california home sales show promising results

There are a number of economic factors that keep Bay Area prices higher than elsewhere in the nation, and that many believe will continue to do so for many years to come. A look at historical data provides an interesting glimpse at the stability of California real estate. According to the California Association of Realtors®, over the last 37 years the median sales price of homes in California has only decreased seven times - six times under 3.7% and only once at 4.5%. This chart
shows how real estate performed over the last 37 years. Now, more than ever, investing in real estate is one of the smartest, most secure choices you can make for your future.

RealityCheck: Why 2009 May Be Just What the Real Estate Doctor Ordered

“Change has come to America.” Those were the eloquent words of Presidentelect Barack Obama during his November 4, 2008 presidential acceptance speech in Chicago. Following a three year declining real estate market, change couldn’t come sooner for most Americans, especially when it comes to the real estate sector. Our economy has been mired in one of the deepest and longest downturns the nation has seen in decades and as part of that downturn, real estate prices and sales have suffered. But many experts agree that despite all of the bad news of late, the U.S. economy is expected to emerge from the recession sometime around mid-2009 and that prognosis may be just what the real estate doctor ordered.

So What is the 2009 Real Estate Prognosis?

Much of the 2009 real estate prognosis is dependent on the state of the financial system in general and the real estate finance situation, in particular. The fact is, we really can’t find traction until the financial markets find stability and equilibrium. Also important to consider is the flow of distressed sales throughout the market and whether or not those sales will increase or decrease in the coming year. Knowing this, many experts are predicting that once the massive amount of fiscal stimulus currently being created by lawmakers and aggressive action by the Federal Reserve kick in, the economy is expected to improve. More specifically, let’s take a look at what the experts are saying about real estate in ‘09:

• According to the California Association of Realtors’ October 15, 2008 CAR’s California Housing Market Forecast for 2009, “Home prices throughout most areas of California will post declines next year while sales of existing homes will continue the rise in 2009.”

• CAR also notes, “The median home price in California will decline 6 percent to $358,000 in 2009 compared with a projected median of $381,000 this year, according to the forecast. Sales in 2009 are projected to increase 12.5 percent to 445,000 units, compared with 395,600 units (projected) in 2008.”

• CAR also notes, “We expect sales of distressed properties to peak in early 2009—a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price.”

• According to USA Today’s December 23, 2008 article Forecasters share prediction for economy’s outlook in 2009, “The long-depressed housing market is widely expected to hit a bottom in 2009. But the rebound will likely be slow and gradual, given rising unemployment and
a sluggish economy.”

• According to the National Association of Realtors, “The U.S. economy has entered a recession and will contract for the next three quarters. The recovery,beginning in the second half of 2009, will be tepid. The unemployment rate will peak at 6.7 percent by mid next year before steadily holding down. Despite these challenging economic times, existing home sales will be rising.”

• According to USA Today’s December 23, 2008 article Forecasters share predictions for economy’s outlook in 2009, “We all just need to hang on,” says Allen Sinai, president of Decision Economics, an economic consulting firm. “By late in the year, the economy will be moving up, and 2010 should be a recovery year.”

The Four Step Prescription for Recovery

Possibly the most important ingredient in the 2009 real estate correction is the fact that real estate makes up 20% of the Gross Domestic Product in this country and regardless of which side of the political fence you fall on, our country cannot be fixed without first fixing the housing sector. Real estate should be gaining a great deal of attention over the next several months, particularly by our new administration. With this important information in tow, it is important to point out that we currently have several key indicators that may position our country for a real estate recovery in 2009:

1. Dropping Interest Rates—According to NAR’s December 17, 2008 article entitled Fed Action Creates Best Interest Rates in 50 Years, Realtors® Report, “Mortgage rates which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country.” The article went on to report, “NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes.”

2. Improving Affordability—The California Association of Realtors recently released its First Time Home Buyer Housing Affordability Index which showed that the percentage of households that could afford to buy an entry level home in California stood at 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago. This increased affordability has brought on a surge in sales in recent months with DataQuick News most recently reporting (on December 18, 2008) that a total of 5,754 new and resale houses and condos closed escrow in the Bay Area in November. That was up 12.3 percent from 5,127 sales in November 2007.

