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Credit questions

 
 
Reply Sun 26 Apr, 2009 10:26 pm
It seems like such a simple topic, but I'm having a very difficult time getting straight answers. My wife and I are trying to buy our first house. Our biggest problem is not enough credit. Our scores were higher last year, but since then we have closed two large credit accounts (paid off her student loan and satisfied a margin account) and our credit took a hit.

Not only were those our only two credit lines, they are now closed, so banks don't like us. I have a few questions about it, but would like to hear any diatribes you might have Smile

- obviously, opening some lines of credit are going to help in the long run, but how long will it be before those new credit lines go from a bad mark to a good one?
- how do we use those credit lines? Do we just leave them alone, or do we charge a little on them and pay right away? Does the amount of money satisfied affect the rating, or do they just report that it has been satisfied even if the balance is zero?
- the margin account we had was a credit line based on securities values. Those securities have now been re-allocated and the account is at zero balance (with zero credit). I would like to close the account, but will that be a bad thing or a good thing?
- we have tried to get one line of credit and we were denied (which was a shock given our high 600's/low 700's rating). We're not happy about being denied obviously, but what are some good ways to get credit? Are there certain types of cards or credit lines that are more of a "sure thing?" Someone suggested that pre-paid credit cards show up as a credit line. Is that true?
- part of this process is for me to get a new job since I was "downsized." Most of the positions for which I apply (legal arena) require a background check which the contracts say might include a credit check. Will this type of inquiry have a negative impact on my credit?
- would a credit counseling agency be a way to get advice/action quickly? Any drawbacks to those services?

We've always been so careful and now its frustrating because we don't have ENOUGH credit even though we have NO debt. With the exception of having a margin account (which we didn't use) and her student loans, (which is now paid off) we have never borrowed money. We had the occasional credit card in college (because free Tshirts are cool), but never really used them, and that was 10 years ago.
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Type: Question • Score: 7 • Views: 2,576 • Replies: 15
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Robert Gentel
 
  1  
Reply Sun 26 Apr, 2009 10:50 pm
@curtis73,
I am no expert in this, so keep that in mind...

curtis73 wrote:
- obviously, opening some lines of credit are going to help in the long run, but how long will it be before those new credit lines go from a bad mark to a good one?


I believe the key turning point is when the average age of all credit accounts is more than 3 years.

Quote:
- how do we use those credit lines? Do we just leave them alone, or do we charge a little on them and pay right away? Does the amount of money satisfied affect the rating, or do they just report that it has been satisfied even if the balance is zero?


I'm not sure about your specific question (whether the credit line needs use to serve as a positive on your score), but for another reason it's good to use them. One key part of your credit rating is the ratio of your revolving credit (e.g. credit cards, not car payments or mortgages) debt to your credit limits and you will likely have to use the credit to get the limit raised.

So I guess what I'm saying is that even if it's not a factor directly to your credit score I do know that the credit card companies will internally rate you better with use history with them and this can be a key step towards getting better credit ratings.

Quote:
- the margin account we had was a credit line based on securities values. Those securities have now been re-allocated and the account is at zero balance (with zero credit). I would like to close the account, but will that be a bad thing or a good thing?


I have heard that closing credit lines can be a bad thing but I personally believe it's because of the impact it can have on the debt/credit ratio. As in if you have unused credit lines that you close then the amount of debt you have in relation to your available credit becomes less attractive.

Quote:
- we have tried to get one line of credit and we were denied (which was a shock given our high 600's/low 700's rating). We're not happy about being denied obviously, but what are some good ways to get credit? Are there certain types of cards or credit lines that are more of a "sure thing?" Someone suggested that pre-paid credit cards show up as a credit line. Is that true?


I know that some (secured credit cards that is, not debit cards) did when I researched it but I'd ask the issuer if it's the case.

Quote:
- part of this process is for me to get a new job since I was "downsized." Most of the positions for which I apply (legal arena) require a background check which the contracts say might include a credit check. Will this type of inquiry have a negative impact on my credit?


