FromThursday, January 29, 2009, 8:58am MST | Modified: Friday, January 30, 2009, 6:02am From the Denver Business Journal
Survey: Denver is America's most popular cityDenver Business Journal
If you live in Denver, know that you're envied.
That's according to a national survey released Thursday by the Pew Research Center's Social & Demographic Trends project. It found that Denver is America's most popular big city -- both among people who live here and those who don't.
Of those Americans surveyed, 43 percent say they want to live in the Denver area, more than any of the 30 cities on Pew's list.
No. 2 on the list is San Diego (40 percent), followed by Seattle (38 percent) and Orlando, Tampa and San Francisco (tied at 34 percent).
The least-favorite cities are Detroit (8 percent), Cleveland (10 percent), Cincinnati (13 percent), Kansas City (15 percent) and Minneapolis (16 percent).
Denver area economic-development officials and business recruiters say frequently that a high opinion of the Mile High City around the country helps them in their tasks.
Pew found that 46 percent of those surveyed would rather live somewhere else.
Pew also found that:
By a 3-1 ration, people want to live where the pace of life is slow and where neighbors know each other well.
By about 2-1, they prefer to live in a hot-weather place over a cold-weather place.
About 70 percent of whites rate their current community as "excellent" or "very good, but only about half of Latinos and 40 percent of African Americans say the same.
Rural and suburban residents rate their communities better than do residents of cities and small towns.
Pew's report is based on a telephone survey of a nationally representative sample of 2,260 adults, conducted Oct. 3-19.
Friday, January 30, 2009
Wednesday, January 28, 2009
Local Denver Market Brightening!
Positive News in Colorado! Read the article below!
Housing weathers storm
Metro home prices fall but do better than in most cities
By John Rebchook, Rocky Mountain News (Contact)
Published January 27, 2009 at 9:14 a.m.
Updated January 27, 2009 at 11:53 p.m.
The Denver-area housing market outperformed all but one market in the 12 months ended in November, according to a national housing report released Tuesday.
And in November, Denver-area homes lost only 1.1 percent, making it the best-performing city in the S&P/Case-Shiller Home Price Indices.
For the 12-month period as well as the month of November, all 20 markets in the index showed negative returns.
Home prices in the Denver area fell by only 4.3 percent in the 12 months ended in November; the overall drop for the index's 20 metro areas was 18.2 percent. Only Dallas, with a 3.3 percent decline, fared better than Denver.
"Sometimes I have to chuckle when we celebrate negative returns, but relative to other cities we are in much better shape," said economist Patty Silverstein, principal of Development Research Partners.
While the Denver area will lose jobs this year, Denver and the state will continue to outperform the nation, Silverstein told about 300 people at a real estate forecast breakfast Tuesday in Lakewood.
Silverstein said she expects "minor" increases in home sales activity this year from 2008 and perhaps even a slight increase in prices.
"Our marketplace is not overbuilt," Silverstein said. "We are building next to nothing. We are not plagued by an over-abundance of inventory like so many other places. And we never had the roller-coaster rise and fall of prices other places saw."
Chris Behrens, a principal of UrbanThrive Real Estate, called the Case-Shiller report "encouraging" and "good news."
Behrens said he has noticed that there seems to be a "core group of career professionals" selling real estate in Denver, while many brokers are leaving the business because they couldn't weather the tough economic climate.
"I get the impression there are fewer buyers looking around on their own," Behrens said. "There are buyers out there who think you can get some really great deals, and they are turning to a core group of knowledgable people to help them find and evaluate properties."
Denver's housing market is in far better shape than in cities in California and in Phoenix, Las Vegas and Miami, said Chris My- gatt, president of Coldwell Banker Residential in Colorado.
"These are catastrophically affected markets," Mygatt said.
Phoenix and Las Vegas were the two worst markets through November, losing 32.9 percent and 31.6 percent, respectively, according to Case-Shiller.
In some towns in California, homes that sold for $1 million two years ago probably are worth less than $600,000 today, Mygatt said.
