I know its been a while, but it has been a very busy month. I have addressed credit issues in my newsletters, but I wanted to share some information based on a situation that arose with a client.
Often, people that pay their bills on time will assume that their credit is good (and rightly so). Recently, I was helping some clients obtain financing and to their surprise there were some credit issues that they were not aware of. In fact, it was because they had good credit that they found themselves having lower credit scores than they thought they had, yet they had a near perfect (if not perfect) payment history on all of their accounts.
They had opened several new accounts over the past 12 months, and this had in turn reduced their credit scores. It was not a total disaster, as I was able to help them accomplish their goals, and also put them on the road to keeping the strong credit rating that they had.
Why did this happen? Credit score are based on algorithms (which are computerized scoring methodologies based on the factors in the credit report indicating how a borrower is using their credit). When the algorithm sees several new open lines of credit within a 12 month period, it will continue to reduce the borrowers score. This is based on the theory that if they are acquiring lots of new credit, it could be a sign of needing financial resources above and beyond their income. Of course, it could also mean that since interest rates are so low, they would rather use the banks money (especially on a zero interest balance transfer). After paying on these accounts for a few months in a timely manner, the algorithm will realize that the borrower is still maintaining their historical timely payment pattern, and the scores will come back up.
If you would like a FREE credit check up, please contact me for a no obligation credit report and consultation.
Until next time....
Anthony
