Home-buying tip of the week

February 20, 2020
Credit and credit-worthiness are not a small part of the home buying process – they’re essential.  I thought this list of tips a lender shared with me regarding managing your credit was worth a read!

Credit scores determine a person’s eligibility to get a loan and it is one of the 4 key factors in the loan qualification process. There are various factors that can affect your credit score. At times, people make significant changes in their credit profile with the goal to improve their score, however those changes can have the opposite effect.

Here are some tips as to the things that can have a negative impact on your credit score:

1. Closing a credit card - usually people close a credit card when they don’t really intend to use it. When this happens, it increases your credit utilization ratio (total credit used/total available credit) which reduces your credit score. Its best to keep the credit line open and use it once and a while.

2. Paying on time is not all that you need for a good credit score - paying credit card debt on time is good but if you use a huge portion of your credit limit every month even paying it off completely and on time will not be as beneficial as lowering your credit utilization ratio. It’s best not to go past 70% of your credit limits monthly.

3. Pay off a loan early - paying off a loan early is great especially if you are eliminating a high interest rate on the loan. However, it can reduce your credit mix and thus lower your credit score. Credit score is determined by the mix of credit and if there isn’t a lot of credit to evaluate the score is reduced.

4. Reject higher credit limits - The only reason you should reject a higher credit limit is if you will not be able to stop yourself from overspending.  If you can keep your spending consistent while increasing your credit limits, it will raise your credit score because your credit utilization ratio will be lower.

5. Send in partial payments - If you can’t pay the minimum payment and you send in a partial payment, it will still be reported as a late payment and it will affect your credit score. If you’re in this position, you should evaluate all of your options in consolidating your debt to a loan with a lower rate and longer-term options. Using the equity in your home is often a great option in this situation.

6. Late payments - A late payment will remain on your credit report for 7 years. If your life is busy and you tend to be late often, its best to set up automatic payments to pay debts.

7. High Balances - its best to keep the balances below 70% of the limits.

8. Too many inquiries - If you have a variety of entities pull your credit over a short period of time, it normally signals that you are going to accumulate debt and it will lower your credit score.

9. Disputes - Before you dispute a charge, its best to pay it. You want to avoid the creditor marking your account as a derogatory account. 

10. Collections - If for some reason you have an old account that is in collections, don’t pay it. When you pay it, it marks it as a “current” activity which will then lower your credit score.

Ceily Landman

415.871.8303   [email protected]   Lic. #02024880

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