3 Common Mistakes that Lower Credit Scores

3 Common Mistakes that Lower Credit Scores

With interest rates on the rise, as a buyer you want to do everything you can to be in a good position to qualify for the most competitive rate available. A major factor in getting a competitive interest rate is having a good credit score. 

There might be things you are doing that can negatively affect your credit score.   Whether or not you are planning to purchase a home anytime soon, it’s never good to be surprised by a low score.

Here are three common mistakes concerning what affects your score and a few tips to ensure that you are making good decisions that will put you in the best position whenever you need to borrow money.

Mistake 1: Paying late doesn’t hurt my credit since I’m caught up now.

It’s important to pay all of your bills on time, every time! It doesn’t matter if you’ve caught up … you were late and your account knows that.

If you must pay late and want to avoid damage to your score, pay the accounts that report to credit bureaus first. You can find this information by getting a copy of your credit report.

For example, credit reporting agencies say their records are updated “routinely,” but this does not mean instantly. It may take one to three weeks for your credit card company to report a payment or paid balance to the credit agencies, then more time for the agency’s reports to reflect the update.

This is where your own credit report and the dates indicated can tell you which of your credit cards companies are more prompt in reporting and which ones may take a few more days.

Mistake 2: Dollar amounts matter in credit scores.

It may sound crazy, but dollar amounts don’t matter in FICO scoring. The effect on your score is the same for a $1 late payment as a $1,000 late payment.

Keep in mind that the fewer late payments on your credit report, the higher your score—regardless of their dollar amounts.

TIP: Another way to increase your score is to have a high credit limit but low balance. It signals that you are credit worthy and have paid your bills.

Call your credit card companies to increase the credit limit as high as possible but just don’t use the credit and pay down the balance so that it’s about half of the credit limit or lower.

Mistake 3: Closing credit card accounts helps your score.

If you are looking to boost your credit score, keeping a long-term and positive history with an account can really help.  To accomplish this, keep your cards open and active, using them for small purchases and being disciplined to pay them on time each month.

Avoid these mistakes and keep your credit score high.  If you have any questions, or you are ready to begin the home purchasing process, email me anytime!