The number of people entering into strategic default has decreased slightly. Photo Credit: Gentle/Wikimedia Commons/CC-BY-SA

Over the past few years, the term “strategic default” has entered into the national consciousness. People who owe more on a mortgage than the home is worth simply stop paying and walk away because it isn’t worth the trouble. This practice had begun to increase since the 2008 housing crash, but now the tide is starting to recede, if only slightly.

Credit bureaus and banks getting wise

Banks, loan lenders and credit bureaus have been perturbed by the rise in the number of strategic defaults on mortgages in the past few years. Borrowers that owe more on a mortgage than the house is actually worth will default on their mortgage when the value of the home has dropped so low that it no longer makes any sense to continue. In order to ferret out which consumers were defaulting because the cruelty of circumstances left them unable to make payments from the ones who were just giving up, Fair Isaac and Company, one of the main credit rating agencies in the United States, devised a way to find out which troubled homeowners are likely to engage in strategic default. According to the Chicago Tribune, an estimated 35 percent of all mortgage defaults were strategic in September 2010.

New car and cards a dead giveaway

People who strategically default usually will use available lines of credit just before walking away from the mortgage. New credit cards will be opened up, personal loans taken out to finance the move and new cars will be purchased. Then the underwater homeowner walks. FICO is also working with loan lenders and banks to help them identify potential defaulters before they walk. However, according to SmartMoney, the number of people walking away when it suits them is dropping. It is estimated by the University of Chicago Booth School of Business that strategic defaults dropped to 30 percent in March of this year, down from 37 percent in January. JPMorgan Chase analysts, according to Mortgage Wire, found that the overall rate was decreasing.

Consequences of default

Fannie Mae conducted a survey some time ago that found 27 percent of respondents, according to the Chicago Tribune, found the idea of strategic default acceptable. Consulting agencies began springing up that would advise consumers about how and when to default to their best advantage, such as the website YouWalkAway.com, according to Forbes. Yet people who do strategic default face potentially stiff penalties, according to MarketWatch. Credit scores can lose up to 200 points, leading to a host of other consequences. Landlords and insurers may be less willing to rent to or insure someone who has defaulted, and Fannie Mae has declared that it will not insure a new mortgage for someone who has strategically defaulted. It is estimated that 42 percent of all homes are “underwater,” or worth less than the amount of money owed on the mortgage.

Sources

Chicago Tribune

Chicago Tribune

HousingWire

SmartMoney

Forbes

MarketWatch

The credit squeeze: a double standard. Flickr / alancleaver_2000 / CC-BY

Credit Rating Bureaus issue reports that affect the financial life of everyone who has ever used or will ever use credit. All consumers are judged by their credit rating when it comes to credit cards, mortgages and even job offers.  It may be disturbing to some, however, to learn that the bureaus have a two-tiered system when it comes to resolving errors: one standard for the well-known, well-connected and powerful people — and one for everyone else.

VIPs receive immediate help

According to the New York Times, the three major agencies, Equifax, Experian and TransUnion, keep a VIP list including celebrities, politicians and other influential people. Those on the list receive special attention and most errors are corrected immediately.

Average consumer routed into automated system

For the average credit user, however, disputes are routed into a largely automated system. Complaints are routinely transferred to overseas subcontractors who make quick decisions based on a cursory glance at records. Consumers then can only challenge disputes through the expensive court system.

Influence overshadows accountability

“The legal responsibility of the credit reporting agencies and of the creditors is well established,” said Leonard Bennett, a consumer lawyer in Newport News, Va. “There is a requirement that they do meaningful research and analysis, and it is almost never done.”

As credit has become more and more essential to survival in the modern financial world, the credit rating bureaus have become increasingly powerful.  Their reports determine the all-important credit score that lenders use to determine creditworthiness.  However, consumer advocacy groups claim their accountability has not kept pace with their influence.

Bureaus work for lenders, not consumers

“There is no neutrality in the credit reporting agencies,” said John Ulzheimer, president of consumer education at SmartCredit.com. “They work for the lenders who buy credit reports from them, and anyone who suggests otherwise is not being intellectually honest.”

Reaction of credit rating bureaus

When questioned about the VIP category, TransUnion said all consumers “have the ability to speak to a live representative.” Equifax claimed all consumers who came to the bureau were provided with a number for customer service.  Experian denied that it had a VIP list.

FTC to report on bureau accuracy

Next year the Federal Trade Commission is expected to release a study on the accuracy of credit reports.  The report may or may not contain recommendations for legislative action.

