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

Utility companies are getting into the fray of checking for credit worthy customers and tacking on an extra deposit or increased deposit because someone has a poor credit report. It seems it doesn’t take much anymore to cause a company to not trust you and tack on an extra fee, or higher interest rate, etc.

The solution here is to have a good credit score and keep it that way. However, there are those of you who started off on the wrong foot and need help to get things under control. By applying the secret tips in this book, you will realize a great increase in your credit score. However, managing your account correctly won’t get the negatives off your credit report and you will have to wait 7 years to 10 years to see them drop off. There is a better way. Go to the Credit Repair Attorneys Section and see what can be done to get your credit repaired.

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

New loans are a great way to establish credit when they are used correctly. However, when a new loan has a late on it, you will have several different problems associated with it. First of all, what are you doing with a new loan and then having a late?  Don’t, it costs you a ton of points.  Here’s why… It’s new (1), it has no history (2), it has a balance (3), it has a late (4), and you had an inquiry to get the new loan (5).

The solution is to not have a new loan with a late attached to it. It shows that you can’t control your finances and so it will hit you harder than if you had a late on an old established account.  It’s just good practice to always pay your bills on time as suggested in Secret # 1.  But now that you have a late on that new account, it’s best to delete the account or get the late repaired.  Refer to the Credit Repair Tip section to see what needs to be done to get negative items removed from your credit report.