The 5 Most Common Credit Mistakes That Lower Your Credit Score

The 5 Most Common Credit Mistakes That Lower Your Credit Score

When talking with a mortgage lender, you’ll hear “credit score” frequently. Lenders can determine the likelihood of you paying back your home loan by evaluating your credit score. The higher the score, the better your benefits like a lower interest rate. But not all credit scores are equal, and “credit” isn’t just about credit cards. Your creditworthiness includes all loans and bills. Furthermore, credit card companies, car dealerships, and mortgage lenders all view credit differently.

When thinking about buying a home, here are 5 common credit mistakes to avoid:

1. Not paying bills on time.

Payment history accounts for 35% of your overall credit score. A single late payment could affect your score by as much as 160 points. There are 4 factors used to calculate your FICO* score:

      • Your score at the time a payment is marked late
      • How often your accounts are marked late
      • The number of days between the due date and the late payment
      • The time since your last late payment

2. Making only minimum monthly payments.

Only paying the minimum payment hurts your credit score and costs you more money in interest. It’s wise to treat credit card bills as regular bills and pay them off each month.

3. Missing a payment.

We understand that missing a payment can be an oversight just like making a late payment. But your credit score can take a hit of 17 to 83 points when a payment is 30 days late. The hit is greater when the payment is made 60 to 90 days late.

4. Closing a credit card.

Initially, this sounds like a good idea – especially if you are tempted to overuse cards. But lenders look at your credit history. If you’ve had a credit card for 9 years and a car loan for 2, your average credit history is 5.5 years. If you decide to close the credit card, your average credit history drops to 2 years. If you have an account you’re not using and being charged maintenance fees, talk to your lender about the best course of action.

5. Not checking your credit reports.

There are three national credit reporting agencies: Experion, Equifax, and Transunion. Each year, you’re entitled to one free copy of your credit report. We suggest checking every 4 months with a different company during the year. By doing this, you can keep on top of any reporting mistakes and request corrections be made.

www.equifax.com 
888-378-4329

www.transunion.com 
833-395-6938

www.experian.com
800-493-1058

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Don’t let questionable credit keep you from exploring home ownership. McGinnis Team can review your credit and provide guidance on making corrections and increasing your credit score. McGinnis Team is here to help!

* FICO: Fair Isaac Corporation; data analytic company focused on credit scoring services to measure consumer credit risk; used by 90% or more lenders.3