Sources

New York Times

MSN

Telegraph

The people who strategically default may be doing so because of their financial savvy. Photo Credit: Kelseyman749/Flickr.com/CC-BY

People who engage in “strategic default,” purposely defaulting on a mortgage when it’s no longer worth the effort, may be more financially astute than other homeowners in default. A recent study indicates that strategic defaulters have higher credit scores than people who stick out a bad mortgage. However, there are not many people who engage in the practice.

Higher credit scores among those who default on purpose

A recent study by Fair Isaac And Company (FICO) found that homeowners who engage in a practice called “strategic default” usually have higher credit scores than normal defaulters, according to USA Today. FICO found that people who strategically defaulted on their mortgages usually had most other aspects of their personal finances in order and took steps to protect themselves. For instance, only 10 percent of strategic defaulters had maxed out their credit cards and usually would open card accounts with new companies before defaulting. That way, they didn’t have to worry about having to get bad credit loans when a default showed up on their credit report.

Many disapprove of the practice

Not everyone approves of the practice of strategic default. A survey by legal website FindLaw, according to NASDAQ, found that six of 10 people surveyed did not approve of strategic default. However, 34 percent of respondents said that default was acceptable if the mortgage was underwater. People 65 and older were more accepting than those aged 35 to 44, who were the least accepting of strategic default. Strategic default makes sense from a business perspective. Homes are assets, and it doesn’t make sense to pay more for an asset than it is worth on the market. However, people often feel a moral obligation to meet commitments such as making payments on a mortgage, car or personal loans of any sort.

Foreclosures slowing

The rate of foreclosure slowed during the first few months of 2011, according to CNN. RealtyTrac announced that in the first quarter of this year, it observed 681,000 filings, which includes foreclosure filings, evictions and realty auction notices. RealtyTrac also observed 215,046 homes that had to be vacated by the residents. A filing doesn’t mean a family has been kicked out, only that a notice has been filed. Both figures were reduced from last year. Overall filings fell 27 percent from 2010, and evictions fell by 17 percent. Strategic default has increased during the recession, but is only estimated to have made up 35 percent of all foreclosures overall.

Sources

USA Today

NASDAQ

CNN

Credit card delinquencies and debts declined over the last quarter of 2010. Image: MoneyBlogNewz/Flickr/CC-BY

Fewer credit card delinquencies are being reported, and the level of credit card debt is declining as well. Data released by credit bureau TransUnion indicates that more people are paying off debt and more credit cards are being issued. Falling delinquencies indicate many people are paying off holiday shopping sprees.

2010 the year of debt relief for many consumers

During the last three months of 2010, the number of delinquencies for credit cards declined considerably, according to ABC. Credit score bureau TransUnion released a report that indicated credit card delinquencies fell to just 0.82 percent in the last three months of 2010, compared with 1.21 percent in the last three months of 2009. The third quarter of 2010 had a delinquency rate of 0.83 percent. Delinquencies normally rise during the last three months of the year and the holiday shopping season, but now it appears more people are relying on themselves to avoid debt settlement relief, rather than having to get a loan to pay off toys for the tots.

Balances rise and fall

The national average balance carried by credit card holders has also declined. The combined average balance for all major cardholders — all people that hold a Visa, MasterCard, Discover or American Express — declined to $4,965 for the last three months of 2010, which is a reduction of 8.6 percent from the same period in 2009. However, according to the Washington Post, the average balance rose in 33 states. Mississippi, Iowa and Washington D.C. had the highest balances in the nation.

Rise in new issued cards

Despite recent caterwauling from credit card companies that their businesses will be hampered and lose lots of advance cash because of the CARD Act, new cards are being issued at a considerable pace. The last quarter of 2010 had the number of new credit cards rise by 19.1 percent. That was the first time since 2007 that the number of newly issued credit cards rose for two consecutive quarters.

Sources

ABC

Washington Post

Experian is adding renters history to its formula for credit scores, which is good news for many people. Image from Wikimedia Commons.

Credit score bureau Experian is now including renter history in its formula for adding up credit scores. Previously, only negative marks on a renter’s history, like evictions from non-payment, were added. Now positive marks will be added.

Pay the rent on time and do some credit repair

Credit bureaus typically do not factor renter’s history when calculating credit scores, except when things go horribly wrong. Paying rent on time doesn’t get noticed by credit agencies even if “the rent is too damn high” as Jimmy McMillan astutely observed. However, eviction for financial reasons is reported. The credit bureau Experian is going to start adding rental activity to its score formula, according to CNN. That will include rent payments, whereas only mortgage payments were previously included in calculating a credit score. Now a person only needs to pay rent on time to do a little credit repair.

