Preview: Credit card after bankruptcy
Credit card after bankruptcy
This blog will teach you how to become a credit millionaire from a bad credit crushed person step by step. I'll show you how to get credit,credit card after bankruptcy and use them optimistic way to increase your credit score.
Last Build Date: Tue, 07 Oct 2014 00:41:40 +0000
What Can A Credit Repair Consultant Do For Me?
Tue, 22 Jan 2008 15:49:00 +0000
A credit repair consultant can be a huge benefit to people who are having trouble keeping their credit score good and do not know how to fix it by themselves. Everybody needs a little help sometimes, and it is great to have someone to turn to when you cannot handle all the paperwork that there is, all alone.
Credit repair comes down to two things:
1. Examining the credit reports for errors, and disputing them with the credit bureau or agency.
2. Reducing your debts and improving your credit history.
The consultant can help with both of these. With the first one, you need to work with the consultant to find any mistakes that there may be in your credit report. If you find some (and a lot of people do) you have to write to the credit bureau that produced the report setting out the correction that is needed and enclosing copies.
These letters need to be very businesslike and it is important to send all of the right paperwork to the credit bureau, otherwise they will just keep asking for more information. Maybe you don't have all the documents that you need, and you could use some help knowing where to get them. Or maybe you don't write great letters, or don't have the time to do all of this. That's where a consultant can help.
A credit repair specialist will also usually be able to advise you on debt management and how to reduce your debts. This could include consolidation of your loan, but you will need to look closely at interest rates on the loans that would be available to you. Sometimes it is better to keep the debts that you have, even if it means more payments to keep track of.
It is also important to understand the effect that asking for another loan may have on your credit score right now, if it is already low. The consultant can explain all of this to you. They can also advise you on how to approach the companies that you owe money to, in order to have them agree to stop reporting on you.
If you are having trouble making the payments on the loans and credit cards that you have, you may need to see a debt counselor. To repair your credit you will need to be making all of your payments on time. You should also be aiming to reduce the balances on your credit cards. If your cards are maxed out all of the time or even if they are more than half way to the maximum, this is something that you can work on to improve your credit score.
Some people have a medium to low credit score simply because they never had much credit at all. This can seem strange. Why would people who were never in debt not have a great score? The answer is that the loan companies do not know what they are dealing with.
No credit history is better than a bad credit history, but it is not as good as somebody who uses credit and always pays it back. If you are in this position, the credit repair consultant will tell you how you can easily build up a great credit history without ever getting into debt.
What Is A Bad Credit Score?
Tue, 22 Jan 2008 15:44:00 +0000
There is a lot of discussion about credit reports and ratings, but exactly what is a bad credit score? Why do some people constantly get turned down for loans while others, who don't have any more money, are instantly approved with no trouble?
Credit ratings are an important part of everybody's life these days. Even if you don't want a loan, your credit score can affect your application for credit cards, apartment leases, and even some jobs. It can also affect anything that involves you committing to monthly payments - auto financing, some insurance schemes, even having a phone hooked up in your house.
FICO or Fair Isaac Corporation is the best known credit score calculator in the USA. The exact mathematical formula or algorithm of the FICO credit calculation is very complex, but it is based on all the financial information they can get about you. This includes your credit history, loan and mortgage applications, missed payments if any, and many other details.
Some lending companies will use the FICO score directly to estimate whether a person is likely to be able to pay any financial commitments that they are applying for. Other companies are members of a credit bureau who supply them with credit rating information on applicants.
The three credit bureaus in the USA each have their own way of calculating a credit score but they are based on the FICO score. An individual's score is updated regularly. If you have a very good score, you will most likely be approved for low interest loans and credit cards.
The range of FICO scores is from 300 to 850. The higher you score, the better.
Around 725 or higher would be a very good score. With a score like that you have a good chance of getting approved for the apartment, car loan or mortgage that you want to apply for, and you will be able to get low interest rates in most cases.
Between 580 and 725 you will still have no trouble getting the finance that you need but the interest rates are likely to increase as you reach the lower part of that scale.
Below 580 is a bad credit score, and below 500 is real bad. The lower you go here, the more trouble you will have finding credit, and the more interest you will have to pay. It doesn't seem fair that the worse off you are, the more they make you pay, right? But it's because you are seen as a bad risk. Your interest rates reflect the costs they think they might have getting the money back from you if you don't pay it.
If you have a bad credit score you need to know that before you start looking for loans. It is best to know your exact score and be upfront with it when you call any kind of loan company. That way if they are going to turn you down, you know right away without wasting any more time - and without having rejected applications appearing on your credit report, pushing your score even lower.
Knowing your own personal credit rating will help to get you the best credit deals available to you, now that you know what is a bad credit score and what is a good credit score.
Torrential Traffic Tactics Is Going To Launch Today
Mon, 07 Jan 2008 11:47:00 +0000
Michael Jone has reopened the door of Torrential Traffic Tactics
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This quick and easy to implement trick will blow your mind with its simplicity, and leave you wondering why someone else hadn't thought of it already.
The stuff that they've been giving away gratis from their new package is so amazing, we can't wait to see all the high powered techniques that are about to be revealed when *Torrential Traffic Tactics* is released next week.
Make sure you catch this latest revelation and take notes. The video is only about 4 minutes long, yet you'll have the guts of a potent tactic that will get you an ongoing amazing number of fresh visitors to your sites.
Once you put this trick in motion, you'll have to shut your site down to turn off the traffic it creates.
Go see it now and put the info to profitable use right away, before your competitors do.
