Lenders give advice on credit scores

Whether people are trying to apply for a home or car loan, they need to realize that their credit report and credit score will affect their ability to borrow.

A credit score is a determined number from 300 to 850 that indicates the level of risk for repayment of debt to a lender at the time a person inquires about a loan, according to the Pennsylvania Association of Mortgage Brokers Web site.

Lenders say there are a surprising number of people who do not know their credit score before they attempt to take out a loan.

“There are a considerable amount of people who don't know their score,” said Kyle Shaffer, owner of Advanced Lending Solutions in Johnstown. “When people apply for a mortgage, we are required to disclose their credit score ... People are starting to realize the effect of credit scores and we try to reiterate they don't just come into play for lending but for insurance as well.”

John Anthony, co-owner of ACA Mortgage Co. in Mechanicsburg, said credit scores can determine how much people will pay on their loans in the long run. Anthony is also on the board of directors for the state association.

“Credit scores are now driving not only mortgages or car loans, but also renters, home or car insurance,” he said. “People should better optimize their credit so it will be cheaper for a later purchase or when they use credit.”

Shaffer said more people are starting to become aware of how important a credit score can be when applying for a loan.

“People are starting to understand if it's lower they qualify for a higher rate,” he said. “People are aware of that, but probably not how much it affects them over the long haul. There could be a dramatic increase in payment (with a low credit score) and people don't realize the true effect of what it does.”

Officials say there are ways to raise credit scores for those with bad credit or people who do not have a long credit history.

“The first thing you want to do is be aware of the number of inquiries against your credit,” Anthony said. “This will hurt your credit. Don't go shopping at 16 different places where they will pull your credit. Try to reduce the number of inquiries on your credit.”

He also said having three or four different credit cards with low balances is a better way to build credit than having one credit card with a large balance.

“When you do get a credit card, keep the balance down relevant to the high credit limit,” he said. “Don't pay them off every month if you're trying to establish credit. Credit is the ability to manage debt, not pay off debt.”

Shaffer said there is a misunderstanding that people should close old accounts. He said it is better to keep them open because they are established forms of credit.

Someone with a credit score around 700 or above is considered to have excellent credit, according to the mortgage brokers.

The association suggests people utilize free credit reports available online. Free copies of credit reports and profiles are available by contacting the Equifax, Experian or TransUnion Web sites. One free credit report is available each year.

Anthony said a credit report differs from a credit score.

“A credit report tells you what accounts you have and how you have paid on those accounts, as well as your credit history and if you have late payments, filed bankruptcy or have judgments or foreclosures,” he said. “A credit score is the culmination of all that data. It's the likelihood of whether you will pay your debt or go 90 days delinquent in the next 24 months.”

Shaffer cautions people not to use any other credit report Web sites than the three recommended by the association.
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