Most of the home buyers we work with have questions about credit scores and credit reports. Here is some helpful information put together by my esteemed colleague Leonard Steinberg.
Did You Know?
*The average FICO credit score is 706.
*Seeking information about your own credit score is always a soft inquiry, and won’t impact your score. Unlike a bank, which is considered a hard inquiry, when they check your score for a mortgage application.
* Use less than 30% of your available credit each month and ideally less than 10%. Paying off your bills fully every month while using all of your available credit is less effective. Raising your credit limit could help keep your percentage of utilization down.
* Keeping a balance on your cards doesn’t help and could set back your financial goals, which are better served by consistently paying off credit-card debt in full.
* Closing an older credit card won’t help your score and it might actually hurt you.
* Every time you open a new credit card – or take out a loan or qualify for a mortgage – the overall average age of our credit takes a hit, and the hard inquiry subtracts more points from your credit score.
* Getting that first credit card is important to building a thicker credit file, and retail cards are often among the easiest to qualify for.
* Shopping around for a mortgage and getting multiple credit scores can hurt your credit. However when credit scoring companies see different lenders pulling your credit score around the same time, they bundle multiple requests as a single query. So shop different rates at the exact same time, within 14 days or less.
*Late payments, collections, foreclosures and chapter 13 bankruptcies hurt your credit score for 7 years. A chapter 7 bankruptcy will hurt it for 10 years. But, with the exception of the bankruptcies, the impact of the other problems diminishes as the information ages.
* Banks typically won’t report any debit-card activity to credit-reporting companies, but choosing the credit option on your debit-card purchase means the funds could take up to 3 days to post, whereas the debit option means immediate withdrawal.
* Not all credit reports are accurate. 21% of consumers studied in 2012 found errors that resulted in modifications by the credit-reporting firms. So be sure to check your credit score by regularly looking at your credit report. You are entitled to a free copy of your credit report annually from each of the credit-reporting companies (TransUnion, Experian, and Equifax). You can request them at AnnualCreditReport.com or by calling 1-877-322-8228. (WSJ)
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