Since January 2000, a typical home in Denver has appreciated 26.65 percent, while other markets have appreciated far more. For example, during that period, homes in Los Angeles have appreciated almost 76 percent; Miami, almost 70 percent; New York 87 percent; Seattle 66 percent; and Phoenix and Las Vegas are both up about 30 percent, according to Case-Shiller.
However, the free-fall in prices for many of the markets outside of Denver is expected to continue.
Despite showing a smaller drop than most of the nation, the Denver market is several months away from hitting bottom, said independent broker Gary Bauer, who prepares a monthly report on the Denver-area market.
"I don't think we're close enough to pinpoint the bottom yet," Bauer said
Housing weathers storm
Metro home prices fall but do better than in most cities
By John Rebchook, Rocky Mountain News (Contact)
Published January 27, 2009 at 9:14 a.m.
Updated January 27, 2009 at 11:53 p.m.
The Denver-area housing market outperformed all but one market in the 12 months ended in November, according to a national housing report released Tuesday.
And in November, Denver-area homes lost only 1.1 percent, making it the best-performing city in the S&P/Case-Shiller Home Price Indices.
For the 12-month period as well as the month of November, all 20 markets in the index showed negative returns.
Home prices in the Denver area fell by only 4.3 percent in the 12 months ended in November; the overall drop for the index's 20 metro areas was 18.2 percent. Only Dallas, with a 3.3 percent decline, fared better than Denver.
"Sometimes I have to chuckle when we celebrate negative returns, but relative to other cities we are in much better shape," said economist Patty Silverstein, principal of Development Research Partners.
While the Denver area will lose jobs this year, Denver and the state will continue to outperform the nation, Silverstein told about 300 people at a real estate forecast breakfast Tuesday in Lakewood.
Silverstein said she expects "minor" increases in home sales activity this year from 2008 and perhaps even a slight increase in prices.
"Our marketplace is not overbuilt," Silverstein said. "We are building next to nothing. We are not plagued by an over-abundance of inventory like so many other places. And we never had the roller-coaster rise and fall of prices other places saw."
Chris Behrens, a principal of UrbanThrive Real Estate, called the Case-Shiller report "encouraging" and "good news."
Behrens said he has noticed that there seems to be a "core group of career professionals" selling real estate in Denver, while many brokers are leaving the business because they couldn't weather the tough economic climate.
"I get the impression there are fewer buyers looking around on their own," Behrens said. "There are buyers out there who think you can get some really great deals, and they are turning to a core group of knowledgable people to help them find and evaluate properties."
Denver's housing market is in far better shape than in cities in California and in Phoenix, Las Vegas and Miami, said Chris My- gatt, president of Coldwell Banker Residential in Colorado.
"These are catastrophically affected markets," Mygatt said.
Phoenix and Las Vegas were the two worst markets through November, losing 32.9 percent and 31.6 percent, respectively, according to Case-Shiller.
In some towns in California, homes that sold for $1 million two years ago probably are worth less than $600,000 today, Mygatt said.
Since January 2000, a typical home in Denver has appreciated 26.65 percent, while other markets have appreciated far more. For example, during that period, homes in Los Angeles have appreciated almost 76 percent; Miami, almost 70 percent; New York 87 percent; Seattle 66 percent; and Phoenix and Las Vegas are both up about 30 percent, according to Case-Shiller.
However, the free-fall in prices for many of the markets outside of Denver is expected to continue.
Despite showing a smaller drop than most of the nation, the Denver market is several months away from hitting bottom, said independent broker Gary Bauer, who prepares a monthly report on the Denver-area market.
"I don't think we're close enough to pinpoint the bottom yet," Bauer said
Friday, January 23, 2009
Have These Home Features Really Diminished in Value?
I can't help wondering what everyone else thinks of the following excerpted blog from the Realtor blog, and written by By Melissa Dittmann Tracey:
Home Fads That Are Falling Out of Style
LAS VEGAS – Some home features don’t stay popular forever. More homes are inching away from incorporating the following home features, according to recent consumer preference surveys.
1. Fireplaces: The fireplace skyrocketed in importance in homes in 1991 with 62 percent of new homes having one or more. But the number has steadily been decreasing ever since. In 2007, the number dropped to 51 percent.