3. Government Intervention—As we noted before, with real estate making up 20% of the Gross Domestic Production in this country, it is imperative that the government take action to correct the housing sector. We need to move through the current financial crisis and restore the flow of credit so that qualified buyers are able to take advantage of improved affordability and successfully purchase homes. To respond to this, the government is currently looking at a number of corrector options including tax benefits, home ownership credits, subsidies or interest rate stabilization, to name a few. President-elect Obama and his economic team are in the process of developing an economic recovery plan designed to help Main Street and Wall Street with an ultimate goal of creating at least 2.5 million jobs while rebuilding our infrastructure, improving our schools, reducing our dependence on oil and saving billions of dollars. According to CNNMoney.com’s December 23, 2008 article Obama Closing in on Stimulus Plan, Vice- President-elect Joe Biden was quoted saying, “While our short-term goal is to start creating jobs as quickly as possible, we plan to invest in areas…that will produce long-term benefits for the long-term health of our economy.”

4. Slowing of Distressed Properties—The timing of our price recovery may depend on how quickly the government takes steps to mitigate foreclosures. According to CAR, “We expect sales of distressed properties to peak in early 2009—a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price.” NAR also reported in its December 17, 2008 article entitled Fed Action Creates Best Interest Rates in 50 Years, Realtors® Report, “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market,” McMillan said. “Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”

Looking forward to 2009, many experts agree that the financial system will begin to show signs of stabilization in early 2009 and we may begin to see a real estate turnaround by the summer.

If you are considering buying, this should serve as a good indicator that now may very well be the time to purchase real estate. If you are considering selling, possibly more so than ever, you need a qualified Realtor® who can assist you in selling your home. It is usually not enough to simply post your home on the MLS and post a For Sale sign in the yard. You need someone like myself who understands the intricacies, inventory and challenges of your local market and someone who knows how to properly position your home so it stands out among the sea of listings currently available.

If you are considering buying or selling your home in 2009, I have the resources, knowledge and experience to properly represent you in today’s market. Contact me today for the representation you deserve.

The Impact of Foreclosures on FICO® Scores

The current trend in the marketplace is focused on the impact of foreclosures across the country. This trend has resulted in various opinions on the types of foreclosures (Short Sale, Deed in Lieu and Foreclosure) and its impact on a borrower’s FICO® score.

This topic, which is raised in news articles and other industry collateral, has generated many questions among members of our various sales channels; mainly, how score models calculate each type of foreclosure. After soliciting assistance from various individuals and resources—including each of the three major credit bureaus and CreditXpert —we have compiled the following information for your review.

While many people have associated a target point impact anywhere from 100 points on a Short Sale to 280 points on a foreclosure, Fair Isaac has told us that FICO® risk scores do not distinguish between the three types of foreclosures. There are so many variables in a consumer’s credit report (do they have collections or other public records?) in addition to the foreclosure account that a point impact is almost impossible to gauge. Further complicating the score prediction is how the foreclosure account is reported, and if a public record accompanies it.

Each article we’ve seen suggests that a Short Sale has less of an impact on an applicant’s FICO® score than a Foreclosure, but downplays the fact that there could be legal action taken by the lender on the deficiency balance from a Short Sale. If this is the case, there would then be both a derogatory trade line and a Public Record reporting. This is the same result as a Foreclosure; a derogatory tradeline plus the Foreclosure Public Record. Even without the Public Record filing there would still be the reporting of an MOP 8 on the Short Sale tradeline. This would have a negative impact on the applicant’s score equivalent to a foreclosure tradeline. Finally, Short Sales are typically facilitated to those applicants who have encountered credit issues. These issues would be reflected in the derogatory reporting of other credit items within the consumer’s credit profile.

Princeton Capital does not provide legal advice; therefore, this information is not intended, or should be perceived, as offering legal counsel to our customers. However, there seems to be a considerable amount of incomplete or inaccurate information on this topic in the marketplace. Princeton Capital is a Residential Mortgage Lender, Licensed by the California Department of Corporations, license #415-0027, and the Oregon Division of Finance and Corporate Securities, license #ML-2847. Equal Housing Lender. ©2008 Coldwell Banker Real Estate LLC. All Rights Reserved. Coldwell Banker¤ is a registered trademark licensed to Coldwell Banker Real Estate LLC. An Equal Opportunity Company. Equal Housing Opportunity. Each Coldwell Banker Residential Brokerage Office Is Owned And Operated by NRT LLC.

