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Americans with Holiday Debt Added $1,003 on Average This Year

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

With the holiday season drawing to a close, some Americans are going to find themselves nursing a pretty serious debt hangover.

In our second annual holiday debt survey, MagnifyMoney found consumers who took on debt this holiday season will kick off the New Year with an average of $1,003 worth of new debt. That is up from $986 in 2015, for a year-over-year increase of 1.7%.

Our survey consisted of a national sample of 552 Americans who reported they added debt during the holidays.

Here are key findings:

Most people who went into debt didn’t plan on it

Racking up credit card debt isn’t exactly a problem in and of itself, so long as you have the cash on hand to pay it off quickly. But in our survey, we found the vast majority — 65.2% — of consumers who took on debt did so unexpectedly this year, and didn’t budget for the extra expenses.

It’s easy to imagine scenarios in which people might spend more than they can afford over the holidays. Last-minute gifts, family emergencies, and, for some, fewer work hours, can all add up to a hefty credit card bill if not planned for in advance.

Most people will be paying off their debt for 4 months or more

Less than one-quarter of those surveyed said they can pay off their debt within one month. Nearly half (46%) predict they’ll need four months or more to pay off their holiday debt, or will only make the minimum monthly payments.

Nearly 12% of respondents said they only plan on making minimum monthly payments, which can extend repayment for years.

Even a seemingly meager amount of debt can quickly balloon over time if it isn’t paid off aggressively. We can illustrate this using the MagnifyMoney Credit Card Payoff Calculator.

A person carrying an average debt load of $1,003 who makes one $25 minimum payment per month would need 58 months (4.8 years) to pay off their debt. That calculation assumes an average APR of 16%.

On top of paying off their principal balance of $1,003, over that time they would pay an additional $442 worth of interest for a grand total of $1,445.

Credit cards were the most common form of debt

For another year, credit cards reign as the most popular source of holiday debt. In fact, even more consumers reported using credit cards for holiday debt this year than in 2015 — 59.9% vs. 52%.

Unfortunately, the number of consumers who turned to payday loans this year increased, from 6% in 2015 to 7.1% in 2016. Payday and title loans are hands down the most costly options for people who find themselves in need of cash.

We did find one bright spot, however. This year, the rate of consumers who said they used store credit cards fell dramatically, from 30% in 2015 to 17.1% in 2016. Store credit cards can often come with painfully high interest rates and other gotchas like dreaded deferred interest policies.

Shoppers are stuck with higher rates this year

This year, half of survey respondents (50%) said their debt carries an APR of 10% and above. Among those, 34.7% have APRs between 10-19% and 16% carry APRs above 20%.

The rate of people who are stuck with 20% or higher APRs rose significantly year over year, from 9% in 2015 to 16% this year.

But most people won’t bother to get a lower rate

Despite the fact that almost half of respondents expect to take 4 months or more to pay off their debt, a mere 13% of respondents said they plan to shop around to find a better rate with a different bank or loan. That’s even worse than last year, when 22% of respondents said they would shop around for a better rate.

The most cited reason for not wanting to shop around is not wanting to deal with another bank, noted by 20.9% of respondents this year.

Using the MagnifyMoney credit card payoff calculator, we found a consumer with $1,003 in debt at a 16% rate making minimum payments would shave over a year off debt repayment and save over $400 in interest payments by finding a 0% balance transfer.

Millennials were most likely to go into debt over the holidays

Among all age groups, people ages 24-35 were most likely to say they went into debt this holiday season with a rate of 14.3%. With the exception of 45-54-year-olds, the likelihood of going into debt decreased with age. Seniors were least likely to say they went into debt, with a rate of 7.6%.

How to free yourself from holiday debt:

In preparation for the new year, MagnifyMoney released the 2nd edition of its free 45 page Debt Free Forever eBook – that you can download to prepare your action plan, tailored to whether your situation calls for a quick switch to a lower rate, or more significant debt payoff advice.

Key tips for beating the debt cycle include:

  1. Understand where your money actually went. The best way to fix your spending problem is to understand where the money has actually gone. And there are great apps, like LevelMoney or Mint, which can help you understand where your money has gone over the last 3 months. We particularly like LevelMoney, because it splits your expenditure into fixed, recurring expenses and variable expenses.
  2. Review your credit report from all three reporting agencies. You need to know what is on your credit report in order to build a good credit score. You can download your report for free at AnnualCreditReport.com for all three bureaus.
  3. Understand your credit score and put together a plan to improve your score during 2017. People with the best scores never charge more than 10% of their available credit and pay their bills on time every month. Not only is that good for your score, but it is good for your wallet. And you can now get your official FICO score for free in a number of places. Otherwise, you can get your VantageScore at sites like CreditKarma.
  4. If you have a good credit score, your debt can probably be refinanced. Mortgages, student loans, auto loans and credit cards (with a balance transfer or personal loan) can all be refinanced. Find ways to lock in much lower interest rates now before rates go up to help you pay off your debt faster. But avoid extending the term to get a lower payment. The biggest trap people fall into with refinancing is that they lower their rate and extend their term, like taking a 30 year refinance on a mortgage that’s set to be paid off in 15 years. By doing this, you might end up paying more money in the long run. Second, be careful before you refinance federal student loans, because you give up valuable protection.
  5. Paying off the debt with the highest interest rate first will save you the most money (the debt ‘avalanche’ method), but a recent study shows you’re more likely to stick to paying off your debt if you pay the debt with the smallest balance in full first (the debt ‘snowball’ method), even if it doesn’t have the highest interest rate. That’s because small ‘wins’ help build momentum to keep you motivated.
  6. Automate all of your payments. Data has consistently shown that automating decisions greatly increases the likelihood of achieving your goals. To build that emergency fund, set up automatic transfers from your checking to your savings account. (Even better, get a higher interest rate online account and keep it completely separate from your checking account). To build your retirement savings, automate your 401(k) or IRA contributions. And to pay your credit card bill, automate your monthly payments.
  7. ‘Net worth’ is not just a concept for the rich, and you need to focus on your net worth now. Net worth is a simple concept: it is what you own minus what you owe. Building wealth and being financially responsible means you are building your net worth. A good salary doesn’t help your net worth if you’re spending it all on your car and clothes and not saving each year. Focus on the right number: building your net worth.

Before you consider a balance transfer:

If you need to buy yourself more time while you trim expenses and work on paying down your debt, a balance transfer can be a useful tool, but one that can backfire if you’re not disciplined. A balance transfer is simply a process where you transfer the balance from one or more credit cards onto a single new credit card with a different rate.

You can use our balance transfer calculator to estimate whether getting a balance transfer credit card will help you save money and pay off your debt faster.

If it will help, you’ll first need to check your credit score to see where you stand since you’ll be applying for another credit card. Balance transfer offers typically require a credit score of 680 or higher to be approved.

You can check your FICO score for free using Discover’s free FICO Score Card which is even available to non-customers who don’t use Discover products, or use another free source.

It’s also important to do the math before signing up for a new credit card. Be honest about how much you can afford to pay each month to determine how much a balance transfer will save you in the long run.

And keep these tips in mind:

  • Many balance transfer offers have fees of 3% or more. While that can be worth it for large balances, make sure you compare the fee versus what you will save in interest and when you think you’ll pay off the debt.
  • On most cards, balance transfer offers are only valid if you complete the transfer within the first 60 days.
  • One month before your rate expires, look for another offer because when the 0% period expires, the interest rate will rise significantly.
  • Don’t spend on the new card. Unless the 0% offer extends to purchases, you will be charged interest on your spending and rack up more debt.

2016 Post-Holiday Debt Survey Questions

Methodology: MagnifyMoney surveyed 552 U.S. adults who reported they added debt over the holidays via Google Consumer Surveys from December 26 – 27.

Average Debt Among Shoppers Who Said They Went into Debt Over the Holidays

2016: $1,003

2015: $986

Did you go into debt this holiday season?

Age 25-34: 14.3%
Age 35-44: 10.9%
Age 45-54: 12.5%
Age 55-64: 8.5%
Age 65+: 7.6%


If you went into debt, did you plan to go into debt this holiday season?

Yes: 34.8%

No: 65.2%

How much debt did you take on over the holidays?

$0-999: 62.1%

$1,000-1,999: 19.7%

$2,000-2,999: 6.6%

$3,000-3,999: 2.8%

$4,000-4,999: 0.7%

$5,000-5,999: 1.5%

$6,000+: 6.3%

Where did your holiday debt come from?

Credit cards: 59.9%

Store cards: 17.1%

Personal loan: 8.9%

Payday / title loan: 7.1%

Home equity loan: 5.3%

When will you pay the debt off?

I’m only making minimum payments: 11.8%
1 month: 23.9%
2 months: 13.8%
3 months: 16.2%
4 months: 7.4%
5 months+: 27.0%

Will you try to consolidate your debt or shop around for a good balance transfer rate?

