10 Ways Divorce can Affect your Credit

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As nearly half of the American population already knows, divorce is a difficult, emotional process to go through. This difficulty can be compounded depending on the number of years a couple has been together, the dollar amount of their acquired assets, and whether or not they have any children.

Divorce can also have an impact on your credit, though the proceedings themselves are not the reason for this. In other words, couples shouldn’t expect their credit scores to plummet the second they file for divorce. However, there are things that occur during divorce that can have a negative impact on credit. Here are 10 ways in which a divorce could affect your credit score:

  1. Having to refinance your home

    In order to move a property into one person’s name, it may be necessary to refinance your mortgage. As with any refinance situation, this will require a hard credit inquiry, and may also potentially add a great deal of new debt for one person.

  2. The splitting of the debt was uneven

    When assets are divided, one person may get to take more of the income, property, or assets, but also more of the debt. It all just depends on how the debt is divided.

  3. Going from two incomes to one

    If possible, it’s helpful to examine finances before a divorce and determine new budgets for both parties, so as to avoid falling behind on any bills or payments. Many divorced individuals report that losing another person’s income made the single greatest impact on them financially. Setting up a new budget early on can help avoid this issue.

  4. Not disclosing all debt during the proceedings

    At some point during the divorce process, both parties are required to disclose their financial accounts. However, as former spouses sometimes learn, not everyone is truthful about these assets. Running a credit report is the best way to ensure you’re aware of every account bearing your name.

  5. One party doesn’t pay his or her agreed-upon share

    Most courts are willing to work with couples to help them discuss and agree on a payment plan for shared assets, such as a home or any jointly-owned property.

  6. One party still has access to the other party’s accounts

    In the event that divorcing spouses do not split their joint accounts, both parties will still be responsible for any additional charges. It’s best to split any joint accounts as soon as possible.

  7. Credit limits are decreased

    Many creditors regularly check up on their clients to see if there has been a salary change, and most credit card agreements state that limits can be decreased at the creditor’s discretion. If one spouse was making more money than the other, and the accounts are separated, a credit card company can choose to lower the limits for one or both spouses. This can, in turn, affect credit scores, as well as catapult credit card holders to their maximum limits very quickly.

  8. The divorce turns ugly

    While no one enjoys going through divorce, the best solution is to try and remain civil to one another, lowering the risk of spouses doing financial harm to one another out of spite.

  9. There is confusion over the divorce decree

    People can often be confused about their financial responsibility as stated in the divorce decree. If you are unsure of where you stand or what you must pay, consult your attorney, family court facilitator, or mediator.

  10. Spouses don’t work together

    Sometimes, electric bills can be overlooked or go unpaid. Keeping the divorce process as amicable as possible helps parties communicate with one another over their shared financial responsibility after the households have been completely separated. Working together ensures everyone’s credit remains in good standing.

 

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10 Tips to Secure the Best Interest Rate on your Mortgage

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The process of buying a home is a very involved one, and can be daunting, especially for first-time buyers. It’s often a whirlwind of paperwork, credit reports, and scrambling to tie up loose ends.

One of the biggest factors that goes into calculating your monthly mortgage payment (other than the size of the loan itself) is your interest rate. Some of this is determined by the Federal Reserve, but it is mostly determined by you and where you stand financially, and many factors are considered. Here are ten tips on securing the best interest rate on your new mortgage.

Choose between a fixed or adjustable rate mortgage

While many people might be wary of an adjustable rate mortgage (ARM), it can be a better option for those who plan to pay off their mortgage in a short amount of time. For the introductory period of an ARM loan, the interest rate will be lower than that of a fixed rate mortgage. Just make sure you’re prepared to see an increase in your monthly mortgage payment after the introductory period is over.

Make the biggest possible down payment

The larger your down payment, the less money the lender will have to give you, and the lower your interest rate can be. Your interest rate is partially based on your home’s loan-to-value (LTV). For example, if a home is worth $200,000, and the loan is for $199,000, that would be considered a high LTV and is more risky for a lender. If this ratio is lower, however, you might be rewarded with a lower interest rate.