Definitions:

Foreclosure: An owners right to their property is terminated, usually by default. Property is purchased back by bank or public auction (sheriffs sale). Proceeds of public auction applied to mortgage debt. Most states will zero out deficiency balance.

Deed in Lieu: An owner avoids foreclosure by voluntarily surrendering their property by deeding to the lender as satisfaction for the debt. Deed in Lieu allows the lender to take possession sooner than would be possible through formal foreclosure.

Short Sale : A short sale typically is executed to prevent a home foreclosure. A short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.

FHA Loan Limits—The Changes Ahead for 2009

If there is one thing that can be said about 2008, it is that it was a year of ups and downs. Whether in the stock market or real estate market, every month seemed to hold a surprise—for better or worse. We’re in for another change come January 1 that could affect those looking to purchase a home.

Back in March, as part of the Economic Stimulus Act of 2008, the Department
of Housing and Urban Development (HUD) temporarily increased its limits on Federal Housing Administration loans. Most counties in the Bay Area (including Alameda, Contra Costa, Marin, Monterey, Napa, San Francisco, San Mateo, Santa Clara and Santa Cruz) were considered high cost areas and the limit for a home’s mortgage was raised to $729,750. The goal of the increase was to encourage more lenders and borrowers to use FHA loans in the tight credit market, creating economic stability in communities across the country and giving nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.

Starting January 1, 2009, the expiration date of the Stimulus Act, FHA loan limits will decrease across the country. Loan limits for Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara and Santa Cruz Counties will adjust to $625,500. Monterey County will decrease to $483,000, Napa County to $592,250 and Sonoma County from $662,500 to $520,950. The lower limits are set at 115 percent of the median home prices in each market. But despite the planned decreases, limits are still well above the $362,790 level that was in effect prior to the Stimulus Act and usually enough to buy a respectable house, condominium or townhouse in most markets.

The FHA insures loans made by traditional lenders, lowering the default risk the lenders face for buyers who are not able to put down 10 or 20 percent when purchasing their home. FHA usually only requires about a 3 percent downpayment. It is also the only government agency that operates entirely from self-generated income—costing taxpayers and the government nothing. Since its inception, FHA and HUD have insured more than 34 million mortgages and helped millions of people break into the real estate market. Last year, FHA backed about $60 billion of residential mortgages, but that number is expected to increase to $224 billion by the end of the year.

It should also be noted that the Office of Federal Housing Enterprise Oversight (OFHEO) has approved Fannie Mae and Freddie Mac to maintain their conforming loan limit of $417,000 in 2009. This will be the fourth year in a row that the companies will be allowed to purchase mortgages at or below that rate on a national level. Anything above that amount would be considered a jumbo loan, which typically carries a higher interest rate and downpayment requirement for buyers.

In higher cost areas, including Alameda, Contra Costa, Marin, Monterey, Napa, San Francisco, San Mateo, Santa Clara, Santa Cruz and Sonoma Counties, the conforming loan limits have also been adjusted by 115% of the median home price and have been set as the same rate as the FHA limits listed above. For a complete list of conforming loan limits, visit www.efanniemae.com.

Your Credit Report

It is always a good idea to review a copy of your credit report annually. By doing this, you can correct any errors on your credit profile in advance of a purchase, establish credit if necessary, or start repairing your credit if you have had problems in the past. Lenders look very carefully at your credit as an indicator of your willingness to repay your loan. Having poor credit, little or no established credit, or having unresolved disputes with creditors, can affect your purchasing power and your ability to get a loan. To avoid unpleasant surprises down the road, you can request a copy of your credit report for a small fee by writing to any one of the following credit bureaus:

1. Experian, P.O. Box 949, Allen, TX 75013
(888) 397-3742 www.experian.com

2. Trans Union Corporation, P.O. Box 390, Springfield, PA 19064-0390
(800) 916-8800 www.tuc.com

3. Equifax, P.O. Box 740241, Atlanta, GA 30374
(800) 685-1111 www.equifax.com

As part of our standard pre-qualification, our Princeton Capital Loan Officer will order a copy of your credit report for you. All we need is your full name, current address, your previous address for the last five years, your phone number, date of birth, Social Security number, and your spouse s name. Princeton Capital will run the report and review it with you, saving you time and money.

