Raising Your Credit Score – It's More Important Now Than Ever

Today, as never before raising your credit score is of vital importance. As the bottom falls out of the sub-prime mortgage market, and the angst begins to spread to the rest of the credit industry, raising your credit score will be your only way to get a car loan, mortgage, or a credit card, even if you have good credit. In the last few years, lenders were eager to lend money to almost anyone. If your credit score was low, no matter, they just raised your interest rate a bit, and all was forgiven. You still got your credit. You just had to pay a bit more for the privilege.

Those days may be over now. As mortgage companies go out of business at an alarming rate, and investors shy away from credit secured investments, you’ll be lucky to get credit at all if your credit score is less than excellent. In fact, stories abound recently of prospective borrowers, many with good, but not perfect, credit getting left out in the cold when it came time to get a mortgage. The credit situation won’t improve for a while.

Some of the largest mortgage lenders in the country, such as First Magnus Financial Corp. out of Tucson, have ceased operations and laid off their employees. American Home Mortgage, a huge mortgage lender traded on the NYSE, has declared bankruptcy. Other large mortgage companies, such as GreenPoint Mortgage, owned by Capital One, have been shut down before they were forced to close. Even Countrywide Financial, the nation’s largest mortgage lender, was forced to take out an $11.5 billion line of credit in order to make it through the credit crunch.

Much of this occurred because the rising foreclosure rates spooked investors who buy mortgage secured bonds. A little known fact by those outside the financial community is that most mortgage lenders sell their loans rather than servicing them in house. If you have a mortgage, there’s an excellent chance it’s no longer with the originator. This operation is known as “selling the paper”. When companies can’t sell these debt secured bonds, or investors question the value of the company’s loans, their loan portfolios decrease in value. This can occur to the point where they have too little cash flow and assets to continue operations. Often in this situation their creditors will ask for their credit lines to repaid in full. This is called “calling” the credit line, and if their credit gets called, few companies are in a position to repay it. They simply don’t have the cash on hand.

One of the main reasons behind the problems are, as noted above, the increase in foreclosures. The increase was caused in large part because lenders extended adjustable rate mortgage products to those with a marginal ability to repay them. When the rates began to adjust upward, as they did earlier this year, many homeowners couldn’t make the larger payments. They were forced to sell their homes in order to avoid foreclosure. The problem is that, in many areas, real estate values are declining. People owe more on their homes than they are worth, so they are unable to sell them for enough money to pay off their mortgages. They don’t have enough cash to make up the difference between what they owe and what they sell their home for, so they let their home be foreclosed upon.

To make matters worse, the lending standards were so relaxed, and some of the available mortgage products so creative, that even many homeowners with better than average credit got caught. As real estate prices rose to extremely high levels in many areas, many prospective buyers became priced out of the market. To buy a home, they had to resort to a number of different mortgage products, such as option ARMs, that kept their monthly payments relatively low, and required little or no down payments. This created a situation where they had no, or even negative equity in their homes. As explained above, they were in a situation that they could not extricate themselves from should the need arise, and for many, it did.

In the future, lenders want to avoid this situation at all costs. To help ensure that they don’t get caught in a similar situation in the future, and to make their investors happy, they have drastically revised their credit requirements for mortgages and other credit products. This is why raising your credit score is essential for your financial well being for the foreseeable future. A high credit score has always been important, but now you’ll be unable to function effectively without one.

You need to raise your credit score. It's just a fact. Even if you thought your score was good enough, unless it's over 800 or so, it's not any longer. Every day you wait is costing you money. Discover how you can raise your credit score, either by yourself, or with professional help, go to the Raising Your Credit Score Guide.This article is free for republishing
Source: http://www.articlealley.com/article_206977_19.html

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