Tuesday, March 20, 2012

Day 19: Precursors

Credit Score: 758
Number of Emails: 1
Phone Calls: 1
Paper Mail: 0

Day 15 marked the official missed-the-payment-entirely line. Sure, it was due on Day 0, but Day 15 marked the end of the grace period and the first appearance of a late fee. It was preceded by a phone call that my payment was almost late, and followed by an email that my payment was officially late.

Part of this economic adventure has been realizing that I don't want to be with a bank anymore. I don't want my money sitting with a company whose whole intention is to make money off me. I don't like that my bank had to take a bailout, that they consider adding fees to necessities like debit cards, that their executives get ridiculous bonuses while their customers suffer, and that they're a rather heartless business. I'd rather pull my money out of the corporate goliaths and bring it local. I have joined my husband's credit union and am working on moving all the bills over to that account. Everything from my paycheck to the power bill will start going through his/our credit union. We had not joined accounts since getting married yet, so this was a perfect opportunity.

Knowing that I don't want my money with banks, I also knew I didn't want my new credit-boosting credit card to be with a bank or major corporation. So I joined a second local credit union. I learned that I can't join without some money being in their accounts, but I only had to have five bucks in an account to get the credit card. I opened a basic savings account, no bells or whistles, and applied for a credit card.

They did a soft-check of my credit score to open the savings account, and a hard check to open my credit card. My credit score actually did not budge at all despite the hard check and a new higher credit limit. Not yet at least. I was approved for their lowest interest rate on their only credit card, and the teller said she'd never seen anyone actually qualify for that. :) While it's good to have great credit and reap those rewards, I'll soon be like the rest of her customers and won't look so squeaky clean. That's why I'm doing this now - before my score drops for other reasons and to use that time dropped to recover simultaneously. That hard credit check will stay on my credit history for two years, but since it appears to have had no effect, no big deal.

I decided that since my credit score didn't move in the slightest, it's not worth getting a second new credit card. Maybe if I'd seen it jump a few points for having doubled my credit limit, it'd be worth considering tripling my credit limit. The hassle of a fourth institution (2 credit unions, 1 bank, +1 new) handling my money isn't worth it – not to mention a fourth username/password pair! If I was still going to get a third card, it'd be with the third credit union I qualify for through my job. I believe I've maxed out potential credit unions at that point though.

Once I get all my bills sorted and have verified that they've all transitioned to the credit union for a month or two, I'll close the bank account and move that cash to the new savings account. It'll be wholly in my name, so on the small chance that Cory runs off to Canada with some cute indie hipster chick and takes all our newly-joint money, I'll still have something for me. Moving all my money will also - and more practically - mean the mortgage company (who is luckily different than my bank) will have no access to my money and will not know where it is. I had been previously worried that they'd pull money out of my account despite me no longer authorizing it, but since they haven't yet, I'm not worried anymore. That would be literally stealing, and while I have very little respect for my mortgage company, I do think they're above stealing (money at least, not houses).

Cory and I will also start actually using our credit cards. Till now, we've only been using debit, seeing no need to insert more people in to the process and having no need to carry a balance ever. Now though, I've gotten some tips on when it really is better to use credit: (1) any time the card leaves your sight, (2) you don't have your purchase already in hand, or (3) at particularly vulnerable locations. From now on, we'll use our credit cards at (1) any restaurant that takes your card away from the table, (2) any time we order something online, and (3) at all gas stations. This way, we'll have protection from unauthorized purchases (1&3) and protection from incorrect/damaged products (2). We'll aim to stay below 10% of our credit limit on each card per month, to maximize the credit score benefits of using the credit card.

In the next couple weeks, I imagine the phone calls and emails will be more prevalent. Perhaps paper mail will show up. And I'll find out if Day 30 brings a drop to my credit score, or the first phone call + 30 days, or the late fee + 30 days, or some random date that they finally get around to reporting me.

Saturday, March 10, 2012

Day 9: Credit


Now that I’ve firmly settled in to this foreclosure plan, and am working towards it, my mind apparently needed something else to obsess about. It settled on… Credit!

Knowing that my credit score will be taking a tumble very shortly, I decided to start investigating how to keep it moderately afloat during the next seven years as best I could. There’s already room to improve my credit score, so my next plan of action is to use up as much of that room as I can.

The place to start my investigation was at AnnualCreditReport.com to get my credit report. There are plenty of other websites that all offer to give you your credit report and/or credit score for free, but this is the one that doesn’t make you sign up for emails, or scams, or charge a hidden monthly fee. You can do this once per year per credit reporting agency. I know that I will be very interested in watching my credit report over the next year, so I decided to only get my TransUnion report. This means I can check another agency in 4 months, the third in 8 months, and be back to TransUnion this time next year. I even set a reminder on my calendar at work to tell me when to check them.

I didn’t see how to get my credit score for free from TransUnion, just how to see it for “free*” which doesn’t count. I decided I didn’t actually care what my score was because I could verify that everything was accurate on my report and because how they do their calculations is beyond me anyway.

