Monday, July 12, 2010

Credit Bureaus ~ Equifax, Experian and Trans Union

Credit is a scary word for many folks.  Credit is something that is  relatively baffling to most.  Common sense is completely out the window when it comes to figuring out the process.  I will give you some tips occasionally to help you have a better understanding.

1. Did you know if you close accounts it could drop your credit score?  2. If you open accounts too close together it could drop your score?  3. If you charge all purchases on a credit card and pay it off monthly it could hurt your score?  I will answer these three questions in this post.

1.  If you close accounts it could drop your credit score...The credit bureau is looking at how much credit you have available to you as opposed to how much you have used.  In addition to how long you have had a credit line.  For Example:  You have a credit card that carries a $10,000.00 credit limit, you have had this since 1995.  You pay the card off and close the account.  Your credit score will probably drop because you have just lost $10k of available credit and closed an account you have had opened for 15 years.  The utilization of credit cards will pump your scores up faster than any other category because "YOU" control revolving accounts.

2.  If you open too many accounts close together it could drop your score...yes this is true.  When someone starts applying for credit in succession it sends a signal to the bureau there may be a problem.  For example:  Someone inquires about approval for a home purchase to see if they qualify, then they go to the car dealership and apply for credit to get a vehicle.  On the way home they stop by a department store and find a great sale and the store clerk asks if they would like to save 20% on their entire purchase.  These are three credit inquiries very close together and it makes creditors very nervous.   All of the sudden you trying to accumulate much debt on paper whether you buy anything or not.   These purchases or applications for credit need to be spread far apart.  If you are considering purchasing a home you should never make a large purchase before the home transaction.  Auto dealers may pull your credit multiple times which in itself  can make your score drop.  Beware around the holidays when everyone wants to save and are tempted to apply for every credit card out there, your scores WILL drop.

3.  Can my credit scores drop if I pay my card off every month...Yes they can.  If you have one credit card with a $10k credit limit and each month you charge all of your household expenses and then pay off at the end of the month, all the credit bureaus know is you are maxed out on your limit.  For Example  The creditor does not report to the bureaus you pay off each month they only show you pay on time.  While your credit standing with this company may be excellent it does not seem so with the bureaus.  Also, this will affect your debt to income ratio when applying for mortgage.  We must use your minimum monthly payment to qualify you.  There are a few ways to make this work to your favor  (a.)  If you normally charge $10k per month and your credit limit is $10k, ask your creditor to raise you credit limit to $20k, this at least keeps you at the 50% utilization.  If this is not an option  (b.) put your purchases on separate credit cards.  It is okay to use credit cards just keep the balance low as possible even if you plan to pay it off in the future remember they are looking at how much you have used as opposed to how much is available.

Please visit my website www.vshomeloans.com    I would love to help you with your residential financing needs. 

Valerie Springer     NMLS  198479