Credit - Everything’s Changed!

February 17, 2009 by wendy.

     When I am helping divorcing clients to strategize their future finances, credit becomes a huge issue.  A year ago, most people could qualify fairly easily for a mortgage, credit cards, and other types of loans.  Matters are very different these days.  For example, in order for a refinance to actually occur for a spouse who will be keeping the family home, the retaining spouse must be able to qualify on their own credit.  Mortgage brokers tell me that they often require at least 3 months history of receipt of child support or maintenance (alimony) payments, and the couple’s separation agreement must state that these payments shall continue for at least three years.  A mortgage broker informed me that the best rates are now available for FICO credit scores of at least 720.  Formerly, a FICO score of 620 was considered to be a sufficiently high score for a good mortgage rate.  Certainly, mortgage brokers may have different guidelines in the future, but be aware that much tighter restrictions will probably continue for some time.  Some common-sense actions that people can do now to help their credit are:

a.       Check your credit score.  You can receive one free credit report from each of the three major credit-reporting services.

b.      Clear up any problems or mistakes.  Be sure to write a letter to the credit reporting service explaining the situation.  This letter should remain in your file for several years.  For example, the credit reporting service had my credit and birth date mixed up with that of my fathers’ – for some odd reason. I wrote them to explain their errors.

c.       If you are considering a loan, don’t open or close credit cards.  Credit cards opened the longest may increase your credit score – and that credit card may be the one you were considering canceling.

d.      Avoid having credit report pulled by multiple sources, because this can indicate you may be considering having extra credit sources, or “shopping
 for credit. 

e.       Always pay on time – late payments count heavily against you.

     Protect your credit!  You may not need a loan now, but what about in a few years when you need a new car?  The interest rate you receive will be directly related to your credit score over the past few years.  Why pay any more interest than you have to?  Paying a bit of attention now can save you dollars in the future.

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