POSITIVE CREDIT

                                                          cignafinancial.com

 These days it seems you can't get anywhere without good credit.  I am not sure about the entry requirements for Heaven, but I am sure of the entry requirements for mortgages.  Previously I have talked about negative credit, what can be done about negative credit, and the types of negative credit that can keep you out of the home ownership club.  Today I want to speak about positive credit, what it is, what lenders are looking for on a credit report and how to keep it that way.

  Positive credit isn't a credit report full of paid off and closed accounts.  We have already established that closed accounts don't do anything for your credit score.  What will burnish your credit score are open and active consumer credit lines. 

 Many people are confused about what actually reports on a credit report.  Your utility and rent payments do not make your credit report.  Student loans, personal loans from a bank or financial institution, mortgages, auto loans, and open credit cards are the items that report on the credit. The only time rent and utilities report is once they have gone bad and are reporting as judgments or collections-no one wants those items reporting that way.

   The other fact is that to maximize your credit you will need three of the above types of credit open and reporting for 12 months-and by reporting I mean reporting as on time payments. This doesn't mean that you can't obtain mortgage financing if you only have two open accounts-particularly if there are some old closed ones that reported on time on your credit history-but it makes it more difficult.  If you have less than three or they are newer accounts, rent payments become critical and you may have to back those up with cancelled checks.

   The type of credit that gives you the biggest bang for your buck is revolving credit-i.e. credit cards.  Let's say you have one credit card, your old standby, that has a lower interest rate, that you use frequently.  It has a three thousand dollar credit limit of which you have accessed $2500.  You make all your payments on time of course.  Your credit score will improve significantly if you add two more cards and spread that $2500 balance out among those cards.  Anytime a credit card is charged up close to the credit limit, even if the creditor will allow you to go over the limit, it hurts rather than helps. To get the best credit scoring keep your balances at 33% of your total credit limit.

  A variety of credit helps you as well. A student loan, two credit cards, an auto loan-mix it up for your scores to climb.

  Often consumer credit websites don't use the same computer models for scoring as a site used for scoring mortgages.  These consumer sites offer "educational" credit scores which may not go into the depth that mortgage websites use for scoring. This of course may encourage consumers to apply for products for which they are not qualified.  The Consumer Financial Protection Bureau has begun the complex task of looking at credit scoring models-there are 49 different possibilities-in order to try to make credit scoring more consistent and accurate.

  Another concern that I hear often is fear of having credit pulled too often.  There are different levels of too often.  If you have decided that you want to shop a number different companies for your mortgage loan, unless your credit is on the bubble of  qualifying, a couple of mortgage credit pulls shouldn't affect it other than a point or two. If however, you have decided to try to obtain a mortgage, buy a new car, and open several credit cards all within the same 90 day window-then your scores will suffer.  I would not advise having your credit pulled randomly, but if you go to a mortgage company or bank then decide to comparison shop, having another company pull your scores should not significantly hurt them.

  Since 2009 credit is king.  It is not only about your scores but what types of credit and length of time of reporting that makes the difference.  If  want to maximize your credit scores remember the following:

1) Use a minimum of three credit lines on a regular basis
2) Keep your credit balances to no more than 50% of the limit
3) Pay your bills on time. Once you pay 31 days late you will be reported as late
4) Student loans are Federal Debt-paying those late has a larger impact on scoring than paying a credit card
    late
5) Pay your rent on time-even though it doesn't report on credit most lenders ask for a rent verification as part of the lending process.  If your landlord reports even one late payment-it may not hurt your credit but it will kill your ability to be approved for a mortgage loan.