Bankruptcy

Protecting Your Best Financial Interests

By Chris Kramer

Part of becoming truly financially responsible and independent involves accepting responsibility for your financial situation. Not only do you have the power to improve your finances, you?re the only person who can (and will) consistently watch out for your rights as a consumer.

This point was driven home once again in this post from CreditBloggers.com, in which the author examines one aspect of banking that people probably don?t realize can cost them serious money.

Understanding Overages

Here's a look at how you could end up losing a couple thousand dollars in a few minutes (without even realizing it):

• You go into your bank to apply for a mortgage loan. A loan officer presents some numbers to you and offers you a loan, which comes with an interest rate that is determined largely by your credit score.
• If you?re lucky, you were offered the lowest interest rate that your credit status qualified you for.
• If you?re unlucky (as many thousands of Americans are), you were offered an interest rate with an "overage"?an interest rate slightly higher than the best rate your credit score allowed.

Why would lenders even offer such loans? Because it can be profitable for them:

• A higher interest rate equals a more profitable loan (because you, the borrower, pay more in interest).
• A more profitable loan is more attractive to investors (because they can collect more money on it).
• The bank gets a higher price for the loan, some of which goes to the loan officer as a reward.

According to the post, issuing loans with overages is fairly common, even at some large, well-established banks, which is why you must act as your own advocate when investigating significant purchases.

Protecting Yourself and Your Money

If you aren?t already monitoring your credit report, consider doing so. At the web site annualcreditreport.com, you can view a free copy of your credit report from each of the Big Three reporting bureaus once per year.

And, if you?re getting ready to apply for a mortgage, you may want to pay to view your actual credit score (visit MyFico.com). To determine what mortgage rate you?re likely to get, do some online research or speak with a financial guru you know before hitting the banks.

Additional Resources

Choosing the Mortgage that?s Right for You (PDF)

Full post as published by The Bankruptcy Blog on February 13, 2010 (boomark / email).