There are "soft" and "hard" credit checks, with only the "hard" ones being negative on your credit score. My understanding of what constitutes a "hard" check is one that is tied to an application for a line of credit. So an employer should not be able to impact your ratings unless they are also issuing you a loan.

Quote:
- would a credit counseling agency be a way to get advice/action quickly? Any drawbacks to those services?


My personal opinion is that this is way to simple to be paying for. Paying all your bills on time is about 1/3 of your rating. Having a low debt/credit ratio and an average age on your accounts of over 3 years is much of the rest. After that too many inquiries for new lines of credit, too many lines of credit and the rest can be problems, but honestly it sounds like you just need to get a couple of credit cards with high limits and low balances aged 3 years to be golden.

I have an upper 700's score last I checked, and what brought it there for me was when I brought down my debt (used to carry big credit card balances) and when my account age average crossed 3 years.

P.S the negative impact of a hard check fades after time so you might want to get the applications to your score-building credit lines out of the way sooner rather than later if time is a factor.
0 Replies
 
curtis73
 
  1  
Reply Sun 26 Apr, 2009 11:15 pm
Expert or not, thanks for the clear and quick response. Smile
0 Replies
 
hawkeye10
 
  1  
Reply Sun 26 Apr, 2009 11:27 pm
the FICO parameters are secret and ever changing, so fixing credit is not a science. There are general principles however. As you have now found out not using credit hurts your ability to get credit. Credit card other debts are worth more to you the longer you hold your accounts, pro's routinely say that one should never close out their oldest credit cards unless they can't get a decent rate out of the bank.

Re buying a house: It is only recently that banks have started to care again about the credit worthiness of those who want a mortgage, it is your bad luck to be trying now rather than a few years a go. I doubt that you can do much to fix your credit in the short term, that 3-5 years would be required. The solution might be to qualify as you are now, which would require upping your down payment to the 20% range.

I am not an expert, this is an important junction that you are at, you need to talk to an expert. And I don't mean on the internet.
babsatamelia
 
  1  
Reply Mon 27 Apr, 2009 12:31 am
i was just recently reading the way equifax, experian & transunion "grade" your credit (and it is unthinkably stupid) - it is not necessarily just based on how many credit/revolving accounts you have.If you have what THEY consider to be more than you ought, that's a mark against you too. But for someone like me, who paid off ALL credit cards and won't buy it unless I can afford it - my credit is on the poor to fair line. Not because it's so bad....just because I'm not using what they consider an adequate amount of credit line. Your LINE OF ACTION - by paying off debts should be a HUGE POSITIVE CREDIT SCORE. That is a responsible & mature move, given the current financial situation especially. You can best counter the TWO MARKS AGAINST YOU caused by the closing of 2 credit/revolving accounts by, as you suggested yourself, get a couple of small credit cards - don't use them for anything big, pay them off ea month so you don't pay any interest. The credit card companies don't like this, they want you deep in their pocket, so deep you will never get out; however it WILL SATISFY what's needed to keep YOUR CREDIT SCORE IN THE PINK!!
0 Replies
 
