About 1/3 of your FICO score is based on how much of your available credit you are using. This is called your "credit utilization".

The higher your utilization rate… the lower your credit score. The credit scoring models view this as you getting closer to maxing out your credit lines and becoming a higher risk.

If your credit limit is cut by your credit card issuer and has caused your credit utilization measure to drop, it subsequently lowers your credit score without you doing anything on your part.

If, however, your credit card company reduces your credit line on a credit card that you do not carry a balance on… then there is virtually no impact to your score.

Have you had credit lines decreased through no fault of your own? Let us hear about it. Click the comment link below and sound off. Your email address is NEVER published on this site, even though it is required (to prevent spam bots from posting here) to post your comment. We'd love to hear from you about this credit card limit lowering situation.

As we approach the peak of this year's Atlantic hurricane season, home improvement expert Danny Lipford explains the importance of having a backup generator during power outages caused by severe weather.

Questions or comments? Use the comment link below. Your email address will never appear on our website along with your comments for your privacy and protection.

The Federal Housing Administration (FHA) announced recently that it intends to make modifications to its Home Equity Conversion Mortgage (HECM), a reverse mortgage loan insured by the federal government, to make it more attractive and cost effective for older home owners looking to tap their home equity.

A HECM is a reverse mortgage that is insured by the FHA. It is designed to enable elderly homeowners (62 years or older) to borrow against the equity in their home without having to make monthly payments as is required with a traditional mortgage or home equity loan. Under a reverse mortgage, the borrower receives the funds as they wish in either a lump sum payment, monthly payments over time or on a “as-needed” basis, with the interest on the loan accruing and increasing the loan amount, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away. One of the great things about a reverse mortgage with regard to the borrowers heirs is, if the balance due upon settlement of the loan exceeds the value of the home, the FHA insurance covers the difference.

The department’s plans to implement a new variant of the product, referred to as the “HECM Saver,” that will provide seniors with a reverse mortgage option that significantly lowers upfront costs by virtually eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option. There will be changes to the existing HECM loan as well (now referred to as a “HECM Standard.) The introduction of the HECM Saver and changes to the HECM Standard are expected to be effective this October.

The cost saving in upfront fees is able to be achieved because the amount of money available to a borrower, an amount known as the “principal limit,” under a HECM Saver will be reduced, substantially lowering the risk to the FHA insurance fund. Borrowers will receive approximately 10% to 18% less under the HECM saver option, than they would under the HECM Standard option.

Our September 2010 Riverside County Real Estate Newsletter is now online…

Read It Here Now!

The Federal Reserve recently unveiled a slew of rules aimed at protecting consumers from abusive lending practices blamed for luring millions into unaffordable home loans.

The rules include a ban on yield-spread premiums, controversial payments that mortgage brokers have historically received in exchange for guiding consumers toward higher-interest rate mortgages. “This will prevent loan originators from increasing their own compensation by raising the consumers’ loan costs, such as by increasing the interest rate or points,” the Fed said.

The ban, set to take effect April 1, would apply to both mortgage brokers and the companies employing them. It also would prohibit loan originators from steering consumers toward loans that aren’t in their best interest but would generate stronger returns for brokers or loan officers. Loan originators would be able to continue receiving compensation based on a percentage of the loan amount.

The Fed says the rules unveiled were being formulated long before historic reforms to the financial sector regulation were passed last month. That legislation includes provisions similar to the yield-spread premium ban unveiled by the central bank on Monday but also covers some loan-origination practices that the Fed’s rules don’t address.

The Fed said Monday that it would require borrowers whose mortgages are sold or transferred to be notified of the changes.

It also proposed that lenders clearly tell borrowers what their mortgage could cost them in a “worst-case” interest rate scenario.

In addition, the Fed rules would require lenders to tell borrowers when balloon payments or minimum payment options could hike loan amounts, and disclose how payments could fluctuate for borrowers who have adjustable- or step-rate loans.

The legislation passed last month includes provisions similar to the rules unveiled by the Fed, but also covers some practices the Fed’s rules don’t address.