3 Credit Score Mistakes That Affect Home Buying

When it comes to buying a house, it’s no secret that credit scores matter. The higher your scores, the easier your access to the most sought after mortgage terms and interest rates.

To be sure, you don’t need sky-high credit to land a home loan. That’s especially true for VA home loans, which tend to feature more flexible and forgiving credit standards. But a solid credit profile can help maximize your budget and your buying power.

Here’s a look at three common mistakes that can hurt your credit, along with some simple yet concrete solutions.

1. Closing long-standing credit accounts

Many homebuyers-to-be commit to a strict plan to pay off and close their credit accounts. It’s true that
fewer monthly debt obligations mean more money in your homebuying budget.

Credit score mistakes can affect your home buying chances.

What many buyers don’t realize is that closing an account that’s in good standing can actually hurt your credit scores. When you’re being vetted by a mortgage lender, an established history of on-time payments is much more important than being debt-free. The key is keeping balances low and making payments steadily.

Pay down debts if you can, but keep your focus on making your monthly payments to all creditors on time. Don’t skip one payment for the sake of doubling up on another, even if one account has a much higher interest rate. If you are able to pay off an account, leave it open with a $0 balance.

2. Overusing credit as a savings strategy

After paying existing debts each month, some would-be buyers are tempted to stow away their remaining cash while using credit cards to cover living expenses. But that’s a dangerous strategy. Not only do high credit card balances have a negative affect on your credit scores, those balances can snowball as they rack up interest, and once-manageable minimum payments can quickly become overwhelming.

Build a monthly budget and save strategically. Also, when it comes to homebuying, be sure to do your homework. You’ll definitely need some money in the bank to land a home loan, but there are low- and even no-down payment options available for many buyers. VA and USDA loans allow qualified buyers to purchase with no down payment.

3. Be careful with credit repair services

Credit repair services are often bad for consumers. They can charge high fees and bank on making their clients feel confused. And there’s nothing they can do that you can’t do yourself. They typically resort to disputing account inaccuracies or late payments.

Instead, educate yourself. Credit repair companies prey on the under-informed by making consumers feel that improving their credit is a complex and insurmountable task. The truth is that there is plenty of good, free information out there that allows you to take charge of your own credit profile. To start, you can get free copies of your credit reports from www.AnnualCreditReport.com. Hunt for and dispute any errors and inconsistencies and look for free credit-strengthening tools and information online.

 

Carla Blair-Gamblian is a credit expert, and featured author for Smart Military Moneya personal finance blog dedicated to the military lifestyle. Carla helps veterans and active-duty service members develop plans to rein in their debt and get on the path to loan prequalification.

 

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Retired Expert

Retired Expert

Army Wife Network is blessed with many military-focused people and organizations that share their journey through writing in our expert blogger category. As new projects come in, their focus must occasionally shift closer to their organization and expertise. Their content and contributions are still valued and resourceful. Those posts are reassigned under "Retired Experts" in order to allow them to remain available as content for our AWN fans.

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