Myth 1: Cancelling Old Lines of Credit Is Helpful
"Wait a minute, isn't doing away with my credit cards a good sign?" One would think so, but in reality older credit lines can boost your credit rating by increasing your average account age. This means that cancelling those accounts can actually lower your credit score. Most experts will advise you to keep older accounts open even if you never use them.
Myth 2: Paying Off Debt Is Always the Best Move
Paying off debt may be good for your credit rating, but when you apply for a home loan the lender also needs to see that there are cash reserves at the time of closing (sometimes up to six months worth of mortgage payments).
If funds are tight but there's leeway on the monthly income side when it comes to qualifying, it may make more sense to keep the cash for reserves instead of paying off a credit line. Your loan officer will be able to tell you which option is best for you.
Myth 3: Never Use Cards If You Don't Have To
As amazing as it sounds,
even people with very high income and low debt occasionally have trouble qualifying for loans, simply because they put away their credit cards years ago. This is because lenders want to see a track record of how you use credit.
The good news is that
paying for just one meal a month using a credit card can set things right. It's best to start soon enough that the transactions show up on several monthly statements.
Myth 4: One Late Payment Won't Hurt
Forgetting to pay a water or cable bill is usually not the end of the world, but if there's ever a time you don't want to be late on a car or credit card payment, it's prior to getting a home loan. Those types of accounts register 30-day late payments on your credit report the second they occur, and one event like that can cause a hit to your score that takes years to wear off. The safe solution is to put all credit lines on auto-payment.
Myth 5: New Accounts Help Establish Good History
Technically every credit line helps build your credit history, but recently-opened accounts can be a bad trade-off because newer lines of credit may actually lower your score, while a higher monthly debt burden can decrease your chances of qualifying for a loan.
This means that even if a future home purchase is pending and there's a fantastic deal with no-interest financing at the furniture store, as a buyer it's best to wait until after the closing to take advantage of it.
How do late payments, short sales, and foreclosures affect credit scores?
Here are two charts showing what to expect and how long it can take to recuperate from various situations.
(Just note that the times listed are for
full recovery, and vary in real life. Some people have experienced faster rebounds.)
What They Often Don't Tell You...
1. The only place to get a truly free annual credit report is at www.AnnualCreditReport.com.Other websites offer free reports only if you sign up for monthly ongoing paid services such as credit monitoring.
2. The only place to get your real FICO score is at www.myFICO.com.When you go to Experian, TransUnion, and Equifax they will offer to sell you your credit score, but what you receive is actually an "educational" score, which is often much different from the FICO score most lenders use.
Note: FICO scores range from 300 to 850. In general, above 700 is considered good, and above 760 is considered excellent.
Summer Car Safety Tip
Most people are amazed to learn how quickly a parked car can heat up on a warm day, even with the windows cracked open. Here are some startling statistics from a
Stanford University study.
- Eighty percent of the temperature increase happens in the first 30 minutes, and lethal temperatures can be reached in just 10 minutes.
Another study found that on a sunny but mild (60 degree F) day the temperature inside a parked car rose to 100 F.
With distraction levels on the rise,
some experts recommend that drivers attach themselves by a string to a stuffed animal or some other physical reminder whenever traveling with children or pets in the back seat. The goal is to make it impossible to leave the car without remembering that a child or pet is inside.
- U.S. home prices rose 10.8 percent year-to-year in April, according to a recent S&P/Case-Shiller report. They rose 8.8 percent year-to-year in May, according to CoreLogic, a data and analytics company.
- The national average 30-year fixed mortgage rate recently dropped to just over 4 percent, but has since headed back to over 4.25 percent after a strong employment report.
The Pending Home Sales Index dropped 5.2 percent year-to-year in May, according to the National Association of Realtors®, but was up sharply compared to April.
Note: Housing statistics based on closed sales typically reflect market conditions of two or three months ago.
To find out what's going on right now in our local market, please call me directly.
Are you planning to buy or sell a home, or do you know someone who is? Please call or email me - I'm never too busy to help you and the people you care about with real estate.
(*What the lawyers make us say: The information in this newsletter is deemed reliable but not guaranteed. Please always consult a qualified expert before making decisions based on this content. Nothing in this article is meant to be taken as expert legal, financial, or medical advice.)
- Conditions: 85 degrees F outside and car windows cracked open.
