April 2007 Newsletter
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Hold Onto Your Computer Chair... You are Getting a
Bonus for April.
Today I am going to
Reveal to You the 25 most Common
Mistakes that You want to Avoid when it comes to your credit.
I will be as brief as possible…but let’s face
it….this is a BIG and IMPORTANT Topic. I know you have other things to
do besides sit here and read on and on… but this is crucial for you to
know and understand. Please, at least quickly review the headings below
and look at those things that you know apply to you, so that you can fix
anything that may be broken. Then, print this out so that you can read
it thoroughly and make notes or highlight what you need to act on.
Remember to review it as many times as you need to because one time of
reading will not be enough!
You know what they say…if it ain’t broke don’t fix
it….well I want you to be able to tell if it is broken. Here we go……..
- Not knowing you 3 credit scores- Your
credit scores are like thermometers…they help you figure out if you
are sick or not. So if your credit score is low….it needs attention.
In Colorado we are entitled to get one FREE report from each of the
3 credit bureaus (thus 3 scores). The best way to do this is
download the form online from
https://www.annualcreditreport.com/cra/requestformfinal.pdf and
then complete the form and mail it into:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
You can
either submit by mail or online.
- Having Unnecessary Credit Inquires- If
you sign a credit application or give a lender your social security
number you just gave them permission to look at your credit report.
This is commonly called a credit inquiry. These remain on credit for
2 years but only count against your scores for 12 months. The idea
is not to let any and everyone pull your credit, make sure it is
something you need and that you will benefit from the service
because just applying will initially affect your credit.
- Using Lenders that Won’t Accurately Report
Your Credit Limit- Some credit card companies have policies
not to share your credit limit with the credit reporting
agencies. If your credit limit is not reported correctly than it can
give you a false utilization rate (that was covered in last month’s
newsletter). If the credit card company says that your limit is
lower than it really is your utilization rate may look as though it
is higher than 30% and actually bring your score down. In other
words it looks like you have spent more of your available credit.
- Leaving a Balance on credit cards- This
is in regards of when your credit is being pulled. If you have made
a payment but it has not yet posted your credit report may not
reflect an accurate balance. The goal when a lender needs to look at
your credit report and you want the best score possible, make sure
your payments have been on time and have your credit inquiry done
about 10-12 days after the payments were made so that it is
reflected in the report.
- Maxing our your credit cards each month-
if you max out your credit card each month a lender will think
that you appear too risky. It is best to always have some left over
credit available each month.
- Assuming all Lenders are reporting your
payment history- Our credit reporting system is voluntary and
some lenders do not report your history of making payments. So, if
you have a good payment history for one lender and they do not
report it your score will not go up. On the other hand if you have a
poor payment history with another lender and they do report it your
scores will go down.
- Co-Signing for another person- this is
very risky for your credit. If the person that you co-signed for
does not make their payments you will still be held responsible for
making those timely payments.
- Using Finance Companies- Your FICO
score will improve more if you use Banks and Credit Unions. Having a
finance company account on your credit report will lower your FICO
score. (Examples of finance companies would be American General
Financial Services®, CitiFinancial®). It is important to choose your
lenders wisely.
- Closing Credit Card Accounts- Closing
accounts can have a negative impact on your FICO score. It will
shorten your credit history if you close an account that has been
opened for years and it will decrease your total available credit so
your utilization rate goes up and your FICO score will go down.
- Thinking your income is important with
Credit Scores- Your income has nothing to do with your credit
scores. It is hard to believe but it is not what you make it is how
you manage what you make.
- Thinking that a Bank Debit Card helps
credit scores- Debit cards are just plastic checks. They are
convenient but they do not increase your credit scores even if they
have a VISA® or MasterCard® logo, they are not credit cards and will
not affect your credit scores.
- Using Cash Only- Paying everything in
cash used to make sense but not any more. Lenders need to see bills
paid on time. If nothing is on the credit report because you always
pay cash you could be denied credit. You need to establish a credit
history and show that you are responsible and make payments on time
at least the minimum amount.
- Not Having Major Credit Cards- People
without major credit are considered higher risk than people without
one. To increase your credit scores you need to maintain a few major
credit cards over a long period. This will establish more available
credit and improve your utilization rate and ensure an accurate
payment history. Avoid credit cards that do not report your credit
limit and payments accurately. Major credit cards would be Visa®,
MasterCard®, Discover®, and American Express®.
- Paying Off Installment Credit Accounts
Early-it may feel good to have a car paid off or a mortgage
payment complete but the longer you hold an installment account and
are in good standing the higher your credit scores will go. So keep
that installment loan on your car for the full term and pay it like
clockwork each and every month as long as it makes sense for you.
This will earn you the highest FICO credit scores.
