- The Washington Times - Friday, April 16, 2010

Q. We plan on purchasing our first home this spring and are wondering what we should do to increase our credit scores. My middle score is 665 and my wife’s is 692. I’ve been told these scores would have been considered good in the past but are now considered not so good. We’ve never been late on any payments, although we do have quite a bit of credit-card debt. Any hints on what we can do would be appreciated.

A. Many years ago, when lenders began making credit decisions based upon credit scores, I watched keenly to see how it would play out. On the one hand, it could eliminate a lot of needless paperwork and explanation letters.

Back in the old days, if a borrower had perfect credit with the exception of one 30-day-late payment on a department store credit card that occurred two years before, many underwriters wouldn’t approve the loan without a handwritten letter of explanation. Such frivolous conditions would give loan officers and borrowers plenty of heartburn.

Credit scores largely eliminated that step. Even if a borrower had a couple of late payments, he still could have a good credit score. The underwriter would look at the overall score rather than a specific “ding” on his report.

On the other hand, credit scores often don’t necessarily paint the best picture. My assistant’s younger sister, who graduated from college a few months ago, applied for a credit card and was turned down. I pulled her three repository credit reports and discovered that her middle credit score was a near perfect 792.

This young woman has one credit card with a $10,000 limit and a zero balance. The would-be creditor declined her application because she didn’t have enough credit lines on her report. Back in the old days, little or no credit didn’t necessarily mean “bad” credit.

Don’t be fooled. Lenders are still wary of extending credit. The credit crunch is alive and well. However, that doesn’t mean you will be unable to improve your scores or obtain a good loan. Consider the following things that affect a person’s credit score:

• Recent late payments on installment loans or mortgage loans. This is the kiss of death. The more recent the late payment and the later the payment is made, the more it will bring down your score.

• A bankruptcy. This doesn’t need to be explained.

• Late payments on revolving accounts.

• Not enough credit lines.

• A lot of outstanding debt and very little available credit. This hurts folks a lot more than many think. If you are “maxed out” on your credit cards, your scores will drop. However, if you have several credit cards that carry balances that are 50 percent or less of the limit, it may bring your scores up.

Contrary to what many people think, multiple inquiries into your credit do not have a large impact on your scores.

Henry Savage is president of PMC Mortgage in Alexandria, Va. Send e-mail to [email protected]

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