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Be Smart About CreditSean Lowry, Senior Vice President of Pacor Mortgage Corp. on LaSalle St., offers this advice on credit. 1. Check your credit once a year. Free credit reports, however, do not give the kind of detail necessary to manage an issue, if there is one. Call a mortgage lender who can provide you with the kind of report used to secure financing when you buy a home. 2. Open lines (three or more) are a good thing, but active lines with balances and timely payments are better. Credit scoring models are driven by on-time payments of existing lines. With an existing active line, credit scores may go as high as 850. If you do not actively use your credit, scores are likely to be in the 660 -699 range. 3. Utility bills are now reported to the credit bureaus, as are things like Bally's Fitness and many creditors that in the past were not credit bureau worthy. Their reports now affect your scores just like credit cards. Let them go until the next month because the balance due is too small to write a check, and you'll impair your credit in no time. Big or small, pay it on time. 4. Both federal and state tax liens are reported to the bureaus and will negatively affect your scores. And, if you're buying a home, they must be paid in full to get normal mortgage rates and terms. Otherwise, you'll pay handsomely for the right to deny Uncle Sam his fair share. Rates on mortgages with a tax lien often exceed normal mortgage rates by 3% to 4%. Suddenly a 6.25% 30-year fixed mortgage shoots up to about 10.25% on a 2-year adjustable rate mortgage. 5. Check with a credit advisor or mortgage lender when considering co-signing or guaranteeing a mortgage for a child, sibling, significant other or your parents. It's not that you can't or shouldn't help them, but there are ways to help that won't put your good credit at risk. |
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