Yes: 13.1%
No – Don’t want to deal with another bank: 20.9%
No – Too many traps: 16.0%
No – Rate is already low: 26.3%
No: – Don’t know enough about it: 11.0%
No – Wouldn’t qualify: 12.6%


How stressed are you about your holiday debt?

Stressed: 29.7%

Not Stressed: 70.3%

What interest rate are you paying on your debt?

Less than 9%: 41.7%

10-19%: 34.7%

20-29%: 16.0%

 

Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com

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Average Household Credit Card Debt in America: 2017 Statistics

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Even as household income and employment rates are ticking up in the U.S., credit card balances are approaching all-time highs. What’s behind the growth of credit card spending among consumers? In a new report on credit card debt in America, MagnifyMoney analyzed credit debt trends in the U.S. to find out exactly how much credit debt consumers are really taking on and, crucially, how they are managing their growing reliance on plastic.

Key Findings:

  • While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. As of December 2016, households with credit card debt owed an average of $7,703, down 27.2% compared to October 2008, when household credit card debt peaked at $10,588.
  • Credit card balances and credit card debt are not the same thing. The 73 million Americans who pay their bill in full each month have credit card balances reported to the major credit reporting bureaus.
  • Assessing financial health means focusing on credit card debt trends rather than credit card use trends.

Credit Card Debt in the U.S. by the Numbers

Credit Card Use

Number of Americans who use credit cards: 203 million1

Average number of credit cards per consumer: 2.22

Number of Americans who carry credit card debt: 127 million3

Credit Card Debt

The following figures only include the credit card balances of those who carry credit card debt from month to month.

Total credit card debt in the U.S.: $504 billion4

Average credit card debt per person: $3,9715

Average credit card debt per household: $7,7036

Credit Card Balances

The following figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

Total credit card balances: $764 billion as of January 2017, an increase of 7.3% from the previous year.7

Average balance per person: $5,5518

Who Pays Off Their Credit Card Bills?

42% of households pay off their credit card bills in full each month

31% of households carry a balance all year

27% of households sometimes carry a balance10

Understanding Household Credit Card Balances vs. Household Debt

At first glance, it may seem that Americans are taking on near record levels of credit debt. Forty-two percent of American households11 carry credit card debt from month to month, and, if you look at the total credit card balances among U.S. households, the figure appears astronomical — $764 billion. But that figure includes households that are paying their credit debt in full each month as well as those that are carrying a balance from month to month.

While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. The total of credit card balances for households that actually carry debt from month to month is $504 billion.

As of the first quarter of 2017, households with credit card debt owed an average of $7,703.3 That is a decrease of 27.2% compared to October 2008, when household credit card debt peaked at $10,588.12b

And as household incomes have risen in recent years, this has helped to lower the ratio of credit card debt to income. Today, indebted households with average debt and median household incomes have a credit card debt to income ratio of 14.9%.13 Back in 2008, the ratio was 19.1%.

Credit Card Debt per Person

Once we adjust for these effects, we see that an estimated 127 million Americans carry $503 billion of credit card debt from month to month. Back in 2008, 7 million fewer Americans carried debt, but total credit card debt in late 2008 hovered around $631 billion.16 That means people with credit card debt in 2008 had more debt than people with credit card debt today.

Average credit card debt among those who carry a balance today is $3,970 per person2 or $7,703 per household.3 Back in 2008, credit card debtors owed an average of 28.6% more than they do today. In late 2008, the 115 million17 Americans with credit card debt owed an average of $5,567 per person12a or $10,689 per household.12b

Delinquency Rates

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying.

In the second quarter of 2009, delinquency rates were 6.77%, nearly three times higher than they are today. Today, credit card delinquency rates among U.S. households are down to 2.34%.14

Credit card debt is well below recession levels, but balances continue inching upward. In the last year, overall credit card balances rose 7.3% to $764 billion.

Our Method of Calculating Household Credit Card Debt

Credit card debt doesn’t appear on the precipice of disaster, but the recent growth in balances is cause for some concern. Still, our estimates for household credit card debt remain modest.

In fact, MagnifyMoney’s estimates of household credit card debt is two-thirds that of other leading financial journals. Why are our estimates comparatively low?

A common estimate of household credit card debt is:

This method overstates credit card debt. The Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) does not release a figure called credit card indebtedness. Instead, they release a figure on national credit card balances. Representatives of the Federal Reserve Bank of New York and the Philadelphia Federal Reserve Bank both confirmed that the CCP includes the statement balances of people who go on to pay their bill in full each month.

To find a better estimate of credit card debt, we found methods to exclude the statement balances of full paying households from our credit card debt estimates. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Even though full payers pay off their statement balance each month, their balances are included in the CCP’s figures on credit card balances.

To exclude full payer balances, we turned to academic research outside of the Federal Reserve Banks. The paper, Minimum Payments and Debt Paydown in Consumer Credit Cards, by Benjamin J. Keys and Jialan Wang, found full payers had mean statement balances of $3,412. We used this figure, multiplied by the estimated number of full payers to find the statement balances of full payers.

Our credit card debt estimate is:3

Credit Card Debt: Do We Know What We Owe?

Academic papers, consumer finance surveys, and the CCP each use different methods to measure average credit card debt among credit card revolvers. Since methodologies vary, credit card debt statistics vary based on the source consulted.

MagnifyMoney surveyed these sources to present a range of credit card debt statistics.

Are We Paying Down Credit Card Debt?

A Pew Research Center study25 showed that Americans have an uneasy relationship with credit card debt. More than two-thirds (68%) of Americans believe that loans and credit card debt expanded their opportunities. And 85% believe that Americans use debt to live beyond their means.

Academic research shows the conflicting attitude is justified. Some credit card users aggressively pay off debt. Others pay off their bill in full each month.

However, a substantial minority (44%)26 of revolvers pay within $50 of their minimum payment. Minimum payers are at a high risk of carrying unsustainable credit card balances with high interest.

In fact, 14% of consumers have credit card balances above $10,000.27 At current rates, consumers with balances of $10,000 will spend more than $1,386 per year on interest charges alone.28

Minimum Payments and Debt Paydown in Consumer Credit Cards29

Even an average revolver will spend between $54530 and $55631 on credit card interest each year.

Credit Debt Burden by Income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the Survey of Consumer Finances, the top 10% of income earners who carried credit card debt had nearly twice as much debt as average.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $3,000. However, their debt-to-income ratio was 21.7%. On the high end, earners in the top decile had an average of $11,200 in credit card debt. But debt-to-income ratio was just 4.9%.

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower income debt carriers. In fact, high-income earners are as likely to pay the minimum as those with below average incomes.32 If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational Differences in Credit Card Use

  • Boomer consumers carry an average credit card balance of $6,889.
  • That is 24.1% higher than the national average consumer credit card balance.34
  • Millennial consumers carry an average credit card balance of $3,542.
  • That is 36.1% lower than the median consumer credit card balance.35

With average credit card balances of $6,889, baby boomers have the highest average credit card balance of any generation. Generation X follows close behind with average balances of $6,866.

At the other end of the spectrum, millennials, who are often characterized as frivolous spenders who are too quick to take on debt, have the lowest credit card balances. Their median balance clocks in at $3,542, 36.1% less than the national median.

Better Consumer Behavior Driving Bank Profitability

You may think that lower balances spell bad news for banks, but that isn’t the case. Credit card lending is more profitable than ever thanks to steadily declining credit card delinquency. Credit card delinquency is near an all-time low 2.34%.14

Despite better borrowing behavior, banks have held interest on credit cards steady between 13% and 14%37 since 2010. Today, interest rates on credit accounts (assessed interest) is 13.86%. This means bank profits on credit cards are at all-time highs. In 2015, banks earned over $102 billion dollars from credit card interest and fees.38 This is 15% more than banks earned in 2010.

How Does Your State Compare?

Using data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare median credit card balances and credit card delinquency. You can even see how each generation in your state compares to the national median.

