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.

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…

Mature loans are loans that are not new. That’s kind of obvious, but there are several reasons why I bring this up. There are several levels of maturity and how they affect your score. Just like us as humans, we have levels of maturity when we crawl, when we walk, and when we use a cane to get around. We start out slow, get fast then slow down again. When we look at credit, the first year of a new loan is like crawling, go slow, don’t over spend, in fact, try to keep it clean from spending and absolutely no lates. After the 4th year, the account then matures, but it’s like being a teenager. It’s kind of mature, but not really. It’s mature enough to not cost you points but not mature enough to earn you points. This comes later when you have a lot more maturity under your belt. When an account has 7 years of maturity, then you are starting to earn points on your credit score. It’s a time when you are seeing your credit score rise if everything else is going fine. Now real maturity starts to happen when you have 10, 15, 20 or more years of maturity on your account and if you have more than one account with this maturity then you are seeing scores into the 800’s.

I have been told that to have a credit score of 850 you would have to have an account in good standing with high credit limit from consumer first and low, low balance for 49 years. It’s a good goal to aim for but anything over 760 in todays financial climate is great and will get you the lowest interest rates and insurance rates and the best loans available today.

I have had clients, Mortgage Lenders, Investors, Real Estate Agents; people from all walks of life ask me when they should close an account.  When I hear them ask, my immediate response is to shout, DON’T CLOSE ANYTHING… until you understand the consequences of your actions.

“Never” is relative and there are times to do and times not to close your accounts.  Here are several things to consider before you close an account.

1 – Credit history identity theft repair is a very important part of scoring and the longer the history, the more it will count toward a better credit score.  Even if you don’t use the card, keep it active by buying a small item each month and then pay it off at the end of the month to keep the history alive and working for you.  If you close an account that is over 7 years, you will lose this history and the points associated with this history.  The more history with an account, the more it will cost you in points.

2 – A new account with derogatory’s  could be closed and increase your score because a new account hits your credit score 7 different ways.  However, if you are just establishing your credit and you need the account, it is better to keep the account and PAY YOUR BILLS ON TIME!  We will go over this later when we talk about new credit.  A new account could be new up to 4 years.

3 – If you have too many new accounts, then closing one that is rarely used could be helpful in increasing credit scores.  We will talk about this when we talk about Balancing Our Active Accounts.  For the time being, look at keeping an equal number of Revolving accounts with Installment accounts. We will go into far greater detail later.

4 – Department stores are notorious for offering a discount when you sign up for their credit card in the checkout line.  Be cautious when tempted to use this as it costs you points in 7 different ways and perhaps will not save you any money at all, but cost you.  Let’s give an example…

You have a hundred dollar purchase at XYZ Company and they offer you a store credit card at 17% interest. They will give you a 10% discount if you sign up for them right there. They will charge the full amount then give you the discount and save you $10 immediately. You do so and feel good about saving $10 on your purchase.  Now, you get the first bill and you are charged $1.27 in interest charges. If you pay it off, then you only have your credit scores hit 7 different ways to deal with. However, if you don’t have the cash, then you pay the minimum and your savings from the sale are reduced to $8.73.  If you are late, then there is a $39 fee attached and your interest rate goes to 23%, or 29% or 33% making things even worse.

We all think that it won’t happen to us, but these are uncertain times and keeping our credit scores clean and in the mid 700’s is like a financial insurance policy.  You may need it when you least suspect it.