Is It Wrong to Do the Right Thing?

Housing Scene

In an effort to improve their borrowing position, many are committing mistakes, such as consolidating credit cards

September 15, 2002|LEW SICHELMAN | SPECIAL TO THE TIMES

It is better to have five credit cards, each with $5,000 limits and four with $1,000 balances, than to consolidate all that into a single card with a $5,000 limit and a $4,000 balance. When you are only using 16% of your available credit, the system sees you as self-disciplined and low-risk. But when you are using 80% of your available credit, you've changed the picture entirely. "From a risk perspective, who would you loan to?" Ferguson asked. "You'll get far more mileage out of paying your available balances down to 30% or less of the credit available to you than you will by paying off some cards and leaving others maxed out."

For The Record
Los Angeles Times Thursday September 19, 2002 Home Edition Main News Part A Page 2 National Desk 15 inches; 569 words Type of Material: Correction
Credit scores--A story in Sunday's Real Estate section on borrowing misstated that only one of the three major credit bureaus uses FICO scores. All three use the computerized credit scores.
For The Record
Los Angeles Times Sunday September 22, 2002 Home Edition Real Estate Part K Page 2 Features Desk 1 inches; 62 words Type of Material: Correction
Credit scores--A Sept. 15 story on borrowing said that only one of the three major credit bureaus uses FICO computerized credit scores. All three use the scores.

The length of time you've had credit can be critical too. A short history is indicative of risk, especially if other negative factors exist. If you transfer the balances from accounts you have had for three, four or five years into a brand new account, even one carrying a lower interest rate, you no longer have any longer-term credit to evaluate.

Scoring models "don't like limited credit histories," said the scoring expert. "The longer you've had credit, the more time there is to analyze. If you've had credit for only a few months, the system won't know how you are going to perform. Therefore, a seasoned file is going to score higher."

Models aren't crazy about lots of credit inquiries, either. Multiple inquiries contribute less than 10% of the weight of a score, depending on what else is in your file. Ordinarily, inquiries alone will not lower a score dramatically. But timing is key. Multiple requests by auto dealers or mortgage companies made within a 14-day period count as one inquiry. But quality-control inquiries and all others older than 30 days before the date on the current report will have an effect.

Which is why you should be "very cautious" of surfing the Internet for a loan, Ferguson said. "You can look all day long. But the minute you authorize an online lender to pull your credit report, you are creating an inquiry" that could count against your score, she said. Finally, if your score is high enough to obtain the rate and terms you are after, leave well enough alone. "If it's not broken, don't fix it," Ferguson said. "Even if you think your score should have been higher, don't try to fix it in the middle of the lending process. Wait until after the fact; otherwise, chances are good your score will go down, not up."

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Lew Sichelman is a syndicated real estate columnist. He can be contacted via e-mail at lsichelman@aol.com. Distributed by United Feature Syndicate.

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