The Home Search

Rent-To-Own Homes: What Are They? And What Is A Lease Option?

Are you eager to buy a home but need some time to build up your savings and credit score? Eager to sell your home but not receiving any offers from qualified buyers?

A rent-to-own agreement – achieved by way of a lease option contract – can be the ticket to accomplishing your goals. Check out what’s involved and some of the pros and cons to see if this type of agreement might be right for you.

What Is Rent-To-Own?

Though the term “rent-to-own” might seem pretty self-explanatory at first glance, there’s a little more to it than you might expect.

Essentially, a rent-to-own agreement is an agreement between a tenant and a landlord wherein the landlord agrees to lease a property to a tenant for a certain period of time, after which the tenant can purchase the property.

Rent-to-own is often seen as a more affordable way into homeownership because the buyer avoids many of the high startup costs associated with purchasing a home. However, rent-to-own agreements come with their own costs, and potential renters should be sure they fully understand what a particular rent-to-own deal entails before signing the contract.

How Does Rent-To-Own Work?

Rent-to-own contracts often utilize what is known as a lease option agreement. A lease option is made up of two parts.

The first part is a standard lease, which means a tenant rents a home and pays monthly rent and expenses to a landlord. The second part is the “option,” which locks in certain terms that allow the tenant (home buyer) to buy the home from the landlord (home seller) when the lease term ends.

In some cases, the contract may state that, rather than having the option to purchase the home, the renter is obligated to purchase the home at the end of the leasing period. This is known as a lease purchase agreement.

Let’s take a look at some of the finer points of these types of contracts below.

The Lease Agreement

The first part of a rent-to-own contract, the lease agreement, is a contract between a lessor (landlord) and lessee (renter) that allows the lessee to use a property for a designated amount of time. This agreement does not provide any ownership rights to the lessee, and as with any lease contract, most points are negotiable.

While every contract is different, here are some things you can expect to see in every rent-to-own agreement.

The Lease Term

These types of leases are often set up to last one to three years. Buyers generally prefer longer terms – even as many as 5 years – because it gives them more time to strengthen their credit score and save for a down payment.


The contract will specify how much the tenant will pay in rent, when rent is due, what happens if rent is late and what percentage of the monthly rent payment will be credited toward the eventual home purchase.

With a rent-to-own home, tenants may pay a little bit more in rent than what is typical in the area, to account for the extra money that’s being set aside for their future purchase.

Repairs And Maintenance

In a traditional lease agreement, it’s usually the landlord who is responsible for property maintenance and making any necessary repairs that may come up over the course of the lease. This isn’t the case with most rent-to-own agreements.

With a lease option or lease purchase contract, it’s the tenant who is required to keep the home maintained, complete repairs and pay for any related costs that may come up.

Security Deposit

It’s important to decide upfront how security deposits will be used and returned at the end of the lease. At the end of the leasing period, this deposit can typically be returned to the tenant or credited toward their home purchase unless circumstances permit the landlord/seller to keep it.

The Option Agreement

This portion of the contract gives the tenant the right to purchase the rental property once the lease ends. As part of this agreement, the tenant/buyer and landlord/seller will negotiate and come to an agreement on a few vital points.

Purchase Price

The tenant and landlord can agree to a purchase price when they first enter the agreement or decide that the home will be priced at market value once the lease ends.

Often, tenants prefer locking in a price from the start since home prices generally go up. However, landlords will often bake a certain amount of appreciation into the price to make up for this.

The Option Fee

A rent-to-own agreement is going to cost more for a tenant than a traditional lease agreement. If the tenant wants the option to purchase the home once their lease is up, they’ll need to pay for that privilege. This is what’s known as the option fee.

Landlords will typically require an option fee equal to a certain percentage of the agreed-upon purchase price. Depending on the agreement, some of this money may be applied to the home purchase if the tenant exercises their option to buy.

Option fees are usually nonrefundable if a tenant decides not to purchase the home.

The Option Period

This is the time period when a tenant can exercise their option to buy the rent-to-own home. In some contracts, the tenant can do so at any time during the lease. In others, it must be at a date specified in the agreement. Once the option period passes, the option agreement is null and void, and the tenant typically forfeits the option fee to the landlord.

