Jamie Preidt, Branch Manager
The Lender has nothing to lose; they have my home as collateral if I don’t pay
The lender does not make the loan decision based upon the fact that the loan is collateralized. The lender is not in the business of owning people’s homes if they don’t pay.
A lender will never make a loan knowing the person will not or could not pay it back as agreed. To a bank, a foreclosure is a black mark and considered a failure of their lending practices. A non-performing loan takes major collecting efforts, is expensive, and hurts the profit of the bank.
Loan performance is measured and managed very carefully and is a reflection of the banks lending expertise. The lender will only approve a loan they know with a high degree of certainty will perform profitably. The loan is only secured with collateral for the sole purpose of recovering they money if the loan does go bad. This is strictly the recourse of last resort.
Every time my credit is checked, my score goes down.
Any inquiry you make directly to the credit bureau does not affect your score at all. Additionally, an inquiry by a creditor who is managing an account with you, inquiries by employers, and inquiries for pre-approval solicitations do not affect your credit score.
The only inquiries that affect your score are those that you authorize when applying for new credit. The impact of a single inquiry on your score is minimal; in fact, an inquiry carries the smallest weight of all the score factors. Normally, you can expect two to five points off your score, although it can range up to 50 points in those rare cases when a person has little other activity in the credit file.
It hurts to shop around when applying for a loan because of the multiple inquiries.
When you are shopping for auto or mortgage financing
, all inquiries within a 14 day period only count as one inquiry. Furthermore, that inquiry does not show up on your score for 30 days. You are given this 30 day buffer in order to shop and in most cases you will already have loan approval by the time the inquiry affects your score. The key to shopping for a loan is to concentrate the inquiry into a two week period whenever possible.
Accumulating too many inquiries hurts my score.
Any and all inquiries after 10 in a 12 month period will have no additional negative effect on your score. Another way to look at this is if you have 30 or 40 inquiries in a year, that will have the exact same effect as someone who has 10 in that same period. In other words, ten inquiries in 12 months is a cap on the negative impact of the number of inquiries.
I can raise my score by shutting down some accounts.
Shutting down an account will never bring up your score. In fact, in many cases, this will hurt your score.
The FICO credit scoring system measures the ratio between your overall credit limits to your outstanding balances. By shutting down an account, you in effect lower the available credit and in doing so, you raise your credit balance to credit limit ratio. This will negatively impact your credit score.
If I shift my credit card balances to one or two cards an pay off others it will raise my score.
A maxed out credit card or line of credit impacts your score negatively. By shifting money from 5 or 6 accounts that have low balances over to one or two accounts, and thereby maxing them out, this will negatively affect your score.
The ideal number of credit card accounts is between two and four cards with very low active balances that are paid as agreed.
When applying for a loan, I should pay off all collections in order to get my score up.
Paying off collections could hurt your attempts to get the loan especially if it is an old public notice or collection account. The FICO scoring
system measures any recent derogatory activity in your file. If you pay off a three year old collection that has in effect seasoned out its impact on your score, you then re-activate that derogatory account and this will negatively affect your score.
Always check with your lender or mortgage broker before taking any action of this kind. If your goal is to obtain a loan in the near future, often it is better to pay off those old collections out of the proceeds of the loan, or bring money to the loan closing any pay them off as a condition of the closing.
If I open up new lines of credit at lower rates, this improves my score.
In most cases, this is not true. The credit scoring system measures the types of accounts in your file as well as the age and history of use.
The average age of your overall credit file is measured and will affect your score. By opening up new lines of credit, you reduce the overall average age of your file and this will bring down your score. Likewise the type of credit you open has an impact. Multiple consumer finance accounts will score less positively than a major credit card or an installment loan at a bank.
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