5 Common Home Buying Mistakes That Hurt Your Credit
Did you know there are some common mistakes that hurt your credit as you prepare to buy a home?
When you are getting ready to buy a home, making sure your finances are in the best place they can be is top on your list of priorities.
You likely already know that you will need to save your down payment and closing costs, but are you confident about your credit score? Do you know how to avoid common mistakes that hurt your credit?
We have put together a list of five ways you might hurt your credit as you get ready to buy a house.
1. Not Knowing What Kind of Credit Score You Need
The first mistake you might make that will hurt your credit? Not knowing what kind of credit score you need to qualify for the best loans. You can't reach your goal if you don't know what your goal is and where you're starting from, so start by getting a free credit score check to see what your score is today.
Next, keep in mind that mortgage lenders qualify borrowers for a loan based on credit score tiers. The exact number of your credit score is not nearly as significant as which tier that scores falls into. In general, credit scores under 579 are poor, 580-669 are fair, 670-739 are good, 740-799 are very good, and 800-850 are excellent.
If your credit score falls into the good or very good category, you will likely qualify for a good interest rate. See if you can get your score into the next tier by avoiding some of the following mistakes that hurt your credit score.
2. Paying Your Bills Late
You may not think much of paying a bill late here or there when penalties range from nothing to a small fee. However, a late bill can turn into a ding to your credit score. Making a habit of paying bills late can end up costing you big time when you're ready to apply for a mortgage.
Try signing up for autopay on your bills or using a reminder app to keep you on track. Your credit score will thank you!
3. Co-Signing on a Loan
If someone asks for your help securing a loan, such as a student loan or auto loan, consider the way it might affect your own credit score. If the person you co-sign for misses a payment or, worse, defaults on the loan, your credit will take a major hit. You don't want to end up being guilty by association.
It may be uncomfortable to reject the request to co-sign in the moment but think carefully about who you team up with on a loan if you plan to apply for a mortgage any time soon.
4. Closing Old or Unused Credit Card Accounts
If you have a credit card that is paid off and you never use, you may think it makes sense to cancel it all together. This will eliminate the temptation to build up any new credit card debt, right? That might be true, but closing a credit card account is a mistake that hurts your credit score.
Instead, just leave the account open and put the credit card in a safe if you want to avoid the temptation to use it.
5. Opening Several Credit Accounts at Once
Another mistake that hurts your credit as you prepare to shop for a home is opening new credit accounts. This is a common temptation as you think about buying a new home. You may be picturing how new furniture or appliances will look in the home, or maybe you just want to buy a new car and feel confident you can afford both payments.
Even if you can handle the new debt payments while having the new mortgage, wait until after the mortgage has closed to open those new credit accounts. It's not worth risking your mortgage application!