Saturday, July 19, 2008

Things I learned about my credit score...

As far back as I can remember, I've had really good credit. I can't remember ever having issues with my credit score. ...Until I recently applied for a mortgage to buy a house in Virginia. I discovered a couple of problems on my credit report of which I was previously unaware. I thought I would share these lessons I have learned the hard way to maybe help you avoid a couple of pitfalls I have unexpectedly encountered.

Problem #1: Beware PCS Moves! Be proactive in paying your final bills in your old duty station.

When I left for the training pipeline in Groton, I had orders to a boomer out of Bangor. While I was in the training pipeline, I got an ORDMOD (Orders Modification) sending me to a fast attack homeported out of Norfolk but on deployment and changing homeports to Pearl Harbor. When we sold our house and left the DC area, we provided a forwarding address for our final bills, but the final bill took a while to catch up with us in Hawaii at the end of the whole PCS move. As soon as we got the bill out here in Hawaii, we immediately paid it. Unfortunately, in the meantime, Dominion Power sent our final bill to a collection agency for the whopping $70 that we owed them.

The credit bureaus don't care so much what the reasoning was. All they care about is that you had an account that was sent to a collection agency. So the first two negative remarks on the credit report that surprised me were the "Negative Information - Collection" and the "Time since negative information too short." Ouch.

My advice to you is this: When you do your next PCS transfer, don't wait for your final utility bills to catch up with you in the snail mail to pay them. Proactively contact the utility companies and pay them over the internet or phone or whatever means necessary.
This is NOT a complaint about LW. She worked her butt off selling our house and doing the HHG packout without me. I certainly wouldn't have done any better a job than she did. I'm just saying that we both learned we need to be more careful about this in the future.

Problem #2: Don't open a new account every time you want to make a big purchase.

If you've been reading my blog for a while, then you might remember the big TV debacle. That was when I tried to buy a new TV - first from Best Buy, then from Circuit City, then from the NEX. Why didn't we just get it from the NEX in the first place? Because Best Buy was offering 90-days same-as-cash financing, and the price was a lot less than what they were charging at the NEX. (We eventually bought the TV through the NEX's price matching program, but we paid it all at once instead of three monthly payments).

It's been a while since the big TV debacle, so in case you don't remember or you have recently started reading my blog, here's a quick recap:
- Applied for Best Buy credit card online. The online program said in order to confirm my identity, it had to ask me some questions. The questions it asked were totally bizarre and had no connection with my past at all (see the blog post for details). So I said to myself, "Self, just go down to the Best Buy store, SHOW them your ID card so they KNOW who you are, and get the credit card."
- Applied for Best Buy credit card in store. Denied. The letter that came in the mail later informed me that I was denied because I already had a credit application OPEN on the Best Buy website. I'm sorry that just makes no sense to me - I'm STANDING there IN the store SHOWING you my ID card... sorry, I'll get off my soap box before I get into a long diatribe about this.
- Applied for Circuit City credit card because they had the same TV for the same price and offered the same 90-day same as cash financing. Denied. The letter that came in the mail later informed me that I was denied because I already had a Circuit City credit account from when we bought our washer and dryer in Monterey back in 1999. Again, why didn't they just say, "Oh, you already HAVE an account with us, what would you like to buy today?" Again, getting off my soap box now before I spend too much time expressing my frustration with them.

Okay, so back to the story at hand: my credit report.

Yyyyyeah, each time you apply for a credit card, they run a credit check. It turns out that credit check shows up on your credit report as sort of a, "Hey, this guy wants to open a Best Buy account, so we're running a credit check" blurb. It turns out that having a whole bunch of credit checks on your account in the recent past is looked on UNfavorably by the credit bureaus and lowers your credit score.

I discovered I had a big misunderstanding about credit through this experience. I always thought it was no big deal to have a lot of credit accounts open with zero balance. I figured that was GOOD. I mean, that tells people that a lot of different businesses trust you, right???


In the credit companies' eyes, if you have ten credit accounts open with $10,000 credit limits, you could theoretically go out and max out all of your credit cards and suddenly be in $100,000 of debt, and you might feel more compelled to pay THEM than to pay your mortgage. That doesn't give the mortgage lender a warm and fussy feeling inside. In order to boost their confidence that YOU will pay THEM, they would rather you had as few credit accounts open as possible. Having credit HISTORY (of establishing debts and paying the debts off on time) is GOOD, but having a dozen different retail store accounts open and not being used (even if they have zero balance) is NOT good.

My advice to you is this:

1) Obviously, my three credit applications all at once in the pursuit of a TV were a huge mistake. The credit bureaus don't care about the extenuating circumstances. All they know is that you tried to open three credit accounts. Be cautious about opening new accounts or allowing businesses to run a credit check on you. It is now much clearer to me why companies ASK if they can run a credit check on you, because simply by them doing the credit check - it's going to leave a mark on your credit history.

2) Close old accounts. If you bought something under some promotion, that's great. Did you pay it off? Good. Now close the account. I was surprised to see I had a couple of accounts on there that I hadn't used since like 1996, but the account was still open. I closed all of those extra accounts, but I doubt it will update in my credit report soon enough to help my credit score for this mortgage.

Like I said, I hope reading this will help you avoid these pitfalls.

1 comment:

Nereus said...

I also learned the hard way on this.
When I was transfered to the island, it took a major dept store forever to change our address(after mutiple notifications and phone calls by better half and myself) and when the bill caught up with us (for the paltry sum of less than 100 dollars on the original due plus interest and dink charges) it was now a tidy sum and on the verge of going to collections.
Paid in full but still a smear on the credit rating. Mainland to Hawaii snail mail is the worst.

When applying for a Mortgage, well, that is almost worse than sitting in with those folks who grant us security clearances. You need to justifiy every bump in the road along life.
I am sure with the credit climate on house loans what it is, you have your work cut out for you.

At least you don't have the challenge of a meth head or crack addict stealing your Identity. Now, there is a challenge that is as fun as a root canal without anesthesia..

Best of luck with the Move and finding a home for LW, ES and YS.

Make sure that it has a place for tools and "Man Space".