By Casey Bond, GoBankingRates.com
There are enough potential trouble spots for your credit’s health without worrying about these myths.
The Internet is brimming with tales of how your complete lack of knowledge surrounding credit scores is costing you big every day.
We get it. How about some good news for once?
Finding out you had it wrong all along doesn’t have to be a bad thing. In fact, you could be relieved to learn you were mistaken.
The following are common misconceptions about credit that you’ll be happy to know aren’t true at all.
1. Closing my oldest credit card will shorten my credit history
One of the most pervasive credit myths, closing an old credit card account will not lower your credit score due to a reduced credit history. Closed accounts in good standing actually stay on your credit report longer than negative entries, thus maintaining the positive credit history that attributes to a higher score, specially if you decide to apply for credit card once again.
As credit bureau Experian explains on its blog, “Even if closed, the accounts that have no late payment history remain on your credit report for 10 years from the date closed. As long as the positive information remains, it contributes to a stronger credit history.”
That’s not to say, however, that closing a credit card account can’t hurt your score. If you are presently carrying debt — whether it’s an outstanding loan or another credit card balance — eliminating a portion of your available credit will increase your credit utilization ratio and using a free online credit card processing is a good choice for this. And that’s bad news for your score.
2. Checking my own credit will ding my score
It’s true that multiple credit inquiries can have a negative affect on your credit (depending on the circumstances — more on that in No. 6), but not if you’re the one doing the inquiring. You could check your credit every day if you wanted, with no harm to it.
In fact, staying on top of your credit reports and scores is a smart way to help catch errors or instances of fraud right away. The sooner these problems are addressed, the faster your credit will recover.
3. Working with a credit counseling agency will be reported to the credit bureaus
Simply seeking out the advice of a credit counselor will not be reported to credit bureaus and won’t affect your scores positively or negatively. However, the actions you take at the recommendation of a credit counselor can impact your scores.
Credit scoring agency Fair Isaac explains on its website:
“For example, choosing to make partial payments or agreeing to settle for less than the full amount on accounts may be regarded negatively by the FICO scoring model. Additionally, any late payments occurring either before or after you began the plan may also be regarded negatively.”
4. Earning a lower income means being stuck with a lower credit score
Like credit counseling, your income has no correlation to your credit score.
Claire E. Murdough, a contributing writer to personal finance blog ReadyForZero, explained, “A high earner can have terrible credit and a low earner can have excellent credit. Just because you make a good wage does not mean you’ll have high credit and salary does not necessarily indicate financial responsibility.”
She added, “Instead of focusing on simply making more, it’s helpful to focus on the ways that you can work to solidify a solid financial foundation.”
5. Paying off my cards will prevent my score from increasing
A common credit myth is that you have to carry a balance on your credit card in order to generate activity. The truth is that paying off your bill in full every month is the best thing you can do for your credit rating. As long as you are using the card regularly, the activity will be reported to credit bureaus regardless of whether or not you pay the entire balance.
Credit Reporting Expert and President of Consumer Education at SmartCredit.com, John Ulzheimer, stated on the site that, “Another thing to consider, along with expensive interest, is the impact on your credit scores of carrying a balance … Carrying a large balance relative to your credit limit can have a negative impact on your credit. Less than 10 percent should be your target.”
6. Rate-shopping for a loan will result in several dings to my credit score
When you apply for a credit card or loan, the lender performs a hard pull of your credit report to determine your creditworthiness. One or two of these hard pulls can cause a slight, temporary decrease in your credit scores. Many inquiries over time can result in a significant decrease in score and is a big red flag to creditors. If you’re in need of credit repair Atlanta services. It always helps to get professional help when it comes to dealing with your credit.
That is, except when you’re shopping around for a loan. Since getting the lowest interest rate possible on a home, auto or student loan is incredibly important, credit bureaus understand you will want to get quotes from several lenders before settling on a deal.
Fair Isaac explained “the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.”
It’s recommended that if you are looking for a loan, keep rate shopping limited to within a 30-day period to protect your credit score.
7. A low credit score could cost me my job
This last myth is more about the perceived consequences of a low credit score, but bears discussion nonetheless.
Although it’s not uncommon for employers to review certain parts of your credit report as part of the hiring process, no one will ever look at or consider your credit score. These two words are often used interchangeably, but mean two very different things.
