More often than we’d like to imagine, there might be major mistakes in the information that vendors report to credit bureaus – and these mistakes can impact you and your credit rating in a dramatic fashion.  Even something as simple as stating that a payment was late when it wasn’t or assigning a bad account to your name can drag down your credit score.

In addition, while small administrative errors are the bulk of what you might find in your report, a regular review of your report might bring to light something of even more concern, specifically identify theft.  The best way to protect yourself is to take advantage of your access, under law, to an annual free credit report.

Where Does My Annual Free Credit Report Come From?

Three private companies, specifically Experian, EquiFax and TransUnion, accept reports from private vendors, bankers, merchants and others about your payment patterns.  This information is used to determine whether you can be seen as a “good” or “bad” risk to pay back any money another individual would loan you.  In fact, credit reports are used frequently – by everyone from landlords to employers – as a measure of your trustworthiness with money.

In fact, your credit report, and specifically the credit score generated from the report, determines whether and on what terms you will be offered credit.  Some of the decisions that will be made based on your score include:

• Whether you will be extended enough credit to buy something you want, like a car
• Whether you will be offered an apartment you’ve applied for
• How high your interest rate will be on a mortgage
• Whether you will be offered a job that requires money management

How Can I Get a Annual Free Credit Report?

First of all, be aware that recently passed laws require each of the three credit monitoring and reporting bureaus to give you one copy of your credit report absolutely free once per year.  If you find problems or inconsistencies on the report, you are entitled to additional free copies of the report until it is corrected.

Unfortunately, some of the advertising surrounding the concept of a “annual free credit report” has been a little misleading.  For example, at the domain name www.freecreditreport.com, Experian is offering what it calls a “free credit report.”  However, this report is free only if you agree to sign up for a trial membership in Experian’s reporting service – a membership that will cost you $15 per month after the trial ends.  That doesn’t sound very free, does it?

The truly annual free credit report can be found at www.annualcreditreport.com.  This is the system required by federal law that allows you to check your report for free once-per-year.  Utilizing your social security number the system offers you access to the records maintained by the three agencies.

In short, be sure to take full advantage of the annual free credit report.  A thorough review and fixing of any problems may be what saves you from paying hundreds of dollars in extra fees and interest on your lines of credit.

If you’re thinking that you’d like to check your credit report, you’ve probably come across the www.freecreditreport.com.  Perhaps you’ve even seen their commercials.  And yet, when you go to the site, you realize that in order to get the “free” report, you have to sign up for a credit monitoring service.  That doesn’t sound so “free”, does it?

Fortunately, there are options for an absolutely free credit report.  In fact, the U.S. government recently passed a law requiring all three credit monitoring and report agencies, specifically Experian, Trans Union and Equifax, to offer all consumers access to this most important document at least once a year at no cost.

What is an Absolutely Free Credit Report?

While we’ve heard the adage that nothing is really available for free, in this case, it actually is, but you have to dig a little to find it.  You can gain access to the absolutely free credit report required by law at www.annualcreditreport.com Here you’ll enter your social security number and other personal identifying information.  Then, the system will make your reports from all three agencies available for a limited period of time.

What’s included in the Absolutely Free Credit Report?

Bear in mind that when requesting an “absolutely free credit report”, you will actually be receiving three reports, one from each agency.  Each absolutely free credit report generally includes the following information:

• Personal identifying information, such as current and past addresses
• Past credit accounts, including information on past accounts that have been closed.  Past accounts will be removed from the report eventually.  However, if you have bad past credit, you may find that it will take a couple of years for these bad accounts to be removed.
• Current credit accounts, including information on your payment status with these accounts.  Check with your credit vendor to gain a better understand of what they might consider “late payments.”  Many will allow you to be slightly late on one monthly payment before reporting to the agencies, but this is not always the case.
• Current banking and other accounts

What’s missing?

The one important item missing from your absolutely free credit report is your “credit score.”  Your credit score is the numerical representation of your credit ranking.  It ranges anywhere from below 500 (a very low score) to between 750 and 800 (a very high score).  People with the highest scores will almost always get better interest rates and terms on loans.  People with very low scores will often be turned away.

Your credit score is developed independently by each of the three credit agencies using different criteria. Unfortunately, the score itself is available only from the agencies directly, and you often have to pay for that information.

What happens if I find errors on my Absolutely Free Credit Report?

Once you get your reports from all three agencies you should be diligent in questioning any errors.  Even errors as small as an incorrect address can mean that the credit agency in question has tied your report to another consumer.  If that person has bad credit, if can drag down your score.