Keep in mind – if you’re a tenant debating whether to exercise your option, you should still use the same best practices as any home buyer. Just because you’re familiar with a home and have an arrangement with the home seller doesn’t mean you should cut corners or limit your options.

Is Rent-To-Own A Good Idea?

There are pros and cons to a lease option for both the seller (landlord) and potential buyer (tenant) of a house. Whichever side you’re on, it’s highly recommended that you hire a real estate attorney to draft the necessary documents and learn about your rights.


If you’re a home seller, offering a lease option allows you to expand your list of potential home buyers. Depending on the housing market in your area, it can sometimes be difficult to find qualified buyers. When you list your home as rent-to-own, those who want to buy a home but need more time to secure a mortgage or save for a down payment become potential buyers, so you can sell a home that you might not have been able to otherwise.

These agreements can also be financially beneficial for the seller because you’ll be able to collect rent from your tenant during the leasing period. Plus, rent-to-own tenants tend to be a bit more conscientious when it comes to caring for the property, as they plan to buy it at the end of their lease.

As a home buyer, the biggest advantage to rent-to-own is getting to move into a desirable home while getting some extra time to qualify for a mortgage or save for homeownership.

If the purchase price for the rent-to-own home is agreed upon up front in your lease option agreement, you can also save on the purchase price if the home appreciates in value by the time your lease ends.


If you’re the home seller, a lease option means that you’ll need to become a landlord. Though you might not have quite as many responsibilities as a traditional landlord, since rent-to-own contracts typically stipulate that the renter is responsible for things like repairs and maintenance, you’ll still need to take care of collecting rent and ensuring that you’re fulfilling all your contractual obligations.

Additionally, if the tenant walks away at the end of their lease, the seller must then invest more time, energy and money to try and sell the home all over again.

There are risks on the tenant’s side, too. If you’re a tenant who does not end up buying the home for whatever reason, you’ll likely forfeit your option fee and potentially other money you’ve put into the home as well.

It’s also possible that home values could go down. If you agreed to a purchase price when you first entered the contract and the home is worth less than that when it’s time for you to exercise your option to buy, you’ll either have to buy the home for more than it’s worth or walk away and lose money.

Another nightmare scenario: your landlord ends up in financial hot water and loses the house to foreclosure. In this situation, you could lose your money and your home though no fault of your own.

How To Find Rent-to-Own Homes

Many homes are designated as rent-to-own by owners and can be searched for directly online.

If you’re interested in a lease option to buy a home, you may need to seek out homeowners who have started renting out a property because they were unable to attract an offer at their asking price.

The Bottom Line

Sometimes it’s tough for buyers to find financing or for sellers to find buyers. A lease option can solve for both and is worth exploring if you’re stuck in real estate limbo.

Before you sign a rent-to-own agreement, however, remember that it’s essential to consult a qualified real estate attorney who can clarify the contract for you and help you understand anything that might be confusing.

The Home Search

Risks and Benefits of Buying a Foreclosed Home or Short Sale

Buying a house in foreclosure or short sale can be challenging, but precautions, patience and smart choices can lead to significant advantages.

Buyers who are considering purchasing a foreclosed home or short sale property may get excited at the prospect of scoring a sale at below market value. But the opportunity doesn’t come without risks.

In the wake of the bust of the 2002 – 2007 real estate bubble, home prices started to decline. Owners with little equity soon found themselves owing more on their home loans than their houses were worth. This is known as being “underwater” on the loan, and it often leads to a foreclosure or short sale.


If a homeowner just can’t afford the house, he may decide to relinquish ownership and give the house to the bank that holds the mortgage. This is called a Deed in Lieu of Foreclosure. Or, the foreclosure decision might be made for the homeowner when the bank initiates foreclosure proceedings.

Foreclosure is a lengthy and complex process. The lender must prove that it has accurate, complete paperwork supporting its right to claim the title. Homeowners often try to win loan modifications or other types of help to salvage the situation and stay in their homes. Related financial and legal problems, such as bankruptcy, multiply the complications – and the number of lawyers involved.

Houses in foreclosure look like bargains: typically they sell for 35% less than what they would have fetched if they were not in foreclosure. But financially distressed owners often let their properties fall into disrepair. Foreclosures can come with many hidden problems, from leaky basements to bills from homeowners’ associations to quarreling lenders. It takes a long time to sort out who is owed what, how they will be paid, and when the title will finally be cleared.

