You desire the Stone Oak lifestyle. Who can blame you? It's an amazing place to live. In order to be approved for a mortgage loan, you must have a decent credit score. Notice, I didn't say excellent. But, the better your score, the better your interest rate. Even if a new San Antonio home purchase is months away, avoid these credit mistakes so that you don't hurt your chances for loan approval.
Credit Mistakes San Antonio Home Buyers Need to Avoid
Ignoring Your Credit Report
First of all, you need to know your credit score. Banks use this number to help determine whether or not to approve you as well as what interest rate to charge. Your creditors report activity (good and bad) on your account to three reporting agencies: Experian, Equifax, and TransUnion. Some creditors may only report to one or two agencies and not all three. That's why your score may fluctuate.
Past studies found that one in five people reported errors on their credit report. Therefore, it works in your favor to request a free copy of your report from each of the agencies as soon as possible. Check each report for errors. Submit a correction request to the agency with the error reported on it. (You'll need to provide proof to back up your claim.) Then, contact the creditor sending the erroneous error, explain the problem, and ask them to request that the incorrect info is taken off the agency's record.
It happens. Work. Kids. Extra-curricular activities. Sometimes, we miss a due date somewhere. That negatively impacts your credit score. Avoid further credit mistakes by paying your bills on time...all of them. Even utility companies may submit your late payment information to the reporting agencies.
Shopping Up a Storm
It's easy to get excited about a new San Antonio home purchase. You might want to buy a new washer and dryer. Or, you want to get rid of the old furniture and start with all new stuff in the new house. Stop. That's another one of the credit mistakes home buyers make. Driving up the balances on your credit cards hurts your credit score. So does opening up a bunch of new lines of credit. Instead, focus on increasing your down payment savings or paying down your current debt.
Closing Old Credit Accounts
On the flip side, closing old credit accounts harms your credit as well. Yes, I just said paying down debt was great. But, when you close an old account, it lessens your balance-to-limit ratio. Banks also look at this to see whether you're using your credit responsibly. Ideally, they want to see this at 30%. For example, you have three cards with a combined limit of $3000. You carry a $750 balance between two of those three cards. That's a 25% balance-to-limit ratio. The card that's paid off has a $1500 limit. If you cancel that card, your balance-to-limit ratio increases to 50% ($1500 total credit limit between the remaining two cards divided by the $750 balance). That drops your credit score. Also, banks like to see "seasoned" credit. This refers to credit that you've had for a while and used responsibly. Keep those $0 balance accounts active. If you do use them, pay off the balance each month.
Finally, don't co-sign a loan. It's wonderful that you want to help your friend or family member. But, if they default on the loan, it becomes your responsibility. Also, the late/missed payments show up on your credit report. That loan balance may also affect your debt-to-income ratio, since it gets lumped into your debt load.
Avoid these credit mistakes whenever possible. This is especially true in the months leading up to a new San Antonio home purchase. Then, the road to homeownership should ride much smoother. Contact me when you're ready to start looking for your next Stone Oak home.
LUX Move Up* by Christine Aldrete Banks, CRS, SRS, RSPS