Questions and Answers About Your Credit

Posted by FieldStone Homes on September 6, 2010

Credit Score Q & A

Question – One of my credit card companies just closed my account because it was “unused”. I seldom used the card but when I did, I always paid the balance in full when I received the statement. Since when is that such a bad thing?

Answer - The problem is with the credit card companies, not in your management of your debt. They are in the business of making money and using the card in the manner you did (which is the right way, by the way) was not generating them any money. But, you still posed some amount of risk, even if it was minimal. Assuming you have other open credit cards that have been open for some time and that you carry low balances and pay on time, I doubt that the closing of this card impacted your score by much, if at all.

Question – My credit is horrible! My highest score is only 520 and my lowest is 435. What if I just stop making payments on my mortgage and the bank forecloses? Can my scores go down even more?

Answer – Yes, your scores can decrease even more! The range for the FICO score is 300 to 850. At your current scores you will find it pretty much impossible to get approved for any type of credit. In fact, I would avoid even applying because you don’t want another inquiry on your report. Any new negative credit (like a foreclosure) will not only lower your scores but will also lengthen the life of your low scores.

Most negative items affect you for at least 7 years after it hits your credit report. Each time something negative is added, you start from scratch again with another 7 years on that account. Also, the scoring system severely penalizes you for recent negative items but over time they have less impact. It’s time to draw a line in the sand and don’t let that happen again. Concentrate on paying the debts you have on time and allow the old negatives to age out and eventually fall off. Bad credit doesn’t affect you forever so it’s time to look forward and start the long process to improvement.

Question - I am an authorized user on my mother’s credit card. She lost her job a few months ago and I just found out that the credit card is now in collections. Will that hurt my credit?

Answer – If the account is being reported on your credit report then, yes. However, as an authorized user, you have no responsibility to make the payment – you are simply authorized to use the card – so you can dispute the account with the credit bureaus and get the account removed from your credit report.

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Obviously your credit score would have a significant impact on your ability to purchase a new home in Utah. For more information about your ability to finance a new home call 888-986-9468.

Review 4 Items Before Buying New Home in Utah

Posted by Brenda on August 12, 2010

Are you ready to buy a home but not sure where to start? My suggestion is to get pre-qualified for a home loan before you start looking seriously. Why? Because you don’t want to fall in love with a home and find that you don’t qualify for that price home or, worse, that you don’t qualify at all.

You’ll want to work with a reputable lender, so ask friends and relatives for referrals. Meet with the lender in person at his office so you get a feel for the company and the loan officer. Ask lots of questions! This is a big purchase and you have every right to understand the process.

There are several pieces to the puzzle of getting a loan and there are many, many variables depending on the type of loan you are getting, your credit, down payment, interest rate, etc, but here are some of the basic requirements for an FHA loan as of this writing:

Income: Generally (this varies) you can use about 43% of your total gross allowable income for your house payment (including taxes, insurance and mortgage insurance) AND all of your other monthly contracted debts (typically those showing on your credit report).

Down Payment: You will need at least 3.5% of the sales price of the home for your down payment for an FHA loan. There are very few 100% programs available but if you are a veteran, be sure to tell your lender – VA loans are a great option!

Credit Scores: At this time most investors are requiring a 620 score or higher. You will generally have one score from each of the three credit bureaus and they will use the MID score for ALL parties that will be on the loan. Oftentimes, just lowering your credit card balances to 30% or less of the limit will increase your scores but remember that closing credit cards can actually cause your scores to go down. Read more about the importance of credit scores when buying a new home.

Credit Content: Lenders also have guidelines on what appears on your credit report. For instance, if you’ve had a Chapter 7 Bankruptcy in the past, you will have to wait at least 2 years from the date of discharge even if your scores are high enough. You will also have had to re-establish good credit to show your financial situation is now stable. Judgments must be paid so they don’t affect the title to the property. If you are behind in child support, that will have to be brought current. If there are collection accounts on your credit report, you MAY be asked to pay those at closing. (Note: if you are planning on purchasing in the near future, DON’T pay collections until closing because that often LOWERS your credit score).

Overall, realize that the loan process is complicated but if you are working with a good lender, you are in good hands and you will soon know the joy of moving into your new home in Utah!

Importance of Credit Scores

Posted by Brenda on June 29, 2010

Hi! Brenda here with some information you may find useful regarding your credit scores.

Have you noticed that your credit report has become more and more important to the quality of your life than ever before? It’s used not only for purchasing a new home in Utah, car or getting a credit card but also for car insurance, to rent a home or apartment and for jobs and promotions.

You can save a lot of money in interest rates alone with a great credit score. Didn’t ever have training on the credit scoring system? Join the club! It’s only been in the last few years that we’ve been given any information on how the system works. Here are some tips on what to do and what not to do to improve your scores:

Credit Do’s

DO get a copy of your credit report and go through it line by line to look for errors. Be sure to also look at your personal information for mistakes.
DO stay current on all your existing accounts. Being even 30 days delinquent on one account can drop your score dramatically.
DO pay existing credit card balances to 30% or less of the credit limit. The unused available credit signals the scoring system that you are not living on credit and therefore your score should improve.
DO go to optoutprescreen.com (or call 1-888-567-8688) to opt out from receiving marketing offers for new credit. Typically the type of credit offered is of low quality and it’s good to remove the temptation.

Credit Don’ts

DON’T pay off any collection accounts or charge offs while attempting to get a loan. Due to flaws in the system, paying an old collection account will generally lower your credit score.
DON’T close credit card accounts. If you close a credit card account, it will appear to the scoring system that your limit to balance ratio has gone up and your scores may drop.
DON’T consolidate your debt onto 1 or 2 cards. Although it may seem like a smart thing to do, it appears that you are maxed out on those cards and will lower your scores.
DON’T apply for new credit unless necessary. Each time a potential creditor pulls your credit, you may lose points from your credit score – 2 to 50 points, depending on all the other elements of your report.

Brenda is a Personal Credit and Financing Advisor for Fieldstone Homes.