Participation unfortunately limited

Rental history being reported to credit bureaus would be fantastic for many people, as it would mean a positive history is established before trying to get a loan for a home or a car. However, participation is going to be limited for some time. Experian’s RentBureau unit is only getting reports from 45 rental property management companies and info on  eight million renters so far. Unfortunately, college students from Arizona to Alabama and beyond might not be improving their scores by being responsible. Those interested to know should contact their landlords to find out if they report to Experian or request a credit report from Experian.

New rules for credit scores

Credit bureaus have new rules to abide by because of the Dodd Frank Act and the Fair Credit Reporting Act, which alter the rules for credit disclosure, according to the Wall Street Journal. A person applying for an installment loan has the right to know what their credit score is. However, the laws don’t mandate that loan lenders disclose which credit bureau’s score was used. However, one free annual credit report from Experian, Equifax and TransUnion can be requested through AnnualCreditReport.com.

Sources

CNN

Wall Street Journal

Interest rates on credit cards have hit a 13-year high. Image: MoneyBlogNewz/Flickr.com/CC-BY

The interest rates charged on credit cards have recently reached a 13-year high. Since legislation has changed the rules about how interest can be charged, card companies are raising the base rates to make up lost ground. It is working, as credit card companies are also posting high revenues.

Legislation leads to higher rates on credit cards

The interest rates on credit cards is reaching a 13-year high, according to CNN. The current average interest rate for credit cards is 14.72 percent. However, the interest rate charged to a customer varies between card issuers and also can depend on credit scores. People with poor credit ratings can be charged interest rates in excess of 50 percent. The average APR on credit cards has been rising over the past two years, as the recession ate into card company and bank profits. On top of consumers being less willing to add to their debt, Congress passed the CARD Act, which prevents credit card companies from raising interest rates after a customer signs an agreement or without due notice. However, the major card issuers won’t be running for emergency loans anytime soon.

Card companies post huge earnings

Despite rising rates giving the impression that it is harder for credit card companies to earn a living, recent earnings statements show that is certainly not the case. Visa, according to the New York Times, recently posted an earnings report stating the company had increased profits by 16 percent, a profit of $2.24 billion, in the most recent quarter. MasterCard, according to the Wall Street Journal, managed to post a 41 percent increase in profits by the end of the most recent quarter.

Harder to get a credit card

Though card issuers certainly want more people to get credit cards, the interest rates may make it prohibitive to people who have less than stellar credit. Having to take out installment loans to pay for a weekend trip from Jackson to Birmingham is not a thrilling prospect for many people.

Sources

CNN

New York Times

Wall Street Journal

Fannie and Freddie have raised risk fees for mortgage loan lenders, making it that much harder to buy a home. Image from Wikimedia Commons.

Fannie Mae and Freddie Mac have announced a raise in the risk fees they will charge mortgage loan lenders. The mortgage insurance houses are charging lenders more to buy the loans and sell them to investors. Higher costs for obtaining loans may be passed on to borrowers.

Fees charged to mortgage loan lenders to rise

Fannie Mae and Freddie Mac, the mortgage insurers that received billions from bailouts, are raising risk fees charged to mortgage loan lenders, according to USA Today. The fees aren’t being raised astronomically, but risk fees are now being assessed on mortgages lent to some of the least risky borrowers. The way Freddie and Fannie work is that when a  bank or other loan company lends a mortgage to someone trying to get a loan, Freddie or Fannie buys the loan and guarantees lenders that they will receive payment and not lose money on the loan, should the borrower default. Then Freddie or Fannie can sell the loan to investors as an investment. The loan lender is charged a fee by the mortgage insurers for taking on the risk.

Fees to include least risky borrowers

Freddie and Fannie are now including fees on all mortgages, not just the risky ones. Previously, risk fees were not assessed on loans to borrowers who had credit scores of 711 or better and paid at least 20 percent down. From now on, anyone who borrows a mortgage loan without a credit score of 740 and 25 percent down is likely to warrant a risk fee assessed to the lender by Freddie and Fannie. These fees are likely to be passed on to consumers. The amounts will vary, depending on the credit score and amount of down payment of the borrower.

Least likely to affect wealthy borrowers

Those least likely to face risk fees are those who have perfect credit or who are well off enough to not worry about it. People trying to get a piece of the American dream of home ownership, whether it’s in Jackson, Mississippi, or in Scottsdale, Arizona, now have one more thing to contend with. Risk fees are expected to be incorporated into new mortgages nearly immediately.

