Real Estate Corner…

      Q.    We want to purchase a home but fear that our poor credit will prevent us from getting financing.  How can we repair our credit?

A.     Initially, you need to obtain a copy of your credit report and contact your creditors.  You will need to explain your current situation and offer to pay a percentage of your outstanding bill. 

Often creditors will settle for 30-40 percent of the total bill.  Once you have made your partial settlement payment, get them to issue you a signed settlement letter.  Copies of these letters will need to be sent to all of the credit bureaus (Equifax, Trans Union, and Experian/TRW).  In the eyes of a lender, this is a better method of rectifying your credit than setting up a payment plan though a consumer counseling service.  By resolving your own credit problems using the partial payment approach, it demonstrates to lenders your ability to be a responsible credit user.  In addition to avoiding the consumer counseling services, you should also avoid filing bankruptcy if at all possible.  This act will stay on your credit for a period of 10 years.  One of the only ways to redeem yourself in the eyes of a lender after filing bankruptcy is to get secured credit cards.  These are prepaid credit accounts that allow you to demonstrate your ability to spend wisely.

When looking for a mortgage after credit problems, look to mortgage brokers.  They are often able to offer you greater options than mainstream lenders.  Just because you have credit issues, don’t expect that you will be stuck with higher interest rates.  Some lenders can offer you great options.  Once you have begun to repair your credit history, it is imperative that you make payments on time.  Lenders who give you a second chance will not be a lenient with borrowers who have a history of credit problems.  It becomes your responsibility to prove to the lenders that you are capable of controlling your credit future.

If you are thinking of selling or buying soon, and require competent and caring representation,

feel free to call me at 405-820-1740 or email me at: rhonda@rhondasrealestate.com.

The Complete Home Buyers Handbook

Insider's Guide to Saving Money &
Eliminating Risks When Buying Your First Home!

Chapter 5 - Financing Options

Financing your first home can be the most frustrating part of the home buying process. This is the time when you figure out how to pay for the home. Most people have to take out a mortgage loan in order to afford the price. Which mortgage loans are right for you? How much of a down payment will be necessary? What is escrow?

You will have many questions about financing your first home. By knowing the facts, paying attention to interest rates, and looking into all of your mortgage options, you will be able to choose repayment terms that will fit your current income and allow you to safely make those monthly payments.

Types Of Home Loans

Deciding which home loan is the right one for you will depend on what you qualify for and what your lender is willing to give you. There are a few types of mortgage loans, including:

• Fixed rate mortgage loans
• Adjustable rate mortgage loans
• Balloon mortgages, and
• Jumbo loans

You should be familiar with these loans so that you will be able to make an informed decision when it comes to financing your new home.

 

Fixed Rate Mortgage Loans

For first time home buyers who are on a strict budget, choosing a fixed rate mortgage may be the loan for you. Your monthly payment will never change for the life of the loan because you will lock into the interest rate given at the time the loan was processed. You can take out loans that range from ten to thirty years.

There are many advantages to taking out mortgage loans that have fixed rates. You will be able to create a monthly budget for yourself, you will never be surprised by the amount you will have to pay each month, and you will be able to lock into a low interest rate.

The disadvantages may not mean much to you now, but as your family or your income grows, you may want to refinance and pay less each month so that you will be able to afford renovations, vacations, and other luxuries.

Since your mortgage is fixed, if interest rates drop, you will be trapped paying a higher rate. While you can refinance your mortgage, you will have to wait a certain amount of time, and even then there may be complications.

For those who have limited income, who have lower credit scores, or those who want the security of paying the same amount each month, then a fixed rate mortgage is the loan for you.

Adjustable Rate Mortgage Loans

If you expect to make more money in the next few years, and want to buy a bigger home, you may be interested in an adjustable rate mortgage. The major difference between an adjustable rate mortgage and a fixed rate mortgage is that the interest rate will vary year to year in an adjustable rate mortgage.

