Using your house to pay for higher education

Dear Ms. Mortgage Maven,

I am 65 years old and need about $30,000 to help my daughter pay for college. My house is worth about $500,000 and I owe about $120,000 on it. I would like a home equity line of credit but my credit score is not the best because I went through bankruptcy several years ago. I am a senior citizen and receive social security, and I also have a part-time commission-only job. My combined income is about $20,000/year.

Can I get a home equity line of credit?

-SD

Dear SD,

Two things immediately jump out at me. First, many people think that their credit score is lower than it actually is and second, you should compare getting a home equity line of credit to getting a reverse mortgage and see which one makes the most sense for you.

If you have been paying your bills on time since your bankruptcy, your credit score may be higher than you think. You should look at your credit report not just to learn your score, but to verify that it contains only accurate information. Especially since you have been through a bankruptcy, it is important to make sure that the collection accounts that were discharged through the bankruptcy are properly noted on your report.

For example, if your bankruptcy was discharged in April 2003, those collection accounts should not be reported as current collections. You want a relatively small amount of money, but you also are retired and do not make a lot of money. Do you enjoy working your part-time commission job? Do you think it could soon bring you more income for you to live comfortably for several years?

If so, then a small home equity line of credit may make sense, but remember that you will be paying your first mortgage (on $120,000) and a second mortgage (on $30,000) every month. If you answered no to both questions above though, you may want to consider a reverse mortgage.

A reverse mortgage allows you to use the equity in your home without having to make any sort of monthly payment. Unlike regular mortgages, there are no income or credit requirements, and the money you receive is not taxed by the government because it is a loan, not income. You can choose from a lump sum payment, a line of credit, a monthly payment to you for the rest of your life, or for a fixed duration, or a combination of the three.

news source : http://media.www.districtchronicles.com/

Why annual reports are a waste of time.

It's spring, which in corporate America means it's time for the annual reports. If you own a few shares of stock, or someone in your house does, you've seen them. Many are beautiful. Most are banal: full of jargon, vague mission statements and feel-good pictures of smiling customers, spotless manufacturing facilities and diverse employees. Here's Merrill Lynch's annual report, with several pages of beautiful photography. And here's the McDonald's annual—68 pages of good times, good food and good statistics.

It saddens me to say this—especially at a time when people in the word and image trades are suffering—but annual reports are archaic and essentially worthless. Those thuds you hear are hundreds of thousands of meticulously crafted marketing documents being dumped into the garbage can. Given that every American corporation is trying to be greener and save money, it's astonishing that annual reports are still produced.

Once upon a time, annual reports were a necessity. The New York Stock Exchange required companies that listed their stock on the exchange to send every shareholder an annual report—a document offering a state-of-the-company address from the CEO plus crucial operating data. In addition, the Securities and Exchange Commission required companies to send 10-Ks (detailed annual reports shorn of the PR junk) and proxy statements (like 10-Ks but with more information about compensation and the directors up for election). In their day these were highly useful documents: news organizations would keep collections of them, and professional investors could mine them for insight.

news source : http://www.newsweek.com/id/133228

Citigroup reports loss on writedowns, credit costs

(Bloomberg) - Citigroup Inc. posted a $5.11-billion loss today and cut 9,000 jobs, sending its shares up as much as 7 percent in New York trading.

Citigroup, the biggest U.S. bank by assets, reported almost $16 billion of writedowns and increased bad loan reserves as customers fell behind on home, car and credit-card payments.

U.S. index futures rose and the dollar advanced against the euro after Citigroup announced the results, fueling investor optimism that the credit-market contraction may be easing.

Citigroup climbed $1.40, or 5.8 percent, to $25.43 at 10:18 a.m. in New York Stock Exchange composite trading, after surging as high as $25.80 earlier today.

The bank's writedowns and credit losses from the collapse of the subprime mortgage market now total almost $40 billion, more than Zurich-based UBS AG and Merrill Lynch. Vikram Pandit, Citigroup's chief executive officer, has bailed out about 10 investment funds, replaced his chief risk officer and raised $30 billion to replenish capital since he succeeded Charles O. "Chuck" Prince in December.

Pandit's finance chief, Gary Crittenden, said today that the bank would eliminate 9,000 jobs in the next 12 months. That includes 2,000 of the 6,200 cuts the bank has already announced.

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Great Credit Score Gets More Important

Billionaire investor Warren Buffett has a FICO credit score of 718, just under the U.S. median, according to a published report.

That might seem low for someone with so much net worth. But a high income doesn't boost a score and a lot can hurt one, limiting a person's ability to get mortgages or other loans at a favorable interest rate.

