Credit, Credit, Credit! Your credit score is a crucial part of your financial future and present. Whether you are looking to open a credit card, buy a home/vehicle your credit score will not only dictate your ability to make that purchase, but also what interest rate you will have. You have three different credit scores, but for this article I am going to focus in on one and that is your FICO credit score. It registers on a range of 300 to 850.
You should strive to have a score of 780 or higher to be in the best shape to make major purchases with the best interest rates. In the mortgage industry we suggest that our clients hold a minimum of a 620 credit score. This is primarily the lowest score most, not all, lenders have as a threshold for a mortgage.
Now let’s get down to what this article is all about. What can damage your credit score and what you should look out for. I will discuss seven different things that can greatly affect your credit score.
Carrying Large Balances:
You should never accumulate large amounts of debt. Yes, keeping a large balance on a credit card can enable you to increase that cards limit. However, you need to be aware that your debt effects about 30% of your overall credit score.
Closing Credit Cards:
This may seem like a smart move if you are having credit issues, but the length of time you hold a line of credit also effects your credit score. If you are able to maintain a credit card for many years it looks much better on your credit as opposed to quickly paying off balances and closing cards.
Nobody wants to see a late payment charge on their account and payment history is a major factor that lenders look into. For your FICO credit score, payment history makes up about 35% of the score.
It may seem obvious, but failing to pay back an owed amount to a lender will severely damage your credit score. The largest form of default is bankruptcy or foreclosure on a home. Both of these situations can easily cut your credit score by 100 points.
Having to many lines of open credit:
This is when the age old phrase “to much of a good thing,” comes into play. Applying for a loan or credit card with numerous creditors can cause your credit score take a small hit. If you apply for multiple lines of credit at the same time, those little hits will add up quickly.
Not Having a Credit Card:
Many people are cutting up their cards and closing their accounts in hopes of helping to keep them out of debt, but this is a double edged sword. On the one side you are not accumulating more debt and in turn do not have to worry about payment. On the other hand, you are not showing payment/credit history and are not helping your credit. Having a small credit card that you use for something specific like fuel or groceries is smart to have as long as you are able to make your payment at the end of the month.
We all have friends and family we care about. There are times where those people may need our help to qualify to receive a line of credit. You must take precautions when choosing to co-sign on anything. If you are not fully capable of taking on that debt alone it may not be the best choice to help. You should always prepare for the worst and if for some reason the person you co-sign with is not able to make the payment it will become your responsibility. You don’t want to be faced with a collection agency looking for money from you because you tried to help someone out.
These are all great examples of what can hurt your credit score and things you should look out for. You should always be diligent about keeping up with your credit score and know what’s going on. Work smarter so you don’t have to work harder in the long run.
If you have any questions regarding a home mortgage or suggestions please feel free to email me at Ingrid.Quinn@CobaltMortgage.com or visit me at http://www.CobaltMortgage.com/IngridQuinn or http://www.ScottsdaleMortgageExpert.com