Things to consider:

•  You might want to order up a title search when you make your first offer so you don’t get surprised at the point of closing.
•  The title search might uncover nasty surprises, such as unpaid taxes.
•  Disputed title and loan paperwork might sink the deal.
•  You might have to pay a real estate lawyer to review documents several times.
•  Closing fees may be high due to the complicated paperwork.
•  The closing will probably be difficult to schedule, with multiple delays.

Short sale

When a lender agrees to take less than the mortgage owed, that transaction is known as a short sale. For example, a homeowner might have bought the house for $200,000, putting down 5% and carrying a mortgage of $190,000. If the market value of the house declines to $175,000, that homeowner has lost her down payment. On top of that, her $190,000 mortgage is now $15,000 more than the house is worth. She is underwater on the mortgage.

If the homeowner were to sell, she would have to bring $15,000 to the closing to make up the difference to the lender. But what if the lender is willing to share the losses with her? The homeowner might be able to persuade the lender to accept $175,000 at closing. She loses her $10,000 down payment and the lender writes off $15,000 of the loan. Doing so clears the title and makes the house available for a clean sale. That’s a short sale.

Short sales are easy to understand on paper but hard to accomplish in real life. It’s hard to get the ok from the lender to take a loss on the mortgage. The paperwork can drag on for months. Other liens – such as unpaid bills from contractors who helped get the house ready to sell — often pop up, further entangling the process.

Things to consider:

•  The process will be slow and unsteady, with many frustrating delays.
•  As a buyer, conduct a title search to verify all liens and mortgages against the property to avoid unnecessary risks or surprises like unpaid taxes.
•  It may be hard to find a real estate agent adept at navigating the process.
•  You may have to pay a real estate lawyer to review documents several times.

Is It Better to Buy a Foreclosed Home or Short Sale?

Both scenarios present an opportunity to obtain a property below the potential market value. Foreclosures can be as much as 10-20 below their potential value. However, they also tend to have the potential for more inspection issues than your average home because of extended vacancy, deferred maintenance associated with the foreclosure process.

Short sales are also often priced slightly below what the market may suggest (5-15%). This is intended and sometimes necessary to entice and keep a potential buyer who will be willing to wait through the short sale process (typically four to six months or more). Once you come to an agreement on price and terms, the seller then begins the negotiation process with the lender. This can be challenging as there is always the potential the sellers’ bank can counter on price, decline the seller request, or require terms and stipulations that the seller must agree to in order for the lien to be released.

Understanding a House Title, and How It Affects Your Foreclosed Home or Short Sale Purchase

Title is your ownership right to a property. When you close on a property, that ownership right is granted to you physically in the form of a deed. It’s like a receipt. It’s proof that the property is yours. In order to be able to sell or finance the property, you must have a clear title to it. That means you must be able to deliver title (ownership) of the property to a buyer or pledge it as collateral to a lender, free of any liens and encumbrances.

The priority of a lien is established by when it was imposed. For example, if you apply for a refinance mortgage in 2018, but a lien was placed on your property in 2015, that lien will have priority over the mortgage in the event of a foreclosure action. Mortgage lenders require that you are able to deliver clear title to the property as collateral for the new loan. That means all prior liens will need to be satisfied before you can close on the new mortgage.

When you buy a house with a loan, the lender has the right to claim the house if you stop paying. Most homeowners continue paying back their loans even if the value of the house has eroded. But some decide that they will not continue paying for a house that is worth less than they owe on it. Other complications could arise if someone must move for job, family or other reasons. No matter why the house is being sold, its title problems must be cleaned up so they are not inherited by the buyer.

In many cases, the history on a title that has changed hands through foreclosure or short sale can be messy. Under normal circumstances, the homeowner pays off the mortgage and the lender releases the title (the legalities of this vary by state). That might happen when the homeowner sells the house and repays the mortgage with the proceeds of the sale. Or, it could happen if the homeowner stays in the house for the duration of the mortgage and eventually makes that final mortgage payment.

But if the homeowner has taken out other loans collateralized by the house, such as a second mortgage, a home equity line of credit, or construction loans for remodeling, the lenders behind those loans also have claims on the house.

All of these claims against the house “cloud the title.” If you don’t repay these loans, the lenders will put a lien on the house. Only when the creditors are satisfied is the title cleared.

