Selling Poinciana One Property at a Time.: I Pay My Bills On Time....Why Does My Credit Score Suck?

I Pay My Bills On Time....Why Does My Credit Score Suck?

Waaaaaa......Hi folks. Today I want to talk a little bit about credit scores and how they may be affected by the credit crunch we are experiencing. Lenn Harley wrote a post last week that touched down on some of this, titled "ANOTHER DRAG ON THE ECONOMY?? AN UNTOLD STORY. The loss of consumer credit." If you haven't read Lenn's post please take a minute to do so. 

Lenn's post is about the effect of foreclosures, short sales, late payments, etc....on a person's credit score and how this will affect their ability to get jobs, open bank accounts, buy cars, find affordable insurance and so forth. What her post doesn't mention is the negative effect of credit scores for folks that do pay their bills on time. 

Your credit score is based on several factors....including: paying debts on time, amount of debt AND available credit. The last one is the kicker. Having a couple of credit cards is a good thing. Owing more than 50% of the available credit is a bad thing. 

Let's say you have 3 credit cards with available credit of $60,000, but, because you are very good with your finances, you keep your total debt at about 25% or $15,000. This is a good thing. It shows you are able to manage credit in a responsible manner. Now let's say you get your bills next month and the credit card companies have decided to "freeze" your credit at the amount owed or $15,000. You are now maxed out on your credit cards and your credit score will drop!!! 

That's right folks.....you have done everything right and your credit score has dropped because the credit market is in turmoil. Does this suck or what?

 

 

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Comment balloon 43 commentsBryant Tutas • October 02 2008 04:42PM

Comments

Reserved Parking For "The Lovely Wife"...TLW...ROAR!

Blog Boy...

It's Effect. It's also "Bank" Accounts. 

Was the back account a Freudian slip on your part? :)

TLW...ROAR!

Posted by "The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW. (President-Tutas Towne Realty, Inc.) about 11 years ago

effect or affect? Did I get them right?

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) about 11 years ago

I am seeing that, too, Bryant.  Not good.  My wish is that with all these bills that are being pass will finally include a leveling of the field for credit issues during these times.

Posted by Wendy Rulnick, "It's Wendy... It's Sold!" (Rulnick Realty, Inc.) about 11 years ago

Thanks for the heads up. I'll have to watch for that. Bonnie

Posted by Veronica DeCarolis (Weidel Realtors) about 11 years ago

I see it regularly.  Potential buyers pay their bills on time.  But, they are maxed out.  There are a few things that they can do, but it's critical that a home prospective buyer work a few months to get their credit score as high as possible. 

I've got a program in MD where the buyer can buy with $1,000.  However, there is a minimum credit score of 660 required.  Imagine that.  Last year a 620 score would have worked. 

I suspect that for some time, cash will truly be king. 

Thanks for the mention.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) about 11 years ago

Yep, that sure would bite a big one. Sooo many people are relying on credit to get by due to increasing prices for staple products.

Sean Allen

Posted by Sean Allen, International Financing Solutions (International Financing Solutions ) about 11 years ago

At one time I had heard that I should cancel all my old accounts that I don't use anymore.  Then I learned that I should keep them open because of the "available" credit limit that you referred to.  FYI.....

Posted by Lewis Beynon, Triangle Real Estate 411 (Century 21 Triangle Group) about 11 years ago

It is a very difficult situation.  I was out with a few lenders who told stories of folks putting down 20% and had a great credit history for many years -- except for 1 or 2 late payments due to a health issue -- and they could not find a lender.  Things have gone just too far now -- they explained that with the desk top underwriting, one size fits ALL -- whether it is a good fit or not!

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) about 11 years ago

great post.  Thanks so much.  We have a more serious crisis on our hands then I think we believe.  Credit card companies are constantly reducing our limits so even if you di have a 50% to max limit now you have a maxed limit.  Thanks for the pointers

Posted by Highland Beach Condos David Serle, Boca Raton Agent David Serle (RE/MAX Services) about 11 years ago

This absolutely sucks, BB. Sounds like it's time to go shopping before the big freeze- thanks for the heads up!

Posted by Laurie Mindnich about 11 years ago

The words that make me cringe is when a buyer says that they closed out some of their credit cards so that they will be able to buy a house.

Posted by Richard Mielke, REALTOR, Gettysburg Pennsylvania Real Estate (RE/MAX Results) about 11 years ago

Just one more sucky thing to make our client base shrink. Even the perception that this may happen to them is causing people to shy away from the market. ANY market.