2. Carpet: While 54 percent of homes still have carpet floors, the number is decreasing and hardwood floors are taking the place. Vinyl and ceramic tile flooring also are being bypassed more by buyers. Seventeen percent of new homes contain hardwood floors throughout the entire house.
3. Living room: These once-decorative centerpieces of homes are slowly vanishing from newer homes. Thirty-four percent of consumers say they’re willing to buy a home without a living room.
4. Desks in the kitchen: These desks were once looked at as great storage areas but they’re often too small and quickly become clutter spaces in a home, said Gayle Butler, editor in chief of Better Homes and Gardens. Instead, more consumers say they prefer larger desks in or near the family room—equipped with a messaging center—where they can keep an eye on their kids as they work on the computer.
5. Skylights: The little windows that allow natural light to seep into a home from above are falling out of style. Only 10 percent of new homes will include them this year, a continuing downward spiral for skylights.
6. Upscale kitchen finishes: Granite countertops are slowly becoming less desirable among buyers who are now moving toward affordable, low-maintenance laminate countertops—which tend to last longer and now come in various styles.
Home Fads That Are Falling Out of Style
LAS VEGAS – Some home features don’t stay popular forever. More homes are inching away from incorporating the following home features, according to recent consumer preference surveys.
1. Fireplaces: The fireplace skyrocketed in importance in homes in 1991 with 62 percent of new homes having one or more. But the number has steadily been decreasing ever since. In 2007, the number dropped to 51 percent.
2. Carpet: While 54 percent of homes still have carpet floors, the number is decreasing and hardwood floors are taking the place. Vinyl and ceramic tile flooring also are being bypassed more by buyers. Seventeen percent of new homes contain hardwood floors throughout the entire house.
3. Living room: These once-decorative centerpieces of homes are slowly vanishing from newer homes. Thirty-four percent of consumers say they’re willing to buy a home without a living room.
4. Desks in the kitchen: These desks were once looked at as great storage areas but they’re often too small and quickly become clutter spaces in a home, said Gayle Butler, editor in chief of Better Homes and Gardens. Instead, more consumers say they prefer larger desks in or near the family room—equipped with a messaging center—where they can keep an eye on their kids as they work on the computer.
5. Skylights: The little windows that allow natural light to seep into a home from above are falling out of style. Only 10 percent of new homes will include them this year, a continuing downward spiral for skylights.
6. Upscale kitchen finishes: Granite countertops are slowly becoming less desirable among buyers who are now moving toward affordable, low-maintenance laminate countertops—which tend to last longer and now come in various styles.
Monday, January 19, 2009
More Moves to Colorado!
I remember when I sold real estate back in the 1980's! So many moved here from California.....and from the sounds of the article below, we may be repeating history!
For multiple reasons, I have the luxury of living anywhere in the country, or even the world, for that matter. I wouldn't give up living in this land of sunshine for anything! Keep reading about this family in an article by Michael Blood, a writer with the Associated Press, below:
January 12, 2009
Go East, young man? Californians look for the exit
By MICHAEL R. BLOOD
Associated Press Writer
Mike Reilly spent his lifetime chasing the California dream. This year he's going to look for it in Colorado.
With a house purchase near Denver in the works, the 38-year-old engineering contractor plans to move his family 1,200 miles away from his home state's lemon groves, sunshine and beaches. For him, years of rising taxes, dead-end schools, unchecked illegal immigration and clogged traffic have robbed the Golden State of its allure.
Is there something left of the California dream?
"If you are a Hollywood actor," Reilly says, "but not for us."
Since the days of the Gold Rush, California has represented the Promised Land, an image celebrated in the songs of the Beach Boys and embodied by Silicon Valley's instant millionaires and the young men and women who achieve stardom in Hollywood.
But for many California families last year, tomorrow started somewhere else.
The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.
The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.
California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.
A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.
In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history.
Why are so many looking for an exit?
Among other things: California's unemployment rate hit 8.4 percent in November, the third-highest in the nation, and it is expected to get worse. A record 236,000 foreclosures are projected for 2008, more than the prior nine years combined, according to research firm MDA DataQuick. Personal income was about flat last year.
