Credit Tips That Will Score Lower Interest Rates

[Anonymous]

A good credit score translates into lower interest rates for home-shopping borrowers. In a mortgage lender's eyes, the higher your score is, the less risk you are, and the more likely it is you will pay off your debt. For this reason, borrowers with lower scores usually end up paying higher interest rates on their loans.

If this is you, don't panic. There are a number of things you can do to adjust your credit score to receive a favorable review from the underwriter. Here are a few suggestions:

Should I pay off all my past due balances and charge-offs?
This is usually a good idea, but you only need to worry about the past due balances and charge-offs that have occurred in the last two years. Items more than two years old have little effect on your current credit score. In fact, if you pay off delinquent items over two years old, it can actually bring your credit score down - something you don't want to do. Bringing that score up means you'll get a better interest rate on your loan.

Should I close existing credit card accounts that I don't use?
No. Part of your credit score is based upon credit history. If you have old credit cards that you don't use very much, you still have the benefit of the credit history they represent. Rather than trying to pay off all your credit cards, you can move part of the debt from one card to another to even out the distribution of debt. Try to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home. Also, if your credit provider will increase your line of credit, the ratio of debt to available credit is automatically reduced.

When married couples have separate credit card accounts, the debt can be transferred from one spouse to another to clear up credit issues for the other spouse. That spouse with clean credit can be designated as the sole borrower on the loan, but ownership of the home can still go in both names.

What about errors on my credit report?
If you have items that are showing up on your credit report that you know you have already paid, request that these items be removed by the credit bureau. They are obligated to rectify this within 30 days. If there are items on your credit report that are less than two years old, send in your payment if possible and mark the back of the
check with the following notation: "Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record." If necessary, the cancelled check will be proof that this should be promptly removed from your credit report if it interferes with the closing of your loan.

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[Ms-Kato]

Great Post Thanks !

Writing this on back of payment... ..Have CRA's actually Deleted baddies when sent this copy of check or money order and

will this hold up in court if if we decide to sue the CA for not deleting it ?

Thanks

"Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record."

[Anonymous]

Hi BlueRain, I'm glad you find my advice helpful. First of all, this procedure called a "restrictive endorsement: is binding under CA law but initially, in order to protect yourself since there are loopholes that creditors can get around, you need to send the creditor an agreement in writing first. Here's an outline of how to proceed:

1. Send a VOD (Validation of Debt) letter to the creditor.  If the debt has been verified, proceed to step 2.

2. Mall creditor a Debt Settlement offer. (I've included a copy below.)

3. After they have agreed, send them the check with what's called a "restrictive endorsement" which is what I stated to put on the check in my first post.

(Before you send the check or money order, add a section of fine print to the back of the check stating "Cashing of this check constitutes your acceptance of my restricted offer. Any and all future claims for this debt are null". You can also add a notation on the front that says "restricted endorsement: cashing constitutes agreement".)

SETTLEMENT LETTER

Your name

Address City, State and Zip

Today’s date

Creditor Name Address City, State and Zip

Re: Your Name Creditor’s Account Number Your Social Security Number

I (name) wish to settle the outstanding debt with (creditor).  I strongly wish to pay back this debt.  Currently, the outstanding debt balance is (dollar amount). I am willing and able to settle this amount for (amount you can afford to pay). As part of this settlement I am making the following requests:

My account will be shown paid in full. Any ligitation is dropped. All negative listings will be deleted from the three credit bureaus below.

Equifax Experian TransUnion

Upon acceptance of this letter (creditor name) agrees to the terms and settlement conditions and I (name) will send an overnight money order in the amount of (settlement amount) paid to (creditor name).

(Creditor name) agrees to forward this letter to the three credit bureaus listed so negative listings may be deleted.

(Print Your Name) (Print Date) (Sign your name)

I hope this is helpful for you.

[cdtotten]

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@Anonymous wrote:

Should I pay off all my past due balances and charge-offs?
This is usually a good idea, but you only need to worry about the past due balances and charge-offs that have occurred in the last two years. Items more than two years old have little effect on your current credit score. In fact, if you pay off delinquent items over two years old, it can actually bring your credit score down - something you don't want to do. Bringing that score up means you'll get a better interest rate on your loan.

