Getting Private Loans

[cal4ever]

I agree with r_poster.  It's often said that it's best to close your credit acounts in order to approve your attractiveness to lenders.  Having worked in credit a litle bit, I think that the negative effect that would have on your debt/potential debt ratio is the bigger worry.  (MSN actually had an aricle on this about a while back).  You can have one billion dollars in available credit, and having a million dollars of debt in that situation is not a terrible thing (I believe 20% or lower is the ideal ratio).  This may belong on the other thread, but I have heard that 640 or thereabouts is the lowest score one can have in order to be approved for a private loan, but that's just what I'v heard.

This is what I hear (and have experienced) too.  If your score is below a 640, you will most likeley need a cosigner.  My question is, I am in the lower 600s (a lot of undergrad debt and credit cards), how can I improve my score?  Should I pay off 1 or 2 credit cards?  Or should I reduce the balance of all of my credit cards instead?  What would help my score more? 

Thanks!  I haven't had much experience with credit, so I apologize if my questions are a bit elementary. 

[wolfman1977]

I think the most important thing is making at least the minimum payment on your acounts each month- nothing will lower a credit score more or faster than delinquent accounts.  Beyond that, the ratio of balances to available credit is, again, huge.  If you can pay down your balances, that's great.  Alternatively, you can try to increase your credit limits to lower that ratio (but see below). 

You ask a really good question about whether it matters if you carry the same credit card balance on one or multiple cards.  The exact scoring system of FICO is kind of mystery (I once had the percentage breakdown of each factor- I'll try to find it and post it in a couple of days), so I'm going on a rumor here.  I've heard that there is an additional penalty to your score if you approach the credit limit on a credit card.  So it might be better to have a $1,000 balance on each of two credit cards that have $2,000 credit limits, than to have one at zero and the other at $2,000.  Again, not sure about this last part.

The age of credit accounts is very important.  Every time you close an account, you reduce the average age of your credit accounts, which hurts your score.  If you have to close a credit account, try to make sure it's one of your newer ones.  Too many recently opened accounts has an adverse effect on your score.

Inquiries that show up on your credit report indicate the date an entity (like a credit card company) checked your credit report,.  It will also give the name of the company.  Almost any time you apply for credit, you will get an inquiry on your credit report.  Insurance agencies and employment background checks often do this too.  If you request a credit line increase with an existing account, the company may or may not view your credit report before they make a decision on whether to raise your limit.  (You can ask them if they do, of course).  Bottom line, inquiries are viewed negatively and affect your score because lenders think they reflect financial instability, but the impact is not comparable to that of delinquencies.  I've heard that each inquiry will shave 3-5 points off your score.  But the credit bureaus keep track of inquiries for I think one year (maybe two), so if you have 10 inquiries in that span, that can really lower your score.  BTW, when you request a copy of your credit report, that will not show up on the credit report that third parties see, and it will not affect your score.

Had to type this fast, hope it makes sense.  Hopefully I will post that thing I mentioned soon.

[jgruber]

This is ridiculous.  Privates have no money.  Get a general loan.

[wolfman1977]

Here it is:

http://www.bankrate.com/brm/news/investing/20001004b.asp?keyword=&authorid=78&firstn=Amy+Debra&middlen=&lastn=Feldman

It also has some useful sidebar links.  Two things I forgot to mention. It helps to have both savings and checking accounts, although I doubt those have a huge impact on the score.  Two, while it helps to have a variety of loans (credit cards, retail credit cards, mortgages, installment loans like car loans or Stafford loans, etc.), I've been told that's something that's best left to old people who have years of credit history.  If a person our age opens a variety of new accounts, his/her score is likely to decrease.

[altrnet18]

You ask a really good question about whether it matters if you carry the same credit card balance on one or multiple cards.  The exact scoring system of FICO is kind of mystery (I once had the percentage breakdown of each factor- I'll try to find it and post it in a couple of days), so I'm going on a rumor here.  I've heard that there is an additional penalty to your score if you approach the credit limit on a credit card.  So it might be better to have a $1,000 balance on each of two credit cards that have $2,000 credit limits, than to have one at zero and the other at $2,000.  Again, not sure about this last part.

Yeah, I've been wondering the same exact thing. I have one card that has a huge balance, another with a medium sized balance, and another that's empty (paid balance a few weeks ago  ). I plan on paying off the card with the medium sized balance by the end of May, which will leave me with one card that's almost maxed out. The card that's empty and the card with the huge balance have pretty high credit limits, and the medium sized one has a... medium sized limit. It'll be pretty important for me to know whether I should spread out that large balance, or keep it on one card and maybe close one of my other credit cards.

...Yeesh, sorry if that made no sense. Plastic is evil 

[altrnet18]

Ah, thanks for the link 

[wolfman1977]

I hear you- I'm in the same boat.  I'm going to pay down both cards simulatenously but put a greater portion to the one with the higher balance.  But who knows what effect that will have?  This is one question about credit it seems impossible to get an answer to.

[cal4ever]

Thanks wolfman, you've been really helpful!  I'm going to try to reduce all of my balances by half--we'll see if i can do this by the end of summer.   

[wolfman1977]

No problem- glad it helped.  Best of luck to you paying the balance down, I hope I can do the same.  Did you ever see that Simpsons where Homer calls alcohol "the cause of, and answer to, all of life's problems"?  I guess you could say the same about credit.