With state government facing a $41.6 billion budget hole over 18 months, residents are bracing for higher taxes, cuts in education and postponed tax rebates. A multibillion-dollar plan to remake downtown Los Angeles has stalled, and office vacancy rates there and in San Diego and San Jose surpass the 10.2 percent national average.
Median housing prices have nose-dived one-third from a 2006 peak, but many homes are still out of reach for middle-class families. Some small towns are on the brink of bankruptcy. Normally recession-proof Hollywood has been hit by layoffs.
"You see wages go down and the cost of living go up," Reilly says. His property taxes will be $1,300 in Colorado, down from $4,300 on his three-bedroom house in Nipomo, about 80 miles up the coast from Santa Barbara.
California's obituary has been written before — "California: The Endangered Dream" was the title of a 1991 Time magazine cover story. The Golden State and its huge economy — by itself, the eighth-largest in the world — have shown resilience, weathering the aerospace bust, the dot-com crash and an energy crunch in recent years.
But this time, the news just keeps getting worse.
A state board halted lending for about 2,000 public works projects in California worth more than $16 billion because the state could not afford them. A report by Sen. Barbara Boxer, D-Calif., last month said the state lost 100,000 jobs in the last year and the erosion of home prices eliminated over $1 trillion in wealth.
"I don't think the California dream, per se, is over. It has become and will continue to become grittier," says New America Foundation senior fellow Gregory Rodriguez. "Now, perhaps, we have to reassess the California of our imagination."
Gov. Arnold Schwarzenegger is among those who say the state needs to create itself anew, rebuilding roads, schools and transit.
"We've lived off the investments our parents made in the '50s and '60s for a long time," says Tim Hodson, director of the Center for California Studies at California State University, Sacramento. "We're somewhat in the position of a Rust Belt state in the 1970s."
Financial adviser Barry Hartz lived in California for 60 years and once ran for state Assembly before relocating with his wife last year to Colorado Springs, Colo., where his son's family had moved.
"The saddest thing I saw was the escalation of home prices to the point our kids, when they got married, could not live in the community where they lived and grew up," Hartz says. "Some people call that progress."
For multiple reasons, I have the luxury of living anywhere in the country, or even the world, for that matter. I wouldn't give up living in this land of sunshine for anything! Keep reading about this family in an article by Michael Blood, a writer with the Associated Press, below:
January 12, 2009
Go East, young man? Californians look for the exit
By MICHAEL R. BLOOD
Associated Press Writer
Mike Reilly spent his lifetime chasing the California dream. This year he's going to look for it in Colorado.
With a house purchase near Denver in the works, the 38-year-old engineering contractor plans to move his family 1,200 miles away from his home state's lemon groves, sunshine and beaches. For him, years of rising taxes, dead-end schools, unchecked illegal immigration and clogged traffic have robbed the Golden State of its allure.
Is there something left of the California dream?
"If you are a Hollywood actor," Reilly says, "but not for us."
Since the days of the Gold Rush, California has represented the Promised Land, an image celebrated in the songs of the Beach Boys and embodied by Silicon Valley's instant millionaires and the young men and women who achieve stardom in Hollywood.
But for many California families last year, tomorrow started somewhere else.
The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.
The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.
California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.
A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.
In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history.
Why are so many looking for an exit?
Among other things: California's unemployment rate hit 8.4 percent in November, the third-highest in the nation, and it is expected to get worse. A record 236,000 foreclosures are projected for 2008, more than the prior nine years combined, according to research firm MDA DataQuick. Personal income was about flat last year.
With state government facing a $41.6 billion budget hole over 18 months, residents are bracing for higher taxes, cuts in education and postponed tax rebates. A multibillion-dollar plan to remake downtown Los Angeles has stalled, and office vacancy rates there and in San Diego and San Jose surpass the 10.2 percent national average.
Median housing prices have nose-dived one-third from a 2006 peak, but many homes are still out of reach for middle-class families. Some small towns are on the brink of bankruptcy. Normally recession-proof Hollywood has been hit by layoffs.
"You see wages go down and the cost of living go up," Reilly says. His property taxes will be $1,300 in Colorado, down from $4,300 on his three-bedroom house in Nipomo, about 80 miles up the coast from Santa Barbara.