When you receive your credit report, check for the following items:

Incorrect Entries: If there is a mistake on your credit report (i.e. accounts that are not yours or on-time payments that are showing as late), you can have them corrected by writing to each credit bureau and requesting that the information be deleted. They will contact the creditor who must respond within 30 days. If the creditor does not respond, the item will be removed and a new credit report will be issued to you. If there is still a dispute, you can add a 100-word statement to your file explaining your side of the story. Outdated Negative Credit: If there are unfavorable credit items older than 7 years showing on your report, follow the procedure outlined above. Bankruptcies can be removed after 10 years.

Current Negative Credit: If you have current credit problems, the time to resolve them is before
you buy. Re-establishing good credit after a bankruptcy or other credit problems is very important. Ask for our flyer, Rebuilding Your Credit for more information.

Having an established credit history is also important, as lenders want to see a track record of debts owed that have been repaid. If you haven t already done so, apply for credit cards and use them, or establish credit history by documenting your monthly rent payments and your monthly payments to utility companies.

Your Guide to Purchasing Bank-Owned Properties: What to know and what to watch out for

With the number of foreclosures skyrocketing in California in recent years, there is a lot of interest from would-be buyers in purchasing bank owned properties which are also known as real estate owned or REOs.

On the face of it, short sales, foreclosures, and REOs may look like the same thing, but they are different. As pointed out in the Realty Times’ August 15, 2007 article entitled, Foreclosure Basics: Foreclosures, Short Sales and REOs, if you enter the“market wanting to ‘do foreclosures,’ without understanding the entire process, you could wind up in trouble.” This handout has been designed to explain some of the terminology of these types of sales and to answer some of the critical questions that someone who is considering purchasing a bank-owned property should know.

What are the differences between short sales, foreclosures, and REOs?

What is a short sale? Short sales occur when the value of the property is less than theencumbrances. As the Realty Times article points out, short sales are attractive “because lenders often agree to take less than what is owed on the property. The idea here is that you are saving the lender time and money” by avoiding the foreclosure process. Some lenders may agree to a short sale after a default has been filed.

What is a foreclosure?
As the Realty Times article points out, “When a property is in foreclosure, the owner has stopped making payments and the lender has given the borrower a written Notice of Default that the payments must be brought up to date or the property will be sold off. The notice is a public document (which is why so many websites offer foreclosure lists). It normally takes about two missed payments for a lender to issue a Notice of Default, but not always.” The property is then sold through a public auction process.

What is an REO?
As the Realty Times article points out “If no-one bids high enough to meet the lender’s price at auction, the foreclosure completes and title transfers to the lender. Real Estate Owned means the property is owned by the lender.”

The article went on to point out that “Some investors see REO homes as the best way to buy property because there are no emotions involved: it's strictly business between the investor, their agent, the lender, and its agent. And because most lenders aren't landlords (nor do they want to be), investors can often get a very reduced price.”

How common are these types of sales in today’s market?

While it depends on the market, short sales, foreclosures, and REOs are becoming commonplace in many markets throughout Northern California. Let’s take a look at the facts according to a DataQuick News’ July 22, 2008 article entitled Another Increase in California Foreclosure Activity.

• “Last quarter's number of defaults was the highest in DataQuick's statistics, which go back to 1992.”
• “On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the notice of default. The borrowers owed a median $11,583 on a median $346,400 mortgage.”
• “On home equity loans and lines of credit, homeowners were a median eight months behind on their payments. Borrowers owed a median $3,492 on a median $60,000 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.”
• “On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties - an historical norm. The likelihood was highest in Merced, San Joaquin and Stanislaus counties.”

