Western Slope residents who will be buying a home, refinancing their mortgage, or even just financing a car anytime soon, should think twice before making abrupt credit moves. Even some actions intended to reflect positively on their creditworthiness can backfire.

As everyone learns, your individual credit score determines not just whether financial institutions will grant your application for a home or auto loan—they also play a decisive role in the interest rate you will be quoted. Your score is calculated by using various historical data to determine the degree of risk the proposed loan would subject the lender to—an arithmetic calculation projecting the likelihood that repayment will proceed on schedule. As you can imagine, millions upon millions of recorded transactions tell the tale, giving the scoring companies plenty of data to make their projections pretty dependable.

Western Slope consumers aren’t privy to the formulas that are used but can still observe some less-than-obvious actions to take (and not take) in order to maximize their credit scores and their power as credit customers. One of them is simply to act with caution.

Whenever you are seized with the urge to pare down your complicated financial life, go carefully. Especially when your billfold begins to bulge with plastic, or your mailbox and email box keep getting clogged up with too many credit card company statements, the rule is usually, do nothing.

There are three solid reasons why closing down little-used accounts can be counterproductive:

1.     You shorten the combined length of your ‘open credit’ record. The oldest accounts are the most valuable for demonstrating that you are a veteran credit user instead of a Johnny Come Lately.

2.     You bring down the total credit available to you. The higher that total, the more creditworthy you show yourself to be. Closing an account brings down the total.

3.     Likewise, the percentage that you owe of the credit available to you goes up when you close down an account—even though you haven’t borrowed a penny more.

The ins and outs of adeptly navigating the credit system are the opposite of credit itself: it’s like money in the bank! When you apply for a home loan, that becomes apparent—even when mortgage interest rates are as low as they are now.

We strongly suggest you talk with one of the many local mortgage experts on this topic for more specific credit advice. Feel free to call me for a list of those experts whenever Western Slope real estate matters are in the offing!