Credit needed for real estate mortgage financing differs from credit needed for consumer loans. If you need help getting a home mortgage, these credit tips will help you.

Contrary to what many credit advisors say, paying off credit cards each month is not always the best action to take. When making credit card payments, don’t pay the balance in full each month — let a little roll over. Carry a balance on your credit card every other month –as little as a dollar. Paying balances in full does not increase your credit score; paying balances in full may in fact lower your credit score. Accounts with zero balances do not compute significantly in your total score. For instance, a credit card with a perfect payment history and no balance will not raise your credit score as much as a credit card with a low balance. Any balance keeps the card active so it computes in your credit score.

You most likely have been advised to cut up your credit cards and close your accounts. Following this advice degrades many credit scores.

Canceling Credit Cards

Canceling credit cards can lower your credit score. Keep your longest-term credit card account open to show long-term credit history. If this account has prior late notations, negotiate with the creditor to drop negative reporting on your credit history file. Slowly close out newer accounts after they are paid off. Keep your best accounts open — those paid on time or reporting “pays as agreed” and with the longest history.

Credit card companies may raise your rate if you cancel a card before it is paid off; it is best to keep accounts with outstanding balances open until you pay them off.

Perfect Balance of Credit

1. Mortgage over one year old with all payments on time

2. Visa Card or Master Card with less than 10% of available credit as balance due

3. Discover or American Express Card with less than 10% of available credit as balance due

4. Auto loan either paid off or paid down with low payments compared to monthly income.

Debt-to-Income Ratio

Credit scores do not reflect income — credit bureaus do not have income reported to them. However, real estate lenders look at the consumer debt-to-income ratio — the amount of monthly debts in relation to the amount of earnings. Consumer debt is more highly regarded/scores higher if total debt is under 20% of net income, or total monthly payments on all debts is less than 35% of monthly gross income.

Qualifying Ratios

Lenders want the total debt ratio (the percentage of total monthly payments, including the new mortgage, to income) to be less than 33% for a typical conventional mortgage. This means the new mortgage payment, credit card payments, and all other monthly debt payments should not equal more than about one-third of the monthly income.

Lenders want the mortgage debt ratio (the percentage of the new mortgage payment to income) to be less than 28%.

Non-prime loans have lower standards; some lenders allow debt-to-income ratios as high as 55%. Borrowers with less than perfect credit qualify more easily for a non-prime loan compared to an “A-paper” loan.

Once you total your monthly expenses and determine your debt ratio, you can estimate how much you can afford for a house payment. For example, if your income is around $3,000 per month, you can afford a home with payments around $1,000 per month (including taxes and insurance) with a conventional loan, if your other debt does not total more than 5% of your income.

For investors, these equations change. Lenders expect 10%-25% down on investment property and allow about 75% of the rental income to offset the debt ratio.

Understanding your credit helps you manage your credit so you can obtain real estate financing, either for the house of your dreams or for your financial future.

(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.

A debt management company is experienced in dealing with creditors and debt collectors. In many cases the intervention of a debt management company will reflect positively on you, as the creditor or debt collectors will look upon it as you acknowledging your debt problem and enlisting professional help. A debt management company is going to offer you a debt counselor that is trained to provide you some tailor made solution for your current financial situation. He will give you an explanation with pros and cons of all the current options available to you.

Thus, there is a company for each individual need. Before applying for debt help, you must contact several debt solution agencies and inquire of their requirements. You need to check a debt management group with the Better Business Bureau and credit forums to make sure the company does not have customer complaints issued against them for its debt management practices. A debt management group should also offer a free consultation for potential customers to come in and discuss their situation without any obligation. Thus, you avoid working with a fraudulent company.

There are many debt management companies operating via the internet, some of them offering free services and some offering paid for services. When choosing a service bear in mind that the free ones may not always be the best bet, although they appear to be cheap because of their free status they are funded by the lenders and therefore may have a conflict of interest between you their customer and your creditors who are their paymasters.

When you call a debt management company expect the advisor or debt counsellor that you speak to to ask many question prying into your income and expenditure and particularly how you have come to be struggling with your debts. Although their questioning is very thorough you need to go through this process to get the best results. If the advisor you are speaking to does not go into depth regarding your circumstances then move on to the next company.

Credit mistakes impact your credit report and credit rating. Make sure to get multiple credit counseling quotes from credit organizations. Credit card debt is perhaps the worst debt a borrower ever has. This is because once you fail to make timely payments; you are slapped with a hefty fee apart from the accumulating interest rate on unpaid balances. Credit Counselling agencies merge all your unpaid bills into one outstanding amount. You make regular payments towards the agency and they in turn clear your bills for you.

A good paid for debt management company will make charges of around 17.5% of your monthly payment and will keep your first payment to cover setting up costs. There is an increasing number of companies extending this to 2 payment, avoid this type of company as they are charging far too much. Debt management is a very valuable service, but even with this value there is a limit to what should legitimately be charged.

Once you have made your choice of a reputable debt management company your financial recovery will soon be back on track.

Many consumers find that they are no longer able to mange their debt on their own. They need help. Debt management plans are an excellent tool for those that need assistance in eliminating their debt.

If you are considering a debt management plan, you probably have many questions as to how it works and what it costs. Each financial management plan agency will work differently, but in general, you should see some similarities between them all.

The debt management service will typically send a proposal letter to each of your creditors. The letter will request your creditor’s approval to enroll your account in the management plan. It will contain you several items, including your net income, living expenses, the names of your creditors, your proposed repayment amount for each creditor and the date of payment to creditors. This lays out the information for the creditor to see where you are financially and what your plan is.

