Some people take their credit for granted and don’t start paying attention to it until they need it. Doing this could cause them to pay more interest or keep them from getting a loan altogether.
There are several things that can kill your credit score. Knowing what they are and dealing with them ahead of time will save you time, money and headaches.
ERRORS
A common issue is not correcting items on your credit report. Many credit reports have errors. Not all of them are critical, but you should check yours. Since it takes time to remove errors, it is a good practice to review your free credit reports from Experian, TransUnion and Equifax once a year at www.AnnualCreditReport.com.
LATE PAYMENTS
Another problem is making late payments. Payment history makes up a considerable part of your total credit score. One 30-day late payment could be enough to cause a borrower to pay a higher interest rate or even be denied a loan. Payments have a due date and even when they allow a few days before a late fee kicks in, if it isn’t on-time, it is late.
MAXING OUT YOUR CREDIT
Maxing out credit cards is another big problem. Ideally, a person wants to have an outstanding balance below 30% of their available credit. As the percentage of available credit decreases, the credit score will go down.
BANKRUPTCY AND FORECLOSURE
Filing bankruptcy and getting behind on your mortgage payments are both credit killers. Judgements, settlements, charge-offs and collections will also significantly hurt your credit.
HIGHER INSURANCE COSTS
Bad credit can not only keep you from getting the loan you want, it can raise your rates on the insurance you buy. Although California is one of the few states that does not allow this, insurers can use your credit score to set your insurance price. In a study released by the Consumer Federation of America, people with good credit paid less than people with average and poor credit. Their results indicate that some customers with poor credit scores were charged about twice as much as those with excellent scores.
TALK TO A LENDER
If you are going to be moving, get pre-approved with a trusted mortgage professional before you sell your current home or start looking for your next one.
Occasionally, sellers find out after they’ve sold their home that they can’t qualify for another mortgage. If they had sat down with their mortgage professional to look carefully at their credit and ability to borrow before making any major decisions, they could have avoided that disaster.