First, let me say that as I've continued to take classes and learn about this industry, I've become more and more aware of the value of good credit.  I've also become more aware of the fact that NOBODY (even my instructors) have the system figured out.  None of the three Credit Reporting Bureaus (Experian, Equifax and TransUnion) will tell anyone exactly how they calculate the numbers.  However, there are some general guidelines that we should all keep in mind as we shuffle cash and debt from one place to the next. 

 

 1)  If you have an open end loan (credit cards, helocs, etc) you can count on your credit being hurt if your balance is more than 50% of your spending limit. 

 2)  If you have a credit account that is less than 2 years old it is considered "young" credit and it is hurting your score...but not by much.  If you have "old" credit that is more than 2 years old, it is helping your score...so don't close old, unused accounts.  Just let them sit there.

 3)  There is no such thing as "potential debt".  You won't be penalized because you have 10 credit cards that each have a $20K limit and zero balance.  As long as those accounts are 2yrs old, they're helping you.  All it shows is that you're responsible with your spending and you have self control.

 4)  If you have an old collection (medical, unpaid parking tickets, etc) that was filed against you a few years ago and is not yet resolved.  DON'T RESOLVE IT.  Wait until after your purchase to pay it off.  If you pay it off before the closing then it will pop up as having "recent activity" which will further hurt your score. 

 5)  If you have fewer than 3 trade lines (people you're borrowing from that are reporting you to the bureaus) then you need to open more accounts.  Having less than 3 trade lines will hurt your score. 

 6)  If you don't have a wide array of different TYPES of credit, you won't have as high a score as you could.  I, for example don't have a car payment.  If I had a car payment that was in good standing then I would have a higher credit score. 

 7)  If you are looking to buy a house or a car, or to sign up for a consumer credit card (Best Buy, Macy's or Victoria's Secret, etc) you should know that each inquiry into your credit (happens each time you apply) will hurt your score.  HOWEVER, any inquiries that come from a single industry in a 45 day period count as only 1 inquiry.  For example: if you're shopping a mortgage with a lot of lenders and you have them each pull your credit in the same month, it will only show up as 1 inquiry.  Or, if you get a Best Buy and Macy's card in the same week.  That would only show up as a single inquiry because they are also in the "same industry".  Now, that single inquiry will still hurt you a little, but at least you can know that after the first pull you don't have to worry about letting other "same industry" companys pull it again. 

 I hope this is helpful for all of you and I'm happy to answer questions for anyone that wants to direct them my way...especially if you have experienced one of these rules personally and have a story.  I'd love to hear it.  Below I've posted 2 booklets with links which will each take you to the complete text of the booklet they follow.  You can probably find the answers to all of your questions there.  Please let me know what you think of this blog and comment liberally.  

Abe

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