If you’re planning on buying a foreclosure or short sale, you should be aware of title issues that could remain unresolved and how you can safeguard against them. Just because the lender owns the property doesn’t mean their staff will have tidy records and be responsive when a sale is in process.

How Your Title Company Can Save You a Lot of Money In the Long Run

A title search researches the property’s history to see if there are any complications in its ownership. If the search comes up clean, the company performing the search writes a title insurance policy promising to cover the expenses of correcting any title problems discovered after the sale.

Without a title search, you may not become aware of any liens or encumbrances until after you’ve bought the house. Once it’s in your name, you become liable for any debts attached to the property. The title search protects you by uncovering such issues before you buy the house, and the policy protects your investment against any claims resulting from an issue that was missed in the search.

Where to Find Foreclosures and Short Sales

You can find foreclosure properties listed on a number of sites, including, bank websites, Fannie Mae and Freddie Mac. Another option is to pay for a foreclosure-listing service. Although there’s a fee, this is a good way to get a comprehensive national listing.

You can also visit the local county recorder’s office and investigate pre-foreclosure notices or Notices of Default. These are the first legal steps that lenders will take before filing for foreclosure.

These notices show the property owner, contact information and the lender, along with other characteristics of the home. At this stage, the lender may be open to a short sale request – but the owner must make the request, not you.

One of the most convenient ways to find short sales as potential investments is to check the listings on Here, the initial work has been done for you. The lender has already accepted a short sale request — all that’s needed is a buyer. Property details and photos are available for buyers to review before choosing to place a bid.

Worth the Wait

The process of closing on a foreclosure or short sale can be slow and unsteady, with many frustrating delays. But with a bit of legwork and patience, and your due diligence with your title company, you may secure yourself substantial savings on your new home.

Be prepared and be flexible, because disputed title and loan paperwork could sink the deal. Your title search might uncover some nasty surprises, but it’s better to discover those issues before you’ve purchased the property. Let your title company deal with it so you don’t inherit those liens and encumbrances.

To learn more about what title insurance is and why it’s important, watch “What Is Title Insurance,” a cool explainer video designed to make understanding title insurance easy.

Buy a House Other Products & Services The Home Search

5 Keys to Buying a Home Directly From a For Sale By Owner Seller [Infographic]

Buying a home directly from the seller — whether you use an agent or not — can be a very rewarding experience. Here are the steps to signing on the dotted line.

5 Keys to Buying a Home Directly From a For Sale By Owner Seller

To view, download and print 5 Keys to Buying a Home Directly From a For Sale By Owner Seller [Infographic] as a PDF, click here.

Mortgage Help

For borrowers in a bad spot, situation may only get worse

Generic graph trending down.Recent turmoil in the financial market — specifically the sub-prime mortgage mess — has focused attention on the impact that a bursting U.S. housing bubble could have on the economy. Dean Baker, co-director of the Washington-based think tank Center for Economic and Policy Research, explained in an interview how the market chaos may affect homeowners and what possible solutions are available. Here is an edited transcript of his comments:

What does a bursting housing bubble mean to the average homeowner?

It’s going to be very bad news. People will see large drops in the prices of their homes. From 2002 to 2005, people borrowed at a rapid rate against their homes to buy other homes, take trips, pay bills. Once house prices start falling, owners lose that source of wealth. Now that credit is tightening, it could get worse. A lot of people who would have bought homes can’t.

This is worse than the 1990s’ recession — they didn’t have a comparable run-up of prices then. We’ll still have a vibrant economy, but middle-income people will be hit hard. Losing $150,000 on a home will affect their living standards for a long, long time.

California has a diverse economy, with several employment sectors doing well. Is the Golden State safer from a recession than other parts of the country?

California is very vulnerable. The run-up in home prices has been large throughout the state, especially in population centers. The market won’t unwind in a day, but it can quickly.

I don’t know how we can avoid recession, as a direct effect of the housing situation: People in mortgage banks are being laid off. Realty agents will lose jobs; construction workers will lose jobs. The indirect effect is that people will lose the ability to spend at the same rate. There’s been a lack of savings in the last seven years. When people cut back on consumption, it’s a big hit on the economy. Signs are showing already: July car sales are down; Ford’s cutting back production — they have a large inventory; consumption growth in the second quarter this year was the weakest in years. It’s just the beginning.