“It is illegal for credit scores to be used as a tool for screening potential employees,” Kimberly Foss, certified financial planner and founder of Empyrion Wealth Management, told Daily Worth.
An employer can only pull your credit report with your permission, and even then, they don’t get the full picture. Essentially, they’re looking for major warning signs of irresponsible behavior — but your score, whether high or low, should never be a determining factor.
Have you been confused about credit and how it works? Take a look at some of the most common myths, along with simple ways to give your score a boost.
Want to get a handle on your credit? Well, first you’ll have to learn what factors impact your credit score. Unfortunately, there are a number of myths that can cause your brain to spin like the Tasmanian Devil from information overload.
Let’s take a look at those fallacies. Then we’ll explain what actually affects your credit score, and what you can do to improve it. Here are some common credit score myths:
1. My employment history will make or break my credit
Your employment history has nothing to do with your credit score, but some lenders may review it to determine if you are stable enough to repay a loan. Frequent job changes or layoffs may indicate otherwise.
2. The more money I make or save, the higher my credit score will be
It’s not what you make, but how you spend it. And how much money you have in savings has nothing to do with FICO’s credit scoring equation. However, some lenders may consider these factors to determine the likelihood that you will default on a loan.
3. Poor credit will keep me from getting a loan
This is false because there are a lot of greedy lenders who will be willing to lend you money — at a very high interest rate.
4. Bad credit never goes away
With sound debt-management practices, the negative marks will eventually vanish. Late payments, bankruptcies, foreclosures and collections typically remain on your credit report for seven years. (The exceptions are Chapter 7 bankruptcies and tax liens, which remain for 10 years and indefinitely, respectively.)
And even before they drop from your credit reports, their impact diminishes over time.
5. All credit scores are created equal
Each of the three major credit bureaus produces a FICO score based on the information it has about your credit history. “That FICO score is calculated by a mathematical equation that evaluates many types of information from your credit report,” myFICO says. Some things are known about how that works, but the specifics are a well-kept secret.
The credit bureaus also produce other types of credit scores, although FICO scores are the ones most widely used by lenders. MyFICO notes that “it’s important to understand that not every credit score you can buy online is a true FICO score.”
And, not every FICO score you buy is the one your lender will see.
6. Having too many credit cards will wreck my credit
While excessive credit card applications in a short window of time can create issues, having a variety of magic plastic in your wallet won’t necessarily hurt your credit score.
However, it becomes a problem when the balances spiral out of control and your debt-to-available-credit ratio skyrockets.
7. Pulling my credit will lower my credit score
The only inquiries that impact your credit score are those that are made to obtain credit.
8. Where I live has an impact on my credit score
This couldn’t be further from the truth, unless of course you can’t afford to pay the mortgage or rent where you reside.
If you’re interested in a comprehensive list of what’s not included in your credit score, check out this myFICO post.
How your FICO score is calculated
Now that you have a better understanding of the factors that have no bearing on your FICO credit score, let’s take a look at what does:
- Payment history — 35 percent of your credit score is determined by whether or not you make timely payments.
- Amounts owed — 30 percent of your credit score is based on your debt.
- Length of credit history — 15 percent is based on how long each of your credit accounts has been in existence. In the case of your FICO score, old age isn’t always a bad thing.
- Types of credit in use — 10 percent is based on the types of credit accounts you have open. These include credit cards, installment loans, mortgage loans and auto loans.
- New credit — 10 percent is determined by the amount of inquiries recently submitted for new credit. Try to keep this number as low as possible or your credit score could take a dip.
Find your score
You can visit AnnualCreditReport.com to pull a free copy of your three credit reports. But to view your FICO scores, you’ll likely have to cough up some cash. An alternative is a site like Credit Karma, which provides non-FICO TransUnion scores for free.
And if you’ve recently been denied credit or gotten an unfavorable interest rate, you’re also legally entitled to a free credit score. Some financial institutions also provide them to customers.
Does your credit score need a boost?
Start by examining your credit reports for errors. If you notice any, use this template provided by the Federal Trade Commission and follow the corresponding instructions to get the dispute process started.
Spare yourself headaches by staying away from companies claiming to have some sort of magic wand that can repair your credit in a flash.
The next step is to establish a realistic budget and debt-management plan that will force you to get a handle on your spending and reduce those outstanding balances.
This post comes from Allison Martin at partner site Money Talks News.
