Bay Area Real Estate Finance

“I had my identity stolen a few months ago, and my credit actually improved. I’m dating now, have a new car. Life is good.” Steve Moris

Despite being one of the most important numbers of your financial life, only a small percentage of individuals truly understand their credit score. This three digit number could crush your dreams of ever owning a home - leaving you stuck in that two bedroom apartment next to the crazy lady with nineteen cats.

“Don’t judge a book by its cover. Don’t assume. Do not pass go and do not collect $200″

Well the last one was just fun to say.

Unfortunately, this is exactly what a credit score will do to you. It reduces your personality and individuality to three simple numbers. This article will not just try to help you understand your credit, but it will give you the knowledge to finally take control of your credit.

Back to Basics: Your FICO score (Fair Isaac & Co.)

Common Situations & FAQs

Length of Credit History (Canceled Accounts)
All too many times do I hear people say they have cancelled a card because they don’t need it or because they paid it off. If you cancel your account, you are literally throwing away credit. If you don’t need a card, or if you finally paid one off after twenty years - take a pair of scissors and cut the card or file it away with the rest of your financial statements. 99% of the time, you will not want to cancel your account.

Lost or Stolen Credit Cards
Do not call and “cancel” your account because of a lost or theft. Instead, make sure you call the right department and inform them of the situation. They will then make a note and transfer your account number to another. It may be different with each creditor, but most will have a distinct difference in the way they handle theft accounts and cancelled accounts. This way, you keep your credit history in tact and effectively “cancel” that stolen or lost account.

On a side note, a tip you may want to consider is noting down all your credit card numbers and itemize everything in your wallet or purse. In a situation like this, the last thing you want to do is stress out even more thinking about what you lost and who to call. Even worse, sometimes people forget what they had in their wallets and never alert the creditor.

Too many Inquiries
If you pull your own credit, this inquiry will not count against you. However, if you have another company pull your credit for some sort of credit application - it will effect you. There are numerous kinds of inquiries to your credit - auto, department, cell phone, credit card, and home loan.

Granted you safe keep your social security number and do not try to apply for ten department store cards, a boat, a BMW, a Honda, and a home loan - credit inquiries can be controlled very easily. As a mortage broker, one tip I advise is to prepare your credit months before applying for a purchase or refinance. Regarding inquiries, I advise to hold off on as many unnecessary inquiries to prep your credit. The scoring model takes into account the last 12 months of inquiries.

Mortgage Inquiries
The one thing that seems to show up on many clients credit report is the sentence, “too many inquiries in the last 12 months”. Now, it is always in your best interest to shop around to try and get the best deal. But if this is your plan, think ahead. Mortgage inquiries are bundled up in about 25 day grace periods. This means if you get ten mortgage related inquiries in the last ten days, your score will not take a hit. But, if you get one mortgage inquire every week for the next ten weeks - you will notice your score taking a hit. It is a bit backwards to get penalized for being a smart consumer and shopping around, but the reason is because the scoring model may then assume these numerous inquiries are turning into actual loans or credits. Creditors usually take 30-60 days to report activity - so while it is unlikely you will get ten loans in ten days, it may be possible for some to get three loans in two months which definitely affects an individuals debt liability.

“Why is my score higher/lower with so and so?”
Each company pulls credit in a different category. When a dealership pulls your credit, it shows up as a auto inquiry. When a mortgage company pulls your credit, it shows up as a mortgage inquiry. This is because each is concerned with certain aspects of your credit. Auto dealers are going to lookout for repossessions and collections, while lenders will look for any lates or bankruptcies on your mortgage.

If you pull your credit yourself on an online service such as www.annualcreditreport.com, it will certainly be different because of the scoring model used. In addition, most lenders will not accept that report in lieu of their own credit report. That being said, individual credit reports are usually intended for your own eyes and to make sure there are no mistakes or fraudulent activity under your identity.

Is it www.freecreditreport.com or www.annualcreditreport.com ?
They both will give you credit information. But www.annualcreditreport.com is the free one. Any other sites will usually ask you to sign up for some service or triple-advantage-protection-gold-plated membership to get your “free” credit report.

Piggybacking yourself onto someone elses account
This will raise your score in most cases, but keep in mind the following. This perk in credit scoring model was intended for those without credit to obtain credit. For example, adding a daughter to her parents account so she can get a credit card or finance her first car in her name. It was not intended for some sleazy services to ask $1000 to be added onto a solid account to boost your score by 50 points in three days.

Credit Repair, Boost Your Score Services
Nothing will beat actually keeping your credit clean and being smart about your personal information. However, if you are interested in repairing your credit - there is nothing a credit agency can do that you can’t do yourself. Whether it is worth your time to contact the agencies and try to negotiate with them that you are David Sanchez and not David B. Sanchez is your own call. But remember, there is nothing a credit repair agency can do that you cannot do. The repair agencies are dedicated to this service and have more experience in that field, so if it is something serious or urgent - definitely ask for a referral to one. Just be wary of the guy who offers to “improve” your score for an upfront fee of $1500, with no guarantee. If you ask for a refund, be prepared for the “it takes time” routine or “See, we raised it by two points. Improvement is it not?”

These were some of the most common encounters and questions I get as a mortgage professional. After seeing so many credit reports and dealing with different clients, I truly suggest you take these steps to secure your financial future by understanding your credit. A difference of 25 points can mean the difference of overpaying your mortgage by $250 dollars every month. I see it happen all the time. In this economy, you’ll see one delinquent payment 6 months ago come back to haunt a client - only to find out they can’t refinance their adjustable rate mortgage and are now back to renting. Do your research and make sure your credit reflects that you are a trustworthy consumer - after all, you are aren’t you?