I'm a little confused by this. To say that COs more than 2 years old have little effect on your credit score is rediculous. Depending on the amount of charge offs, and other delinquencies on your account, it could be affecting your score by 60-80 points or more. Yes, if you have 47 charge offs, then even the removal of one wouldn't matter. Paying off a charge off does not increase your fico score (unless factored into UTIL), but does help under manual review of your accounts.

Should I close existing credit card accounts that I don't use?
No. Part of your credit score is based upon credit history. If you have old credit cards that you don't use very much, you still have the benefit of the credit history they represent. Rather than trying to pay off all your credit cards, you can move part of the debt from one card to another to even out the distribution of debt. Try to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home. Also, if your credit provider will increase your line of credit, the ratio of debt to available credit is automatically reduced.

This section appears to be encouraging people to keep balance transferring debt around rather than paying it off. Utilization is scored on an individual account level and a total balance level. Yes, moving the debt across multiple cards would lower your individual account utils, which helps, but you would additionally be dinged for having too many accounts with balances. Net gain isn't going to be much unless 1 card is maxed out. I wouldn't encourage anyone to shift debt back and forth with their spouse just to make your credit picture look better. Most of the time, their is going to be a BT fee of 1-5% involved, and they add up quickly.

When married couples have separate credit card accounts, the debt can be transferred from one spouse to another to clear up credit issues for the other spouse. That spouse with clean credit can be designated as the sole borrower on the loan, but ownership of the home can still go in both names.

What about errors on my credit report?
If you have items that are showing up on your credit report that you know you have already paid, request that these items be removed by the credit bureau. They are obligated to rectify this within 30 days. If there are items on your credit report that are less than two years old, send in your payment if possible and mark the back of the check with the following notation: "Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record." If necessary, the cancelled check will be proof that this should be promptly removed from your credit report if it interferes with the closing of your loan.

What are you referring to here... "items... you have already paid"?

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[llecs]

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@Anonymous wrote:

Hi BlueRain, I'm glad you find my advice helpful. First of all, this procedure called a "restrictive endorsement: is binding under CA law but initially, in order to protect yourself since there are loopholes that creditors can get around, you need to send the creditor an agreement in writing first. Here's an outline of how to proceed:

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Be careful with this one...some states disallow restrictive endorsements and in other states, they are allowed, but not legally enforcable.

[Anonymous]

You are correct in a way. That's why I said under CA law, it can be done. States vary with their laws so you must check your state to be sure. Thanks!

[Ms-Kato]

Hi JilLitis

I went to findlaw.com and checked my state (New York) regarding Restrictive Endorsements . This is what I found

but to tell you the truth I'm not sure if it's legal in NY or not...it's just explaining what a RE is and not really clear

if Legal in NYS.

Would you happen to know ?

Thanks

Steps I took at Findlaw.com...Find your state, and Consolidated Laws, and looking under the UCC( Uniform Commercial Code), Transfer/Negotiation - you will find the Section for "Restrictive Endorsement", and determine if your State allows checks with a Restrictive Endorsement...

"Section 3--205. Restrictive Indorsements.
    An indorsement is restrictive which either
    (a) is conditional; or
    (b) purports to prohibit further transfer of the instrument; or
    (c)  includes  the  words  "for  collection",  "for deposit", "pay any
  bank", or like terms signifying a purpose of deposit or collection; or
    (d) otherwise states that it is for the benefit or use of the indorser
  or of another person."

[hoping2rebuild]

IMHO another problem with this letter is giving a CA my SS#

 and I would NEVER sign letter or anything else going to an CA

They have been known to scan signatures and put them on other

documents

otherwise it's great

[mtrsprt]

Should I pay off all my past due balances and charge-offs?
This is usually a good idea, but you only need to worry about the past due balances and charge-offs that have occurred in the last two years. Items more than two years old have little effect on your current credit score. In fact, if you pay off delinquent items over two years old, it can actually bring your credit score down - something you don't want to do. Bringing that score up means you'll get a better interest rate on your loan.

While your score may or may not be afftected is one thing, but when lenders see outstanding past due balances/collections, they usually will not grant you the new loan also.

Not everything is based on score.............   Pay off old debt, and be done with it.

[cdtotten]

That is a common misconception on the forums that has (i think) finally been confirmed as false. Paying off old collections will not have any affect on your score. People used to think it re-reported the account, making the delinquency look more recent, but it has been confirmed that this is not true. If the debt is legitimate, paying it off definately is the right thing to do, but won't help/hurt your score unless its a PFD.