Credit rating/mortgage tech

Scott Johnson · **Posted:** Sun Jan 24, 2010 1:06 pm

We might be house shopping in a few months and I'm wondering if I should bother trying to "improve" our credit. As it stands, we are probably in the 750+ range, but I don't know, I'm probably not willing to pay to find out.

In the short term we plan to stop using the credit cards (we never carry a balance, but charge EVERY thing, so the monthly total can be high). We also keep pretty low limits on them (which hurts the credit ratios).

The one thing we can do is pay off some loans. We have a total of 4 loans, two are fairly low balances (car loan and my student loans). The car has 2 years left, my student loan has 18 months left.

Would it make a material difference if we just pay them off? For us, that means lower savings balances, but fewer loans (and the positive of paying them off). From what I see, it doesn't appear to make a big difference.

MarcusMcRae · **Posted:** Sun Jan 24, 2010 1:53 pm

You can get your annual fee credit report. It gives you your credit rating.

Scott Johnson · **Posted:** Sun Jan 24, 2010 1:57 pm

MarcusMcRae wrote:

You can get your annual fee credit report. It gives you your credit rating.

They don't give you a FICO score, that costs money. I've got plenty of free credit reports (I do the different agencies every 4 months, so I always have an up to date report).

Scott

JamesShort · **Posted:** Sun Jan 24, 2010 2:08 pm

You don't get a credit score for free if you go to the real credit report website: www.annualcreditreport.com.

If you do get a free score, there is going to be 'e-baggage' whether it be giving your credit card only to find out that you didn't read fine print and you signed up for $19/month credit monitoring. Or you get an influx of spam to your email address etc.

750+ is solid.

Your use of credit cards sounds very good....using a CC transactionally and not revolving is a very good practice. However, something that I learned from a friend is that even if you charge everything to a card and then pay it off, that you should still not try to exceed 20% of the limit on the card. This can be hard to accomplish unless you have a card with a high limit. I'm pretty anal about my credit, so I even go as far as to sending a payment the day before the end of the cycle so that my next statement balance is only a few bucks (representing any pending charges from that day). This way, on my credit report it shows that my balance is only $32 or $45 etc as opposed to $2500 or $3000. Granted, even if you your balance is a few thousand and you pay it off right away before the due date, you don't pay interest, but it will show as a balance nonetheless on your credit report.

I would not accelerate the payoff of your student loans. However, if you can, getting the car paid off will be good. It's thought of as consumer debt which carries a slightly more negative connotation than student debt (but no debt is good debt

). This has always bothered me because at least a car loan is secured by something of some value (granted it is a divesting value) whereas college debt is unsecured...alas.

Also, try to calculate your DTI to be about 36% to get an idea of the mortgage payment you could afford (read: get approved for):

(sum of loan payments per month + hypothetical mortgage payment per month)/gross income = .36

or

hypothetical mortgage monthly payment = .36* gross income - sum of loan payments

Banks are including escrow payments in that calculation as well nowadays so that payment represents the sum of: principal/interest, hazard insurance per month and property tax per month.

Another thing to mention is that the downpayment is getting very very important nowadays. My neighbor wanted to keep some liquid savings so he only wanted to put 10% down and the bank said no and he had a 810 credit score (experian)! So with that said, maybe not paying down your loans would be better if it allows you to put more down on the mortgage.

If the monthly payments are really high but the balance is relatively low, paying it off can be really good for your DTI. If the monthly payments are low then it doesn't adversely affect your DTI so it may not be worth paying off early. Granted DTI is not the only metric that creditors use, but generally a good easily derivable metric to figure out your situation.

Dustin Fredrickson · **Posted:** Sun Jan 24, 2010 5:49 pm

scottjohnson wrote:

In the short term we plan to stop using the credit cards (we never carry a balance, but charge EVERY thing, so the monthly total can be high). We also keep pretty low limits on them (which hurts the credit ratios).

Scott, this was the one thing that kept us from having shining credit - we use our CC's for everything as well but didn't think to cut back before mortgage shopping -- we had just assumed that paying them off every month was good enough. In the end it didn't make a whole lot of difference (if any), but we were surprised to find out this little piece of reality. I don't think you want or need to cut back entirely, but keeping the balance well under 20% would be a good idea.

MikeWhitney · **Joined:** Wed Aug 20, 2003 9:15 pm **Posts:** 4724

Call a bank or loan person and ask what score qualifies you for the best rates. I believe 700+ or 750+ does it. So you may not need to do anything at all.

FWIW my last several refis were from RBC. They had very competitive rates and terms, and everyone I have worked with there has been very good.

