When you decide to buy a new home, it becomes critical to have a good credit score to qualify for the best mortgage rate. Homebuyers are often seen making credit mistakes when planning to buy a home that completely hampers their financing efforts.
Below is a list of common mistakes to avoid when purchasing a new home.
Multiple Hard Credit Pulls
A hard credit inquiry is when the credit card company or financial institution conducts a thorough evaluation of your credit information before sanctioning a loan. These hard credit pulls are typical when applying for a new credit card or when submitting an application for a student loan, personal loan, or car loan. A hard credit check reduces your credit score and stays on your report for 2 years. Hence, if you are thinking of buying a home, it is best to avoid any hard credit pulls as a low credit score can affect the mortgage rate.
Closing Out Credit Accounts
People often make the mistake of assuming that closing out any unused credit accounts is a good financial move. In fact, it is actually recommended to keep all your credit accounts open as it increases the total amount of available credit and reduces your debt ratio. Experts suggest that you should keep your total credit utilization that is the sum of all your cards below 30%. Since credit utilization is an important factor contributing to your credit score, it is best to keep your accounts open and make your credit card payments on time to maintain your credit score.
Consolidating Debt into One Credit Account
Merging all your debts into a single account can make the account seem to have a higher debt to credit ratio and negatively impact your credit report. Hence, it is recommended that homebuyers distribute their debt within multiple accounts.
Opening Multiple Accounts in A Short Period of Time
While it is best to have multiple accounts to distribute your debt, it is important to note that opening multiple accounts in a short time period can be considered a red flag by lenders and adversely affect your credit score. You should always space out new credit card applications and apply only for those accounts that you actually need.
Inaccuracies in The Credit Report
It is also important to regularly check your credit report and correct any errors especially when you are planning to buy a new home. Any unauthorized hard checks or credit report errors can significantly lower your credit score. In addition to the above, any co-signed loans also appear on your credit report and your score can be affected if the co-signer makes late payments.
How Can A Good Mortgage Professional Help You?
A low credit score or inaccuracies in your credit report can impede the process of buying a new home or receiving a good mortgage rate. Hence, it is suggested to consult a mortgage professional who will help you in avoiding common credit mistakes and improve your credit score. A good mortgage expert can also provide the necessary insights and resources to help you maintain your credit and obtain the best mortgage deals if you are planning to purchase a home immediately or considering it in the near future.
If you’re still looking for information on how to avoid these mistakes, the experts at Rex Real Estate have some tips for you on their blog here: https://blog.rexhomes.com/credit-mistakes-to-avoid/