Jose Arellano
Agent
- Joined
- Aug 23, 2001
- Messages
- 44
Sorry, guys, that I hadn't been back to answer all these questions. I had forgotten about this thread until this morning. I'll try and answer as many questions that were brought up for me, while trying to make it as clear as possible.
First of all, for everyone that was told by people in the mortgage or other industry to close all old or unused accounts, I wouldn't doubt that. I was taught to tell people the exact same thing. Once the credit bureaus started to be a bit more open about their scoring models (which is still only just a tiny bit), it was realized that this advice was seriously hurting many people's credit. Last July, I completely changed my advice, as did everyone I know, and I feel bad about possibly having hurt someone's score with misinformation, and miseducation.
There ARE circumstances though in which it might benefit you to close some accounts. Everyone is different, but the credit bureaus only have about 10 scoring models, in which all people are pegged into. To begin with, Carl, when you were told to close your accounts in order to get your mortgage, it might have been that your available credit was either too much for your income, or that your credit profile made the bank think that you weren't as responsible with your credit as they wanted you to be, so they considered you a risk. I'm not saying I know anything about your situation, nor do I mean to offend, but I am just generalizing here to make the best info available. Your credit score takes into account many things, but available credit is not something that should hurt you generally. Straight from one of the credit reporting agencies, I have this note from my seminar: "A 25K limit with a 4K balance is actually better than a 5K limit with a 4K balance. Cumulative totals are the main things." Towards the end of the post here, I will post many things directly from my seminar in March that could serve as a very useful guide.
Dave, regarding your post, again I must say that misinformation is out there. Of course, if you have 100K available credit, and your credit report shows that you cannot keep payments up on a $1500 card, your credit report will take that into account and put it into your score. What credit scores represent is exactly this: THE SCORE IS SPECIFICALLY DESIGNED TO SHOW THE CHANCES THAT YOUR BORROWERS WILL HAVE A 90-DAY LATE WITHIN THE NEXT 24 MONTHS. That says is all right there. What that means is that a lender will take these scores and look at the four main factors that affect them, which show up right under the report. If one of them shows that you have too much available credit, it is mainly because the scoring model deems that as a risk that you'll have this 90-day late, even if you've never been 90 days late on anything.
A HUGE misconception is that stuff falls off your credit after 7 years. Dave,Jay, and Kyle hinted at this. This is a very important distinction I'm about to make here: BAD credit falls off after 7 years. Good credit history stays on your report as long as your account is open. Currently, the bureaus seem to have space on everyone's report to report up to 99 tradelines, so as long as your don't have 99 tradelines(extremely rare), the older accounts can stay on for quite a while. Dave, canceling unused cards that could help your credit history is a mistake. Jay, as stated, credit card accounts keep on reporting even if closed unless it is bad information and it has been longer than 7 years. A card closed in 1990 will still show on your account, for example, but I seriously doubt it is being updated. That would show it as active, and if it is really closed, I just think it is just continuing to show up, as it is part of your credit history. This credit history is different than the one that shows how old your accounts are, as those are already closed and don't figure into this calculation. In other words, if you had a card from 1975 to 1980 that was closed but still shows on your account, and your current longest open account was opened in 1990, then your credit history is 13 years as of right now, although the old account is taken into consideration for your credit (payment)history (your trend of paying, etc.) Kyle, again, what you were told was incorrect. The 7 year figure is solely for bad credit. Good credit stays on longer, so it is not at all irrelevant. Available credit should not be a factor in the loan decision unless the credit scores deem that a risk, or the bank uses a qualifying model that takes this into account. Honestly, available credit has never been a factor in my loan decisions, but I will say that that is because the credit score should have already taken that risk into account. If your score is low, they will tell you to close some of your available credit, but it is mostly based on history.
Okay, sorry for those long explanations. Also, the people I referred to, it was not singling you out, but rather answering questions posed by you, or rebutting statements made in your posts. Also, I am given you the best information available to myself, and although I consider myself to be on top of most things in this industry, I, in no way, purport myself to be an expert or 100% correct in my statements(absolving myself from legal ramifications
)I will post some credit scoring facts below, and if you need further explanation, just ask.
CREDIT INFO:
Your credit score is made up of 5 things: Payment History, Balances, Credit History, Type of Credit, and Inquiries.
Payment History is appropriately 35% of your score. Taken into account here is recency, frequency, and severity. Pretty self-explanatory, but ask questions if you want more detail.
