Home purchase is another area where many people go and shop for a loan thinking that the inquiries won’t hurt them. Again, pull your own credit at www.MyFico.com, print it out and take it with you to shop for a loan. The lender will see everything he needs to see to make a preliminary decision before you decide to go with them and then they will need to pull your credit. They would need to do it anyway if you are going to use them as a lender, so it’s ok to do.

Having a mortgage on your credit report is a good thing and will boost your credit scores. Getting the loan down below the 80% debt to credit ratio is good and will help to boost your credit scores. Not having too many inquiries is a good thing and will keep your credit scores from dropping. Keep all these things in mind and go get the home of your dreams and live happily ever after.

NOTE – As a former loan officer, I had a couple come in after shopping for mortgage companies to get a loan for them. They had started loans with 4 other companies and finally came to us because they heard that we could do hard cases. Well, the couple had shopped so much that their credit scores explained had dropped below where they could get a loan from anybody because of inquiries. The drop in score was over 80 points. Another couple went online with one of those mortgage-shopping services. When all was said and done, their score dropped over 120 points just from going to one mortgage shopping service and having their credit pulled by 27 companies. Beware, do your own shopping with your own credit report with scores.

Auto purchasing has an interesting twist that needs to be discussed because of the nature of the business is sometimes questionable. You have heard of the “car salesman” that refers to dishonesty. Well, I have met some very honest and very honorable car salesmen and also some very dishonest salesmen. So, buyers beware. Let’s talk about how it relates to your equifax credit scores.

When going and buying a vehicle there are several mistakes buyers start out doing. They first go to one showroom and then another with salespeople hot on their tail to get them to qualify for a loan. So, they sit down with a salesman and the first thing he asks for is their social security number. The reason is he wants to find out what the buyer can qualify for. You can already see the problem. The salesman is going to pull their credit and see what their credit score is. This is just fine if this is the only place you look and the only place you purchase from, but most people go shopping and then you have a problem of multiple inquiries. This gets complicated right here because depending upon what scoring module the auto dealer uses to pull the credit, determines whether each credit pull is counted. Multiple inquiries can be very damaging to your credit score. The solution is to go to www.MyFico.com and pull your own credit, print it out and then go shopping. Ask the dealer to see what you can get with your score and find out pricing, rates, etc. before making a decision.

Another unique challenge with auto dealers is the fact that most do financing in house and actually make more money by financing you than by letting you get your own financing. Be forewarned… the auto dealer that offers credit-building financing is probably not helping you at all and is probably helping to further damage your credit. They will use a finance company that is a permanent damage on your credit reports whether you pay on time or keep your balances low just as long as you have the finance company on your credit reports. The reason is that finance companies are bad credit anytime you have them on your credit reports. The credit bureaus see them as companies that only deal with high-risk borrowers, have high interest rates and low qualification standards. Stay away from finance companies. (See secret # 62)

The solution is to go to your bank, credit union, etc, get your financing in place before you go shopping, negotiate a deal with the auto dealer then let them know that you already have your own financing. You will get a better deal and a lot more car for your money if you wait till the contract is signed before letting them know that you have your own financing.

The difference between loans that are open and loans that are open with balances is pretty obvious. You have a loan with or without a balance. The credit bureaus scoring modules look at number of open loans with no real consequence unless is too many or too few. Too many is about 20 open and too few is none. However, there is also a problem with having too many loans with balances and that number seems to be around 8. We see credit reports drop in scores and have reason codes that pertain to having too many accounts with balances right around that number.

The secret is to keep just enough loans with balances in a number to do the most good and stay away from having too many or too few.

I saw a well dressed lady the other day at the check out and opened a binder with pages and pages of credit cards instant approval experian for her to choose from. I was astounded at the number of credit cards that she had and wondered just what her credit score could be. She couldn’t have that many cards unless she had a pretty good score, so she would have to pay them off each month to keep from losing her credit and losing the opportunity to get more cards. But I have to wonder, why have so many cards and complicate your life with all those bills and trying to decide which card to use and the threat of losing all those cards is pretty scary. The solution would be to have 2 or 3 good cards with limits 2 times higher than you would ever need. I suggest between $40,000 and $50,000. But, remember to never go over the 45% of that limit so that your debt to credit ratio remains as low as possible, which keeps your credit scores high. (See secret # 17-21)

So, you have a brand new credit card and you are on top of the world. It’s time to go shopping! Well, have fun but remember that every dime you spend, has to be repaid. What is credit for anyway? If you have to pay the credit back, what is the cost of that credit? Hmmm…. Time to calculate costs.

Credit utilization is how much credit you are using against how much credit is available for you to use. Using too much of your available credit and you look like you NEED the credit. If you NEED the credit then you are high risk and your credit scores just dropped. If you don’t need it, then you don’t use a lot of your credit limits, you are low risk and your scores increase.

But credit utilization looks at all of the credit available to you across installment loans and revolving loans, across mortgage loans, student loans even if they are deferred, credit cards, personal loans, auto loans, dentist loans and finance company loans. You are going to get rid of the finance loans, right? Right now, right? Good, you are learning.

Ok, then it would be good to add up all of your credit limits and beginning balances to find out your 10000 credit limit from consumer first and add up all your credit balances on all your accounts. Now, divide your credit balance by your credit limits and you will have a ratio percent. This percent needs to be as low as possible, below 80% at the very least and below 14% to get the best score. Now, go get your loans paid down and remember… those who understand credit, earn it. Those who don’t, pay it.