While the interest will be capped, you will still be paying more for each year that you own the home unless interest rates drop over an extended period of time. Most adjustable rate mortgages cannot be raised more than 2 interest points per year, and up to 7 points for the life of the loan.

These loans are good for those who want a larger home and who expect to increase their earning each year to afford the increase. If you are in a position to take out an adjustable rate mortgage, you will be able to lock into a fixed rate that may be lower than your original rate.

This is the main advantage of these loans. Most lenders will only give you two years to lock into a rate or the loan will remain adjustable for the life of the loan.

Balloons Mortgages

If you are only planning on living in your first home for a few years (usually five to seven), you should look into a balloon mortgage. These mortgages require that you pay them off in five to seven years. They have a lower interest rate that is fixed.

If after the term of the mortgage has passed and you want to remain in the home, you will have to refinance and choose a fixed rate or adjustable mortgage to pay off the existing mortgage, as balloon mortgages cannot be renewed.

Only consider this mortgage if you are planning on moving after a certain amount of time or if you think you can pay the mortgage off in that amount of time.

Jumbo Loans

Most first time home buyers will not need to take out a jumbo loan unless they are buying a very large home. These loans are valued over $275,000 and are used to purchase land and a home. More collateral will be needed in order to qualify for one of these loans. The interest rates are comparable to fixed and adjustable rate mortgages, and have the same payment terms.

Now that you know about the types of mortgages that are available, you should be thinking about which lender to use. With so many lenders out there, it may be difficult to sort through all of them and find the right one. Doing a little homework will help you get the lowest interest rate possible.

Where To Find A Lender

These days there are many places to find a mortgage lender, such as:
 

• Newspaper advertisements
• Television advertisements
• Family or friends
• Your Current lender
• Your Current bank, or
• Online
• YOUR TRUSTED REALTOR!

As you can see, finding a lender should not be too difficult. You may have to contact several lenders before you find a lender that will give you a loan that meets your needs. When you apply for a home mortgage loan, the lender will check the following:

• Your credit score
• Your credit history
• Your current income
• Income of co-signer
• References (professional and personal)
• Current interest rates based on the amount you are asking for
• Status of other loans you may have
• Number of years you have been eligible to work, and
• Number of years you have had credit

There are many factors that will go into your approval or denial of a home loan. You will have to be patient. You should contact a few lenders to see which ones will give you the best deal. Once the offers have been received, you will have to make some important decisions.

You should feel free to contact your lender at any time during the home buying process with questions and concerns you may have. Other important information the lender will need before granting you a loan include:

• The home inspection report
• The termite inspection report, and
• The home appraisal

These reports are very important to a lender because they will tell the lender how much the home is actually worth and the types of damage that have lowered the overall value of the property.

Lenders expect homeowners to remain in the home for at least five years. This will allow them to make a profit on the money they have loaned you. It is not worth it to them if you have to sell the home shortly after buying it because there is too much damage and you can no longer live there.

Applying For A Home Loan

When applying for a home loan, you will have to bring the information listed above to the lenders office, or if applying online, supply copies that are faxed to the lender. You will be asked additional questions that will help lenders determine if you are able to pay the loan back on time. These questions include:

• Number of years renting a home or apartment
• Late payments on credit cards and other loans
• Active loans (such as student loans or car loans)
• Number of years at your current job
• Additional income
• Amount of the loan and number of years to pay it back
• Number of years living in an area
• Dependants that are living at your home
• Tax returns and bank statements

Applying for a loan can take a week or more. This is because background checks, credit checks, and references must be checked first before the loan will be processed.

In the meantime, you should be concentrating on gathering your paperwork, calling friends and family that you want to use as references, and sorting through your papers in case you cannot find everything the lender requests.

If you don't have your back tax returns, you can contact the IRS and request them by year. Many times, lenders will need to see returns from at least three years ago. Bank statements and bill statements from the past year should be enough to secure a loan.
 

If you are turned down for a home loan, you will be notified as to the reasons why. This can be devastating, but you should find other lenders and try to apply again. If you have poor credit, you may need to go through a lender that specializes in granting loans to those with poor credit. You may have to pay a higher interest rate, but at least you will be granted a loan.