Donnie Barnes · **Posted:** Mon Jan 25, 2010 9:59 am

What Mike said. Just because you aren't quite ready to start house shopping yet doesn't mean you can't be mortgage shopping. You should be able to get in touch with mortgage companies and get a good picture pretty easily of what they will finance you for without having an actual house picked out. And yeah, paying for your credit report is stupid since they're just going to pull it anyway (though they won't really give you the report they should be able to tell you the relevant parts).

I say get some recommendations of some people to talk to (like RBC sounds like a good start) and go from there. If there's something they don't like on your credit report that is fixable, they'll certainly let you know that. They want to sell as big of a mortgage as they can, so they'll gladly "help" you in that respect. Just remember what they're after, though.

--Donnie

clinehall · **Posted:** Mon Jan 25, 2010 10:32 am

Granted, I am in a smaller town, but I have found community banks are much better. You talk to person who is more likely to see you as a person and not a beacon, throw them your checking account and credit cards and they treat you like your rich.. Credit unions are another route to go. I got my first house loan with STate Employees and got the best rate around and no way was I the best risk.

JamesMilko · **Posted:** Mon Jan 25, 2010 10:45 am

Seconding the 20% down. This was before the economy fully melted down but the mortgage broker mentioned that being able to put down a full 20% on the house opened up a bunch more lenders that wouldn't have looked at me without it. (790+ credit)

Judi Westerfield · **Posted:** Mon Jan 25, 2010 11:03 am

One of the best things I ever did for my credit score and mailbox was https://www.optoutprescreen.com/. Raised my credit score at least 50 points and reduced the credit card junk mail completely.

As far as mortgages, I'm a big fan of the credit union. Had the best rates by a long shot. We went through Coastal Federal Credit Union. I can't say they had the best customer service though.

Aaron Buckley · **Posted:** Mon Jan 25, 2010 11:09 am

Judi Westerfield wrote:

One of the best things I ever did for my credit score and mailbox was https://www.optoutprescreen.com/. Raised my credit score at least 50 points and reduced the credit card junk mail completely.

While opting out is a good idea, getting sent pre-approved credit offers has *no* effect on your credit score. What does have an effect on your credit score is the number of times you actually apply for credit with a period of time (usually the last 12 months). Equifax, TransUnion and Experian only score based upon actually applications filed for credit, not marketing evaluations that are sent based upon creditworthiness.

This a pretty common misconception with credit ratings. - AB

clinehall · **Posted:** Mon Jan 25, 2010 11:26 am

Aaron Buckley wrote:

Judi Westerfield wrote:

One of the best things I ever did for my credit score and mailbox was https://www.optoutprescreen.com/. Raised my credit score at least 50 points and reduced the credit card junk mail completely.

While opting out is a good idea, getting sent pre-approved credit offers has *no* effect on your credit score. What does have an effect on your credit score is the number of times you actually apply for credit with a period of time (usually the last 12 months). Equifax, TransUnion and Experian only score based upon actually applications filed for credit, not marketing evaluations that are sent based upon creditworthiness.

This a pretty common misconception with credit ratings. - AB

Can I have my potential clients call you to verify this!! Everytime we give a quote with have to go over this because all companies use "Financial Scoring" now. I loose business because I do the right thing and tell people i'm doing this and they won't let me quote then. Everybody's doing it but not everybody is telling.

Aaron Buckley · **Posted:** Mon Jan 25, 2010 11:36 am

clinehall wrote:

Can I have my potential clients call you to verify this!! Everytime we give a quote with have to go over this because all companies use "Financial Scoring" now. I loose business because I do the right thing and tell people i'm doing this and they won't let me quote then. Everybody's doing it but not everybody is telling.

Sure Cline, give them my number

After working at a bank and negotiating a lot of the agreements with the three major bureaus, you learn a lot about credit scoring models and what is important.

It does amaze me that this "number" that is so important to our overall financial lives is never explained how it all works. The fact that Equifax uses a "VantageScore" which is their own system that moves away from Fair Issac shows the level of inconsistency with the system. - AB

Michael Westerfield · **Posted:** Mon Jan 25, 2010 11:41 am

"Credit Score" seems like a poor choice of words in general. It seems more like it is used for how good of a customer you will be, not your potential to fail at repaying money back. Using Scott as an example, he is being rated lower for paying money back every month VS someone who could be higher if they had revolving debt. The system seems very very flawed.

Aaron Buckley · **Posted:** Mon Jan 25, 2010 11:51 am

Michael Westerfield wrote:

"Credit Score" seems like a poor choice of words in general. It seems more like it is used for how good of a customer you will be, not your potential to fail at repaying money back. Using Scott as an example, he is being rated lower for paying money back every month VS someone who could be higher if they had revolving debt. The system seems very very flawed.

I agree completely Michael. - AB

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