Firms Prey On Credit Wary Consumers
HOME LOANS, TIPS FOR BUYERS
September 23rd, 2009
Consumer concerns surrounding tightening credit and identity theft has created a new industry targeting those worried about their credit ratings. These companies are selling credit tracking services for a monthly fee that really may be of little value. An article in The Wall Street Journal by personal finance columnist Karen Blumenthal points out that your credit score is only important if you are planning to borrow money now. Since getting credit to buy a home or car is a rare occurrence, it helps to monitor your credit once a year but paying for monthly tracking is likely a waste of money.
The article goes on to discuss why credit scores vary and debunks some myths including:
- My credit score is a good reflection of my financial smarts and good behavior-FALSE- Your credit score does not take into account your income, job history or assets which are very important in determining ability to repay a loan. Think of your credit score less like a report card and more like an SAT score that pegs the likelihood of “future credit success or failure” she explains.
- I pay my credit card off every month, so I must be a low credit risk-True, your credit habits are excellent but that does not translate to a better credit score. Credit bureaus have no idea if you pay off your bill monthly, only the balance owed on your most recent statement. Of greater importance is the amount of credit you have utilized relative to your total available credit. The article discussed advice from Steve Ely, president of personal information solutions for Equifax, which suggests you utilize no more than half your available credit- otherwise your credit score may be adversely impacted.
- Taking advantage of reward cards shouldn’t affect my creditworthiness-False-roughly 30% of your credit score is based on something referred to as “credit utilization”. This tracks how close you have come to your credit limit, how big your remaining balances are and the percentage of your total credit limit you have utilized. Using your card for everything that you would normally use a debit card, write a check or pay cash for can push your credit utilization higher resulting in a lower credit score. The advice provided recommends cutting back credit usage to get points several months before you plan a major purchase. This will improve your credit utilization numbers and your credit score.
- I was late on a payment but the debt is now paid off. So I’m good, right? False-Paying bills on time is the single most important factor that determines your credit score. One late payment will impact your credit for a year; even longer lates will hurt for 2-3 years; collections and bankruptcies will follow you for up to 7 years. In theory you are late if your payment is one day late. However, credit card companies know people move, take extended vacations or lose the bill. They don’t get upset if you’re less than 30 days late, usually. What should you do-grovel! Plead for leniency and if you’re a good customer, don’t be surprised if they waive the late fees and agree not to report the mistake to the credit bureaus. The silver lining is good credit history can follow you for decades. Even if you close the accounts, that credit will show for 10 years according to Barry Paperno, a FICO consumer-operations manager cited in the article.
- I haven’t gotten a loan in awhile, which should boost the “new credit” part of my score. Maybe-many businesses check your credit without your knowledge. Banks may pull your credit when you open a checking account and car dealers sometimes check your credit even if you haven’t applied for a loan. These “credit inquiries” can and do lower credit scores. The solution is to ask up front if a bank or business plans to check your credit score. Keep your shopping and associated inquiries confined to a few week period as these multiple inquires will not lower your score any more than a single inquiry. If businesses are looking at your credit over a period of months, expect your credit score to go lower for a year after inquiries stop. This does not apply to “soft inquiries” -defined as you checking your own score, a credit card company you have a card with checking on you or when credit card companies check your credit before offering you a “pre-approved card”.
- The score I pay for or get for free is my real score. Maybe not-This score may not be the same as the one a lender requests. Two of the three credit bureaus will sell you a score for about $16. You can get a free report once a year from all three bureaus which shows all the credit files they have for you. However, you won’t get your credit score unless you pay a fee. Go to www.annualcreditreprot.com to order your free report. My experience with lenders is they obtain credit scores/reports from all three credit bureaus.
- I should aspire to a score above 800. Bragging rights are about all you get with a credit score above 750 or so. Interest rates won’t get any cheaper for a car loan or mortgage according to the author. Those with credit scores in the 600’s or low 700’s should work to raise their score. Reaching the high 700’s will allow you some cushion, above that is meaningless!
For tips on raising your credit score, click here:http://movetoredding.com/2008/11/23/tips-to-pump-up-your-credit-score/
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
