Well this is a terrific article about building credit that I wish I had written! Gail Vaz-Oxlade from Til Debt Do U$ Part fame wrote it, however, and I guess seeing as she’s an expert with her own TV show an’ all, I’m OK with deferring to her on this one. Actually, there is some terrific advice here for everyone, not just for those who are building credit but for those maintaining their good credit status aswell. I would only add the following insights gleaned from being in the trenches each day with the borrowers and the lenders, you know, while I wait for my own TV show…
1) While gas cards and department store cards are sometimes easier to obtain, the lenders tell us that they don’t value them quite as highly as cards issued from the major banks. I know that Vaz-Oxlade’s point here is made for those who may actually have a hard time getting credit cards from banks but I mention this just to clarify that these cards should be viewed only as jumping off points. Once possible and prudent, credit cards from major banks should be established and it’s even a good idea to consider getting rid of these alternate forms of credit once you have two tradelines established elsewhere.
I say this because these alternative lenders tend to be what we fondly refer to as “leg breakers”. They tend to have the highest interest rates and they seem to report late or missed payments more aggressively than the banks and thus damage credit more often. We frequently see clients with credit scores damaged by a credit card issued by a certain department store that starts with S and ends in Ears. They particularly seem to have a penchant for reporting payments as “late” at what seems like the stroke of midnight on the due date. This can be very irritating to clients with otherwise perfect credit history and devastating for those trying to rebuild their credit. Not that a person should make late payments regularly but sometimes life happens and a payment arrives a day or two late and the major banks will usually give you a bit of a break aslong as it doesn’t happen habitually – “leg breakers” do not. Oh, the irony.
And PS – she’s bang on about the cellphone companies – the number one, most frequent collection we see on the average credit bureau is from a cell phone company. They may not report regularly about your monthly payments behavior, but they definitely seem to be diligent about reporting any collection action that has been taken. Be sure to stay current with them to avoid this very damaging blow to your credit.
2) If you find that things are starting to look a little tight and you’re considering borrowing against the equity in your home to consolidate some debt, be sure to talk to a Mortgage Professional sooner than later. Once the late or missed payments start to appear on the credit report it becomes harder and harder to arrange financing. The worse you credit gets, the worse the options available to you for refinancing.
If you contact a Mortgage Broker at First Foundation, they will discuss with you all the options available when refinancing and they will assist you in taking an honest look at the benefits and drawbacks of increasing your mortgage to payoff consumer debt. Sometimes a refinance is the right solution and sometimes it’s not and we’re here to help you work that out. Atleast until we’re discovered and get our own mortgage reality show or after-school special or something. I think Oprah should play me.