Reasons for possible denial include:

• Poor credit or not enough credit
• Length of time at your job is too short
• Income level for the amount of loan requested
• Loan default
• Failure to pay rent or other bills, or
• Too much credit

Applying for a home loan can be stressful, but if you have good credit, steady employment, and enough income, you should have little trouble qualifying for a loan.

What Not To Do When Applying For A Home Loan

There are a few things you should not do after applying for a home loan:

• Buy a new car
• Begin a new job
• Buy new furniture and other large items using your credit cards
• Apply for a credit card, or
• Default on student loans or other loans

All of these actions will cause your credit score to change which will give lenders an inaccurate view of your spending habits and your overall credit score. If you take a job that pays less than you noted on your home loan application, your lender may not agree to grant you the loan.

If possible, do not begin a new job until you have moved into your home. Try not to spend money on credit cards. Buy furniture and other items using cash, or wait until you have signed the final contract and are a homeowner.

Increase Your Chances For Approval

There are a few ways to increase your chances for loan approval that will also help you determine what you will be able to afford each month:

• Pre-approval

Many experts agree that applying for a loan before you find a home and being pre-approved will help you create a budget, buy a home that is in your price range, and help lenders make their decisions faster.

 

• Ask for only the amount you will need

One way to increase your chances for a home loan is to not ask for more than you will qualify for. This means you will have to look at your income level, the amount of debt you have, and the expected monthly mortgage payment. You should also factor in cost of living expenses, because your lender will. Apply for the amount you will need and nothing more.

• Pay off credit cards

If you are thinking about buying a home in the next few years, you should prepare by paying off those credit cards and only using them for emergencies. Do not cancel your existing cards since this may actually lower your credit score. By showing you have a zero balance on your credit cards, you will be showing lenders that you know how to use credit wisely and you have been paying your cards off on time.

• Always pay bills on time

This includes your electric bill, rent, student loans, and other bills that you may have to pay each month. By creating a track record that can be traced, you will be showing lenders that you are a responsible person who deserves to have a home loan.

How Home Appraisals Can Affect Your Home Loan

Unfortunately, a home appraisal can affect the status of your loan. If the home appraisal comes under the selling price of the home, most lenders will not grant the loan. This can be heartbreaking, but there are a few solutions that may work depending on the rules of the lender. The following options are available:

The Homeowner Reduces The Selling Price

Depending on the appraised value in comparison to the asking price, some homeowners will be willing to lower the price of the home if they need to sell quickly.

You should not count on this happening since many homeowners want to receive the price they are asking for. You may have no choice but to find another home.

A Higher Down Payment

Some lenders will grant you the loan if you agree to pay a larger down payment on the home and assume the financial risk. This is only an option if you can afford to pay a larger down payment. Do not risk your financial security in these cases; it is just not worth it.

Dispute The Appraisal

You can send a letter to your lender disputing the appraisal or have another appraiser determine the value of the home. You will have to pay for this second appraisal, which may or may not yield the same results. There is no guarantee that your lender will accept the second appraisal.

Find Another Lender

This is a last resort move because it will postpone the closing for another month or so and there no guarantee that the lender will accept the appraisal.

Since home appraisals are required by most lenders, you should find out during the loan application process the policies that the lender has when dealing with appraisals. If your lender will not accept a lower selling price, you putting a larger down payment, or other solutions to a low appraisal, you should consider finding another lender just in case there are any problems down the road.

Home appraisals are based on the current value of homes in the neighborhood, homes that are comparable in size, the housing market, and the age of the home. While you can expect to hear different numbers from different appraisers, you will see that these numbers will usually not be too far off.

The only real benefit of a low home appraisal is that it will tell the homeowners to list the home for less money so that they will be able to sell it. In the meantime, you will have to find another home.