Source

USA Today

A key portion of the Dodd Frank act, named for Senator Chris Dodd (pictured) and Rep. Barney Frank, takes effect this year. Image from Wikimedia Commons.

There are a new set of rules taking effect this year concerning credit scores. The financial reform bill, or the Dodd Frank financial reform act, changed federal laws regarding reporting of credit scores. If a person is applying for any large loans in the future, these are good things to know.

Change in credit scores law starts in July

On July 21, 2011, a provision of the Dodd Frank Wall Street Reform and Financial Protection Act, or the Dodd Frank Act will take effect, according to USA Today. The new regulations say when people apply for loans — such as a personal loan, large installment loan or mortgage loan — and get denied or get approved for a higher interest rate, the loan lender has to give them a copy of their credit report for free.

Other provisions enacted earlier

This is the second provision of the Dodd Frank Act to take effect this year. On Jan. 1, a related provision took effect that has to do with what is called “risk based pricing.” Risk based pricing is prices or interest rates that are determined by credit score, like a mortgage on a cabin in Scottsdale, Arizona, or a loan for a new car. Similar to the other law that takes effect in July, people who qualify for an interest rate higher than what was desired have to be notified of risk based pricing and instructions on how to get a free copy of their credit reports.

Always a good time to raise credit scores

There is never a bad time to do a little credit repair. The better a person’s scores, the better the rate he or she will qualify for when trying to get a credit card or get a loan that requires a credit check. These laws won’t have an effect on most payday lenders, who generally do not check credit scores.

Get professional credit repair help

Speak to a professional today and take proactive steps to repair your credit. For a FREE credit consultation, call 1-877-563-2076.

Source

USA Today

Getting an affordable mortgage doesn't have to involve good credit scores, high down payments and 30-year terms. Image: CC Keven Walter/Flickr

You don’t need a stellar credit score and a large down payment to buy a house. By gaining some knowledge about how mortgage lending works, you can make decisions and take actions that result in a good deal. Here are some basic guidelines on how to get the house you want at a price you can afford.

Credit scores and mortgage lenders

A good credit score of 700 or above isn’t necessary to buy a house, no matter how tight credit is these days. An average credit score of between 600 and 700 can qualify for a mortgage loan. The interest rate will be higher for an average credit score, but if mortgage lenders were just interested in good credit scores, business would be slow. You may not need a high down payment to get into a home either. The Federal Housing Administration backs first-time home buyer loans at 3.5 percent down. But to avoid the expensive private mortgage insurance required for loans with less than 20 percent down, you may need a second trust loan, or “piggyback loan” to augment your 3.5 percent down payment.

Get approved, then go house hunting

When it’s time to go house hunting, turn the tables on what most people do. Instead of finding the house you want and then trying to get a mortgage loan for it, get approved for a loan first. Then you will know what you can afford and avoid wasting time looking at houses that are outside your price range. By focusing on realistic expectations, you could find a gem that may have otherwise been overlooked. Plus, by starting out within your budget, future troubles that many face by getting stuck with mortgages they can’t afford can be avoided.

What type of mortgage loan is right for you?

When you set out to find approval for that mortgage loan, try not to be married to the idea of a 30-year home loan. Most people choose 30-year mortgages because monthly payments, spread out over three decades, are lower. But the interest paid is also spread out over those three decades. A 15-year home loan, with half the mortgage payments, will end up costing significantly less overall, and be over with twice as fast. And when it comes to debt reduction, keep in mind that a mortgage is some of the cheapest credit there is, and the mortgage interest is tax deductible. Pay off those credit cards first.

Sources

GoBanking Rates

Bankrate.com

Buzzle.com

An increase in subprime auto lending and decrease in auto loan default signals a thaw in credit standards and increased sales for the auto industry. Image: CC madro 21/Flickr

Subprime auto lending saw a resurgence in the third quarter, according to the credit reporting agency Experian Automotive. Bad credit car buyers were also getting approved for higher loan amounts. At the same time that auto credit markets were loosening, borrowers defaulting on auto loans also declined.

Lending standards loosen

According to Auto Loan Daily, Experian analyzes lending based on three credit score tiers. In the third quarter, auto loans for new vehicles to consumers with “nonprime” or mediocre credit scores from 620-679 rose to 10.86 of all auto loans. Loans to subprime car buyers with credit scores from 550-619 made up 6.61 percent of the auto loan market, up from 5.66 percent at this time last year. Bad credit car buyers with credit ratings 550 and less increased from 1.46 percent to 1.59 percent.

