January, 2012

Excellent Credit Tips for 2012!

New Credit Card Offer
Do's & Don'ts

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It's 2012.................Happy New Year!

Some news to keep in mind is that credit card companies will be more flexible with extending credit. You may have already received some REAL zero percent credit card offers as opposed to the fake ones we have seen in the past few years that charge a 3-5% transfer fee. Some of this new credit flexibility may even reveal 1-2 year zero percent terms rather than the 3-6 months of late. This is great news for many, but with all the new attractive offers coming our way it is important to understand the downside as well.

Average age of credit can be an excellent asset to those with old credit and must be protected. Credit scores reward consumers who have been in the credit game a long time since it shows they have had a lot of practice managing credit. Some may even have earned an extra 40-70 points on their credit score because of it.

However, if a consumer is looking to enjoy these record low interest rates for refinancing or buying a property in the next few years, opening a new credit card could drastically affect this process. For example, when a consumer has an average age of credit that is over 15 years old and they open new credit they can see major reductions especially if their credit score is very high. So a consumer in this situation with a 745 credit score may see the score drop well under 740. Lower than a 740 Fico score could cost hundreds of thousands of dollars in interest over the life of a new mortgage loan or may even cause a rejection on a refinance approval.

Something else to consider is, as better credit card offers appear, consumers tend to close other cards thinking they are no longer necessary. This is a definite NO NO for keeping the best credit scores. Not only can this impact the average age of credit since the account can fall off the reports two years after inactivity, but having higher totals on revolving credit limits is important to the health of credit scores. Once a card closes the total revolving debt limit is reduced on that consumer's credit portfolio giving him less leeway to increase balances. Since balance to limit ratio's affect credit scores dramatically on revolving credit, the higher the aggregate limits the more flexibility the consumer has to increase balances.

For example:

John applies for a new card with a $7000 limit and a zero percent interest rate. He has two other cards, one having a $15,000 limit, and the other a $5000 limit. His total balance on these cards is $5400. John plans on transferring the full balance over to the new card. If he keeps all his cards open his aggregate limit will be $27,000 leaving him at a 20% balance to limit ratio. This is satisfactory and his scores won't be affected much by the $5400 balance. If John closes the $15,000 card, since he feels he doesn't need it anymore, he will reduce his aggregate limit down to $12,000 which will leave him at about a 45% balance to limit ratio. The closer the balance inches up to the limit the more the score will drop so he risks his score lowering due to the higher balance to limit ratio that the closing of the account caused. If he keeps it open he will give himself more options to have a better credit score.

Making sure credit is analyzed with future goals in mind is a MUST before taking an action that can foil those plans and limit a consumers options for a better quality financial life.

Feel free to call us if you have any credit questions or need feedback on a credit report.

North Shore Advisory offers credit repair and restoration services.
We've been providing credit education and credit improvement for more
than 20 years. We can help you with your business credit needs or
personal FICO scores. For bankers and realtors we can improve your clients' credit scores.
Call us at 914-524-8300

Email: info@northshoreadvisory.com

Call Today for a Free Credit Education Seminar!

914-524-8300

www.northshoreadvisory.com

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