Wednesday, March 31, 2010

Your Credit Score - The Basics

These days more than ever your credit score is key to not only having access to better loan programs but the score will determine how much you pay in rate and fees. There have been many changes in recent years and Fannie and Freddie have instituted risk based pricing which may impact you if your score is below 740. So it pays to keep your score in good shape.

So how do you do that and what are some of the tricks that can help you maintain a good score?

Obvious things to avoid – these are delinquencies, bankruptcies and judgments to name a few. A single delinquent payment can cost you 50 to 70 points in your score. A delinquent payment doesn’t mean that you got your payment in after getting assessed a late charge. That is still late but it won’t appear on your credit report until you are over 30 days delinquent.

Bankruptcy will stay on your report for upwards of 10 years but the impact, or the damage to your score will fade over time. Typically you can get back into buying a home when your BK has been discharged for 3 or more years. Of course, the further in the past the BK, the better for your score and your chances of getting a loan.

Your score constantly changes – which is something few people realize and is a good thing. As all the companies that you do business with report to the credit bureaus, your score will move up and down. It is very dynamic. Knowing this helps you control your score to some extent. As an example, as delinquencies get older the score will go up. This will take time but other activities will have an immediate effect.

Card balances v. limit – here is where you have lots of control. If your current balances on your cards is more than 35% of the total available limit, it will degrade your score. The closer you get to having cards that are “maxed” the more your score will go down. The impact can be equal to a delinquency. So one trick is to keep your balances low, versus the available limit.

Don’t use just one card – if you let your other credit cards go dormant because you don’t use them, then they will drop out of the algorithms the credit bureaus use to calculate your score. You want them to be part of your financial picture and if you keep them active by buying a tank of gas or groceries now and again, they will show on your report as having low balances versus their limits and it will enhance your score. That way, you can make the cards you have work to improve your score.

Credit repair companies – are, in my opinion, a complete sham. Remember, I am expressing my “opinion” so here it is. Unless a damaging item appearing on your card is incorrect, or doesn’t belong to you, then your credit history is your own and nothing can change it. If you were actually late, or filed BK, then these are facts that no one can change. Look at this as an “It is what it is” situation.

The company you missed a payment to is not likely to alter the credit report to reflect you paid on time without a compelling reason. Call them and discuss it with them directly. If it was your first late, or you have been a loyal customer they may update the report for you. But if you have a bankruptcy, then don’t expect the court to send a false report to the credit bureaus for you.

About the only place these companies can actually help you is if there is erroneous data on your report. They can help you contact creditors and get corrections made. However, this is something you can do yourself at no charge. So, why pay someone else to help you?

Contact me – if you have any questions or want additional information, please don’t hesitate to contact me at (805) 237-8811 or email me at .

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