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The Last Affiliate Secret From Eric Rockefeller
Wed, 19 Dec 2007 05:51:00 +0000
Erock aka the Affiliate Rockstar Comes with his new ebook The Last Affiliate Secret.In case you do not know who Erik Rockefeller is, he is guy who did List Monster, Affiliate Rockstar status, Affiliate undercover, Clickbank Killer and many others and now he presents the Last Affiliate Secret.For years i have seen him as a top affiliate. Whenever a new product launches you will see Eric on the top of the sales leaderboard . He is himself 'The Last Super Affiliate'. The ebook The Last Affiliate Secret Is for newbies actually.While this is not a really a big secret, it's a different methodology or path to becoming a super affiliate. This ebook explains how to choose a niche and dominate it as a super affiliate by publishing first, building a quality buyers list, and then going on to promote like products within the same niche as a trusted expert. So the hook is the fastest way to become a super affiliate from scratch. This will be explained in detail and sold as the definitive way to surpass the competition. So here is what the last affiliate secret would cover - how to choose a niche - info product creation - outsourcing - building traffic - list building - recruiting affiliates - and many many more It is going to launch Thursday, 20th December, 12pm EST. So , if you are ready to take over Affiliate Marketing as a proper way of making your living and you are detrmined to do so , The Last Affiliate Secret is a no brainer for you. But if you are in Affiliate Marketing for years and make some good earning through it , probably it is not for you instead brush up your knowledge and goal to earn more through affiliate programs. To your success - Kabita Kalita. The blog for The Last Affiliate Secret Is http://the-last-affiliate-secret-review.blogspot.com/[...]
Being in the right place at the right time -27
Mon, 04 Dec 2006 12:25:00 +0000
Other factors entering the decision-making
process are whether the lender may have
already invested in a competing business and
how much competition there is in your market.
Be prepared to tell the lender how you plan to
deal with these conditions, how you have
assessed the market, and how your business
will weather economic changes.
Finally, the person handling your loan has their own personal
conditions. I like to call these the “bad cup of coffee” factors after one of
my law professors. The professor claimed to give lower exam grades
when he had a bad cup of coffee while grading.
These conditions range from the lender’s personal mood to their track
records when making loans. If he is looking for a bonus for number of
loans written, he may be more likely to approve yours. If she has
recently made a number of bad lending decisions, she may be gun-shy
about risk taking and deny your loan.
Even seemingly unrelated factors touch your loan decision. Fights with
a spouse, poor weather, allergy attacks and hunger are among a whole
list of personal issues that may be challenging your banker when you
meet with them.
You can’t improve conditions. However, you can predict and respond to
them, manage and exploit them. By researching some of the systematic
risks that may be of concern to the lender, you can preempt them. Be prepared to talk about how your business will survive seasonal trends,
or profits even with the vagaries of your particular clientele. Come
armed with good answers to why your loan fits into the lender’s overall
loan profile and goals.
Being in the right place at the right time -26
Mon, 04 Dec 2006 12:24:00 +0000
Conditions, simply put, refer to the economic climate of the
marketplace. Consider this role-play:
Paulie: Donna, may I borrow $20?
Donna: Let me check my wallet
Notice the difference? This is the only C of credit that isn’t about you,
the borrower, and you cannot control directly.
Conditions are factors that range from the global economic climate to
the positive or negative influences on the particular lender the day you
apply for a loan with them. Other factors are the tightness and
availability of money due to controls by the Federal Reserve, the
prevailing interest rates, or the economic cycles of recession or growth.
While you cannot control the economic conditions, you can study,
predict, interpret and even mitigate them.
Study the leading economic indicators for the national economic trends.
New housing starts or building permits indicate an improving economy.
The increase of interest rates and tightening of the money supply may
signal fears of inflation. Mid-swing indicators such as new hires and
fires can show you the general trend of the economy.
Conditions include factors intrinsic to the
lending business or of a particular bank or
branch of the bank that are also conditions
that are considered in a lending decision. The
bank’s particular balance sheet requirements,
goals, and the underwriting requirements are
part of the bank’s conditions. If the bank doesn’t make a loan of a particular kind such as loans on
prefabricated homes, this particular condition, no matter how good the
other Cs are for you as a borrower, you won’t get that loan. This can
also help you. If a bank is looking to expand their business in a
particular area, such as small business loans, you may get a positive
lending decision because you were in the right place at the right time. If
the conditions are right the lender may overlook some small weaknesses
in your strength as a borrower.
Creating Your Net Worth Statement -25
Mon, 04 Dec 2006 12:20:00 +0000
Net Worth Statement
Current Liquid Assets Current Liabilities
Checking account 3,500.00 Capital Gains tax 1,500.00
Savings account 200.00 Salary Advance 2,300.00
Stocks/Bonds (E-trade) 4,000.00
Total Liquid Assets 7,700.00 Total Current Liabilities 3,800.00
Fixed Assets Short –Term Liabilities
Vehicles 4,500.00 Auto Loan 4,750.00
Home 84,000.00 Credit Cards 12,500.00
Personal Property 84,000.00 Business Loan 42,250.00
Total Fixed Assets 172,500.00 Total ST Liabilities 59,500.00
Deferred Assets Long-Term Liabilities
Promissory Notes 2,000.00 Student Loans 44,000.00
IRA 5,775.00 Mortgage 64,200.00
50% Interest Business 12,130.00
Total Deferred Assets 19,905.00 Total LT Liabilities 108,200.00
Total Assets 200,105.00 Total Liabilities 227,200.00
NET WORTH <$27,095.00>
Notice that the net worth was reported as a negative number. It is
estimated that one in every 10 American households has a zero or
negative net worth. These are primarily college students, recent college
graduates, or retirees on a fixed income.
