The one thing we can caution you about a loan application is to be honest. Don’t go increasing your income or hiding your expenses. It will just get you in trouble and trouble impacts your business credit scores in a big way. Trouble comes in many forms – you get sick, don’t make the hours you expect to be paid for at work and then don’t have the money to pay the bills, they get paid late and then you have lates on your credit report. Lates cost you lots of points. A mortgage company could audit your loan and find out you really don’t make that much or you have more debt than you said you did and could call the note due and payable immediately. Then you have to find another loan or lose the house. Especially in these troubling credit crunch days, being totally honest with your lender will keep you out of trouble more than not. Don’t get over your head with debt, start a savings plan, prepare for emergency situations, don’t get greedy or try to buy more than you can afford,  be cautious and you will have less trouble dealing with challenges when they do come…   And they will.

Let me share an experience.  Just recently I went in to get a loan for a new home I wanted to purchase.  I went to a lender that I know and trust and asked about the rates, the conditions and what it would take to get a loan for me.  He assured me that there was no problem, since I had enough collateral to actually pay for the home outright.  OK, so I say to go ahead, now, I did go to two other loan companies prior to settling with my friend because I thought I could get a better deal.  Well, I was turned down by both other companies because I had an unusual situation they had to deal with and they said they couldn’t go outside “the box”.  Meaning that unless it was a “check the boxes” loan, they couldn’t help me.  Hey, I have 803 credit score and it didn’t make any difference to them. Well, I started the loan process with my friend and as the loan application was filled out it was obvious that I was beginning to stress my friend.  It is going on 3 weeks now and the loan is still to get started as I have had to jump through hoops and put my down payment at risk before the bank will even begin to get started on the loan.  And this is why, my friends, that you do your homework before you get started.  Yes, you have to have excellent credit (740 or above) and make sure you have worked in the same job for 2 years, have the down payment seasoned (3 months in the same account, not touched) and don’t open or close accounts and don’t pay off any collections within a year. The moral is, the banks are being extra cautious and if your loan officer thinks it’s a slam dunk, be prepared to wait and do what is asked of you quickly.

In fact, council with an expert credit counselor if you are going to plan on purchasing in the next year or so… they will teach you what you need to do to get prepared.  But be cautious, read my blog, read the related blogs in the archive and then ask questions.  I would be delighted to answer them.

A debt threshold is where the report to credit bureaus can hurt or help your credit scores.  When talking about your debt-to-credit limit ratio, there are certain points that can hurt or help your scores depending upon whether you are increasing your debt or decreasing your debt.  One example we teach is that you should never go over 45.91% debt to credit limit on revolving loans or you will lose a significant amount of credit score.  Any time you go below a threshold, you will be gaining significant points and anytime you go up over a threshold you will be losing significant points.  Here are the other thresholds that are important to watch as you are reducing  debt, knowing your credit scores are increasing.  88.78% – 68.72% – 45.91% – 33.37% – 23.69% and 15.89%.

The trick is to stay below 15.89% on all your revolving accounts and keep your credit scores high.

Whenever you have an account that is in good standing, never had any lates and has a history of 7 or more years, these are golden accounts and should be treated like gold. They have the ability to keep your credit score high in spite of the fact that other areas of your credit file may be less than perfect.

For instance, if you had one late on a golden account, then that late really wouldn’t cost you many points at all. The reason is the history and the fact that it is only one late and not multiple lates. One late can be forgiven rather easily, multiples will not. If you have a high debt to credit limit ratio, then the points lost would be minimal because of the long history of the account.

However, don’t get comfortable putting your account in this situation as you can easily destroy the good the history a golden account can create. A second late, keeping a high debt to credit limit ratio can erode your credit score just like anyone else.

Having multiple golden accounts will also increase credit scores as you nurture your accounts into long time good history. Little by little your practice of good financial principles will help you gain credit scores worthy of the best and into the 800’s.

WAIT, this is NEW STUFF and not what you think… Let’s talk about this.  Be punctual – Pay all your bills on time.  Late payments, collections, and bankruptcies have the greatest negative effect on your credit score. But let’s talk about “Late Payments” for this week.

Late payments cost you in points, big time, because of what they mean in increased credit risk to the credit bureaus. Higher credit risk means loss of points and lowered credit score.

OK, so you make your payments on time and your scores are still low. What is causing this to happen? Let’s look at what is happening with your payments. Let’s say you have a credit card that is over the 45% debt to credit ratio. You make your payment on the due date but when you pull your credit report, your points have dropped. What is happening is that the credit card company is getting your payment “on time” but the recording date when they determine your interest charged and when they report to the credit bureaus can actually be before the due date. This creates more revenue for them as well as causing your balance to be recorded higher to the credit bureaus thus causing your scores to drop. When you think your payment has lowered your balance to less than 45% by the due date, they have already charged you interest and reported to the credit bureaus and already your scores have dropped. Surprising, but true.

So, the solution is to look over your free credit card debt solution statement and find when the interest is entered onto your statement. Then make your payment to arrive before the interest is applied to your statement and before it is reported to the credit bureaus. Lower balance, lower interest, lower risk, and higher credit score! Ahhhh…