You may recall that last week we talked about a goal of financial security, having a budget, cutting our expenses and increasing our savings. Many of us are aware that when we attempt to make a major purchase there is discussion about our Credit Scores. I know what a good score is and I also know what is not a good credit score. I do know that if my credit score is higher I can get better discounts and would be in a better position to negotiate terms of my loan or purchase. However, I don’t claim to be an expert on what makes it go up or down. Are you?
Gwen Moran is a freelance business and finance writer from the Jersey shore. She’s the co-author of The Complete Idiot’s Guide to Business Plans and writes frequently about real estate. She recently wrote this story titled What Affects Credit Scores? 7 Misconceptions. If you’re trying to raise your credit score to get a good rate for a purchase, refinance or HELOC (Home Equity Line Of Credit), you might be surprised by what affects — or doesn’t affect — your score.
More money improves your credit score. False. Your level or sources of income don’t affect your credit score, although lenders may look at it when making loan decisions, according to the Fair Isaac Corp., the company that issues the commonly used FICO credit scores.
Ownership of several credit cards can hurt your credit score. Mostly false. Having many credit lines isn’t necessarily a bad thing, says credit expert Liz Weston, author of Your Credit Score. Multiple lines give you a favorable debt-to-available-credit ratio. But use them correctly: It’s best to keep any balances below 10 percent or 20 percent of the total credit line, she says. Anything more will affect the ratio of debt-to-available-credit, which can decrease your credit score.
Opening and closing credit lines can hurt your credit score. True. New credit applications can decrease your credit score, so be careful about applying for new credit cards or personal loans before applying for a HELOC, second mortgage, automobile loan, or other large line of credit. Surprise. Closing existing credit lines may also hurt your credit score, since it’ll damage your debt-to-available-credit ratio. A good rule is not to make any credit changes in the months leading up to a major credit request.
Consolidating credit lines will help your credit score. Mostly false. It may seem like a good idea to move all your balances to one card. That can actually hurt your credit score, since your debt-to-available-credit ratio will spike on that card, says Weston. However, credit expert Harrine Freeman says such a slight decline isn’t necessarily a deal-breaker for a loan, especially if the card has a lower interest rate and will allow you to pay off the balance sooner. Your score will increase as soon as that ratio goes down.
Changing jobs can hurt your credit score. Partly true. Taking a new job or losing your job doesn’t affect your credit score. However, if you have a spotty employment history, lenders may hold that against you in making a loan. Dips in income may signal that it could be difficult to pay bills in a timely manner.
Co-signing for others can hurt your credit score. Partly true. Simply co-signing on a loan for someone else may not affect your score, but if that person is late on paying the loan, it’s likely to show up on your report, says Freeman. And that’s a nasty surprise if you didn’t know the person was late.
Judgments and liens aren’t considered in your credit score. False. If you’ve had a judgment or lien filed against you, it’s considered in your payment history, which represents 35% of your score. Similarly, while most utility companies don’t report payment history to credit bureaus, your account will likely be reported if it is seriously delinquent and referred to a collection agency.
Additional details on how to manage your FICO score are available on the My Fico website at http://www.myfico.com/crediteducation/whatsinyourscore.aspx. These past few weeks I have focused on some basic things that actually are important for us to consider. Living within our means, having a family budget, increasing our savings for the future and understanding our credit scores are some things that shouldn’t have to be learned in the School of Hard Knocks. As a Realtor, I want you to know that seeing so many distressed sales, with people losing their homes is very difficult. I for one would rather see people be able to stay in their homes and be happy and prosper.
I’m forever an optimist and am hopeful our government can learn to balance a budget like the rest of us have to.
Questions or comments can be made to Kerry Suess at firstname.lastname@example.org.