Most debt management plans take you three to five years to repay your debts. This, of course, depends on the amount you owe and the terms set by your creditors. When you enroll, you should be given an estimate which lists all of your debts, the total debt owed to each creditor, the proposed payment to each creditor and the number of months estimated to complete the plan. You should know up-front how long it will take you to eliminate your debt.

The fees charged for your debt management plan will vary from agency to agency. You will usually pay for a copy of your credit report, a small set-up fee and a monthly administration fee. You want to make sure that the monthly fee is less than $50 a month. Be sure that you understand these fees before you enroll. Don’t trust any agency that asks for the first month’s payment up-front or a percentage of your total outstanding debt as the fee.

Most debt management plans require that you include all of your unsecured debts. There are specialized debt management plans designed for small business owners and those with good credit that allow you to keep one or two accounts outside of the plan. Once in the plan, you will most likely be unable to continue to use the accounts.

If a creditor rejects the management proposal, you can try to work with the creditor to reach an agreement. If nothing can be established between the plan and your creditor, you can elect to proceed with the debt management plan without the creditor. However, you will need to make these payments on your own.

Be cautious when choosing a company to work with. Make sure they are licensed and check them with the Better Business Bureau. It is also a good idea to check with your state’s attorney general’s office for any complaints or investigations.This is your financial security you are dealing with. Make a wise decision and then let the plan help you find financial freedom. Debt management plans are a great way to learn how to manage your finances while eliminating your debt.

A debt settlement is an agreement between a debtor and a creditor to satisfy a debt for a reduced payoff amount. A debt settlement is usually reached when the debtor is unable to fully meet debt obligations because of financial difficulties. Debt settlement is also called debt negotiation and it means the process through which both parties reach the agreement.

Debt settlement and debt negotiation are usually for-profit businesses. Debt settlement is different from debt management firstly because debt settlement companies do not send regular monthly payments to creditors. They commonly hold consumer’s funds in separate accounts till the company believes it can settle the consumer’s debts for the less than the full amount of money owed. There are some companies that advise consumers to stop paying their debts if they want to take part in program.

Almost all companies have a minimum debt requirement. The National Consumer Law Centre took an investigation of debt settlement companies. Of their survey of thirteen debt settlement companies, nine specifically stated a minimum amount ($5,000 – $10,000) of debt required for the program. All of the investigated programs handle unsecured debt only.

The National Consumer Law Centre say the company have different ways of doing business, but almost all of them demand the consumer to set aside money monthly. Some of the debt settlement companies establish the account for the consumer or they ask the consumer to show proof of the account.

The companies want the consumer to deposit a definite amount in the account each month to create a fund that can be used to settle debts. It happens that the consumer stops making payments on his/her debts and as a result can face pressure from debt collectors. Debt settlement companies promise to assist consumers to deal with aggressive, confrontational and abusive creditors or collectors.

Most consumer debtors have less income than expenses each month. Some are able to collect some additional money from their budget each month. Debt settlement companies negotiate settlements for the consumers. They promise that consumer’s current level of unsecured debt will be skillfully negotiated, and essentially the consumers will end up paying a fraction of the debt. They also promise to reduce consumer’s debt by 40 – 60% of the current total.

Debt settlement companies set their clients with monthly payment, which is determined on a client-by-client basis between the consumer and the counselor of the debt settlement company. The duration of the program will depend on how much the debtor can afford to settle aside each month. Throughout the program the companies promise to communicate with consumers’ creditors on their behalf.

Do you have several credit cards that have reached their limits and you find that paying the minimum monthly requirement is getting difficult? If you add the expenses of car payments, insurance, and mortgages on top of your mounting debt this can lead to a feeling of being financially overwhelmed. The way a debt reduction service operates is when you owe a particular balance to a creditor and negotiate to pay a lower balance. This differs from debt consolidation in that when you consolidate you pay a lump sum to an agency that then disperses the monies to the creditors that you owe. Creditors will agree to debt reduction if they believe that it is in their best interest.

Typically, those who request debt reduction services are individuals who are considering the option of bankruptcy as a form of clearing out their debt. Certain situations affect the pay off amount that creditors will offer. They will look at your credit report to see how you are paying your other debts. If it appears, you are paying everyone else in a timely fashion and neglecting them, they will most likely offer a high settlement based on the fact you appear to have the finances to be faithful to your other obligations. On the other hand, if they notice that your credit report shows you are not paying anyone they may offer a lower settlement. If their offer is in your opinion to high, then you can gather your financial information, including all incomes received and outgoing expenses to negotiate for a lower settlement offer.

When you have received a settlement offer either through a company you have hired or through negotiating yourself the creditor expects you to pay off the settlement with a one-time lump sum payment. There are exceptions to this rule such as if your debt is significantly high the creditor may consider payment arrangements over a short period. Usually they will offer up to six months. Another option is in using a debt reduction service that can negotiate for the settlement payments to stretch over a period up to four years.

The idea of using debt reduction services as a form of reducing your debt in and of itself sounds like a great idea. There are some points to consider if you are an individual who has good credit and has found himself or herself in a difficult spot financially, consider carefully before engaging in a debt reduction service. Once you do use this method, it will significantly lower your credit score, making obtaining credit more difficult. If you, on the other hand, are someone who has had a history of poor credit actually using a debt reduction service can change your bad credit rating from poor to good thus enhancing your credit status.