With low mortgage rates and a battered housing market, it’s a ripe time to buy a home. Here are five credit score related things you should avoid doing before buying a home.
A lender doesn’t set a loan’s interest rate based on only your credit score, but it’s one of the easiest things you can affect with your actions. Avoid these five things to help ensure you don’t get a higher rate than you should.
1. Don’t apply for any new credit. When you apply for new lines of credit, the lenders will do a hard inquiry on your credit history. Hard inquiries will cost you a few points on your credit score. It might be appealing to take advantage of hot new credit card promotions but it will hurt you in the long run.
2. Don’t take on any new debt. New debt will increase your credit utilization, which will negatively impact your score. Lenders are very wary of borrowers with a large amount of consumer debt, so don’t help them build a case for a higher interest rate by taking on debt and dinging your credit score.
3. Don’t take advantage of any “same as cash” offers. Same as cash is code for a short term loan and new loans, as you know, are going to hurt your credit score. The same goes for 0% financing or 0% balance transfer offers. Any benefit you receive from a “6 months same as cash” offer is going to be negated by the higher interest rate you’ll pay on your home because you lost a few points on your credit score.
4. Watch where you shop. It sounds absurd but where you shop can affect your credit. Last December, Consumerist wrote about Kevin Johnson, a business owner with a FICO score 764, who had his the limit on his AMEX Blue credit card slashed because of where he shopped. Here’s a Good Morning America video story about it. If a card slashes your limit, your credit utilization will go up and your score will be hurt by it.
5. Pay any late fees or dues, no matter how insignificant. Owe your local library fifty cents because you kept the Great Gatsby a few days extra? Pay it off. Many small organizations, especially in these economic times, are turning to collection agencies. Take care of these small debts because one report can cost you thousands in the long run in higher interest payments.
Here’s one thing you should do right now: If you haven’t done so in the last year, go to Annualcreditreport.com and request your credit history from each of the three credit bureaus. Review your history and dispute any inaccuracies. Errors can take months to fix so you’ll want to fix them well before you apply for a loan.
Was there a big credit-related no-no that I missed?
Jim writes about personal finance at Bargaineering.com.