5 Common Credit Mistakes to Avoid

Many people have the best intentions when they start looking for a home loan, but all too often many people either get poor advice, no advice or try to add their own common sense thought process into the equation. To help make this easier for people I have listed the 5 biggest credit mistakes to avoid when shopping for a mortgage.
Walking blindly into the application process

It sounds crazy but the number of people that do all the steps in the wrong order when buying a house is amazing. So many people assume that everything is ok, or wait until the last minute to see if they can actually qualify for a mortgage loan for the new house they wish to purchase. You might have fantastic credit but the fact is that credit reporting is not a perfect system. All it takes is someone to report someone else’s bad credit on your credit report by accident, or a lender to mistakenly report your account as late and you now have a high chance of not being approved for your new mortgage. The first thing you should do is pull your credit report and review it to make sure there are no surprises on the report. If there are negative accounts that you forgot about or were not aware of this gives you time to get help in getting those corrected. The best place to get free credit reports that will not hurt your score is www.annualcreditreport.com.
You will also want to pay attention to your credit card balances. Your goal should always be to have a balance at 10% or less than the credit card limit.
Paying off old collections

If you have old collections on your credit report, be careful about just calling all the collection companies and paying the accounts off. Paying an old account will not improve your score. It could actually lower your score in many situations. You want to be very careful before you just assume that this is the best approach. This is one of those areas that you should get help with or at least talk with your mortgage broker before addressing.
Credit scores punish your score for having the collection, not for the balance. This is the reason that just paying a collection will not improve your score. By paying the collection it will not just magically drop off your report thus the reason this is not a valid strategy to improve someone’s credit score.
Closing credit card accounts

This is one of those myths that will not die. It’s been talked about for years and while many people that give this terrible advice have recently changed their reasoning as to why this is a smart technique, they are still wrong. A general rule of thumb for you is do not ever close a credit card, especially before you are going to be apply for a mortgage loan. In just about every situation closing a credit card is bad for your score. Resist the urge and just leave the account alone.
Making any large purchases

Don’t do anything that will change your financial situation. It should be common sense that purchasing a new car while in the process of applying for a loan is not a good idea, but all to often people don’t think through the potential credit ramifications of doing this beforehand. The same goes for making large purchases on your credit card, for example new furniture or a new TV. These things can wait until after your loan is closed. The second most important factor in your credit score is your balance compared to the limit on your credit cards. Largely increasing the balance will never improve your credit rating.
Many will read this and be saying to themselves, “I will just pay cash for the new furniture and TV I need for my new house.” Again, I would say wait until AFTER closing. You want to keep as many funds at your disposal as possible just in case there are any surprises along the way. It is better to play it safe and wait to buy those items then it is to not be able to buy your new house and now have to try to fit your new furniture into your old house.

Taking too long to find a lender

Besides the fact that interest rates change daily you don’t want to spread this out too long and have people pulling your credit report several times in the next several months. If you are not set on a lender or you are just convinced that there must be a better deal out there then narrow down your quest to find the lowest interest rate in less than 30 days and then make a decision and stick with it! Credit scores have been designed to allow you to shop for a lender, but you only have a certain amount of time before the next credit pull will hurt you.


Author: Dan Beck

Dan Beck is a credit repair expert who teaches consumers how to create an "A Rated" credit profile. Would you like to receive a FREE Consultation with Dan? If so, click here.

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