October 3rd, 2016 5:09 AM by Jackie A. Graves, President
If you’re hunting for a house and a mortgage, you’ve probably heard that your credit score
will affect your buying power big-time, because lenders use your
credit score to determine whether to give you a loan, and at what rate.
Odds are you also know that your credit score will suffer badly
if you make credit card payments late, or miss them entirely. So as long
as you’re current on those payments you should be fine, right?
Not exactly. Thing is, credit scores are tallied using a
whole slew of factors, and they aren’t always as straightforward as
whether you’ve paid your bills. Just so you’re clued in to
these surprising credit score saboteurs, check out this list to make sure
you aren’t destroying your home-buying odds without even knowing it.
If you have several credit cards, you probably use the one
that offers the best rewards most often. So if you’re no longer using
some of your cards, you might assume it’s better to close them.
Here’s why you shouldn’t: It can hurt your debt-to-credit
utilization ratio—a fancy term for how much debt you’ve accumulated
on your credit card accounts, divided by the credit limit on the sum of your
accounts. This ratio comprises 30% of your credit score. By closing a
credit card account, you reduce your available credit—making it more difficult
to keep your debt-to-credit utilization ratio below 30% (the recommended
Closing an old account also reduces the average length of your
credit history, another variable that factors into your score. Lenders like to
see that you have a solid track record of paying your credit card bills on
Bottom line: Never close an old credit card; it won’t reflect
well on you.
Given the above, you might think the more credit cards, the
better! Ah, but that would imply that getting a mortgage is a simple and
Actually, applying for a new credit card can ding your score by
up to 5 points, says Beverly
Harzog, a consumer credit expert and author of “The
Debt Escape Plan,” because it results in a “hard inquiry” on your credit
That hit might seem minuscule, but if you’re on the cusp of
having a good credit score (700 to 759) or an excellent credit score (760 and
above), a 5-point reduction could push you into a lower category—and
prevent you from qualifying for the best interest rates on a home loan.
Bottom line: Don’t get a new credit card within three to four
months of applying for a home
mortgage, advises Harzog. And yes, this includes department
store credit cards.
Isn’t it good to not go crazy using your credit
cards? Yes, but on the flip side, don’t let them languish unused, either.
That’s because if you don’t use your credit card for an extended period of
time—typically six months—your card issuer might decide to close the account
(given you’re not generating revenue for the company). And as you might have
guessed by now, this would lower the average length of your credit history, thus
damaging your credit score.
“If you’re not an active credit card shopper, you still need to
dust off your card from time to time,” says Harzog. To keep your credit cards
active, Harzog recommends charging a purchase at least once every four
months—and, of course, paying it off in full.
Credit cards aren’t all you’ve got to make sure to pay. When you
default on medical debt, your doctor’s office or hospital will likely outsource
it to a debt collection agency, says independent credit expert John Ulzheimer. The debt
collector may then decide to notify the credit bureaus that you’re overdue on
your medical payments—placing a deep black mark on your credit report.
Your best move? Be proactive. If you know that you’re going to
miss a payment, notify your medical provider ahead of time.
“Many doctors and hospitals will work with you to create
a payment plan,” says Gerri Detweiler, head of
market education at Nav.com, which helps small-business owners manage their
When you co-sign
a loan, you’re responsible if the primary borrower defaults on the
debt, Ulzheimer warns.
“Co-signing for a loan is essentially no different than you
applying for the loan yourself, in the sense that your credit score is at
risk,” he says. Translation: Think twice before co-signing your son or
daughter’s car loan or apartment lease.
This one surprises almost everyone.
If you own a company and have a credit card for business expenses, you
might assume your business activities won’t affect your personal credit
history. Sorry to break it to you, but they do. (Just to be clear: This
doesn’t apply to employees who have a corporate credit card, just owners.)
“As the business owner, you’re personally liable for the business’
credit card debt,” says Ulzheimer.
“If you default on the card, your creditor can report it to the credit
bureaus, which can hurt your credit score.”
Even just applying for a business credit card can temporarily
ding your credit score, because the card issuer will look at your credit
score to determine how trustworthy you are—and that’s another hard inquiry on
report. So, don’t assume business and pleasure won’t mix, and tread
But here’s some good news: There are plenty of ways
to boost your credit
score before buying a
home. Try a few tactics to get your home-buying on track.
By Daniel Bortz - To view the original article click here