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Real-time answers to credit questions

By Janet Reusch · Bankrate.com
Friday, May 25, 2012
Posted: 6 am ET

Credit scores are always a hot topic in the personal finance space, but the topic seems to have taken on even more steam lately as borrowers clamor to qualify for a refinance or a mortgage at today's low rates.

This week, we hosted a live chat on our Facebook page on the topic of credit scores. Liz Weston, author of "Your Credit Score: How to Improve the 3-Digit Number that Shapes Your Financial Future" and AskLizWeston.com, was on hand to take questions from our fans.

Liz did a great job addressing everyone's credit situations and offering insight into the "black box" of credit score formulas.

Here are the highlights in case you missed it:

  • Get errors off your credit report. There's a persistent problem with people getting their files mixed with someone else's, so dispute accounts that aren't yours. Dispute late payments by showing where you paid on time.
  • The less you use your credit lines, the better. Using 30 percent of your credit or less is good; 20 percent or less is better, and 10 percent is best for your score. After correcting any errors, lowering your credit utilization is the best thing you can do for your score.
  • You can get a really good credit score with just a couple of credit cards. You'll get the best scores with credit cards plus an installment loan, such as a mortgage, student loan or a car loan.
  • Don't shop for car insurance if you're in the market for a major loan like a mortgage. Most auto insurers pull your credit report when they figure out premiums. The damage is typically minor, but significant enough to hold off.
  • You can't improve your credit score if you don't use credit, but you don't have to carry a balance. Carrying debt on a credit card is a bad move and completely unnecessary.
  • Do your mortgage shopping in a compressed amount of time, so all of those inquires will count as one. Shoot for a two-week window, although the latest versions of the FICO score give you 45 days.  Auto loan inquiries are also grouped together, but mortgage and auto inquiries aren't grouped together.
  • Typically business credit cards issued by your employer don't show up on your credit reports, but check your report to be sure.
  • FICO is the leading credit scoring formula. All three major credit bureaus -- Equifax, TransUnion and Experian -- sell FICOs to lenders. There are alternate bureaus and scores, but FICO is the dominant score.
  • Wouldn't it be nice if your positive payment histories for things like cellphone bills and cable bills were included in your FICO score? That would be great for responsible consumers, but the FICO score wasn't built for consumers. It was built for lenders. Until the turn of this century, you weren't even supposed to know your FICO score existed, let alone how it was calculated. It was all a big trade secret.
  • The biggest misconception is that people think they have only one credit score. You have hundreds, depending on what formulas lenders might use to judge you, and they change all the time.
  • Don't hire a firm that promises to "fix" your credit. You can clean up your credit on your own.
  • It can take years to turn around truly beat-up scores. Figure one to two years to recover from a single late payment, three to seven years for foreclosures and up to 10 years for bankruptcy. But there's nothing permanent about credit scoring. If you start using credit responsibly, you'll start to improve your score.
  • Fair Isaac, creators of the FICO score, says about half of its inquires aren't from people trying to improve a bad score. They're from people demanding to know why their scores aren't perfect. If your FICO is over 760, you're doing great, so don't sweat it.

Want to swear off credit entirely? You won't have to worry about your credit score if you'll never need a mortgage, a car loan, insurance or a place to rent.

Last, but not least, thank you to Gary Foreman of TheDollarStretcher.com and Thom Fox of CambridgeCredit.org for collaborating with us to organize this event. Without them, the chat wouldn't have been possible!

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4 Comments
Tom Goralski
July 14, 2012 at 10:54 am

I am trying to get a re fi. I have contacted 6 large mortgage companies and they have all come back with a myriad of excuses as to why I don't qualify. Ater many highly qualified mortgage agents have asked me a zillion questions and they all come to the same conclusion....."I don't see why this will ot EASILY pass their screening." I have comments from two that say DUreport (Fannie Mae software) won't accept it. One agent says I need a EA2 approval.

I'm 71, wife is 64..military retired after 26.6 years in the Marine Corps. I have a lifetime military retirement pay...my social security and my wifes socialsecurity for an annual income of 68,000. My credit score (depending on which set of numbers you look at are....781 781 788 or....781 788 803 which averages out very near 790 which is good in anyones book.I have never missed a payment in the 11 years we are in our house..The current mortgage is 169.3 and a house value estimated at 137 (123% LTV). No bankruptancy, no second mortgage, no late payments on any credit cards. We are basically an old retired couple that religiously pay our bills every month and we are seeking the benifits of bring my current loan of 6.25% down into today realistic world of 4% or possibly lower. The stream of negative report , prompt my question....WHY? and the answers I get far too often........"The DU won't accept you....or there's something in your file that doesn't work?.......Where do I(et an answer so i might correct what'sstopping from getting this loan...............all the agents are stymied and I am stymiedmore in that this is the first house I ever bought and my wife and I work hard to maintain an "Excellent"credit history. Any and all assistamnce you can provide in the way of an answer....whoto ask...etc will be greatly appreciated.

Thank You

Tom Goralski
(702) 631-4884

Gualterio Clayton
June 01, 2012 at 4:35 pm

how does paid satisfied look on credit afer paying old repo off