babsatamelia
 
  1  
Reply Mon 27 Apr, 2009 01:12 am
HERE'S A LITTLE TIDBIT I TOOK OFF MY MOST RECENT CREDIT CHECK UP = just for you, my dears.
Your credit scores are based on the information in your credit bureau reports. The majority of CreditXpert Credit Scores(tm) are between 350 and 850. The higher your credit scores, the better. With a higher credit score, you are more likely to be eligible for the best credit card and loan offers, including terms & conditions, such as interest, fees, and benefits. Keep in mind that when lenders evaluate an application, credit scores are not the only factor they use in making their decision. They usually ask for additional information (such as income and monthly
payments) to determine your ability to repay the loan.
ANALYSIS There are both positive and negative factors that influence your credit score.The MOST important factors of ea kind are listed below, in their order of importance. Remember,these factors vary in how strongly they impact your credit score. For example, if you have a very high credit score, the negative factors in your analysis are likely to have a small impact.The same is true for POSITIVE factors if you have a very low credit score.
EXPLANATION Positive factors influence your credit score. The most important factors are listed below, in their order of importance. Remember, these factors vary in how strongly they impact your credit score.Additional details are provided for some factors to help you better see how they relate to your credit accounts.
TOP FACTORS THAT WILL INCREASE YOUR CREDIT SCORE
#1 CREDIT ACCTS Have at least ONE revolving account!!! It raises your score. Having accounts listed in your credit reports is a positive factor because the payment history of these accounts shows lenders how well you pay your bills. Therefore, having too few accounts or too few open accounts may be considered bad. However, having too many accounts or adding new accts too fast may also be considered negative because lenders worry that you are overspending (beyond means), even if you have never been late with a paymt.
CLOSING ACCOUNTS WILL NOT IMPROVE THIS. Also, if you do not currently have credit, getting your first few credit cards may be difficult & involve high fees, high interest rates & low credit limits. Note that accounts from personal finance companies (which specialize in lending to people with credit problems) may be considered negative. IF You paid all of your open accounts on time (as of the last time each account was reported). This raises your score. Any history of late payments (including missed payments and derogatory payment statuses) is a negative factor. No reported history of payments on any account is also negative because lenders cannot tell whether you paid on time or were late. Some cases of late payments are worse than others. If you have not been late with any payments recently, lenders may think you are responsible and do not (or will no longer) miss payments. Lenders realize that many people will occasionally pay late. Therefore, being late with a single payment is typically not as harmful as being late with two or more consecutive payments. Similarly, being late on many accounts is typically worse than being late on one. Also, lenders may view late payments as a more serious problem if you have collection accounts or negative public records such as bankruptcies or court judgments. These types of credit records indicate a pattern of credit problems. Finally, it may not be as harmful to be late with your payments if the past due amounts are small, because lenders stand to lose less money if they remain unpaid. Lost or stolen, transferred, or sold accounts may be excluded from this factor.
#3 CREDIT HISTORY
IF the longest payment history reported for any of your accounts starts say
9 0r 10 years ago this raises your score. Having had credit accounts for a long time is a positive factor because your credit history allows lenders to evaluate how you typically use credit and repay your debts. However, accounts that have been open for a long time may have a short payment history, either because you have not used the account recently, or because the lender has not reported the payment history to the credit bureau. Having
a short payment history is a negative factor, even for accounts that have been open for a long time. This is because it does not provide lenders with the information they need to determine how you repay your debts. Accounts that were opened 40 or more years ago and have 2 or more years of reported payment history are considered best. On the other hand, if your oldest account was opened up to 7 years ago, your credit history may be
considered short, and less than 3 years ago is often considered too little.
It is worth noting that because lenders can be slow to report new accounts to the credit bureaus, you may have accounts not yet recorded on your credit report that may be younger or older than your listed accounts.
==============================================
advice courtesy of Equifax






























Robert Gentel
 
  1  
Reply Mon 27 Apr, 2009 02:12 am
@hawkeye10,
hawkeye10 wrote:
I doubt that you can do much to fix your credit in the short term, that 3-5 years would be required.


I agree with this. The time frame for significant improvement would likely be measured in years.

Quote:
I am not an expert, this is an important junction that you are at, you need to talk to an expert. And I don't mean on the internet.


