While lenders could absorb the cost of the increased risk fee, they are expected to incorporate it into the costs of the loan. Amy Bonitatibus of Fannie Mae said the risk fee increase is “intended to more accurately reflect changing risks in the housing market.” However, mortgage lending experts say the higher fees could make it difficult for some consumers to qualify for home loans through Freddie Mac and Fannie Mae.

While Freddie Mac and Fannie Mae get ready to implement their higher risk fees, the White House and officials from the banking industry are quietly holding talks about mortgage reform and the role the federal government should take to prevent another financial crisis. It’s evident from the housing collapse and the government’s takeover of Freddie Mac and Fannie Mae – at a taxpayers cost that could well exceed estimates of $151 billion – that the loan guarantee structure established during the Great Depression is not working. According to insiders, the mortgage reform talks are centering around several think tank recommendations.

The latest recommendation on mortgage reform from the Center for American Progress, a leading liberal think tank, backs a plan similar to one proposed last year by the Mortgage Bankers Association, a lobbying firm that represents the major banks in the country. Their mortgage reform plan would replace Freddie Mac and Fannie Mae with new private, for-profit companies. These firms, which banks would be allowed to have ownership in, would buy the mortgages from banks and sell them to investors in the form of securities. However, the government would guarantee investors against losses, which means if mortgages default, the government, not the firms, would be on the hook for the loss. In such a setup, the banks connected to these firms and Wall Street make a nice profit while taxpayers take on all the risk.

Proponents of the plan say home mortgages would be more easily attainable, have low interest rates and less fees since banks are not taking on any of the risk. In addition, the loss to taxpayers for mortgage defaults would be minimized by an insurance fund, similar to the FDIC, that these new firms would pay into. Yet the question remains whether it would be possible to achieve the same results by subsidizing housing through tax credits instead of a complex mortgage financing system. The Cambridge Winter Center for Financial Institutions Policy think tank argues in its report that tax subsidies are more effective than a taxpayer-backed housing finance system.

Clearly, policymakers and banks are coming from very different angles on the issue and the question is whether they can find common ground without forgetting about affordable housing and the taxpayer.

This economic cycle has played out many times throughout our history. Unfortunately, the economy often improves faster than the damage that it did to the average family. Maybe you are one of those who has fallen victim to unfortunate economic conditions in the past but now you have began the rebuilding process and with that comes a new job in a new community.

With a new job often comes relocation and with relocation comes a new problem: You need a mortgage but have damaged credit. The good news is that the bad news may not be as bad as you think.

What’s Your Credit Score?

These days, anything less than a 680 credit score is going to cause you trouble getting a home loan. While it’s more difficult to get a home loan, it’s not impossible. There are a few strategies that you can employ to get the home.

First, you are going to have to face reality. Before shopping for your home, understand that until your credit improves, you will probably have to settle for a smaller home than you would like. You’re going to have to shop for bargains.

Remember that if you have damaged credit but your new job has left you in a healthy financial situation, buy a home that needs some work and slowly improve it. You don’t need good credit to install new carpet or paint the fence.

Get Prequalified

While it is a good idea for everybody to get prequalified for a home loan, it is even more important that those with damaged credit to get prequalified. You need to know what your credit limit will be before you go shopping.

Remember that the more money you can put down, the more receptive the lender will be to you. If you sold your home and saved that money, it would be ideal if you could put 30% down on your new home. For many, that will not be possible but keep in mind that many lenders are asking for much larger down payments than in years past.

While it’s always a good idea to pay off your credit cards, if you know you are going to be moving in to a new home, save the proceeds from the sale of your home as a down payment for your new home. Don’t use it to pay off your credit card. This is one of the few exceptions to always paying off debt as soon as possible.

Other Options

In the event that you cannot qualify for a home loan, all is not lost. Ask your lender if you qualify with a cosigner. If you still do not qualify, maybe you have a family member or friend who invests in real estate who could take out the loan and you could either rent from them or negotiate a deal where you can pay in to the equity of the home.

Regardless of your home, you want to keep your focus on rebuilding your credit. That may require you to rent a home for a period of time. Be patient and don’t try to live beyond your current financial status. You’ll get back on your feet in no time.

So, no one really has a set of exact guidelines that outline how different things affect your credit; instead, we have three methods of figuring out how your credit score is calculated.

The first is a set of best practices that have been acquired over time simply through trial and error; these aren’t perfect and are the source of much of the bad advice going around about credit scores. Secondly, the credit bureaus release general tips that help us increase our understanding of the factors affecting your credit score; these are just tips and don’t define the extent to which certain actions will affect your credit. And, finally, there is something called The Fair Credit Reporting Act (“FCRA”), which establishes certain limitations on the length of time negative items may be reported on your credit report.

Before we move on, you should consider double-checking your credit score. You can get a free copy of your credit score here. Also, consider watching this excellent video that reveals a relatively unknown secret to removing collections permanently. Now, on to the three steps to remove collections from your credit report:

Step 1: Dispute the collection charges.

Write a letter to the reporting company (i.e. Equifax, Transunion or Experian) referencing the account in dispute and include supporting documentation (i.e. Copies of receipts for payment or copies of cleared checks). Here’s an example of a credit dispute letter that you can use.

The reporting company generally has 30 days to review the dispute and notify the original company that filed the collection. The original company (i.e. Your credit card company, etc.) will then conduct an investigation to determine the validity of the dispute. If the original company finds that the collection was, in fact, reported in error, it must notify all three credit bureaus so they can correct the information in your file. At this point you should request the credit bureau to supply a notice of any corrections to anyone who received your report within the past six months (or 2 years for employment purposes). If the investigation does not resolve your dispute, you should ask that a copy of the dispute be included in your file and in future reports.