Larger, longer loans

Additional indicators that the auto credit market is loosening up include bigger loans with longer terms. On average, the amount financed for new cars has increased $2,530 since the third quarter of 2009 to $25,273. Used car financing rose year-over-year an average of $977 to $16,706. The average term for auto loans increased by about 30 days. However, bad credit car buyers with credit ratings 550 and below showed a rise in the length of their terms by almost four months.

More borrowers paying on time

Delinquencies up to 30 days fell 8 percent in the third quarter to 3 percent of all auto loans. Delinquencies on auto loans up to 60 days dropped 17 percent to less than 1 percent. As delinquencies decrease and consumers cut debt and increase savings, banks and auto financing companies are starting to take bolder risks. The loosening auto credit standards lead analysts to predict that the auto industry could increase sales by 10 percent in 2011. However, bad credit car buyers with lower credit scores can still expect to pay higher interest rates on auto loans.

Sources

Auto Loan Daily

Associated Press

Daily Finance

Unless one wants small loans, the credit market's incredibly high credit rating requirements leave many grasping at straws when they need financing. Image from Wikimedia Commons.

Demand for bank loans for housing is very low, even though rates are at the lowest in decades. It’s great for those with perfect credit scores, but small loans until payday may be the only credit available for a lot of people for some time.

Demand for mortgage loans drops

The bottom fell out of the real estate market, and it has been scrambling to get back to health ever since. There were some signs of life following the homeowner tax credit, but since it expired, demand for bank loans has stayed low. In fact, according to USA Today, the percentage of Americans counted as homeowners is at the lowest level in more than a decade. The 66.9 percent of Americans that own their homes, or have secured financing through a loan lender to buy a home, has not changed all summer, indicating that people either don’t want, or can’t get a loan to buy a house. It is no surprise that the only people who can get financing have near perfect credit.

Small loans might be all that is left

Small loans like payday loans or cash advances may be the only source of credit left for many people. It’s a growing segment. The payday lending industry began sometime in the late 1980s, and by the early 2000s, had more locations open than McDonald’s or Starbucks. Credit is something that will always be in demand, including a loan until payday, even if states are starting to regulate payday loans out of business.

Recovery will take some time

The only credit segment in the economy that is still booming is for small loans for people with bad credit. Payday lenders only started because mainstream finance wouldn’t touch the people they sought to extend a hand to. It may take awhile before things are back to normal. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Banks and credit unions don't offer a loan until payday like a payday loan lender, because they can't. Image from Wikimedia Commons.

There is a good reason a traditional bank or credit union doesn’t offer a loan until payday to customers. Many people have wondered why it is that a small loan for a short period of time is solely the province of payday lenders. Banks and credit unions steer clear of the practice. There are good reasons why payday loans will never be offered by traditional institutions.

Typical institutions do not offer a loan until payday

A lot of people have observed that while you can visit any payday loan store for a loan until payday, a similar loan is not available at a bank or credit union. It turns out there are some very good reasons for that. Firstly, banks and credit unions have to shield themselves against risk. Most people who use payday loans when they need to borrow money do repay them, but the limited documentation needed is less than the average bank or credit union is willing to accept. Part of bank underwriting criteria is normally to perform a check of credit scores, which a person who needs quick cash doesn’t have the time to wait for.

Studies prove they can’t

Banks and credit unions cannot afford to offer a loan until payday, the way a cash advance or payday loan lender does. It isn’t profitable enough for them, and a bank’s first priority is usually the shareholders. A study by Victor Stango revealed that not only were credit unions not able to offer lower prices on payday products and break even or profit, they were also hampered by not having hours or locations as convenient as payday lenders. The same study revealed only 6 percent of National Credit Union Association members offered a similar product.

Reformers should not hold their breath

It is not likely that banks or credit unions will offer a loan until payday anytime soon. They have status as institutions, which leads many to think they are safe. However, the credit cards and overdraft policies many have makes them anything but. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

To keep people safe from real gangsters, it's best to keep loan credit like payday loans legal. Image from Wikimedia Commons.

Loan credit that is considered subprime is something that will always exist. The mortgage crisis over the last few years brought the term “subprime” into the national lexicon, and it applies to borrowing money from a loan lender without the credit scores that a top notch, or prime, lender would lend to. Bad credit loans come in many forms, such as a payday loan, a home loan or a car loan.

