Ways to hurt credit score
Q: Bob, my neighbor just had his home foreclosed on. It is ruining his credit, what are some other (that is bad enough) ways you can hurt your credit score?
Tom
A: Tom, you are right “that is bad enough” but in this market of which was created by a lot of us. There is enough blame to go around. Many would-be borrowers are discovering that their credit scores are no longer enough, because lenders and credit card issuers have become increasingly cautious as more borrowers default on their loans and fall behind- far behind- on their credit card payments.
Just two years ago, most of the best mortgage and credit card deals were available to anyone with a score of 700 (out of a maximum of 850). To obtain your credit scores, go to www.myfico.com. Today, borrowers must have a credit score of at least 720- and often as high as 750- to qualify for the most appealing mortgage and credit card rates. Terms on auto loans also become less attractive for people with scores below 750.
Surprisingly, only about one-third of the formula that makes up your credit score reflects whether you pay bills on time. The often-overlooked details that affect the remaining two-thirds could make or break you’re your next credit application.
HOW TO AVOID HURTING YOUR SCORE: Use only a small percentage of your available credit. The percentage-available credit that a card holder uses determines roughly one-third of his/her score, making it just as important as paying bills on time.
EXAMPLE: If you have just two credit cards, each with a $2,000 limit, and a total balance of $3,000 on these cards, your credit utilization percentage is $3,000 divided by $4,000, or 75 percent of your limit. (Only credit cards are included in this calculation, not home equity lines of credit.)
A credit utilization percentage below 10 percent will earn you the maximum number of points in this component of your score. Above 10 pecent, there is a sliding scale, and your credit score will suffer greatly if you come close anywhere close to maxing out your cards. In determining this portion of the score, credit bureaus do not take into consideration whether you pay off balances every month in full or carry rotating balances.
WHAT TO DO: Pay off your credit cards completely, and don’t use them during the 60-day period prior to submitting a loan or credit card application. Ask your credit card users to increase your credit limits, but do so only if you have the discipline to avoid using this extra credit.
LIMIT CREDIT APPLICATIONS. Just applying any type of credit can damage your credit score. Approximately 10 percent of your overall score is based on the number of credit applications you have made in the past 12months. (Credit applications include everything from credit card and store applications.) If you have limited or troubled history (with this real estate, jobs, economy, etc. many people do) even two or three credit applications make a big difference. If you have a solid credit history, a few credit applications over the course of a year will not have a substantial impact, but a large number might. I received MANY calls, e-mails, etc about the credit situation but I can only write so much as this is a real estate column. Sorry.
Q: In the last few years, homes have not held their value very well. With the economy in its present condition, what do you see for 2009-2010?
A: In the 1990s and before conventional wisdom held that one should look at ones home as not simply being a place to live and raise a family, but also a principal means of rapidly accumulating wealth.
The idea was to buy the most home one could afford, let it appreciate at double-digit rates each year, rolling over that appreciation every few years and soon own the “home of your dreams.”
For about the last two decades or so, when inflation has largely remained in check, a more sober school of thought has taken centerstage. That school of thought says that homes, typically, will appreciate at about the same rate as the rate of inflation, in the 2 to 3 percent range. With our saturation of (foreclosed, etc.) homes, hopefully 2009 will be the/a turning point. Homes are down to where they were back in the late 90s. This is still very good news for the homeowner, though.
Consider, for example, that if you were to buy a home today for $100,000, and it appreciates at the compounded rate of inflation, your home will have a market value of somewhere between $122,000 and $134,000 just 10 years down the road. And that doesn’t take into consideration all the tax advantages associated with home ownership! This is not what most people want to hear after the WILD ride the last 10 years have produced.
But get used to it, that’s reality. Again, sorry!!
Bob Jeffries, Realtor,
Century 21 Birchwood Realty, Inc.
4040 Del Prado Blvd.,
Cape Coral, FL 33904
239-540-6659 Office
239-542-7760 Fax