Knowing the score and keeping credit squeaky clean is especially important now that lending standards for mortgages and other kinds of loans have tightened.

"Today, great credit is worth a lot more than it was just a few years ago," said Alan Rosenbaum, chief executive of mortgage firm Guardhill Financial in New York.

Besides late payments, carrying a balance on many accounts or running a high balance relative to one's credit lines can cut a score. So think twice before getting new loans or co-signing on someone else's. Many lender inquiries over time can dent a score, as can credit report errors. One looks likely in Buffett's case, reported by Fortune magazine.

Excellence Starts At 750

The FICO score is named after its creator, credit-rating firm Fair Isaac (FIC). It is the most widely used consumer credit rating model in the U.S. A FICO score from 750 to 850 is typically considered excellent, 660 to 749 is good, 620 to 659 is fair, and anything below 619 is poor. The national median is 723.

A statistical analysis of a person's credit report at a major credit bureau -- Equifax (EFX), Experian or TransUnion -- determines his FICO score. It is meant to reflect creditworthiness, the likelihood that a person will pay his debts.

"The formula for an individual's score does not evaluate income. Therefore, a high-net-worth individual may not have a high FICO score and vice versa," said Careen Foster, Fair Isaac product manager.

Banks using FICO scores in lending decisions may deny credit, charge more interest, demand more collateral, or require extensive income and asset verification if the applicant's score is low, Foster says.

In the housing boom, a score around 700 was more than enough to get a mortgage and a good interest rate. Today, many lenders want a 720, even a 740, to qualify for the best rates, Rosenbaum says.

Say someone wants a jumbo home loan of $1.5 million and can pay 30% down. Today a lender with particularly desirable rates may not give him the loan unless his FICO is at least 740, Rosenbaum says.

A few years ago, those scoring 680 or lower got such loans, he says.

No More Lenience

Today, an applicant with a score in the high 600s and not too much credit card debt could secure a loan from a traditional lender for about $200,000 but not higher, says Steve Habetz, president of Threshold Mortgage in Westport, Conn.

When loans are granted, lower scores mean higher interest rates.

"Twelve months ago, if you had 640 credit score you saw no differential in what your cost was for a loan and your ability to get a loan, compared to someone with a 720," Habetz said. "But things are different now."

Rosenbaum says someone with a score of 740 might get a 5-year adjustable jumbo mortgage at 5.5% with no points. Someone with a 700 score may get a 5.875% rate. Loan-seekers who score lower might have to hunt to land loans with interest rates of 6.25% or higher.

More Than A Score

Lenders today still do consider liquidity and income, not just a FICO score, Rosenbaum says.

But according to mortgage banker Peter Grabel, at Indymac Bank, many lenders will now only loan to people with very high credit scores.

"What we're seeing from most lenders is that the lending rate is becoming far more credit-score driven," he said.

It comes at a tough time. Many people are having trouble meeting credit obligations already. U.S. job losses hit 232,000 in the first quarter. The price of gas and goods has been rising.

What Next?

Amid economic challenges, hard-pressed consumers could go deeper into credit card debt and have trouble keeping their scores up.

A rise in revolving debt, including credit card debt, impacts a credit score. In December, this debt type grew at a 2.8% annualized rate nationwide. That rose to 7.1% in January, throttling back to 5.9% in February, the Federal Reserve says.

news source : http://money.cnn.com/news/newsfeeds/

Insurance credit scoring here to stay

I just received my FICO score and VantageScore ranking. My FICO score was 5 points less than my VantageScore ranking, yet FICO gave me a "good" rating and Vantage gave a "nonprime" grade D scoring. My vehicle insurance went up because of this score. Is there any way to dispute this?

-- Stephanie

Dear Stephanie,

Don't I wish you could dispute your insurer's decision! My insurer did the same thing to me while insisting I was still saving more money on my insurance than if the company didn't use scoring. Go figure.

What's really interesting about your situation is the big difference in how FICO and VantageScore rated your scores.

First, let me talk about my actuarial friends. Insurers have the right in most states to view your credit history and include what is found there in their calculations of your personal risk.

Why? Well, insurers say -- and our fearless state representatives agree -- there is a correlation between how a person handles credit and the likelihood of filing an insurance claim.

So to help everyone manage the difficult situation of who gets charged what rates, or gets coverage at all, insurers rely on a scientific model. All things considered, it is probably fairer than the old insurance underwriting technique of redlining based on neighborhood or race.

The bottom line of the situation is that insurance credit scoring is here to stay.

