Credit Factor# 1

Category: Finance, Credit.

Do you know the main credit factors that affect your FICO credit score? Before discussing the Credit Scoring Factors, please keep one thing in mind: do not make any major changes to your credit before discussing it with your loan officer and chart the proper course.

If you don t know these nine key factors, you could be unintentionally damaging your credit score and chances at better financing terms. Many borrowers shoot themselves in the foot by doing something to their credit that could have been prevented. Maxing out your credit cards is credit score suicide. Credit Factor# 1. Your scores will suffer once your total balance is above 30% of your available credit line and really suffer once you are above 50% of the available credit. Credit Factor# 2.

To increase your scores quickly, pay down your credit cards immediately. Leaving a balance on your cards each month will harm your scores. Remember to allow time for the cards to report to the credit agencies when paying off cards. If you pay off your cards to zero each month, you will have a higher score. It often takes over 30 days to accurately update your balances and reflect in your scores. Do not try to do these things the day or week before you apply for a mortgage. Plan early.

Credit Factor# 3- THIS IS IMPORTANT. This is 100% wrong. Many people are falsely advised to close credit card accounts after they are paid off. You will damage your credit scores when you do this. More good accounts with zero balances will help your scores. Leave them open if they aren t bothering anyone.

When you close accounts, your pool of available credit shrinks, and you now have a higher ratio of used to unused credit( see# 1 above) . A perfect example is the practice of consolidating credit cards and closing the ones you just paid off. This makes you appear closer to" maxed out" than before, and your scores drop. When you close the other card accounts, your scores will drop significantly- as many as 100 points. Credit Factor# 4. Therefore, if you decide to consolidate debt to just one card, leave the other cards open with a zero balance. Home Equity Lines of Credit( HELOC) must be used wisely.

If you have a HELOC and use more than 30% to 50% of it, your scores will suffer, similar to credit card balances. A HELOC is just a big revolving line of credit secured by your home. A HELOC is not a problem, and in fact can be a very good thing, when it is not overly used. Credit Factor# 5. A large revolving account with no or little balance will help increase your scores. Be wary of lenders who won t report your credit or don t report it accurately.

This is not by intentionally reporting the wrong information, as this is illegal( sure, credit companies make honest mistakes, but this is not the issue here) . Some credit card companies do subtle things to actually sabotage your credit history. First, some credit card lenders do not report your credit history at all. By not sharing your credit history, they limit their competition from seeing your good history and making you a better offer. They are under no obligation to do so, as credit reporting is a voluntary practice. Second, some lenders report, and worse your current balance as your credit limit, making you always look maxed out. Credit Factor# 6.

This lowers your scores even with a perfect payment history. Excessive credit inquires will lower your scores. Do not allow potential lenders or brokers to run your credit until you have chosen who you want to work with. There is no exact formula for how much each inquiry will count, but it is safe to say that your scores will be negatively impacted. If you know your scores, there is no reason for a lender to run your credit while you are just shopping for the best program features. Credit Factor# 7. This is entirely under your control: if you give out your social security number, it is implied permission to run a credit report- so do not do it!

Installment accounts are treated differently than revolving accounts. This means not paying off your car loans or other installment loans early, unless there is an overriding reason to do so. In fact, it is actually to your benefit to keep installment accounts in good standing for as long as possible. This is somewhat opposite of how to deal with credit cards and other revolving debts. Pre- approved offers are not approved offers. Credit Factor# 8.

You may receive a ton of pre- approved credit offers in the mail. If the offer is asking you for a social security number, it is not an actual approval. This is just a marketing technique to get your to apply for credit. Credit Factor# 9. Lender narratives are things such as Charge Off, and Account Paid, Collection Account Less than Full Balance. Narratives on your credit report, either placed by you or by a lender, are a negative. These all indicate that something other than a perfect payment history has happened.

Credit reporting agencies allow you to place a consumer statement on your report, usually up to 100 words, to explain why something is the way it is on the report. If you pay your bills on time, there will never be a reason for a narrative from a lender. Do not do this. And, lenders don t read them. First, consumer statements are not in any way factored into your credit score. You can write excuses all day long, but no lenders take them into account when qualifying you for the loan. The best practice is to avoid any kind of statement or narrative being placed on your credit report.

Second, you can actually hurt your credit score by adding a statement that updates and verifies a negative.

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