Make sure your credit is in excellent shape

While there is no one credit score needed to buy a house, those with higher credit scores have usually demonstrated good financial competency, and those are the types of consumers to whom lenders can offer lower interest rates.

Pay for points 

It it possible to pay extra directly to your lender in order to lower your interest rate. For every one percent of your loan amount you are willing to pay extra, it could amount to as much as half a percent off your interest rate. Essentially, you are just paying a larger amount of interest up-front.

Have a long employment history

Even if you haven’t been at the same job for several decades, demonstrating that you have no (or minimal) periods of unemployment shows lenders they can count on you to pay your mortgage in full every month. This can help lower your interest rate.

Prove income stability

If you can prove that your line of work is in high demand with no sign of slowing down, or if you work for a large, profitable company, your lender may take this into account when processing your paperwork. Income stability will help show that you won’t be likely to miss any mortgage payments.

Lower your debt-to-income ratio

Even with a high credit score, it’s possible to accumulate a lot of debt. Lenders don’t want you using more than roughly 40 percent of your monthly income on your mortgage, car payments, and credit card bills. The lower your debt-to-income ratio, the lower your interest rate will be.

Build up cash reserves

Most people know they should have enough savings to cover about six months worth of bills. Proving to your lender that you can still pay your mortgage in the event of a job loss will help you score a lower interest rate.

Shop around

Different lenders have different criteria for their loans. Finding the one that suits you best can help ensure you get the best possible interest rate for your financial situation.

Close on your loan as quickly as possible

Some buyers need 30 days to close; others might need as much as 60 days. If you can close within the initial 30 day window, however, you might pay as much as a half a percent point less than those who need 60 days to close.

 

Image: iStock

The post 10 Tips to Secure the Best Interest Rate on your Mortgage appeared first on Credit.com.

10 Tips to Secure the Best Interest Rate on your Mortgage

guarantee-a-mortgage

The process of buying a home is a very involved one, and can be daunting, especially for first-time buyers. It’s often a whirlwind of paperwork, credit reports, and scrambling to tie up loose ends.

One of the biggest factors that goes into calculating your monthly mortgage payment (other than the size of the loan itself) is your interest rate. Some of this is determined by the Federal Reserve, but it is mostly determined by you and where you stand financially, and many factors are considered. Here are ten tips on securing the best interest rate on your new mortgage.

Choose between a fixed or adjustable rate mortgage

While many people might be wary of an adjustable rate mortgage (ARM), it can be a better option for those who plan to pay off their mortgage in a short amount of time. For the introductory period of an ARM loan, the interest rate will be lower than that of a fixed rate mortgage. Just make sure you’re prepared to see an increase in your monthly mortgage payment after the introductory period is over.

Make the biggest possible down payment

The larger your down payment, the less money the lender will have to give you, and the lower your interest rate can be. Your interest rate is partially based on your home’s loan-to-value (LTV). For example, if a home is worth $200,000, and the loan is for $199,000, that would be considered a high LTV and is more risky for a lender. If this ratio is lower, however, you might be rewarded with a lower interest rate.

Make sure your credit is in excellent shape

While there is no one credit score needed to buy a house, those with higher credit scores have usually demonstrated good financial competency, and those are the types of consumers to whom lenders can offer lower interest rates.

Pay for points 

It it possible to pay extra directly to your lender in order to lower your interest rate. For every one percent of your loan amount you are willing to pay extra, it could amount to as much as half a percent off your interest rate. Essentially, you are just paying a larger amount of interest up-front.

Have a long employment history

Even if you haven’t been at the same job for several decades, demonstrating that you have no (or minimal) periods of unemployment shows lenders they can count on you to pay your mortgage in full every month. This can help lower your interest rate.

Prove income stability

If you can prove that your line of work is in high demand with no sign of slowing down, or if you work for a large, profitable company, your lender may take this into account when processing your paperwork. Income stability will help show that you won’t be likely to miss any mortgage payments.

