Thank you to all of our subscribers and #AskPelican viewers. We’re so excited to be able to share all of our financial expertise with each of you to keep Louisiana residents on the path to financial wellness!
We started out in 2017 by releasing season one of #AskPelican, where one of our Nationally Certified Credit Counselors answered questions we received from our members and blog subscribers. Thanks to all of your support, #AskPelican has grown tremendously, and we’re able to inform hundreds of thousands of Louisiana residents about a huge variety of financial topics.
Season two was even bigger, and we branched out into #AskPelican in Your Community, where we answered questions during a live Q&A at our Financial Wellness Workshops! Here are the questions we answered in season two of #AskPelican:
How Can I Raise My Credit Score?
You want to start by getting rid of negative items on your credit report by settling or paying off collection items, charge-offs, or even judgments. You also want to follow up by adding a good healthy credit mix. And when I say a healthy credit mix, I mean you may want to add a revolving account, such as a credit card or even a loan, to start to rebuild that credit score.
You always want to make sure of this next step! The most important part of having healthy credit is to pay your debts on time. A loan is a trade line, and whenever you open a loan, you want to make sure that the payments are made as agreed. Whether it’s every 30 days or every two weeks, make those payments and you should have healthy credit throughout.
How Much Debt is Too Much?
You can have too much debt to where it causes problems with your budget. You want to focus on keeping it under about 35% when looking at your debt-to-income ratio. The amount you pay out in debt versus the amounts of income that you bring in should balance.
You should not have much more debt than you have income. This is where you know there is a problem with your debt. This comes by doing an in-depth budget analysis, making sure that you don’t have too much debt.
If you find that you’ve gotten into that situation, you want to start by paying debts down. One way is by doing a snowball effect, where you start with your credit cards by paying the lowest balance off then working your way to the next one.
Should You Add Someone to Your Phone Plan?
Adding someone to your phone plan can become tricky. We see these situations all the time on credit reports. This causes major problems with your credit, your finances, and your relationships when adding someone to your phone plan.
That’s because you’re looking to this person to give you the funds month after month to make the payments on their shared portion, which is not a good idea at all. It is best to have your own plan, pay your own bill, and if they need services, they obtain their own services.
Some folks think that they save money by piggy backing or add others to their phone plans when it’s really not. Oftentimes I see debts ranging from $1,000 to $3,000 in collections due to breaking phone contracts because you have so many people to look to for their portion of the bill.
How Does Your Credit Score Affect Your Ability to Buy a Home?
There’s really not a minimum credit score to qualify for a home loan. I’ve actually seen people get it approved with as low as a 500 before, but it depends on what program you are trying to qualify for.
If you’re looking for something like 100% financing, Rural Development loan, FHA loan (that’s 3.5% down), or a conventional loan (that’s 3% down), you typically want to be at a 640 credit score.
We also have our in-house loans at Pelican, and our underwriters try and do a good job at not looking at just your credit score, but your credit report as a whole. So you can qualify with a lower credit score, but it’s going to be a little bit more stringent. You’re going to look at putting more money down.
You need to be able to verify that you’ve been paying rent, have money saved up, and things like that. Typically, you do want to try to be at least around the 640, but there are things you can do with a lower credit to move forward.
What’s the First Step Before Buying a Home?
The desire to purchase a home starts in the mind first. So you think about how you would love to purchase a home, tired of paying rent, and all that good stuff.
Have you ever heard people say, “You don’t want to put the cart before the horse?” So what you want to do is first go online. This is not an actual inquiry, this is not a hit on your credit report, but you go to annualcreditreport.com.
Find out your current credit score and what you’re working with. As we said before, it’s a minimum credit score that you sometimes need to have to be able to purchase a home.
Once you find that out, you may need to raise your credit score. Most people are probably in this situation. From there you want to contact someone certified to help you get that credit score up and give you some pointers that you can implement step-by-step. If you start with baby steps and work your way through the process, you’ll be able to accomplish your goal before you know it.
How Do I Protect My Credit From Fraud?
There’s several ways where you can protect your credit.
First and foremost, you want to monitor it to protect yourself. We always advise that you get a copy of your credit report at least twice a year. We also suggest meeting with a credit counselor once every three months or so to get a better look at where you’re headed and see if anything has changed.
When you are looking at your credit report, you want to pay attention to a few things. One thing is going to be addresses. Believe it or not, I have two clients in this situation right now, and we’re working through this.
When someone is tampering with your credit, a lot of times they will use their actual address. It’s weird, it’s crazy, but it happens. You always want to pay attention to those addresses.
Let me tell you this as well: it’s not always an address where you have lived; it’s associated addresses too. It could be a family member, a friend where you got a piece of mail once, or something like that. You want to always pay attention.
Another thing is going to be your inquires. Look at those inquiries. I’m going to be honest with you, it’s kind of tough to get those inquires taken off if it’s not something you did. This way it will at least let you know there’s something that you have not applied for.
The inquiry is still in your credit report for two years. So it’s going to give you that 2-year grade. If you’re checking your credit report at least three to four times a year, that gives you a lot of helpful information and it’s up-to-date.
If an inquiry is done this morning and you check your credit report tomorrow, it will show, so you should always pay attention to those.