Footnotes:

  1. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The June 2016 Survey of Consumer Expectations shows 76.1% of people with credit reports had balances on credit cards. The May 2017 Report on Household Debt and Credit showed 267 million adults with credit reports. For a total of 203 million credit card users.
  2. May 2017 Report on Household Debt and Credit, Page 4, Q1 2017, 453 million credit card accounts. 453 million credit card accounts / 203 million credit card users1 = 2.2 credit cards per person.
  3. The 2015 Report on the Economic Well-Being of U.S. Households reports 58% of credit card users carried a balance in 2015. 203 million1 * 58% = 118 million people with credit card debt.Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67% of credit card users were not “full payers.” This results in a high estimate of 136 million people with credit card debt.Average estimate is 127 million with credit card debt.
  4. Using data from the 2015 Report on the Economic Well-Being of U.S. Households, 203 million credit card users * (58% not full payers) * $4,011 per individual5 = $472 billion in credit card debt.Using data from Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate 203 million credit card users * (67% not full payers) * $3,930 per individual5 = $535 billion in credit card debt.Average estimated total credit card debt is $504 billion.
  5. The May 2017 Report on Household Debt and Credit shows $764 billion in outstanding credit card debt. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33% full payers, we calculate:[$764 billion – ($3,412 (full payer balance) * 33% full payer * 203 million credit card users1)] / (203 million credit card users * (100% – 33% not full payers)) = $3,930Using their estimate of 42% full payers, from the 2015 Report on the Economic Well-Being of U.S. Households and the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:[$764 billion – ($3,412 (full payer balance) * 42% full payer * 203 million credit card users1)] / (203 million credit card users * (100% – 42% not full payers)) = $4,011Average estimated credit card debt per person is $3,971.
  6. Average per person credit card is $3,9715 and the average household contains 1.94 adults over the age of 18. $3,971 * 1.94 = $7,703.
  7. May 2017 Report on Household Debt and Credit, Compare Q1 2016 to Q1 2017, outstanding credit card debt (Page 10).
  8. May 2017 Report on Household Debt and Credit, Page 3, Q1 2017, credit card debt $764 billion / 203 million1 = $3,759.
  9. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian,Accessed May 24, 2017. National Balance on Bankcards- average of $5,551.
  10. Page 30, 2015 Report on the Economic Well-Being of U.S. Households.
  11. 2013 Survey of Consumer Finances reports 37.1% of U.S. households carry credit card debt. There are 125.82 million U.S. households.Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1% of U.S. households carried a balance the month prior to the Survey of Consumer Finances.Between 48 million14 and 58 million15 households carry credit card debt. Using the average of the two estimates, we believe 53 million households out of 125.82 million households carry credit card debt.
  12. a. CCP data shows 76.6% of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit showed 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33% full payers, we calculate:[$866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users)] / (183 million credit card users * (100% – 33% not full payers)) = $5,365U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5% of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:[$866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports)] / (240 million people with credit reports * (44.5% not full payers)) = $5,769Average estimated credit card debt per person is $5,567.b. Average per person credit card is $5,56712 and in 2008, the average household contained 1.92 adults over the age of 18. $5,567 * 1.92 = $10,689.
  13. U.S. Bureau of the Census, Real Median Household Income in the United States [MEHOINUSA672N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSA672N, March 17, 2017.
  14. Board of Governors of the Federal Reserve System (US), Delinquency Rate on Credit Card Loans, All Commercial Banks [DRCCLACBS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DRCCLACBS, March 16, 2017.
  15. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Full payers will pay off the entirety of their statement balance each month. Finding an estimate of full payers’ statement balances was not an easy task. The Federal Reserve Bank of New York does not provide estimates of full payers compared to people who carry a balance.In order to get our estimates, we turned to academic research outside of the Federal Reserve Banks. In the paper, Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we found robust estimates of the statement balances of “full payers.” According to their analysis (see Table 1-A), full payers had mean statement balances of $3,412 (when summarized across all credit cards) before they went on to pay off the debt.We multiplied $3,412 by the estimated number of full payers to get the estimated balances of full payers.
  16. CCP data shows 76.6% of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33% full payers, we calculate:$866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users) =$659 billionU.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5% of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:$866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports) = $587 billionEstimated credit card debt is $623 billion.
  17. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The June 2016 Survey of Consumer Expectations Shows 76.1% of the adult population uses credit cards. The May 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 203 million credit card users. Page 30, 2015 Report on the Economic Well-Being of U.S. Households shows that 58% of households with credit cards sometimes or always carry a balance.203 million * 58% = 118 million people with credit card debt
  18. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The June 2016 Survey of Consumer Expectations Shows 76.1% of the adult population uses credit cards. The May 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 203 million credit card users. Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67% of credit card users were not “full payers.”203 million * 67% = 136 million people with credit card debt
  19. The 2013 Survey of Consumer Finances reports 37.1% of U.S. households carry credit card debt. There are 125.82 million U.S. households.
  20. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1% of U.S. households carried a balance the month prior to the Survey of Consumer Finances.
  21. The 2013 Survey of Consumer Finances reports a median credit card debt of $2,300 per household with credit card debt.
  22. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic median credit card debt of $3,500 per household. Two-person households systematically underreported their debt.
  23. The 2013 Survey of Consumer Finances reports a median credit card debt of $5,700 per household with credit card debt.
  24. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic average credit card debt of $9,600 per household.
  25. The Complex Story of American Debt, Page 9.
  26. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  27. Recent Developments in Consumer Credit Card Borrowing.
  28. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, June 6, 2017.February 2017 interest rate on accounts assessed interest 13.86%: $10,000 * 13.86% = $1,386.
  29. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  30. $3,9312 * 13.86%28 = $545
  31. $4,0112 * 13.86%28 = $556
  32. Minimum Payments and Debt Paydown in Consumer Credit Cards.
  33. 2013 Survey of Consumer Finances.
  34. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian,Accessed May 24, 2017. Average credit card balance for baby boomers is $6,889 compared to a national average of $5,551.
  35. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian,Accessed May 24, 2017. Average credit card balance for millennials is $3,542 compared to a national average of $5,551.
  36. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, June 6, 2017.
  37. U.S. Bureau of the Census, Sources of Revenue: Credit Card Income from Consumers for Credit Intermediation and Related Activities, All Establishments, Employer Firms [REVCICEF522ALLEST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/REVCICEF522ALLEST, March 17, 2017.
  38. CCP data shows 76.6% of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit, Page 3, Q3 2008, credit card debt $886 billion / 183 million = $4,720
  39. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017. All average credit card debt balances are calculated using the following formula:(Total Credit Card Balancea – Balance of Population Not Carrying Debtb) / Population Carrying Credit Card Debtc
    1. Total Credit Card Balance = (Average Credit Card Debt Per Capita * Population)
    2. Balance of Population Not Carrying Debt = Average Credit Card Debt Per Capita * Population * % of Population Using a Credit Card
    3. Population * % of Population Using a Credit Card * (1 – .375)
  40. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017.
  41. Data from Consumer Credit Explorer.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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U.S. Mortgage Market Statistics: 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Homeownership rates in America are at all-time lows. The housing crisis of 2006-2009 made banks skittish to issue new mortgages. Despite programs designed to lower down payment requirements, mortgage originations haven’t recovered to pre-crisis levels, and many Americans cannot afford to buy homes.

Will a new generation of Americans have access to home financing that drove the wealth of previous generations? We’ve gathered the latest data on mortgage debt statistics to explain who gets home financing, how mortgages are structured, and how Americans are managing our debt.

Summary:

  • Total Mortgage Debt: $9.8 trillion1
  • Average Mortgage Balance: $137,0002
  • Average New Mortgage Balance: $244,0003
  • % Homeowners (Owner-Occupied Homes): 63.4%4
  • % Homeowners with a Mortgage: 65%5
  • Median Credit Score for a New Mortgage: 7646
  • Average Down Payment Required: $12,8297
  • Mortgages Originated in 2016: $2.065 trillion8
  • % of Mortgages Originated by Banks: 43.9%9
  • % of Mortgages Originated by Credit Unions: 9%9
  • % of Mortgages Originated by Non-Depository Lenders: 47.1%9

Key Insights:

  • The median borrower in America puts 5% down on their home purchase. This leads to a median loan-to-value ratio of 95%. A decade ago, the median borrower put down 20%.10
  • Credit score requirements make mortgages tougher than ever to get. The median mortgage borrower had a credit score of 764.6
  • 1.67% of all mortgages are in delinquency. In 2010, mortgage delinquency reached as high as 8.89%.11

Home Ownership and Equity Levels

In the first quarter of 2017, real estate values in the United States recovered to their pre-recession levels. The total value of real estate owned by individuals in the United States is $23 trillion dollars, and total mortgages clock in at $9.8 trillion dollars. This means that Americans have $13.7 trillion in homeowners equity.12 This is the highest value of home equity Americans have ever seen.

However, real estate wealth is becoming increasingly concentrated as overall homeownership rates fall. In 2004, 69% of all Americans owned homes. Today, that number is down to 63.4%.4 While home affordability remains a question for many Americans, the downward trend in homeownership corresponds to banks tightening credit standards for new mortgages.

New Mortgage Originations

Mortgage origination levels show signs of recovery from their housing crisis lows. In 2008, financial institutions issued just $1.4 trillion dollars of new mortgages. In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis. Despite the growth in the mortgage market, mortgage originations are still 25% lower than their pre-recession average.8

As recently as 2010, three banks (Wells Fargo, Bank of America, and Chase) originated 56% of all mortgages.13 In 2016, all banks put together originate just 44% of all loans.9

In a growing trend toward “non-bank” lending, both credit unions and non-depository lenders cut into banks’ share of the mortgage market. In 2016, credit unions issued 9% of all mortgages. Additionally, 47% of all mortgages in 2016 came from non-depository lending institutions like Quicken Loans and PennyMac. Behind Wells Fargo ($249 billion) and Chase ($117 billion), Quicken ($96 billion) was the third largest issuer of mortgages in 2016. In the fourth quarter of 2016, PennyMac issued $22 billion in loans and was the fourth largest lender overall.9

Government vs. Private Securitization

Banks tend to be more willing to lend mortgages to consumers if a third party will buy the mortgage in the secondary market. This is a process called loan securitization. Consumers can’t directly influence who buys their mortgage. Nonetheless, mortgage securitization influences who gets mortgages and their rates. Over the last five years government securitization enterprises, FHA and VA loans, and portfolio loan securitization have risen. However, today private loan securitization is almost extinct.

