Before Buying a Home You Need to Know about Credit Cards and How to use them

June 2007 Newsletter

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If you are just joining my newsletter group...Welcome.
So, let’s get started. From the previous newsletters; you are now well aware of what a FICO score is and why it is so important. We have reviewed the 5 most important factors that are considered in the credit score formulas are:

1. Your payment history
2. The amount of money that you owe
3. The length of time you have had credit
4. The type of credit that you have
5. How many credit Inquires

I thoroughly went through what your payment history involves and that it is very important that we change your history now… You want your scores to reflect a positive payment history; that you make your payments and you make them on time. Next we reviewed utilization rate where you should only be spending around 30% of your available credit in order to bring your scores up. And today we are going to talk about the types of credit cards the how and why you need to use them.

Did you know that credit bureaus award higher scores to people with at least three revolving credit card accounts? MasterCard®, Visa®, Discovery® and American Express® are specifically revolving credit, where you have a credit line and you use some of it and pay it down and it goes back and forth. Please note that an ATM card or debit card is not a credit card even though it has a MasterCard® or Visa® logo. They are plastic checks for your convenience only.

If you do not have at least 3 active credit cards the credit bureaus do not have enough information to analyze your spending and payment habits. You need to open 3 accounts and keep them current in order to increase your FICO score. If you have more than 3 accounts do not close them, the damage has been done and your scores will actually decrease if you close credit card accounts.

If you have fewer than 3 credit cards than you do want to open new credit card accounts but you want to apply for cards that meet your needs. For instance you may want low interest rates, or fixed interest rates or credit cards for borrowers with bad credit or maybe even prepaid credit cards. You do not want to just apply for a bunch of credit cards and see what you get. That will hurt your scores with multiple inquiries. You want to make sure it is credit that you can afford and that you meet their acceptance criteria. In other words find out if you will qualify before you fill out and send in the application. Just because you get a pre-approval letter in the mail it does not mean you are approved. It is a waste for you to have them pull your credit if you do not meet their qualifications in the first place. Instead, just call their service department and ask what you need to qualify. If you meet their specifications then you should go ahead and apply. Most low interest rate cards have an annual fee and the ones with no annual fee will have a higher interest rate. Usually an annual fee works in your favor unless you are paying the card off each month, and then the higher interest rate would be fine.

If you have more than 3 credit cards you are more likely to get yourself into trouble. At least this is what the credit bureaus think. They consider you to be more of a risk if you have more than 3 revolving credit accounts. Credit card experts agree that once you have opened more than 3 credit card accounts the damage has already been done. If you close them it will actually hurt your credit more so just leave them open and manage them responsibly. Don’t worry if you have more than 3, just don’t close any and use them cautiously and always pay the payments on time.

Your goal is to make the credit bureaus see you as a responsible manager of your credit. They want to see that you can have more than one account of revolving credit and pay it on time and the correct amount. For doing this they award more points and you will see your FICO scores increase.

Make sure you pay your credit card bill on time every time. This will increase your scores pretty quickly. It is crucial that you do not miss a payment or even be late on a payment. You also want to make sure the credit card company reports your payments to all three of the credit bureaus so that you’re score improves. You also want to make sure you keep old accounts active. The longer you have an account active the better payment history you will have and that also increases your scores.

Always follow the utilization rate that we discussed in last month’s newsletter. Thirty percent (30%) is the best place to keep yourself. Remember this means that you want to always stay at or below 30% of your available credit. (To further remind you of this let’s take the example where you have $1000 credit available on Visa® then your goral should be to always use only about $300 of it so that you are constantly around 30% utilization rate. This will bring your scores up a bit more and faster).

Something that may help you organize your payment schedule is to have automatic payments on a certain day of the month that is before the due date to help you plan out your finances and ensure you do not miss a payment or have a late payment.

Okay…you got one more bit of knowledge to work with and improve your credit scores and get you closer to financing your home. Your diligence and persistence will pay off with unlimited availability of great interest rates when your scores go up! Don’t forget if you have questions or need some assistance with improving your credit call your finance specialist first and if you need more assistance they will contact me if there is anything that I can do. Your finance specialist can get credit issues solved faster than I can, but I am happy to assist you in any way.

Dedicated to improving your credit and making you a home owner,

Lori Jake
EZQualDreamHomes.com
Swiftcurrent Investment Group, LLC

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