Avoid These 5 Common Credit Mistakes
You may have checked your credit score once or twice over time as you applied for credit cards, loans, or even new jobs. But have you thought about it much since then? As you reach the point of thinking about homeownership, it’s important to learn about your credit. Your credit score is an important piece of obtaining a home loan. We can help you by sharing some common credit mistakes to avoid.
Your credit score is calculated by credit reporting agencies. The most common credit score used is the “FICO®” score (link is external), and helps lenders determine how much risk they will be taking on when they loan money to you.
Avoiding common credit mistakes is important whether you’re already a homeowner and may need a new home loan or refinance down the road or whether you’re just starting to consider making a home purchase. You can start improving your credit several months in advance of needing a home loan – it’s never too early to begin. But even avoiding credit mistakes as you are starting to look for your dream home will help.
5 Credit Mistakes to Avoid
Here are some common credit mistakes that consumers make which result in lower credit scores:
Falling behind on credit card payments. Late payments will lower your credit score. Make it a priority to stay current on all accounts.
Maxing out credit cards and accounts. The higher amount of available credit you are using, the more it will negatively impact your score. Aim for using no more than 30% of your available credit at any given moment.
Closing out credit accounts. While closing out your unused credit accounts may seem like a good idea, it decreases the amount of available credit, which then increases your debt percentage. Keep accounts open but with no balance, if possible.
Consolidating debt to one card or account. By moving your balances to one card, it can make that card appear to have too high of a ratio of debt to available credit. Keep percentage of debt to total balance on each card as low as possible.
Opening too many accounts in a short time. Applying for or opening too many credit accounts in a short period of time is considered a red flag and may negatively affect your credit score. Only apply for what you really need and try to space out applications over time.
Avoiding these common credit mistakes can help you improve your credit score and be prepared when you are ready to purchase a home.