Government-sponsored enterprises (GSEs) have traditionally played an important role in ensuring that banks will issue new mortgages. In 2016, 46% of all loans issued were securitized by Fannie Mae or Freddie Mac. However, in absolute terms, Fannie and Freddie purchased 20% fewer loans than they did in the years leading up to 2006.8

In 2016, a tiny fraction (0.4%) of all loans were purchased by private securitization companies.8 Prior to 2007, private securitization companies held $1.6 trillion in subprime and Alt-A (near prime) mortgages. In 2005 alone, private securitization companies purchased $1.1 trillion worth of mortgages. Today private securitization companies hold just $500 billion in total assets, including $440 billion in subprime and Alt-A loans.14

As private securitization firms exited the mortgage landscape, programs from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) have filled in some of the gap. The FHA and VA are designed to help borrowers get loans despite having smaller down payments or lower incomes. FHA and VA loans accounted for 23% of all loans issued in 2016. These loan programs are the only mortgages that grew in absolute terms from the pre-mortgage crisis. Prior to 2006, FHA and VA loans only accounted for $155 billion in loans per year. In 2016, FHA and VA loans accounted for $470 billion in loans issued.8

Portfolio loans, mortgages held by banks, accounted for $639 billion in new mortgages in 2016. Despite tripling in volume from their 2009 low, portfolio loans remain down 24% from their pre-crisis average.8

Mortgage Credit Characteristics

Since banks are issuing 21% fewer mortgages compared to pre-crisis averages, borrowers need higher incomes and better credit to get a mortgage.

The median FICO score for an originated mortgage rose from 707 in late 2006 to 764 today. The scores on the bottom decile of mortgage borrowers rose even more dramatically from 578 to 657.6

In 2016, 23% of all first lien mortgages were financed through FHA or VA programs. First-time FHA borrowers had an average credit score of 677. This puts the average first-time FHA borrower in the bottom quartile of all mortgage borrowers.8

Prior to 2009, an average of 20% of all volumes originated went to people with subprime credit scores (<660). In the first quarter of 2017, just 8% of all mortgages were issued to borrowers with subprime credit scores. Mortgages for people with excellent credit (scores above 760) more than doubled. Between 2003 and 2008 just 27% of all mortgages went to people with excellent credit. In the first quarter of 2017, 61% of all mortgages went to people with excellent credit.6

Banks have also tightened lending standards related to maximum debt-to-income ratios for their mortgages. In 2007, conventional mortgages had an average debt-to-income ratio of 38.6%; today the average ratio is 34.3%.15 The lower debt-to-income ratio is in line with pre-crisis levels.

LTV and Delinquency Trends

Banks continue to screen customers on the basis of credit score and income, but customers who take on mortgages are taking on bigger mortgages than ever before. Today a new mortgage has an average unpaid balance of $244,000, according to data from the Consumer Financial Protection Bureau.3

The primary drivers behind larger loans are higher home prices, but lower down payments also play a role. Prior to the housing crisis, more than half of all borrowers put down at least 20%. The average loan-to-value ratio at loan origination was 82%.10

Today, half of all borrowers put down 5% or less. A quarter of all borrowers have just 3.5% equity at the time of mortgage origination. As a result, the average loan-to-value ratio at origination has climbed to 88%.10

Despite a growing trend toward smaller down payments, growing home prices mean that overall loan-to-value ratios in the broader market show healthy trends. Today, the average loan-to-value ratio across all homes in the United States is an estimated 48%. The average LTV on mortgaged homes is 73%.16

This is substantially higher than the pre-recession LTV ratio of approximately 60%. However, homeowners saw very healthy improvements in loan-to-value ratios of 94% in early 2011. Between 2009 and 2011 more than a quarter of all mortgaged homes had negative equity. Today, just 6.2% of homes have negative equity.17

Although the current LTV on mortgaged homes remains above historical averages, Americans continue to manage mortgage debt well. Current homeowners have mortgage payments that make up an average of just 16.5% of their annual household income.18

After falling for 20 straight quarters, mortgage delinquency rates reached an eight-year low (1.57%) in the fourth quarter of 2016. Delinquency rates ticked up to 1.67% for the first time in Q1 2017, but remain substantially below the 2010 high of 8.89% delinquency.11

Despite the general progress, delinquency rates are still six basis points higher than their 2003-2006 average of 1.07%. It remains to be seen if delinquency rates will return to their pre-crisis lows, or if the housing market is entering a new normal.

Sources:

  1. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, June 22, 2017.
  2. Survey of Consumer Expectations Housing Survey – 2017,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed June 22, 2017.
  3. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “Average Loan Amount, 1-4 family dwelling, 2015.” Accessed June 22, 2017.
  4. U.S. Bureau of the Census, Homeownership Rate for the United States [USHOWN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USHOWN, June 22, 2017. (Calculated as percent of all housing units occupied by an owner occupant.)
  5. “U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates,” Mortgage Status, Owner-Occupied Housing Units. Accessed June 22, 2017.
  6. Quarterly Report on Household Debt and Credit May 2017.” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed June 22, 2017.
  7. Calculated metric:
    1. Down Payment Value = Home Price* Average Down Payment Amount (Average Unpaid Balance on a New Mortgageb / Median LTV on a New Loanc) * (1 – Median LTV on a New Loanc)
    2. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “Average Loan Amount, 1-4 family dwelling, 2015.” Accessed June 22, 2017. Gives an average unpaid principal balance on a new loan = $244K.
    3. Housing Finance at a Glance: A Monthly Chartbook, May 2017.” Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  8. Housing Finance at a Glance: A Monthly Chartbook, May 2017.” First Lien Origination Volume from the Urban Institute. Source: Inside Mortgage Finance and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  9. Mortgage Daily. 2017. “Mortgage Daily 2016 Biggest Lender Ranking” [Press Release] Retrieved from https://globenewswire.com/news-release/2017/04/03/953457/0/en/Mortgage-Daily-2016-Biggest-Lender-Ranking.html.
  10. Housing Finance at a Glance: A Monthly Chartbook, May 2017.” Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  11. Quarterly Report on Household Debt and Credit May 2017.” Mortgage Delinquency Rates, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed June 22, 2017.
  12. Calculated metric: Value of U.S. Real Estatea – Mortgage Debt Held by Individualsb
    1. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, June 22, 2017.
    2. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, June 22, 2017.
  13. Mortgage Daily, 2017. “3 Biggest Lenders Close over Half of U.S. Mortgages” [Press Release]. Retrieved from http://www.mortgagedaily.com/PressRelease021511.asp?spcode=chronicle.
  14. Housing Finance at a Glance: A Monthly Chartbook, May 2017” from the Urban Institute Private Label Securities by Product Type, Urban Institute, calculated from: Corelogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  15. Fannie Mae Statistical Summary Tables: April 2017” from Fannie Mae. Accessed June 22, 2017; and “Single Family Loan-Level Dataset Summary Statistics” from Freddie Mac. Accessed June 22, 2017. Combined debt-to-income ratios weighted using original unpaid balance from both datasets.
  16. Calculated metrics:
    1. All Houses LTV = Value of All Mortgagesc / Value of All U.S. Homesd
    2. Mortgages Houses LTV = Value of All Mortgagesc / (Value of All Homesd – Value of Homes with No Mortgagee)
    3. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, June 22, 2017.
    4. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, June 22, 2017.
    5. U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates, Aggregate Value (Dollars) by Mortgage Status, June 22, 2017.
  17. Housing Finance at a Glance: A Monthly Chartbook, May 2017.” Negative Equity Share. Source: CoreLogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  18. Survey of Consumer Expectations Housing Survey – 2017,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed June 22, 2017.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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7 Reasons Your Mortgage Application Was Denied

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

There are few things more nerve-racking for homebuyers than waiting to find out if they were approved for a mortgage loan.

Nearly 627,000 mortgage applications were denied in 2015, according to the latest data from the Federal Reserve, down slightly (-1.1%) year over year. If your mortgage application was denied, you may be naturally curious as to why you failed to pass muster with your lender.

There are many reasons you could have been denied, even if you’re extremely wealthy or have a perfect 850 credit score. We spoke with several mortgage experts to find out where prospective homebuyers are tripping up in the mortgage process.

Here are seven reasons your mortgage application could be denied:

You recently opened a new credit card or personal loan

Taking on new debts prior to beginning the mortgage application process is a “big no-no,” says Denver, Colo.-based loan officer Jason Kauffman. That includes every type of debt — from credit cards and personal loans to buying a car or financing furniture for your new digs.

That’s because lenders will have to factor any new debt into your debt-to-income ratio.

