When applying for a mortgage loan is necessary, 3 lines of credit is?
My impression was that the more credit cards you apply it hurts your credit score. I also heard that it hurts to review your credit score. What are some other tips and tricks to avoid a bad credit score? The thing to keep in mind when applying for a home loan?
March 7th, 2010 at 1:45 pm
No having more credit cards and paying them off is a beacon to companies that you are useful to leech money and rip off, so I would think it is good for your score.
-and no, checking it doesn’t hurt.
March 7th, 2010 at 2:12 pm
checking your credit score doesn’t hurt your score, but when someone like a credit card company or other loan company does whats called an “inquiry” it is recorded on your record. An inquiry is only when a potential creditor is trying to approve you for credit. The reason it is documented is that creditors want to make sure you don’t take out a bunch of loans at once and end up with more payments than you can afford.
As far as credit cards, you don’t need to have any. If you do have them, make sure the balances are less than 1/3 of the limits, this shows that you are responsible. If you have several maxed out cards, it looks like you are stretched too thin and any application for future credit looks like you are trying to spend more money that you don’t really have.
The biggest factor in your credit score is whether or not you pay your bills. If you pay everything you owe on time, you’re score will be fine. This goes for every penny you owe, if an un-paid doctor bill gets sent to collections, it will go on your credit report. Just make sure you make at least the minimum payment on everything you owe, and make every payment on time. Its best to pay extra on loans and pay off credit cards in full every month, but on-time payments is more important.
March 7th, 2010 at 2:18 pm
What hurts is if you go and apply for 5 cards within a short time period. Having cards open (with no balance) is very good. We call this “liquidity”. It basically tells the bank that if you were to lose your job, what other sources of “cash” would you have to make your mortgage payment until you found employment. Just don’t apply for 5 credit cards, a car loan, and a mortgage all at once…They will worry that you just got into trouble and are trying to find fast cash…
March 7th, 2010 at 2:23 pm
Ok… here we go
1.) checking your credit score does hurt it but very little. They can start to add up though
2.) Having a lot of credit cards don’t really hurt your score. They actually help your score if you have balances on them less than 50% of the credit allowed to you. For example, if you have a card with $1000 credit line then it looks good to have less than $500 on that card. Once you go over 50% of the credit limit it is bad for your credit rating. So having 3 cards with $200 each is better than having one $1000 limit card with $600. But every time you apply for credit it does lower your score slightely.
3. An easy way to increase your credit rating is to call your credit card companies and ask for a credit limit increase. For example, if you have a card with a $1000 limit and you have $600 on it, then call and ask for a limit increase to $1200. Then you are at the 50% and below mark again and your credit score will increase.
4. Be careful when buying a car. They send out credit requests to many different lenders and that can hurt your credit. Have a lender ready when you go to buy a car.
5. Any credit inquarys for home loans within 6 months only count as one credit inquary. So only look for loans once you are ready to purchase.
6. Get a copy of your credit report and dispute everything that is negative. The process goes like this… You dispute the charges. Then the creditor has 30 days to reply back and prove they are reporting the information correctly. What typically happens is they never respond back and it is then taken off of your credit report.
I hope this helps.
March 7th, 2010 at 2:42 pm
Lots of credit cards are OK if you haven’t maxed them out. If qualifying for a house is your goal, get with a mortgage professional who can strategize with you about what kind of payment you can qualify for and any credit issues to be dealt with.
The best rates and highest LTV (lowest down payment)lenders are FNMA/FHA. Their automated underwriting (AU) engines evaluate your credit history along with income, assets, down payment, etc.
As a rule of thumb, they want 3 trade lines with 12+ months history and on-time payment of rent for 12 months… BUT, they allow alternative trade lines like:
1) letter from your insurance agent saying 12 months never late
2) letter from your electric/water/cable saying 12 months never late
3) letter from your cell phone co. saying 12 months never late
if you don’t have these you will need COMPENSATING FACTORS like:
1) job stability
2) year over year growth of income
3) out of school in the same line of work as your training
4) good assets
5) good income, few bills
6) paid off/down credit cards
Best of luck!