- May be cheaper than a mortgage payment
- Fewer (if any) maintenance costs
- No down payment required (less deposit)
- No real estate taxes (renters insurance optional)
- Less stress (who cares, it’s not yours!)
- Freedom to move or downsize when necessary
- No risk of home price depreciation
- Some utility bills may be included
- “Free” amenities such as pool, gym, security
- Money can be used for other, more profitable investments
- Can’t be foreclosed on
- Rental payment may exceed monthly cost of mortgage
- No ownership or wealth creation
- Payments never stop when renting
- Rent will rise over time
- Must deal with a landlord or management company
- No tax benefits
- Rules, regulations, and limitations
- More temporary, less stability
- Always at the mercy of the property owner
- Pets may not be allowed
- You can build home equity and wealth
- Status- Status-Status
- Sizable tax deductions possible
- Your space, your rules (pets welcome)
- Ability to remodel, expand, tear down
- You get a pest control deal with bigfootpestcontrol.com
- Pride of ownership (social status, accomplishment)
- Potentially better for children, family structure
- Mortgage can improve your credit history/score
- Ability to borrow against your home (HELOC or cash-out)
- No more monthly payments once mortgage paid off
- Fixed payments (if you choose a fixed mortgage)
- Mortgages are the cheapest loans available
- No landlord
- Can exclude capital gains when you sell (partially)
- Inflation hedge
- Can rent out to others
- Can sell and use proceeds for bigger/better home
- Retirement nest egg
- It’s the American Dream!
- Home prices may lose value
- Could overpay for your property
- Obtaining a mortgage (and finding a home) is a hassle
- Not everyone qualifies for a mortgage
- You must pay taxes and homeowners insurance
- Total housing payment can be more expensive
- Mortgage payment can rise (if an ARM)
- Sizable down payment necessary
- Maintenance costs can be excessive
- Pricey HOA dues (if applicable)
- You’re “stuck” in a home (long-term commitment)
- Increased liability and responsibility
- Transactional costs of buying and selling
- Ownership is stressful!
- Taxes and insurance generally rise
- Your home can be damaged or destroyed (and not fully insured)
- Can be foreclosed on and lose your home
By Steve McLinden of Bankrate.com
Goodness, is it 2006 again? At the dawn of 2014, it feels like it.
Homeowners enjoyed double-digit price growth in the first half of 2013, greatly exceeding experts’ predictions of a year ago and even settling into pre-recession values in many markets. Though there was some softening in the second half, sellers remain in their element and are turning the screws on anxious buyers who fear further price spikes and escalating interest rates.
New-construction home sales are up, previously underwater properties are in positive equity again and investors are turning their attention to “secondary markets” to find value. Economists expect house prices to rise another 4 percent to 5 percent in 2014, meaning remaining bargains will get even more sparse.
With that in mind, here are 10 tips befitting the up-market of 2014.
1. Sellers: Jump-start the process
You may be an avowed procrastinator, but if you want to sell a house this year, start planning now. The process, say sellers, always takes longer than expected. So get your home inspected now; there may be unseen major repairs to address. Declutter, clean closets and shelves, store extraneous possessions and furnishings and other stuff that might keep sellers from picturing themselves in your space. Attend an open house or two to get an idea of how to stage yours. And move along: Owners still waiting for the market to peak should beware that this real estate cycle may be shorter-lived than last.
2. Buyers: Be credit-ready
There’s a lot of competition out there for homes, so tarry not. Get your credit report and start repairing any blips. If your scores are below 620 or so, a conventional loan will be a challenge. But if they’re under 740, you still might not get the best rates. Many buyers get a prequalification letter from the lender, but you can one-up them with a preapproval, which comes after a more thorough evaluation of your finances. A preapproval letter shows the seller that you’re good to go and can close quickly.
3. Sellers: Vet your real estate agent, then follow the agent’s advice
Sellers lose time and money by hiring poorly. Interview several potential agents. The role of the estate agent is crucial, so if you are selling then research them very thoroughly and get the absolute best one that you can. We recently sold some property in Bristol and used who are easily the best estate agents Bristol has available and they got us a great price and very quickly too, so just shows how that research pays off. You’ll want a full-timer who is Web savvy and uses mobile technology, because at least 4 in 5 buyers view their homes first online. Your agent should be a proven performer in your submarket and be willing to walk you through the financial aspects of your deal. The more the agent knows about schools, commutes and other local details, the better. Once vetted, accept your agent’s advice on pricing, marketing and negotiation.