California's obituary has been written before — "California: The Endangered Dream" was the title of a 1991 Time magazine cover story. The Golden State and its huge economy — by itself, the eighth-largest in the world — have shown resilience, weathering the aerospace bust, the dot-com crash and an energy crunch in recent years.
But this time, the news just keeps getting worse.
A state board halted lending for about 2,000 public works projects in California worth more than $16 billion because the state could not afford them. A report by Sen. Barbara Boxer, D-Calif., last month said the state lost 100,000 jobs in the last year and the erosion of home prices eliminated over $1 trillion in wealth.
"I don't think the California dream, per se, is over. It has become and will continue to become grittier," says New America Foundation senior fellow Gregory Rodriguez. "Now, perhaps, we have to reassess the California of our imagination."
Gov. Arnold Schwarzenegger is among those who say the state needs to create itself anew, rebuilding roads, schools and transit.
"We've lived off the investments our parents made in the '50s and '60s for a long time," says Tim Hodson, director of the Center for California Studies at California State University, Sacramento. "We're somewhat in the position of a Rust Belt state in the 1970s."
Financial adviser Barry Hartz lived in California for 60 years and once ran for state Assembly before relocating with his wife last year to Colorado Springs, Colo., where his son's family had moved.
"The saddest thing I saw was the escalation of home prices to the point our kids, when they got married, could not live in the community where they lived and grew up," Hartz says. "Some people call that progress."
Sunday, January 18, 2009
Another Credit Score Added to the Formula!
The following article appeared in a Realtor newsletter and it is sure to shed some light on your credit! I learned a few things from this, and think you might also!
New threats to credit scores by Liz Pulliam Weston
A revised FICO formula will kick in soon, and the balances you carry will matter more than ever. Luckily, little missteps will count less. Plus: How you can protect yourself.
By Liz Pulliam Weston
A long-delayed update to the leading credit scoring formula is rolling out in 2009, offering a few advantages to consumers -- and some serious new risks.
FICO 08, the latest version of the FICO scoring model, was initially supposed to be introduced in the fall but was delayed by lawsuits between its creator, Fair Isaac, and the nation's three main credit bureaus.
Everybody's since made up, and TransUnion will offer the new score to lenders starting in late January, with Equifax introducing it in the spring, said Craig Watts, a Fair Isaac spokesman. (Experian, the third bureau, hasn't yet announced when it will offer the score.)
Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO, which is used in more than 75% of mortgage lending decisions and by 90% of the largest U.S. lenders.
But FICO 08 is even more sensitive than the classic FICO to how much of your available credit you're using. If your credit card issuer slashes your credit limit -- which is increasingly likely these days -- you could see your scores plunge, regardless of whether you carry a balance.
Another hazard: The new scoring formula responds more negatively if consumers have few open, active accounts. Because more credit card issuers are shutting down unused and unprofitable accounts, that boosts the chances of damage to your scores.
3 victories for consumers
Not all the news is bad. FICO 08 offers some definite improvements for consumers in several areas, including:
• Collections. The new formula ignores small collection accounts in which the original debt was less than $100. This is a big victory for consumers and one I've advocated for years, because niggling little debts -- created by unpaid library fines, forgotten parking tickets or a small medical bill that slipped through the insurance cracks -- had an outsize impact on people's scores.
• Credit missteps. Fair Isaac says the new version is less punishing to those who have had a serious credit setback, such as a charge-off or a repossession, as long as their other active credit accounts are all in good standing.
• Authorized users. Fair Isaac initially said FICO 08 would combat potential fraud by ignoring any "authorized-user" accounts in a borrower's credit report. After a big consumer outcry and potential credit fairness issues, Fair Isaac backed off and decided some authorized-user information would be included.
Adding a spouse or child to your credit card as an authorized user has long been a good way to improve that person's credit score, because your good history with the account typically could be imported to the relative's credit file. But in 2007, credit repair companies began abusing this feature by "renting" authorized-user slots from good credit risks and selling them to strangers who wanted to boost their scores. Some of these strangers bought slots on dozens of different people's cards, boosting their scores by tens or even hundreds of points.
