I TRY TO KEEP THIS COLUMN RELEVANT by giving readers useful, topical information. Typically, I write about topics that cross my desk frequently, or give updates on how the real estate market is doing in general.

Since credit reports are an important part of qualifying for a home loan, consumers’ understanding and use of credit is an issue I deal with every day. However, it seems that sometimes I have to deal with “credit issues” more frequently than others. This apparently is one of those seasons, so I figured it must be time to write about credit reports and useful steps consumers can take to maintain “good” credit.

There are numerous credit scoring models. You will see significant differences in your credit scores depending on the purpose of the credit report. I met with a borrower recently who arrived at our meeting armed with a report she had just pulled reflecting an above-average score of 772. But when I pulled her credit her for a new mortgage, her score was 717. Scoring models are set up specifically by risk level of the type of credit being requested. A mortgage credit report will be more sensitive to certain items in a borrower’s profile than a report used for credit cards or car loans.

Speaking of car loans, this is a pretty common area where consumers make mistakes that can result in substantially lowered scores. Some car dealers will make a practice of running a credit report numerous times. One or two inquiries is not a big deal, but when you get too many credit inquiries it can affect your score. I generally suggest to clients that when shopping for a car, be quite specific with dealers in advising them that they do not have authorization to run a credit report until you have decided on a car and have settled on a price for the vehicle. Better yet, get preapproved with your own bank or credit union before you go shopping. Most importantly, if you are in the process of buying or refinancing a home, don’t even think about buying a car until you have discussed it with your lender. The real estate business is filled with stories of failed escrows because someone went out and bought a car in the middle of the transaction.

One thing that is fairly universal: credit scoring models are sensitive to credit card debt. It’s an issue of balance — not too much, but not too little. I frequently run simulations on borrowers’ credit scores to determine what a borrower can do to improve their scores. I ran a simulation last week for a borrower to illustrate the impact of his revolving debt. He had just one credit card account that was near the limit. At first I simulated what would happen if we paid the account off entirely. His score actually dropped with this simulation. Then I ran the simulation again with a minimal balance of 20 percent of his credit limit, and his score increased by 13 points. In this situation the borrower had very little credit history, so paying off the account lowered the score but maintaining a fractional balance increased the score because the small balance represented an ongoing payment history.

Managing credit is tricky and completely unique to every individual. Next week I will cover credit monitoring and credit repair services.

And now a word from compliance: Individuals and situations in this column are fictional and are meant for illustrative purposes. Any resemblance to actual individuals whether real, living or dead is purely coincidental and is in no way taken from Fairway consumers.

Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or guyb@fairwaymc.com.height=”150″ />

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