Your debt-to-income ratio is fairly simple to calculate: Add up all your monthly debt payments and divide that number by your monthly gross income.

A good rule of thumb is to avoid opening or applying for any new debts during the six months prior to applying for your mortgage loan, according to Larry Bettag, attorney and vice president of Cherry Creek Mortgage in Saint Charles, Ill.

For a conventional mortgage loan, lenders like to see a debt-to-income ratio below 40%. And if you’re toeing the line of 40% already, any new debts can easily nudge you over.

Rick Herrick, a loan officer at Bedford, N.H.-based Loan Originator told MagnifyMoney about a time a client opened up a Best Buy credit card in order to save 10% on his purchase just before closing on a new home. Before they were able to close his loan, they had to get a statement from Best Buy showing what his payments would be, and the store refused to do so until the first billing cycle was complete.

“Just avoid it all by not opening a new line of credit. If you do, your second call needs to be to your loan officer,” says Herrick. “Talk to your loan officer if you’re having your credit pulled for any reason whatsoever.”

Your job status has changed

Most lenders prefer to see two consistent years of employment, according to Kauffman. So if you recently lost your job or started a new job for any reason during the loan process, it could hurt your chances of approval.

Changing employment during the process can be a deal killer, but Herrick says it may not be as big a deal if there is very high demand for your job in the area and you are highly likely to keep your new job or get a new one quickly. For example, if you’re an educator buying a home in an area with a shortage of educators or a brain surgeon buying a home just about anywhere, you should be OK if you’re just starting a new job.

If you have a less-portable profession and get a new job, you may need to have your new employer verify your employment with an offer letter and submit pay stubs to requalify for approval. Even then, some employers may not agree to or be able to verify your employment. Furthermore, if your salary includes bonuses, many employers won’t guarantee them.

Bettag says one of his clients found out he lost his job the day before they were due to close, when Bettag called his employer for one last check of his employment status. “He was in tears. He found out at 10 a.m. Friday, and we were supposed to close on Saturday.”

You’ve been missing debt payments

During the loan process, any recent negative activity on your credit report, which goes back seven years, can raise concerns. The real danger zone is any activity reported within the last two years, says Bettag, which is the time period lenders play closest attention to.

That’s why he encourages loan applicants to make sure their credit reports are accurate and that old items that should have fallen off your report after seven years aren’t still appearing.

“Many things show on credit reports beyond seven years. That’s a huge issue, so we want to get dated items removed at the bureau level,” Bettag says.

For first-time homebuyers, he cautions against making any late payments six months prior to applying for a mortgage. They won’t always be a total deal-breaker, but they can obviously ding your credit, and a lower credit score can lead to a loan denial or a more expensive mortgage rate.

Existing homeowners, Bettag says, shouldn’t have any late mortgage payments in the 12 months prior to applying for a new mortgage or a refinance.

“There are workarounds, but it can be as laborious as brain surgery,” says Bettag.

You accepted a monetary gift

Your lender will be on the lookout for any out-of-place deposits to your bank accounts during the approval process. Bettag advises homebuyers not to accept any large monetary gifts at least two months or longer before you apply, and to keep a paper trail if the lender has any questions.

Any cash that can’t be traced back to a verifiable source, such as an annual bonus, or a gift from a family friend, could raise red flags.

This can be tricky for homebuyers who are relying on help from family to purchase their home. If you receive a gift of money for a down payment, it has to be deemed “acceptable” by your lender. The definition of acceptable depends on the type of mortgage loan that you are applying for and the laws that govern the process in your state.

For example, Bettag says, the Federal Housing Authority doesn’t care if a borrower’s entire down payment comes as a gift when they are applying for an FHA loan. However, the gifted funds may not be eligible to use as a down payment for a conventional loan through a bank.

You moved a large amount of money around

Ideally, avoid moving large sums of money about two months before applying.

Herrick says many borrowers make the mistake of shuffling too much cash around just before co-signing, making themselves look suspicious to bank regulators. Herrick says not to move anything more than $1,000 at a time, and none if you can help yourself.

For example, If you’re considering moving money from all of your savings accounts into one account to deliver the cashier’s check for the down payment, don’t do it. You don’t need to have everything in one account for the cashier’s check for your closing. You can submit multiple cashier’s checks. All the lender cares about is that all of the money adds up. You may be able to simply avoid some of this hassle by arranging to pay using a wire transfer. Just be sure to schedule it in time.

You overdrafted your checking account

If you have a credit issue already, says Bettag, overdrafting your checking account can be a deal-breaker, but it won’t cause as much of an issue if you have great credit and offer a good down payment. Still avoid overdrafting for at least two months prior to applying for the mortgage loan.

You may be the type to keep a low checking account balance in favor of saving more money. But if an unexpected bill could risk overdrafting your account, try keeping a few extra dollars in the account for padding, just in case.

You forgot to include debts or other information on your loan application

Your loan officer should carefully review your application to make sure it’s filled out completely and accurately. Missing a zero on your income, or accidentally skipping a section, for example, could mean rejection. A small mistake could mean losing your dream home.

There’s also the chance you accidentally omitted information the underwriter caught in the more extensive screening process, like money owed to the IRS. Disclose all of your debt to your loan officer up front. Otherwise, they may not be able to help you if the debt comes up and disqualifies you for your dream home later on.

If you owe the IRS money and are in a payment plan, Bettag says your loan officer can still work with you. However, they want to see that you’ve been in a plan for at least three months and made on-time payments to move forward.

“Can you imagine not paying your IRS debt, getting into a payment plan, and then not paying on the agreed plan? Not cool for lenders to see, but we do,” says Bettag.

The Bottom Line

There is no hard and fast rule on how long before you begin the mortgage process that you should heed these warnings. It all varies, according to Bettag. If you have excellent credit and a strong income, you might be able to get away with a recently opened credit card or other discrepancies — minor faults that might totally derail the application of a person who has bad credit and inconsistent income.

Whatever the case may be, Bettag encourages prospective homebuyers to stick to one general rule: “Don’t do anything until you’ve consulted with your loan officer.”

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Meet 2 Families Who Earn Six Figures and Still Feel Broke

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Although they have lived in the Washington, D.C. metro area all their lives, Lauren Orsini and her husband, John, don’t feel they can raise a family there, despite their six-figure income.

Lauren Orsini and her husband, John, live in Arlington, Va., and both grew up in the greater Washington, D.C. metro area. They attended all levels of schooling here, and their families still live close by. But as the couple looks toward a future with children, they don’t see how they can afford to stay in their hometown — even though they bring in more than $100,000 annually.

“The life that I’m living is unsustainable, and I know it,” says Lauren, 30. “But I’m so deeply rooted here. I can’t imagine living anywhere else, even though I know this won’t last forever.”

Their plight is reflected in the findings of a recent MagnifyMoney report, which analyzed the best and worst cities for a family earning six figures. On the list of 381 metro areas, the Washington, D.C.-Arlington-Alexandria, Va., region is dead last.

“I’m not surprised at all,” Lauren says. Though she and John, a government contractor, make just above $100,000 “it doesn’t go far here even though it sounds like a lot. And you can forget about buying a place.”

The couple shells out $1,700 monthly on their one-bedroom apartment, located in a 1960s building with no thermostat or washing machine. But Lauren loves the life that Arlington affords her, particularly its proximity to D.C. proper.

She takes Japanese lessons at the embassy. Her running club recently took a route to the Lincoln Memorial and back. She can hop on the metro to visit either of her two sisters. And she and John have always enjoyed commutes of less than 20 minutes.

“If you don’t live in Arlington, I can understand how outsiders would say, ‘Well, that’s a selfish decision — you can’t have everything,” Lauren admits. “But my world is here. I’m still close with my high school friends. John’s family is 90 minutes away. We can go see a show in D.C. or watch the fireworks in just a few minutes.”

Six-Figure Incomes and Still in the Red

But the convenience and excitement of D.C. life come with hefty costs, as the MagnifyMoney study showed. The analysis — which factored in basic expenses like taxes, housing, and transportation — was designed to see where a family earning $100,000 has the most wiggle room. The estimates assume a two-income household with two adults and one child, and cities are ranked by worst (least amount of money left over at the end of each month) to best (the most amount of money left over at the end of the month).

After the D.C. area, rounding out the bottom three are Bridgeport-Stamford-Norwalk, Conn., and San Jose-Sunnyvale-Santa Clara, Calif. By contrast, Tennessee is clearly the best state for six-figure households to stretch their dollars: Johnson City, Morristown, and Cleveland are the top three cities on MagnifyMoney’s list.

The differences are stark. In Johnson City, Tenn., total monthly expenses make up just 62% of total post-tax income, leaving a $2,400 surplus. In the D.C. area, expenses come to 105% monthly — meaning households making $100,000 are $315 in the red on average at the end of the month.

“We’re doing just fine for now, but when I think about a baby and buying a house, it’s not going to work,” Lauren says. “I check Redfin every day, as if some magical condo is going to spring up. We go through this cycle of house-hunting where we lower our standards more and more, and we still can’t find anything.”

