14 Common Credit Mistakes
Building credit and managing your credit wisely is easier when you know how. You’ll feel empowered to take sensible steps toward good credit and be on your way to purchasing real estate and greater financial freedom.
If you’re planning to finance real estate, either as a home buyer or as an investor, avoiding these common credit mistakes will help your credit score and save you money on borrowing costs.
14 Common Credit Mistakes
1. Using expensive or unwanted types of credit costs too much and is negatively evaluated.
2. Accumulating too many lines of credit or too many credit cards results in notations on your credit report like “too much consumer credit.”
3. Just paying the minimum balance due keeps it too high.
4. Increasing the maximum amount on any credit card or line of credit leads to deep drops in scores.
5. Taking out cash advances costs higher interest and additional fees.
6. Exceeding the limit and paying over-limit charges is negative for lenders and causes “high pro-rata dues” remarks on credit reports and deducts credit score points.
7. Paying a day or more late causes unnecessary late fees and often raises interest rates.
8. Charging more than you can afford causes a snowball effect of accumulating debt with no easy way to pay it off.
9. Allowing someone else to use your credit, such as co-signing a loan, raises your debt-to-income ratio and possibly adds “too many consumer accounts” to your credit report, lowering your score.
10. Ignoring credit problems causes unnecessary negative impact. Talk to the lenders before it’s too late and come to an agreement. This action prevents negative reporting by credit bureaus.
11. Failure to report address changes to creditors results in incorrect accounts and late payments.
12. Using a partial name, different names, initials instead of a full name, or forgetting a senior or junior causes confusion. Use your full legal name to avoid confusion with borrowers with similar names.
13. Failure to report creditor name changes also causes confusion.
14. Not checking your credit report is often one of the most common mistakes consumers make.
You can buy real estate with bad credit, but you’ll save thousands in loan costs if you maintain good credit. A bad credit report leaves homebuyers with subprime loans that have higher fees, prepayment penalties and higher interest rates, which therefore cost more money.
For example, a $150,000 mortgage loan, 30 years, fixed rate of about 5.72 percent costs about $870 per month. Bad credit scores raise interest rates above 9 percent and payments above $1,200.
As you can see from these payment differences, good credit means you can finance a more expensive house with the same income or save $330 each month.
Credit requirements for mortgages
The credit needed to buy real estate is not the same as good credit. In addition to your credit score, mortgage lenders consider your debt-to-income ratio and other credit issues, unlike other lenders. Your debt-to-income ratio is the comparison of your mortgage payment, including taxes, interest and insurance, to your total gross monthly income. Real estate lenders also consider your work qualifications and your overall debt ratios. Understanding the difference between good credit and the credit needed to get real estate financing helps you buy houses!
Avoiding credit mistakes helps you get strong credit and keeps your credit score high.
Copyright © 2005 Jeanette J. Fisher. All rights reserved. (You may publish this article in its entirety with the following author information with live links only.)
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