Wednesday, January 14, 2009

What's your score?

Since mortgage rates are dropping (here in the Ozarks we have some rates as low as 4.875%) we have been getting a lot of folks wanting to refinance their homes. I thought I would blog about one of the main reasons people get declined for a loan: Their credit.

Now, I am not a financial advisor but I have worked in the mortgage business for almost 10 years and these are the problems I see over and over on credit reports. I sent my list to my friend M who works for a credit gathering agency. He gave me some additional info that I will share as well.

1. Inquiries
Every time someone pulls your credit it lowers your score. Whether it’s your auto insurance being renewed, if you are “shopping” for rates for a home/vehicle or you are applying for a new credit card. If someone besides yourself looks at your credit, your score gets dinged.
2. Lots of revolving cards
It is best to have one major credit card such as Master Card or Visa. It is never a good idea to have a bunch of store cards like Sears, Macy’s, Target etc. They usually have higher rates as well.
3. High Balances and/or going over the limit on revolving credit cards
If you do have a bunch of store cards and refuse to close them, make sure they have low balances, preferably less than half of your spending limit.
4. Late and/or past due payments
This one is from M. He says any late payments with in the past 12 months kill scores.
5. Collections
First of all, pay your bills so you don’t acquire any collections. If you do have collections then pay them. Even if you have to make payments, just pay something on a regular basis.

Here are some items M says have little or no affect on scores
1. Child/family support – none
2. Accounts in active dispute (but they affect the score once the dispute is resolved) – none
3. Paying off installment loans (you should put your money on the revolving accounts) - almost never
4. Personal inquiries (you can pull your own credit from the bureaus as often as you like with no affect) - none

Now, regulations may vary with different states and/or investors but it seems the theme is that it is very hard to get financing if your credit score lower than 620. I suggest that you get familiar with your credit report. Check it out and see what's on it. That way there are no embarrassing surprises when you apply for any type of loan. You can usually get a free report from someone you have a credit card with. I've gotten mine from here before.

Here is another helpful article that was sent to me today.

Hopefully I didn't bore you all.

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