How can the federal government help moderate-income families who are about to begin fore-closure proceedings?

Change the rules of foreclosure. Instead of banks beginning the foreclosure process, owners should have the option to rent their house, at a fair-market rate determined by an independent appraiser. And they can stay indefinitely. The bank will own the house. This isn’t a windfall for the homeowner. But they’re not on the street. Whoever buys the house would have to deal with the renters, letting them stay. People have made mistakes and got bad mortgages; this could help them out.

What should borrowers do if they’re about to go into default? Any way to stave it off?

If someone’s got a bad loan and trying to find a way to refinance, this is the worst time; banks don’t want to see you. If you’re struggling, try to hold on for a while. But be realistic: If you’re in a mortgage and you’re not close to being able to afford it, think about selling your home. The situation won’t be better in six months. If the numbers don’t add up, you’re not doing yourself a favor by dragging this out.

This article from Tribune Company news outlets has been republished for additional  education purposes.  Please note that this editorial content was produced by Tribune news staff who are not employed by or  by Tribune Digital Marketplaces.  This article is not affiliated with any links or products that appear on the on the same pages.  Read more about our editorial policy.

Syndicated with permission. Updated in October 2010 by  ForSaleByOwner staff.

Credit Scores

Whip your credit score into shape

Grooming your credit score is a great way to prepare for buying a house. It will help you review your spending habits and detect any errors, so can correct them before mortgage lenders use your scores to estimate the loan terms they will likely offer to you.

How to review each credit report

It is very important that you check your credit reports diligently before the mortgage lender checks them. To check all three reports from Equifax, TransUnion and Experian, place an online order for these and your credit scores. Each report must be thoroughly reviewed for inaccuracies and signs of theft of identity. Anything that is inaccurate or is hurting your credit score should be brought to your notice.

Plan to boost your credit score

Based on the estimated credit score and credit reports, you could follow some suggestions and update your credit score. It would also help to discuss the errors with the credit companies. Here are some tips on what will help and what will not to help boost your credit score will help in boosting your credit scores:

• Finish small loans by paying off as early as possible
• Keep credit card balances low
• Each month, pay your credit card bills and loans on time
• Do not make unnecessary credit inquiries for new credit
• Do not ask a for an increase on current credit limits
• Clean your credit reports of expired negative records (collections, bankruptcy)
• Clean your credit reports of fraudulent records (identity theft records)

What will not help in boosting your credit scores:

• Closure of credit card and loan accounts will lower your credit score
• Delaying payments of credit card bills and loans
• Putting in applications for a number of new credit accounts
• Removal of correct records from credit reports
• Removal of positive expired records from the credit reports
• Completely paying off all collection and bankruptcy accounts.

Requesting changes and corrections

After reviewing the credit reports, one should take action to boost their credit scores as soon as possible. A letter of dispute has to be submitted to the credit bureau for requesting removal of inaccuracies from the credit report.

Next, you need to gather evidence to prove that the credit agency reported the information to your credit report in error. You will need to mail a letter explaining why your credit report needs to be corrected along with any related documentation. Be sure to make copies of the documents that you send and keep the originals for your records. Remember to include in your letter your full name, address, date of birth, and social security number.

Once your documentation has been received, the credit reporting agency has thirty days to review your claim and repair your credit report. Inform the credit agency and avoid further errors by sending them a copy of the letter and documentation that you mailed to the credit reporting agency.

Crimes should be reported to the credit bureau’s identity theft departments to be able to remove a fraudulent entry from your credit reports.

The final step

You will need to allow 30 to 60 days for updates and corrections to show up in your credit reports.  Don’t apply for a mortgage until you check your reports again to confirm that the changes have been made and your scores adjusted accordingly.

Avoid Future Credit Report Errors

If your credit report shows any outstanding balances that you owe, then it is your responsibility to repay the creditors. However, other errors can occur that some people are not even aware of until the damage has already been done. Some common causes to be aware of are clerical errors, an ex-spouse’s credit troubles are still being tracked back to your name, or you could have been a victim of identity theft.

If you are faced with having to fix your credit report due to bad credit decisions or you were simply a victim of circumstance, there are steps to take to clean up your credit report and help prevent problems in the future.

Monitoring your credit report & score can lead to big savings & more purchasing power.