I'm not sure about all that. It's really not rocket science, and if you pay the respective agencies they will provide you with reporting and analysis online far cheaper than any live pro would give. Here is an example of a service I've used in the past for reporting and they gave me a report of what factors were lowering my score:

http://www.experian.com/consumer-products/personal-credit.html

And they also provide pretty much all the important information he asked about for free online:

http://www.experian.com/credit-scores/improve-credit-score.html
http://www.experian.com/life_events/building_credit.html
http://www.experian.com/credit-scores/understanding-credit-scores.html
http://www.experian.com/credit-scores/what-is-a-good-credit-score.html
http://www.experian.com/life_events/employment.html

I'm all for experts for important things, but I'd personally check the information myself regardless of what any expert says, and think these questions can be answered online with some research.
0 Replies
 
FreeDuck
 
  1  
Reply Mon 27 Apr, 2009 06:57 am
I found a lot of interesting and maybe not so commonly known information here: http://www.creditmattersblog.com/
0 Replies
 
DrewDad
 
  1  
Reply Mon 27 Apr, 2009 07:09 am
@curtis73,
You say your credit score is upper 600, lower 700. Has your bank advised what caused them to deny the loan?

There are factors other than credit score that they take into account: size of the down payment, whether you qualify for FHA loans, whether your income is enough to cover the monthly payments, etc.

Typically, they want the mortgage payment to be no more than 1/3 your monthly income. (I think.)

Here are calculators to tell you how much mortgage the banks think you can afford:

http://cgi.money.cnn.com/tools/houseafford/houseafford.html
http://www.bankrate.com/calculators/mortgages/new-house-calculator.aspx.

Quote:
To arrive at an "affordable" home price, we followed the guidelines of most lenders. We've allowed a total debt-to-income ratio of no more than 36 percent. And we have assumed a housing payment-to-income ratio of 28% for our conservative estimate, and 33 percent for the aggressive one.
0 Replies
 
curtis73
 
  1  
Reply Mon 27 Apr, 2009 09:31 am
The extent of things so far has been getting pre-approved and basically laughed at by every bank. Being first-timers on what they call a "limited income," we'll probably be doing an FHA-type loan which requires a little better credit. We were denied for lack of credit. We did find one bank to pre-approve us for $18,090. Gee, thanks.

That was back when I still had a job and we were making about $67k combined on the books, plus I did another $400 a week off the books as a bartender. I guess $67k is considered "limited income." I would think that if I had high 600's, made a combined $67k, I should be able to borrow $150k easy... but the real kicker is that I'm only looking for about $79k. Houses in Austin are relatively cheap right now.
0 Replies
 
DrewDad
 
  2  
Reply Mon 27 Apr, 2009 10:02 am
My suggestion is to join a credit union. Banks and credit unions often work harder for people with accounts at their institution.

Another way to improve credit is to borrow a small amount, and pay it back reliably.

Join a credit union, buy a used motorcycle, pay off the loan, sell the motorcycle....
0 Replies
 
talk72000
 
  1  
Reply Mon 27 Apr, 2009 05:50 pm
Basic accounting would help. Credit to you is debit to the bank. It is in the interest of the bank to lend you money but your ability to pay back the loan plus interest is what concerns the bank. Having a 'line of credit' is a source of income to the bank. If your 'line of credit' has been steady then I guess the bank would consider you as reliable as you were a steady source of income. Maybe that will help you understand the actions of the bank.
0 Replies
 
cicerone imposter
 
  1  
Reply Mon 27 Apr, 2009 10:36 pm
@babsatamelia,
Our credit score is above 800, but we're still charged the "regular" interest rates on credit cards. I was once charged interest last year, but called the 800-number and had them credit my account for the interest charge.

I use American Express credit card on most purchases, and received over $400 in February for the amount of credit I accumulated.

0 Replies
 
solipsister
 
  1  
Reply Tue 28 Apr, 2009 05:04 am
@curtis73,
i have never before encountered product placement of this magnitude

keep up the good work
OGIONIK
 
  1  
Reply Tue 28 Apr, 2009 09:03 am
@solipsister,
in other words, credit is ******* stupid?

Very Happy
OGIONIK
 
  1  
Reply Tue 28 Apr, 2009 09:22 am
@OGIONIK,
maybe im just mad my score is like 400. >_<
0 Replies
 
 

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