by Carrie Benuska
The topic of credit scores is not a particularly “sexy” topic,and yet that three-digit number can either open doors to great opportunity orbar you from achieving your dreams. Similar to the grades that we received in school or our score on theSAT, the credit score rates our financial dependability to potential creditors.How credit scores are determined is a bit of a mystery, and we are warned tocheck our credit scores regularly to ensure that our identity has not beenstolen. We are also warned thatchecking our scores too often actually reduces our score. No wonder most of us just ignore thetopic and hope that everything is okay.
I recently had the opportunity to hear from Steve Kenilvort, LoanOfficer with First Capital Mortgage, about this important topic. First Capital has partnered withCertified Credit Reporting to bring additional information to consumers abouthow credit scores are determined as well as to give helpful tips for maximizingyour score. Kenilvort began thetalk by stressing the importance that good credit plays in getting a home loanand also minimizing the fees that go along with the loan process. Today more than ever, good credit isvital and can save you thousands of dollars in extra points. So, even though many of us would liketo put our heads in the sand about our credit score, it is time to bring thistopic into the light.
In our technology driven world, the process of checking yourcredit scores could not be easier. There are many on-line sites which allow you to check your credit fromthe comfort of your own home. Theclever advertising of “Free Credit Report.com” has brought a comical edge tothe importance of checking your credit, a topic which is not particularlyclever or comical. Their humoroussongs about having your credit ruined are catchy and recognizable to many. Other on-line sources are www.myfico.com
. It is true that checking your credittoo often can negatively affect your credit score. Each time you check your credit you get a penalty, but thereis no additional penalty once you get beyond two credit checks in a month. Kenilvort suggests checking you owncredit once a year to make sure that you understand what is on your report.
Credit cards are important to the establishment of credit but canalso lead to excessive debt and high monthly interest payments. From a positive standpoint, havingmultiple bank credit cards in your name gives a bump in credit score. Having two or four is good, butaccording to Kenilvort, three bank cards in your name is the ideal. He stressed that having one card for atleast 48 months is helpful, as well. Many of us will get new credit cards in the search for airline miles orother benefits, but it would be a mistake to cancel a long-standing credit cardin favor of this new card. Continually opening new credit card accounts is not the wisest moveeither. There is a nice pointincrease in your credit score when it has been at least 24 months since openinga bank card.
The most interesting fact that I learned about managing creditcards has to do with keeping track of your balance. Kenilvort claims that we should avoid getting our creditcards run up close to the limit. Your credit score will receive the most benefit if there is a gapbetween your balance and the limit. He said that when he is trying to help someone fix their credit, he willhave them pay their credit card bills down to a very low amount but abovezero. This gives his clients thebest bang for their buck.
Obviously, it is important to pay your bills on time. If you get to a point that a bill isover 30 days late, it will negatively affect your credit. The obvious bills to pay closeattention to are your mortgage, taxes, and credit card bills. The patient portion of medical bills isoften small in amount but can lead to credit problems. These bills often drag on for months asyour insurance company processes the claim. During the waiting process, it is easy to lose track of thebill. If it is sent tocollections, then it will negatively affect your credit.
On the far end of the spectrum, any form of debt settlement,short sale or foreclosure on a home, or bankruptcy will have a profound affectupon your credit score. If you arehaving trouble paying your mortgage and you owe more on it than it is worth,then a short sale is your best option. Even though a short sale will bring your credit score way down, anyfuture attempts to get a loan will be helped by the fact that you negotiatedwith the bank, rather than just walking away in foreclosure. Kenilvort said that bankruptcy shouldbe avoided at all costs and should only be considered if you have multiple debtproblems that cannot be resolved in any other manner. Bankruptcy will cause the largest possible hit to yourcredit.
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