Click Here to Check Your FREE Credit Score Instantly Online.

Credit Scores

Who are you again? Keep your identify safe

Identity theft affects nine million people in America a year. On average, the victim ends up spending forty hours and over $400 correcting the criminal’s errors.  You don’t want your identity used to finance a thief. Here are some practical steps you can take to keep protect your identity.

One of the biggest misconceptions about identity theft is that senior citizens are the most targeted compared to other age-groups. Statistics show that people in their 20’s and 30’s are targeted the most with having their identities stolen. Another fact to remember is that not all thefts are performed by strangers. Most of these crimes are committed by the victim’s friends, family members, neighbors or in-home care-takers.

The Internet is used identity thieves only ten percent of the time. The majority of thefts come from purses, wallets, credit card receipts, mail, or even garbage. Making yourself a tougher target will make it harder for your identity to be stolen. Remember these steps to ensure that your identity is protected.

Step 1: Social Security Card Security

  • Never carry around your social security card unless you know you will need it. Otherwise, leave it at home; better yet, leave it in your safe deposit box.
  • Do not give your Social Security number out over the phone.
  • Do not put your Social Security number on your checks. Ask the Social Security Administration for an annual earnings and benefits statement to make sure that no one else is using your number.
  • If someone else is using your number and contributing to your account, at some point in the future you might have to fight them for your SS benefits. And if you do collect from “their” contributions, you could be committing fraud.

Step 2. Secure your credit cards

  • Carry only one or two credit cards with you at any one time.
  • Print “ASK FOR PHOTO ID” on the signature line on the back of your credit cards. You will have to show your ID more often, but your credit cards are less likely to be used by anyone else.
  • Have all the information you need to report a lost or stolen credit card readily available in a safe place. You can write down the account number, expiration date, security code on the back of the card and 24-hour emergency phone number you need to call. Or you can make photo copies of the front and back of each card. Just make sure you can read all of the numbers, including the emergency phone number.
  • If a credit card expires and you don’t receive a replacement, call the credit card company.
  • Protect your ATM and computer passwords. If you cannot remember them and must write them down, disguise them as phone numbers for mythical friends or relatives. But don’t make it obvious. Listing phone numbers for Joe Password or Peter Pin won’t really protect much.
  • While most receipts only reveal the last four or five digits, watch out for any that print the full number. Take special precautions to safeguard and destroy those receipts.
  • Cancel any credit cards that you do not use. Don’t just cut up the cards. Call or write the company and tell them to close your account.
  • This could lower your credit score by reducing your total amount of available credit. One of the 30-or-so factors the formula measures is the percentage of available credit you are not using. But this also reduces the amount someone can steal.
  • Watch for unauthorized charges by saving your credit card receipts. If that’s too much trouble, treat them the way you do checks. Start a “check register” for each credit card and keep a running tally, then compare it to your bill every month.
  • Notify all of your credit card companies as soon as you move. You don’t want credit card statements or new credit cards going to your old address.

Step 3. Better shred then read

  • Buy a shredder and shred every document that contains any sort of information personal or financial that could help a thief “become you” long enough to run amuck through your credit.
  • This includes all those credit card and mortgage refinancing offers. Get a crosscut shredder that cuts the paper two ways. They are more expensive but they are worth it.
  • There are also shredders that will chop up plastic, such as credit cards and CDs.

Step 4. Use your computer more — and more safely

  • Since only 10% of identity theft is based on information stolen from computers, use your computer for financial transactions.
  • If your company offers automatic payroll deposit, sign up for it. Sign up for online bill payments, too. Have your bank and credit cards statements sent to you by e-mail.
  • To make those transactions more secure, make sure you have a firewall as well as anti-virus and spyware programs, and update them regularly.
  • If you have a home wireless network, make sure it is encrypted, otherwise your neighbors or anyone who parks a car in front of your home could possibly access your network and your hard drive from a laptop computer.
  • Do not respond to any suspicious e-mails. Banks do not send e-mails asking you to update or confirm information that they already have. When in doubt, phone the bank.
  • While you cannot really “shred” your computer hard drive, you can wipe it before you get rid of it. Just hitting “delete” will not do the trick. The data is still there, and relatively easy to get at. There are programs that will actually wipe your hard drive.
  • If you do buy from an online merchant, deal only with those that have a privacy policy, and look for the Better Business Online seal or the Trust-e symbol that shows that the seller has been independently audited.
  • Before you use your credit card online, make sure you are on a secure site one that starts https instead of http or that the charges are handled in an encryption mode.