The profile above is typical of a new investor. This person has gone to
college, as evidenced by the student loan liability. They have recently
purchased their home. Note the outstanding home mortgage is 77%
value of the home, indicating a recent home purchase, possibly in the
last two years. The person also signed personally for a business loan to start a
business in which they are a 50% partner. This is not uncommon.
Most of us will have to sign personally on business accounts for the first
couple of years as our business gets started.
You can improve your capital, and thus your net worth statement, in a
variety of ways. The first is simply to increase your savings and
decrease your spending. Each time you do this, more of what you earn
will appear in the assets column of your net worth statement, and tip
your net worth figure farther to the positive side.
Saving more goes hand in hand with reducing your debt. Debt
reduction lowers your liabilities and thus increases your net worth.
Learn more about strategically decreasing your debt and saving more in
Chapter 11 called “Dividing debt and conquering credit.”
The second way to have the most impact in improving your net worth
statement is to purchase undervalued assets. When you get a deal on
an asset and buy it for less than its value, you get an instant boost to
your asset column.
Creating Your Net Worth Statement -24
Mon, 04 Dec 2006 12:18:00 +0000
Gather all of your financial records.
Compile your assets. Assets are anything of value that you own. Some
examples of the types of documents you are looking for:
Statements for savings and checking accounts, investment and
securities accounts, 401(k), or IRAs;
Deeds and titles to real estate, vehicles and equipment;
Notes or certificates of paper assets, stock or partnership interests; and
Appraisals of collectibles and other personal property.
Accounts receivable and available lines of credit can also be considered
assets, as long as the entire line of credit balance and the cost of
production for any future accounts receivable are included as liabilities.
Classify your assets into three separate classes: liquid assets, fixed
assets and deferred assets. Fixed assets can be sold, but not easily,
and will often need to be replaced. Deferred assets are ones that you
can’t access immediately such as retirement accounts and business
Compile your liabilities. Liabilities are any thing that you owe. You’ll be
gathering statements for mortgages, credit cards, school loans, auto
loans, personal loans, other promissory notes payable, and estimated
tax liabilities. Classify these as current liabilities (have to be paid this
year) short-term (paid in a few years) and long-term liabilities.
To calculate your net worth, take the sum of all your assets and
subtract your total liabilities. The resulting figure is your net worth.
Your resulting financial statement will look something like this: See the next post.
It’s not who you know it’s what you own -23
Mon, 04 Dec 2006 12:16:00 +0000
If collateral is the specific asset used to secure the loan, capital is thesum of all your assets. It is exemplified in the role-play below.Paulie: Donna, may I borrow $20, it’s Sunday and Ican’t get to the bank.Donna: Let me see your bank statement.Capital is defined as the combined value of what you own with a biastowards liquidity. Lenders are reluctant to fund a loan unless they haveconcrete evidence you have sizeable financial assets to fall back on. Lenders take comfort in knowing you possess valuable things or havepiles of cash you can use if you have a hard time repaying the loan.Lenders will want to see that you also have a lot to lose. For businessloans, lenders want to know that you have personally made a financialcommitment to the business. Lenders know that the amount of moneysomeone has at stake in the event of default is directly related to howhard they will work to pay the loan as agreed.Lenders will look to your personal resources to provide as much of theneeded capital as you can afford to put at risk. Depending on the capitalneeds, you cannot expect any lender to loan 80 percent or more of thecapital, as they may for a home or investment real estate. It is alsopossible to borrow the capital of others to use to secure a loan. Thecloser the asset is to cash, the more liquid it is. Liquid assets that don’tchange in value are the best kinds of capital for the purposes of gettinga loan. Non-liquid assets that are relatively stable, like real estate, areanother good source. Non-liquid assets of a volatile nature such asstocks or collectables are the least desirable to a lender.You can improve your capital simply by acquiring more of it, orincreasing the value of what you have using the techniques discussed inthe section on collateral. You can improve your capital by making concerted efforts to increase your savings and decrease spending. I willgo into some specific techniques for living below your means in Chapter11 and the appendices.For business loans, you can improve your capital through developingaccounts receivable from customers, or raising capital fromstockholders.Your primary method of proving your capital to a lender is through yourpersonal or business net worth statements. The net worth statementlists the value of your assets, subtracts your outstanding liabilities, andcomes up with the number that is referred to as net worth. Standardbusiness and personal net worth statements calculate assets by addingyour purchase price and capital improvements, then subtractingdepreciation to arrive at their worth.You are going to create a net worth statement that is “marked tomarket”. This is a statement that reflects the present value of yourassets. For real estate, this is the estimated market value. For anautomobile, consider the market value according to the industrystandard, the Kelly Blue Book.* Assets such as diamond rings and stamp or coin collections also appreciate in value. Consider getting anew appraisal every couple of years for valuable personal property.Personal property. Your lender will always assume that your net worthincludes an evaluation of your personal property; so to refrain frommaking a statement of the worth of your personal property is a financialmistake. Use the same rule of thumb that a lender does. Personalproperty is usually equal to the value of the dwelling. The lender mayalso use the number that you have the property insured for.Coincidentally, most insurance companies also use the personalproperty equals the house value rule of thumb. If you have jewelry oran expensive collection that boosts this estimate above the basic rule,get an independent appraisal, a separate insurance rider for the item,and list it separately on your net worth statement.[...]