Instead, I spent a bunch of time learning what I could from ClarkHoward.com. He recommended CreditKarma.com to evaluate my credit report. (I know, I’m linking a million websites this time. Sorry!) Credit Karma uses your TransUnion report only, which isn’t ideal, but is better than nothing, and I luckily had my TransUnion report already in hand, meaning I could verify their accuracy.

Here’s what Credit Karma had for me: 



I’ve got a pretty darn good credit score, but not perfect. It can see my two loans:  $164k for the condo, and $3500 left in student loans. I did have to give them my email address and access to my credit report to get this information. And I’m sure I’ll be getting more spam email soon. They’ve also got a TON of ads once you’re in there, trying to “save” you money.

The best part of this website, though, and what I really wanted to use it for, was the “credit report card”. Here’s mine:





And the best part:


 

It looks like I’m doing great paying on time, having no hard credit inquires lately, and having no derogatory marks. All of these will be ruined soon. I’m going to stop paying my mortgage on time, and that will be reported as soon as Day 30. That will lead to foreclosure, a definite derogatory mark. Lastly, in order to boost up my other grades, I plan to open at least one new credit card so I will have at least one new hard inquiry.

Since all of these will be dropping, it’d be wise to try to improve my other areas so that my score doesn’t have to fall so far. I might as well take all the hits together while I’ve got lots of time to recover.

This report card has taught me:

1)      I have to start using the one credit card I do have to improve my “C – N/A” rating in the usage category. Clark Howard says 10% or less is optimum. So perhaps I’ll switch one monthly bill over to the credit card I already have and pay it off each month. As long as I use it once every six months minimum, it’ll stay “active” and helpful to me.
2)      I can’t help the average age of my current accounts, or the C rating. In fact, it’s only going to get worse by opening up a new line of credit. But, that one will fix itself in time.
3)      I need to open more accounts! This is not a good idea for everyone. But, my 10 whole accounts is somehow freakishly low. I thought 10 was kind of a lot. The only way I even got that many was through my student loans and mortgage being sold a few times each. I should try to get new cards sooner than later, while I’m better able to qualify for a high credit limit (only got a few weeks left on that!), and then actually use them.

Thus, my task ahead is clear. Very soon, I will be applying for one or two more credit cards (more than that seems like too many to juggle however great my score would be or however many awesome rewards they promise), and creating some system to use them regularly to bolster my low grades.

Credit Karma had one more gem for me. They’ve got a “Credit Simulator.” It looks at your credit report then estimates what might happen to your credit score if you do some things differently.

For example, I asked it what would happen to my credit score if I open up these two new credit cards with say $20,000 of credit between them, and have two necessary hard checks against my report. It says my score will go from 758 to 760. Up is good! Sure, it’s only two points, but it’s up. It’ll increase my credit limit (thus reducing my usage percentage), increase my number of credit lines, but also increase the number of checks against the report. Despite that downer, it nets positive.

Next I asked it what happens to my score if one of my lines of credit (mortgage) goes to 90 days past due – its longest option.  It spits out: 758 to 650. Ouch. Oddly, just adding a foreclosure to my “public record” only dropped my score to 710. And very oddly, having one account 90 days past due AND having a foreclosure on the record only left me with a credit score of 683 -  higher than the 90 days only.

Something’s not quite right with this system. That doesn’t seem reasonable at all. Other places report more like 150 points lost for having a foreclosure. And the higher your score beforehand, the more you lose.

Now that I’ve got this handy tool though, I’ll be able to actually to track what does really happen to my credit score. I plan to check Credit Karma regularly and make a lovely Excel chart of its results. (I like charts.) Once the bank starts reporting something, and my score/report start moving, I’ll post it for you to see.

- Jane

Thursday, March 1, 2012

Day Zero

Day 0! We've taken the big first step today! Steering the ship towards Scylla, not Charybdis.
                               
Here's what the next year or more of our lives will be measured by:       
                               
March 2    Day 1                           
    Missed payment                       
    Loan officially in default                   
April 1    Day 31 (or any date later)                   
    Notice of Default from the bank                   
    May not be less than 30 days from "initial contact", where they try to get me to pay
May 1    Day 61 (or  actual date of "Day 31" + at least 30 days)           
    Notice of Trustee Sale posted on our door               
    May not be less than 90 days before the date of the sale       
Aug 3    Day 151 (or actual date of "Day 61" + between 90 and 210 days)       
    Foreclosure sale, must be a Friday               
    Bank must publish sale in a local paper once 4-5 weeks before sale and once 1-2 weeks before sale
Aug 23    Day 171 (or actual date of "Day 151" + exactly 20 days)       
    We have to be out of the condo, and ownership transfers       
    Foreclosure officially done!                   
                               
However, CNN Money reported today that 1 in 4 homes sold in 2011 was in some state of foreclosure. And that short sales were averaging 308 days to close last year; foreclosures averaged considerably longer. Our foreclosure will definitely take longer than the 171 minimum above. The lawyer estimated a minimum of 8 months, and said he's got a client sitting at 22 months now.


- Jane