What affects credit scores? Seven Misconceptions

If you’re trying to raise your cred­it score to get a good rate for a refinance, you might be surprised by what affects—or doesn’t af­fect—your score.

More money improves your credit score.

False. Your level or sources of income don’t affect your cred­it score, although lenders may look at it when making loan deci­sions, according to the Fair Isaac Corp., the company that issues the commonly used FICO credit scores.

Ownership of several cred­it cards can hurt your credit score.

Mostly false. Having many cred­it lines isn’t necessarily a bad thing. Multiple lines give you a favorable debt-to-available-credit ratio. But use them correctly: It’s best to keep any balances below 10% or 20% of the total credit line. Anything more will affect the ratio of debt-to-available-credit, which can decrease your credit score.

Opening and closing credit lines can hurt your credit score.

True. New credit applications can decrease your credit score, so be careful about applying for new credit cards or personal loans before applying for a second mortgage, automobile loan, or other large line of credit.

Consolidating credit lines will help your credit score.

Mostly false. Although it may seem like a good idea to move all your balances to one card, that can actually hurt your credit score, since your debt-to-avail­able-credit ratio will spike on that card.

Changing jobs can hurt your credit score.

Partly true. Taking a new job or losing your job doesn’t affect your credit score. However, if you have a spotty employment histo­ry, lenders may hold that against you in making a loan. 

Co-signing for others can hurt your credit score.

Partly true. Simply co-signing on a loan for someone else may not affect your score, but if that per­son is late on paying the loan, it’s likely to show up on your report. And that’s a nasty surprise if you didn’t know the person was late.

Judgments and liens aren’t con­sidered in your credit score.

False. If you’ve had a judgment or lien filed against you, it’s con­sidered in your payment history, which represents 35% of your score.

Similarly, while most utility com­panies don’t report payment history to credit bureaus, your account will likely be reported if it is seriously delinquent and re­ferred to a collection agency. 

Do you have additional ques­tions? Contact me and we can discuss your specific situation and what can be done to raise your credit to refinance!

Short Sales 101

A short sale is when the lender accepts a lower mortgage pay­off from a seller because the ho­meowner owes more than the home is currently worth. They’re notoriously complicated to com­plete (unless you are dealing with a professional), but with more and more Americans underwater on their mortgages, they may be getting a closer look by lenders. 

“We’re starting to see that ser­vicers and lenders are viewing short sales as a better alternative than they had in the past,” said Daren Blomquist, spokesman for RealtyTrac, an online market­place for foreclosures. “Some of that relates to the fact that it’s getting harder to foreclose. There are additional requirements in terms of paperwork and require­ments that states and judges are imposing.” 

Short sales are gradually rising. This year, short sales are mak­ing up about 8% of total home sales, up from 7% in 2010, 5.5% in 2009 and 3% in 2008, said Mark Fleming, chief economist of CoreLogic, a provider of housing market data. 

“Short sales are sometimes referred to as a kinder, gen­tler foreclosure,” Fleming said. “Borrowers never get evicted, you never have the vacancy is­sue for the home, so it’s good for the market around it.”

Short sales also typically sell at less of a discount than foreclo­sures, and many say that a short sale is much less damaging to a homeowner’s credit than a foreclosure.

But often a short sale can’t be completed in a snap.

“In general, it is a totally differ­ent type of transaction. You’re not only selling a house, you’re negotiating debt. This is why working with an agent that has specific short sale experience is helpful,” said Jeff Osborne, Broker, RE/MAX Capital City. 

Selling via short sale

To qualify for a short sale, there has to be some sort of hom­eowner hardship that makes it impossible to continue mak­ing payments, Osborne said. A big misconception is that you can attempt a short sale simply because you’re underwater, he said. 

A homeowner interested in this approach should first be in con­tact with a qualified real estate agent and a real estate attorney, he said. Often, listing the home is the first step, but the bank also should be contacted at the start to request a short sale package, Osborne said. 

You definitely want to enlist the help of a real estate agent who deals with short sales on a regu­lar basis, since they’ll have more experience in dealing with lend­ers through the process. At RE/MAX Capital City many of the agents are experienced in deal­ing with short sales and also car­ry the CDPE (Certified Distressed Property Expert) designation.

Then prepare for a process that could take awhile. 

However, others that have gone through the short sale process with a RE/MAX Capital City agent say it’s worth it. Your credit score may take a hit, but rebuilding it without a foreclosure will be much easier.

If you know someone that may be contemplating a short sale, do them a favor and put them in contact with me, a professional real estate agent that knows how to navigate the complexities of a short