The third way to repay a lender -22
Mon, 04 Dec 2006 12:15:00 +0000
Jewelry or other personal property. By law, a lender can’t ask you to
pledge your clothes, furniture or other personal belongings for a loan
unless these are the specific items you are buying with credit. However,
this doesn’t stop you from volunteering these assets as collateral. The
values of these items are most often shown by the independent
appraisal method. Like with real estate, get a few appraisals and use
Stocks. When you secure a loan with stocks, it is called margining. The
margin interest rate offered by brokerage houses is usually an
attractive, competitive rate. Federal rules prohibit margining stocks
above 50% of the current market value. So for purposes of lending,
your stocks only represent half their present trading value. When you
borrow against your stocks, your broker will reserve the right to ask you
to deposit more money into your account if the stock price dips too low.
This is called a maintenance margin call. Failure to make a margin call
will result in having your stocks sold to cover the costs, even if they get
sold at a loss.
Paper Assets. Promissory notes and mortgages can also be used to
secure loans. You can show the value of a note by showing the terms of
the note and proof of performance. Likewise, you can use account receivable and forward contracts to secure a line. The stronger your
proof of the payee’s performance is, the greater the value of the paper
Whole life insurance. You can borrow against the cash surrender value
of your whole life insurance policy, up to 95%. The rates are generally
very competitive since this is a secure investment for the insurance
The third way to repay a lender -21
Mon, 04 Dec 2006 12:10:00 +0000
Ownership is shown through the deed, but the way value is shown depends upon the purpose and length of ownership. For residential real
estate, until the property is seasoned (held for a period of time, usually
one year) its value is assumed to be the sum of the acquisition costs
and capital improvements. To increase the value of real estate during
this period, your best option is to make capital improvements using a
rebate strategy. Rebates are an extremely common business practice.
It works like this: you have your contractor charge you his retail prices
for the improvements and give you a “good customer” rebate for some of
the costs. The full retail price is what is used for the value calculation.
After a property is seasoned, the value is most often shown by an
independent appraisal. Hence, one way to increase the value of the real
estate is to get a number of appraisals, and use the best one. Do not
inflate appraisals, simply get a second or third opinion and use the most
favorable one. You can also show the value, much like an appraiser
does, by providing your own market comparables. These are other
houses with similar features that have sold in your area recently.
Once real property is valued, the lender will
only take a portion of that value to determine
the value of the asset as collateral. Typically
their lending limits set this at 70% for real
property. The exception may be your primary
Your lender doesn’t want to assume the risk
of giving you access to too much of your
collateral’s equity. If you have borrowed 100% of an asset’s value, it costs you nothing to cut your losses and
“walk away” from the asset if you fall upon financial difficulties.
Lenders are willing to increase that risk with your primary residence
because moving from your home is a tougher decision to make.
Rental real estate can also be valued using the income method. There
are locally varying formulas that are used to determine the value of the
property as an income property. The rents can be used to determine
The third way to repay a lender -20
Mon, 04 Dec 2006 12:06:00 +0000
Collateral is the asset that is used to secure the loan. It is evidenced inhis role-play:Paulie: Donna, may I borrow $20?Donna: Yes, if I can hold your Boiler Room Collector’s Edition DVD until you repay me.Collateral is the pledged property that a lender may use to meet the loanobligations in the event of default. Collateral is often called the thirdway to pay. For the credit millionaire, lenders first look to thenvestment for repayment, then to the borrower, then finally to theiquidation of the property. Then lenders will consider taking the property that’s pledged for theoan to sell it and recover their losses. When considering potential collateral, lenders ask the question, “If Imust foreclose, will the collateral cover the loan?” They will want to beassured if the collateral is sold it will be simple and fast and sufficient tocover the loan obligation. To ensure this, the lender will want the assetto be adequately insured and may only loan a certain percentage of thevalue of collateral. Lenders know from experience a borrower will trymuch harder to make their payments if they have some financial risk oractual cash loss at stake.Lenders take the collateral in lieu of performance of the loan throughforeclosure or repossession. Familiar examples of this are a mortgageforeclosure or automobile repossession. There are many things that a lender can look to for collateral, from realestate to the cash value of life insurance policies. When usingcollateral, consider carefully the consequences of the worst-casescenario if you cannot repay the loan. You may be forced to liquidateand sell or give up your property. If your loan is too high compared tothe value of the property, the sale of the property may not be enough tocover the obligations. In other words, you may lose your property andstill owe money.Following are a few of the assets that can be collateralized and thedocuments used to prove and improve their worth.Cash. You can secure a loan with a certificate of deposit or bankaccount. This is the only asset that you are likely to get a loan againstthe full value of the deposit. In the event of default, the bank willsimply seize the funds for full satisfaction of the loan.Real Estate. Real estate is the most commonly known form of collateral.Real estate that already has debt on it can still be used as collateral.For many people, the most tempting form of collateral you can use ishe equity in your home, that is, the difference between your home’salue and what you owe. Because it’s very easy to borrow against thequity in your home, it’s often the first place that business owners andnvestors go to get funds for their activities.There are three main ways to tap into your home’s equity: through aash-out refinance, a second mortgage or a home equity line of credit“HELOC”). When you refinance your home, you borrow up to 80-90% of the valueof your home, the original mortgage is paid, you receive cash at theclosing and you have a new fully amortized mortgage placed on yourproperty. With a second mortgage, you get a lump sum payment foryour equity, and an additional fully amortized loan is added to yourhome, leaving your original mortgage intact. A HELOC gives you accessto convert your equity to cash. However, you don’t have to take thecash up front. Rather, you can use it as you need it. Additionally, youusually make interest-only payments on the funds you are using. It’slike a credit card that is secured by your home. Ownership is shown through the deed, but the way value is shown ...[ continue to next post][...]
