Final part: Answers to your credit questions

This is the final installment of answers to your credit questions.

Thank you for submitting them. And thanks to Consumer Credit Counseling Service of Greater Atlanta for answering them. (If you missed the previous parts, you can scroll down this blog for the other postings.)

Q: I was unemployed for about 3 years (job went to India). During this time, my credit took a hit. I had a rental property that I couldn’t keep up the notes on, and it was subsequently foreclosed on. Now I’m having trouble getting any kind of loan because of my recent credit bump. Is it the norm for lenders to ignore your total credit history, and just focus on the 1 or 2 bumps? It seems to me that a person’s total credit picture should be considered. Any thoughts or suggestions?

A: Actually, a foreclosure is a more of a negative on your credit record than a mere “bump,” such as falling behind on paying a credit card. A foreclosure can be a negative for seven years. For two years after a foreclosure, be diligent about paying other debts on time to make sure your credit isn’t further damaged. Also, avoid applying for additional credit for two years. If you do you get a loan during that time period, it will likely be on unfavorable terms.

Q: Why does a revolving account give you more points on your credit score than paying down a car loan or personal loan that has been in good standing for 3 years? Why does one collection or charge off on your credit bring down the score so bad when you have about 4 or 5 accounts in good standing?

A: Everyone’s credit mix is different. Every score is made up of five components: Seeking new credit, balances owed, making on-time payments, the length of your credit history and the mix of credit types you have. On that last point, if you have mostly revolving accounts and no mortgage loan or student loan that has been paid over time, creditors will penalize that mix. That’s because they reward borrowers who have demonstrated they can handle all kinds of credit. Any collection activity in the past three months will have a big negative impact on your credit score, no matter how many accounts you have in good standing.

Q: I plan to purchase a house this year (first-time home buyer) but I have a credit score of 630. Is there anything other than paying bills on time that I can do to increase that score fairly quickly (before year’s end)?

A: Paying bills on time will help your credit score. Other things you can do include paying down existing debt, not making any new applications for credit and maintaining existing credit card accounts. You should also pull your credit report for free to check for inaccuracies that are hurting your score.

If everything is accurate, consider waiting until you’ve had time to improve your credit score over time, so you won’t have to pay what will likely be a very high interest rate if you rush into a purchase this year. You should periodically check your score and work to increase it to around 720 to get better interest rates. If your credit report is accurate, it may take a year to bring your score up to the range that will work best for you.

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