How to Avoid Credit Score Pitfalls

The most vital factor in determining your interest rates and creditworthiness when you are buying a home is your credit score. When you begin the process of buying and looking for a mortgage loan, checking your credit score will be one of the first things your lender will do. Your credit score can drastically impact the amount of money you end up saving in interest payments throughout the life of your loan.

The credit score that will allow for a mortgage to be given is a score of around 640. Here are a few key factors that can negatively impact your score:

Paying Credit Cards Late  

Having a credit card is one way that can help build your credit score. Thirty-five percent of your credit score is based on your payment history. Sadly, credit cards have a lot of pitfalls that can cause extremely negative effects on your credit score. When you have credit card payments and you consistently pay late, your credit score will be deeply impacted. Consistently paying your credit card late or not paying the bill at all is worse.

The second most important part of your credit score is your level of debt. Having high credit card balances is considered a form of dept. This will decrease a credit score. In addition, maxing out your credit cards is the least ideal for your credit score. The percentage of extended credit you utilize accounts for another thirty percent of your credit rating. To help your credit score, you want to keep your balances as low as possible and make the payments on time each month.

Another way that credit cards can negatively impact your credit score is when you make too many requests for new credit cards. This sends the wrong message to credit bureaus.

Defaulting on a Loan

Similar to credit cards, having loans are ways that can build your credit score. However, failing to pay your loan payments can dramatically hinder your credit score.

A Foreclosed Home

A mortgage payment is similar to your credit card payment and your loan payment. When you get behind on your mortgage payments, it will cause your lender to foreclose on your home. This will dramatically impact your credit score. 

Unemployment

Many individuals experience unemployment as some point in their working careers. Thankfully, there are unemployment benefits that help get those through those hard times. However, it is important to not use those benefits for long periods of time as they will impact your credit score.

Improving Your Credit Score

Understanding what can hurt your credit score is vital, but knowing how to improve your score will help to get to that goal of owning a home with a low interest mortgage. The best part is that you are not powerless.

There are many things that you can do to help your credit score. According to Money Crashers, the number one way to improve your credit score is simply by paying your bills on time.

Another way to help improve your credit score is by keeping an eye on it regularly. Oftentimes credit reports can contain mistaken information. It is shocking to realize how many errors can happen on your credit score.

In addition, make sure to pay down any outstanding debt that you might have. This is a huge way to help to bring your credit score up higher.

Take Away

As you begin to plan and think of buying a home, make sure to keep your credit score in mind. If you check and your credit score is not as high as you would like it to be, work on ways to help to improve your score. Having a great credit score can save you thousands of dollars in the long term through interest rates. While the process might be hard and painful, it will be worth the effort.

If you are looking to buy a new home, please give us a call. We would be honored to help you find the home of your dreams.

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