The Truth About Credit

The Truth About Credit by Ken Stone

So many different credit experts, so much contrary information. Who should you believe, and what really is possible when it comes to working on your credit?

Your credit is evaluated in different ways, depending on what you are applying for, and with whom you apply. Credit profiles are even evaluated when getting car and homeowner’s insurance.

My area of expertise is in residential mortgages so that’s what I’ll be focusing on.

There are three repositories in the United States:

Experian 888-397-3742 PO Box 2104, Allen TX, 75013;

Trans Union 800-888-4213 PO Box 1000 Chester, PA, 19022; and

Equifax 800-685-1111 PO Box 740241 Atlanta, GA 30374.

Some creditors report to all three, some to just one. This is one of the reasons why mortgage lenders look at all three when evaluating an applicant for credit approval.

Here are some commonly held credit myths, and the truth:

Myth: Available credit will hurt me when I apply for a mortgage.

TRUTH: Available credit helps, it does not hurt. Mortgage lenders don’t care about how much is available on your credit cards. The only issue addressed in the mortgage process is the minimum payment required to service the debt. The benefit of having available credit comes in the credit scoring model where available credit is a good thing.

Myth: Canceling active credit cards is a smart thing to do to help a credit score/profile improve.

TRUTH: Active credit is a good thing from a credit scoring model standpoint. And since available credit is not evaluated in the mortgage process canceling credit cards can be a bad thing to do if you’re trying to improve or preserve a good credit score.

Myth: Consolidating all my debts onto a low interest card is the most effective way for me to manage my debt.

TRUTH: While this may be an effective way to manage debt, it's not an effective approach for managing your credit profile. When all your debts are on a single card this many times hurts your overall credit score as your ratio of available credit is largely consumed by the consolidation. Keeping the amount owing on all credit cards below 30% of the outstanding credit limit will substantially improve your credit scores.

Your credit profile can be one of your most important assets. Effectively managing this asset can make all the difference when it comes time to apply for a mortgage or other credit.

If you're interested in a free copy of a CD containing an interview that gives many more insights into effectively managing your credit please send an email to StoneTeam@ctxmort.com. Be sure to include your name, mailing address, and your phone number, and we'll get a copy out to you.