Buying a Home? How is Your Credit? Part Two of Four

Continued from the previous post¦

Paying bills on time is an absolute must. Lenders cringe when they see late payments across numerous trade lines.   Lenders count and isolate the number of late payments into 30 day, 60 day, and 90 day segments over the borrower™s history.   This in itself is a barometer of risk or the likelihood of timely payments and is a significant part of your credit score.

In anticipation of applying for a new mortgage or refinance, the single most important piece of advice here is to NOT open any new trade lines.   This means credit cards, installment loans, automotive financing and the like.   When preparing to buy a home, the single most important investment of your life, do not go out and make any new high ticket item purchases.   Not only will this hurt your overall debt to income ratio, these requests for new lines of credit, known as inquiries, can reduce your score and may give the impression to the lender of you attempting to acquire financing through different companies with questionable success.

Old credit is like fine wine, it gets better with age.   The fashion of the last decade has been to pass credit card balances onto a new card with the promise of lower monthly payments or lower rates, and then to close the old card or worse, to keep it active and charge up new balances to the limit.   Resist the temptation of doing this and keep that old card active for as long as possible.   Your credit score will stay high long after the teaser rates of that new card expires.

If you have too many active trade lines, it will hurt your score.   Most people carry too many credit cards in their wallet.   Retailers are notorious for offering marked down items or percentage reduced totals if you apply for their store credit card.   That™s great for your purchase but terrible for your score.   They will pull your credit to determine your likelihood of paying, and you will have another trade line on your hands.   Unused trade lines should be closed by the consumer.   If you plan to shop at a specific store, the best policy is to use that store card at least once a year and to pay off the balance due.   How many cards should an individual have?   A good rule to follow is if you are unmarried, about 3 to 6, and if married, no more than 8 between couples.

More to follow¦

© 2007 Michael S. Amers

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