According to a DataQuick News’ August 19, 2008 article entitled Bay Area home sales climb above last year; median price falls hard:
• “Bay Area home sales eked out their first year-overyear gain since early 2005 last month as buyers responded to price cuts and snapped up more inland foreclosures. The median sales price dove to a 53-month low, a real estate information service reported.”
• “Foreclosure resales – homes sold in July that had been foreclosed on in the prior 12 months – made up 33 percent of all resales. That was up from 29.9 percent in June and 4.2 percent in July 2007. Foreclosure resales ranged from 4.6 percent of the resale market in San Francisco to 65.9 percent in Solano County.
• “In Solano and Contra Costa counties, where deeply discounted foreclosures are most common, 11 zip codes posted sales of existing houses that were at least twice as high as in July 2007.”

According to the Sacramento Bee’s August 19, 2008 article entitled Sacramento-area home sales rise for fourth straight month:

• “Sacramento-area home sales surged past last year's levels for a fourth straight month in July as 4,126 buyers embraced falling prices and deals on foreclosed homes.”
• “Banks in July continued their reign as the capital region's top sellers. Their foreclosed properties accounted for 70 percent of closings in Sacramento County alone, according to the Sacramento Association of Realtors.”

So if you are interested in buying a bank-owned property,
here’s what you should consider:

Get Pre-Approved and Be Ready to Act
In the REO market, competition can be fierce. It’s not uncommon for there to be multiple offers on bank-owned properties. Just as you are looking for a bargain, so are many other buyers. You should be financially prepared to make a down payment and you should have a pre-approval letter from a lender in place before making an offer.

Know Where and How to Look
REOs are usually listed on the Multiple Listing Service and can be found on the majority of websites that feature properties for sale. There are also several websites that specialize in foreclosed properties. You can see which properties are in the process of foreclosure on RealtyTrac.com or find homes that have already been foreclosed upon by checking sites like CaliforniaMoves.com, Trulia.com and Zillow.com. Many lenders also have their foreclosed properties listed directly on their websites.

Hope for the Best, Prepare for the Worst
In all likelihood, you will not be “wowed” when walking through the door of an REO. Most are sold “as is.” In the months leading up to foreclosure, the homeowner may have disregarded maintenance and let the condition of the home deteriorate. Do not be surprised if you see homes stripped of appliances, light fixtures and any other items that can be sold. In the worst case scenarios, homes fall victim to vandals and transients who take advantage of a vacant property. It’s not always a pretty sight, but for buyers who are looking for a challenge, or who can afford the time and effort involved in buying an REO, these types of properties may be right for you.

It May Take Longer Than You Expect
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible; they have no interest in “dumping” the real estate they own cheaply. Generally, banks have an entire department set up to manage their REO inventory, and in this current market, with the increased number of bank-owned properties those departments are often back-logged for days, if not weeks and thus cannot always respond quickly to offers or other inquiries.

Once an offer to purchase is made, banks generally present a “counteroffer.” It may be at a higher price than you expect because the bank has to be able to demonstrate to its investors, shareholders and auditors that they attempted to get the highest price possible. You are then free to accept, reject or counter the bank’s counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and/or other companies. As such, this process may take several days to complete.

It is important when purchasing a bank-owned property that you understand that the timing is often much longer and drawn-out than a typical resale. Simply put, you should be prepared to wait.

Understanding the Property Condition
Banks typically sell a property in “as is” condition. Some banks will agree to provide a Section 1 Pest Certification, but not unless that requirement is included in the final contract. Banks will usually allow you to get all the inspections you want (at your expense), but they probably will not agree to do any or all repairs. Offers to buy REO property may include an inspection contingency period that allows you to terminate the sale if the inspections reveal defects that the bank will not correct and that you might not want to accept. Be aware that some banks require use of their own contract forms which do not include the same types of provisions as standard Realtor forms. In those situations you should review the bank’s purchase contract documents with your own real estate attorney. Even if you have agreed to buy the property “as is,” you may request that the bank make repairs or give you a credit after you have completed the inspections. Some banks will re-negotiate to save the transaction instead of putting the property back on the market, but that possibility should not be taken for granted. Most banks will not provide financing on their REOs but it doesn’t hurt to ask.