Lower your debt-to-income ratio

Even with a high credit score, it’s possible to accumulate a lot of debt. Lenders don’t want you using more than roughly 40 percent of your monthly income on your mortgage, car payments, and credit card bills. The lower your debt-to-income ratio, the lower your interest rate will be.

Build up cash reserves

Most people know they should have enough savings to cover about six months worth of bills. Proving to your lender that you can still pay your mortgage in the event of a job loss will help you score a lower interest rate.

Shop around

Different lenders have different criteria for their loans. Finding the one that suits you best can help ensure you get the best possible interest rate for your financial situation.

Close on your loan as quickly as possible

Some buyers need 30 days to close; others might need as much as 60 days. If you can close within the initial 30 day window, however, you might pay as much as a half a percent point less than those who need 60 days to close.

 

Image: iStock

The post 10 Tips to Secure the Best Interest Rate on your Mortgage appeared first on Credit.com.

10 Things to Know Before Getting a Credit Card

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If you’re thinking of getting one of the zillions of credit cards out there, make sure you know these 10 nuggets of credit card wisdom before signing up.

A credit card is not a debit card

If someone asked you to explain the difference between a credit card and a debit card, what would you say? We hope you’d tell that someone that using a credit card is like taking out a short-term loan for a purchase. Also, despite appearances, a credit card doesn’t work like a debit card, which takes money directly from your checking account.

You get extra points if you mention that a credit card carries interest, which you can avoid if you pay your credit card bill in full before the end of the billing cycle.

The real reason to get a credit card

People will say you need a credit card to build credit, but “need” is too strong a word. A credit card can help you build credit, and a good credit score can help you save money on loans down the road (mortgages, auto loans, etc.).

Some might argue that cash back rewards are the real reason to get a card, but that’s not nearly as important as maintaining and building your credit score.

The two types of credit cards

Credit cards come in two types: secured and unsecured. Secured means you’ll have to put down a cash deposit. A secured credit card is a good type of credit card for those with low or no credit. The downside is your card limit is likely the same amount as your cash deposit. An unsecured credit card also has a card limit, but instead it’s determined by your credit history and income.

All about that APR

The APR you see thrown around in commercials and ads refers to an annual percentage rate. It’s okay if you don’t remember what APR stands for, but you’ll always want to check the actual percentage of an APR before applying for a credit card. After all, the APR is what you’ll be charged if you don’t pay off your full balance when payment is due, and some APRs can be as high as 30%.

Watch out for nonstandard fees

Some credit cards have nonstandard fees—which, as you may have guessed by the name, are atypical. Good credit cards don’t deal with nonstandard fees, such as an audit fee, conversion fee, quarterly technology fee, and security fee.

Plan on paying more than the minimum payment

If you were to pay only the minimum required payment on your credit bill each month, you just might never pay off your credit card. As a best practice, try to pay off your credit card in full each month—in other words, don’t spend money you don’t have.

Watch out for an annual fee

If you’re not going to use a credit card frequently, you’re likely better off getting a credit card without an annual fee. These fees can cost as much as $100 to $300 per year. However, not all credit cards with annual fees are bad, and there are plenty of cards without them.

Understand credit card benefits

Credit card benefits come with their own terms and conditions. For example, you may be enticed by cash back rewards only to find that said rewards are limited to qualified purchases or change from quarter to quarter. If you don’t understand the ins and outs of a credit card’s benefits, you likely won’t get the most out of your credit card.

A credit card agreement is binding

Signing up for a credit card means you’re entering a legal contract. Make sure you’re comfortable with the terms and conditions set forth by the issuer, such as APR, fees, and credit limits.

Be sure to shop around

There are countless credit cards out there, so do some comparison shopping before you sign up. Don’t let yourself feel pressured to sign up for a store credit card when you’re at checkout. Taking a few minutes to look at what other credit cards are out there can save you some serious dough in the future.

 

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