How is Your Credit?

Wednesday, February 17, 2021

Information & Tips

Your Credit Report

  • Your credit reports and your credit scores are two different things. A credit report is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Your credit scores are calculated based on the information in your credit report.
  • You can request a free copy of your credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — once every 12 months, as well as under certain other circumstances, such as if you’ve been denied credit or employment based on your credit report or if you believe you may be a fraud victim.
  • You can get your free credit report from Annual Credit Report. That is the only free place to get your report. You can get it online: AnnualCreditReport.com, or by phone: 1-877-322-8228.
  • Negative information in a credit report can include public records–tax liens, judgments, bankruptcies–that provide insight into your financial status and obligations. A credit reporting company generally can report most negative information for seven years.

​Checking Your Credit Report

  • You should check your credit reports at least once a year to make sure there are no errors that could keep you from getting credit or best available terms on a loan.
  • Be sure to check your credit report before making a major purchase that may involve a loan, such as a house or a car.
  • If you are shopping for a mortgage, knowing one of your credit scores can help you find out the range of mortgage rates you can expect.
  • Be sure to check your credit report before applying for a new job. Many companies look at your credit history when hiring employees.
  • Be sure to check your credit report to guard against identity theft. Identity theft occurs when someone uses your personal or financial information to commit fraud.

What is a Credit Score?

  • A credit score is a number. It is based on your credit history. But it does not come with your free credit report unless you pay for it.
  • Your credit score is developed by a computer model based exclusively on the information in your credit report, and it is intended to predict, for example, how likely you are to repay your debts.
  • A high credit score means you have good credit. A low credit score means you have bad credit. Different companies have different scores. Low scores are around 300. High scores are around 700-850.
  • A key component of your credit score is how much you currently owe on each account compared to its original loan amount or credit limit.
  • If you are interested in knowing your credit score, you can order one for a small fee from a number of outlets, most of them accessible online. When doing so, though, think carefully before signing up for a subscription to additional services, which can be costly.

Your Credit History

  • Your credit history includes how many credit cards do you have, how many loans do you have, and if you pay your bills on time. If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards.
  • You might not have a credit history if you have not had credit card, you have not gotten a loan from a bank or credit union. Without a credit history, it can be harder to get a job, an apartment, or even a credit card.
  • If you need to build your credit history, you will need to pay bills that are included in a credit report.

Building Good Credit

  • No credit is often just as bad as poor credit to a lender. If you have no credit history, build it wisely by applying for No Credit Needed payment options and make all of your payments on time.
  • Pay your loans and other bills on time. Even if you fell into trouble in the past, you can rebuild your credit history by beginning to make payments as agreed. Paying your debts on time will have a positive effect on your credit score and can improve your access to credit.
  • Utility bills that are in your name can help build credit. Sometimes, you can get a store credit card that can help build credit. A secured credit card also can help you build your credit.
  • To help show that you have not borrowed too much, try to minimize how much you owe in relation to your credit limit. Don’t automatically close credit card accounts that have been paid in full and haven’t been used recently because that may lower your available credit. However, you may want to close a card with a zero balance if you pay a monthly fee for the card.

Take Control of Your Credit

  • If you believe you cannot repay your creditors, contact them immediately and explain your situation. Ask about renegotiating the terms of your loan, including the amount you repay. Reputable credit counseling organizations also can help you develop a personalized plan to solve your money problems, but less-reputable providers offer questionable or expensive services or make unsubstantiated claims.
  • Placing a credit freeze allows you to restrict access to your credit report. This is important after a data breach or identity theft when someone could use your personal information to apply for new credit accounts. You have the right to place or lift a credit freeze for free. You can place a freeze on your own credit files and on those of your children age 16 or younger.
  • Anyone who denies you credit, housing, insurance, or a job because of a credit report must give you the name, address, and telephone number of the credit reporting agency (CRA) that provided the report. Under the Fair Credit Reporting Act (FCRA), you have the right to request a free report within 60 days if a company denies you credit based on the report.
  • If you have a problem with credit reporting, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

Resources:

Consumer Financial Protection Bureau (CFPB)

Credit Reports and Scores

Consumer.gov

FDIC

USA.gov: Credit Reports and Scores

FTC: Credit Freeze FAQs

Tapping into Your Home’s Equity

Wednesday, December 1, 2021

Homeowners looking for a way to access a large sum of money may not have to look too far if they have accumulated equity in their home. Using the equity from your home can provide the cash you need for renovations or improve your overall financial position. And, this money can often be borrowed at a relatively low interest rate.

What is home equity?

Home equity is the portion of your home that you’ve paid off. It’s the difference between what the home is worth and how much is still owed on your home loan. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity grows. Home equity is typically used for big expenses and often represents a more cost-effective financing option than credit cards or personal loans with high interest rates.

How home equity works

Tapping your home equity can be a convenient, low-cost way to borrow large sums at favorable interest rates in order to pay for home repairs or debt consolidation. However, the right type of loan depends on your specific needs and what you’re planning on using the money for.

