May 5, 2005 • ISSUE 14 / VOLUME 1

Meridian offers tips for better credit

Build your credit and then your dream home

Sharon Rasos, branch manager for the Kapolei branch of Meridian Mortgage, Inc., helps her clients improve their credit ratings and ease the home-buying experience.

Credit reports and the scores they contain are a mystery to many. When clients ask to be pre-qualified for a loan, a mortgage company must ask for permission to run their credit report. Most hesitate with the preconceived notion that an inquiry will lower their score. While somewhat true, the effect of a credit inquiry made by a mortgage company is actually very minimal.

Too often, applicants are wrongly advised not to have their credit reports run by other mortgage companies. This is used as a tactic to prevent them from shopping around. Credit bureaus do not want to take away the ability to shop for the best loan. Therefore, they will allow for any number of mortgage inquiries within a 30-day period and will still consider them one inquiry. This is called the de-duping period.

If your credit report was run by more than one mortgage company within the de-duping period and your score has changed, it may have been due to other factors. Any updates made by the creditors during the de-duping period, such as a change in credit balance or the opening of new accounts, could trigger a change in your credit score.

The following are a few pointers for those looking to improve their credit score and ease the home-buying process:

Having no credit may be just as bad or even worse than having bad credit.
If you've never established credit or have recently been discharged from bankruptcy, consider obtaining secured credit. Secured credit is established when something of value is deposited with a creditor as assurance that payment shall be made.

Credit history is important and the longer it is, the better.
Think twice before closing old credit cards because credit bureaus give higher scores to accounts that are kept open for a longer time.

Too many inquiries made by credit card companies can adversely affect ones credit scores.
Credit bureaus may drop your score should you decide to open new accounts during the 30 day de-duping period. New credit cards mean a potential increase in debt, which usually means higher risk credit.

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Minimize the number of revolving accounts you keep.
A common example of a revolving account is a credit or charge card from a bank or department store. You should have at least three, but no more than five revolving accounts – all with low balances and always paid on time. Your score is lowered if you have less than three revolving accounts or none at all.

Minimize the percentage of balance on your revolving account.
Try not to have more than a 40 percent balance on your credit card. If you use more than that, pay down your balance to no more than 40 percent of your credit limit by the due date. The balance appearing on your statement is what creditors report to the credit bureaus.

Limit or eliminate "credit surfing."
Paying off one card with another in rotating fashion is known as credit surfing and can be adverse to your credit score due to the multiple revolving account inquiries, the increase in the number of revolving accounts and the shortness of time these accounts are kept open.

Avoid co-signing any loans.
You will be held equally liable as the person for whom you are co-signing, while perhaps adversely affecting your debt ratio.

Credit counseling programs can be detrimental to credit scores.
While extremely helpful to some individuals, some lenders consider being in a debt management or credit counseling program synonymous with Chapter 13 bankruptcy. Research all your options and weigh the pros and cons before entering such a program.

Repossession, even voluntary, significantly damages to your credit.
Think twice before closing old credit cards because credit bureaus give higher scores to accounts that are kept open for a longer time.

The best way to maintain a higher credit score is to always pay everything on time, borrow only what you can afford and have emergency funds stashed away. For more information, call Sharon Rasos at (808) 674-1445 or visit www.mortgage2u.com.

The information provided is for informational purposes only and does not constitute legal advice or otherwise.