We are all aware of how the credit crisis and recession has caused damage to some important nation economic indicators including home prices, stock market indexes and retail sales. They have also affected a lot of people’s credit score as well. This is due to layoffs, reduced credit lights and much tighter credit standards. All of this has caused consumers to take advantage of loan-modification programs and lenders to be more willing to negotiate problematic debt. In the mean time, FICO has also introduced a new scoring method which is known as FICO 08. This new scoring method can raise or lower your credit score by as much as 50 points.
Here is what you need to know about how today’s credit events can either help or harm your credit score. Some of these things may even surprise you, which is why it is important to know how to protect your credit rating in today’s economy.
Your Credit Limit Is Reduced By Your Card Issuer
This will not affect your credit as much as you might fear. In fact, studies have shown that there was little to no impact on credit scores for this. These same studies have actually shown that the median score for these people actually rose a few points. So, while you don’t have to worry about this too much, you will want to pay attention to it next time.
Rate Hikes Cause You to Close Your Credit Card
This can hurt you somewhat if you have a large credit line and a low balance because the scoring model no longer includes the vast, unused credit that you had from this account. However, if you still have a sizable balance on this account, the negative effect will be smaller. For this reason you should keep your account open and only use it sparingly, especially if this is your oldest account. The reason behind this is the fact that the scoring model only knows your earliest credit experience. So, since these closed accounts will eventually be dropped from your report, the length of your credit history isn’t going to be apparent and you could be hurt by this.
Paying Down or Paying Off Credit Balances
This is one of the most effective ways in which to improve your credit rating because it will help your score by reducing your total jadwal bola credit use. It is important to make sure that you don’t do away with all of your credit though because it is still important to show some activity. If you are trying to improve your credit score, then make sure to pay off your balance as soon as possible. You also need to remember that there can be a lag between the time when a lender cashes your check and when they report your payment to the credit bureau.
Getting a Mortgage Modification or Short-Selling Your Home
This will probably negatively affect your credit score but it depends upon how the lender reports the transaction. If you have a modified loan agreement, then your lender will agree to accept a lower amount of money than what you had originally agreed to repay. More than likely this will not damage your credit report if you already have other bad marks on your credit report. If this is your only issue and you get it marked as “paid as agreed,” then the scoring model will never even know about it. However, if a loan modification or short sale is reported as “partial payment,” “deferred payment” or “not paid as agreed,” then your credit score may suffer a lot of damage even if this is the only thing wrong. For this reason, you should always know for sure how this will be reported before entering into the special payment plan. Of course, if you really need the help, you should take the deal even if it will hurt your credit score because the impact this has will eventually fade.
Being Rejected For a Loan Several Times
This is only a small negative since the scoring model doesn’t know if you have been denied credit. All it will see is the prospective lender’s inquiries. However, if there are too many inquiries, this will be seen as risky credit-seeking behavior unless you are loan shopping and all inquiries are made within 14 to 30 days as these will be considered as just one inquiry. Nevertheless it is still a good idea to apply for credit so that you will know what the loan officer’s credit standards are as well as what your prospects for approval are. If it is questionable whether you will qualify, then you should find a more lenient lender to apply with instead.
Having a Sub Prime or Adjustable-Rate Mortgage on Your Credit Report
This won’t affect your score in any way because the underwriting terms of the loan, or anything that may expose you as a big risk, will not be given to the credit bureaus. They also won’t be figured into your FICO score. Nevertheless, you will want to continue making your mortgage payments. If at all possible, it would be a good idea to refinance to an adjustable rate mortgage and take advantage of the lower rates that are currently available on fixed loans.