- Improperly Dividing Debt in a Divorce-
just because you get a divorce does not change the fact that you are
responsible for any debt in your joint accounts. Often couples split
the debt with no idea that they are still legally responsible for
those payments and debt. Just because the other person got the car
doesn’t mean you are relieved of the debt. Both co-borrowers credit
will suffer if one borrower defaults. Some options would be to
refinance any account held jointly into one or the others name.
Closing accounts may actually be needed if one spouse will not agree
to refinance or separate accounts. And worst case, you take
responsibility for the debt and make sure it gets paid. It will
sting but its better than having scores that will not recover for 7
years. You could also just start with contacting all the lenders on
the joint account and see if there are any other options.
- Not Increasing Your Credit Limits-
Increasing your limits on your credit cards is a fast and easy way
to improve your credit scores. The goal though is to keep your
spending habits the same even though you have more credit….NOT to
spend the extra credit!! It is good practice to call every 12 months
and ask the lender to increase your credit limit. Just so you know,
when you do this the lender will do a credit inquiry and initially
that will lower your score but overall with having more credit it
will increase the score.
- Ignoring Mistakes on Your Credit Reports-
If you have inaccurate, incomplete, misleading or unverifiable,
or outdated information on your credit reports that may mean you are
paying more for things because your credit is being hurt due to
mistakes. That is why it is important to review your credit reports
regularly. In Colorado we are allowed a free yearly credit report
upon request, so that would be a great place to start.
- Applying for Credit at the Wrong Time-
This is critical if you are going to be buying a home/getting a
mortgage. Do not apply for any other credit or credit limit
increases until after you have closed on the mortgage. Most
mortgage lenders will look at your credit twice- first at the time
you submit the application and then again just before the loan
closes. If you went out and bought a new car or opened a new credit
line for new furniture they will likely deny your mortgage or you
will end up paying a higher payment because there is a change in
your credit report.
- Having Negative Narratives- these are
negative comments that lenders put on your credit report regarding
your account. The most common narratives are; charge –offs,
repossessions, settlements accepted on an account, accounts included
in a bankruptcy, accounts included in wage earner plans. You should
work with the lender to resolve any incorrect negative narrative or
hire a professional to represent you.
- Believing you can force a creditor to
report your payment history-You may have credit and discover
that your lender does not report to all 3 credit agencies. You will
need to ask them to report to all 3 agencies and if they do not then
you should change lenders – to one that does report to all three.
Remember lenders are not obligated to report, it is voluntary. On
the other hand, if your credit with a lender has been bad it is best
they do not report…but saying that you should switch to a lender
that reports and change your habits to establish a good payment
history.
- Believing in Debt Consolidation Loan-
the problem with a debt consolidation loan is that it frees
us money for you to spend more. This is likely not what you really
need. The issue is- a debt consolidation loan can pay off your
credit card debt but then it frees up those cards so that you can
use them again and get yourself in more trouble. In general, you
should stay away from debt consolidation loans and put your head
down and plow away at paying off your debt over time. If you use a
home equity loan to pay off debt you run the risk of losing your
home in default. It is better to just pay off the debt over time and
learn for the pain and don’t get yourself into debt you can not
afford.
- Believing in pre-approved offers- look
closely at credit card offers. If the application says
pre-approved…that DOES NOT mean approved. If the application asks
for your social security number they need to review your credit
report. So you are not actually approved, you are conditionally
approved. Read the fine print. Contact each lender and ask for their
credit guidelines before you apply. This way you are not letting
your credit to be run and then denied- that is a big waste and leads
to an unneeded inquiry that will lower your score. If you don’t meet
their criteria then do not apply.
- Having Credit but not using it-
Having credit accounts but not using them can impact your credit
scores. To achieve the highest credit scores you need to use your
credit accounts. If you do not use them a lender may close your
account because it has been “dormant” and then it disappears from
your credit report. An ideal plan if you do not like to use credit
cards is to just put a small amount on it each month and pay it off.
This keeps it open and shows a payment history so you can benefit.
- Having Recent Late Payments-Late
payments have the MOST significant Negative impact on your
FICO score. There are different levels of negative. Recent and
frequent late payments will hurt you more than an isolated late
payment two or more years ago. A late payment is any bill that
reports to the national credit reporting agency that is late 31 or
more days from the due date. Therefore do whatever possible not to
be late on any accounts that report to the credit agencies. Again,
read your credit report to see who reports.
- Having Too much of any one type of credit-
It is best to healthy mix of credit. Ideally you want some type
of installment loan (car or a house) from a bank or credit union,
three major credit cards and one or two retail cards. You will not
obtain the highest credit scores if you have only one type of
credit.
(The source of this information was taken from: Stephen Snyder’s
“Improve your credit scores Improve your lifestyle” 2/2006
www.improveyourcreditscores.com .
Dedicated to Improving Your Credit and getting you financed for your new
home,
Lori
Jake, Manager
Swiftcurrent Investement Group, LLC
www.EZQualDreamHomes.com
