Credit 101: True or False

I receive a lot of questions on a daily basis from prospective buyers (especially first time home-buyers) relating to finances and primarily, CREDIT! Today, we are playing a little game of True or False as they relate to all things credit! What I love about Real Estate is the opportunity to learn and grow on a daily basis.  Many times, I grow right along with the people I’m working with and seek out answers to things I’m unsure of.  Yesterday, I had the opportunity to speak with David Bryce, Senior Loan Officer with Priority Home Lending and he broke down some of your most common credit questions.  If you are considering purchasing a home, I highly suggest giving him a call at 425.466.4533 and know he will be able to answer any questions you may have as they relate to financing. Also, feel free to email rachelwagner@johnlscott with any other questions you may have, I’m always happy to help!  Happy Wednesday and I hope you learned as much as I did in the following Q&A.

1.  Paying off an account that has been turned over to the creditor’s collections department or a collection agency will increase your credit score.

Sorry to start out with what amounts to a trick question but, the correct response is false- most of the time.  Only if the account has gone into collections recently is it wise to pay it off.  Older accounts should be left alone.

Scoring systems place the most emphasis on the most recent activity in your credit record.  Paying off collection accounts, no matter their age, registers as recent activity.  Consequently, the closer such a step takes place to pulling a credit report, the lower your score will be.  If the date of the last activity exceeds 12 months, leave it alone.

If the mortgage lender requires that you pay off an account in collections as a condition of obtaining funding, do so as part of the closing process so it will not impact the score the lender will pull shortly before closing to make sure nothing detrimental has happened to your credit since the loan was first approved.

2.  Closing a credit card account will increase your score.

False.  Closing a credit card could actually lower your score because the amount of revolving credit available to you will decrease.  Rather than close an account, keep your balance below 30% of its limit.  Credit scoring models rate debt utilization or the amounts owed on your accounts, almost as important as payment history.

3.  Having cash on hand in a saving account will improve your score.

False.  While lenders prefer that borrowers have some cash reserves to tide them over in case of emergency, scoring systems look only at credit.

4.  Borrowing money from a finance company is no different than borrowing from a bank.

False.  All credit accounts are not ranked equally.  Credit from finance companies will score lower than a bank card, travel and entertainment card, oil card or auto loan.  Ditto for payday loans, cash advance loans, check advance loans, post dated check loans or deferred deposit check loans.

5.  Seeking the help of a qualified consumer credit counselor will automatically improve your score.

False.  More often than not, a credit counselor negotiates on behalf of the consumer to make a lower monthly payment on an overdue account.  Even thought the creditor agrees, it is not the same arrangement for which the consumer signed up originally.  As a result, the payment more than likely will appear as late on the person’s credit report.

6.  You only need to worry about your credit score when you are buying a big ticket item such as a house or automobile.

False.  With the amount of fraud and identity theft taking place, all of us should check our credit reports at least once a year, and Credit Plus recommends twice.  By law, you are entitled to one free copy annually. Go to http://www.annualcreditreport.com to get your free annual report.

7.  Your credit score differs, depending on the item you are purchasing.

True.  Different industries use different scoring models, so scores will change, depending on whether you are buying a house, purchasing a car or applying for insurance.  Make sure your lender uses a score developed solely for the mortgage business.  Others are almost always 50 to 60 points higher than the score developed solely for the mortgage business.

8.  A finance company credit card scores the same as any other credit card.

False.  Finance company cards, which typically allow borrowers to open a store account with zero interest for a year, weigh more heavily on credit scores.  Worse, when you open the account, the creditor sets your limit at the cost of your purchase, meaning the card is maxed out and well above the 30% balance you should strive not to exceed.

9.  Negative credit information can stay on your record forever.

False.  Generally, negative information remains on your report for seven years from the last activity.  But if it involves a bankruptcy, it can stay for as long as 10 years.  The exception is a federal tax lien, the removal of which is determined by a prescriptive period.

10.  There’s nothing wrong with using your maiden name when pulling your credit report.

False.  Always use the same, full legal name.  Being consistent will help avoid confusion with other borrowers with the same name as yours.  Not all credit bureaus use Social Security numbers as the primary means of identification.

11.  If you have poor credit and cannot obtain credit on your own, the best ways to start rebuilding your credit record is by obtaining a secured credit card or asking someone to co sign with you for a major credit card.

True.  One reason for a low score is because there is not enough “positive’ revolving credit in your report.  Indeed, in many cases, when “positive” credit is added, a score will increase.

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Market Mondays: Mill Creek

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Happy Monday! Today, I am going to be looking at one of my favorite communities, Mill Creek. Mill Creek is a city in Snohomish County and is located approximately 20 miles north-northeast of downtown Seattle and is part of the Seattle metropolitan area.

Mill Creek was officially incorporated on August 30, 1983. The city has rapidly grown with the large number of families and jobs as well as the addition of the Mill Creek Town Center.  Before the turn of the 21st century much of Mill Creek was woods and originally built around the golf course, however, recently it has seen its fair share of new construction and apartment complexes along Bothell-Everett Highway. This has attributed to a much larger High school, going from a 2A school at its inception (1994) to a 4A school at around 2,000 students. It contains a large part of the green belt in the south-eastern part of town and a lovely trail system making it a great place to live and raise a family.

So, what’s happening in Mill Creek?  Mill Creek is an interesting market, which is why I chose to talk about it today.  It exists on it’s own and has yet to see a real pattern in it’s market trends, it will be interesting to see the direction Mill Creek takes as it grows.  As of September 22nd, 2014 there are 5 active residential listings ranging from $314,000- $669,500 with the median price being $360,000.  What’s interesting is that there are currently 19 homes that closed or are pending in the last 90 days which makes for an under supply in the month of September at 1.26 months of inventory. In August, however, there was 4 months supply of inventory which is a significant shift moving from August to September.  This is most likely due to the fact that many of the active listings had not yet gone pending, bringing the months of inventory down for the month of September.

Of the 19 homes that are pending or sold in the last 90 days, the price range is $281,000-$436,000 with a median price of $303,000.  We have seen a 6.4% increase in listing price compared to August of 2013 and an 11% increase in sold price since 2013 as well. An under supply and the large jump in average price sold tells us that it is a great time to sell your home if you are thinking about moving.  With interest rates expected to increase as we move into 2015, waiting isn’t ALWAYS the best financial option.