one and only credit account they have. One borrower was late on 25% of their accounts while the other was late on 100% of their accounts.

I recently met with a potential client who had really low credit scores. The negative information was many years old. They had gotten "burned" by having credit and they vowed to avoid it. The really low credit scores remained low because they had failed to build any new, healthy credit since the negative items were reported.

Can a person get a mortgage without credit? Yes. They can demonstrate responsibility by documenting the payment of other bills regularly on time, like utilities. But, they will pay a premium for it. Documenting credit worthiness through non-traditional means generally requires more money from the borrower to process the loan. It also usually results in a higher interest rate on the loan because the loan is outside the norm for a large lender or the loan is through a smaller lender whose rates are less competitive.

A borrower's credit score is improved and strengthened by demonstrating they can effectively manage a variety of credit types over time. Are you organized and responsible enough to pay your bills on time? A lender doesn't know you are unless you've done it, and they don't know you've done it unless your credit report says so.

I've gotten many calls and emails over the past few months asking what rates are. People are hearing that the government is going to make them go down to 4%. The bad news? The government doesn't dictate interest rates, the market does.

However, last week's announcement that the Fed will buy $300 billion in Treasuries over the course of the next six months coupled with its continued purchase of mortgage-backed securities has pushed rates on most conventional mortgage programs into the 4's. The Fed has been buying what it needs to buy and investing where it needs to invest to help influence rates this low, but again, he can't make them do anything.

Now is a great time for people to refinance or go out and buy a house if it makes sense for them because interest rates are so low. It is important to remember though that with all of the recent changes to the lending environment, not everyone will qualify for the best rates. This can be frustrating but the reality of how the lending environment has dramatically changed over the past year and a half.

Will we get 4.0% interest rates? Maybe, maybe not. But if it makes sense to refinance or buy a house now, I'd recommend a good, hard look at it. Very easily in the near future rates will be dramatically higher for many years. It would be unfortunate to miss the boat of home ownership when you could have afforded it because you were waiting for the bottom. When we know the bottom has hit, you will have already missed it!

Accessing your credit profile will not hurt your credit score, it won't even be reflected on your report. In fact, you are encouraged to access your credit profile on a regular basis to fight fraud and identity theft. Regularly checking your report will also help you correct any mistakes quickly so that your score is not negatively impacted by inaccurate information. Generally, the longer inaccurate information remains on your report or the more time that passes before you realize your identity has been compromised the longer and more costly it is to make it right.

You can check you report for free at http://www.annualcreditreport.com/. Unfortunately, there isn't anywhere to get the scores for free but they can be accessed from this site. Other people advertising "free" credit reports are trying to sell you something¹, usually a subscription into a credit monitoring service. You can sign up for monitoring service directly from the bureaus, usually with a smaller charge and more reliability.

When you check your credit report it is considered a soft inquiry². When a lender or financial institution accesses your credit profile it is considered a hard inquiry³ and having too many hard inquiries could negatively impact your score. The number of hard inquiries from the past 12 months is noted on the report and these inquiries are the ones impacting your scores. It is a good idea to limit the number of inquiries into your credit⁴ especially if you anticipate applying for a mortgage loan in the next year⁵.

¹I know, I think the tune is catchy too.
²No, that free T-shirt isn't worth it!
³Your insurance agent is off the hook - soft inquiry.
⁴Your cell phone and dish TV companies are not off the hook - hard inquiries.
⁵And we never know what tomorrow holds, so you should maybe always assume you will be, but you probably figured I'd say that didn't you?

Did you know that you don't have to file an individual federal tax return by April 15^th if you are getting a refund?

If an individual is getting a refund on their federal taxes, they have 3 years to file and claim their refund. So first-time homebuyers who are shopping for a home right now but haven't found one yet do not have to settle for a home they don't love just so they can close prior to April 15^th.

People should of course consult their tax preparer because everyone's tax situation is different, but this tidbit of info may help sell your expertise to a potential client.

I was reminded recently of an important mental lesson I'd forgot when a loan's funding was delayed several days. I was a little stressed. Then, someone asked me how work was going. I expressed that it was frustrating not being able to deliver for this client the experience I had wanted to, feeling like something was out of my control. I, the borrower, the escrow officer and the real estate agent had all done what the lender has asked of us, yet it hadn't funded.

I initially thought my stress stemmed from a lack of control. Eventually I realized that my stress actually stemmed from the false premise that I had control to begin with.

Without getting too spiritual, I realized that the world and the universe don't ever really ask my permission to do anything and the sense of control I possess is a little bit of a construct of my own mind. Beginning to let go of this notion that I can control more things than I really can has been very helpful to me. It has allowed me to be more focused and effective because I am less stressed.

Letting go a little of the illusion of the control we think we have can be very freeing.