Step 5. Snail mail carefully

  • When paying a bill by mail, or sending a credit card number on an order, drop it into an actual mailbox. Do not leave it for your letter carrier to pick up. Crooks steel mail out of mailboxes.

Step 6. Know your credit report

  • Check your credit report for any credit activity or credit cards that are not yours. If you have five credit cards and your credit report lists eight, you need to get in touch with the other three credit card companies.
  • While you are at it, make sure that everything it says about you and your credit is correct. Each credit report lists instructions on how to file corrections.
  • You can get a free copy of your credit report every year from There are three major credit reporting agencies and they all carry pretty much the same information.

Stagger your free reports so that you can get one of them every four months.

Credit Scores

Credit scores — who cares?

Who cares about your credit history?

Think of it this way: only your mother loves you regardless. Your credit score infiltrates every corner of your financial life.

Apartments – Credit report plays an important role when taking an apartment on rent. The rental agency or the landlord would want to look for negatives in your credit report to check whether you will be a responsible tenant or not. They would want to check all the information you have provided on you rental application. Depending on your credit report, you may have to pay higher rent or need a co-signer or may need to put in a larger deposit. Credit scores do not get effected by inquires from rental applications.

Auto loans – Auto loan rates available to you are dependent on your credit scores more than the credit reports and finanacial history. A high credit score (750+) makes for the best loan deals which could at times be as low as 0%. Those with low credit scores may also be approved for loan but at much higher interest rates. Online lenders and credit unions give the best auto loan rates, but too many inquiries from auto loan applications lead to lowering of the credit scores.

Cell phones – Based on your credit scores a cellphone company decides which service plan to provide to you. If scores are low, you may be asked to pay extra or a large downpayment for a service contract. Although some contracts allow cellphone companies to check your credit reports at any time, there are some cellphone services that do without the check also. Cellphone application inquiry is visible in your credit report and lowers your credit score sometimes.

Checking accounts – Instead of checking your credit reports, bank checks the ChexSystems report to be able to grant you a new bank account. The ChexSystems report is based on the number of negative banking like bounced checks and not on your credits’ report.

Child support enforcement agencies –Credit reports and child support payment records are checked by child support enforcement agencies. Such inquiries do not lower the credits scores and are not visible in the credit reports. Non-payment of child support can lower the credit scores drastically as this gets reported by the child support agency to the credit bureaus.

Credit cards – Credit card companies review the credit scores of currnet customers as well as the new applicants. Depending on your credit score and history, you will be given the rate options. Even for existing customer, the rate gets adjusted based on credit score reviews and payment history. Only those with very high credit scores are given reward cards and cards with low APRs. Those with low credit scores can go for secured and pre-paid credit cards. One should be careful since a credit card application inquiry decreases their credit scores.

Employers – Your credit scores are not effected by an employer checking them. For a prospective employer to check your credit scores, the employer needs to take permission. Their intent is to look for negative points in your credit report and to know your credit history. An employer can review the credit reports of existing employees only if prior declaration has been made that such an action can be taken. Any adverse action can be taken by the employer only after notifying you beforehand and giving you a copy of your credit report.

Government assistance and licensing – Limited information like name, current address and previous address, current and previous employers, from your credit report can be accessed by any government agency without taking your permission. Only if you are applying for government assistance or specific licenses credit report needs to be checked thoroughly.

Insurance – Credit information is used by home and auto insurers for deciding on the terms and conditions and the rates. Although the way your reports and scores are used by the insurers is not exactly the same as they are used by creditors, the basic standing and data used is the same. The “insurance risk score”, which is calculated based on your credit data, determines the insurance rates applicable to you. Credit scores are not affected by such a credit inquiry even though it appears in your credit report.

Mortgages – A detailed review of all three of your credit reports and credit scores is made as part of your application for mortgage loans by the mortgage lenders. This is because a mortgage is usually for a large amount compared to auto or student loan. A credit score greater than 700 is necessary for getting standard mortgage interest rates. Mortgage application decrease your credit scores and are visible in your credit reports.

