Myth Vs Fact 6 Myths Misconceptions And Mistakes About Credit

Myth Vs Fact 6 Myths Misconceptions And Mistakes About Credit

Securing a mortgage is one of the biggest transactions most people will ever enter into. Credit and your FICO score is very important when it comes to any loan. It is paramount in something as long term as a home mortgage loan. 

Everyone's credit report is unique and has its own challenges and assets. There are several generalizations that can be made about credit when it comes to first time home buyers. If you plan on buying a home in the next year, here are 6 credit mistakes to avoid. 


Maxing Out Your Credit Card: Maxing out your credit card is the fastest way to drop your FICO score. You could easily drop your score by 100 points by doing this. The best thing to do is try to keep your card balance below 30% of the available credit, especially during the loan process. A helpful tip: If you are considering paying down the balances, do it over all of your credit cards, not just one. 


Paying Off Old Collections: Paying off a collection of will drop your score right away because of the "date of last activity" category. If you are going to pay off old debt, wait until after closing. 


Consolidating Credit Into 1 or 2 Cards: Consolidating may seem like a smart move, but it actually drops your score, because on paper, it looks like you've maxed out the card you're moving the debt onto. Wait until after closing your mortgage to consolidate any debt. 


Closing Credit Card Accounts: Closing a credit card will actually appear as though your debt ratio has gone up in the eyes of the FICO. It also affects things like length of credit history. A longer credit history is a good thing with credit. If you're set on closing a credit card amount, wait until after closing or make sure it's the most recently opened account. 


Falling Behind On Existing Accounts: A simple 30-late payment on things like a mortgage or car payment can drop your FICO score anywhere between 30-80 points. Make sure you stay current on All of your account!


Doing Anything That Will Raise A Red Flag: Other activities that raise a red flag include adding new accounts, changing your name or address with the credit bureaus, or co-signing on another loan. It is better to have little activity on your credit report during the mortgage loan process. 


One important piece of advice to remember: Don't tackle your credit issues completely on your own. Sometimes the task of improving your credit can seem overwhelming. Don't give up! Talking to a trusted mortgage lender can shed some light on baby steps you can take that you may not have thought of. 


Cory Pangburn Headshot
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Phone: 616-482-9332
Dated: May 5th 2016
Views: 231
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