11) The Secrets To Good Credit Scores
Before I start I would like to reveal some unknown secrets to a lot of you who are following my blog. Do you know that your HOA insurance actually covers your home structural damage? We are usually told that the HOA only covers the outside of the building and anything inside the building is your responsibilities but if you take a closer look at the CC&Rs (Covenants, Conditions and Restrictions) from your HOA, you will realized that your HOA management team doesn’t know what they are talking about. At the end of the day, 95% of the HOA insurance covers the building’s structural damage, even if you do not have home owner’s insurance.
I recommend this book if you need to repair your credit. Hidden Credit Repair Secrets: 3rd Edition. It is by Mark Clayborne and it contains some useful information in it.
Some unknown facts about your credit score:
1) Credit Report:
Inquiries remain on your credit report for 2 years (24 months). The good news is that they can only impact your credit scores for the first 12 months- and only if they are hard inquiries (like when a lender pulls your report as part of your application for credit, for example). After 12 months, hard inquiries will have no impact on your score.
2) Credit Accounts:
Negative account information remains on a credit report for 7 years from the date it was first reported as late. If the account containing the negative information has been closed, the entire account will be removed after 7 years. If the account remains open, the negative information will be removed, but the account will remain on the credit report past the 7 years.
Positive information can remain on your credit report indefinitely. If the account is closed, it will typically remain on the report for 10 years after closure.
3) Collection Accounts:
A collection account remains for 7 years plus 180 days from the date the account was delinquent leading up to when it was placed for collection. After that time, it must be removed regardless of when it was paid or when it was placed for collection. Watch out for duplicate collection accounts.
4) Public Records:
Chapter 7, 11, and 12 bankruptcies remain for 10 years from the date filed.
While completed Chapter 13 bankruptcies may be reported up to 10 years after the filing date, credit reporting agencies typically remove them 7 years after the date filed.
Tax liens remain for 7 years from the date filed if paid and remain indefinitely if not paid. However, if you qualify for the IRS Fresh Start program you can request a paid or satisfied tax lien be removed from your reports.
Paid judgments remain for 7 years from the date filed, while unpaid judgments remain for seven years or the governing statute of limitations, whichever is longer.
Since unpaid judgments can usually be renewed, these may remain on credit reports for a long time.
*New York State Residents Only-Satisfied judgments remain for 5 years from the date filed and paid collections remain for 5 years*
6) FICO score of 750 to 850 is the best. Score of 750 and 820 get the same deal.
7) How FICO system works:
Paying your bills on time (35%), Ratio of debt to total credit limit (30%), Length of credit history (15%), New accounts, credit inquiries and recent applications (10%), Mix of credit cards and loans (10%) – fixed charges (car loans, mortgages) are less attractive than revolving charges (credit cards charges).
One of the most important factors banks consider is your debt-to-income ratio. As a general rule, they don’t want housing payments to be more than 28 percent of your gross monthly pay, and a mortgage shouldn’t bring total debt to more than 36 percent. Estimate what your mortgage payment might be for a home in your area, then add that to what you pay each month for student loans and/or any other debt. If that figure is higher than 36 percent of your monthly salary, you know that decreasing your debts is the necessary first step before you focus on buying a home.
If you pay $1,200 a month in rent, that doesn’t mean you can handle a $1,200 monthly mortgage. On top of the base cost, you’ll have to cover property tax, home insurance, utilities, and repairs. Plan on adding about 40 percent to your base cost. If your mortgage is $1,200, add $480 to get a better estimate.
Most new buyers lack the resources to put down 20 percent. Your other option is to pay for private mortgage insurance (PMI) until your equity in the home reaches 20 percent. The smart way to save money is to have the PMI rolled into your primary mortgage rather than pay it as a separate cost. Ask your lender about the Single File loan option offered through Mortgage Guaranty Insurance Corporation.
For me, 25% of your gross income is a reasonable sum to spend on housing, per month or per year. If you are taking a adjustable rate mortgage (ARM), make sure it’s at least 2% below the 30 year fixed rate. ARM has a lifetime cap too.
How About Capital Gains Tax and My Mortgage Tax Break?
Capital gains tax exclusion: $250,000 for individual and $500,000 for couple. You must lived in the house for at least 2 of the past 5 years. Exceptions for this are: Job transfer and health reasons.
Divide the number of months you actually lived in the home by 24 months (minimum required) and multiply that figure by either $250K or $500K to get your exclusion.
Mortgage tax break – $1 = $0.30 tax beak. (Don’t buy a house just to get a tax break!)
And over $125K annual income – you will lose your tax break.
When you buy a house, you can use a buyer’s broker since the 3% selling commission still come from the seller’s proceeds. =)