About Voorhees' La Bonne Vie

Have you ever been pre-qualified for a credit card, mortgage, or car loan without submitting an application? You may have even been approved online for a loan online within minutes. What makes this possible is by using your credit scores. These scores are used by banks; lending institutions, landlords, and even employers use credit scores to help make decisions on their hiring process. Credit scores became popular in the 1980's as computers became much cheaper and more commonly used. Before this, lending decisions were arbitrarily made using human judgment. As you can imagine this caused unpredictable and unreliable outcomes, and it could be a time consuming process. Prior to using credit scoring system there was a growing concern in Congress about discrimination in lending. This led to legislation to remove the human factor when analyzing credit applications. The first standard rating system was the point rating. This employed a weighted list of credit report items. This did help remove the bias and ambiguity associated with credit ratings. This was shortly replaced by the statistical model which factored in thousands of report items over hundreds of variables associated with the consumer payment histories. FICO (Fair Isaac Company) was one of the first models developed and soon became the recognized as the predictor of consumer credit behavior. Almost all lending institutions adopted FICO as the de facto standards as the answer to Congressional pressure to address discrimination in the rating system. This modeling system also provides a clear advantage as well; faster processing, highly predictive; and completely objective. How does this work?? The basis for credit scoring is Risk Factors. Risk Factors group individuals into risk categories, and ratings are based on relative standing within the group assigned. For example, if someone is placed into the high risk group, that person is rated relative to all other members within the high risk group. There are also Score Factors. Score factors are the basis for the final credit score. Some items that compromise the Score Factors are; number of credit cards; number of loans outstanding; payment history (i.e. bankruptcies, short-sales, foreclosures, late payments, etc.) debt to income ratio, employment status, and so on. The range of credit scores is from 300-850. The higher the score reflects a better credit rating. Each of the credit reporting agencies provide a credit score. These creditors are Trans Union, Equifax, and Experian. Each agency has a slightly different model which is why you will see each of them, in most cases, reflecting different scores. Any score higher than 720-750 is considered outstanding, and anything above that will provide a cushion for any negative items. Below is a guideline for understanding the credit scoring system.

• 35% from payment history. Your payment history includes collections, late payments, charge offs, judgments, liens, bankruptcies, short-sales, etc.. These items will affect your score negatively, and many will stay on the report for years.

• 30% reflects your debt distribution (called utilization). Basically, it is best that a number of accounts have low balances than one or two accounts at or near their max limit. Here's a simple utilization formula: Debt / Credit. The debt to credit ratio should be at or below 10%. As an example, if you have credit card debt of $10 thousand, and your credit limit is $30 thousand, then your ratio is 33% (10 / 30). This is higher than 10%, so you will need to either reduce your debt (payoff the balances) or increase your credit limits.

• 15% from Established History. The older your accounts are, the better. When a person is first establishing credit, it would clearly help that person to be added to another person's established account as an Authorized User (usually a family member, such as parents). Established accounts, by definition, have been active (established) for awhile. Being listed as an Authorized User on established accounts will improve a person's score.

• 10% Inquiries. Hard (authorized) inquiries of your credit score and report have a slight negative impact on your credit score, but they add up. The more authorized inquiries, the lower your credit scores. Therefore, it is best to keep the number of hard inquiries to a minimum (that is, don't apply to several banks for a loan at the same time).

• 10% Mix of Credit. Your score improves when you have various types of loans or debts. This could include revolving credit, auto loan, mortgage loan, installment loans, and so on. Where you can, try to have the balances about the same.

I wanted to share some Frequently Asked Questions that I have received recently. I feel like it is important to share questions like these so we can all use them. They may apply to you.

When can a person with a bankruptcy on their credit report apply for a VA Loan? - John D. Collingswood, New Jersey

John, this is a very common question these days. The date of the discharge and the bankruptcy type are the determining factors. If a Chapter 7 Bankruptcy was discharged more than 2 years ago, it may be disregarded. If it was discharged between 1-2 years ago, the veteran must have reestablished credit by some means, and the cause of the bankruptcy must be documented as beyond control of the applicant, i.e. job loss or medical issues. If the bankruptcy was discharged less than a year ago, it will generally not be possible to determine that the applicant(s) are able to be approved.

How many properties can a veteran own through VA? Robert L. from Fayetville, NC

Robert, we see this now with the property values going down and veterans not wanting to go through with a short sale. A veteran can reuse the VA benefit multiple times as long as s/he has sufficient benefit to cover the new loan. The new home s/he is purchasing must be their primary residence. If there is less than a full benefit remaining for the purchase of the second property, it is suggested that the lender consider if the veteran can obtain a restoration of benefits or if the remaining benefit will cover the proposed loan amount.

Do unpaid obligations, such as collections and charge-offs, listed on the credit report have to be paid off? Darren C. - Sicklerville, NJ

Charge-offs and collection accounts are not required to be paid off by VA. The underwriter should obtain the veteran's explanation and supporting documentation if needed. If it has been under a steady re-payment plan, this may be considered as a positive factor. Judgments, Federal debts and liens must be paid in full or have written repayment agreement.

I co-signed on a loan for my sister, does this debt have to be counted against me? Nicole D - Arlington, VA

In order to disregard a debt that the veteran has co-signed for another individual, there must proof that the payments are being paid by some one other then yourself. Canceled checks for 12 months is usually the best way to get this accomplished.

