What the experts say

Why munis make sense

Forget what you’ve read about state budget woes or bond insurer blowups, said Jon Birger in Fortune. Now is actually a perfect time to buy municipal bonds, with the economy slowing and the Federal Reserve cutting rates. “Throw in munis’ microscopic default rates, and you’ve got an ideal landing spot for investors weary of the stock market roller coaster.” For most investors, mutual funds are the best way to own a diversified muni portfolio. “Two good ones are Legg Mason Partners Managed Municipals and Oppenheimer Rochester National Municipals.” The hitch with these funds is that you’ll never know exactly when your munis mature or what they’re worth. “Given the vagaries of interest rates, bond prices, and net asset values, there’s no way of knowing what price you’ll get when you decide to sell your shares.”

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Consumers struggling to pay off debt have found new relief online, said Amy Hoak in Marketwatch.com. “Peer-to-peer” lending sites allow members to borrow money at competitive rates directly from other lenders. Each site works in a slightly different way. Prosper.com “allows the market to decide which borrowers get funded.” LendingClub.com is geared toward borrowers with FICO scores above 640 and debt-to-income ratios below 30 percent. Virginmoney.com manages loans among friends and family, and Zopa.com works with credit union members. With any of these sites, be realistic about how much you borrow and the kind of rate to expect. Also pay close attention to the payback terms. Even though you’re not going to a bank, “the consequences of defaulting on a peer-to-peer loan are the same as for any loan—often a ding to the borrower’s credit history.”

Buying a better credit score

A host of companies are now offering subprime mortgage holders quick-fix programs to raise credit scores, said Janet Morrissey in The New York Times. Some employ clearly less-than-scrupulous methods, such as using pay stubs from a fake employer. Others operate in more ambiguous territory. One company called TradeLine Solutions, for instance, adds clients’ names to other people’s loans just before the accounts close. Most clients, says the company’s CEO Ted Stearns, pay $1,399 to buy three different accounts—enough to improve a score from 560 to 700. While Stearns insists that the tactic is completely legal, others disagree. “They’re falsifying the person’s credit history, and that’s one definition of loan fraud,” says Fair Isaac Corporation’s Craig Watts. Borrowers who take this route, he adds, stand to lose a lot more than their homes.