One of the biggest issues facing homebuyers today are problems with their credit scores. Unlike in the past, the available loan products and interest rates will vary significantly with a person’s credit score. Below are 5 Do’s and Don’ts to make sure that your credit score is as high as it can be:
1. DO-Make your mortgage on time and in no event later than the 30th day of the month. Even one 30 day late mortgage in a year can drop your credit score by 40-50 points and make you ineligible for certain mortgage products. If something has to be paid late, make it anything other than the mortgage.
2. DON’T-Allow your credit card balances to go above 50% of their maximum credit limits. If possible, keep the balances at 25% of the credit limits. As the credit balances approach the maximum credit limits, the credit scores decrease significantly even if all bills are paid timely.
3. DO-Pay all minor medical bills once the insurance company has finalized your share of the bill. Pay this even if you believe the bill is not owed; you were overcharged or that the insurance company SHOULD have paid the bill. Most of these disputed charges are less than $200. A Collection Account on your credit report can reduce your score by 20-100 points and will cost you much more in extra financing charges than the amount of most of these medical bills.
4. DON’T-Take out ANY new debt when you are in the mortgage process without speaking with your mortgage broker. This includes car loans, credit cards, etc. This new debt may get picked up by the lender prior to closing and cause an issue on the loan approval if it lowers your credit score.
5. DON’T-Have too many people run your credit. Each credit pull will reduce your credit score by about 5 points. Since credit scores are now graded in groups of 20 points (i.e. 700-720 or 720-740) if you are close to the lower group, your interest rate and loan products can be affected if your score is reduced by even 5 or 10 points.
And, as a bonus, #6, which is a pet-peeve of mine and which I call,” If the bank won’t bet on them, why should you? “ DON’T EVER co-sign a loan for your brother, sister, niece, nephew, girlfriend, boyfriend or anybody else who is not living under your roof (i.e. where the bills are sent). The general rule as I see it is that if somebody’s income or credit is insufficient for them to get a loan on their own, you should not put your credit on the line for them either. Just know that “co-signing” from a legal perspective is the same as “signing.”