Increase Credit Score by Borrowing Money

The majority of borrowers usually think that they can increase their credit score by paying off their debt or getting rid of their loans and credit cards. While paying off your debt is a good practice, the latter is not.

Without a doubt, paying off your debt improves your credit score. Lenders want to make sure that your debt-to-income ratio is low and they do not prefer maxed-out credit cards.

Lenders decide whether or not to give you a loan by considering your ability to fully pay the principal plus interest on time. To do this, they check your credit report since it reflects how you have previously managed loans.

Although you have a debt, you must handle it responsibly so that you can have a good credit report and a high credit score. First, you must be aware of the two types of loans. The first type is an installment loan and the second type is a revolving loan.

An installment loan is a loan that is given to you for only once and you pay it back a later time. After paying off the loan, you cannot avail of it again. For instance, auto and mortgage loan are installment loans.

On the other hand, a revolving loan is a loan that can be availed for a number of times, for instance, a credit card. You can borrow money up to a certain credit limit, pay it off, and borrow once again. For instance, your credit card is a revolving loan.

The second thing to be aware of is that lenders prefer that you have both types of loans in your credit report because it shows your responsibility in borrowing money and your ability to handle debt.

Therefore, in order to keep a high credit score, you must borrow money and pay them back responsibly, particularly, on time and in full.

More Mortgages Because of Low Interest Rates

There are an increasing number of people getting new mortgages because of the current low interest rates in the market. Moreover, this is a result of the desire of homeowners to lessen their payments and shorten the term of their loans.

The Mortgage Bankers Association expects almost $20 billion increase in new mortgages for the current year, with the majority of them refinancings.

According to Mike Fratantoni, the vice president of research of MBA, there has been an appearance of situations that could cause rates to drop and refinancings to increase, particularly because of Europe’s market crisis.

The MBA forecasted that interest rates will be lower this year because of the decreasing debt situation in some places of Europe and slow global economic growth.

Based on a Thursday report from Freddie Mac, the government-owned mortgage buyer, there was a slight increase in interest rates this week, particularly, the average rate for a 30-year loan was 3.71 percent, which is an increase from the 3.67 percent in the previous week.

According to Derrick Wynkoop, the president of Walden Savings Bank, there has been a 60 percent increase in closed loans in the first five months of 2012 compared to the same time one year earlier. Moreover, almost 55 percent are refinancings and 45 percent are new purchases.

Robert Michaud, senior vice president of Mid-Hudson Valley Federal Credit Union, said that they have encountered an extremely high demand for refinancings.

There is also an increase in single-family home sales, but still less than those in the early part of the decade. According to Wynkoop, savings for deposits and closing costs have been eroded because of unemployment and underemployment. Moreover, potential buyers have been hesitating because of strict standards to become eligible for a loan.

Michaud said that there have been more denials compared to the past and the majority of these denials are because of collateral, income qualifications or credit.

Decrease in Mortgage Debt of Americans

During the first quarter, home equity increased to $6.7 trillion, which is the highest level in four years. This is because homeowners have paid their principal by benefitting from the low borrowing costs to refinance their loans. Based on data from the Federal Reserve, the increase of 7.3 percent was the biggest leap in over 60 years.

According to Richard DeKaser, the deputy chief economist at Parthenon Group in Boston, the increase is the greatest indication that the housing loan debt of Americans is starting to lessen. Moreover, data from Freddie Mac, a government-owned mortgage buyer, shows that one half of the refinanced mortgages during the fourth quarter decreased in loan size.

In addition, as former chairman of the American Bankers Association’s Economic Advisory Committee, DeKaser said that there has been a significant change in the enthusiasm of homeowners to have housing debt. In particular, when the market was thriving, a mortgage was considered as leverage, but it is considered a risk at present.

Based on a study conducted by the Fed released in the previous week, homeowner equity was 41 percent of US residential property value during the first quarter, and this also takes into account homeowners who do not have mortgages. It was during the third quarter of the year 2008 when the homeowner equity share was as high as 43 percent.

In 2007, residential mortgage debt was at its highest at $10.6 trillion, and becoming twice as much in six years. After that, it has decreased to 7 percent because there was a decrease of 23 percent in the value of all residential property.

DeKaser believes that the decline in mortgage debt was because of a fear factor. The bursting of the housing bubble still has one of every 15 people having no job and has convinced a few borrowers the importance of being thrifty. DeKaser adds that people are concerned of declining home prices and the economy as well.

Lenders File Lawsuits Against Austin, State Law Allegedly Violated

In the previous week, the latest rules of the City of Austin concerning credit lending are being targeted as two companies filed separate lawsuits against the city. This ordinance was passed by the City Council in the month of August last year.

The said ordinance obliged payday lenders to register with the city, restricted the amount of cash advance offered to borrowers by payday lenders, limited the number of times a loan can be refinanced by a borrower, and barred where payday lenders can carry out their business.

The first company that filed a lawsuit last Tuesday was TitleMax, a car title loan provider in Delaware, and followed by foreign limited liability company Rubicon Equity Partners LLC last Thursday. Both companies allege that the ordinance imposes strict limits on the conditions of loans and might almost forbid their companies from carrying out its business as allowed by state law.

According to the City of Austin Law Department, the claims are not true. Moreover, they are completely ready to stand up against the lawsuits and stay positive that the ordinance is legally sensible.

In the month of January, the ordinance already became a law but was not implemented until May, since a lawsuit was previously filed against it by the Consumer Service Alliance of Texas for the same reason as the lawsuits of TitleMax and Rubicon. However, the suit was stopped early June. Rob Norcross, spokesperson of the alliance, said that the city question whether they had status to file such a lawsuit.

The critics of the ordinance said that the high interest rates and fees charged for short-term loans have become a huge problem for low-income borrowers. On the other hand, supporters said that they offer loans for those who need emergency cash and not for those who are not eligible for the usual loans.

Steven Camp of Gardere Wynne Sewell LLP, which is Rubicon’s representative company, said that Rubicon will entirely aim to pursue the lawsuit.

NADA: Prices of Used Cars Will Decrease Through July

According to most recent information from National Automobile Dealers Association (NADA), there will be a decrease in price of used cars during the month of July. This means that it would make sense for people with not-so-perfect credit to purchase a car.

The majority of people with low credit scores restore their auto credit by investing in used cars because they are usually less expensive than brand new vehicles. As a result, it is crucial that this kind of car buyers have an understanding of the used car market.

Jonathan Banks, the senior analyst of NADA Used Card Guide, said that the prices of all used cars will decrease because of the seasonal demand, especially the cars that usually meet the needs of car buyers with poor credit.

In addition, Banks said that the recent prediction of NADA leads to a decline in prices of used cars by 3 percent in the month of July. Because of the decrease in prices of gasoline, it will result in larger depreciation of compact and midsize vehicles. However, it will assist in control the losses for light trucks, for instance, huge pickups and SUVs.

On the other hand, it is worth mentioning that prices of used car will stay at high levels during the latter part of the year, regardless of the anticipated seasonal reduction.

Since summer vacation season is almost ahead and in order for you to travel, now is the perfect time to consider buying a used car that you might not have been able to buy in the early months of 2012, even when you have a low FICO score.

Moreover, visit the website of Auto Credit Express because they will help consumers with credit problems find the best dealer that can offer them an auto loan approval. They will also help consumers restore their auto credit starting with an online application for car loans.