The Federal Trade Commission’s February 2013 report shows that as many as 26% of people have an error on their credit report. 60% have not reviewed their credit score within past 12 months. 65% have not reviewed their credit report within past 12 months.
National independent studies show that the average American lacks the knowledge, skills and tools necessary to make the most effective decisions regarding financial matters. Having good credit is more important in today’s economy than ever before. Just a few points on your score can be the difference between getting a home loan, auto loan, or even a credit card. This book provides you information and tips & tricks on how to establish, re-establish good credit history and how to improve your credit score with no additional cost. Do yourself a favor and save some money, too. Don’t pay fees to “repair” your credit history. Use this book and Do It Yourself.
Texas Five Star Realty P.O. Box 261665 Plano, TX 75026 www.TexasFiveStarRealty.com
CREDIT SCORES TIPS AND TRICKS
“4Ways American are Financially Illiterate” by Wall Street Journal published in June 2013 reported that 61% of American adults failed the basic finance test.
How Opening a new charge card before or during applying for a mortgage loan can hurt you. Let’s say you are in the market to purchase a home sometime soon. You currently have two credit cards MC and Visa for 10 years and 8 years, respectively. You have good history of payments with large credit lines of $5,000 and $10,000. Your current balances on these two credit cards are $1,000 and $2,900 respectively. You had no inquiries for opening a new card in last two years or so. We have the following table that summaries the information showing everything is within the guidelines and are OK.
Credit Card
Credit Line
Curre nt Balan ce
Amoun t Owed/ Credit Line %
Card#1
$5,000
$1,000
Card#2
$10,000
$2,900
Total/Avg
$15,000
$3,900
20% OK 29% OK 26%OK
Impact Credit Score Length Inquirie Histor s y Since Years Last Year 10 OK 0 OK
No. of Card s 1
8 OK
0 OK
1
9 OK
0 OK
2 OK
Now you are in a store looking at a beautiful couch that you fall in love. It is on sale for $1,500 but if you open a store charge card you could get additional 20% off, bring it down to $1,200. You cannot resist and open the new charge card to purchase the couch. You will be given a credit line of $1,500 with interest rate of 18%. Your Balance or purchase with Tax is $1,300.
Credit Card
Credit Line
Current Balance
new on
As by new
Card#1 Card#2 New Card Total or Avg.
$5,000 $10,000 $1,500
$1,000 $2,900 $1,300
$16,500
$5,200
Impact on Credit Score Amount Length Inquiries Owed/ History Since Credit Line Years Last % Year 20% OK 29% OK 86.7% Not OK 31.5% Not OK
10 OK 8 OK 0 Not OK 6 Reduce d
No. of card s
0 OK 0 OK 1 ?
1 1 1
>0 Reduced
3
Table 1: Impact of getting a credit card credit score
you see just opening a charge card, a couple of areas go outside of the acceptable boundaries, as shown with red and yellow colors, which have negative impacts on credit score. This could cause higher interest rate, which in turn will cost a lot more for the purchaser at the end. Conclusion: Again, if you are buying a home sometime soon, don’t be tempted to open a store charge card to receive discounts. Though, these discounts can be huge, sometimes up to 25% of your purchases on the first day, however, this new card could cause your credit score goes down for the following reasons: • • •
The Ratio of (Amount Owned) / (Credit Line) for the new card as well as total accounts goes up. Average Length of your Accounts history goes down Number of Inquiries in the last year or so goes up
Number of Credit Cards on hand goes up