What you can’t see helps you—invisible debts -19
Mon, 04 Dec 2006 12:00:00 +0000
A third way to help your ratios is to consider invisible debts. Some
lenders don’t report your debt to the three major credit bureaus. Since
the debt doesn’t appear on your credit report, it won’t affect your credit
score. If you can move a balance from a reporting debt to a non-
reporting debt, this new invisible debt will improve your capacity as
calculated by your credit reporting records.
Lines of credit at local stores, personal notes and other sources of non-
reporting debt can help you by making your overall ratios smaller when
your credit report is the chief method the lender uses to determine your
financial worthiness. Obviously, if a more detailed balance sheet is
requested, those debts should appear there.
However, the danger with this strategy is building up too many debts
and becoming over-indebted. Remember what the credit report doesn’t
know can still hurt you. When you accumulate invisible debts, use
them wisely. By paying these debts on time you will improve your
character, your reputation for paying your debts and you gain a source
for meaningful referrals.
Increase the depth and breadth of your income -18
Sat, 16 Sep 2006 11:17:00 +0000
To develop depth your goal is to earn more income from each of your
current sources. You can develop expertise or get training for your job
or profession that entitles you to better pay.
Increase the depth of your passive income by finding higher interest
paying investments or raising the rent on your rental properties. Move
your mutual funds or non-dividend paying stocks to those that pay
Increase the breadth of your income
For breadth, seek out multiple streams of income to increase the
number of sources of repayment. You can develop enough expertise in a
field to become a highly paid employee or consultant, or use that
expertise to write a book, create an information product or conduct
Develop and diversify new classes of income producing assets. Consider
dividend paying stocks, bonds or real estate.
For a business loan, lenders determine capacity by looking not only to
the business’s financial projections but also to your personal ability to
repay the loan if the business does not work out as planned. They will
want to know if you have other income (investments, a working spouse,
royalties, pensions, etc.) to help you repay the loan if necessary.
Lenders will want to know the answers to questions such as: if the
business fails, will you be able to return to your present or previous job?
Do you have other skills that could produce income? Be prepared to
provide solid answers to these questions and be able to offer real
evidence to support your answers.
To improve business capacity, increase the products and services that
your business provides. Look for turnkey systems that build off of what
your business already does. If you are a construction company,
consider hiring a certified home inspector in the business. If you own
rental real estate, install a coin operated laundry or vending machine.
With a retail shop, consider candy vending just inside the door, or a
mechanical ride by the entrance.
Credit Millionaire Ratios -17
Sat, 16 Sep 2006 11:14:00 +0000
Credit millionaires have one more ratio. In fact, this ratio is needed,
because most millionaires wouldn’t be able to pass the other two.
This ratio is reserved for individuals with significant investments or
businesses. Even small businesses get the benefit of using the credit
millionaire ratio—the Debt Coverage ratio.
The Debt Coverage Ratio is your total income from all sources minus
operating expenses. The difference with the ratio for the credit
millionaires and the consumer ratios is the consumer ratios first look to
the borrower’s income for repayment then to the secondary sources.
The credit millionaire ratio considers the net operating from your assets
as the primary method of payment for the debt on those assets. This
ratio puts the borrower’s earned income secondary to the income from
the assets. With the debt coverage ratio, the value of the income from
those assets is generally not reduced, as is rental property income for
an individual borrower.
A Debt Coverage Ratio of 1.0 represents break even cash flow, when the
net operating income from an investment or business is equal to the
debt coverage. The higher the number over 1.0, the better the ratio is.
A debt coverage ratio of 2.0 suggests that the monthly income from the
property is twice the payment on the debt. Lower than 1.0 means that
the income from the property isn’t enough to support the monthly loan
There are many documents which can be used to show your capacity.
Income, W2s or 1099s, check stubs Tax Returns
Court orders for garnishment or support Rent rolls or leases
Royalty agreements Work history
Promissory notes with proof of payments
You can increase your capacity by widening the gap between your
income and expenses. You do this by both increasing your income and
reducing your expenses. Reducing your expenses is not as easy, but
well worth the efforts. We have all heard the axiom, “a penny saved is a
penny earned.” But a penny saved is really MORE than a penny
Consider this: every dollar that you want to spend, you must first earn.
When you earn income, whether through your job, business, or
investments, you must pay income tax on those earnings before you can
spend them for a non-business expense. So in order to spend $1.00,
you need to earn much more than that.
To calculate how much money you need to earn to spend $1.00, you
add your marginal tax rate (we’ll use 28% for this example) with the
15% tax for social security, Medicare, etc, resulting in a total tax of
43%. Which means you get to spend only 57% of what you earn. To get
the amount you need to spend $1.00, divide it by 57%. You see that an
individual in the 28% tax bracket needs to earn $1.75 to have $1.00 to
Thus it’s always better to decrease your expenses
than increase your income by the same amount.
What you really want to do is both.
Generally easier than decreasing your expenses is
increasing your capacity by increasing the depth
and breadth of your income.
Consumer Credit Ratios -16
Sat, 16 Sep 2006 11:13:00 +0000
Lenders can’t tell how much you earn from your credit report, they rely
on the earnings figures that you report to them. Looking at your credit
report tells lenders only what you owe and how much your monthly
payments are on the accounts that are reported. They compare your
earnings with those monthly payments to come up with the debt-to-
income ratio. Most lenders want to see that your total monthly
obligations don’t exceed 50% of your pre-tax income.