Loan credit did not always depend on scores

Loan credit, or credit of some sort, has existed for a lot longer than the current system of finance. Often enough, what was needed to secure credit was the promise of a future pay day. For instance, the organization that later became Bank of America gained great success by offering quick and easy loans, secured only by a promise to repay, after the 1906 earthquake and subsequent fire that ravaged San Francisco. Credit cards didn’t exist until the latter half of the 20th century, but people still occasionally needed a loan until payday.

Real loan sharks

Today, people who have stable income and a bank account can get a payday loan if they need one. As long as a person is responsible when he or she borrows money from payday loan lenders, there is no danger. However, prior to the early 20th century, it was a different story. Back then, if people needed money, they had to go to an underground lender, or “salary buyer.” Essentially, a person would borrow a portion of his next paycheck, which had to be turned over to the salary buyer. However, salary buyers could charge whatever they wanted and extract payment any way they wanted.

Supply and demand are real

As result of public outrage at underground lenders like “salary buyers,” states passed small loan laws, which raised usury rates. That way, people could have a supply for demands that were met legally and safely. Banning payday loans will keep real loan sharks in business. You can read more in the Payday Loan Facts and Statistics report on Personal Money Market.

The reason why payday loans are popular is that no credit check is involved and you can get the funds quickly. Image from Wikimedia Commons.

One of the reasons people get payday loans is that a payday loan is a no credit check loan. People who need cash advances do not have to get their credit scores checked. Those scores do need to be checked for credit cards, or for an installment loan from a bank. In fact, many customers get payday loans because there aren’t any loans for bad credit available from the banks or credit unions they have accounts with.

No banks offer payday loans for a reason

As short term, small dollar consumer lending became less popular with banks and finance companies, the market dried up. By the end of the 1980s, the financial product now called a payday loan was beginning to take shape. Banks and credit unions do not offer a payday loan type of product. Most of them don’t intend to, either. A cash advance lender can offer more loans to more people for a lot of reasons. One of those reasons is the hours. A bank that is open on a weekend is a rare one.

Payday loans with no credit check

The reason behind the existence of payday lenders is that they offer a small, short term credit product that mainstream financial institutions do not. They also do not require membership. A payday loan can also be secured without submitting to a credit check and only takes minutes, rather than hours or days. A payday loan also does not require collateral, whereas a car title loan or pawn loan does.

The banks cannot compete

Payday loans are more convenient than securing a line of credit through a traditional institution. The relative ease of access and the lack of need for collateral in addition to the absence of a credit check or reporting to the credit bureau are, in fact, the primary appeals and functions of the product. The idea is to provide credit to people who can’t get credit and not have it affect their credit. You can read more in the payday lending facts and statistics report on Personal Money Market.

Financial Football is an online game that blends personal finance and the gridiron endorsed by Super Bowl MVP Drew Brees. Image: Ian Rainsley Design + Illustration/Flickr

Financial Football 2.0 is a video game developed by Visa Inc. and endorsed by New Orleans Saints quarterback Drew Brees. Financial Football is available online to play for free. Players control the action on offense and defense by answering multiple choice questions about personal finance. Brees said he learned about personal finance the hard way and wanted to help others avoid the same mistakes he made. Whether Financial Football 2.0 helps accomplish that is unknown, and people who have played the game were underwhelmed.

Drew Brees: personal finance the hard way

Financial Football, developed by Visa Inc. in cooperation with the NFL, uses Drew Brees’ name to promote financial education by teaching children and young adults how to manage their money through the context of the gridiron. The Washington Examiner reports that Brees, the reigning Super Bowl MVP, has been working with Visa to publicize the game for about five years. Brees told the Examiner about financial lessons he learned the hard way, including a delinquent cell phone bill that came back to bite him later. He went over his minutes, didn’t pay the bill and it was sent to collections. Even with NFL millions in his bank account, the blemish on his credit report boosted the interest rate he paid on his first mortgage.

How to play Financial Football

Financial Football can be played online for free at practicalmoneyskills.com. The game features three different levels: Rookies age 11-14, Pros age 14-18 and Hall of Famers age 18 and older. Players can match up against the computer or match up head-to-head. On offense, players move the football with correct answers to questions about personal finance, student loans, credit cards, credit scores, debt collection, economics, retirement and investments. On defense, correct answers generate tackles, quarterback sacks and negative yardage for the opposing team. Players choose real NFL teams, and Financial Football shows stats about wins and losses for each team.

Struggling offense all too realistic

Gamers used to the cutting edge graphics of Madden NFL 11 will be gravely disappointed in Financial Football. Connie Prater at creditcards.com said her biggest complaint was that the game doesn’t tell players why their answer is wrong or provide more details about the correct answer. The game clock is always on and players only have 40 seconds to call a play, read the question and pick from the selection of answers. Running out the play clock results in a five yard penalty for delay of game. Apparently some people play without moving the ball enough to score any points — a feature that may seem all too realistic for some current NFL teams.

