What Causes Bad Credit

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IMPORTANT BUYERS CREDIT INFORMATION YOU MUST KNOW!

I know what you are thinking "not making your payments, that's what causes bad credit", that is true, but did you know that even people who have never missed a payment may have low credit scores, and " Bad Credit"? Let’s see how this can happen, and what you need to watch out for.

What affects your FICO scores? Believe it or not there are many other factors that can affect your credit other than just missing or making your payments. Here are a few tips that you may not have been aware of. Debt-to-Available Debt Ratios More than once I have had people wanting to buy a home who have lived their lives with little or no credit at all. They are very saddened and surprised to find out they have too little debt! The fact is that you must have some credit, and in fact more credit is better than less. The key is that you must have a low debt-to-available debt ratio. This is how it works. If you have a $10,000 credit card, but you only have $2,000 spent on that card your ratio is 20%. If you have 4 credit cards and the total amount of all of the maximum credit amounts for those cards is $30,000, and you have a total spend on all of these cards of $15,000 then you have a ratio of 50%. The credit bureaus want you to have a total ratio of 30% or less to have the best scores. So if you have most of your cards maxed out, you can actually improve your credit by opening a new credit card and increasing your available credit, thus lowering your total ratio. The trick is to not go out and rack up more debt!

Balance Not only should you try to keep the ratio down, but you should balance the cards. If one is maxed out and one has a 0 balance you may want to transfer some of the balance over to the card with nothing on it. This can improve your credit since the credit bureaus do not like to see maxed out cards. Just keep an eye on the credit card interest rates as well. Age I am not talking about your birthday, I am talking about your credit account's age. If you have had a credit card for 20 years it is going to help you more than an account you have had for 2 years. That is why I recommend being careful when you start closing out accounts. There are times when this can negatively affect your credit score. Variety Believe it or not, there is a prefect balance of TYPES of credit as well. Installment loans, such as auto loans, revolving accounts, such as credit cards, and mortgage accounts, for home financing.

The credit Bureaus are looking for the ideal numbers of 1-2 mortgage accounts, 1-2 installment accounts and 3-5 revolving accounts. Something to keep in mind when deciding if you should open that new Best Buy account! Other things that you may not know Usually account such as cable bills, phone bills, gas bills, gym memberships, cell phone bills, and the like are not on and do not affect your credit. However they all can if you do not pay them for long enough. All of these types of accounts will place collection accounts on your credit if you do not pay them as required. One of the surprises many people find is from cell phone companies that you had cancelled and never paid the cancellation fee! There they are on your credit! There are two more accounts that can go unknown for years, but destroy credit. Unpaid Child Support and Tax Liens. Both Unpaid Child Support and Income Tax Liens can jump on your credit. Many lenders will not give any credit at all until these accounts are paid in full!

I hope this helps. If you are interested in MORE INFORMATION REGARDING YOUR PERSONAL SITUATION,  EMAIL OR CALL ME l and we can look into whether or not you are ready to buy a home! For more information keep an eye out or contact me for my next important series of informational newsletters!

Best Regards, Erika M. Kay, Real Estate Broker, Certified Foreclosure Specialist (951) 734-6447.

Erika M. Kay, Broker/Owner, Property Manager
Short Sale & Foreclosure Specialist (NARSFR)
SRES (Senior Real Estate Specialist)
Certified e-PRO

Independent Broker Consultants
1655 E 6th St. Ste A-1, Corona, CA, 92879
Office: 951-734-6447 - Direct: 951-545-3786
E-mail: erikakay02@gmail.com - Website: www.ErikaKay.com
CAL BRE #008047509