Quote:
Originally posted by LewisCouch
I recently had an opportunity to sit down with my 21 yr old son and a mortgage broker I have used in the past. Ostensibly, we were there to apprise my son's ability to purchase a home and the discussion was mostly about credit scores.
The broker suggested that lowering all credit balances to at least 50% is key. He emphasized that the goal is to get it under that mark, not pay it off. Also, he said that instead of paying down to zero, that it is beneficial to maintain a small balance of around $100. He also stated that it is generally not a good idea to use finance companies such as GE Finance, Household Finance, etc, as opposed to Visa, MasterCard, AMEX.
I left the meeting intriqued by this information and am wondering if anyone else can add their own experience with improving credit scores.
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Well, first off, it seems that my old thread has returned from oblivian, and many people had asked similar questions to this.
The thread is entitled "Ask the loan officer" and you will probably find more information in there than I am going to type now
The broker was correct in a couple of points, incorrect in others. I will go through them one by one.
1) Lowering credit card balances to 50%, not paying them off -
False The credit reporting agencies keep track of the
highest balance that you have ever had on your credit card, and although the current balance has more of an impact, the highest ever on that card will affect the credit score as well. Paying it off will be discussed in a lil' bit...
2)Also, he said that instead of paying down to zero, that it is beneficial to maintain a small balance of around $100 -
False
The credit reporting agencies have no idea (usually) if you pay a credit card off each month or not. To understand this, you must first understand that the Credit Reporting Agencies take a "snapshot" of your current credit obligations. On the date that the credit card reports, the balance
at that time will be reported. If you pay it off 1 day later, the credit reporting agency will be none-the wiser, and that way you can avoid paying interest. As most credit cards don't disclose specifically when they report, it is usually safe to just make your monthly payment (paying the card off) and charging something on it again within the next couple of days. As long as that card has a balance, even $1, it will count as a good mark (providing you are below 50% of the limit) on your credit. A paid off credit card also is good, but isn't nearly as helpful as a credit card with a small balance.
3)He also stated that it is generally not a good idea to use finance companies such as GE Finance, Household Finance, etc, as opposed to Visa, MasterCard, AMEX
True
There are different types of credit, "bad" credit is generally credit that there are low underwriting guidelines on, which finance companies generally specialize in. In addition to the above listed companies, store cards (ie Best Buy, The Home Depot) also fall into this category. There is much more in depth info in the previously mentioned thread, although you might have to search a bit
Finally, some tips on how to quickly raise your credit score -
Pay off as much debt as you can, especially unsecured. Keep a very, very small balance on credit cards, but pay it off each month to avoid paying intererest.
Depending on how long he wants to wait till he buys the house, the longer the time frame with no inquiries on his bureau, the better the score.
Make payments on time, obviously
Close any finance company related cards
Make sure all (if any) collections, judgements, and tax liens are paid and shown as paid on the bureau.
Also - Purchase a credit bureau online. I know transunion has a type of bureau that you can purchase that includes information on exactly what is hurting your score, and how you can improve it. It will also give your son a chance to make sure that all the information listed is accurate.
If you have any more questions, feel free to post em or PM me