HI Lovely Wife! Glad to see you back and as spunky as ever :))

MWA!

Posted by Jennifer Monroe, Real Estate REALTOR®/Broker in Beautiful Charlotte (Savvy + Company Real Estate) about 11 years ago

Great point.  I didn't know the impact of how much credit you used/carried versus how much you had available had on your score until a client had a problem earlier this year.  The client had never missed a payment and wasn't maxed out, but he didn't have enough "available" credit because he had bought an engagement ring.

Posted by Matt Moxhay, Moorestown Real Estate (Prudential Fox & Roach) about 11 years ago

This is just plain WRONG!! I just went through the hassle of calling my card to complain that they raised my interest rate for no reason. For 16 years I was a loyal customer and they repay me by raising my rate 6 points for no reason. I asked have I paid late, no. Did my check bounce, no. Then why did my rate go up??? Oh we raised everyone's rate across the board, you did not do anything. So I told them they could either reduce my rate back to the original rate or I was transfering the balance right now. I got a manager on the line and he was pretty ineffectual as well. So I made the transfer and cut up the card. Don't you know they called me the next day to offer me a promotional lower rate to open an account. I told them I was finished with them, because they don't treat their customers right. You have to treat people the way you want to be treated, fairly and with respect.

Posted by Betina Foreman, Realtor, C.N.E., with WJK REALTY (WJK Realty) about 11 years ago

BB - Of course this sucks big time. The only thing I have to add is watch your credit card spending and your credit card statement every month.

Posted by Petra Norris, Realtor, Lakeland FL Homes for Sale (Lakeland Real Estate Group, Inc.) about 11 years ago

It is happening I had an Amex with $30k get cut back to $15k.  That really changes how you budget for the business.

Posted by Justin Ukaoma, Kansas City Real Estate Investments (Vizion KC) about 11 years ago

TLW -- great to see you back commenting!  Hope all is well with you!

BB - hard to keep up with all the changing rules. The scenario you mentioned is one reason NOT to close credit card accounts that you're not using. You want to keep your ratio of borrowed money to credit available as low as possible.

Posted by Sharon Simms, St. Petersburg FL - CRS CIPS CLHMS RSPS (Coastal Properties Group International - Christie's International) about 11 years ago

A lot of people were responsible with their credit cards for years and always paid their bills in full, now that these people might need some of the credit card credit it might be frozen. Same with the equity lines, people were paying off their lines thinking that they had some leeway when they need it, now that they need to pull some money from the line, they do not get it, line got is reduced - frozen. and all this does not help the economy.

realtor in st pete

 

Posted by Anne Hensel, Realtor - Broker - St. Pete Beach, Treasure Island (South Beaches Real Estate Professionals) about 11 years ago

BB, It SUCKS..... I suspect we are being driven to a scenario where you need 80 to 100% down.  I guess we are looking for AAA Credit clients.  The market is very challenging as you well know.  AJ

Posted by Alan 'AJ' Nisen California Contra Costa Mortgage Officer (A Large Bank in America) about 11 years ago

Interesting, thanks for sharing.  Funny how you are somewhat forced to have credit cards because you can't build credit without them.  No wonder so many Americans are in debt.

Posted by Patricia Beck, Colorado Springs Realty (RE/MAX Properties, Inc., GRI, CDPE) about 11 years ago

BB - This is exactly what Bank of America did to me. They froze me at what my balance was and I was scratching my head. The month before, I not only paid early but it was a lump sum payment of $4000 towards my balance. I paid my balance down @ 20x more than the minimum payment, paid early - and I got penalized + it lowered my credit score. I called and gave them hell. It was a NAR solicitation and I think they had me red flagged as a Realtor - or, should I say red-lined. I believe they are targeting us as a profession that is a "high credit risk". 

Posted by Carol Culkin, Overland Park (Reece & Nichols) about 11 years ago

Completely, totally & undoubtedly sucks.  This is the epitome of stupidity in my opinion.  These folks are LOYAL bill payers & will do what it takes to remain that way i believe. KM

Posted by Kristin Moran, San Antonio,TX - Real Estate - 210-313-7397 (Owner - RE/MAX Access - KristinMoran@Remax.net) about 11 years ago

HI TLW! How are you feeling? Good to see you back!

