Balance chasing and how to limit further adverse action

If a credit card issuer seeks to reduce its risk with a cardholder, the issuer might opt to “balance chase” the customer by lowering the cardholder’s credit limit as the balance is paid down. Impacts of balance chasing If the cardholder was relying on the lost credit line for an upcoming purchase, they may find themselves scrambling to find other payment sources. The cardholder’s credit could also be affected due to the higher utilization rate. Let’s consider the following: The cardholder’s $10,000-limit card has a balance of $2,500 and a utilization rate of 25% …

The score that you need to buy a home

There isn’t a specific minimum score that you must have to get approved for a mortgage. Your credit score is just one factor that lenders use when deciding if, or how much, to lend to you. There are also various loan types, which have different minimum scores, as well. An FHA Loan, for example, requires a FICO score of 580 and a down payment of 3.5%. But, you could still qualify with a score lower than 580 as long as your down payment is 10%. Lenders also have their own thresholds for lending. As an example, …

How to obtain your credit reports for free

Because of the COVID pandemic, each week, you’re able to access AnnualCreditReport.com to obtain three free credit reports (one from each of the three major credit bureaus, which are Experian, TransUnion, and Equifax). The three bureaus initially intended to provide the service until April of 2021, but it was extended to April 20, 2022. Although there are many sites that offer free credit reports, beware that some sites engage in deceptive practices, which include misleading consumers by having site names and URLs similar to AnnualCreditReport.com. You’re encouraged to visit the government’s FTC (Federal Trade Commission) website …

The amount of credit that you need

The amount of credit that anyone needs is subjective and based on personal financial needs and wants. Someone who intends to only use credit as a more secure form of payment (versus debit) and plans to pay off credit card balances each month would need just enough credit to cover their monthly expenses that they plan to pay with credit card. A consumer who uses credit for emergencies would want to secure enough credit to cover such expenses. If you haven’t created a budget and determined how much you would need in the event …

Why you don’t need a perfect credit score

A perfect credit score is generally not required. In fact, lenders typically have their own set of underwriting terms that include other factors aside from credit score. Your ability to repay the loan, for instance, is often taken into consideration. So, even with a perfect FICO score of 850, you could still be declined for credit if you don’t meet the lender’s other criteria. Before applying for credit, it’s actually wise to contact your potential lender to inquire about their underwriting criteria. By doing so, you could save yourself a potential unnecessary hard credit inquiry if …

The effects of closing an account

When you close an account or tradeline, you retain the age of that tradeline for 10 years. But, you could still be negatively impacted by a closed account. For instance, closing a credit card will result in a higher utilization rate due to the credit limit from the closed account no longer being a part of your total credit card limit. Let’s consider the following scenario: You have a Visa and Mastercard, each with a $1,000 limit You only have a $250 balance, which is on the Visa card Your credit card utilization rate would …

The mortgage middle score

Your middle score is typically used by mortgage lenders when determining your mortgage eligibility. Your lender will obtain three credit scores from your credit reports, one from each of the three major credit bureaus (Experian, TransUnion, and Equifax). Of those three scores, the second-highest score is your middle score. Your credit report at each credit bureau contains many different credit scores and every lender doesn’t use the same score. You can contact your prospective lenders to determine which scores they use for …

Understanding what credit score you need

The credit score that you will need to obtain credit will depend on a number of factors, including the type of credit that you’re seeking, and most importantly, the individual lender’s criteria. Generally speaking, buying a car requires less scrutiny. Even with low or no established credit scores, a consumer would still be able to find a lender. However, it would likely come at a very high price in the terms of high interest rates. A home loan, on the other hand, involves more scrutiny and stricter lending guidelines because the value of home …

How to properly check your credit

When you check your credit, it’s important to not just obtain a credit report from one bureau. There are three major credit bureaus: Experian, TransUnion, and Equifax. Your reports at each bureau may not always have the same information, typically due to inaccurate data or the timing of the bureaus’ updates. Typical credit report discrepancies If you pull your report from all three bureaus on the same day and notice a discrepancy, such as one bureau not showing the most-up-to-date information, the most obvious reason for the discrepancy is that the bureau has just not updated …