How Home Inspections Can Affect Your Home Loan

While a poor home inspection will usually not deter a lender from granting a home loan, you should be aware that some lenders will not grant a loan if there is termite damage or structural damage to the home due to water or age.

This will also lower the overall appraisal of the home, which could be another issue that lenders may have when deciding to approve a home loan.

If the home inspection is not favorable, ask your lender what will need to be done in order to rectify the problem. Many times removing the termites and correcting the water damage is all that will be needed. Many times homeowners will foot the bill for these types of repairs.

Additional Fees For Home Loans

You may notice that you will have to pay small fees throughout your home buying experience. It seems that every piece of paper you sign, file, or request will cost you some money. Here is a list of fees that you may be charged:

• Credit report fee
• Loan discount fee
• Lender’s inspection fee
• Appraisal fee
• Loan origination fee
• Mortgage insurance application fee
• Assumption fee
• Hazard insurance
• Title search, and
• Title insurance

These fees can add up, so you will want to be prepared and have a little extra in savings for when these fees come up. Some of these fees can be put off until the closing, but you should be planning for them in advance.

Escrow And Other Loans Terms

As you are going through the home loan process, you will run across a few terms that you will not understand. You should ask your lender to explain these terms so that you will fully understand the type of loan you are applying for, the lenders policies, and other information that will be important throughout the life of the loan. Here are some common terms you may encounter:

• Escrow

While this term can mean different things in different situations, you will see it often when closing on a home. If you place a down payment on a home, it will be in escrow until all the paperwork has been signed. The money is held by a neutral third party, such as another bank or escrow service, and will be distributed once the deal is over. You can ask your real estate agent about escrow services in your area.

• Mortgage

Even though you have heard of a mortgage before, you probably thought of it as the home loan you will be paying once you move into your new home. Technically, a mortgage is a lien on your home created by your lender. If you cannot make payments on your home, the lender will have the right to sell the property in order to gain the money that they have lost.

• Foreclosure

This is a term that refers to homes whose owners could not make payments each month. Once a lender has decided to sell the home, it will be in foreclosure. You should find out ways to work with your lender in case you miss a mortgage payment at any time. Having this knowledge in advance will make financial emergencies easier to deal with.

• Mortgage Broker

A mortgage broker is a person who does not work for a bank, but rather works on commission to match homebuyers with many lenders that may not be in your area. If you have poor credit, you may want to secure a home loan through a mortgage broker because you will have a better chance than going through a bank that only has one lender to choose from – themselves.

• Points  

This refers to the interest rate on your loan. If you choose an adjustable rate loan, for example, your points may be capped each year so that they cannot exceed a certain number.

• Down Payment

A down payment is helpful in several ways. It will lower the amount of money you will need for a home loan, it will allow lenders to see that you are responsible for paying off a mortgage, and it will move the home buying process faster. Most first time homeowners will put down no more than 20% for a down payment.

You do not want to overextend yourself by putting a huge down payment on a home because you may not have enough money to pay your mortgage, afford new furniture, or make home repairs.

• Debt to Income Ratio

This is one way that lenders will sue to determine if you can afford your monthly mortgage payments on your current income. The lender will subtract all your reoccurring debt to determine how much is left for a mortgage payment.

This is why not buying a car or spending money on your credit cards is so important when buying a home. The less debt you have will mean more available money for your mortgage payment.

• Private Mortgage Insurance

If you cannot afford to put down more than 5% on a home, you may not be approved for a loan. But if you purchase private mortgage insurance, your lender may agree to give you the loan. This extra insurance will protect the lender in case you default on the loan by paying them at least 15% of the total loan value. This will cost you a little extra each month, but it may be worth it.

• Credit Report

Before you apply for a home loan, you should obtain copies of your credit report so that you can check for errors; see how much money you owe on credit cards and loans, and to see what your credit score is. This is another way that lenders will determine if you will receive a loan.

There are three credit reports that you should obtain, because you will not know which one the lender will base their decisions on.

  

Next:   Chapter 6 - Making An Offer!