Student Loans – Student loans’ interest rates are based on the national rates and therefore, federal student loans do not require a credit check. Credit reports are not checked by the new lender if federal loans are consolidated. In very specific situations or in case of private student loan applications, the credit reports are scrutinized.

Utility Accounts – Utility companies like electricity, cable, etc. check your credit scores for deciding on your rate. This check is performed with your permission and does not negatively effect your credit scores. If you have a low credit score, these companies may ask you to give a deposit, have a co-signer or pay higher amounts for the service.

You can get your free credit report at Rocket HQ. You’ll also be able to see what a mortgage lender takes into consideration when they review your application. This includes your payment history, places of employment and accounts in your name.

Mortgage Help

Pre-Qualified vs. Pre-Approved: What You Must Know

Knowing the difference between getting pre-qualified for a loan and pre-approved for a loan equips you to have the right information at the right time.

Getting pre-qualified for a loan gives you an idea of how much you might qualify to borrow. You have not actually applied for a loan and the mortgage lender has only your word on your income, assets and liabilities. None of your information has been verified, the loan amount is in no way guaranteed. You may be given a pre-qualification letter that merely states you are likely to be approved for a mortgage. Getting a pre-qualification is generally very fast and you can even pre-qualify for a mortgage online in only a few minutes.

Getting pre-approved means that not only have you given the mortgage lender information on your income, assets, and liabilities, but your information has been checked and verified. The mortgage lender may also have pulled your credit report to learn about your credit history and credit-worthiness.

Getting a pre-approval letter means that you are likely to be approved for a mortgage and also states the amount for which you may be approved. It carries much more weight than a pre-qualification letter.

It’s important to remember that you are not guaranteed to get a mortgage if you are pre-approved or pre-qualified.  Many things can happen during the process—some lenders may give out pre-approval letters without actually verifying your information or a borrower may not give completely accurate information about his situation.

Track mortgage and financing trends at our Mortgage Center, including information from our mortgage partner LendingTree.

Credit Scores

No credit history? Better get one

Having no credit history is just as bad if not worse than having a bad credit history. However, you are given the advantage to establishing good credit and money-managing skills from the start. You can easily build up your credit history by following these suggestions:

Open a Bank Account. A simple way to start building your credit history is by opening an account at your local bank. Opening a checking or savings account will help you to keep track of your expenses while you earn interest and improve your credit. Only responsible use of your bank account along with paying your expenses on time will ensure a good credit history.

Get a Loan. You can also get a small personal loan through your bank or any other financial institution. Choosing a low-interest, small loan will also allow you to gain a good credit history. Whether you are paying your loan payment or your utility bill, making your payments on time and in full is important when building good credit.

Apply for a Credit Card. Having a credit card is another way to establish your credit history. If your lack of credit has prevented you from obtaining a credit card in the past, then apply for a secured credit card. A secured credit card will give you the same benefits as any credit card, including store and gas credit cards.

Start building your credit history by establishing good financial habits from the beginning. By choosing one of the following suggestions, you can improve your credit status while instilling good habits for the future.

You can get your free credit report at Rocket HQ. You’ll also be able to see what a mortgage lender takes into consideration when they review your application. This includes your payment history, places of employment and accounts in your name.

Mortgage Help

How to Spend Your House

Looking to tap into your home’s equity? There are several options, and a few things to consider, when deciding which right for you.

If the interest rate on your mortgage is higher than current rates, it may make sense to refinance and take a lump sum of cash from your home’s equity. You’ll simply refinance your mortgage to a larger loan amount and take the difference in cash. This is called a cash-out refinance.

Another option is a home equity loan. A home equity loan is a second loan that you take out in addition to your first mortgage. Commonly referred to as a “second mortgage,” a home equity loan allows you to tap into your home equity to get cash without refinancing your first mortgage. A home equity loan is a good choice if you’d like your cash in a lump sum and you already have a great rate on your first mortgage.

A home equity line of credit (HELOC), your third option, is very similar to a credit card except that it uses the equity in your home as the revolving line of credit. You make monthly payments only if and when you use the money. But, unlike credit cards, the interest is usually tax deductible.* With a HELOC, you can get a lump sum at closing, or elect to take only part of your money and draw on the rest when you need it. Unlike a home equity loan or a refinance, you can get a home equity line of credit in as little as ten days. A HELOC is a good choice if you’d like ready access to your home equity when you might need it.