In this week's post we're going to touch on one major topic:
* How the Credit Card Crunch may DISQUALIFY you from being able to get a home loan!
Another Way Credit Cards Could DISQUALIFY You From a Home Loan!!
We've all heard over the news the last couple of months how the credit card companies are reducing the maximum limits on their customer's credit cards. If you're someone that only uses 25% of the credit limit then you shouldn't be too worried about a reduction of credit limit, right?
WRONG! I have a good friend that works as a finance manager at Edmark Superstore. As I was talking with him over the weekend he told me he had three different returning customers come to the store just this weekend to buy a vehicle. All three of these customers have always had PERFECT credit (800+ Beacon scores), but this time, less than 6 months later all three of them had a credit score of UNDER 690.
I know what you're thinking...times are tough, money is tight so they must have run up a little more credit than usual and that's what's hurt their credit, right?
NO! Each of these customers are like most Americans and carry a revolving balance on their credit card's and what happened to these three and a LOT of Americans has to do with a simple mathematical equation.
You see, in the credit industry there is a little known fact that revolving credit card balances with BUILD credit scores if they're 50% or less of the maximum limit and balances OVER 50% of the maximum limit with HURT your credit score. Do you see where this is going?
So, let's just say that over the last 5 years you've had a maximum limit on your AMEX card of $10,000 and that you carry a typical monthly balance of $2,000...that's 20% of the maximum limit...thus, HELPING your credit scores. Life is good.
Now however, AMEX decides that you're new maximum limit is going to be $3,000 (instead of $10,000). You're initial thought is, "No problem since I hardly every have that much outstanding."
Let's re-evaluate this thought. If your new limit is $3,000 and you carry a revolving amount of $2,000 then you're running a new debt ratio of 67% which is HURTING your credit month after month.
So the fact that absolutely nothing has changed on your part or your ability to pay your monthly bills your credit score is being damaged because the credit card company lowered your maximum limit. As a result, your credit score will drop and in some cases disqualify you from getting ANY loans...let alone a real estate loan.
What can you do to aviod this problem?
1. Lower your credit card debt.
This is nothing new and carrying monthly credit card debt isn't a great thing, but it's a really, really bad idea these days. So, get rid of the credit card debt as quickly as possible. There are several worksheets that can help you make a plan.
SmartMoney.com has a great worksheet and article about digging out of debt. Check it out to see if it can help you.
http://www.smartmoney.com/personal-finance/debt/digging-out-of-debt-12905/?hpadref=1
2. Watch the mail.
The credit card companies are legally obligated to notify you if they're going to lower your credit card limits. This will be done by mail unless you receive notification by email.
3. Sign up for online alerts
Ask your credit-card issuer if they offer online alerts that notify cardholders when they're nearing their credit limit. This will prevent over-the-limit fees.
4. Check your credit report
You can check them for free at annualcreditreport.com. If it has any errors you can report it to the three bureaus (Experian, Equifax, and TransUnion). Or, if you'd like you can call me directly and I can help you check this out.
5. Shop Around
If your credit limit gets lowered, don't cancel your card. That will hurt your credit score more than it does any good. Instead, shop around for more attractive credit card offers. Web sites like CreditCards.com and LowerMyBills.com help consumers compare offers.
Hope this helps you stay out of trouble!! :-)
