Credit Information | Consumer Debt Group


Credit Information You Should Know If You Are Thinking Of Getting a Mortgage

Will Closing An Account Help My Credit Score?

The Answer is clearly no. If your loan broker tells you otherwise, replace him or her. Closing accounts can never help your credit score, and may hurt it. While it is true that having too many open accounts can hurt your score, do not compound the problem by closing them. Once you have opened the accounts, you've already done the damage and you cannot repair this damage by closing them. In fact closing them might actually make things worse.

The credit score looks at the difference between your available credit and what you're using. Shut down accounts, and your total available credit shrinks, making your balances appear larger. This typically hurts your score. The score also tracks the length of your credit history. Closing older accounts can also make your credit history look younger than it actually is, which can hurt your score.Rather than closing accounts, pay down your credit card debt. That's something that actually can and almost always will improve your score.

Rather than closing accounts, pay down your credit card debt. That's something that actually can and almost always will improve your score.

Will Checking My FICO Score Hurt My Credit?

Unfortunately even credit experts are confused about this. The fact of the matter is that there are certain credit inquiries that hurt your score and certain inquiries that do not.

Applying for new credit is generally what hurts your score. Ordering a copy of your own credit report or credit score doesn't count. Those mass inquiries made by credit card lenders, who are trying to decide whether to send you an offer for a pre-approved card, also aren't going to hurt you, either unless you actually take them up on their offers.

If you want to minimize the damage from credit inquiries, make sure that when you shop for a mortgage you do so in a fairly short period of time. The FICO score treats multiple inquiries in a 14-day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed. For most people, one inquiry will generally knock no more than 5 points off a score (and scores typically run from 300 to 850, so that's not a big percentage).

Isn't It True That Credit Counseling Will Hurt My Score As Much As A Bankruptcy?

Not anymore. The current FICO formula ignores any reference to credit counseling that may be in your file. That's been true for the last three years, after researchers at Fair, Isaac, the company that created the FICO scoring system, noticed that people getting credit counseling didn't default on their debts any more often than anyone else.

Your ability to get a loan could still be hurt by credit counseling, however. Your current lenders may report you as late, because you're not paying what you originally owed or because your credit counselor isn't sending your payments in on time. Late payments do hurt your credit score.

Lenders consider other factors besides credit scores in making their decisions, as well. The factors they look at can vary widely. Most want to know your income, for example. Some want to know how much savings you have or whether you're a homeowner. Some will find credit counseling disturbing, while others see it as a good sign.

The mortgage lenders who don't like credit counseling generally treat its enrollees the same as if they had filed for Chapter 13 bankruptcy. Chapter 13 is the kind of bankruptcy that requires a repayment plan and is looked at somewhat more favorably than Chapter 7, which allows you to erase many of your debts. You might still be able to qualify for a loan from one of these lenders, although your interest rates will almost certainly be higher than if you had perfect credit.

If you plan to get a mortgage soon, and you're not already behind on your debts, it's probably smart to steer clear of credit counseling. If you're already in trouble, however, a good consumer credit counseling service might be able to help you get back on track.