Bryant- How scary is that. But then again, if we all would live within our means perhaps the credit score would not be so important:)

Posted by Katerina Gasset, Get It Done For Me Virtual Services (Get It Done For Me Virtual Services ) about 11 years ago

BB,

It extends so far, doesn't it.  I have seen many people take cash withdrawals out against their cards as well as buy groceries with their cards.

I don't buy on credit...but I know that some people are using credit for regular ordinary expenses because right now, they just dont' have the cash.  Period.  I know we all should live within a budget....but there are those who have salaries that don't allow them to save and then perhaps they are laid off, hurt or disabled. 

I have never had the "pleasant" experience of having to go to the unemployment office, but I hear the money doesn't pay the bills.  If u had to pay the rent,mortgage, keep the lights on and feed your family and you were in a situation like this...what would you do?

There's many people right now living off credit to lives and that's a systemic problem that needs to be fixed.  But if when inflation increases and the unemployment rate continues to rise and small to mid to large size businesses can't afford an even 2% raise for their employees what happens?  If unemployment- currently at 6.6% rises to 10% and inflation hits big and there is no credit to be had, what then?

What then with the health,welfare, and livelihood of the employee, employer, the family?

Let alone the state of housing and the real estate industry.

Washington needs to apply real life examples before it passes any bill.  You won't hear these questions on the news or in any presidential debates....but they need to be asked and answered.

 

 

Posted by Rebecca Levinson, Real Estate Marketing and Online Advertising Consultant (Real Skillz-Clear Marketing for Your Real Estate Vision) about 11 years ago

BB,

You're so right on this one.

My son just chunked just down his HELOC by $30,000 (after selling another property) instead of banking the funds. Thinking he could use it again if needed, not so they reduced his HELOC by the same $30,000. He was so upset with an 805 FICO, but I explained now it's about his declining equity. Unfortunatley his FICO will also most likely suffer at this point.

Posted by Lynda Eisenmann, Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co (Preferred Home Brokers) about 11 years ago

Good information most people don't realize all the calculation that go into the report.

Posted by Terry & Bonnie Westbrook, Westbrook Realty - Grand Rapids Forest Hills MI Re (Westbrook Realty Broker-Owner) about 11 years ago

Brian - Every day it's like getting kicked in the stomach every time these rules change for those who are responsible. I didn't realize the extent of what the credit card companies are doing to their customers and find it absolutely appalling. 

Posted by Julie Dumaine-Russell (RE/MAX Alliance) about 11 years ago

Brian: thanks for the information. I'll keep an eye on this. very interesting about the fact that one should keep under 25% of their available credit. I doubt many people follow that.IF they change the rules and lower the amount available it sucks. What can we do? spend less? That is not going to help the economy.

Posted by LLoyd Nichols, SW Florida Homes (Premier Florida Realty of SWFL) about 11 years ago

My husband sells advertising, and some of his regular clients have had to skip this round in their marketing plan because their credit lines were frozen and they need the advertising money to pay for inventory and salaries of employees.  These are small businesses who always pay as soon as they get an invoice, so it was not a punitive action -- just banks being "cautious" in these times.

By the way, I'm so excited to see TLW back using her reserved spot!  Hooray!

Posted by Susan Neal, Fair Oaks CA & Sacramento Area Real Estate Broker (RE/MAX Gold, Fair Oaks) about 11 years ago

I never heard of such a thing. I only thought offering new credit was at a stand still which I can understand but to penalize those for being responsible, that's something else. Very frustrating.

Posted by LS Rogers Realty (LS Rogers Realty) about 11 years ago

This happened to me around the first of this year (long before the last round of financial melt-downs) 

One card issuer arbitrarily decided to chop my line of credit.  My credit score plummetted.  Then - since I guess card issuers do check customer credit scores periodically - as the other card issuers learned my score crashed, ~they~ reduced ~their~ credit lines, and my score dived some more.

Good grief.  But hey, I fixed them, I paid 'em all off, and damned if I'll ~ever~ use credit from those guys again.  :-)

Posted by Cheryl Johnson about 11 years ago

BB,

I try to tell people who want to get financing that during that when they go to application their credit might be good and then they go out and spend while waiting for their mortgage to be approved...wrong!...if anything while it's waiting for underwriting they should be paying it off more if they can...that's one of the biggest mistakes. When we bought our first home here...that's what we were told by the Mortgage Broker and they were right....I've seen others do the wrong thing and think that they will be fine if they were already approved.