To report errors, ascertain which agency has the false information (in some cases it may be just one agency) and then work through that agencies dispute resolution process to have the false information removed.

Remember that under federal law, you have a right to review your credit file at least once per year.  Ensuring the accuracy of this information is one important key to maintaining a positive financial future.

Short Sale vs. Deed-in-Lieu of Foreclosure

In my most recent post, we compared the merits of pursuing a short sale against suffering a foreclosure.  After establishing the guiding principle that foreclosures should be avoided whenever possible, we discussed a few of the advantages of a short sale.  But how does a deed-in-lieu of foreclosure fit in with all of this?  Obviously, a deed-in-lieu is better than a foreclosure from the mortgagee’s perspective, but how does it stack up against a short sale?

No Clear-Cut Answer

It was easy to resolve the foreclosure vs. short sale question because foreclosures are, generally speaking, a worst case scenario.  As such, a blanket conclusion supporting short sales was easy to reach.  That’s not the case when looking at the short sale vs. deed-in-lieu issue.  There are strong arguments for both and the right answer can be very context-specific.

Differences of Opinion

Let’s look at what various folks are saying about the two options and how they compare with one another.  These perspectives may provide you with an idea of whether one should prefer a short sale or a deed-in-lieu for a specific set of circumstances.  None of these sources or their statements should be considered a definitive source, as the wide ranging differences of opinion will undoubtedly demonstrate the lack of a certain answer suitable for everyone.

DebtKid.com compares the two options and sees them as near-equals.  The site recognizes that deeds-in-lieu are  the faster option, but reminds us of the risk of a deficiency judgment.

Lending Tree provides a similar assessment.  A deed-in-lieu offers more convenience, buy may involve greater risk.  Additionally, the site reminds us that lender cooperation is necessary for either option to work.

Upside Down Real Estate doesn’t reach a definitive conclusion on the matter, but it does remind us to carefully consider the tax ramifications.  It also cautions anyone who uses a deed-in-lieu to read the fine print–some lenders may try to reserve the right to foreclose in order to “clean up” title.  That’s something you don’t want to sign off on!

Bills.com observes that some lenders will be more likely to accept short sales than deeds-in-lieu because short sales don’t require them to ever take title to the property.  Many lenders don’t want these properties to show up on their books, which can make it hard to successfully pull off a deed-in-lieu.

Richard Geller considers short sales to be the winner of the short sale vs. deed-in-liue contest.  He describes the short sale as a way of “fixing the problem for yourself and for the mortgage company.”  However, Geller’s assessment of one’s ability to secure financing for another home in the wake of a short sales appears to be overly optimistic.

MortgageReliefFormula also comes down on the side of short sales.  The site argues that lenders are less likely to accept deeds-in-lieu due to clean title concerns and that there’s no appreciable credit score benefit to either approach.

Conclusions

Overall, the deed-in-lieu approach wins in terms of speed and ease.  However, it looks as though short sales ahve a greater likelihood of approval and that the provide greater protection to the buyer.  There’s an ongoing debate about the impact of either option on one’s credit score, with no clear consensus readily apparent.

The bottom line in the short sale vs. deed-in-lieu debate is that the mortgagee really needs to consider all relevant factors specific to his or her individual situation in order to make the best possible decision. One’s surrounding circumstances can play a huge role in making the right choice.

Short Sale vs. Foreclosure:

We’ve recently discussed home foreclosures and the various alternatives to “walking away” from one’s home, including short sales.  It seems reasonable to compare the short sales and foreclosures directly.  Which is the superior option for the homeowner who isn’t going to be able to make the required payments on his or hre property and for whom mortgage restructuring just isn’t possible>

Overall, short sales are a better option.

The Guiding Principle

The short sale vs. foreclosure controversy should be informed by one core principle:  A foreclosure is the option of last resort.  Everything, including a short sale, is preferable to a foreclosure.  As DebtKid.com explains:

The inevitable result of a foreclosure is the lender taking your house. Not only will you lose your house, but the lender can get a judgment against you for the arrearages you owe plus his costs for the foreclosure action. If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit. There is no upside to foreclosure. It should be avoided at all costs.

So, the contest is easy to resolve.  In the war of short sale vs. foreclosure, the short sale wins.  The real qeustion is why and by how much.

The Credit Score Situation

Many people believe that pursuing and closing a short sale will be better for their credit score than a bankruptcy.  In fact, it’s not hard to find numerous people advocating the idea one can better protect his or her credit with a short sale.  While I do recommend shot selling over foreclosures, people should know that the credit score issue isn’t nearly as significant as some poeple make it out to be.

