Karen Montgomery's Blog
You know that your credit score is incredibly important when you want to buy a home. There’s certain things that you could be doing in your everyday life that are hurting your credit score. Here’s what you need to avoid in order to keep your credit score up:
Don’t Allow For Too Many Credit Inquiries
When you’re at the checkout lane at the store, and the clerk informs you that you can save a lot of money if you just open this instant credit card on the spot, that can pose a problem. The issue with this is that the store will be instantly checking your credit score as well. These inquiries hang on your credit report for a certain amount of time. Certain inquiries can also make your score dip. Too many credit inquiries can make lenders suspicious of your ability to be a dependable borrower.
Unpaid Bills Can Add Up
If you forget to pay small credit card bills here and there, it could add up. Think of things like library books, medical bills, and credit card payments. That unreturned library fee that you never paid could come back to haunt you. A medical bill that was sent to collections can become a problem on your credit report. Most of the time, all you need to do is pay these fees up for your score to bounce back.
Credit Report Errors
Your credit report could have incorrect information about your financial situation and records. Your credit score could be dragged down just because of some errors on the report. If you do find an error on your report, you’ll be able to submit a claim to rectify the error.
Using Too Much Of Your Available Credit
Just because a credit limit is at $5,000, doesn’t mean that you need to max it out. Even if you pay your bills each month, using too much of your available credit can really harm your score. For your credit score to be calculated and to see how loan worthy you are, your total available credit and how much of that total credit is being used will be put into a formula. Beware of how much of your credit you use in order to keep that score up.
Not Touching Your Credit
You actually need to use your credit in order to build your score. You need credit history in order to have something for loan officers to work with. Accounts that become inactive over time will be closed by default and actually negatively impact your score.
By using your credit responsibly, you’ll keep your credit score up and be in good shape to buy a house.
If you have seen your latest credit score and feel like you’re less than financially fit, don’t fret. There’s plenty of reasons why people end up with bad credit. There’s also plenty of things that you can do to amend and work with your bad credit.
Mortgage lenders look at a variety of factors when it comes to your credit and determining if you’re ready for a home loan. These include:
- Age of credit
- Payment history
- Amount of credit debt
If you have opened new accounts frequently or ran up credit card balances without paying them down, these behaviors could negatively affect your credit score.
Changing Your Habits
Just changing one of these bad habits can help your credit score in a positive way. This also means that a bad credit score doesn’t equal not being able to get a home loan. Your home loan may just come at a higher price.
What If You’re Turned Down For A Loan?
You can ask your lender why you’re unable to get a loan. Some possible reasons that you’re getting rejected:
- Missed credit card payments
- Failure to pay a loan
- Overdue taxes
- Seeking a loan outside of what you can afford
- Legal judgements
- Collection agencies
If you have defaulted on a loan, missed payments or filed for bankruptcy, chances are that you’ll have trouble securing a home loan. Other factors that can affect your credit score include negative legal judgements that have affected your credit, or having a collection agency after you.
How To Fix It
If you have bad credit, it’s not the end of the world. It’s possible that lenders can give you a loan if your credit score isn’t too low. You could, however, face higher interest rates as a penalty for a low credit score. This is due to the fact that you’re more likely to default on a loan based on your risk factors.
You can improve your credit score by:
Keeping existing accounts open
Refraining from opening new accounts
Trying not to approach too many lenders to find the right interest rate. Every time you get a credit check, it affects your score.
Finding A Loan
Signs of bad credit can take awhile to disappear from your credit report. Sometimes, you have the opportunity to explain to lenders what these factors are in detail so you can secure the loan. There are even mortgage companies that assist you through the loan process to give you a boost in getting the loan.
FHA loans are a great program option especially for people with bad credit. These loans offer low down payment options and have lower credit score standards. FHA loans have been helping people to secure their first homes since 1934.
If you have bad credit, the dream of home ownership is still possible. If you’re early in the process, get to work and keep that credit score up so that when you head out to apply for a loan, you’ll be able to secure it.