As mortgage lenders, our job is to talk to folks who are interested and ready to buy a home in NC. We work with folks all over the state, and many of them have some work to do to get their credit scores up higher. These are the 5 Top Credit Score Killers that we see every week.
If you have scores that are below the 640 bench mark, these are definitely actions you will want to avoid.
- Paying Your Credit Cards or Rent Late: Logic tells us that the best credit scores go to those who pay their bills on time. The fact is, 35% of your credit score comes from your RECENT credit history. Paying your bills on time for 12 months will do WONDERS for your score! Additionally – your rent needs to be paid with NO late charges, because chances are – we might have to inquire about that too.
- Not Paying Bills at All: There’s some miss information floating around that if you allow your credit cards to be charged off – you’ve “stopped the meter,” so to speak. That’s simply not the case. Charge offs are far worse than late payments on your credit report. A Charge Off is when the creditors think you’re not going to pay your credit card bills at all. They often sell this debt to collection companies for pennies on the dollar. The collection company then shows a new debt on your credit report. A charged off credit card – over time could report on your credit 5 or 6 times.
- Having an Account Sent To Collections: Having an account sent to collections is a similar status to a charge off and will kill your credit score. If you have OLD collections, more than 2 years ago – don’t try to pay them off before you call us to get pre-qualified. You might not have to pay them – especially if they are medical related. HOWEVER, you don’t want any new credit to be placed on your file… start a payment plan. If you have Judgments on your file, they will need to be settled prior to closing on a home loan, because it can mess up your title insurance… Repossessed cars work a little differently.
- Disputing All of the items on your credit report: Again with the Urban Myth that you can simply dispute the stuff on your credit report, or use an attorney firm that you pay to do that, and it will disappear. We are seeing that actually HURT credit scores, because the Credit Models think you are scamming the system when you dispute everything that is bad on your credit report. Save money, build good stuff into your credit score.
- High Credit Card Balances: The second most important part of your credit score is ratio between the available credit and the amount you owe. This is commonly referred to (on your credit report) as credit utilization. Having high credit card balances (when taken in relation to your credit limit) increases the amount of credit you are utilizing and decreases your credit score. Ideally, credit balances should be no more than 30% of the credit limit.
For more information about your credit score, and Top Credit Score Killers – ask Steve and Eleanor Thorne! 919-649-5058 We do have first time home buyer programs and mortgage loans for those with credit scores between 580 and 619.