Monday, May 18, 2009

Things I learned about my credit score, Part 3

I continue to learn lessons the hard way with regard to how the credit bureaus work, and I will continue to share these lessons with you (all three of you) so you can learn from my mistakes.

Seeing as low as the interest rates are, my wonderful wife was doing some calculations on how much money we could save per month if we refinanced our mortgage at the current interest rates. I called our mortgage broker to start the process of getting an estimate and find out if it was feasible.

After the previous debacles with my credit score and getting our mortgage (you can go back and read Part 1 and Part 2 of this series if you missed them), I put a lot of effort into "fixing" my credit and getting my score back up where it should be. ...Or so I thought. More on that in a bit.

Remember when I took our HVAC company up on that 16-months same-as-cash financing?

Yyyyyeah, that turned out to be not such a good move.

However (comma) it didn't HAVE to be, and there's an important lesson learned here. If I knew then what I knew now, I could have had my cake HVAC system and ate it good credit score, too.

The big negative mark on my credit score that is preventing me from refinancing my house right now is because the BALANCE on my HVAC financing account is greater than 50% of the credit LIMIT on the account. Basically, they opened a credit account for me for the amount I needed for the new system and that was all.

In my current situation, the way forward for us is to just pay the balance down to less than 50% of the credit limit on the account and then wait for the credit bureaus to update a month or so from now. (Otherwise, the bank wants to charge us 1.5 points and 3/8% higher interest rate because my credit score is under 700 - but not by much).

If I had known this would be a big negative mark on my credit score, then I would have asked for them to set my credit limit at 2 x the value of the loan I was asking for so that my balance would be 50% of the limit. I tried calling the company to ask if they would just raise the credit limit for me, but they want all sorts of extra paperwork and it's just easier to pay the balance down.

Oh, so while I was on the phone with the mortgage broker guy, I was rather surprised at the advice he offered. He expressed downright remorse that I had just closed all sorts of credit accounts back in August. If you recall, when we were applying for our mortgage, our loan agent told us that the bank doesn't like for you to have lots of open credit accounts (even if they do have low or zero balance). I had several accounts open that I hadn't used in many years, so I closed them all.

THIS mortgage broker told me that it's important to keep REVOLVING credit accounts open for LONG periods of time (especially with low / zero balance) to show that you aren't one of those people who just spends and spends and maxes out your credit limits. I had a NEX credit card I opened in 1996 to buy a computer when I got back from my first deployment, and I thought the mortgage broker was gonna cry when he saw that I closed the account. He said now my "oldest" account is one that we opened in like 2005, so we have a much "shorter" credit history.

Aye caramba. Ever feel like you just can't win???

"For every expert opinion there is an equal and opposite expert opinion."
- I just made that up because it sure seems like it sometimes.

Bottom Line: While I wouldn't rule out taking advantage of same-as-cash financing deals, I would ask them to give you a credit limit that's twice what you actually want to spend so it doesn't show up as a negative mark on your credit report.


Hilary said...

Sorry about the financial woes, Kevin. Advice, as always is cheap. It's following it that can prove costly.

Sam said...

Interesting. I was also under the impression that open unused accounts should be closed. Wow. We closed our oldest sans Navy Fed (best buy) a few years ago and opened Circuit City...which is now in the tubes. His Star card went inactive so they said he had to reapply. Thus, now the only line of credit open minus a car loan, is the Navy Fed Visa.

Thanks for sharing...even though its sometimes not positive for you, at least you're helping others.

divrchk said...

Yikes! Since the mortgage broker knows what is bringing your score down, can you show him a check or bank statement showing the check has cleared as proof that you paid down the HVAC loan so you don't have to put the refinancing on hold?

I was about to close a bunch of old cards but looked it up and realized I should just leave them be so that is what I did.

blunoz said...

Corey - Unfortunately, no. The mortgage broker / banker dudes are helpless. It doesn't matter what story or justification you give them for why the score is low. Their rules are set such that if your score is < 700 then they have to charge you X points and Y additional interest rate. They have to have a hard copy credit report of your score to set your loan terms.

Black Shoe said...

Do you feel like we're four generations of Scouts? ES, You, Me and my dad?

a_former_elt_2jv said...

See your old post. I'm about to close on a house.