Lenders pressured Fair Isaac to drop authorized-user information from its calculations. But consumer advocates protested, noting that the change could punish millions of innocent parties, including spouses whose entire credit history depended on authorized-user information. Legal experts also warned that ignoring information regarding spouses on authorized credit lines could be a violation of the Equal Credit Opportunity Act.
• Video: New credit card safeguards
So now Fair Isaac says the FICO 08 formula will factor in authorized-user accounts "while materially reducing potential impacts to the score," according to the company's FICO 08 marketing brochure. Fair Isaac won't disclose exactly how it does that, but speculation is that the new score will count a limited number of authorized-user accounts and ignore the rest.
Better? Worse?
Fair Isaac made another course change regarding how FICO 08 would handle "inquiries," or applications for credit. At first, the company said applying for new credit would hurt less than in the past, since initial research seemed to show that inquiries had become less predictive of future defaults. Subsequent research, though, contradicted that finding, said Watts, the company spokesman. So you still want to be cautious and apply for credit only when necessary.
But clearly, one of the biggest hazards for consumers is the credit utilization issue. As issuers slash credit limits, the gap narrows between customers' balances and their limits, which is generally bad for their credit scores.
How bad is tough to predict. A limit reduction on a single account won't necessarily trash your credit, Watts said. Because FICO scores assess a lot of data, the effect of a single factor like a credit limit reduction will depend on what other data is on the credit report and how much the line is reduced.
"The person's score could be unchanged; it could go down," Watts said. "Or in some cases, it could go up."
It's fair to say, though, that big reductions in credit limits, and reductions affecting more than one account, aren't going to be good for your scores. Credit card expert Ben Woolsey of CreditCards.com noted that issuers' credit limit reductions so far -- and the promise of more to come -- are "clearly a hazard" to consumers' scores.
Still, Fair Isaac defends the accuracy of its formulas. Watts said the company's research has so far found the credit limit reductions have affected "a relatively small population, and those line reductions have been a relatively small amount for a sizable part of that population."
At the same time, he said, a "notable number" of consumers have reduced their use of revolving credit such as credit cards, which is helping to minimize any impact to their FICO scores from credit limit reductions.
"Our most recent performance study," Watts said, "indicates that the FICO score continues to appropriately rank-order consumers based on credit risk."
Different yardsticks, same strategies
Other ways to protect your scores:
Watch those balances. The less of your credit lines that you use, the better, even if you pay your balances every month. The credit bureaus and your credit scores don't distinguish between balances you pay off and those you carry month to month; the balance that's reported to the bureaus is typically the one that shows on your most recent monthly statement.
If you're in the habit of using a big portion of your credit limit -- because you travel on business or are chasing credit card rewards -- consider asking for a higher limit or using more than one card. Ideally, you'd use no more than 30% of your available limit at any time during the month; under 10% is even better.
If your credit card issuer slashes your credit limit, try to get the decision rescinded (read "Thaw out your frozen credit" for details). If that's not possible, use the card less and move at least a portion of your balance to other cards or to an installment loan. For credit scoring purposes, it's better to have small balances on a number of cards than a big balance on a single account.
Don't close accounts. Fair Isaac has made it clear that closing accounts can never help a classic FICO score and may hurt it. With FICO 08, that's even more true. You get more points for having open accounts in good standing; conversely, having a higher proportion of closed accounts can hurt you more.
Keep your accounts active. Issuers increasingly are shutting down unused accounts, which reduces your available credit and can hurt your scores. Even if your account isn't closed, though, FICO 08 doesn't like to see a bunch of unused cards -- it wants to see you actively and responsibly using a variety of credit accounts.
A simple way to keep an account active is to have a monthly bill charged to it, and then arrange for an automatic monthly payment to ensure you don't miss a due date (a single skipped payment can devastate a great credit score).
Consider an installment loan. There are two main types of credit: revolving accounts that allow you to build up and pay down balances, and installment loans that typically have fixed payments that require you to pay down your balance over time. Credit cards and lines of credit are examples of revolving accounts, while auto loans and mortgages are considered installment loans.
The FICO formula has always rewarded folks who had and successfully managed both types, which is why getting an installment loan was often recommended as a way for people with troubled credit to rehabilitate their scores. The new scoring formula is even more sensitive to the mix of credit types people have and use. In the past, people were able to get and keep very high scores using only credit cards; it's not clear if that will still be true under FICO 08.
Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
New threats to credit scores by Liz Pulliam Weston
A revised FICO formula will kick in soon, and the balances you carry will matter more than ever. Luckily, little missteps will count less. Plus: How you can protect yourself.
By Liz Pulliam Weston
A long-delayed update to the leading credit scoring formula is rolling out in 2009, offering a few advantages to consumers -- and some serious new risks.
FICO 08, the latest version of the FICO scoring model, was initially supposed to be introduced in the fall but was delayed by lawsuits between its creator, Fair Isaac, and the nation's three main credit bureaus.
Everybody's since made up, and TransUnion will offer the new score to lenders starting in late January, with Equifax introducing it in the spring, said Craig Watts, a Fair Isaac spokesman. (Experian, the third bureau, hasn't yet announced when it will offer the score.)
Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO, which is used in more than 75% of mortgage lending decisions and by 90% of the largest U.S. lenders.
But FICO 08 is even more sensitive than the classic FICO to how much of your available credit you're using. If your credit card issuer slashes your credit limit -- which is increasingly likely these days -- you could see your scores plunge, regardless of whether you carry a balance.
Another hazard: The new scoring formula responds more negatively if consumers have few open, active accounts. Because more credit card issuers are shutting down unused and unprofitable accounts, that boosts the chances of damage to your scores.
3 victories for consumers
Not all the news is bad. FICO 08 offers some definite improvements for consumers in several areas, including:
• Collections. The new formula ignores small collection accounts in which the original debt was less than $100. This is a big victory for consumers and one I've advocated for years, because niggling little debts -- created by unpaid library fines, forgotten parking tickets or a small medical bill that slipped through the insurance cracks -- had an outsize impact on people's scores.
• Credit missteps. Fair Isaac says the new version is less punishing to those who have had a serious credit setback, such as a charge-off or a repossession, as long as their other active credit accounts are all in good standing.
• Authorized users. Fair Isaac initially said FICO 08 would combat potential fraud by ignoring any "authorized-user" accounts in a borrower's credit report. After a big consumer outcry and potential credit fairness issues, Fair Isaac backed off and decided some authorized-user information would be included.
Adding a spouse or child to your credit card as an authorized user has long been a good way to improve that person's credit score, because your good history with the account typically could be imported to the relative's credit file. But in 2007, credit repair companies began abusing this feature by "renting" authorized-user slots from good credit risks and selling them to strangers who wanted to boost their scores. Some of these strangers bought slots on dozens of different people's cards, boosting their scores by tens or even hundreds of points.
Lenders pressured Fair Isaac to drop authorized-user information from its calculations. But consumer advocates protested, noting that the change could punish millions of innocent parties, including spouses whose entire credit history depended on authorized-user information. Legal experts also warned that ignoring information regarding spouses on authorized credit lines could be a violation of the Equal Credit Opportunity Act.
• Video: New credit card safeguards
So now Fair Isaac says the FICO 08 formula will factor in authorized-user accounts "while materially reducing potential impacts to the score," according to the company's FICO 08 marketing brochure. Fair Isaac won't disclose exactly how it does that, but speculation is that the new score will count a limited number of authorized-user accounts and ignore the rest.
Better? Worse?
Fair Isaac made another course change regarding how FICO 08 would handle "inquiries," or applications for credit. At first, the company said applying for new credit would hurt less than in the past, since initial research seemed to show that inquiries had become less predictive of future defaults. Subsequent research, though, contradicted that finding, said Watts, the company spokesman. So you still want to be cautious and apply for credit only when necessary.
But clearly, one of the biggest hazards for consumers is the credit utilization issue. As issuers slash credit limits, the gap narrows between customers' balances and their limits, which is generally bad for their credit scores.
How bad is tough to predict. A limit reduction on a single account won't necessarily trash your credit, Watts said. Because FICO scores assess a lot of data, the effect of a single factor like a credit limit reduction will depend on what other data is on the credit report and how much the line is reduced.
"The person's score could be unchanged; it could go down," Watts said. "Or in some cases, it could go up."