Step 2: Pay off the Collection

If you’re looking to get a mortgage, almost all lenders will require that any outstanding collections be paid off before the loan funds or be included in the loan. So, if you’ve disputed the collection and it wasn’t removed from your report, you’ll need to pay it off before you take out a mortgage or refinance. Even if you pay the collection off, however, it will still remain on your report for some time (see step 3 for the exact length of time a collection will remain on your credit report).

Step 3: Wait until the collection drops off your report

That’s right, even unpaid items will drop off of your credit report, but not for 7 years. What does this mean? Well, unless the collection was found to be reported in error, that collection will remain on your report for 7 years from the date it was first reported no matter what – even if you pay it off. I’ve read a lot of bad information on the internet about this. A lot of “experts” seem to think that the collection will remain on your report for 7 years after the date of the last activity, meaning that if the collection was first reported in 2004 and you pay it off in 2007, it won’t drop off of your report until 2014 (2007 + 7 years). This simply isn’t true; the Fair Credit Reporting Act protects you from this and states that collections must be removed from your report 7 years after the date the collection was first reported.

Tricks of the Trade

One more thing that I did go over in a previous article, but I’ll mention it again here. If you have a collection on your report with a zero balance, dispute it. As I explained above, the bureaus have to go through a lot to review each and every dispute; if the dispute is over an account with a zero balance, they may just remove the collection from the report entirely instead of committing valuable resources to check that a zero balance account should remain on your report. All I’m saying is that I’ve seen it happen.

Quick Fixes

First, pay down your credit cards so the balances are equal to or less than 50% of the limit. Any cards with balances above 50% of the limit will negatively affect your score. Depending on your cash flow situation, this may or may not be a quick fix. Second, check your credit report and remove any reported accounts that are inaccurate. According to a study conducted by the US Public Research Group,

“Twenty-five percent (25%) of the credit reports surveyed contained serious errors that could result in the denial of credit, such as false delinquencies or accounts that did not belong to the consumer.” All told, “79% of the credit reports surveyed contained either serious errors or other mistakes of some kind.”

That’s no number to scoff at. You must stay on top of your credit report. There are tons of services out there offering credit monitoring services; I’ve personally used two of them. FreeCreditReport.com is a free service run by Experian (one of the credit bureaus) that will allow you unlimited access to your Experian credit report and send automatic updates to your email when your report changes in any way. MyFico.com is run by Fair Isaac Corp. and offers a 30-day free trial for their credit monitoring services; it’s a little more robust than FreeCreditReport.com.

5 Powerhouse Ways To Improve Your Credit Score

1. Correct Obvious Mistakes:

   In addition to what I mentioned above, you may be able to get derogatory accounts with zero balances, if they’ve been inactive for some time, off your credit report just by writing a letter to the credit bureaus disputing the account. You see, when you dispute an account, the credit bureaus have to dig through millions of files in their dry storage in order to find yours. The credit bureaus are private, for-profit companies; when you dispute a zero-balance account, sometimes they’ll just remove the account in dispute just to avoid the hassle; it only works if the account has been inactive for a while and has a zero-balance.

2. Make Payments On Time – Sort Of:

   This one’s obvious, right? Sure; one thing most people don’t realize, however, is that late payments don’t show up on your report unless they’re more than 30 days late. You can pay your credit card bill a couple weeks late for the rest of your life and the only repercussion may be late fees.And another thing; In most cases, utilities do not show up on your credit report at all unless they’ve gone to collections. So, you can be 6 months late on your utility bill and, as long as the utility company doesn’t send the account to collections, your credit score won’t be affected. I’m not advocating that you not pay your utility bill, but I am advocating that, if times are tight, and you think you’ll be back on your feet in a couple months, hold off on the utilities and make the mortgage payment. Now, I said most cases because I have seen utility bills on credit reports before, so you’ll not want to take everything I say as some sort of gospel.

3. Reduce Credit Card Balances

   Like I mentioned earlier in this article, keep your credit card balances below 50% of the limit. The lower the better, but 50% is the magic number. You may be tempted to consolidate all of your credit cards onto one of those 0% 1-year introductory APR cards to reduce your overall monthly payments and then close your other credit card accounts. This could cause problems. Let’s say you have three cards, all with credit limits of $6,000 and balances of $2,000; no problem, they’re all below 50% of the limits. Now, you get this sweet 0% until March of 2050 (I wish) credit card with a limit of $8,000 and you transfer all the balances over; a total of $6,000. Are you following me? Then you close out those three cards that now have $0 balances. While this may seem like a good idea – you lower your monthly payment and pay less interest – it’s not. You’ve now closed out your only cards with balances below 50% of the limit and the only account left open is quite a bit over 50%. The credit bureaus look at the fact that you’ve just reduced your overall available credit and ding you. The better thing to do would be to get two of those intro APR cards and transfer $3,000 to each one, all the while keeping your old $0-balance accounts open. That way you keep your balances below 50% and you still have a good amount of available credit. Credit bureaus like this and the interest rates you’re able to qualify for will be much better.

4. Keep Loan Shopping Within a 2-Week Period

   That’s right, just like we mentioned toward the end of Rate Shopping – The Story of the Too Low FICO, you can shop ’till you drop, as long as it’s within a 2-week time frame. Too much shopping could damage your credit score and your ability to qualify for the best mortgage rates. And remember, if some Loan Officer ever tries to convince you that if anyone else runs your credit your score’s going to go down and he won’t be able to do the loan for you, about face and abandon ship.

5. Stop Buying Things You Can’t Afford!

   This one’s easy, I know, but the debt society we live in, with department store clerks ramming credit cards down our throats with the promise of 20% off your purchase, it’s something we all need to be reminded of time to time.