THE CREDIT GAME: PART 2

Posted By Shafiq Jasar on Apr 10, 2012 | 0 comments


HOW TO AVOID/REDUCE DEADLY CREDIT HITS?

By Shafiq Jasar

You can save your credit rate from unnecessary damages through a smart strategy. Here are a few things you can do to protect your good standing with credit bureaus:

  1. Unless it is absolutely necessary, don’t allow any bank, credit union or another business to hit on your account.
  2. Unless it is absolutely necessary, don’t borrow money. Of course there are exceptions. One of these exceptions is when you try to build your credit and increase your scores. Or, you are using the money towards a business investment. Remember, borrowing money and paying it on time, as you promised the lender, is the only way to build credit.
  3. Never miss a payment of any sort for any reason whatsoever. Each missed payment is reported to the credit bureau and you are going to be punished for it.
  4. At least a few times a year (minimum once a year) check your credit. It is a free service. You can see how you are faring.
  5.  Protect your credit from potential abusers and identity theft. We’ve all seen on TV how many people fall victims to credit card and ID theft. No one is immune from this risk; however, you can take some steps to protect yourself.
    1. Learn the best practices for online commerce and surfing. There are many resources available on the subject.
    2. Shred all your personal information including address, name, banking statements and other paper traces leading to sensitive information about you.
    3. Keep your ID cards, birth certificate, driver’s license, passport, credit and bank cards close to you at all times. Those documents that are not needed every day should be kept in the safest but easily accessible place.
    4. Read all your credit card and banking statements on regular basis. See if there are unusual transactions there. If there are, immediately report them.
    5. Order your free credit report at least once or twice a year and see what is happing in your name. If you find anything that is not true report it right away.
    6. Don’t assume that major banks and big companies do not make mistakes. Check the accuracy of their reporting on your credit report. If wrong information is there ask these institutions to rectify their errors and then report the corrections to the credit bureaus.

A HIT IS A HIT:

Most people are not familiar with how the credit rating works. They don’t know how your scores are increased or decreased. It is an extremely complex process even for professionals. Service providers, sellers and lenders are eager to check your credit before they give you what you want. They will assure you that it is not going to affect your rating. This is not true.

Every single hit, as mentioned earlier, affects your rating. If someone makes a full credit check on you that is called a HARD HIT. If they check your credit worthiness in a brief and quicker way without asking for a full credit report, this is considered a SOFT HIT. Generally, a soft hit should not negatively affect your credit rating. Nevertheless, I always tell people that a hit is a hit and it hurts.

Keep in mind the more often you allow someone to check your credit the more negative effect it will have on your credit rating, no matter what the reason. Here is story from a client of mine:

“Once I was arranging a mortgage for an investment property through mortgage brokers. Since the house was a fixer upper with no functioning kitchen or bathrooms, several banks refused to give us the mortgage. As usual they would first check my credit and then send the appraiser to see the property. At the end they would refuse to give us the mortgage due to the poor condition of the house. This process would be repeated several times. Eventually we had no choice but to get a private mortgage with sky high rates.

A few months later I requested my credit report from the Equifax. To my utter surprise I had lost 60 points. Although my credit report was still ‘Excellent’ and had several great credit cards without any balance, however, I could not get a new credit card from a department store. The reason: So many previous hits on my credit”.

This lesson is worth remembering.

A GOOD CREDIT IS YOUR BEST ALL

How can good credit help you build your financial life?

A good credit, especially an excellent one, can open many doors for you and if you are a creative person you can beat the big banks in their own game.

Once you learn how to play, you can use your credit for personal and business opportunities. When you are arranging a mortgage, seeking a loan to expand your business or for investment purposes, a good credit can always become handy.

In the next article (Part 3) we will discuss how to repair your bad credit.

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