Balances or "credit utilization" is about 30% of your score. On revolving balances(chargecards), using more than 50% of your available credit on them is bad. Using more than 75% is even worse. Like I stated earlier, it is better to have $800 on each of five cards with a $5K limit than it would be to have a $4K balance on one card and zero balances on all the others. Also, to reiterate, we are now instructed to NEVER TELL A BORROWER TO CLOSE AVAILABLE CREDIT NOT BEING USED. Cumulative totals are the main thing. Another thing to do is actually utilize this credit, so it shows up. What was recommended is that "If you are going to refinance in October, pull out your cards in September. Having a small balance is better than no balance because you are utilizing your credit."
Credit History accounts for about 15% of your score. It adds up the length of time and divides by all cards, so new cards bring down the length of time. DON'T CLOSE OLD REVOLVING ACCOUNTS. Also, this is why they say that the oldest cards should not be closed. I seem to have been a bit mistaken when I said your oldest account denotes your credit history as it is not the exact length that is recorded, but that longer history weighs it down further. Hopefully that made sense.
Type of credit accounts for 10% of your score. The worst type of accounts for your score are finance company installment accounts, such as the "buy now, pay later" accounts, offered by furniture stores or (gulp!) Circuit City, Best Buy, etc, where payments are not due until 2 years later.
Inquiries make up 10% of your score. They are looked at over a period of 12 months. 5-7 inquiries is the norm for a year. Above that, an inquiry will cost you between 5-15 points. If your file is a bad credit file, each additional inquiry could cost you 30 points off your score. As soon as a year is up, the inquiry falls off. There is also special condition for mortgage inquiries now. As long as mortgage providers, etc. run your report pretty close to each successive one, your score only gets hit once. They only count against you individually if they are run after more than two weeks from the preceding one. This helps people who might want to shop around on their refi or something. This is a rolling 2 week period, so as long as each successive report runs within two weeks of the last one, your inquiries only take one hit. This could, theoretically, run for perpetuity, but how many people will actually do that?
Scores run from 350-850. The median score is 720. Only 15% of the population has above a 790. Promotional inquiries, like from someone running your credit so they can offer you a credit card or something you did not ask for, do not count against you. Neither do self-inquiries.
Whoooo! Sorry, that was a long post, but figured it would help everyone here to better understand your credit. Ask any questions you want, and I'll try my best to answer them or find an answer for you. If any of you need to refinance any property in Texas, drop me a line. Finally, I go by Lenny(my middle name is Leonardo) but registered under my real name cause that's what I thought we had to do, so refer to me as Lenny. Thanks!
Lenny
First of all, for everyone that was told by people in the mortgage or other industry to close all old or unused accounts, I wouldn't doubt that. I was taught to tell people the exact same thing. Once the credit bureaus started to be a bit more open about their scoring models (which is still only just a tiny bit), it was realized that this advice was seriously hurting many people's credit. Last July, I completely changed my advice, as did everyone I know, and I feel bad about possibly having hurt someone's score with misinformation, and miseducation.
There ARE circumstances though in which it might benefit you to close some accounts. Everyone is different, but the credit bureaus only have about 10 scoring models, in which all people are pegged into. To begin with, Carl, when you were told to close your accounts in order to get your mortgage, it might have been that your available credit was either too much for your income, or that your credit profile made the bank think that you weren't as responsible with your credit as they wanted you to be, so they considered you a risk. I'm not saying I know anything about your situation, nor do I mean to offend, but I am just generalizing here to make the best info available. Your credit score takes into account many things, but available credit is not something that should hurt you generally. Straight from one of the credit reporting agencies, I have this note from my seminar: "A 25K limit with a 4K balance is actually better than a 5K limit with a 4K balance. Cumulative totals are the main things." Towards the end of the post here, I will post many things directly from my seminar in March that could serve as a very useful guide.
Dave, regarding your post, again I must say that misinformation is out there. Of course, if you have 100K available credit, and your credit report shows that you cannot keep payments up on a $1500 card, your credit report will take that into account and put it into your score. What credit scores represent is exactly this: THE SCORE IS SPECIFICALLY DESIGNED TO SHOW THE CHANCES THAT YOUR BORROWERS WILL HAVE A 90-DAY LATE WITHIN THE NEXT 24 MONTHS. That says is all right there. What that means is that a lender will take these scores and look at the four main factors that affect them, which show up right under the report. If one of them shows that you have too much available credit, it is mainly because the scoring model deems that as a risk that you'll have this 90-day late, even if you've never been 90 days late on anything.
