Paying Accounts Off

Joe Smith has an old collection account on his credit report. It’s about 5 years old, and he wants to improve his credit score by paying the account off today.

  • Reality – It may worsen his credit score! Right now that account is an account with delinquency with a most recent activity on the account of 5 years ago. Once it’s paid and gets reported, it is STILL considered an account with delinquent history, but NOW THE MOST RECENT ACTIVITY on it is TODAY.
  • The more recent delinquent accounts, the lower score

 

Closing Accounts

Jane Doe is trying to get ready to buy a home. She has several credit card accounts she has been putting off paying down, and plans to pay off the accounts and close them to improve her credit.

  • Reality – CLOSING accounts may hurt your credit score. 15% of score is LENGTH of credit history. Closing accounts you
    have had for a long time may lower the average length of time your current credit has been open… thus lowering your score.

 

The Balance to My Credit Limit is Low

Jeff Jones looks at his credit profile and think he should be in very good shape because his limits on his credit cards just got raised, and now what he owes on his credit cards is only 25% of the new limits.

  • Reality – the % of BALANCE TO HIGH CREDIT is more important than balance to credit limit. If Jeff currently owes $2,500 vs $10,000 limit, that looks good…
  • But if the most he ever owed on his cards was $2,500 he would be at 100% of balance to high credit ratio
  • What you owe vs. the most you have owed is more important than your available credit, typically!

 

Credit Inquiries Will Hurt My Credit Score

Sally Stark won’t speak to another lender about a mortgage for fear that her credit score will get damaged by another inquiry. The first lender she spoke with told her another inquiry could wreck her chances at getting a loan altogether.

  • Reality – mortgage and auto loan inquiries,most ofthe time, have windows in the scoring models where similar inquiries are treated as one inquiry. The windows are typically from 14‐45 days. Most of the time – an inquiry will not hurt you
  • If you have changes in score from one pull to the next in a very short period of time.
    • Could be tweaks in scoring models subscribed to
    • Could be slight change in balances on report

Some creditors report every couple of days,  increased balance on a credit card just from normal
use could affect score, possibly.

  • Lots of pulls over extended period of time can drag scores down.
  • Credit card pulls each one counts, avoid before buying a home

 

I’m pre-approved for My Mortgage, can I go buy on new credit?

Rob Snow has his mortgage already approved, so thinks its now safe to go out and open that credit line at his furniture store and the home improvement store to prepare for his move in.

NOOOO!!!!!! – Never make any changes to credit, jobs, etc until you CLOSE!
Reality –  Lenders can pull a “GAP” credit report prior to closing This doesn’t look for a new score, but DOES show new inquiries, updated balances, and other credit profile factors that surface since application.Rob at the eleventh hour has to undo his new balances and provide documentation and needs a contract extension!!