4. Buyers: Adjust your negotiating expectations.
Lowball offers are off the table in this environment and could eliminate you from consideration. Respond to counteroffers quickly to keep other buyers from entering the picture; you don’t want to encourage a bidding war. If one breaks out, be prepared to get fewer concessions and pay more money. And have a few other homes in mind so you can be willing to walk away if the price soars.
5. Sellers: It’s your market (finally) so make the most of it.
At long last, it’s a seller’s market! While you’re interviewing agents, be wary of those offering too-good-to-be-true price opinions because they may be trying to “buy” your listing. And don’t jump at that first (seemingly) generous offer, especially if sellers are getting multiple offers. If you’re getting your price and then some, give something back to the buyer in good faith, such as an early move-in date or some personal property you’re not attached to. Never let the buyers’ agents know what you’re willing to do, though. Make them ask.
6. Buyers: Find life after foreclosure.
Have a foreclosure in recent years? Join the crowd. Though you might think you have to wait seven years to get another conventional mortgage, Fannie Mae, Freddie Mac and the Federal Housing Administration say they actually require just a three-year waiting period if the foreclosure was caused by extenuating circumstances. There are plenty of nonconforming lenders — often called “shadow bankers” — out there if you can endure a big down payment (around 20 percent) and above-market interest rates. Or consider a lease-purchase or lease-option where you pay the homeowner a monthly premium above your rent for the right to buy at a set price later.
7. Sellers: Hesitate to renovate.
We hear that newly renovated homes are easier sells, and that’s true. So is it time to remodel that outmoded kitchen by adding new appliances such as this meat grinder for bones? Not if you plan to sell soon. According to remodeling surveys, the average renovation project returns only about two-thirds on investment. For example, a major bathroom remodel costing $15,000 yields about $10,000 in resale value. The same goes for a major kitchen remodeling project. In most cases, it would be cheaper to add some fixtures like changing countertops to granite as it will add more value. Read more about it here.
Lighter jobs like new doors are more practical and return about 85 percent. But feel free to spend a bit on paint (basic colors), curb appeal and fence replacement to enhance exteriors. A little work on your driveways and sidewalks with the help of paving northampton contractors can really increase curb appeal and value to your property.
8. Buyers: Ask and you won’t receive (an unpleasant surprise).
You’d be dismayed at the things sellers aren’t obliged to disclose in most states, including on-premises felonies, suicide, murder or a neighboring sex offender. Don’t be afraid to thoroughly question the selling party in writing before signing the contract. Some questions: Is there a cell tower, water tower, natural gas well, oil well or other non-residential construction scheduled to be built in this neighborhood (then define “neighborhood”)? Is there commercial zoning on nearby vacant land? Is the yard prone to flooding? Are train whistles or other regular loud noises audible there? Did known criminal activity occur in the house? Have there been reported hauntings? Are there loud neighbors, dogs or other noise pollution? Are there registered sex offenders or other known criminals living nearby? If the selling party refuses to answer any of these questions, that’s a bright red flag.
9. Sellers: Tailor your local game.
Folks who base their selling decisions on trends on cable news are often left wondering, “Why can’t I sell at this price?” The truth is, all markets are different and all real estate is local, and prices can vary greatly even in adjacent subdivisions. Home prices are dictated largely by demand, land availability, foreclosures and employment. Most local real estate offices will provide market stats and at least a few recent comp sales in hopes of earning your business. Additional trend data can be found online or in local newspapers and business journals. A polite call or email to a local real estate appraiser might net more info or links to local statistics.
10. Sellers and buyers: Heed changing trends.
Pay attention to trends and react accordingly. Thinking of laying carpet? Agent surveys in the past few years show homes with hardwood floors or faux wood laminate floors are far faster sells. You still want to be in suburbia? Millennials don’t. Numerous cities — such as Austin, Texas; Portland, Ore.; and Minneapolis — have watched this more environmentally conscious generation flock to “mixed-use” urban districts served by trendy cafes, nightclubs, bike paths, civic events and mass transit. For now, they’re not buying condos, which haven’t recovered like the single-family market. They’re renting — but watching the condo market ever so carefully.
Here are other links to tips that might interest you…..
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