The second standard ratio is the housing expense ratio. This one is
specifically used when purchasing a home loan. The lender will first
look to see that your debt-to-income ratio doesn’t exceed their limits,
then will caluclate your housing expense ratio. This is the comparision
of your monthly mortgage payment for the proposed mortgage compared
with your pre-tax income. The standard is that your mortgage payment
should not exceed 30% of your total income.
When Your Out Of Pocket Exceeds Your Income-Downfall Starts-15
Sat, 16 Sep 2006 11:09:00 +0000
Capacity is simply your ability to comfortably repay the loan. It can be
shown in this role-play:
Paulie: Donna, may I borrow $20?
Donna: How quickly can you easily repay it?
Capacity is reflective of your income. Your loan officer will scrutinize
your ability to repay a loan by looking at your employment and salary.
They want to see a long and stable employment history. Stability also
includes whether your occupation is riddled with industry-wide or
Since capacity is that it is your ability to comfortably repay your debt
obligations, lenders will compare your total expenses with your income.
If your present debt expense is too great a percentage of your monthly
income, you may be denied credit because you don’t ratio.
Owen returned the phone to the cradle. “Fran, we didn’t
get the loan.”
After a long pause Fran asked why. Owen explained that
their current debt payments were too high. Even though
the refinance would allow them to pay some of the bills, and ultimately
they would have lower monthly payments and be paying a lower interest
rate, the mortgage company said the numbers still didn’t work.
“I may be able to pick up a few more hours a week at the store”, she
“No, we’ll just apply for another credit card. There should be a pre-
approved card application in the mail in a few days. We seem to be
getting them every week or so. In the meantime, we’ll have to cut back
a little around here. I don’t understand why the numbers didn’t work.
The company said something about our monthly payments being too
high compared to our income...”
There are a couple of key ratios that lenders look to when making a
credit decision. The first is the Debt-to-Income ratio. This ratio
considers your overall monthly debt payment and compares it with your
Creditor’s Security And Credit-14
Sat, 16 Sep 2006 11:07:00 +0000
Character can also be demonstrated by stability. Your creditor will definitely look at things that don’t factor into your credit score calculation at all. Whether job security is a reality or a myth in today’s times, it’s still a very real factor in the lending decision. They want to know that you are a stable credit risk. Lenders will be interested in knowing that you own your own home. Homeowners, as far as lenders are concerned, are more credit worthy than renters. Lenders presume that homeowners understand financial obligations and are accustomed to making their monthly payments. Lenders presume that homeowners are more responsible in matters of long-term employment and commitments. Owning real estate in your community will indicate a level of commitment and stability that lenders want to see. Lenders are very interested in your line of work, because your profession is also an indication of stability. Certain jobs are more desirable to a lender than others, often with a bias towards professional and managerial jobs and away from skilled labor and clerical positions. In reviewing your application, lenders will also look to your length of time at your current place of employment. Even in a poor economy where the concept of job security is a joke, lenders will want to see that you’ve been in your current job for several years. If you’ve changed jobs recently, they will want an explanation why the move took place. Since they are lenders, a greater salary is always a sufficient reason. A change inside the same industry or with a title change may be seen favorably, even if it isn’t. Lenders want to know things such as whether you have a savings account. People with savings accounts are at least thinking about saving their money. People with savings accounts with balances are demonstrating that they don’t spend all they make. If you keep all of your cash in one checking account, consider portioning some of it off and opening a savings or money market account. Even a small savings account will communicate to the lender that you have the ability to save money, a specific plan to do so, and some evidence of financial responsibility. Your lender will want to see that you have had your checking and savings accounts for some time, and without unusual fluctuations. Your character, combined with income, are the only factors considered in most consumer lending decisions. Credit card lenders and other retailers only want to know the information on your credit report and the amount of money you earn. Character is important for employers as well. Especially when applying for a job handling money, lenders want to know you aren’t in credit trouble, so that you won’t be desperate and dishonest. [...]
The Relation Between Your Character And Credit-13
Sat, 16 Sep 2006 11:05:00 +0000
When the late American industrialist J.P. Morgan was asked what he considered the best bank collateral, he responded with a single word: "character." The primary factor in a positive credit decision is your personal character. The essence of character can be found in this short role-play. Paulie: Donna, my dear friend, may I borrow $20? Donna: Sure, anything for you Some people define character as who you are when no one is looking. In the case of your credit, character is not only who you are, but also who you have been in the past. It is said that the best prediction of today’s weather is what it was yesterday. Similarly, the best predictor of your future credit behavior is your past behavior with your credit accounts. Character is your financial reputation with people and the marketplace. To the potential lender, solid character means that you will make every possible effort to repay the loan and avoid taking out loans that are beyond your means. The most common indication of your character is your credit score and credit history as discovered through checks with the credit bureaus. Character is also demonstrated through good credit referrences, referrals and your contributions over time to the community. In addition, most lenders will make a personal judgment of your character based on your presentation over the phone or in person. The lender will usually sit down across the table from you and make an assessment regarding his or her comfort level with you as a borrower. If the words "bad risk" come to mind, you may not get a loan regardless of how high your credit score is. This is not to say that a lender can make a credit decision based on your physical appearance alone—thankfully, we have credit protection laws that protect us against discrimination based on race, gender or disabilities. Character is a combination of objective measures, like your credit history and score, and subjective judgment like your reputation and the lender’s impression of you. There are techniques that can be used to improve both the objective and subjective measures of character. To improve the objective measures like the credit score and credit history, start today to acquire more credit and use it responsibly. The more credit that you have that is open and used responsibly, the more your credit score will go up. If you have no credit at the moment, you are just a few short years away from the highest rated credit. If you have some “dings” or small mistakes in your credit history, you will want to engage in some credit repair. For the subjective measures, the key to improvement is to build relationships and seek referrals and references As you think about your personal and business history, ask yourself who you have done business with in the past that can vouch for your timely payment history. Even if a business doesn’t report to credit agencies, they can be positive references for you. Send each of them a letter using the sample reference letters in the appendix. Remind them of their pleasant transaction with you and let them know you will be using them as a credit reference. Give them the option of calling you if they would prefer you didn’t. This is a valuable tip. Always make the action on their part be your least desired result. You get more “yeses” by default that way. Another option is to ask the business to send you a letter of how you always pay as agreed. Referrals are a p[...]
