Lenders Return to Making Loans for Borrowers with Bad Credit

After the depressing recession in the recent years, from 2008 to 2010, together with the additional trend of foreclosures, repossessions, defaults and personal bankruptcies, many would believe that the country and its lending industry would realize a valuable lesson in terms of poor credit.

However, that is not exactly what is happening as of the moment.

Some of the major lenders are starting to engage again in the business of giving loans to borrowers with poor credit. These are not the same with the go-go years heading into the collapse of 2008, when lenders would give loans to borrowers with poor credit, or for liar loans, zero credit at all.

Considering all that took place in the past, one doesn’t have to be too fearful to be anxious that this trend will speed up.

A survey concerning the lending industry was conducted by The New York Times and they discovered that Capital One and GM Financial are once again giving loans to borrowers with less-than-perfect credit. Moreover, HSBC and JP Morgan Chase are taking risks in subprime lending once more.

According to reports from Equifax, lenders gave out 1.1 million new credit cards last December 2011 to borrowers with bad credit. This increased by 12% from December 2010.

Furthermore, borrowers with bad credit made up 23% of new car loans in quarter four of last year. This is an increase of 17% from quarter four of 2009.

Lenders are looking for risky borrowers because there are many of them. Although they have a tendency to be desperate and innocent, lenders earn a lot from them because they can be charged very high interest rates and accumulate late fees and penalties.

Reporters for Times met Annette Alejandro, who lives in Brooklyn and is currently without a job. Her car was repossessed and she had just been out of bankruptcy. After searching for jobs unsuccessfully, she comes back to her apartment and finds lots of credit card and loan offers.

Perhaps, this is sort of a warning for another credit meltdown.

The Power of Debt

The recession suffered by the United States has left many businesses declaring bankruptcy, led to companies closing, people losing jobs and some being forced to being overwhelmed with debt.

A person being engulfed by debt would very well blame everyone and everything in his surroundings for his struggling situation. Being overwhelmed by debt has a chain effect in a person’s financial situation. He gets bad credit, he has to sell his assets, pawn his car, and his family might start bickering about money, and so on.

The damage has already been done and there is no use to continue pointing fingers to whoever should be blamed for the predicament that the country is facing financially. The best thing to do is to move on, and to try anew in rebuilding your life. But this is the difficult part.

Though the knowledge you need to get back up on your feet is easy to comprehend, they are hard to follow because they need consistency and self-discipline. The basic building block of being successful is knowing how to use debt to your advantage.

Getting a loan or borrowing money can get you a large liability you have to give back in the future; you can become lucrative if you know how to handle it to your advantage. You have to think like a businessman. When a company is going to borrow money, the big question they ask themselves is if the loan will gain them more money in the future.

When you borrow money you should ask yourself is what you are going to do with the money will benefit you and gain you more money, or will it do more harm than good?

Investing for college is one very good reason for loaning. Whenever you want to get a car, you should first weigh whether it is going to benefit you more than it will cost you to purchase the item.

But according to experts the best things you should invest in are schooling and a good household. It is best to think twice when you want to loan for a car or for health related circumstances.

Good management of your liabilities is the best way to start in your road to financial recovery, while smart borrowing is the key for a good and worry-free life.

Consumers with Bad Credit Face High Credit Card Charges

Based on a statement from Obama administration’s consumer financial supervisor, consumers in the United States with bad credit will have high initial charges on their credit cards. Earlier this week, the Consumer Financial Protection Bureau, or CFPB, said that there will be no restrictions on credit card fees, which are charged by the card issuers.

The statement was made after a court ruling barred the said restrictions. The decision overturns the government’s efforts to limit what the credit card issuers might do that can cause harm to borrowers.

Following the financial crisis, a credit card law was passed by the government that says non-penalty credit card fees should not be above 25% of the credit limit throughout the first year once the account is opened. This is applicable to annual fees and application fees.

A few credit card companies started giving out fee-harvester cards after the implementation of the law. Issuers of fee-harvester cards make consumers pay a large before they issue cards with very low credit lines.

Consequently, a provision was included to the credit card law by the Federal Reserve that put a restriction on initial credit card fees. However, there was a lawsuit filed by companies to revoke the restriction. The Fed was charged for going beyond its authority and the court granted their suit, thus, the limitation was withdrawn by CFPB.

Since CFPB backed off from the restriction on credit card fees, the cardholders with bad credit are required to pay high initial charges, which are considered debt traps by consumer groups.

