You’re in a department store, and the sales _____ (clerk, assistant, team member, associate — your choice) offers you an extra 20 percent off if you open a charge account at the establishment.
Good deal, you think, especially if the purchase adds up.
Maybe, but only if you don’t place a high value on having a high credit score.
It turns out,that your impulsive acceptance of the offer could have serious consequences, notes credit expert Randi Tomchin of North Shore Advisory, a company that bills itself as specialists who work with consumers on credit education and restoration.
In an impressive presentation to a group of real estate professionals, Tomchin says doing so could cause a significant drop in your credit scores from the three major credit-rating agencies — Experian, TransUnion and Equifax. Depending on your personal circumstances, the penalty could be 20 to 60 points
Given that Fico scores range between 300 and 850, 60 points is huge.
Consider this: The average credit score of an FHA loan for a home purchase that was approved in November was 698, and the average credit score of a denied Fannie Mae or Freddi Mac loan was 736.
The lower your score, the more clostly will be your loan: A score in low- to mid-600s will raise the interest rate on a mortgage you seek or even cause a lender to reject your loan application.
So that is the first “Don’t” when it comes to your credit score.
Revolving credit is another issue. It refers to credit cards, overdrafts on checking accounts, and some lines of credit.
The second “Don’t” relates to balances above 90 percent of the limits on such accounts. If you go there, you will damage your score by 100 points; even $1 in excess of the limit could have an impact greater than 100 points. That’s your second “don’t.”
Other Dos and Don’ts:
- Be among the minority of Americans who check their credit reports, without penalty, once year on annualcreditreport.com, but don’t spend money on anything the site offers.
- Follow the procedures to correct any errors, but new findings suggest you won’t be all that successful.
- If you want to know your credit score, you can obtain it from myfico.com at a cost of $19.95 with no impact on your Fico standng.
- Because it’s also essentially a free ride — a drop of two to five points — don’t worry about asking several mortgage lenders to check your credit within the same 45 days.
- Be sure to use any credit cards you already have once or twice a year. If your account goes inactive, it will close and reduce your score at some point.
- And don’t close your cards willy-nilly because that will cost you points as well.
- It is obvious that you shouldn’t be a late payer. Once you miss the date, your creditor will report the lapse to the credit raters, causing a dramatic drop in you scores..
- Even if you have 30 days to pay your bills, it helps to pay earlier than later.
- Build your score by using credit you have, including revolving credit such as check overdraft protection, and, of course, paying up promptly.
- It is a good, if impractical, idea to keep balances to no more than approximately 7 percent of the amount of revolving credit you are permitted on each account.
- Another tactic for folks who need to create a credit history or bolster their credit is to ride the coattails of a close friend or relative who has been in good standing for 10-15 years and who will add you as an authorized user (not joint account holder) of a credit card.
- You definitely are ill-advised to take out a loan for, say, a new car or furniture after applying for a mortgage and before settlement on your new home. (Monday’s column by Broderick Perkins in Realty Times amplifies such cautions admirably.)
Tomchin’s company is an interesting one in that it is uninvolved with and untainted by credit consolidation firms. North Shore Advisory’s services don’t come cheap, but they cite a track record of significant success in helping hapless consumers recover from bad information on their credit reports.
The inescapable truth is that the higher your score, the more favorably lenders will look upon you as a credit risk. If you don’t think that matters, consider that a mortgage loan can endure for 30 years.
Why not be in a position to pay the lowest amount of interest for the decades to come?
A favorable interest rate is far from the only advantage. As the New York Times has pointed out, scores can affect dating, renting, the cost of a wireless phone plan, the price of auto insurance and, in most states, even employability. (Regarding job prospects, 13 percent of employers surveyed last year performed credit checks on all applicants.)
According to Tomchin, bad information can blemish a credit report for as long as seven to 10 years, so anything you can do to improve your Fico score today is to your distinct advantage now and in the future.
Tomorrow: Takes five kinds
To take your own bite out of the Big Apple, you have the option here to search all available properties privately.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022