There’s a lot of misinformation being propagated about what does and doesn’t hurt your credit score. Recently my favorite mortgage guy Alex Luboff sent me the groundwork for this post.
Closing Accounts Can Help Your Credit Score
No, no, no. closing accounts can never help your credit score, and may hurt it.
It’s true that having too many open accounts can hurt your score, but once you’ve opened the accounts, you’ve done the damage. You can’t repair it by shutting the account and you may actually make things worse.
The credit score looks at the difference between your available credit and what you’ve using. Shut down accounts and your total available credit shrinks making your balances loom larger which typically hurts your score.
The score also tracks the length of your credit history. Shutting older accounts can also make your credit history look younger than it actually is hurting your score more.
Pay down your credit card debt, that’s something that actually will improve your score.
Checking Your FICO Score Can Hurt Your Credit.
Applying for new credit is generally what hurts your score. Ordering a copy of your own credit report/credit scores doesn’t count. Those mass inquiries made by credit card companies who are trying to decide whether to send you an offer for a pre-approved card don’t hurt you either-unless you take them up on their offers.
If you want to minimize the damage from credit inquiries make sure that when you shop for a mortgage you do so in a fairly short period of time. The FICO score treats multiple inquiries (for the same purpose such as a mortgage) in a 14-day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed.
For most people one inquiry will generally knock not more than 5 points off a score.
Here’s a quick breakdown of what your credit scores mean:
720 and over: Great you are in good shape and have the best loans and rates available to you.
700-719: Excellent, you are a very desirable borrower.
680-699: Good credit and you should be in strong shape to buy.
660-679: Okay credit but don’t look for other exceptions.
640-659: Borderline, maybe okay if everything else is strong.
620-658: Weak, the rest of your file must be perfect.
600-619: Difficult, FHA is still a possibility with strong assets and income.
Disclaimer: It’s become more and more difficult for purchasers to actually qualify for a loan. Last week’s minimum credit score just might not be good enough today.
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