Even the golfing and country club crowd runs into financial trouble. Image From Wikimedia Commons.

Recessions take a toll on every social class, believe it or not. Some of the wealthiest of the wealthy do pay cash for everything and carry very low debt loads. However, some wealthy people simply take out way bigger bank loans. Some people would rather risk debt and disaster to have the biggest house and flashiest car, and it is showing. Foreclosures on large properties are increasing, as even the wealthy lack the instant money to pay the mortgage. Even rich people could use loan modification.

Recessions affect even the rich

There have been some high profile tumbles for some incredibly wealthy people. Just look at Nicolas Cage; he wound up losing more than one property, among them a $35 million mansion which was foreclosed. The home is listed for only $11.5 million. Granted, millionaires aren’t worried about their credit scores. That said, too much debt is bad. People should aim to have the fewest encumbrances, even of low interest loans, as possible at a time. Remember also that banks can sue delinquent homeowners for the difference in foreclosure sales. Three families from the “Real Housewives” series nearly lost their homes. Jim and Alexis Bellino, from the “Orange County” show of that series had to get mortgage modification after they defaulted.

Aren’t rich people supposed to be good with money?

According to ABC, the Los Angeles County area has exploded with foreclosures on incredibly expensive properties. In fact, the number of foreclosed on properties worth $1 million or more in that area has gone up 300 percent since April of this year. However, it isn’t so much that rich people are careless with their money. In fact, it’s the opposite. People who are more plugged into the realm of finance know that there’s a time to cut your losses and walk away.

Is real estate still a good investment?

The question of whether real estate is a good investment is becoming more pertinent. Plenty of people put a lot into houses for years, even decades, only to lose more than half that value thanks to the market tanking.

Sources

ABC

Credit card limits are being slashed without warning as banks minimize risk, but the practice hurts credit scores. Think Stock photo.

A final round of new credit card rules designed to protect consumers goes into effect on Aug. 22. Banks and credit card companies have been raising interest rates and fees and slashing credit limits in the run-up to the new credit card rules. Slashing credit card limits is a common practice during economic hard times. But cardholders’ credit scores get hurt by it, through no fault of their own. But there are steps credit card users can take if they want to preserve their current credit limits, or even boost their credit limits.

Credit card limits slashed across the board

Credit card companies have been cracking down on cardholders during the recession and its aftermath. Many credit card-issuing banks are trying to rein in risk amid rising delinquencies and charge-offs — and before the final round of new credit card rules goes into effect. Bankrate.com reports that even cardholders with good credit scores are getting their credit card limits slashed. Dennis C. Moroney, research director of bank cards at TowerGroup, told Bankrate that credit card companies are reducing credit lines and closing accounts. He said that even people with higher scores that have been cut down from 750 to 720 are having trouble getting credit.

Credit limit cuts hurt credit scores

More than 60 million cardholders have had their credit limit slashed over the past few years. Credit Card Guide reports that many people hit by credit limit cuts haven’t committed any  of the typical “risk triggers” banks use to assess credit worthiness, such as regular late payments or high credit card balances. Credit limit cuts aren’t just a major inconvenience. For cardholders with outstanding balances they can hurt credit scores as well. With the debt-to-credit ratio weighing in second among the most important factors contributing to credit scores, credit line cuts are no small concern.

How to protect your credit card limits

For cardholders who want to keep their current credit limit and perhaps even get a credit line increase, Eva Norlyk Smith at Credit Card Guide offers tips. First of all, simply call and ask. Most credit card accounts are eligible for credit limit increases once a year. Always pay off the balance in full every month. And use the credit card a lot, but don’t exceed 50 percent of the credit line. Always send in the payment on time. Don’t cancel any credit cards, don’t apply for any new credit cards and never ask a credit card company to pull your credit report. A credit check hurts a credit score as much as applying for a new credit card.

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Quick payday loans save money

Late fees add up quickly when you fall behind on the bills. A cash advance isn’t free, of course, but the cost of a quick payday loan can be much less than the late fees on your rent or mortgage. If you’ve ever had a utility service disconnected, you know how expensive it is to get it reconnected. Add credit-card late fees or bank overdraft charges to the mix, and the cost of a payday loan pales in comparison.