You can ask the insurer's customer service why your rates went up, but you'd probably have more luck asking my cat Stinky for answers. Each company has its own scoring models and considers them to be trade secrets.

However, you can get a version of your generic insurance score from TrueCredit. You will receive an auto and homeowner's coverage score along with advice for improving your score. Insurers may not look at the information contained in your credit reports and scores in the same way that a potential lender would. For example, an insurer may be more interested in your payment history than in how much you owe.

Your FICO and VantageScore credit scores are based on the information contained in your credit reports at each of the three major credit bureaus -- Experian, Equifax and TransUnion. Because each bureau has different data in its files about you, you will have a different score depending on which type of data they use.

Although you cannot dispute your scores, you can check your credit reports to assure that the information used to calculate those scores is correct. If you find inaccurate or out-of-date information, you should file a dispute with the bureau that reported it.

VantageScore is a relative newcomer to the credit-scoring industry. It was developed by the bureaus and they claim the VantageScore ranking is more up-to-date than a FICO score. Different math and weightings are used to figure your score and each has its own range of scores. FICO scores go from 350 to 850, while VantageScores range from 501 to 990 and also include a letter grade.

Once you have your credit reports in the best shape possible, your only other alternative for saving money on your insurance premiums is to shop around for different insurance carriers. Because insurers each use their own scoring systems, you could have a much better score with carrier A than you do with carrier B, and your premium will reflect that.

news source : http://www.scrippsnews.com/node/32303

Mintel Comperemedia Report: Credit card mailing volume continues to decrease

The estimated amount of direct mail sent by credit card companies in the United States dropped 3% from December 2007 to January 2008, according to research from Mintel Comperemedia, a media monitoring service.

The decrease is representative of a trend that first started in October. According to the report, mail sent by credit card companies has declined by 19% since October of 2007. Mintel Comperemedia speculated that the change in mail volume is the result of an “unsteady, unsure market.”

“There have been a few peaks and valleys in 2007, but we observed consistent monthly declines starting in October 2007,” said Lisa Hronek, a senior research analyst for Mintel Comperemedia, when reached by e-mail. “Overall, mailings observed during 2006 were higher than 2007.”

From December 2007 to January 2008, direct mail sent to current cardholders dropped by 30%, the report said. In contrast, mailings to non-customers increased by 7%.

During the same period last year, direct mail sent by credit card companies increased by 7%, Hronek said. Overall, there were more offers sent to both non-customers and existing customers last year. However, the year before that, from December 2005 to January 2006, there was a decrease of 5%, she added.

Not every credit card company decreased its direct mail efforts from December 2007 to January 2008. Six of the top 10 mailers of 2007 actually increased mailings to non-customers from December to January, Mintel Comperemedia said. However, four out of the 10 reduced mailings to non-customers and existing cardholders.

These top ten mailers included in the reporte were Chase, Bank of America, Citibank, HSBC, American Express, Capital One Bank, Discover, Washington Mutual, Barclays Bank and First Premier Bank, Hronek said.

When contacted earlier this year, Paul Hartwick, a spokesman for Chase, confirmed that the company had decreased the amount of direct mail it sends out.

“In general, our direct mail efforts have decreased as we have acquired customers through different channels, including our branch network, the channels of our co-brand partners and the Internet,” Hartwick said in an e-mail.

In contrast, when contacted in late February, a representative from American Express stressed the importance of mail in its direct marketing efforts.

“Direct mail is an extremely important part of our mix, we remain committed to direct mail and it continues to be a successful channel for us for not only acquisition but also as a way to communicate and educate our card members on the benefits and services they have,” said Desiree Fish, VP of public affairs for American Express. “It continues to increase as does the other channels for us.” she added.

news source : http://www.dmnews.com/Mintel-Comperemedia-Report-Credit-card-mailing-volume-continues-to-decrease/article/108670/

Credit cards at ski resort compromised

A Vermont ski resort has been the target of a security breach that may have compromised tens of thousands of credit cards.

Okemo Mountain Resort said Monday that hackers broke into its computer network and potentially gained access to credit card data from 28,168 transactions between Feb. 7 and Feb. 22 and 18,401 credit cards between January and March 2006.

The number of affected cardholders is unknown but Okemo said it expects it to be lower than the number of transactions.

Okemo is working to protect any personal information transmitted through its system from further unauthorized access. The resort has alerted credit card companies, which are notifying affected cardholders.

Cardholders are advised to monitor their credit card activity and credit reports and report any suspicious activity.

news source : http://www.businessweek.com/ap/financialnews/D8VOMSOG0.htm