The cards are supposed to help consumers with poor credit or zero credit improve their credit report. Instead, the excessive credit card fees and penalties caused more debt for cardholders.

Comments and protests can be filed until June 11 before CFPB makes a final decision on whether or not to back off from the credit card fee restrictions.

Know and Understand the Importance of Credit Scores

According to Federal Reserve data, the total debt of Americans is approximately $252 billion. However, most Americans do not have sufficient knowledge about credit information. They do not know how the credit scores are being calculated, what are the information in the credit report and the effect of good score and bad score in their financial well-being.

The Consumer Federation of America’s survey of 1000 Americans showed that only 25% are aware that generic credit scores can be availed from various resources aside from the three big credit bureaus. And about 30% to 40% do not know that their marital status and age do not count in the calculation of their credit score.

To analyze credit score is not easy even if you review it more than once in a year. No matter who is doing the calculating of the credit score, the factors that are being considered are the same .The complexity is in the weight that each factor contributes because it is variable. It is not simple to determine what is “good” score and “fair” score.

Here are some of the frequently asked questions and answers:

Q. How do you define a credit score?

A. A credit score is a measure used by creditors to evaluate your credit worthiness or your capacity to repay a debt. It is a three digit number that creditors issue.

Q. How do they calculate the credit score?

A. Information from credit report are gathered by credit bureaus and feed it to algorithms to calculate the credit score. This information is taken from many sources like the credit card issuers, companies that grant mortgage, auto lenders and others. The information includes the way your bills are paid whether it is delayed or on time; how long is the credit history; amount of credit used compared to the remaining amount available; the type of credit accounts and how many times did you apply for a new credit card lately.

Q. Why is there more than one credit score?

A. There are many sources of scoring models for the calculation of credit score. FICO and Vantage are the two most popular scoring models. FICO’s score ranges from 300 to 850 while that of Vantage ranges from 501 to 990. The consumer’s credit score will vary and it depends on who does the calculation. The score you get when you request from an agency is not the same as the score the lender gets when he requests from the same agency.

Q. What is the indication of a “good” credit score?

For FICO scoring model, a score of 700 is considered high. With this credit score, the consumer is credit worthy and may qualify for a lower interest rate for a loan. Vantage scoring consists of a number and a letter. From 700 to 799, the letter score is “C” which is considered by lenders as an average score. A score of 800 to 899 is equivalent to letter “B” and 900 is an “A.”

Q. How can I consistently monitor my credit score?

A. You should request for your credit score once a year to keep track of it but you have to pay for it. There are many cost effective ways to get your credit score. The credit report however, can be availed of for free once a year from the three major credit bureaus but this does not include your credit score.  It is very important that you properly monitor your credit report in order to get a high score which will give many advantages for your future financial transactions.

Habitat for Humanity Provides Home for Families

Standing in front of his newly built home is Jesse Rasimas. He is so thankful for the organization which helped him and his family to acquire a new single-storey house.

Jesse and his wife, Angela, and two children, Kara and Jaiden started moving on Sunday into their new home at 112 Madison St. The home has a total area of 1,100 square feet. It is the 18th home which Wyoming Valley for Humanity constructed. Wyoming Valley for Humanity is a nonprofit organization and it will start to construct its 19th home starting Monday.

Their transfer to the new home kicked off with a cake, a basket full of cleaning supplies and a book for home decorating. Prayer and dedication was done by Rev. Will Haperman. Malcolm Williams, president of the Habitat Board of Directors gave the house key to the Rasimases.

The house has three bedrooms, an off-street parking, living/dining room which is very spacious. Whirpool donated the stove and refrigerator in the new home. Kara’s bedroom is painted in purple and the room next to it is her brother’s bedroom.

Karen Evans Kaufer, the Executive director of Habitat said she was so impressed with the cooperation of the volunteers and the Rasimases.

Jesse shared how he got the home. He said that he saw in a newspaper that Habitat for Humanity is building a home and it is looking for a family fit for it. He applied for it and with the help of Tracey Williams of Habitat he went through the process. The family invested 400 hours in the program in order to build the house. They were at the site every Saturday for several months for the house construction.

Jesse said that the labor for his new home costing $55,000 was through the efforts of volunteers. Materials were purchased at a discount. The term of payment is 20 years with no interest. The monthly payment is only $35 more than his payment when he was renting.

The main purpose of the program of Habitat for Humanity is to help people who could not make a house mortgage because of bad credit.

According to Kaufer, Habitat is preparing to construct another house next to Rasimases and it is looking for a qualified family for the next house. She said that they are building a house one at a time.