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Credit Grooming

You might have a late payment or two on your report. Don’t panic! If the situation calls for it, a lender may ask for a written explanation of why the payment was late. If your excuse is believable and reasonable, the late payment will be ignored, especially if it is older and your payments have been prompt since then.

In the case of a single bad mark on an otherwise good credit history, many mortgage lenders will simply ask for a written explanation of the late payment. If the explanation is reasonable and believable, many lenders will overlook the isolated problem—especially if it occurred some time ago and your credit has been good since. Lenders are most concerned with your immediate credit history, within the last 2 years, as this gives them an accurate picture of your current financial status.


High Balances
Besides negative credit listings, high credit card balances can damage your credit score. Make it a priority to pay down your high credit card balances, however, you should always pay your home and auto loans first. Pay down cards that are over the limit first. Pay off individual cards one at a time, but do not close them once they are paid off. If complete pay off is not possible, do what you can to reduce the debt-to-limit ratio below 50%.


Excessive Inquiries
Be aware that any time you apply for credit, lenders will report the application to at least one of the credit bureaus. This is called a “credit inquiry”. A high number of inquiries into your credit history can send up a red flag that you are in too much debt and continually seeking multiple sources of credit.

When shopping for a competitive loan when buying a house or car, you will not be penalized for applying to several companies for credit. The credit bureaus understand this process and make provisions for multiple inquiries over a short period of time (usually 2- 3 weeks) to count as one inquiry.


Excessive Accounts
When you’ve paid all your cards off, close the most inactive accounts, leaving yourself with 3 or 4 cards. Make sure you keep your oldest card open.

Upon learning of your low credit score, don’t panic and close multiple credit card accounts. Some experts will give this advice, but what this does is actually shrink your available credit limit and subsequently raises your debt-to-limit ratio. Not a good thing. Your debt-to-limit ratio is your actual account balance divided by the available credit limit on the account. A $3000 balance on a $6000 account is a 50% debt-limit ratio. You may try to ask your credit card company to increase your credit limit in order to reduce this ratio, however, if they pull your report, an inquiry is created and that could lower your score.




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