Decrease Debt - Improve Income

In order to start saving more and increasing your wealth, you must first begin to pay off the debts you have incurred that are inhibiting your advancement.  Many people have made the mistake of trying to tackle all their debt at once, which quickly leads to discouragement.  And here’s why.

There is nothing motivating about taking huge strides to pay off debt, but never fully realize the impact that it’s having on your bottom line.  If you stash away a few extra dollars towards each debt you have incurred without really keeping track of your progress or celebrating the little victories, you will very quickly experience burnout.

Therefore, your best bet is to first sit down and take the time to list out all of your current debts from credit cards to car loans.  Record the total debt amount along with the current minimum monthly payment on each account.

Next, choose the lowest debt and start to pay a little extra towards this one debt while paying the minimums on the others.  Choose an amount that will stretch you but is still within your means.  Once this debt has been paid off, you can then move on to your next lowest amount and apply the extra payment plus the monthly minimum of your old debt.

Continue this process until all your debts have been paid.  Be sure to celebrate along the way and keep track of your progress.  Over time you can then begin to apply your old debt payments towards a savings/investment account of your choice.

While you are paying off your debts and long after, there are various steps you can take to help increase your overall income while decreasing your expenses.  Essentially, each of the following ideas will require your commitment and discipline to follow through, but turning these ideas into habits can make all the difference.

First, by simply decreasing your spending on discretionary items, you can begin to better manage where your current income is going.  Many people fall into the trap of spending more as they make more, such as finally purchasing that big screen television, making upgrades to the house, taking the family on that 5 star cruise, etc.  Though there is nothing wrong with any of these purchases, we must learn to practice delayed gratification until the timing is right.  The average person typically makes a lot more than they think.

Next, you can take on a part time or second job, even if it isn’t that most ideal position.  Although this can be painful at first, building this discipline can be extremely rewarding and helpful when trying to pay off debts.  Additionally, you can begin to sell items within your household on Craigslist, Ebay, consignment shop or yard sales to bring in some extra cash.   Maybe consider starting a side business with a hobby or trade that you are passionate about.  Try freelancing, mowing lawns, or tutoring kids. 

Finally, you can either get a brand new job or stay in your current position and go the extra mile if you feel there is opportunity for advancement.  In the next post, we will cover some practical steps you can take to increase your income at your current position.  Stay tuned!

3 Steps to Remove Negative Remarks.

1.       Whenever a collection account is added to your report, this history can remain on your report for up to 7 years even after you pay off the debt!   Therefore, try to negotiate with the lender before making your payments in order to have these removed.

2.       It is almost inevitable that your report will contain inaccurate or outdated information at some point.  This can occur for several reasons and sometimes you may even find delinquent payments that aren’t yours!  Be sure to get these records wiped off and dispute any information that should not be on your report.

3.       Wipe out any negative narratives.  These are the comments that lenders will add to your report on things such as charge-offs, bankruptcies, settlements, etc.  Try contacting each lender and requesting that these comments be removed.

5 Steps to Using Your Credit Card Wisely

1.       Do not max out your credit cards every month.  This is a red flag for lenders.  In fact, it is good practice to use no more than 30% of your allotted credit limit.

2.       Since 15% of your score is based on the age of your credit history, it is important to not close out your most seasoned accounts.  In fact, it is better to leave an account open and not use it then to cancel it.

3.       When possible, pay off your full balance on the credit card each month, or as close to zero as you can.  This will help you to have a better score and to stay in control.  By building this discipline you will avoid falling deeper into debt as well.

4.       Increase your credit limit and you will also improve your debt to credit ratio.  This in turn will improve your score, but only take on what you can handle.  The last thing you want is to obtain high credit limits and then max out your cards.  

5.       Try to open at least an account or two with major carriers such as Visa, MasterCard, etc.  You will be perceived  as a lower credit risk.

Fuzzy Credit Scores - Do you know your numbers?

In order to build and maintain a healthy credit score, it pays to know exactly what it is. Scores can range anywhere from 300-850. The higher the score the better, and each bureau will fluctuate somewhat based on their own unique formulas.  Contrary to what you may hear, you do NOT have to pay for these reports.