5 Characteristics Of All Credit-12
Fri, 15 Sep 2006 06:08:00 +0000
No matter what type of loan you consider, all lending decisions are based on five, and only five, criteria. To the credit industry insiders, these are known as the Five C’s of Credit. They are: character, capacity, collateral, conditions and capital. I call them “All Star Credit” and use
a star to help us remember the five aspects.
The 5 C’s are time-tested criteria all lenders use (whether they know it or not!) to make their lending decisions. Everything that can affect the credit decision is encompassed in these five broad categories, so we’ll spend some time going over each one in detail. By understanding each of these from the lender’s viewpoint, you can anticipate your strengths and weaknesses as they may appear on your application to a potential lender.
You needn’t be perfect or even strong on each of the 5 C’s. Strength in one arena will support and substitute weakness in other areas. For example, excellent capital (what you own) can make up for inadequate collateral. If the lender’s conditions are ripe for lending, the particular
borrower almost doesn’t matter.
However, by applying my All Star Credit system, you will be able to make each point of this star shine as brightly as possible. In the next few articles I will delve into these five aspects in detail, first giving a short role-play to help you identify the factor. Then I will define the C, and show some examples of how to prove or demonstrate that factor. Finally, we’ll offer suggestions to build that element of your personal or your business’ credit.
I'll discuss more on tomorrow.Thank You.
Types Of Credits And You-11
Fri, 15 Sep 2006 05:58:00 +0000
Lending takes on a variety of forms, from the simplest, “May I borrow $20” between friends to a much more complex transaction.
The above example represents the type of loan request from someone who displays the utmost in credibility. There is no talk of interest, repayment schedules or terms. This is a loan between friends.
The next level of loan is represented by the “what’s in it for me” mentality, and that is a loan with interest. Similar to the previous example, this loan doesn’t discuss the length of time of the loan or other terms. It’s the kind of loan givento people who are trying to profit and have a high degree of trust in their borrower. Signature lines of credit at a bank are a good example of this kind of loan.
As the level of trust decreases, the number and strictness of the loan’s terms will increase. Perhaps the lender will want a promise to pay by a definite date, then perhaps higher interest. Eventually the lender will want security for the loan in the form of valuable property that the lender can seize in the event the debt isn’t paid. At the lowest level of trust, the lender will want possession of the property. Pawn brokers take actual possession of the property in their shop, and can easily sell it if the borrower doesn’t pay the loan as agreed.
Regardless of the specific terms of a loan, all loans have four parts.
1. something borrowed
2. the costs of borrowing
3. the repayment instructions
4. the penalty for not following the instructions
The description of what is borrowed—a monetary amount in either a lump sum or as a credit line, but it could easily be any other item. There is the cost of the funds—in interest, finance charges, application fees, points and penalties. There is a payment plan—how much you will
pay, how often and for how long, and how the borrowed item will be returned. Finally, there is a provision for the penalties in the event that you don’t fulfill your promise to repay. Some loans ask for an additional term, security.
A secured loan is a loan that is backed by an asset, called collateral. For major purchases like automobiles, some states allow lenders to retain the rights of ownership to the property until you have paid for it in full. Other lenders use the property as additional security for the loan, and can force the sale of your property to satisfy their debt in the event you stop making payments.
An unsecured loan is known as a signature loan. It’s a credit line that is extended to you entirely based upon your credit worthiness. Credit cards are the most common example of an unsecured loan. If you don’t make your credit card payment, the company can’t come and take the items you purchased with the card.
For more information on how the monetary system works, read Modern Money Mechanics, published by the Chicago Federal Reserve Board.
Next time i'll discuss about 5 characteristics of all credit.
Every Dollar You Spend Is Credit-10
Fri, 15 Sep 2006 05:50:00 +0000
The credit system is a continuous cycle of borrowing and lending. All money is borrowed money. Even when you use your own cash, you are borrowing money—from yourself!
Spending money is borrowing from your funds available to purchase income-producing assets to get goods and services. The cost of those funds is the lost opportunity you could have gained had you invested the money.
Now before you start writing me letters about how your children really like to have dinner on the table, I’m not saying that you shouldn’t spend money!
It’s important to have food and shelter, transportation, and yes, even entertainment and luxury items. However, recognize that using funds for these purposes necessarily means they aren’t available for investing. It’s not a judgment on your personal spending habits to say that a
dollar saved is one that can’t be invested. It’s an illustration of the simple fact that all dollars come from the same pool of money. To keep the credit cycle going, borrowers need to repay what they owe.
Every borrower who repays on time allows the lender to profit, which allows the lender to pay his or her own bills, which allows the lender’s lender to do the same. Thus when someone breaks the cycle by not paying as agreed, the entire system suffers.
