Credit scoring myth #1
and ways to help establish a good credit rating......
There is some confusion about what types of credit inquiries hurt your score and which don't. Applying for new credit is generally what hurts your score. Odering a copy of your own credit report or score does not. Those mass inquiries made by credit card lenders who are trying to decide whether to send you an offer for a pre-approved credit card, also aren't going to hurt unless you actually take them up on their offers.
If you want to minimize the damage from credit inquiries, make sure that when you shop for a mortgage, you do so in a fairly short period of time. The FICO score treats multiple inquiries in a 14 day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed.
For most people, one inquiry will generally knock no more than 5 points off a score (scores typically run from 350 to 850)
Establish a good credit rating and hold on to it. Here are some of the characteristics that will help you get a higher score. Establishing credit and monitoring your credit rating is one of the most imprtant financial tasks you face.
1. Pay your bills on time. Even paying a few days late puts you in a different category, even if you have a grace period.
2. Own two to four credit cards. Less is bad, so is more. Keep a checking and savings account, if you have neither you will lose points.
3. Keep your debt to income ratio at 20% BEFORE you consider a house payment (this includes any debts that report on your credit report)
4. Lenders also look at your spending behavior. How close are you to the limits on cards? Try to keep balances at or below 30% of credit limit. Do not have your credit limit reduced. The further away your balance is from your limit, the better
5. Credit scores are based on longevity. The longer you have an account with good pay history the better.
6. A mixture of accounts is good, say a revolving, an installment, a mortgage, a car
7. If you have student loans, put them in deferrment rather than forebearance.
8. If you have co-signed on a loan, you will have that payment calclulated in your approval unless you can provide solid documentation that the person you co-signed for is making the payments (generally cancelled checks)
9. Establish "non-traditional credit". Having a perfect 12 month payment history on utilities, cell phones and insurance can be beneficial on some loan approvals.
As always, please do not hesitate to call us with any questions.
Linda, Larry and EdieJo