Lauren and John have found homes they think they can afford: two bedrooms, maybe 980 square feet or so, for about $650,000. But these are often condos and townhouses with high homeowners association fees, which puts the homes far above budget.

It’s frustrating. And it’s why Lauren has seen friends, one by one, scuttle out to the suburbs in search of slightly more affordable real estate and space for a family. But as with the city, the ‘burbs come with a cost: a commute to D.C. of an hour or more. Lauren fears that would be untenable for John.

She wants to see her husband stay happy at his job, where he has worked for seven years. John is also slated for a promotion soon, which could help ease some of their worries. But Lauren doesn’t expect any windfall to solve the deeper barriers of raising a child in her hometown.

“We make six figures, we responsibly put money in savings and retirement, and it’s not enough,” Lauren says with a sigh. “What I think will happen is that we won’t be able to delay having a baby any longer, and life will become about what’s best for them. But for now, it’s hard to swallow any decision that will make our lifestyle worse.”

Finding the Free in Pricey Places

D.C.-area residents like Lauren and John — and city-dwellers all over the nation — are willing to pay sky-high rents because of all that cities have to offer. While some of those offerings are trendy restaurants and pricey shows, cities are also home to loads of free fun like museums, festivals, and block parties.

That’s part of why Shanon Lee, a mother of four living in D.C.-adjacent Alexandria, Va., isn’t “really feeling the crunch with my family. It’s easy to spend money [in the D.C area], of course, but it’s also easy not to, thanks to all of these events.”

Beyond free events for her kids — who range in ange from 4 to 21 — Shanon herself also scores frequent invitations to outings in her role as a filmmaker, artist, and writer. What’s more, Shanon’s live-in partner works in IT, and he can easily pick up side jobs like refurbishing computers.

“I know we’re lucky that we’re doing well, and he can make $2,000 in a heartbeat by grabbing a quick job if he wants,” Shanon says. “But lots of people I know are living with roommates even when they don’t want to. And in our last neighborhood, a bunch of families packed in grandparents too.”

Still, Shanon says she and her family are “always looking for ways to reduce our expenses.” She opted not to enroll her youngest in a preschool that would have cost $380 weekly, instead balancing her work-at-home life with caring for her child. The family currently pays $2,600 monthly to rent their townhome in Alexandria, though they’re looking to move a few blocks away where homes can rent for $1,900. After that? Unlike Lauren Orsini, Shanon doesn’t feel tied to the D.C. metro.

“It’s a transient area, and I’ve found it can be hard to form lasting relationships,” Shanon explains. “We don’t necessarily feel at home.”

Shanon isn’t sure where her family’s forever home will be, but she plans to choose a spot based on the basics.

“Our primary considerations are factors like cost of living, safety, and good school districts,” Shanon says. “You have to stay focused on the important things.”

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It Could Get a Lot Easier to Sue Your Bank Thanks to This New Regulation

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With looming existential threats from both the Trump administration and the federal court system, the Consumer Financial Protection Bureau went ahead on Monday with a controversial rule that will change the way nearly all consumer contracts with financial institutions are written.

The end of forced arbitration?

The rule will ensure that all consumers can join what CFPB Director Richard Cordray called “group” lawsuits — generally known as class-action lawsuits — when they feel financial institutions have committed small-dollar, high-volume frauds. Currently, many contracts contain mandatory arbitration clauses that explicitly force consumers to waive their rights to join class-action lawsuits. Instead, consumers are forced to enter individual arbitration, a step critics say most don’t bother to pursue.

Consumer groups have for years claimed waivers were unjust and even illegal, but in 2011, the U.S. Supreme Court sided with corporate lawyers, paving the way for even more companies to include the prohibition in standard-form contracts for products like credit cards and checking accounts.

How to be sure you’re protected by the new rule

Monday’s rule is slated to take effect in about eight months, meaning most new contracts signed after that date can’t contain the class-action waiver. Prohibitions in current contracts will remain in effect.

Consumers who want to ensure they enjoy their new rights will have to close current accounts and open new ones after the effective date, the CFPB said.

“By blocking group lawsuits, mandatory arbitration clauses force consumers either to give up or to go it alone — usually over relatively small amounts that may not be worth pursuing on one’s own,” Cordray said during the announcement.

“Including these clauses in contracts allows companies to sidestep the judicial system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm large numbers of consumers. … Our common-sense rule applies to the major markets for consumer financial products and services under the Bureau’s jurisdiction, including those in which providers lend money, store money, and move or exchange money.”

A long road ahead for the CFPB

The ruling was several years in the making, initiated by the Dodd-Frank financial reforms of 2010, which called on the CFPB to first study the issue and then write a new rule. But it almost didn’t happen: With the election of Donald Trump and Republican control of the White House, the CFPB faces major changes, including the expiration of Cordray’s term next year.

Also, House Republicans have passed legislation that would drastically change the CFPB’s structure. Either of these could lead to the undoing of Monday’s rule. When I asked the CFPB at Monday’s announcement what the process for such undoing would be, the bureau didn’t respond.

“I can’t comment on what might happen in the future,” said Eric Goldberg, Senior Counsel, Office of Regulations.

Cordray cited the recent Wells Fargo scandal as evidence the arbitration waiver ban was necessary. Before the fake account controversy became widely known, consumers had tried to sue the bank but were turned back by courts citing the contract language.

Under the new rules, consumers would have an easier time finding lawyers willing to sue banks in such situations. No lawyer will take a case involving a single $39 controversy, but plenty will do so if the case potentially involves thousands, or even millions, of clients.

Consumer groups immediately hailed the new rule.

“The CFPB’s rule restores ordinary folks’ day in court for widespread violations of the law,” said Lauren Saunders, association director of the National Consumer Law Center. “Forced arbitration is simply a license to steal when a company like Wells Fargo commits fraud through millions of fake accounts and then tells customers: ‘Too bad, you can’t go to court and can’t team up; you have to fight us one by one behind closed doors and before a private arbitrator of our choice instead of a public court with an impartial judge.’”

The CFPB and Monday’s rule also face an uncertain future because a federal court last fall ruled that part of the bureau’s executive structure was unconstitutional. The CFPB is appealing the ruling, and a decision may come soon. Should the CFPB lose, it will be easier for Trump to fire Cordray immediately, and companies may have legal avenue to challenge CFPB rules.

On the other hand, enacting the rule now may give supporters momentum that will be difficult for the industry to stop — a situation similar to the Labor Department’s fiduciary rule requiring financial advisers to act in their clients’ best interests. While the Trump administration took steps to stop that rule from taking effect, many companies had already begun to comply, and simply continued with that process.

The U.S. Chamber of Commerce was heavily critical of the new rule.

“The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue. CFPB’s actions exemplify its complete disregard for the will of Congress, the administration, the American people, and even the courts,” the Chamber said in a statement.

“As we review the rule, we will consider every approach to address our concerns, and we encourage Congress to do the same — including exploring the Congressional Review Act. Additionally, we call upon the administration and Congress to establish the necessary checks and balances on the CFPB before it takes more one-sided, overreaching actions.”

But consumer groups called Monday’s ruling a victory.

“Forced arbitration deprives victims of not only their day in court, but the right to band together with other targets of corporate lawbreaking. It’s a get-out-of-jail-free card for lawbreakers,” said Lisa Donner, executive director of Americans for Financial Reform. “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”

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5 Ways to Protect Your Money on Summer Vacation

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Summer vacations should be a time to relax and recharge your batteries. It’s also a time to socialize more, travel more, and fly to exotic destinations.

For those who are traveling long distances (especially to another country) during the summer, there are a few precautions you need to take to ensure that you protect your money. If you set these in place, you can relax a bit more and, hopefully, have more fun on your trip.

Tell Bank and Credit Card Companies About Your Travel Plans

If you don’t tell your bank or credit card company that you’re planning on traveling, they may think all those purchases you’ve made are faulty. Unfortunately, that means that you may lose access to your credit or debit card.

It only takes a few minutes to call these places and let them know about your plans. Doing so is even more important for those planning on traveling overseas. When you call, let them know the places you plan on visiting and how long your trip will last.

Only Bring the Necessities in Your Wallet

If you have a lot of cards and IDs in your wallet, only take what you will use on your trip. For example, bring a credit card, a backup credit card, and an ATM or debit card if you plan on withdrawing cash. If you need to, bring your driver’s license.

To prevent identity theft, leave your Social Security card at home in case your wallet gets stolen. If you think you might need it for any reason, photocopy it and black-out the last four digits. In fact, it’s a good idea to make photocopies of credit and bank cards you’ll be taking with you on your trip, as well as your IDs (including the passport data page) to keep on hand. You can also give copies of those, as well as your travel itinerary, to a trusted friend or family member at home in case of an emergency.

The less you have in your wallet, the less of a hassle it will be if you do need to replace your cards if they get stolen. It’s even better if you put your credit cards and IDs in separate locations so you don’t lose all access to cash during your trip.

