Having a good credit score is imperative to anyone applying for a mortgage. Learn what might be bringing down your score.
When you’re applying for a mortgage, your credit score can be the difference between getting approved for the best interest rates and having to pay penalty rates. Unfortunately, no one really thinks too much about their credit score until they need to apply for a loan. These 10 things affect your score more than you realize.
- Paying your bills late. Every time you make a late payment (typically more than 30 days late), a notation is made on your credit report. This includes utility bills. Be careful about paying everything on time.
- Applying for too much credit. A notation is made on your credit report every time a lender has to check your credit. Each of these checks takes less than 10 points off of your credit score, but those points can really add up if you apply for a lot of credit in a short period of time.
- Carrying high balances on your credit cards. Maxing out your cards lowers your debt-to-credit extended ratio. This ratio can account for up to 30 percent of your credit score. One solution is to ask for an increase to your credit limits. This will make it appear as if you’re only using a fraction of the credit that you’ve been extended. Paying off debt will also help this ratio, and it will help the debt-to-income ratio that mortgage lenders look at very carefully.
- Closing old credit card accounts. The length of your credit history is important to your score. When you close old credit cards, your credit history could look a lot shorter than it really is. Before you close a line of credit, talk to a lender.
- Not making the full minimum payment. If you can’t pay the full minimum amount of your debt payment each month, it can hurt your score almost as much as if you never paid the bill at all. That’s because these partial payments are logged as missed payments. Keep track of how much you should pay each month.
- Keeping utilities out of your name. Utility accounts are a great way to build credit. They establish a credit history and show that you can make payments on time. If you don’t have any utility accounts in your name, however, you miss out on these advantages. If you’re applying for a mortgage, move one or two accounts to your name.
- Co-signing a loan. The debt that you co-sign for can show up as a liability on your credit report. Too many liabilities can lower your credit score. More importantly, many lenders will count this debt against you when computing your debt-to-income ratio. If possible, take steps to get yourself removed as a co-signer from any loans.
- Having too many accounts. Opening a checking and savings account reduces your credit score by a few points. While this seems strange, it’s rarely enough points to make a difference. If you have multiple bank accounts, however, each one could reduce your credit score enough to be a problem. Close and combine some of your smaller accounts to avoid this problem. You’ll be simplifying your finances in the process.
- Wrong information. More than 90 percent of credit reports are estimated to have some type of error. This could be a wrong address or a delinquent account that was wrongly assigned to you. Review your credit report and fix problems before it’s urgent.
- Too many disputes. When false information appears on your credit report, the common wisdom has been to file a dispute with the credit bureau. Too many disputes, however, can cause your account to be flagged as a problem. Only dispute the information that makes a difference to your score. Leave the rest of it alone for now, and fix it after you’ve applied for a mortgage.