KNOW WHAT HELPS AND HURTS YOUR CREDIT SCORE !!

Your credit score is important to your financial life, affecting the rates you get for mortgages, credit cards and insurance. Improving your score may save you thousands of dollars in interest. So would it help your score if you got rid of a credit card? Pay your bills on time and keep your credit expenditures under control, and you won't have to worry about your credit rating!

That's the short answer. But since virtually everything that makes up your credit score depends on something else -- depends on your credit mix, the number of cards you carry, the length of your credit history, your rate of credit utilization and myriad other things -- there is a longer answer, meaning that it is tough to pin it down to one specific thing.

In most cases, canceling a credit card won't help your credit score. In fact, it may actually hurt your score. You see, your credit score depends on how you shake out in five different credit-scoring categories, each weighted differently when calculating that score.

What counts in a credit score?

This chart shows how Fair Isaac Corp. values the various parts of your credit management to determine your credit score.

Source: Fair Isaac Corp. Canceling a credit card potentially can hurt you in at least two of the five categories -- and maybe even a third.

Credit-utilization ratio is key First, canceling a card could upset your credit-utilization ratio, the second most heavily weighted category in most credit scoring algorithms.

For example, assume you have three cards with total available credit of $20,000. Assume
further that your outstanding balances total no more than $6,000 of that available credit at any one time. Since creditors like to see a credit-utilization ratio of 30 percent to 40 percent or less, you're in good shape. Now, assume that you cancel a card with a zero balance and a $10,000 credit limit. Suddenly, your utilization ratio jumps to 60 percent, and your credit score drops. As counterintuitive as that seems, that could happen. Building good credit takes patience and persistence. But what about quick fixes? Many of these tricks are scams. But there are a few sneaky ways to legitimately give your score a boost when needed. Furthermore canceling that card could result in a double whammy to your credit score, because each card is scored individually, and then all your cards are scored together. If you've just canceled the card with a zero balance, you've lost a great individual score. Regardless, if you still want to cancel a card, make sure to pay down your other balances to keep that rate in line.

Second key is "Older credit is better" If you do cancel a card, you can compound your error even further by canceling the card that you've had the longest period of time and on which you've been making regular payments. By canceling an old card, the length of your credit history on open accounts will grow shorter. There's at least one more stratigy to consider if you are dead set on cancelling a card to help your spending habits. If you're intent on canceling a card, cancel a younger card or cancel one on which the credit card issuer doesn't report the credit card limit. You can find out which ones by getting a copy of your credit report. When you check your credit report there are codes that the credit bureau will tag on your file.

Most common reasons consumers are denied credit:
• Serious delinquency.
• Serious delinquency and public record or collection filed.
• Time since delinquency is too recent or unknown.
• Level of delinquency on accounts is too high.
• Amount owed on accounts is too high.
• Ratio of balances to credit limits on revolving accounts is too high.
• Length of time accounts have been established is too short.
• Too many accounts with balances.

One of the reason codes (reason No. 4) tells you if having too many cards has hurt your score. Common sense should tell you that the older you are and the better you manage your credit, the more cards you can have in your wallet before you reach the magic number that triggers the reason code.

Have a Healthy Mix:
Fair Isaac and VantageScore look for a healthy credit mix, a mix that might include a mortgage loan, a car loan, maybe a store card or two, three or four MasterCard or Visa cards and a home equity line of credit, or HELOC, for example.

Credit Cards are the Key:
They seem to be the key to the kingdom when it comes to credit scores: Don't cancel your cards!! Pay them off!! And after you've done that, don't send them back. Cut them up. Do that, and you have a zero balance enhancing your credit utilization rate. Do that, and you maintain your credit history on open accounts. Do that, and your credit mix looks good and you still have the available credit on the card you cut up. All you have to do is ask for a new card when you need it. Nevertheless, if you have a compulsion to cancel credit cards, do it the right way. First, cancel your department store cards; then cancel the newest MasterCard or Visa with the lowest credit limit, making sure to close the card from the company that doesn't report credit limits. Make sure to keep your credit-utilization ratio in line as you cancel, paying down balances on your other cards, if necessary, to keep it in line. Score one for the consumer!

Please feel free to call for questions ! Prosperity Financial 303.666.6550 !
*we are not a credit relief or credit counseling company, we just speak from experience!

Colorado Mortgage Insight......

PRINCIPAL MORTGAGE INSURANCE (PMI or MI).... What you need to know !

I had a client who had some questions about "Mortgage Insurance". He was very mistaken about his interpretation.

Here is what you need to know!