Making the Offer

Before making an offer, have your Agent contact the Listing Agent and ask the following questions:

• Are there any inspection or repair reports?
• What work has the bank performed and/or what work will the bank agree to perform?
• How long do you anticipate that it will take the bank to accept an offer?

Offers are usually faxed to the bank. The Listing Agent needs your originals. There is generally no formal presentation. Keep in mind: nothing happens on evenings and weekends as banks are closed.

The keys to remember are: You should have sufficient money available to put down a reasonable deposit; you need to be pre-approved by a reputable lender; your offer should contain reasonable, straight forward contingencies and the offer should specify a closing date that is within a reasonable amount of time. The combination of these factors can position you as a stronger buyer in the eyes of the bank.

What are Some of the Pitfalls to Watch Out For with
REOs?

• Determine all fees associated with purchasing the property. There may be hidden fees like liens, unpaid taxes, penalties, etc. to contend with.
• How low will they go? Lenders may not be willing to negotiate the price down from market or close to market. This is especially true in areas where home values have fallen further than lenders want to acknowledge.
• Be prepared for a counter. Because the sale of bank-owned properties are becoming increasingly popular and therefore, competitive, we are seeing cases in which banks are countering at an amount that is above the original list price. These actions can discourage some buyers.

There Are No Guarantees in Buying REOs

On the surface, it might sound like a bank-owned property is a steal but if the bank wants to sell its inventory on the open market for the amount of money that was once owed to the bank, it may not be as good of a deal as one might think. Couple that with the fact that bankowned properties are not always left in the best condition; a great deal of work and money may be needed after escrow closes to improve the property.

When considering the purchase of an REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling that may be needed. In most cases, banks do not want to indefinitely hold on to their inventory as it isn’t in the bank’s best interest to let the property sit. Therefore, some banks have incentives to price a home for lessthan market value just to get rid of it. However, while it is true that banks are typically anxious to sell bank-owned property quickly, they are also strongly motivated to get as much as they can for it.

The bottom line is that although bargains with bank-owned properties exist, it is important to understand the pitfalls that may also exist in buying REO property. That is why it is imperative that when you do decide to explore the purchase of a bank-owned property that you do so with the aid of a professional, experienced Realtor, like myself, who will guide you through the intricacies of this type of transaction.

Rebuilding Your Credit

A poor credit rating can affect your purchasing power and your ability to get a home loan. There are many things you can do to restore your credit.

Make sure your credit file is accurate. Credit files are maintained by three credit reporting agencies—Experian, Trans Union and Equifax. You can contact one of them and request a copy of your credit report for a small fee. Review the report for errors and outdated information. If you feel that any of the reported information is inaccurate, you can request that the date be removed. The credit agency will contact the creditor who has 30 days to respond and confirm the disputed items. If they do not verify it, the date will be deleted. If the creditor verifies that the information is accurate, you can write a 100-word statement explaining your position and have the credit reporting agency include it in your credit file.

Contact your creditors. Some creditors will remove derogatory information from your credit file if you pay a full or partial payment towards the debt. They may also “re-age” the account by making the current month the first repayment month, thus showing no late payments. You can call the creditor directly to do this.

Add positive information to your file. Send information to the credit bureaus that shows stability and the ability to make payments on time. For any accounts on your credit report that do not
show you pay on time, you can send account statements and copies of cancelled check to show your payment history, and the credit bureaus may add them to your history. If you have long-term employment, have lived in the same place for a length of time, etc., be sure to add documentation to your file that shows this stability.

Get credit in your own name.If you are married and your spouse has had financial problems, be sure that you establish credit in your name alone.

Re-establish good credit.If you have had credit problems in the past (especially a bankruptcy), it is important that you re-establish good credit. There are several ways to do this:
• Get a secured credit card. Many banks will, in exchange for a sum of money deposited with them, give you a credit card. Use the card and make the payments on time. Your credit rating can quickly improve.
• Obtain a secured loan. If you have a passbook savings account or can open one, ask the bank to give you a loan against that money. They keep your passbook until the loan is paid in full. Make sure the bank reports on the loan to the credit bureau.
• Work with a local store. Some businesses will give you credit on a purchase regardless of your credit standing. Although you may pay a higher rate of interest, this in another way of re-establishing good credit.
• Satisfy judgments, liens and collections. Make it a priority to satisfy any unpaid judgments, liens, and collections against you.