The largest single lender in the country is the Federal Reserve Bank (“The Fed”). The Fed loans money to national, state and local banks at a nationally published interest rate called the Discount Rate. The Discount Rate is always lower than Prime Rate—which is the rate banks
charge their best customers. The Prime Rate is usually reserved for wealthy individuals and major corporations. Other borrowers are offered an interest rate higher than prime. How much higher varies depending on the type of loan and the borrower’s credit. Who lends money to the Fed? We, the consumers do. When the Federal Reserve needs money, they either print more (I don’t recommend this strategy for you) or issue bonds. When the government issues bonds, they are collecting the money they’ve released into the system back. Consumers buy bonds as an investment strategy—which the government guarantees. The government pays interest on these bonds—the same dollars they released into circulation by printing money. The Fed can make as many of these loans as they feel is necessary for the overall economic strategy—and can do so without a credit check.
Next time i'll discuss about the faces i mean types of credit.
The Time Frame For Building Credit-9
Fri, 15 Sep 2006 05:40:00 +0000
The one ingredient in the credit calculation that I can’t help you with is your length of credit history. Credit building takes time. The good news is, if it isn’t getting worse, it’s definitely getting better. Every month that goes by where:
1) you pay your bills on time, every time, and
2) you don’t do anything to make your credit worse, results in
If you have no credit, expect it to take one to two years for you to develop enough credit to qualify for a major purchase.
Once your credit repair activities have removed all the impactful negative information from your credit reports, and the situation or bad habits that caused the credit crisis are under control, you will find that the credit building process is identical to the process for those with no credit.
In either case, you will start to grow and improve your credit. You will ensure that temporary hardships are planned for through proper budgeting. Your credit scores will gradually increase over time.
Improving your credit worthiness will help in other areas too. Not only will you get more credit at better rates from lenders, but also better employment opportunities and lower insurance rates.
All of the strategies you encounter in this blog apply for you individually and for your business. Building credit involves the application of the same principles, whether you have new or old credit, good or poor, business or personal. These strategies work for everyone and every business.
Once you’ve grown your credit, my final articles will tell you how to parlay your good credit into millions, making money all throughout the process. As a credit millionaire, you know it’s easier to borrow $10-million than it is to earn it on your job or save it. And when you borrow
those funds to buy assets that both pay for themselves and appreciate, you’ve discovered the secret solution to the world’s wealth.
Next time i'll discuss about Why using your own cash is also credit!
Perfect Credit Report-8
Fri, 15 Sep 2006 05:33:00 +0000
The credit repair portions of this series of articles are important. Once you have a credit record, you are
sure to need the strategies. It’s estimated that up to 82% of credit reports contain factual errors.
One in four contains an error that will result in the denial of credit. While mistakes often find their way onto your report, they don’t seem to find their way off—it’s up to you.
If you are building new credit, in the beginning it won’t be particularly easy. This is a society based on the credit system. Getting ahead in a credit society is hard for those who have been denied access to the system. However, a careful application of my course will allow your
credit to grow in a balanced fashion.
For young readers, college is the place where you will likely learn to build credit. Routinely college campuses are littered with solicitations from credit card companies, looking to build loyalty with a target market that has the highest on-average discretionary spending. They
want to build that loyalty early, hoping that you remain with them for life. Indeed, I still have a credit card that I applied for while a college student.
Because these cards are targeted to new credit users, the applicants are expected to have small or no credit history. These are some of the easiest credit cards to get for that reason. If you are a college student building credit apply today for one of these cards. Then use it wisely by
following the formula I’ll provide later in this series of articles for proper credit useage.
There is a bit of bad news about the credit restoration and building process. It doesn’t happen fully overnight.
Next time i'll discuss the time frame of building credit.
Fri, 15 Sep 2006 05:16:00 +0000
Credit rejuvination is similar to restoring an old house. You need to repair a few dings in the walls or woodwork and apply a fresh coat of paint. Some people need to build the house in the first place, starting with the foundation.
Credit Rejuvination is desired for three reasons:
1) starting fresh after a financial crisis
2) recovering from the “all debt is bad” mindset and
3) to remove derrogatory errors
You may have no credit history at all. Young readers in high school or college are just getting exposed to credit and their first experiences with debt. They don’t yet have a record with the credit bureaus.
Some readers may be well into their adult life and still have no credit. Consequently, you
must pay cash for everything. This is a classic profile of the person who has the “all debt is
bad” mindset. I often hear people say, “I have good credit, I’ve never bought anything on
credit.” Unfortunately, no credit score is just asbad as a poor credit score, and it’s often worse.
If you apply for a loan and have no credit history, the lender has to trust you enough to believe that you will pay it back. He has no references that support your creditworthiness.
Frequently, the ones who believe that any debt is bad debt have often encountered a financial hardship in the past. Inevitably, there is an unpaid medical bill or utility bill that appears on their credit report. This can create the worst credit of all. The poorest credit scores occur
when an individual who has not worked to develop any positive credit reporting accounts has one or two negative items on their credit report.
In many cases, having no score will mean you don’t meet the lending guidelines of the bank, disqualifying you for any loan. If you do get the loan, the lender is taking a huge risk and will charge you higher than prime market rate interest.
If you are over 25 years of age and have no previous credit history, thered flags will fly in the lender's mind. Where has this person been? Can he or she handle money? Is this a case of identity fraud? For lenders, in the business of lending credit, it’s hard to fathom that people are able to get through life without using credit—let alone prefeto live that way. They wonder what has changed to be presented with credit application now. To a lender the lack of credit use confuses them—and a confused mind says “no.”
The final section of this manual addresses these issues. You’ll learn the proven systems to build your credit and grow it to the credit wealthiness of a millionaire.
The good news is, if you have no credit yet, you need only to focus on developing a credit history, and doing so wisely.
Next time i'll discuss about perfect credit record.