Most loan professionals have only two options these days for refinancing people out of an ARM (Adjustable Rate Mortgage) or other compromising loan situation. One option requires mortgage insurance and the other does not. The first option, where every lender now requires you to pay mortgage insurance, is when you have one loan that is above 80% LTV (Loan-to-Value). The second option, where you split your loan into two loans is commonly known as an 80/20 option. Rarely will they use all the remaining 20% on the second mortgage or HELOC (Home Equity Line Of Credit). With the second option, since the 1st mortgage amount is 80% or below, lenders do not require you to pay mortgage insurance.

If you choose the HELOC Interest Only option, the difference between the option 1 and the option 2 bottom line payments is very small. It is almost a wash, so it really boils down to the interest rate that you receive. Keep in mind on an Interest-Only HELOC you are only paying INTEREST! (You will not pay down the principal amount unless you make extra payments.)

If you choose the first option (one loan above 80% LTV) you will be paying the mortgage insurance; however, you will also be paying on the PRINCIPAL and INTEREST! This is the trade off. One advantage to this option is that if you have a household income of $100,000/year, you can write off all your mortgage insurance on your taxes.

Things to avoid in these situations are:
- An Interest Only on the first mortgage as well as an Interest Only HELOC just to lower your payment. This gets you nowhere with your principal balance.
- NEVER let a lender put a PRE-PAYMENT PENELTY on your loans.
- The bottom line payment isn't always the "BEST" option.

Other things to consider:
-Interest Only options are GREAT for older people with plenty of equity (70% LTV or below) that may be on a fixed income. Older people need to realize the likelihood of passing without a house payment at all is probably not VERY common or realistic.
- They also need to realize that their children will not be disappointed if they leave them a house with 30% equity. In this market that is NOT a liability at all.
- INTEREST ONLY programs are NOT bad. However, you must just be disciplined.

This can be very confusing so I hope has cleared up some questions and/or concerns about the different options. However, if you have additional questions or need some clarification, please do not hesitate to email me at matt@myprosperityfinancial.com or visit or newly renovated website http://www.colomortgages.com/

From my family to yours HAPPY HOLIDAYS !!!!

What you need to know about the FED rate cut !!!

Hello again,

I decided to take a break from the "Resolution of 2008 plan" to give you some insightful news about the FED rate cut today!

This is what you as homeowners need to know about the FED rate cuts......

1: Their will probably not be much movement on LONG-TERM mortgages

Today investors reacted in a way of disappointment because they were expecting a rate sute of .5% rather than the .25%. The market has already priced that and adjusted rates accordingly; 30-year fixed rates have been falling for some time.
In July, the average rate on a 30-year fixed mortgage was 6.66%. Last week, it was 5.82%. So, a rate cut won't really do very much to lower long-term rates. They're already low. So if you want to refinance, it's a good time to start shopping!

2: ARM (Adjustable Rate Mortgages) resets will probably not to be as severe!

The Fed move today may be more significant to borrowers with adjustable-rate mortgages than what the government is doing in freezing subprime interest rates. Most resets on adjustable rate mortgages will reset in the middle of next year. Combined with the fact that the Fed is cutting rates, will make these resets more manageable for prime borrowers, and people "PRIME BORROWERS" (usually 680 credit scores and above) ARE NOT covered by recently announced foreclosure-prevention plan.
So, if you had an adjustable rate mortgage that started at 4.5% and your rate was going to reset at 7.5%, you may only face a rate reset of 5.7%. Still bad news, but more managable than before..... remember you have to stabilize first!

3: HELOCS (Home Equity Line Of Credits) will have better rates

Home equity lines of credit are cheaper after today. It may take up to three billing cycles to see the decrease in your bill. If you are thinking of consolidating debts or you need money for medical bills or college expenses, you may want to consider shopping around for a HELOC since lenders are likely to price in the Fed's cut immediately.

4: Keep your situation in perspective

This rate cut will not be the silver lining that cures the problems in the housing market. But since the Fed is in a rate cutting mode, and the immidiate effect on that will help consumers. The bad thing is that the Federal Reserve can't control things like the Credit Crunch and the impact of it, otherwise they have shown by these cuts that we would be in a lot better situation as a whole.

Were we need to look is inflation, job growth and the overall health of the economy as signs of when the troubled housing market will ease. There are 2 main issues here; One is inventory of houses on the market and, Two the affordability of houses today. Interest rate cuts won't do much to make that go away.

Folks we may be in for the long haul, so make the right decisions!!!

If you have any questions please do not hesitate to contact us @ 303.666.6550 or email me at matt@myprosperityfinancial.com

You can visit our website http://www.colomortgages.com/ for more insightful mortgage information, where you can also subscribe to our monthly financial newsletter !

Talk to ya soon,

The Mortgage Insight Specialist...