Another good way to protect yourself is to put a block on your credit report. Some of you may have done that already, and some of you may have not. You can always put a block on your credit report where someone has to call you at a certain number or that application is not going to be done.
You can also set up a “code word” on your credit report or just set up a block where certain information has to be verified. We call those “out of wallet questions,” and we take this very seriously at Pelican. When we see a “fraud block” on an account, we do NOT proceed.
How do You Know Your House Price Range?
You need to start off with a price that you are comfortable paying. Once we have the credit score pulled, we can see what the interest rate is, and then you can calculate what that max loan amount would be. But you don’t want to be “house poor,” because even though you think you can afford that payment, if it’s more than what you’re comfortable with, it’s going to add up over time.
How Do You Avoid Medical Collections on Your Credit Report?
Let’s say you or your child wants to go to the doctor or has gone to the doctor recently. Be aware of the patient responsibility section.
I actually took a picture of this. I went around to medical offices, I took pictures of them, and I put the pictures on Facebook to show people.
When you put your name and information in the patient responsibility section of the paperwork at the doctor’s office, then that is the name the bill is going to be in.
You’re going to get an EOB first, and this is called an explanation of benefits. That’s a key indicator a bill is coming. We see this so often, and those medical bills are hidden for no reason.
Once you get the EOB, pretty soon after you’ll get a bill in the mail. Whether you have insurance or not, you have a responsible portion to pay for that has not covered or uncovered by the insurance.
When you go to the doctor, certain portions are not covered by your insurance. When you get that bill in the mail, pay it or make arrangements to start paying towards it. You aren’t getting the bill for no reason. So insurance or not, when you get a bill, take care of it to keep yourself from losing points on your credit score.
What’s the Difference in a Home Equity Loan and Line of Credit?
A home equity line of credit is going to work similar to a credit card where it’s a revolving line of credit. You can draw off of it as needed and pay it down. You can go back and take off the line of credit again for a certain amount of time as long as you’re still in what is called the “draw period.”
It works pretty similarly to a credit card. Your payments are going to be amortized out over a certain amount of time depending on what the balance of the line of credit is.
What does amortized mean?Amortization is the paying off of debt with a fixed repayment schedule in regular installments over time like with a mortgage or a car loan.
Now, a home equity loan is something different. A home equity loan is a straight loan. So if you do it for $20,000, then you’re going to have a $20,000 loan that you have a set amount of payments you have to make before it’s paid back.
How Do You Put a Block or Freeze on Your Credit Report?
There are a few ways to do it. You can actually contact the credit bureau, you can go to annualcreditreport.com, you can block it, or you can give them a call.
Call each one, Equifax, TransUnion, and Experian, separately and you can do a block. That’s the way I do it and advise people to do it.
Should You Monitor Your Child or Elderly Relative’s Credit Report?
You should be careful with your children’s credit report. You don’t want to look over that because a lot of people use their kids’ credit reports. Sometimes, and it’s not a good thing to do, but sometimes parents in the past would use their child’s credit report for bills and different things like that.
Like I said, not a good thing to do at all, however there are people out there that use children’s credit reports. You want to check your child’s credit report at least once a year. Just make sure nothing is there.
If you have elderly relatives, definitely don’t forget about them! A lot of my clients I speak with have elderly relatives that they are caring for. Senior citizens are getting checks, their information is out there, and a lot of elderly folks do not know what and what not to say on the phone and different things like that.
So you want to monitor their credit report as well. Sometimes they can be a little bit gullible when folks are asking them things, and people need just a little bit of information to violate you. Your elderly loved ones and children need their credit reports checked at least once to twice a year.
Do You Always Need a Down Payment or Closing Costs to Buy a Home?
No, not necessarily. It just depends on what type of program you’re looking for.
There’s a Rural Development loan, that’s 100% financing, and there is also what’s called the CAFA grant in Baton Rouge, which is an FHA loan. That’s down payment assistance that you can get in the form of a non-repayable grant.
We also have in-house loans at Pelican where, if you’re a qualified borrower, we could potentially structure the loan where you’re not putting any money down.
So it just depends on what type of program you’re going for. With certain grants like the CAFA grant, you can use that for closing costs. Typically, you are going to have “seasoned funds” for closing costs, but there are certain grants you can get to cover that.
Want to learn more mortgage terms?Learn the mortgage terms and phrases you need to know in our blog post!
Why Should I Get 100% Financing and How Does That Affect Home Equity?
First, if you finance 100% you’re not going to have any equity going into it. In a perfect situation, you do want to put money down on a purchase. It’s going to make your payments lower and give you some equity into your house.
That’s less you’re having to pay interest on over the life of the loan, but the main reason people want to get into a house for 100% financing is they don’t have a down payment or they have very little saved up and they just want to hold onto it for a rainy day.
There are pros to getting into a house without putting any money down, but in an ideal situation you want to put at least 5% down on any purchase you make.
What questions would you like to see us answer in an upcoming season? Let us know in the comments below!
Once a Pelican State CU member, always a member—through life’s milestones, we’ll always be there to help you with your financial needs. Your Financial Family for Life. Give us a call at 800-351-4877.