When Good Credit Goes Bad: Understanding Your Credit Score

By Gina Pogol
Mortgage Credit Problems Columnist

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You weren't turned down for a mortgage because the underwriters didn't like you. They just didn't like your credit score. Understanding what causes a bad FICO credit score is the key to improving your credit and getting the loan you need. Here are some common "credit killers" that make it difficult to get a mortgage or even a debt consolidation loan:
  1. Serious Delinquencies. A bankruptcy discharged within the last five years, the repossession of your car, defaulting on your mortgage, an outstanding collection account, or an unpaid judgment are considered serious issues and will most likely cause your loan to be declined by conventional lenders.
  2. Late Payments. Two thirty-day late payments in the last year will drop your score significantly. So will one sixty-day delinquency in the last two years. Late payments on a mortgage are considered very serious, nearly as bad as a bankruptcy.
  3. Over-Use of Credit. If you are maxed out on your cards, it appears that you aren't managing your money well. People with good credit keep their balances low, or pay the cards off monthly. Opening up many new accounts is red flag--an ever-increasing debt load is a sign that you are unable to pay Paul without robbing Peter. The strategy of moving balances around to take advantage of lower introductory rates offered by some credit cards can backfire for this reason.

Improve Your Credit Score:

Pay your debts on time! Of course, most people don't reach a credit crisis if they can afford to pay all their bills. A debt consolidation loan or a debt consolidation mortgage loan, can help you get your obligations under control. While conventional lenders decline anyone who doesn't drop neatly into their "good credit" box, you can find debt consolidation lenders who will look beyond your credit score and give you a chance to get your finances under control.

"The Basics of Debt," Wall Street Journal

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