CREDIT
INQUIRIES (having someone check your credit) - can reduce
your score by 1 - 10 points PER INQUIRY.
Why?
Because the model presumes credit could have
resulted. It presumes there may be a debt of which they are
unaware which will impact your ability to repay your other debts.
The impact of an inquiry is diminished or removed in 90 days.
The rationale is that if credit resulted it is probably been
reported to the bureau in 90 days. (not always true)
Theoretically
if you were shopping for a car and 5 dealers in 5 days pulled
your credit that should count as only one inquiry because it
is for one event and the 5 credit pulls should only lower your
score 10 points. Practically it appears to count as 10 points
for the first pull and 1-5 points point for subsequent pulls.
Occasionally it knocks a full 50 points off your score.
Were
you aware it is a federal offense with a fine of $10,000 if someone
pulls your credit without your specific written authorization?
Because
it gives them an edge in the negotiations, car dealers usually try
to pull your credit using your Drivers License when you take a test
drive BEFORE you have ever expressed a solid interest in buying
a car from them. Tell them point blank they are not authorized to
pull your credit and make them aware you know about the $10,000
fine. They will protest their innocence and say other dealers might
do it, but they are honest and would never consider pulling your
credit, but my car salesmen buddies tell me it is SOP.
LATE
PAYMENTS - a 30 day late payment last month is worse
than a 90 day late 3 years ago. Credit scores reflect your ability
to repay today, but of course, your history is not ignored. The
longer it has been since a late payment the less the impact.
Medical
lates/collections due to Insurance problems have the least amount
of impact. Mortgage/rental lates are the worse. Balances on
charge offs & collections run a close second to Mortgage
lates. BUT due to the way credit scores are calculated
you probably don't want to pay off any unpaid collection or
charge off balances! The necessity to pay off balances
is dependent upon the rest of your situation, the mortgage loan
type you are trying to secure, the type of loan charged off
& whether the unpaid balance is under or over $500.
(see Loan Problems for more details on the proper way to pay
off a loan balance so that it doesn't hurt your credit scores
Problems)
If
you skip a payment, even with the creditor's blessing, then
every payment made thereafter will be reported as 30 days late.
This is known as a rolling late and the longer it is before
you make up the skipped payment the higher the number of lates
showing. These can destroy your ability to secure any type of
"A" rate. On the other hand "B" lenders
don't key off the credit scores and count a rolling late as
only 1 event. Unfortunately "B" loans are available
only at a much higher interest rate and/or downpayment and they
usually have some strange terms associated with them.
CHARGE
OFF & COLLECTIONS -
as you can imagine, these have more impact than late payments because
it shows a complete unwillingness to repay. Late payments show a
willingness to pay, just a difficulty in meeting the terms.
A
$0 balance on a collection would seem to be better than having
a balance, but that is not always the case. When you pay the
balance off if the creditor reports the $0 balance as new activity,
the credit scoring mechanism would treat the event as if the
collection just happened and your score would drop further.
It's unfair! We know how to get around this and possibly a way
to get the collection removed totally. This is just another
one of the "little" services FINANCIER$
offers to our customers.
CREDIT
LIMITS - scoring models also
look at the ratio of your high credit limits to your present balances.
If you are maxed out on all your accounts they presume new credit
will soon follow, plus they wonder what is happening in your life
to require that amount of usage. Ideally your present balances would
be less than 75% of max limits.
NEW
ACCOUNTS - With a new
account there is no history yet of how you are able to handle
the debt along with all your existing debt so new credit temporarily
reduces your scores. New accounts can impact your credit scores
for 90 -180 days. Which means don't go charge furniture, consolidate
your debts, or open new credit cards just before or during the
time your home loan is being processed.
90
days same as cash loans or similar no interest for X# of days
loans also count as new credit. Credit has been extended even
tho you may not have any payments or interest due for a while.
These loans reduce your credit scores. Since a payment is factored
into the bureau reports even tho the creditor is telling you
no payment is due, your qualifying ratios are also affected!
The
one exception to this rule is when you have excellent credit
scores & consolidate debts or transfer balances to a lower
interest rate card. In this case the reduction in ratios can
overcome the reduction in credit scores due to new credit. An
Evaluation will determine the best method for you.
