Common Credit Mistakes Home Buyers Make (And How to Avoid Them)

Your credit score is one of the most critical factors in the home-buying process. It influences not only your ability to qualify for a mortgage but also the terms and interest rates you'll receive. Despite its importance, many people make mistakes, often unknowingly, that negatively impact their credit scores and jeopardize their chances of buying a home.

If you're planning to buy a home in St. George, make sure you understand these common mistakes and how to avoid them.

Closing Credit Accounts

If you're working toward lowering your DTI (the ratio of your debt to your income) by paying off balances and tehn limiting your temptation to take on new debt, closing old credit accounts might seem like a smart idea. However, closing those accounts can actually lower your credit score. 

Closing an older credit account might seem like a good way to simplify your finances, but it can negatively affect your score because of the other factors credit bureaus take into consideration  Older accounts contribute to your credit history’s length, which is another crucial factor in your score.

Instead, keep these old accounts open with a zero balance, especially if they have no annual fees. A zero balance on an old account can positively impact your credits core because of both credit utilization rate (the amount of your overall credit limit you are currently using) and the length of your credit history. If you're worried you will be tempted to spend, just keep the card safely hidden at home or in a safety deposit box. 

Ignoring Credit Report Errors

Some people assume that there's nothing they can do with a credit report except review it, but in fact there are sometimes errors on the report that are negatively impacting your score when you don't deserve it. Errors on your credit report, such as incorrect account balances, payments reported as late, or accounts that don’t belong to you, can unfairly damage your credit score, but they can also be disputed. 

Take time to review your credit report regularly from all three major credit bureaus (Equifax, Experian, and TransUnion). If you find any errors, dispute the inaccuracies immediately to ensure your credit score reflects accurate information.

Co-Signing a Loan

If you have good credit, you may want to lend a helping hand to a friend or family member to help them qualify for a loan by co-signing for them. While this can be a great way to help a loved one, it comes with some risks. 

When you co-sign a loan, you’re legally responsible for the debt if the primary borrower defaults. Missed payments or defaults will appear on your credit report, even if you’re not the one using the credit. 

Think carefully before co-signing a loan. Only agree if you’re confident in the borrower’s ability to repay and you’re financially prepared to step in if necessary, which probably means waiting until after you have purchased your home. 

Taking on New Debt Before Closing

Even if you have already been approved for a loan and had an offer accepted, you don't want to do anything that will impact your credit score until you have closed on a home. Many homebuyers get excited about the home they are under contract to buy and begin to purchase appliances or furniture for the space, and use credit cards or a payment plan to purchase . Taking on these new debts can actually impact your ability to close on the loan. 

Once you’re pre-approved for a mortgage, avoid large purchases like cars, furniture, or appliances. These can increase your debt-to-income ratio and potentially jeopardize your home loan approval. Instead, wait until after you close on your home to make significant purchases. If you must buy something for some reason, consult with your lender first to ensure it won’t affect your loan approval.

Are you ready to find your home for sale in St. George? Contact us any time to begin the search for your ideal property.