Oh by the way...say hello to TLDUBYA

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (Brokered by eXp Realty LLC) about 11 years ago

this is a good post, and so many people don't 'get it'.  this crunch we are in is going to effect just about everyone to one degree or another...

 

chris the implementer

Posted by Chris Brown- Florida Home Loan Specialist | Certified Mortgage Planner, Chris Brown 407.367.2974 (Chris Brown | Certified Mortgage Planners) about 11 years ago

None of it is logical. Logic would dictate that a customer who, for example, opened up a Home Depot card for some home improvements, and then paid off the credit card in a timely fashion and closed it, would get bonus points for being a responsible borrower. As I said, none of it is logical.

Posted by Kelly Sibilsky (Licensed Through Referral Connection, LTD.) about 11 years ago

Hi BB,

Good information and reminder for those that carry debt on their credit cards. Banks will be tightening available credit because of the current crisis. Those that are carrying a higher debt should look into spreading it around and onnly use, on the average, 25% of their current limit.

Posted by Harold "Hal" Place (A1 Connection Realty, Inc.) about 11 years ago

Hey guys. I guess we all agree this sucks!!! I was speaking with a potential seller today whose father was murdered in the Dominican Republic. He had no life insurance but did leave her about $25,000. Thinking it was a smart thing to do she placed the money against her HELOC figuring she could lower the payment but also have the funds available if needed. A week later her bank, Wachovia, froze her HELOC!!! Her money is gone!!!

Of course she would have been much better off placing this money in a savings account of short term CD but not all folks think about these things.

This is also a reminder to not accept a "credit line" as cash to close. That money may not be there when they are ready to close. Have them pull it out now and place it in a savings account.

Thanks for stopping by. Great comments!!!

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) about 11 years ago

Yikes!  I hadn't thought about that!  It does suck, indeed!  I haven't had it happen yet, but it sure could as the credit card companies have given me maximums that are through the ceiling.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) about 11 years ago

BB, I actually bought a pair of glasses yesterday with my Discover card, and was sweating it out when they ran it through (plenty of credit available) thinking, "did they yank the rest of my credit without telling me?"- yikes. More stress, now that I've absorbed this information from you!

Posted by Laurie Mindnich about 11 years ago

Great Topic!  Also mention that when you close accounts-it reduced your available credit, and can actually harm you.  Too often people close out accounts which they don't use very often, and this diminishes the amount of creditworthiness, thereby reducing your credit score as well.

 

Tough times....GREAT ADVICE!

Posted by Allison Stewart, St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904 (St.Cloud Homes ) about 11 years ago

BB- Yes it sucks...and so many people are paying one way or another.

Posted by Kathy McGraw, Riverside County CA Real Estate (CELLing Realty) about 11 years ago

Had no idea about the credit available to what is owned - or that they might reduce it.  I think consumers really don't understand all this - one of my clients just filed for chapter 13 with the advice of an expert and are letting their home go and trying to lease.  I usually get a credit report when I represent a seller so I am concerned that they may not get approved even for a lease.

Posted by Cathy Tishhouse, Royal Oak Real Estate (RE/MAX Showcase Homes) about 11 years ago

You bet is sucks!  More & more everyday. 

Posted by MARY IACOVELLI (MARY IACOVELLI REALTY, LLC) about 11 years ago

The banks are trying to make up for all the money that they will be losing due to the new regulations go into effect February.  By raising your interest rates you end up paying more. By lowering your limit it reduces your balance to limit ratio which affects your FICO scores. See if you can move your around where you can keep your Balance to Limit ratio at 30% or lower. Anything above 30% will seriously start affecting your credit scores.

If you have clients that need credit restoration or debt consolidation have them call us for a free consultation. All we need to see a tri-merge credit report. The consultation is free. Credit restoration last a maximum of 180 days and we guarantee our work; 100% money back minus $50 for each account that we are able to permanently remove from your credit report.

As loan officer, you pre-approve clients only to lose them another LO. How would you like to lock that client to you and the client gets a 20% cash back on realtor broker commissions, discounts on home and auto insurance, discounts on home warranties, and discounts on credit restoration and debt settlement services. Now you can offer services to those clients that have less than perfect credit and keep your pipeline full.

Call me, Luis Madrid at 877-477-9321 X179 for more information. 

Posted by Luis Madrid (CRE The Credit Restoration Experts) almost 10 years ago

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