Use Your Credit Card as Much as Possible

Most credit cards will protect you from liability for fraudulent purchases, which is helpful in case your card is lost or stolen. Also, if you make most of your major purchases on your credit card (such as hotel and flights), you may be eligible for travel insurance. Of course, that depends on the terms on your credit card.

Using credit cards instead of cash means that you can recoup your losses much faster. If someone stole cash from your wallet, the chances of getting that money back are pretty slim. However, if you have a credit card stolen, all future purchases made will not be your responsibility.

If you want to save money on pesky exchange fees, make sure to use a credit card that has no foreign transaction fees. That means you’re only paying the exchange rate on the day you make a purchase. You can even consider using a cash back or travel rewards card to earn points while you travel. Some cards, like the Chase Sapphire Preferred, allow you to earn 2x points on travel and dining purchases.

Watch Out for Fake ATMs

There may be times when you need to get cash during your vacation. With thousands of ATM machines around the world, there’s no shortage of access. However, you’ll want to make sure that the machine you’re getting your cash from is a legitimate one.

Unfortunately, thieves like to put fake ATM machines in high traffic tourist areas. What happens is they end up stealing your card information and all your money along with it. In 2010, a man in Beijing was arrested for installing a fake ATM machine near a corner store. Unsuspecting passers-by would use the machine, get an “out of order” message, and later discover their accounts had been drained.

If you’re unsure about the ATM machine, don’t use it. The Beijing fraudster went to some trouble to make his ATM look legit, even adding signage like “24 hours self-service,” according to media reports. But there were some pretty clear giveaways to show the Beijing machine was a fake — the money slot was sealed shut, the security camera was a piece of plastic, and the receipt slot was sealed.

To play it safe, it might be better to avoid stand-alone ATMs and stick to ATMs that are located in airports, transportation hubs, hotels, or banks.

You can even do a bit of research beforehand and look up ATM machine locations on your bank or credit card website. For example, Visa and MasterCard show locations of their ATM machines around the world. You can easily do a search and know which one you can head to.

Also, consider keeping only a small amount of cash in the account linked to your debit card. Even if your account is compromised, a thief won’t get away with much.

Keep Up with Your Purchases from Your Trip

There’s nothing wrong with relaxing, but you still need to be alert on your trip. Whenever you purchase something, check the receipt to make sure all charges are accounted for or you got the right change if you paid in cash. If you have online bank access, check to see if all charges are actually yours.

Also, you’ll want to be as organized as possible. Aside from only bringing the necessities in your wallet, make sure you can access your things easily in your purse or bag. If you have to search in your bag a lot, you may end up misplacing important documents or lose valuable items.

It’s also a good idea to review your credit card and bank statements when you get back from your trip if you weren’t able to check it during your trip. If there is fraudulent activity, report it right away.

Final Thoughts

Protecting your money on your summer vacation doesn’t have to be stressful or take a lot of time. As long as you take some precautions and are careful in your surroundings, you’ll be able to enjoy your vacation much more.

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5 Lies Your Landlord May Tell You

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Finding a place to rent can be so time-consuming and stressful that once you decide on a house or apartment that fits your budget, size, and location needs, you might not pay attention to the mundane lease terms or if the landlord is trustworthy.

However, if you have a shady landlord and lease agreement, you could pay more for your rental and be stuck handling repairs.

Andrea Amszynski, a speech therapist, thought she had a perfect situation when she found a room for rent in a five-bedroom, three-bath house when she was moving to Savannah, Ga. The room was advertised on Craigslist, and she made an appointment to view the house.

“I met the landlord, or who said he was the landlord at the time,” she says. “And he showed me all round the house.”

She signed a lease and put down $700, which included one month’s rent and a security deposit. A few weeks later, when she couldn’t get hold of the landlord, she discovered the man she paid wasn’t the landlord, but a past tenant scamming her. She filed a police report, but was unable to recover her deposit.

 

Though this is a fairly extreme case, there are other ways that landlords mislead tenants. At a time when half of renters spend at least 30% of their household income on rent and utilities, being on the lookout for these lies may keep you from spending more than you need on living expenses.

“You can break your lease any time you want.”

Another term buried in the lease that could cost tenants in the long run is “contract renewal terms.” In this situation, the rent agreement is renewed for another year if the tenant doesn’t inform the landlord within a certain period — typically 60 days — from the end of the first agreement.

“Then, if you want to get out of what they’ve written, you’ve got to pay so much money … like a whole month’s rent,” says Sarah Hubbuch, who manages two properties in Georgia and Florida.

“You’ll have to cover the cost of that repair.”

Repairs are inevitable, such as a clogged toilet, leaky pipe, air conditioning unit that blows out warm air, broken refrigerator, or burned-out light bulbs. However, problems can arise about who should pay for the repair and how quickly the repair needs to be done.

Hubbuch says things such as appliances, water heaters, or anything that could need repair after normal wear and tear should be a landlord’s responsibility to fix and cover financially.

“It’s part of the contract,” she says. “And me, personally, I would tell the landlord I can’t pay rent until these things are fixed.”

But that also may mean you’ll have to buy fans until the landlord decides to fix the AC or pick up a pack of new light bulbs.

“I can give you your security deposit back whenever I want.”

Joel Cohn, legislative director for D.C’s Office of the Tenant Advocate, says inappropriate deductions from security deposits are a common complaint filed by tenants.

“An appropriate deduction from the security deposit would be something beyond ordinary wear and tear,” he says. “So, if the tenant caused some damage to the property, then it would be appropriate for the landlord to make that deduction.”

As a property manager in California, David Roberson says the traditional security deposit of one month is more than enough for repairs. He is principal of Silicon Valley Property Management Group, which manages apartments for rent in San Jose, California.

“Most of the time, tenant damages are less than $1,000 to a unit when they’re leaving, so if you get a $5,000 security deposit (typically up to two months’ rent), that’s going to be fairly adequate to cover 99% of the damages,” he says.

If there is no damage, a tenant should receive their security deposit back in a timely manner. Depending on the state, that time frame can change. For example, in Washington, D.C., landlords have to provide the tenant with an itemized list of deductions to cover appropriate expenses. The list needs to be sent to the tenant within 45 days after they move out, and the price tag attached to repairs needs to be reasonable. Landlords then must return the remaining balance to the past tenant in an additional 30 days after the tenant received the list.

Check your state’s rental guidelines on security deposits to be sure you know when to expect your deposit back.

“I can come and go as I please.”

Understandably, a landlord may need to enter the rental at some point during the lease. Each state has its own rules for under what circumstance and with how much notice they would need to give tenants before entering the property.

“When a tenant signs a lease, they actually hold the rights to the leasehold,” Roberson says. “So for the term [of the lease], it’s their property.”

In California, he says, landlords need to get written permission to enter a property, or there has to be reasonable evidence that the tenant is violating terms of the lease, is doing something illegal, or there is an emergency.

Cohn says that in other states and D.C., generally landlords need to give a “reasonable” written notice 48 hours ahead of time in non-emergency situations.

“I can get you a great deal on the rent.”

While some parts of the lease can be clear, some landlords will try to bury items in the lease that could cost tenants.

One practice is known as concession pricing.  Cohn says he has seen this tactic used in rent-controlled buildings in Washington, D.C.

Here’s how it works: The amount for a one-bedroom apartment is $1,500, but that’s a high rent for the area. The landlord advertises it for $1,000 to attract potential renters, but reports the $1,500 to the rent administrator — the office in some large cities that controls rent — and then buries the $1,500 amount in the lease.

The landlord essentially is telling the tenant, “Yeah, this $1,500 amount, don’t worry, we’re going to give you a concession deal. You only have to pay $1,000. And, by the way, this is rent controlled, so you’re protected in terms of the amount of rent increase,” Cohn says. However, if the tenant decides to renew their lease, they may see their rent not just go up to $1,500, but $1,500 plus the rent control cap for the area. The landlord would legally be allowed to raise it that much since they told the rent administration that they were already charging $1,500 for rent.

Tips for protecting yourself as a renter:

Research your landlord before signing the lease.

Ask current tenants about their experience with the landlord. In some instances, you also may find landlord reviews online through sites such as Yelp and Review My Landlord. And if you want to confirm that the person is indeed the landlord, look up the property record online to find the owner’s name. “Most of the time the landlord should be paying the property tax, and that is public info,” Amszynski says.

Get everything in writing.

Read the lease thoroughly and ask about any lingo or terms that are confusing. In addition, get any verbal agreements, such as rental rates or promises to repair items before you move in, in writing. Protect your security deposit before you move in by walking through the rental with the landlord. “Make sure that you and the landlord go through the list of things that were already wrong with the house before you move in so they can’t come back and say you did it,” Hubbuch says.

Know tenant rights for your area.

A Zillow study in 2014 found that 82% of renters don’t understand laws on security deposits, credit, and background checks, 77% of renters don’t understand privacy and access rights, and 62% of renters don’t understand laws on early lease termination.You’ll be able to find resources online that outline tenant rights and landlord rights in your state. The Washington, D.C., Tenant Bill of Rights and the California Tenants guide are two examples of guides.

