A friend of mine recently applied for a home loan. When he first completed the application, his credit rating was near perfect. Due to its excellent credit rating, some of the closing costs have been reduced. Time has passed and there have been some delays in starting the loan process. When the lender was ready to accept his loan, he made another credit report. For some reason, her credit rating had dropped a few points. This decline ended up costing him an additional $ 1,500 in closing costs.
A near perfect credit score can save you thousands of dollars over the course of your life, and bad credit score conversely. Rod Griffin, Senior Director of Public Education and Advocacy at Experian (EXPGIE) , claims that there are several ways that consumers can harm their credit without even realizing it, and some of them are very devious.
Missing payments: Late payments are a key factor that hurts people’s scores. Paying a little late may seem harmless enough, but it has a surprisingly big impact. Even a 30-day late payment can have a huge negative impact.
Carry a high balance: Having a high balance is the second most common problem that negatively affects people’s credit scores. As a general rule of thumb, you should try to keep your credit card usage rate below 30%. The lower your balances are relative to your credit limits, the better. If you have a habit of running large balances on your credit cards every month, you could be hurting your credit score without realizing it, even if you never make late payments on those accounts.
Close credit cards at the wrong time: Closing a credit card account increases your overall credit utilization rate, which is a sign of risk. As a result, your credit scores may drop. If you plan to make a large credit purchase like a house or a car in the next three to six months, it’s usually best to leave the account open until the purchase is complete.
Using your credit is also known as the balance-to-limit ratio. Here’s how to calculate it: Add up all your credit card balances separately, then all your credit card limits. Then divide the total balances by the total limits. This is your balance / limit ratio. Generally, a lower ratio means a better credit rating.
The challenges of co-signing on a loan: When you co-sign on a loan, you say that if the person you are co-signing for doesn’t pay the debt, you will. This loan will appear on both of your credit reports along with the payment history. If the person you’re co-signing doesn’t pay off their loan and the account is overdue, that late payment will hurt your credit as well.
Default on accounts: The types of negative account information that may appear on your credit report include foreclosure, bankruptcy, repossession, write-offs, settled accounts and, if written off, a subsequent collection account. Each of these can seriously damage your credit for years, even up to a decade.
Apply for a lot of credit in a short time: Whenever a lender requests your credit reports for a loan decision, a serious investigation is recorded in your credit report. These requests remain on your file for two years and may cause your score to drop slightly for a short time. Lenders look at the number of serious applications to assess the new credit you are applying for. Too many inquiries over a short period of time can indicate that you are potentially sliding into financial trouble by suddenly taking on a lot of new debt.
Jeanette Pavini is an Emmy Award-winning journalist specializing in consumer information and protection. She is the author of “The Joy of $ aving: Money Lessons I Learned From My Italian-American Father & 20 Years as a Consumer Reporter”. Jeanette contributes regularly to TheStreet. His work includes reporting for CBS, MarketWatch, WSJ Sunday, and USA Today. Jeanette has contributed to “The Today Show” and a variety of other media. You can follow her money saving tips and ways to give back on Facebook: Jeanette Pavini: The Joy of $ aving Community. Find links to his social networks and his book on JeanettePavini.com.