I just read the below article that FHA's MIP will go up on or after April 18^th. This info may help push homeowners to action if they wanted to put-off refinancing.

New premium structure for 30- and 15-year loans will help private capital return

WASHINGTON - As part of ongoing efforts to strengthen the Federal Housing Administration's (FHA) capital reserves, FHA Commissioner David H. Stevens today announced a new premium structure for FHA-insured mortgage loans increasing its annual mortgage insurance premium (MIP) by a quarter of a percentage point (.25) on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent. This premium change was detailed in President Obama's fiscal year 2012 budget, also released today, and will impact new loans insured by FHA on or after April 18, 2011.

"After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA's capital reserves and help private capital return to the housing market," said Stevens. "This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments."

The proposed change was announced last week as part of the Obama Administration's report to Congress, which outlined the Administration's plan to reform the nation's housing finance system. The Administration's housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011.

This premium change enables FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. The change is estimated to contribute nearly $3 billion annually to the Fund, based on current volume projections. It is vital that HUD take action to ensure that FHA will continue to serve its dual mission of providing affordable homeownership options to underserved American families and first-time homebuyers while helping to stabilize the housing market during these tough times.

On average, new FHA borrowers will pay approximately $30 more per month. This marginal increase is affordable for almost all homebuyers who would qualify for a new loan. Existing and HECM loans insured by FHA are not impacted by the pricing change.

FHA will continue to play an important role in the nation's mortgage market in 2011. President Obama's FY 2012 budget projects the FHA will insure $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that significantly reduce borrower payments.

Have you ever been pre-qualified for a credit card, mortgage, or car loan without submitting an application? You may have even been approved online for a loan online within minutes.

What makes this possible is by using your credit scores.

These scores are used by banks; lending institutions, landlords, and even employers use credit scores to help make decisions on their hiring process.

Credit scores became popular in the 1980's as computers became much cheaper and more commonly used. Before this, lending decisions were arbitrarily made using human judgment. As you can imagine this caused unpredictable and unreliable outcomes, and it could be a time consuming process.

Prior to using credit scoring system there was a growing concern in Congress about discrimination in lending. This led to legislation to remove the human factor when analyzing credit applications.

The first standard rating system was the point rating. This employed a weighted list of credit report items. This did help remove the bias and ambiguity associated with credit ratings. This was shortly replaced by the statistical model which factored in thousands of report items over hundreds of variables associated with the consumer payment histories.

FICO (Fair Isaac Company) was one of the first models developed and soon became the recognized as the predictor of consumer credit behavior. Almost all lending institutions adopted FICO as the de facto standards as the answer to Congressional pressure to address discrimination in the rating system.

This modeling system also provides a clear advantage as well; faster processing, highly predictive; and completely objective.

How does this work??

The basis for credit scoring is Risk Factors. Risk Factors group individuals into risk categories, and ratings are based on relative standing within the group assigned. For example, if someone is placed into the high risk group, that person is rated relative to all other members within the high risk group.

There are also Score Factors. Score factors are the basis for the final credit score. Some items that compromise the Score Factors are; number of credit cards; number of loans outstanding; payment history (i.e. bankruptcies, short-sales, foreclosures, late payments, etc.) debt to income ratio, employment status, and so on.

The range of credit scores is from 300-850. The higher the score reflects a better credit rating. Each of the credit reporting agencies provide a credit score. These creditors are Trans Union, Equifax, and Experian. Each agency has a slightly different model which is why you will see each of them, in most cases, reflecting different scores.

Any score higher than 720-750 is considered outstanding, and anything above that will provide a cushion for any negative items. Below is a guideline for understanding the credit scoring system.

• 35% from payment history. Your payment history includes collections, late payments, charge offs, judgments, liens, bankruptcies, short-sales, etc.. These items will affect your score negatively, and many will stay on the report for years.

• 30% reflects your debt distribution (called utilization). Basically, it is best that a number of accounts have low balances than one or two accounts at or near their max limit. Here's a simple utilization formula: Debt / Credit. The debt to credit ratio should be at or below 10%. As an example, if you have credit card debt of $10 thousand, and your credit limit is $30 thousand, then your ratio is 33% (10 / 30). This is higher than 10%, so you will need to either reduce your debt (payoff the balances) or increase your credit limits.

• 15% from Established History. The older your accounts are, the better. When a person is first establishing credit, it would clearly help that person to be added to another person's established account as an Authorized User (usually a family member, such as parents). Established accounts, by definition, have been active (established) for awhile. Being listed as an Authorized User on established accounts will improve a person's score.

• 10% Inquiries. Hard (authorized) inquiries of your credit score and report have a slight negative impact on your credit score, but they add up. The more authorized inquiries, the lower your credit scores. Therefore, it is best to keep the number of hard inquiries to a minimum (that is, don't apply to several banks for a loan at the same time).

• 10% Mix of Credit. Your score improves when you have various types of loans or debts. This could include revolving credit, auto loan, mortgage loan, installment loans, and so on. Where you can, try to have the balances about the same.

A few days ago while watching the local news, I saw the story of this 13 year old boy who was bullied by several teens. They video taped, kicking, beating, punching, and even hanging him from a tree. It was truely disturbing. This young man has been very braving my telling his story in hopes of stoping this from happening to other's While on " The View" he learned that he even touched some of his hero's. This was truely great to see. This is very heartwarming! I hope you enjoyed it as much as I did.