Just read this great article about what could be bringing a person's credit score down. Found it at Bankrate, Inc.'s website and it was written by Dana Dratch. Here are the 6 in a nutshell:
Her opening: "You pay your bills on time and never miss a payment. if you're still having trouble with credit, something on your credit report could be scaring lenders. Everyone knows the big gremlins that haunt credit reports: bankruptcies, foreclosures, missed and late payments." But less dramatic items can also spark some anxiety in skittish lenders.
1. Opening 1 new account is normal, but if you open several in a small amount of time, that signals that there could be problems with your finances. Companies are now monitoring you monthly or every other month, and the one thing they do NOT want to see is you asking everyone in town for a loan.
2. People are told short sales won't hurt their credit as much as a foreclosure as you are just settling the account for a lesser amount than originally agreed. Actually it is as negative as a foreclosure!! They gave the tip to negotiate with the lender to NOT report the difference between your mortgage and what you repaid as "balance owed" on your credit report. Your credit score will take a heavy hit, but doing it this way will slightly soften the blow. Do not discount the notion of a short sale, just go into it with your eyes open, she said. You will get out of the house, move on with your life, but there will be an impact to your credit history.
3. When you co-sign on someone else's loan, the whole debt goes onto your credit report. Potential lenders could be concerned that you are carrying too much debt, and it will be included in your existing debt load when you apply for a mortgage, credit card or any other credit. If the person you signed for is late or misses payments, that too goes on your credit report. Co-signing does "Not play well in the underwriting office".
For those who don't know what underwriting is, its the mortgage insurance company that insures your loan to a lender if you forfeit and allow the house to go into foreclosure.
4. Even though there is a minimum that credit cards allow you to pay each month, it is not looked at favorably if you do pay just the minimum each month. "It suggests you're under financial stress."
5. Having your credit report checked too often lowers your score. "Every time you allow a potential lender to pull your credit report, your score can take a small hit." She advises if you are applying for a home loan or new car or student loan, do all the inquiries within a two-week period and those checks will be lumped together as one. There is no similar grace period for credit card applications however.
6. Cash advances on credit cards "indicate desperation". It suggests you might have lost your job or gotten yourself into too much debt. It suggests you are "borrowing from Peter to pay Paul". The cash advance is immeidately added to your debt balance, which lowers your available credit and can lower your credit score and all potential lenders will see your score. Regularly credit card companies will pull your credit just to see how it looks, and if you've taken on alot of new debt, they may slash your credit line or raise your interest; should this happen, that further lowers your FICO score.
I thought this was a very informative article, and wanted to share it with you; as I was unaware of a few of these things, and I've had customers wanting to buy houses who did not understand why their score was low. Maybe this article will help us all understand better how the credit score business thinks and operates and help us not make mistakes that sinks "our credit score" boat.
No comments:
Post a Comment