Get insured.

Renters insurance covers damage to your belongings inside a rental, but only 41% of renters said they had renters insurance, according to 2016 data from the Insurance Information Institute. Premiums average $15-$30 a month, depending on the size and location, and the average U.S. premium for renters insurance is $190 for 2014 — the most recent year available — according to the National Association of Insurance Commissioners. A standard renters insurance policy also covers your liability for injuries to someone else or their property while they are at your rental, but it doesn’t cover damages you might make to the property. Roberson says he requires his tenants get tenant liability insurance to cover up to $100,000 in damages from situations such as a fire or driving cars into garage doors. He offers it to them for $14.50 a month. The Insurance Information Institute notes an excess liability policy generally costs between $200 and $350 annually, which provides an additional $1 million of protection.

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6 Things You Need to Know About Amazon Prime Day

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Online shoppers are gearing up for Amazon’s third annual Prime Day — a period of deep discounts on many Amazon items in mid-July. Since the company began Prime Day three years ago, it’s become the summertime answer to Black Friday.

But what’s all the fuss really about? In years past, there have been complaints that the site’s sale items aren’t all that exciting, with the hottest items selling out too quickly for many to take advantage of the deals.

Amazon hasn’t said much about what 2017’s Prime Day will look like, but to help you prepare, here are some things you need to know.

Q: When is Amazon Prime Day?

A: July 10-11

Prime Day kicks off at 9 p.m. EST on July 10, when the best deals will be posted online, and run for the next 30 hours.

New deals will be offered every five minutes, according to Amazon.

Q: Where can I find the best deals on Amazon Prime Day?

Electronics

Benjamin Glaser, features editor at DealNews, says that last year, Amazon Prime shoppers saved about 30% to 40% on electronics. Globally, people bought over 90,000 TVs, and in the U.S., people bought over 200,000 headphones during the 2016 Prime Day, according to an Amazon press release. However, Glaser cautions that TV deals tend to sell out fast.

It’s a safe bet that the best deals will be on Amazon-branded electronics, such as the Echo, Kindle, Fire tablets, and Fire TV products.

Glaser is anticipating seeing $15 off of the Fire TV Stick, which is currently at $39.99. The Echo, priced at $179.99, dropped to $129.99 on Monday June 26 for the day — the best deal on it this year.

It’s also likely that there will be deals on electronics that tie into the Amazon Alexa ecosystem, such as Philips Hue smart lights products — the starter kit is priced at $173.99 — and smart thermostats such as Nest, which is currently $246.85 (at the time of this writing).

Toys and more

Also, considering that 2 million toys and 1 million pairs of shoes were bought globally last Prime Day, it’s also likely there will be deals in those departments.

For example, among the best deals last year was $699 for the Segway miniPRO Smart Self Balancing Personal Transporter, which at the time was the lowest price for it on Amazon by $300, according to DealNews. The game Exploding Kittens: A Card Game was also on sale for $15, the lowest price on Amazon by $9 at the time.

Expect some products to have record low prices for Amazon.

“We have confirmed over the last two years that a lot of the prices rival the best prices we see on the site all year,” Glaser says.

Q: How long will deals last on Amazon Prime Day?

A: Amazon promises new deals every 5 minutes starting at 9 p.m. EST on July 10.

Some deals will expire in mere minutes, while others will last several hours, and some will last for the duration of the sale event. Each deal will have a timer that shows how long it is available.

Q: How do I know when an item goes on sale?

A: The Amazon App specifically includes a feature called “Watch a Deal” that will let you know when a deal you’re interested in is about to go live.

You also can join a waitlist (by selecting that button on the page) for deals that are 100% claimed.

Q: Do I need to be an Amazon Prime member?

A: You must be an Amazon Prime member to access the Prime Day deals. A Prime membership costs $99 a year or $10.99 per month and includes a number of other perks. Recently, Amazon announced a reduced price for Prime membership for low-income households.

“So, if that [$10.99] is less than what you think you’ll save on the stuff you want to buy [on Prime Day], then it’s a worthwhile investment,” Glaser says.

Amazon also offers a 30-day free trial, so if you haven’t had Prime before, you can use that to participate in Prime Day.

“This might be a good month to give Prime a test drive and see if you get good value out of it,” Glaser says.

Q: How will I know when they announce deals?

A: Glaser says Amazon will likely soon start releasing ads for some of the deals, so keep an eye out for them. Look particularly at Amazon products, electronics, small kitchen appliances, and shoes. Plan what you want to buy and set a shopping budget.

Since some deals will only be available for a certain time, you might want to set alerts for items. If you don’t already have an app that you use to track prices on Amazon, Glaser recommends the free apps CamelCamelCamel or If This Then That.

With all of the deals, it will be easy to buy things you weren’t planning on and don’t need. Glaser cautions against getting swept up in these deals and recommends sticking to your budget on Prime Day.

“If you see something that’s 95% off, you might spring to buy it and not really think about how much money you’re still spending, and whether it’s something you actually want,” Glaser says.

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12 Million People Are About to Get a Credit Score Boost — Here’s Why

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12 Million People Are About to Get a Credit Score Boost

Some serious tax liens and civil judgments will soon disappear from millions of credit reports, the Consumer Data Industry Association announced this week. As a result, millions of consumers could see their FICO scores improve dramatically.

(This post was originally published on March 15, 2017.)

The CDIA, the trade organization that represents all three major credit bureaus — Equifax, Experian, and TransUnion — says they have agreed to remove from consumer credit reports any tax lien and civil judgment data that doesn’t include all of a consumer’s information. That information can include the consumer’s full name, address, Social Security number, or date of birth. The changes are set to take effect July 1.

Roughly 12 million U.S. consumers should expect to see their FICO scores rise as a result of the change says Ethan Dornhelm, vice president of scores and analytics at FICO. The vast majority will see a boost of 20 points or so, he added, while some 700,000 consumers will see a 40-point boost or higher.

Even a small 20-point increase could improve access to lower rates on financial products for these consumers.

“For consumers, the news is all good,” says credit expert John Ulzheimer. “Your score can’t go down because of the removal of a lien or a judgment.”

The change will apply to all new tax lien and civil-judgment information that’s added to consumers’ credit reports as well as data already on the reports. Ulzheimer says consumers who currently have tax liens or judgments on their credit reports that are weighing down their credit scores will be able to reap the rewards of removal almost immediately

“The minute the stuff is gone, your score will adjust and you’re going to find yourself in a better position to leverage that better score,” says Ulzheimer.

But, importantly, he notes that just because credit reporting bureaus will no longer count tax liens or civil judgments against you, it does not mean they no longer exist at all. Consumers could still be impacted by wage garnishment and other punishments associated with the liens and judgments.

“This is the equivalent of taking white-out and whiting it out on your credit report. You can’t see it any longer, but you still have a lien, you still a have a judgment,” Ulzheimer says.

Solution to a longstanding problem

Many tax liens and most civil judgments have incomplete consumer information.

The changes are part of the CDIA’s National Consumer Assistance program that has already removed non-loan-related items sent to collections firms, such as past-due accounts for gym memberships or libraries. The program also has set a 2018 goal to remove from credit reports medical debt that consumers have already paid off.

“Some creditors may have liked having inaccurate credit reports, as long as they were skewed in their favor. That’s not the way the system is supposed to work. This action is just one more proof that the CFPB [Consumer Financial Protection Bureau] works, and works well, and shouldn’t be weakened by special interest influence over Congress,” says Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

The move is likely the result of several state settlements and pressure from the Consumer Financial Protection Bureau, the federal financial industry watchdog.  Beginning in 2015, the reporting agencies reached settlements with 32 different state Attorneys General over several practices, including how they handle errors. The CFPB also released a report earlier this month that examined credit bureaus and recommended they raise their standards for recording public record data.


Time to start shopping for better loan rates?

High credit scores can lead to long-term savings. Borrowers who expect their scores to improve as a result of these changes may find better deals if they can wait a few months to buy a new house, refinance a mortgage, or purchase a new car. Even a 10-point difference can lead to lower rates on loans.

If you expect the credit reporting changes might benefit you, Ulzheimer suggests holding off on taking out new loans or shopping for refi deals, such as student loan refinancing.

“Let it happen, pull your own credit reports to verify the information is gone, then take advantage of the higher scores,” Ulzheimer says.

Ulzheimer also says the changes may not be permanent. “There is a possibility that if the credit reporting bureau is able to find the missing information, the negative information could reappear on consumer credit reports,” he says.

There isn’t anything in the law that forbids the reporting of liens and judgments anymore, and lenders can still check public records on their own to find missing information.

Ulzheimer says if he were the CEO of a reporting agency, that’s exactly what he would do.

“I would embark on a project to get this information immediately back in the credit reporting system,” he says, then adds all he’d need to do is find an economic way to populate the missing data.

“From a business perspective, I would do it in a New York minute. Because I would immediately have a competitive advantage over my two competitors,” says Ulzheimer.

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