If you have not taken the time to review your credit report lately, you can run a free search at http://www.annualcreditreport.com.  You have the choice of pulling reports from all 3 bureaus at once, or you can choose to do one at a time throughout the year (i.e. on a quarterly basis).  Each entity (Experian, Equifax, and Transunion) is required to give you one free report each year. 

Did you know it's estimated that 70% or more of reports indicate some type of error?  So, it's highly likely that you will have something that must be disputed within your lifetime. Be sure to stay on top of this and dispute any incorrect entries as well, because it can affect you and your overall score greatly.

Before you read on...take that all important step & check your credit!

The next most important step you can take to achieve a healthier credit score is to STAY CURRENT!  Whenever a payment is more than 30 days late, you run the risk of negatively impacting your score. Your credit history makes up about 35% of your overall score, so it's vital that you make every effort to pay your bills on time.

Also, recent delinquencies will have a greater impact on your history than one or two isolated occurrences which happened over two years ago.  Your best plan of action is to budget your finances in order to create a payment plan to set aside necessary finances to pay your bills each and every month.

As long as you are paying at least the minimum amount each and every month, you will build the discipline necessary to stay current.  Be sure to also establish a system of automatic reminders to avoid forgetfulness. 

In order to build up a credit score, you must have an account that is at least 6 months old and has had updates within the last 6 months, with no active disputes.  Any negative history can remain on your reports for up to 7 years. 

However, if you went through Chapter 7 or 13 bankruptcies, records could remain on your report for as long as 10 years.  Also keep in mind that by signing on as an authorized user with another who has strong credit can also boost your score.

Next, “hard” inquiries will only negatively affect your record for 1 year, even though they may show up on your report for 2 years.  While this is the maximum amount of time that negative marks can remain on your report, creditors can wipe records clean at any time throughout this timeframe using their own discretion.

Next post: 5 Steps to Using Your Credit Card Wisely.

How to Better Manage Your Credit Score & Maintain Peace of Mind

 Credit Crusher:

Let’s face it.  We live in a credit crazed society.  The times have certainly changed, and more and more business is now being conducted with the simple swipe of a card.  In fact, a high percentage of the purchases we make on a daily basis are completed by using either credit or debit.  These cards are very convenient, easy to carry and are usually safer than walking around with a wad of cash in our wallets or purses. 

On the other hand, credit is a strong indicator of your spending habits, and can even make or break you when applying for loans or larger purchases.  Just like fire, if credit is not contained and channeled properly, it can easily consume your financial status and engulf everything in its path.  Therefore, we need to know what is healthy, how the bureaus evaluate our information, and what we can do to employ better habits in our own lives.


According to Creditcards.com, the average credit card debt per household with credit is a whopping $14,750!  This statistic is staggering evidence that we have allowed things to get out of control; thus, we must take action to improve our own situation.  Although this brief, yet seemingly long post is not intended to teach you how to pay off your outstanding debts, it will reveal the very behaviors you must begin to practice in order to maintain healthy credit and to keep your financial house in order. 

What Exactly is a Credit Score?

A credit score is simply the statistical likelihood of a person falling 90 days behind on a particular loan obligation within a 2 year period.  In fact, there is nearly a 99% higher chance of a person with a 620 or lower credit score to end up 90 days behind than for those who have an 800.  So your score is a very strong predictor of future outcomes. 

Now each credit bureau will use their own unique scoring system when evaluating your information, so that is why your score will fluctuate somewhat on every report.  These numbers will also differ depending on the type of debt your take on, such as mortgages, car loans and consumer debt.  The obvious reason for this is that each carries its own unique risk factors that must be considered.   

35% of your score is made up of your history of delinquencies (30 days plus), and another 30% is your revolving debt ratio.  Since this makes up 65% of the total pie, it is imperative that you pay your bills on time and keep down the total amount of debt you incur.  This will also help you to avoid the temptation of over borrowing when you don’t have the means to pay. 