  • A home equity line of credit (HELOC) is a variable-rate home equity loan that works like a credit card. With a HELOC, you’re given a revolving line of credit that’s available for a predetermined time frame. HELOCs allow you to spend as you go and only pay for what you’ve borrowed.
  • With a home equity loan, you borrow a lump sum of cash up front that you must begin repaying immediately. Home equity loans have fixed interest rates, meaning your payments will be the same every month.
  • Cash-out refinancing creates a new, larger mortgage on your home. You’ll use this mortgage to pay off your old one and take out the difference in cash.
Best ways to use a home equity loan

There are not many limits on how you can use your home’s equity, but there are a few smart ways to make the most of your loan or line of credit.

Home Improvements

Home improvement is one of the most common reasons homeowners take out home equity loans or HELOCs. Besides making a home more comfortable for you, upgrades could raise the home’s value and draw more interest from prospective buyers when you sell it later on. Other home improvements that yield a solid return on investment include garage and entry door replacements, a new deck, a new roof or an outdoor area addition, like a patio.

College costs

A home equity loan or HELOC may be a good way to fund a college education. While student loans are still the most common way to pay for an education, the use of home equity can still be advantageous when mortgage rates are considerably lower than student loan interest rates. Before tapping your home equity, however, look at all the options for student loans, including the terms and interest rates. Defaulting on a student loan will hurt your credit, but if you default on a home equity loan, you could lose your house.

Also, if you want to fund your child’s education with a home equity loan product, be sure to calculate the monthly payments during the amortization period and determine whether you can pay off this debt before retirement. If it doesn’t seem feasible, you may want to have your child take out a student loan themself, as they will have many more income-making years to repay the debt.

Debt consolidation

A HELOC or home equity loan can be used to consolidate high-interest debt at a lower interest rate. Homeowners sometimes use home equity to pay off other personal debts, such as a car loan or a credit card as they are often able to consolidate debt at a much lower rate, over a longer term and reduce their monthly expenses.

The downside, however, is that you’re turning an unsecured debt, such as a credit card that is not backed by any collateral, into a secured debt – or debt that is now backed by your home. You also risk running up the credit cards again after using home equity money to pay them off, substantially increasing the amount of debt you have.

If you have a significant amount of unsecured debt with high interest rates and you’re having trouble making the payments, it may make sense to consolidate that debt at a substantially lower interest rate, saving yourself money each month. If you have a solid debt payoff plan, using home equity to refinance high-interest debt can help you get out of debt faster.

Are you interested in a Home Equity Loan? Meet our team and contact a lender today.

Should I Refinance My Mortgage?

Wednesday, December 29, 2021

Refinancing your mortgage could help you reach your financial goals sooner rather than later, when done at the right time and for the right reasons.

What is a Mortgage Refinance?

A mortgage refinance is when you obtain a new mortgage to pay off your old mortgage. You are essentially obtaining a new mortgage loan with a different interest rate, term, and monthly payment than your old mortgage.

Why Should I Refinance My Mortgage?
  1. Lower your monthly mortgage payment

If you refinance to a lower interest rate, your monthly payment will likely decrease.

  1. Access your home’s equity

If you’ve made payments on your mortgage, you could potentially have equity in your home. Equity is the difference between your home’s fair market value and the amount you still owe on your mortgage. A cash-out refinance allows you to take advantage of the equity you have in your home to:

  • Pay off or consolidate debt
  • Make home improvements or renovations
  • Allocate more money to retirement savings
  1. Pay off your loan sooner

At the time you took out your mortgage, a 30-year term may have made the most financial sense. Over the years as your financial situation changes, a shorter term, like a 15-year mortgage, may make better financial sense for you now. It could possibly allow you to build equity faster and own your home sooner.

  1. Save on total interest

Refinancing your mortgage at the right time could help you reduce the total amount of interest that you pay over the life of your loan. The amount of interest you pay over the life of your loan is determined based on the interest rate and mortgage term. Having the ability to reduce one or both could save you significantly on interest in the long run.

  1. Change Your Loan Term

A refinance can allow you to lengthen the term of your mortgage and lower your monthly payments. For example, you can refinance a 15-year mortgage to a 30-year mortgage and make a lower payment each month. Be mindful that when you lengthen the term of your mortgage, you may get a slightly higher interest rate, and a longer mortgage term means you will likely pay more interest over time.

Switching from a longer term to a shorter term, you will likely be taking advantage of lower interest rates. It usually (but not always) means your monthly payments will increase, so you’ll need to be prepared for that.

River City Bank offers a YOURgage – so you can refinance your mortgage without starting over. With a YOURgage, you don’t have to worry about going back to square one with a 15 or 30-year mortgage. You decide your term – anywhere from 8 to 29 years.

Learn more about River City Bank’s mortgage options. 

How Do I Decide If I Should Refinance?

Know The Costs – Application fee, appraisal fee, inspection fee, attorney review and closing fee, title search, insurance, etc.

Gather Your Documents – Two most recent pay stubs, W-2s, and bank statements.

Underwriting Your Loan – The underwriter examines all details of your application and supporting documentation for accuracy and guideline fulfillment.

Getting An Appraisal – Appraiser inspects your home and compares it to similar, recently sold homes in the area to determine its value. You may be exempt if you have had an appraisal in the last 120 days.

Closing Costs – Prior to closing, you will receive a Closing Disclosure with detailed information about closing fees, loan details, and payments.

Are you interested in refinancing your mortgage? Meet our team and contact a lender today.