Friday, October 24, 2008

Credit Score Tips

Good credit scores are important for people interested in buying a house. Here are two things that buyers should NOT do if they want to have the highest possible credit score:

-- People should NOT pay off old collection accounts or charge-off accounts. Fannie Mae no longer requires either of these types of accounts to be paid, and the same holds true for FHA and VA loans. The problem with paying off old collection or charge-off accounts is that the "date of last activity" for those accounts will be moved up to the current date if they are paid. That in effect turns them into new derogatory accounts, which will lower the score dramatically. The only time a collection account should be paid is if the collection company is currently demanding payment. If you would like to pay off old collection accounts, wait until after the closing on your loan.

-- People should NOT close old accounts. The longer an account is open, the higher the credit score, even if the account is not being used. Many people close accounts to "get them off my credit report". That is a huge mistake because it raises the ratio of debt to credit limit.

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