It is noted that there should be some type of activity on your card at all times, so try paying the statement balance that is owed for the month while allowing the remaining amount to carry over to your next bill.  That way you never have a zero balance and can avoid heavy interest charges.  Also make a point of paying the debt before the statement date, so that it always reports the lower amount and boosts your score.   

Next, another 15% of your score is based on the age of your credit.  So, it's wise to always keep your oldest lines open.  The remaining 20% is split up among the combination of credit (i.e. mortgage, car, consumer, etc.) and hard inquiries.  Experts report that a healthy credit mix usually contains around 3-5 revolving accounts, 1-2 automobiles, 1-2 mortgages and 3-5 hard inquiries each year.

Now for clarification, there are both “hard” inquiries and “soft” inquiries.  Each “hard” inquiry reduces your score by almost 3% for the first 10 each year.  After that, the reduction rate goes slightly down.  “Soft” pulls would be anything that is considered to be personal or promotional in nature, such as your yearly account review.

Credit Report Resources

If you have not taken the time to review your credit report lately, you can run a free search at http://www.annualcreditreport.com.  You have the choice of pulling reports from all 3 bureaus at once, or you can choose to do one at a time throughout the year.  Each entity (Experian, Equifax, and Transunion) is required to give you one free report each year. 

Did you know it is estimated that 70% or more of reports indicate some type of error?  Therefore, it is highly likely that you will have something that must be disputed within your lifetime.  Be sure to stay on top of this, because it can affect you and your overall score greatly.

A second great resource for reporting is located at http://www.missingmoney.com.  Want to find out if you or another relative is entitled to receiving money?  It’s possible that there are lost assets out there that are rightfully yours but were in fact never paid.  This site offers a free and comprehensive search to help track down any lost assets that have accumulated over the years.

Myth Busters:

Below are five questions that involve common misconceptions about things that affect your credit score.  Take the time to answer each one.  I've provided the answers for you, so don’t try to peak just yet.  Let’s see how well you know your stuff!

1.  My credit score will improve if I close unused credit cards.

2.  FICO credit scores should fluctuate somewhat between all 3 credit bureaus.

 

3.  Once married, my credit report will be merged with my spouse’s.

4.  Your credit score is negatively affected every time you request a copy of your credit report.

5.  Annual household income is not a part of your FICO score.

Answer key: F, T, F, F, T

What Affects My Credit Score?

Now, in order to build up a credit score, you must have an account that is at least 6 months old and has had updates within the last 6 months, with no active disputes.  Any negative history can remain on your reports for up to 7 years. 

However, if you went through Chapter 7 or 13 bankruptcies, records could remain on your report for as long as 10 years.  Also keep in mind that by signing on as an authorized user with another who has strong credit will also boost your score.

Next, “hard” inquiries will only negatively affect your record for 1 year, even though they may show up on your report for 2 years.  While this is the maximum amount of time that negative marks can remain on your report, creditors can wipe records clean at any time throughout this timeframe using their own discretion.  

For scoring purposes, revolving credit will typically have more of an impact than installment accounts.  The only real exception for this are mortgages due to the size of the debt and the amount of time it takes to pay down. 

On the other hand, all secured and unsecured credit cards (including department store cards) score the same.  If you use any bank issued cards, it is possible that if you pay off the full amount on your card every month, they may choose to lower your maximum available credit over time.  Remember that a higher credit limit will help lower your debt ratio, but this shouldn’t be used as a way to drive yourself into further debt.

American Express (AE) functions as a revolving account, and actually reports the total amount owed on your card as being your credit limit.  Therefore, it is wise to have all AE debts paid off before running a credit check as it will be bypassed in the report.

I hope this information is both insightful and encouraging.  As always, I'm here to help you in any way I can.  If you need further assistance or guidance, feel free to contact me at any time.  It is my goal to provide you with the best service and contacts available so that you can improve your finances and future!

Email: rhonda@rhondasrealestate.com