Did you know that closing your credit card account affects your credit score? Your credit score will go down because you closed the account!  It’s  True!  I know it’s crazy but let me explain why; this is because it reduces the amount of available credit that you have which can reflect to a certain degree negatively on your ability to obtain credit from a financial institution.

Here is an example: let’s say that you have seven maxed out cards and one paid off card.  You decide to close the account that is paid off; this in turn affects your credit score because now all that your credit history repair services shows is that you have used up all of your available credit.  This in effect is why this can become a problem.

This tells the scoring models that you are a credit risk because none of your accounts are open and paid off but perhaps more importantly it reduces the overall amount of credit available to you which suggests that you are over extended.

There you have it…you get dinged for not having enough credit and for having too much!

As far as credit scores are concerned, if your balance is paid off then you should keep the credit card open because it improves your credit score. Even as it lies dormant for a couple of years it won’t hurt you. By closing the account you increase the difference between your card balances and your available credit.

If you have a significant amount of credit card debt then you should keep the paid off accounts open until you can pay off the majority of your open debts. If you want to avoid charging those cards then you should cut those credit cards in half and keep them so that you have the account numbers and put in a safe secure place, like a safe deposit box.

The bottom line…especially in today’s economic climate, think carefully before making any decision that could affect your ability to borrow in the future.

Be Bold!
Herschel

There are many opportunities to start establishing credit for you. Some people have no problem applying for a credit card or signature loan from the beginning. Let’s establish why and what you can do to get yourself in that position.

Someone who has a steady job and worked there for a long time has established a history of stability. They aren’t jumping around with different jobs and show that they are valued as an employee.

Someone who has only one residence on their credit file also shows stability and has established that they are not flighty or other serious problem with staying stable in one location. These points are well considered when applying for credit of any kind.

I have also established that living in a particular area has an effect on credit score and whether you can get a loan simply because of where you live. It is not pronounced, but could become a big factor in the future. The factors involved are if you live in a rough section of town or if you live in an affluent section of town. The credit bureaus my credit repair collection agency credit are gathering enough data now to be able to determine enough fact to consider this in the now or in the near future.

If you have recently come out of bankruptcy, you’ll find your credit score could no doubt use a quick boost. Getting your financial picture back in order once you have had a bankruptcy discharge can be a tricky task – but nevertheless, it can be done. Following these quick tips can get your score elevated to the point that you qualify for great loans and lines of credit offered at substantially reduced interest rates in a relatively short time.

Begin Adding Points Immediately

You can begin adding points to your credit score almost immediately upon having your bankruptcy discharged by taking on small and manageable amounts of credit. Before doing so, however, you should check your newly updated credit report. Since there are three major credit reporting bureaus operating in the country, you should retrieve your credit report from all three credit bureaus to determine if the accounts that you included in your bankruptcy proceedings have been noted as such. In addition, you’ll want to get your FICO credit scores to know your starting point.

Sometimes, a creditor will fail to report the change from collections to discharged in bankruptcy, and the item will remain on your credit report – making your credit score dip even lower. Contact the credit bureau and disputing these items that is holding the report immediately upon recognizing this error to have it corrected is a prudent start. .

The Most Important Accounts You Can Open Now

Almost all creditor applications ask where you do your banking and while there are many different accounts that you might consider opening to add points to your damaged credit score. Perhaps the most important two are not accounts that extend credit, but rather just make you look like a more responsible person, and therefore, a more appealing borrower – a checking account and a savings account.

Secured Credit Cards Add Points Fast

You should open up a secured credit card account as soon as possible when your bankruptcy has cleared the courts. A secured credit card is just like a regular credit card in that it reports either monthly or quarterly to the credit bureaus – the difference is that you will place a deposit equal to the amount of credit that you wish to have extended on your behalf with the card issuer.

Maintaining a good payment history with your new secured credit card is one of the fastest ways to add valuable points to your credit score. You might consider opening more than one account to maximize the number of points you can add – just make sure each card is with a separate bank. You can open a secured credit card account with as little as three hundred dollars, which is a very small investment to reap such great benefits. No, a three hundred dollar line of credit is not where you want to end up but it is a great start to turning things around.

Unsecured credit cards

There are several institutions that will extend you a small line of credit shortly after a bankruptcy. The reason is that these banks believe, what is a better time than now to help a person out right after they have come out of a bankruptcy and had all or most of their debts wiped out. This means more disposable income and a greater chance of repayment in their eyes. These cards will typically be granted at $300 to $500 credit lines to start.

You can find some great deals on secured and unsecured credit cards online via the Internet. There are many lenders who specialize in these types of cards for borrowers who are in your same situation. The interest you pay will be higher than going to your local bank and getting their platinum gold plated credit card but the benefits you’ll gain by rebuilding your credit far outweigh the extra few dollars the interest may cost.

Sound charging practices though are required… but I guess that’s another day!

Herschel

When you’re looking for a new mortgage, many lenders evaluate your credit based on the “Three C’s.”

Credit

Is it likely that you will repay the loan?  Are your payments on time and up-to-date?  Are you financially stable and reliable? What are your credit scores?  Today’s marketplace, most conventional lenders require your scores to be in the 700+ range and most FHA loans a 620 score or higher.

Capacity
Are you able to pay the loan?  What kind of outstanding personal debt do you have?  Do you have enough earning power and net worth to repay a mortgage or home equity line of credit?

Collateral
Do you own something of value that can be promised to the lender if you don’t repay the loan?  If you have home equity loans for less than perfect credit collateral may assist your loan request.

There are a few more factors mortgage lenders look into when evaluating your capability of obtaining a loan.  To confirm your responsibility and stability they may examine:

• Your monthly income
• Occupation and length of time with employer (two or more years is ideal)
• Home ownership status and history
• How often you move or have moved; patterns of behavior and the timing of that behavior

And there are other examples such as, if you had a charge-off (when the creditor sells your debt to a collection agency) in your credit file from several years ago and you’ve been able to maintain your credit over the years, you will be judged differently from someone who recently had a charge-off.

But whatever the case, it’s imperative to get off on the right foot when rebuilding your credit.. It is important to establish good credit behavior as early as you can in order to build a solid credit reputation.

Essentially, credit bureaus will look for five main characteristics when determining how high your credit score will be.

In descending order, they are:

1. Past delinquency.  If you have failed to make payments in the past, lenders fear you will repeat that behavior based on your bad credit history.
2. How your credit has been used.  Have you maxed out or spent close to the limit on a credit card?  If so, then you may be considered a greater risk than someone who is more conservative with his or her credit line.  Do you pay off your bill every month or a keep a revolving balance?
3. How long you’ve established your credit history.  The scoring models can judge each individual separately.  Credit reporting agencies may take into account the duration of a person’s credit history.
4. Frequency of credit inquiries.  It is recommended that you check your credit once a year to see if you have a good or bad credit rating.  Creditors requesting reports several times in a short period may send a signal that you are applying for a lot of credit due to financial difficulties, or that you are taking on too much debt and overextending yourself.
5. Your credit variety.  It is best to have a mix of installment and revolving loans (e.g., auto, credit cards, retail, etc).  On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.

It is important to understand all the factors that determine if you have good or bad credit.  It is never too early to begin building a good credit history and avoid bad credit inconveniences in the lending process

Till next week…

Herschel