How to Avoid Credit Mistakes When Buying a Home

Buying a new home and then financing it can be an overwhelming experience. Having good credit becomes critical in order to get the best possible mortgage rate. There are several common credit mistakes you should avoid which will help you improve your credit score and be prepare you to purchase a home.

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How to Avoid Credit Mistakes

Here are five of the most common mistakes to avoid when you’re on the path to homeownership.

1. Multiple Hard Credit Checks

Credit card inquiries are either hard or soft checks. A hard check occurs when any credit card company or bank conducts a complete evaluation of your credit information before lending you the money.

This usually occurs when you apply for loans such as car loans, personal loans, student loans, or when you apply for a new credit card. Hard checks usually lower your credit score by a few points and will stay on your credit report for about two years. If you are buying a home, you should avoid hard credit checks (other than your primary loan application, which is required) as it will reduce your credit score thereby increasing your mortgage rates. 

2. Close Out Credit Accounts

Closing out all your unused credit accounts may sound like a good financial move but it actually reduces the amount of available credit, thereby increasing your debt percentage. It is ideal to keep your total credit utilization from all your credit cards below 30%.

Credit utilization is an important factor that contributes to your credit score. By keeping accounts open, you will be reducing your credit utilization.

Also, you should prioritize making credit card payments on time. Late payments, as you would expect, will lower your credit score. 

3. Consolidating Debt to One Account

Finance experts suggest that you should keep your debt distributed among all your accounts. Moving all your balances to a single credit card can make that card appear to have a high debt ratio to available credit and this can also affect your credit score.

Today there are new apps for your phone that can help you financially as well. Try checking out one of the best budget apps to see how they can help you reduce debt or consolidate your debt into one payment.

4. Open Several Accounts in a Short Period of Time

Opening multiple credit cards within a short period of time is considered a red flag. This will almost certainly have a negative impact on your credit score. If necessary, space out your applications for new credit cards. Even better, only apply for a new account if you absolutely have to.

5. Not Checking Your Credit Report and Correcting Errors

Any errors in your credit report, such as unauthorized hard credit checks, can significantly lower your credit score. Therefore, reviewing your credit report and correcting any errors is necessary especially when planning to purchase a house.

If you have co-signed a loan for someone, that also appears on your credit report. If the co-signee makes late payments on the loan it will affect your credit score as well. 

How can a good mortgage professional help you?

One of the best ways to how to avoid credit mistakes is to have a professional on your side. When you come across credit score problems, it will lower your mortgage rates and hurt your chances of buying the home of your dreams.

But have an expert mortgage professional will help you avoid common credit mistakes and help you work towards actually improving your credit score. A licensed professional can provide the necessary insights, guidance, resources, and know-how on maintaining your credit and help you find the best mortgage deals based on your individual financial situations.

Tre Pryor, Realtor

Tre Pryor is the leading real estate expert in the city of Louisville. He is a multi-million dollar producer and consistently ranks in the top 1% of Louisville Realtors for homes sold. Tre Pryor has the highest possible rating—5.0 stars on Google—by his clients and is routinely interviewed by the local NBC news. Tre Pryor is a member of the RE/MAX Hall of Fame.