Do you have a friend or family member who is thinking about buying a home, or refinancing their current home? I build my business by referral, so if you know of someone who could use the expert advise of a mortgage lender or finance officer please don't hesitate to give me call. I'd be more than happy to provide a FREE Consultation.
Understanding Credit and How it Affects You: Part 2
Last time you saw this blog, Dave Wheeler and I were talking about credit, and we're going to be answering some more of your questions about this important topic.
Is there a magic number for how often my credit can be pulled?
It's not that there is a magic number, it's that we have to break out a number of reasons why your credit is being pulled, and some of them might have an impact, and some might not. If you're trying to spend someone else's money, which we call a hard inquiry, it may have an impact. When you're not trying to spend another person's money and following up on your credit report, or a company you do business with is pulling it up for accounts receivable, you're not trying to do anything there so you will not see this coming up on your reports. These things will have no impact and are referred to as soft inquiries.
However, when you're trying to spend somebody else's money we break them down into two different ways. We have ones that we call rate shopping: mortgages, autos, or student loans. There is also non-rate shopping which we just lump together and call it consumer credit.
For rate shopping, it's not that every time someone pulls your credit report you're getting a new house or a new car. Multiple people have to pull your credit report to make sure the loan you have is the right one for you. So, what we're concerned with as score developers is that we look at it and determine when your behavior really changed, or what would be indicative of you paying late in the future. What we're really concerned with is the first time your credit report is pulled for that reason. Every other time after that, as long as it's in a certain block of time, we're only going to be concerned with that first pull that alarmed us. It's when you start, and then freak out and stop, then let time pass and restart in the future, that it looks like you're buying two homes. You can actually do people a favor and extend the amount of time they have to shop just by pulling your credit.
What is good credit?
Well, we obviously know it's paying your bills on time. However, 65% of your ability to qualify for the best loans has nothing to do with your ability to pay your bills. The rest depends on what types of accounts you have, how you've used what you're allowed to use, how long you've had the accounts, and how much new credit you're looking for. The most well rounded people we know have a revolving account (a credit card or store card), and at least one installment account which is an auto loan, student loan, or mortgage.
We use the 'eating healthy' analogy. In order to be healthy you need your vegetables, grains, and proteins - and the same is true with credit. You need at least one installment and one revolving account. You don't want to load up on one and lack the other. Just take everything on little by little and don't indulge in one over the other.
So, when you have a $3,000 limit on your credit card and you already have $2,800 on the card, do credit viewers see this negatively that you're maxing out your limit?
We do. People often say that they can run their credit card to the max every month, and then pay it off in full. However, we cannot see what you pay, we can only see what you've used each month. So, the only thing that the creditors report to the bureau every month is that you're running your card up to the max. When you're compared to other people, you're being compared with those who are living at or above their means, so the likelihood you might go late on a loan is increased. So, to defeat that, just pay your credit card off early or just don't charge as much.
If you have any more questions relating to credit and how it might be hurting or helping you, feel free to contact me because I know these things can be intimidating. Credit can sometimes be a complicated issue, but that's what I'm here for.
You can call me at (215) 591-0222 x 1630 or visit www.therightloanforyou.com
