When it comes to buying a house, your credit score is the first thing that the lenders look at to decide whether you have the financial capacity to pay off the mortgage. Buyers prepare for several years to get a good credit score and get better mortgage rates in return. If you’re planning to buy a home in the near future, it is best to check your credit record first to understand your credit history. This will also give you enough time to fix whatever’s hurting your credit rating.
Here are five things you should never do if you want to achieve a good credit score.
- Late bill payments. What lenders are looking for are buyers who can commit to paying mortgage fees on time every month. Your history of making payments is one of the most important factors that goes into your credit score, whether it’s for a credit card, student loan or mortgage. Late payments can cause a big slip in your credit score because it composes a third of your credit.
- Not paying at all. If there’s something worse than not paying on time, It’s not paying your bills at all. This habit is devastating for your credit score when you start missing payments entirely and they get sent to collections. This scenario usually happens due to job loss or financial emergencies. A collection remains on your credit report for seven years, regardless if you paid it off later. So be careful not to miss payments and plan your finances so you don’t have problems when an emergency occurs.
- Maxing out your credit card. Lenders analyze your debt to income ratio so maxing out your credit card will add to your debt and hurt your credit score. The ideal credit card balance should never exceed 30% of your credit limit. For example, if you have a limit of $20,000 on your card, don’t go over $6000 in expenses. It doesn’t matter if you pay your bills on time or if you never exceed your credit limit. Just the fact that you have a lot of debt can affect your score negatively.
- Unpaid contested bills. Even if you lodged a complaint to your credit card company regarding questionable charges, you still have the obligation to pay your bill. You can ask for a refund after the bill has been paid. Don’t wait for the complaint to get settled because your bill might be overdue by then and it will damage your credit record more.
- Too much credit. Don’t take on a lot of credit all at once. This will raise a red flag and lenders will think that you are in financial trouble and relying on loans. Don’t open credit card accounts at the same time.
Monitor your credit score by getting a free report from the 3 reporting agencies – Equifax, Experian and Trans Union. If there’s an error or discrepancy, report it immediately and produce the necessary documents to prove your claim. More importantly, be responsible.