It's fair to say, though, that big reductions in credit limits, and reductions affecting more than one account, aren't going to be good for your scores. Credit card expert Ben Woolsey of CreditCards.com noted that issuers' credit limit reductions so far -- and the promise of more to come -- are "clearly a hazard" to consumers' scores.
Still, Fair Isaac defends the accuracy of its formulas. Watts said the company's research has so far found the credit limit reductions have affected "a relatively small population, and those line reductions have been a relatively small amount for a sizable part of that population."
At the same time, he said, a "notable number" of consumers have reduced their use of revolving credit such as credit cards, which is helping to minimize any impact to their FICO scores from credit limit reductions.
"Our most recent performance study," Watts said, "indicates that the FICO score continues to appropriately rank-order consumers based on credit risk."
Different yardsticks, same strategies
Other ways to protect your scores:
Watch those balances. The less of your credit lines that you use, the better, even if you pay your balances every month. The credit bureaus and your credit scores don't distinguish between balances you pay off and those you carry month to month; the balance that's reported to the bureaus is typically the one that shows on your most recent monthly statement.
If you're in the habit of using a big portion of your credit limit -- because you travel on business or are chasing credit card rewards -- consider asking for a higher limit or using more than one card. Ideally, you'd use no more than 30% of your available limit at any time during the month; under 10% is even better.
If your credit card issuer slashes your credit limit, try to get the decision rescinded (read "Thaw out your frozen credit" for details). If that's not possible, use the card less and move at least a portion of your balance to other cards or to an installment loan. For credit scoring purposes, it's better to have small balances on a number of cards than a big balance on a single account.
Don't close accounts. Fair Isaac has made it clear that closing accounts can never help a classic FICO score and may hurt it. With FICO 08, that's even more true. You get more points for having open accounts in good standing; conversely, having a higher proportion of closed accounts can hurt you more.
Keep your accounts active. Issuers increasingly are shutting down unused accounts, which reduces your available credit and can hurt your scores. Even if your account isn't closed, though, FICO 08 doesn't like to see a bunch of unused cards -- it wants to see you actively and responsibly using a variety of credit accounts.
A simple way to keep an account active is to have a monthly bill charged to it, and then arrange for an automatic monthly payment to ensure you don't miss a due date (a single skipped payment can devastate a great credit score).
Consider an installment loan. There are two main types of credit: revolving accounts that allow you to build up and pay down balances, and installment loans that typically have fixed payments that require you to pay down your balance over time. Credit cards and lines of credit are examples of revolving accounts, while auto loans and mortgages are considered installment loans.
The FICO formula has always rewarded folks who had and successfully managed both types, which is why getting an installment loan was often recommended as a way for people with troubled credit to rehabilitate their scores. The new scoring formula is even more sensitive to the mix of credit types people have and use. In the past, people were able to get and keep very high scores using only credit cards; it's not clear if that will still be true under FICO 08.
Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Friday, January 16, 2009
Lowest rates in 40 years!
While a good credit score is more important than ever in qualifying for a mortgage, those who have excelled are in an excellent time to reap the benefits of paying their bills on time!
With interests around 5%, lenders are busier than ever. That means many people are either buying or refinancing. If you own a home right now and your area is still suffering from a decrease in property values, you still might want to consider keeping that home and renting it out! While lenders won't use 100% of your rental income in qualifying for a mortgage on your new home. the amount may improve your qualifying ratios. The best way to find out is to call a good lender today. If you don't know one, your local Realtor will!
There are such deals out there right now. Prices on some homes dropping $30-100K at one pop! I'm showing a buyer some today, and will keep you posted on the outcome!
Happy real estate buying!
With interests around 5%, lenders are busier than ever. That means many people are either buying or refinancing. If you own a home right now and your area is still suffering from a decrease in property values, you still might want to consider keeping that home and renting it out! While lenders won't use 100% of your rental income in qualifying for a mortgage on your new home. the amount may improve your qualifying ratios. The best way to find out is to call a good lender today. If you don't know one, your local Realtor will!
There are such deals out there right now. Prices on some homes dropping $30-100K at one pop! I'm showing a buyer some today, and will keep you posted on the outcome!
Happy real estate buying!
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