Archive for the ‘Credit Score’ Category

According to a recent ABC News article, some homeowners are discovering that their credit score is being impacted and even lowered due to their signing up for the Obama administration’s “Making Home Affordable” loan modification program. The concern over the decrease in the credit score is that this happens even when the homeowner is paying their mortgage on time vs. delinquent borrowers showing a decrease to their credit score after they have fallen behind on their loans.

Essentially, the request for the loan modification is reported to each of the credit bureaus. The impact is even greater for those who are not approved for the program, as this mark stays on their reports without a resolution. Those that are accepted have a notification sent to the credit bureaus acknowledging their acceptance and the modification. This does not hurt nor does it improve their credit score.

Click here for a free guide to understanding your credit score.

Sure, you understand the importance of paying your bills on time, and you may have a mountain of them, from everyday expenses to long-term debt. If the economy of the last few years has taught us anything, it’s that stability is the foundation of a solid financial stance. Even so, rising costs and plateauing salaries have gotten the best of some in recent months. If you are among the many people who have been hit by financial hardship, now is the time to assess your situation and determine how it affects your future. Cleaning up your credit could save you thousands in the long run.

How Does It Add Up?

The number one reason to clean up credit is future costs. Why spend more money if you don’t have to? Consider someone with a credit score that is below 620 that receives an interest rate of 12.5% for their $300,000 mortgage. This means their mortgage payments would be $3,097 which is approximately $1,114,920 over the life of the loan.

Now consider someone with a credit score of 735 with an interest rate of 6.1%, or $1,800 a month in mortgage payments. This equals out to approximately $653,760 over the life of the loan. Not only does a better credit score save you approximately $1,297 a month, but it will also save nearly $538,840 over the life of a 30 year fixed mortgage loan. As you can see, the drawbacks of a low credit score amount to much more than it can seem.

Test this out on a mortgage or car loan using the calculator available here.

I Want to Fix My Credit: Now What?

If you want to fix your credit score, start right now. Review the items that impact your credit score and look for ways to improve each one. Catalog your monthly bills and sign up for auto-pay if it’s available. Pay down your credit card balances. Pay off a loan all together if you’re able, allowing you to improve your debt to income ratio. Bottom line: be an active participant in the task of cleaning up your credit score and monitoring your progress. It’s never too late to repair past financial pitfalls and reclaim a solid stance.

Especially during the holidays, retailers offer a “No interest and no payments for 12 months!” type sales pitch as a way for you to purchase that must have flat-screen television, bedroom set, or mountain bike without having to put any money down. For those strapped for cash, this seems like a perfect way to get what they want today and then pay for it down the road when, hopefully, their finances are in better shape.

What many people do not realize is that no interest, no payment agreements are frequently not the ideal solutions they may seem. Depending on the retailer and your ability to make timely payments once they come due, these types of agreements may result in you having to pay much more than you intended and can cause serious damage to your credit score.

To start with, even the most financially responsible consumer can see their credit score drop because they took advantage of a no interest, no payment sale. This is because in many cases you are opening a new line of credit with the retailer that, depending on if and how it is reported to the credit bureaus, may increase your credit utilization ratio.

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Transcript from the video

Welcome back to Lexington Law and our credit webinar series. Today we’re going to talk about what makes up your credit score.

There are 5 different factors that we know of that build up your credit score. The largest and biggest one at 35% is your payment history. Next at 30% are your amounts owed. From there at 15% we’ll discuss your length of credit history. And then your 2 last components, at 10% each are: Types of credit in use and your new credit.

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In an interesting reversal of trends, some credit card issuers are now automatically lowering customers’ credit limits as a means to reduce risk. In the past, the industry had been known to increase the credit limits of customers who were using credit responsibly. Now these companies are starting to lower limits for customers in response to a drop in their credit score, a late payment, or the addition of new lines of credit.

Credit card issuers claim this practice is good for users because it helps prevent them from getting over their heads in debt and is a better system than raising the interest rates of higher risk customers which is the more traditional way to account for credit risk.

While lowering limits is a better mechanism for consumers in general, there are two potential effects of this method of risk management that credit card users need to be aware of.

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