A HUGE misconception is that stuff falls off your credit after 7 years. Dave,Jay, and Kyle hinted at this. This is a very important distinction I'm about to make here: BAD credit falls off after 7 years. Good credit history stays on your report as long as your account is open. Currently, the bureaus seem to have space on everyone's report to report up to 99 tradelines, so as long as your don't have 99 tradelines(extremely rare), the older accounts can stay on for quite a while. Dave, canceling unused cards that could help your credit history is a mistake. Jay, as stated, credit card accounts keep on reporting even if closed unless it is bad information and it has been longer than 7 years. A card closed in 1990 will still show on your account, for example, but I seriously doubt it is being updated. That would show it as active, and if it is really closed, I just think it is just continuing to show up, as it is part of your credit history. This credit history is different than the one that shows how old your accounts are, as those are already closed and don't figure into this calculation. In other words, if you had a card from 1975 to 1980 that was closed but still shows on your account, and your current longest open account was opened in 1990, then your credit history is 13 years as of right now, although the old account is taken into consideration for your credit (payment)history (your trend of paying, etc.) Kyle, again, what you were told was incorrect. The 7 year figure is solely for bad credit. Good credit stays on longer, so it is not at all irrelevant. Available credit should not be a factor in the loan decision unless the credit scores deem that a risk, or the bank uses a qualifying model that takes this into account. Honestly, available credit has never been a factor in my loan decisions, but I will say that that is because the credit score should have already taken that risk into account. If your score is low, they will tell you to close some of your available credit, but it is mostly based on history.
Okay, sorry for those long explanations. Also, the people I referred to, it was not singling you out, but rather answering questions posed by you, or rebutting statements made in your posts. Also, I am given you the best information available to myself, and although I consider myself to be on top of most things in this industry, I, in no way, purport myself to be an expert or 100% correct in my statements(absolving myself from legal ramifications
)I will post some credit scoring facts below, and if you need further explanation, just ask. CREDIT INFO:
Your credit score is made up of 5 things: Payment History, Balances, Credit History, Type of Credit, and Inquiries.
Payment History is appropriately 35% of your score. Taken into account here is recency, frequency, and severity. Pretty self-explanatory, but ask questions if you want more detail.
Balances or "credit utilization" is about 30% of your score. On revolving balances(chargecards), using more than 50% of your available credit on them is bad. Using more than 75% is even worse. Like I stated earlier, it is better to have $800 on each of five cards with a $5K limit than it would be to have a $4K balance on one card and zero balances on all the others. Also, to reiterate, we are now instructed to NEVER TELL A BORROWER TO CLOSE AVAILABLE CREDIT NOT BEING USED. Cumulative totals are the main thing. Another thing to do is actually utilize this credit, so it shows up. What was recommended is that "If you are going to refinance in October, pull out your cards in September. Having a small balance is better than no balance because you are utilizing your credit."
Credit History accounts for about 15% of your score. It adds up the length of time and divides by all cards, so new cards bring down the length of time. DON'T CLOSE OLD REVOLVING ACCOUNTS. Also, this is why they say that the oldest cards should not be closed. I seem to have been a bit mistaken when I said your oldest account denotes your credit history as it is not the exact length that is recorded, but that longer history weighs it down further. Hopefully that made sense.
Type of credit accounts for 10% of your score. The worst type of accounts for your score are finance company installment accounts, such as the "buy now, pay later" accounts, offered by furniture stores or (gulp!) Circuit City, Best Buy, etc, where payments are not due until 2 years later.
Inquiries make up 10% of your score. They are looked at over a period of 12 months. 5-7 inquiries is the norm for a year. Above that, an inquiry will cost you between 5-15 points. If your file is a bad credit file, each additional inquiry could cost you 30 points off your score. As soon as a year is up, the inquiry falls off. There is also special condition for mortgage inquiries now. As long as mortgage providers, etc. run your report pretty close to each successive one, your score only gets hit once. They only count against you individually if they are run after more than two weeks from the preceding one. This helps people who might want to shop around on their refi or something. This is a rolling 2 week period, so as long as each successive report runs within two weeks of the last one, your inquiries only take one hit. This could, theoretically, run for perpetuity, but how many people will actually do that?
Scores run from 350-850. The median score is 720. Only 15% of the population has above a 790. Promotional inquiries, like from someone running your credit so they can offer you a credit card or something you did not ask for, do not count against you. Neither do self-inquiries.
Whoooo! Sorry, that was a long post, but figured it would help everyone here to better understand your credit. Ask any questions you want, and I'll try my best to answer them or find an answer for you. If any of you need to refinance any property in Texas, drop me a line. Finally, I go by Lenny(my middle name is Leonardo) but registered under my real name cause that's what I thought we had to do, so refer to me as Lenny. Thanks!
Lenny