Quick payday loans protect your credit

Today, credit scores are used for much more than obtaining credit. Landlords use them to make decisions about leasing or renting. Employers use them to make decisions about hiring or promoting. Insurance companies use them to set premium amounts.

If you have good credit, protect it from derogatory marks by getting a quick payday loan rather than paying your bills late. If your credit score is less than perfect, a quick payday loan can prevent further damage and can even improve your credit by helping you pay your bills on time consistently.

Quick payday loans make ends meet

When you’re struggling with money, it can be dangerous to use credit cards. Money problems become much worse when you accidentally overspend with credit cards. Payday loans used wisely, on the other hand, really can help you live within your budget. When you get a payday loan, you know exactly how much money you have in the bank, how much the loan costs and when it will be paid off. There are no surprises, just well-deserved peace of mind.

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Sites like Personal Money Market specialize in providing loans for people with bad credit. They understand that money problems can happen to anyone at anytime, no matter how good their credit scores may be. But before you submit your application, let’s take a quick look into the world of credit today.

Beyond bad credit loans – the World of Credit

Although there are payday loan lenders who can provide you with bad credit loans for your short term needs, it’s important that you work hard to get your credit back in good standing. Of course, these types of loans come in handy any time, but a poor credit can definitely work against you in many other aspects of life. For instance, it’s nearly impossible to get a new mortgage loan these days. And even if you do find a mortgage lender willing to work with a low credit score, the process is almost too complicated to handle, and you will likely be required to pay a higher interest rate. From your dream home to the latest electronics on the market, bad credit can make life a nightmare.

So continue working on your credit and never give up. There are many ways to re-establish a good credit score — all you need is commitment, consistency, and a little bit of sacrifice.

Get back on track with bad credit loans

When life’s unexpected financial mishaps occur, don’t risk more damage to your credit; seek out the help you need as soon as possible. If you feel that getting bad credit loans today will help you back on your feet, do not hesitate to do so. Get your application started right away. Your credit history will not determine your eligibility, and you will be informed of your status within seconds of submitting the form. Don’t let your credit score come in the way of you and the help you need today.

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Credit cards in the US

Almost everyone in the US uses credit cards as a way to pay for debt. Dependency on credit has grown immensely throughout the economy, as lenders in the past were more than willing to extend funds to borrowers. Unfortunately, the recession put a damper on that freedom, when credit card companies were sent reeling by their former over-enthusiastic lending. They began using tactics like cutting people’s limits, even if they had more than that limit charged. This automatically put them in a higher interest rate bracket, and many times unjustly cost them over-limit fees. Credit card companies also began charging higher interest rates without notice to consumers, based on their “adjustable rate” clause in the contract. It was unscrupulous acts like this that pressed the Obama administration to face the credit crisis head on, making legislators step in and find ways of regulating credit card company activity.

Understanding credit cards

To understand what impact credit card companies’ actions have on credit, it’s important to understand how credit is scored. A consumer’s credit score is made up of five different components:

1. 35% is based on history of payments
2. 30% is based on debt percentage, or credit being used versus credit available
3. 15% is based on the length of time credit has been open
4. 10% is based on new credit taken out
5. 10% is based on a mixture of the overall credit a consumer has

Knowing this, the most important thing a consumer can do is pay their bills on time. This is the largest contributor to credit scoring. It’s also important to have a good mixture of all of these elements to maximize a credit score.

Also, length of credit is very important. It’s much more beneficial to have a good payment history with one credit card company than to open new cards that have no history. Consumers should always keep good-standing credit cards open to benefit the most from them.

Debt consolidation companies

Many experts advise against using debt consolidation companies because they do what consumers can do for themselves, for free. A debt consolidation company will charge large fees to negotiate. Experts say that if a consumer wants outside help they should contact the NFCC, the National Foundation for Credit Counsel. They charge a small fee, but it is much less than a debt consolidation firm. The NFCC will communicate with lenders on a consumer’s behalf to work out an affordable plan. They also will work with the consumer to create a workable budget that allows the client to pay down debt as soon as possible.

Debt questions to ask

One important issue to face is what actions led a consumer to having credit card problems. Did overcharging send the credit amount skyrocketing? Did fees due to late payments do the damage? Are credit cards too widespread? These are all questions that need to be addressed for consumers to create healthy relationships with credit. On the other hand, the credit card problems may be due to extenuating circumstances such as unmanageable medical costs. If this is the case, bankruptcy may be a more viable option for the individual. Regardless of what the solution is, it’s important to get to the root of the credit card problem and take care of it. The future after the recession is still unknown and consumers have to work hard to make sure they will be financially sound.