Tips on Credit Reporting

Posted in Buying, Renting, Uncategorized on December 2, 2009 at 2:54 pm

TIPS:

Balances should be no more than 10% of limits. The higher the balance the lower the score reduces.

If balances are 90% of limits it could decrease the scores by 50-60 points.

If balances are over the limit (even by $1.00) it will decrease the scores from 70-100 points.

It is better to pay down the majority of accounts as low as possible, preferably below 10% of the limit, rather than reducing 1 large account substantially. Activity of Revolving credit accounts and it’s benefit. Revolving credit is anything you can pay the minimum and charge the maximum.

Make sure cards are used at least once every year for a period of 1-6 months. Inactivity of credit for a 6-12 month period reduces the credit scores. Paying your bills immediately (10-12 days early) will boost the scores within 6 months. (Applies to all credit.)

You must have at least a small balance on revolving credit to take part in this score boost. Do not pay the bill in full if you want the extra points. New late payments can be worse than a bankruptcy 3 years ago.

The score can decrease 70-100 points depending on your original score.

All negative information can be removed prior to the 7 year rule. As many varieties of open credit as possible will help your credit dramatically (do not exceed 30). Opening credit will hurt your credit for a year!

Revolving credit- credit cards, lines of credit, overdraft on a checking account, home equity loan.

Installment loans – student loans, car loans or leases, mortgages.

Seasoned credit (over 2 years old) is excellent for the scores. All types; Master, Visa, store cards, Diners, Amex, line of credit on a checking account, car loans, mortgages, overdraft.

The older the credit the better it is for the score.

Different Scoring Systems:

Not all scores are the same so it is important to know which score you are pulling.

Fico- score- Score used by Mortgage Banks. Fico stands for the Fair Isaac Company, which is a separate company from credit reporting agencies.

Plus score- is 40 points higher than Fico.

Vantage score- is a new score created by Experian. This score uses numerical and letter grades. About 200 points higher than Fico.

Some important facts to know:

Opening new credit and closing credit will hurt your credit for 1-2 years.

The more credit you have the higher your potential score can go unless it is over 30 accounts.

Having many mortgages will decrease the score even if they are on time or closed. New mortgages decrease the score 50-60 points for 5-6 months.