Saturday, December 27, 2014

Understanding & Improving Credit

Understanding & Improving Credit Scores

Why should You care about Credit Scores and having a good one? Many people don’t. Smart people do. A good credit score will allow you to choose who you want to do business with instead of who will do business with you.

With a good credit score you will get much more favorable interest rates on your loan, e.g. mortgages, auto loans, credit cards and more. You’ll also get better rates on your insurance premiums, auto, homeowners and renters insurance to name a few. Many employers also check your credit before hiring you for employment.

What are credit scores designed to do? Many will tell you it’s your ability to pay back a loan, say if you’re a good or bad credit risk or something like that. Credit scores are actually a predictor to show the likelihood that a borrower will become 90 days delinquent on an account within the next 24 months.

How do the CRAs (credit reporting agencies) come up with the credit scores? There are a few factors that matter more than others.

35% = Payment History
10% = Types of Credit
10% = Credit Inquiries
15% = Credit History
30% = Amount, i.e. proportion of balance to limits

What about those credit repair companies? All I can say about those companies is to use extreme caution. A lot of them are very confusing. Some lead you to believe that they know some secret that is unavailable to you. Not true. There’s nothing they can do that you cannot do yourself. Improving your credit score is not brain surgery.

With just a little education you can improve your score. Many of those companies make outrageous claims. They say things like, we can remove negative credit from your report or we can improve your score to 720 in 30 days and all kinds of other “guarantees”.

The truth is, there are No guarantees when you are attempting to improve your score. In fact, many times your score will go down when you wake up the negative sleeping giants that are reporting on your credit report.

Some lenders will require you to pay off old collections before extending you credit. Just by waking this sleeping dog, they may update the collection and your credit score will reflect this negativity like it is a new collection. It can be best to pay the collection at closing or get them to remove it from your report altogether when paid. This needs to be in writing.

You can dispute negative credit, collections, judgments, etc. Many times they will be removed. Many times they will not. Anyone that tells you that they guarantee these will be removed is either not being truthful or doesn’t know what they are talking about. It may be best for you to do a 180 and keep walking.

What about those that say you can set up a whole new credit file with an EIN (employer identification number) or some other way? I have never seen a way to do this. At least, not that I know of legally.

The bottom line is there are no magical ways to improve you credit score. There are ways that you can improve your credit score.

Some of the ways to improve your credit score include:

·      Pay Your Bills on time
·      Don’t necessarily close older and/or paid off accounts
·      Don’t get unnecessary inquiries
·      Keep balances in proportion to limits at 30-40% or less
·      Dispute incorrect information
·      Add a Fraud statement

We will be discussing “Understanding and Improving Credit Scores” at the Help Clinic at the monthly meeting at 6:30pm January 16, 2015. Come early to learn and stay late to network with fellow investors.

(314) 962-9255

STLREIA meets the 3rd Friday of every month (except December). At 6:30PM we begin the evening with a “Help Clinic” that includes advice on physical repair, marketing, and networking. At 7:30PM, we continue with the “Main Meeting” which includes local and nationally known guest speakers.

Location: St. Louis Association of Realtors®
12777 Olive Blvd. (1-1/4 miles west of I-270) St. Louis, MO 63141

I look forward to seeing you then J

Happy Investing,

John Lee

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