New Credit Advice: Dont Pay off Those Credit Cards!

Credit needed for real estate mortgage financing differs from credit needed for consumer loans. If you need help getting a home mortgage, these credit tips will help you.

Contrary to what many credit advisors say, paying off credit cards each month is not always the best action to take. When making credit card payments, don't pay the balance in full each month -- let a little roll over. Carry a balance on your credit card every other month --as little as a dollar. Paying balances in full does not increase your credit score; paying balances in full may in fact lower your credit score. Accounts with zero balances do not compute significantly in your total score. For instance, a credit card with a perfect payment history and no balance will not raise your credit score as much as a credit card with a low balance. Any balance keeps the card active so it computes in your credit score.

You most likely have been advised to cut up your credit cards and close your accounts. Following this advice degrades many credit scores.

Canceling Credit Cards

Canceling credit cards can lower your credit score. Keep your longest-term credit card account open to show long-term credit history. If this account has prior late notations, negotiate with the creditor to drop negative reporting on your credit history file. Slowly close out newer accounts after they are paid off. Keep your best accounts open -- those paid on time or reporting "pays as agreed" and with the longest history.

Credit card companies may raise your rate if you cancel a card before it is paid off; it is best to keep accounts with outstanding balances open until you pay them off.

Perfect Balance of Credit

1. Mortgage over one year old with all payments on time

2. Visa Card or Master Card with less than 10% of available credit as balance due

3. Discover or American Express Card with less than 10% of available credit as balance due

4. Auto loan either paid off or paid down with low payments compared to monthly income.

Debt-to-Income Ratio

Credit scores do not reflect income -- credit bureaus do not have income reported to them. However, real estate lenders look at the consumer debt-to-income ratio -- the amount of monthly debts in relation to the amount of earnings. Consumer debt is more highly regarded/scores higher if total debt is under 20% of net income, or total monthly payments on all debts is less than 35% of monthly gross income.

Qualifying Ratios

Lenders want the total debt ratio (the percentage of total monthly payments, including the new mortgage, to income) to be less than 33% for a typical conventional mortgage. This means the new mortgage payment, credit card payments, and all other monthly debt payments should not equal more than about one-third of the monthly income.

Lenders want the mortgage debt ratio (the percentage of the new mortgage payment to income) to be less than 28%.

Non-prime loans have lower standards; some lenders allow debt-to-income ratios as high as 55%. Borrowers with less than perfect credit qualify more easily for a non-prime loan compared to an "A-paper" loan.

Once you total your monthly expenses and determine your debt ratio, you can estimate how much you can afford for a house payment. For example, if your income is around $3,000 per month, you can afford a home with payments around $1,000 per month (including taxes and insurance) with a conventional loan, if your other debt does not total more than 5% of your income.

For investors, these equations change. Lenders expect 10%-25% down on investment property and allow about 75% of the rental income to offset the debt ratio.

Understanding your credit helps you manage your credit so you can obtain real estate financing, either for the house of your dreams or for your financial future.

(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.

Professor Jeanette Fisher is the author of "Credit Help! Get the Credit You Need to Buy Real Estate," "Doghouse to Dollhouse for Dollars: Using Design Psychology to Increase Real Estate Profits," and other books. Jeanette and her husband chose real estate investing to be able to care for their daughter with special needs. While buying and selling millions of dollars worth of real estate, the Fishers were forced into becoming credit experts.

Forget what you've been told about credit. Get the credit you need to buy real estate. Visit Real Estate Credit Help Center: http://recredithelp.com/

Brown Shoe downgraded to 'BB-' on weaker credit metrics - S&P
Forbes, NY - Aug 28, 2008
Inc.'s corporate credit rating to 'BB-' from 'BB', citing the accelerating decline in top-line sales and the persistent negative same-store sales at the ...
India's foreign credit at sound level: Japan rating agency Economic Times
S&P revises Anadarko outlook to 'Positive' CNNMoney.com
City's Credit Rating Upgraded KGTV, 10News.com
Forbes - Forbesall 84 news articles

Boston Globe
Analysts weigh credit card impact of Biden VP bid
Reuters - Aug 29, 2008
By Kevin Drawbaugh DENVER, Aug 29 (Reuters) - Credit card industry analysts are wary of the sector's regulatory outlook if Barack Obama, a harsh critic of ...
Video: Obama Makes Unscripted Convention Appearance AssociatedPress
all 1,101 news articles

Tax credit will provide needed boost for area homebuilders
Bizjournals.com, NC - 16 hours ago
With the recent introduction of the landmark federal housing legislation and its inclusion of a provision for a $7500 tax credit for first-time homebuyers, ...

Tri-Citians report scam credit union calls
Mid Columbia Tri City Herald, WA - 5 hours ago
If you've heard this voice on the phone, accompanied with a warning that your credit or debit card has been suspended or needs reactivating, you're likely ...
Fraud Hits Gesa Credit Union Members KVEW
Fraudulent Phone Calls About Gesa Credit Union KAPP
Scammers Switching Up Tactics; Now Using Text Messages KNDO/KNDU
KNDO/KNDU - Mid Columbia Tri City Heraldall 7 news articles

Expert offers the 411 on FICO scores
San Jose Mercury News,  USA - 10 hours ago
By Sue McAllister Anyone who has applied for a mortgage or a credit card in the past couple of decades almost certainly has had his or her "FICO score" ...

UPDATE 1-BioFuel amends credit agreement, shares rise
Reuters - 22 hours ago
O: Quote, Profile, Research, Stock Buzz) said it had amended its credit agreement to allow its subsidiaries full access to the $20 million working capital ...
BioFuel Announces Amendment to Credit Agreement MarketWatch
Ethanol start-up gets critical cash boost Minneapolis Star Tribune
all 17 news articles

Automated Bill Payments Are a Cinch (Not So Fast)
Sarasota Herald-Tribune, FL - 5 hours ago
Terry Perkins of Morristown, NJ, used a credit card to pay her Verizon bill each month. When her card expired, her phone service was nearly cut off. ...

No Wall Street Credit Seizure at US Open Grand Client Slam
Bloomberg - Aug 29, 2008
It's escaping the credit crunch unscathed. The US Tennis Association, organizer of New York's Grand Slam tournament, sold out its 84 luxury suites at an ...

The government credit card window is still open for struggling ...
Royal Gazette, Bermuda - 1 hour ago
The Government credit card window, however, is still open. So, let's see: the Federal Reserve (US government) backed the purchase of Bear Stearns (at a fire ...
Our view: A federal bailout of Fannie Mae and Freddie Mac may be ... Baltimore Sun
The Fannie & Freddie Question Wall Street Journal
Let's Codify Treasury's Link with GSEs American Enterprise Institute
Euroweek.com - StreetInsider.com (subscription)all 633 news articles

The Death of the Credit Card Economy
Slate - 3 hours ago
The Death of the Credit Card EconomyCar leases, student loans, no-money-down mortgages, and high credit limits are vanishing. ...

Wind Chimes and more...

Windchimes for great gifts!

How You Can Help Prevent Identity Theft