The Wall Street Journal recently ran an article that was based, in large measure, on a conversation with Craig Watts, a spokesperson for Fair Isaac==the very people behind the FICO credit score.  The article explains:

Although a short sale, where the lender agrees to take less than owed on the mortgage, will drop your FICO score as much as a foreclosure will, there is one advantage to it: You may be eligible to buy a home with an institutional loan backed by Fannie Mae or Freddie Mac more quickly than you would if it went into foreclosure.

[emphasis mine]

In other words, the actual damage to your credit score is about the same with either options. The aforementioned article does raise a real advantage to short-selling, though.

Buying Another Home

Those who short sell instead of allowing foreclosure usually do have the opportunity to purchase a different home earlier than those who go through bankruptcy.  That might not make much a difference in the short-term, but everyone’s financial situations have a tendency to change and they can sometimes change quickly.  You don’t want to miss an ideal property at a price you afford if you can avoid it.

Other Reasons to Prefer Short Sale

You may be able to negotiate your move date with a short sale, something you can’t always manage with a foreclosure.  You can honestly fill out loan applications stating that you sold your residence instead of admitting to a failure to meet the terms of your mortgage.  As alluded to in the earlier quotation from DebtKid.com, short sales also decrease the likelihood of being forced to confront arrearages and costs related to the foreclosure.

Overall, the short sale wins the short sale vs. foreclosure contest easily.  If you’re forced to choose between the two, pursue the short sale and don’t surrender in the face of foreclosure.

Recently, we’ve been providing some background on exchange traded funds.  We’ve talked about Proshares, gold ETFs and oil ETFs.  Now, were going to discuss iShares, which is the market leader in the field.  Here’s a little background about iShares’ history and why it stands out in the ETF world.

Banking and finance conglomerate Barclay’s used to own iShares.  Under its auspices, iShares grew to be the biggest player in the ETF world, offering over 400 different funds ranging from wide-ranging market index offerings to narrow niche-specific options.

In 2009, Barclay’s decided to raise cash in the face of the banking crisis by selling off the highly successful iShares unit.  At the time, experts thought that Vanguard, Charles Schwab or Northern Trust might buy iShares.  In something of a surprise, they instead announced plans to sell to CVC Capital Partners for over $4 billion.  However, during a 45-day period in which Barclays’ was allowed to shop iShares before the deal was finalized, BlackRock –a New York based financial management company–came up with a $13.5 billion offer for iShares and its parent unit.  In June of 2009, iShares officially became part of BlackRock.

The change in ownership hasn’t seemed to hurt iShares.  Even though the ETF field is growing increasingly competitive, iShares managed a significant increase in the total of assets under its management.  According to the Financial Times:

According to figures from BlackRock, assets under management for global ETFs reached $1,032bn (£639bn, €734bn) at the end of December, some 5 per cent above the previous all time high of $982bn registered just a month earlier. European ETFs also fared well, registering a record high of $223bn last year.

That boost put slightly over 50% of all EFT assets in the US under iShares management, an increase of around 4% for the year.

Why is iShares continuing to gain so much ground even in a market that’s exploding with new funds?  According to a recent Wall Street Journal analysis, much of it is the natural advantage of being an established player.  Most ETFs are index funds.  Their returns are easy to understand and they can be remarkably similar.  That makes it harder for new ETFs to distinguish themselves from the rest of the pack.  Additionally, ETFs are traded just like stocks, which means investors are attracted to funds that are established and that have high trading volume, which makes selling a quicker proposition. established funds with heavy trading volume—thus they know they will always be able to sell quickly and cheaply. That puts new players at a disadvantage.

The advantages of being the “king of the hill” are undeniable, but iShares also continues to attract investors because if offers such a wide range of funds.

over 400 funds globally across equities, fixed income and commodities, which trade on 16 exchanges worldwide.  A CNN/Money report noted that iShares runs over 400 different funds–across commodity, fixed income and equity types–that are traded on 16 different markets around the world.

Honesty.  Transparency.  Purity.  Tax and Cost-Efficiency:  Those are what iShares lists as the underlying principles governing their approach to business.  I’m sure they’d credit a commitment to those ideals a key component to their success, as well.

Regardless if the causes, the results are clear.  BlackRock’s iShares is continuing to gain popularity within the exchange traded fund world.  They’re well known, respected, experienced and offer a huge number of fund options for investors.  Anyone who is considering getting actively involved with ETFs should carefully consider iShares funds.  There’s no such thing as a sure thing in the world of investing, obviously.  However, it seems sensible to believe that a company who currently hols more than half of the US market is doing something right.