How FICO® 08 Changes Affect Credit Scores

The FICO® system, whose credit scores lenders use to determine whether you're credit-worthy and how favorable to set the terms, is set for a makeover. An article in Wall Street Journal reveals more of the changes in store than previously disclosed. Here's what they are and how they'll affect your credit score:

Changes Planned in FICO® 08
The primary reason for the planned switch to FICO® 08 has to do with the forecasting powers of the new model. Fair Isaac believes that FICO® 08 will do a better job at predicting the likelihood of default on a loan by making two changes to its existing model:

• Authorized Users - An authorized user is a person that is permitted by another account holder to use their account. Normally, this situation applies to a family member who is trying to manage credit for the first time, such as a college student. The new scoring model eliminates "piggybacking" which allowed individuals with bad credit to leverage the payment histories of "stronger" credit card holders by becoming an authorized user on their accounts.

• Delinquencies - The second change in the scoring model has to do with payment patterns -especially those that are greater than 90 days late in making a payment.

The FICO® 08 model will be more forgiving to consumers that are in arrears in one area, but have a number of other accounts that are in good standing. Fair Isaac predicts the above two changes will reduce the default rates on consumer debt by 5 to 15% for those companies switching to the new model. Impact of FICO® 08 on Credit Scores Upon hearing of possible changes to the credit scoring process, many consumers will be looking for the answer to the question: How will FICO® 08 affect my credit score?
Keep in mind that credit scores are used by many lenders to determine the amount of credit to extend a borrower. These creditworthiness thresholds are usually based on pre-determined bands of credit scores. To make it easier for lenders to adopt FICO® 08, the new scoring model will retain the same numerical range (300 - 850), minimum scoring criteria, and parameters as the prior model.
+ situations where scores will rise, - situations where scores will fall
+ Mess up every so often
- Consumers who consistently mess up
+ Won't get dinged as hard when you apply for credit from multiple sources
+ Having a mix of credit types, like having a credit card, mortgage, and auto loan at the same time
- Spending near the limit of your total available credit
+ If you're 90 days late on payments on one account and your other credit accounts are in good standing
- 90 days late and you have other delinquent accounts
- Being an authorized user on someone else's account with good credit will no longer help your score

Anatomy of A Credit Score

Credit scores today are generated by a complex series of algorithms designed to assess the risk that a borrower will have a late payment within 24 months. Though every borrower is assessed by the same parameters to generate a credit score, these parameters are weighted diff erently depending on the borrowers’ characteristics and how well the borrower fits one of ten profiles. Specific profiles are reserved for individuals with even just one 90-day late payment or bankruptcy in their credit history. Mortgage lenders tie their rates directly to credit scores.

Components of the score
Though the model evaluates each data element with respect to “Recent-cy”, “Frequency” and “Severity,” the most important of these perspectives is recent-cy.

35% - Payment History
The perspective weighted most heavily in assessing payment history is recent-cy.
Age of last late payment < months =" big" months =" less" months =" signifi"> 50% but <> 75% = big hit

15% - Credit History
This portion of the score assesses the number of new trade lines and their respective ages. If trade lines need to be closed, careful consideration must be made to the effects of trade line age per credit amount extended. The most credit-scoring-wise decision would be based on the reason codes in the individual report making specific accommodation for individual circumstances.

10% - Type of Credit
This portion of the score reflects what the scoring engine determines a “good” mix of credit types. What is “good” in one profile type may not be as good if assessed according to another profile type. Across all profiles, however, finance company credit lines are negatively assessed.

10% - Inquiries
Because the engine assumes that a person applying for multiple trade lines within a short period of time may be indicative of fi nancial trouble, this portion of the scoring engine examines the number of inquiries over time made to an individual’s credit report. The scoring engine treats certain economic sectors diff erently than credit line issues. If an inquiry is made by a lender within the last 12 months, the mortgage financier gets a 30 day window during which time additional inquiries will not negatively affect the score.