Wednesday, March 16, 2005

Good Credit Scores=Good Behavior

Remember, your credit scores are based on your financial behavior, so good behavior is key to maintaining good credit scores as well as improving your current position.

The List below is a quick review of how responsible borrowers behave.

  1. Always pay all of your bills on time. This proves your reliability and demonstrates consistent behavior and responsibility.
  2. Check your credit reports regularly and correct inaccuracies. Verify that the information reported about you is correct. Dispute anything incorrect with each of the credit bureaus immediately. Some disputes may require contact with financial institutions too. While it is best to document your disputes in writing, to all three bureaus simultaneously. Some bureaus provide customer service by telephone with instructions on how to register for a fraud alert.
  3. Monitor your accounts closely for signs of identity theft. Simply review each statement and verify that all bills are authorized, accurate, and your own. Guard PINs and account numbers, and always report unauthorized activity immediately. It is a good idea to maintain a list of your account numbers and their corresponding toll-free, 24-hour customer service numbers in a handy, secure place separate from of your wallet in case it is stolen or lost.
  4. Control your debt. Generally speaking, keep balances below 30% percent of available credit lines.
  5. Manage your available Credit. Lenders may conclude that applicants with multiple accounts, all with high credit limits, may have too much access to excessive unused credit that could result in the sudden or gradual accumulation of too much debt.
  6. Don’t try to change a score overnight by suddenly closing or opening accounts. Scores are based on complex statistical models that could make such actions backfire.
  7. Avoid excessive inquiries. Inquires indicate applicants are submitting applications, generating multiple requests for their credit report. Creditors may view too many inquiries as a sign of financial trouble.
NOTE: Credit Repair takes longer than creating the damage. It's also a lot less fun.

Don't shop for a mortgage lender for 3 months and then be surprised to see you have a drop in your FICO score of 40 points or more. I've seen it happen. What online lenders don't tell you is that they 'job out' your loan application to a number of brokers and every bank they send it to also pulls a report so the number of 'hits' increases exponentially.

REFINANCE HINT: If you have taken out a short term loan, say a 1/1 ARM just to get into your home and build a better credit score with the intention to refinance, be extremely careful that you behave ultra responsibly about all your credit behavior. Don't max out your credit cards during the month (stay under 30% of available balance) and undo what your good mortgage payment history is doing for you. Also, keep your credit spread across all your cards so the balances all below 30% if possible. Otherwise, you will be stuck in the world of higher interest rates for a very long time.

When you close credit cards...a popular misconception to improve your actually LOWERS your available credit limit and your score.

Wishing you every credit sanity. Loannetter

©2005 susan templeton loannetter