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28 Jul 2014

Credit Score Myths and MORE Samurai Combat Tactics

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by Jesse Mecham

Welcome back, Grasshoppa! I, Jeremy, have awaited your return. If you missed it, last time we covered some credit score basics and provided a path to getting a free copy of your credit report.

If you are now or will ever be a mortgage shopper, the following will serve you well. I have seen many a mortgage application die at the hands of the cunning FICO, so let us not delay.

[POOF! I disappear from my seated lotus position in a bluish cloud of smoke and reappear beside a living, breathing credit report. “Gah!” you gasp.]

Be not afraid, Grasshoppa! By learning the furious five parts of its anatomy we can uncover corresponding attacks. The percentage shown is the weight each part carries in your total score.

Part 1 – Payment History (35%).

Late payments hurt. A lot. For seven years. (!) Lenders will check your credit before approval and sometimes again before closing. If you have missed any payments during that time, FICO could deal a fatal wound to your mortgage application and slay your homeownership dreams on the spot.

Part 2 – How Much You Owe (30%).

If you have a car loan, student loans, and three credit cards maxed out, this indicates a risk that you will be unable to repay your obligations should something unexpected happen (illness, loss of job, an “amazing” shoe sale, etc). Even if you are keeping up on your payments, FICO will ding you for maxing out.

Also, if you have more credit lines available than you could ever hope to repay, it negatively affects your score.

Which three? Ahhh, you show wisdom for one so good looking, Grasshoppa. Don’t go creating credit card confetti with your katana just yet.  Next time we meet, we will explore the three remaining parts of credit score anatomy and bring the whole creature into view.

*You have, no doubt, heard many myths and developed your own tactics. I cordially invite your questions and comments. When you do, we all get stronger.

Your Next Step

Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)

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