Establishing credit and wisely managing your credit becomes easier when you
know how. Youll feel empowered by taking knowledgeable steps towards good
credit, and youll be on your way to purchasing real estate and greater
financial freedom.
If you plan to finance real estate, either as a home buyer or an investor,
avoiding these common credit mistakes will help you with your credit score and
save you money in loan costs.
14 Common Credit Mistakes
1. Using expensive or undesirable types of credit costs too much and is
negatively scored.
2. Accumulating too many lines of credit or too many credit cards causes
credit report remarks like "too much consumer credit."
3. Only paying the minimum due keeps balances too high.
4. Being maxed out on any credit card or line of credit causes deep drops in
scores.
5. Taking cash advances costs higher interest and extra fees.
6. Exceeding limit and having to pay over-limit fees is a negative with
creditors and causes "high proportional amounts owed" remarks on credit reports
and subtracts credit score points.
7. Paying a day or more late causes unnecessary late fees and often increases
interest rates.
8. Charging more than you can afford causes a snowball effect of amassing
debt with no easy way to pay it off.
9. Letting someone else use your credit, such as co-signing a loan, raises
your debt-to-income ratio and possibly adds "too many consumer accounts" on your
credit report, which lowers your score.
10. Ignoring credit problems causes unnecessary negative impact. Talk to
creditors before being late and make arrangements. This action heads off
negative reporting to credit bureaus.
11. Failure to report address changes to creditors causes misplaced bills and
late payments.
12. Using partial name, different names, initials instead of whole name, or
forgetting Sr. or Jr. causes mix-ups. Use your full legal name to protect you
from confusion with similarly named borrowers.
13. Failure to report name changes to creditors also causes confusion.
14. Not checking credit report frequently is one of the most common mistakes
consumers make.
You can buy real estate with poor credit, but you will save thousands in loan
costs if you maintain good credit. A bad credit report leaves home buyers with
sub-prime loans which have higher point charges, prepayment penalties, and
higher interest charges, which therefore cost more money.
For instance, a mortgage loan of $150,000, 30-year, fixed interest rate of
about 5.72 percent costs around $870 a month. Poor credit scores raise the
interest rate over 9 percent and the payments over $1,200.
As you see from these payment differences, good credit means that you can
finance a more expensive house with the same income, or save $330 each
month.
Credit Requirements for Mortgages
Credit needed to buy real estate is not the same as good credit. Besides your
credit score, mortgage lenders consider your debt-to-income ratio and other
credit matters, unlike other credit grantors. Your debt-to-income ratio is the
comparison of mortgage payment, including taxes, interest, and insurance to your
total gross monthly income. Real estate lenders also consider your employment
qualifications and your overall debt ratios. Understanding the difference
between good credit and the credit needed to obtain real estate financing helps
you buy houses!
Avoiding credit mistakes helps you get strong credit and keeps your credit
scores up.
Copyright © 2005 Jeanette J. Fisher. All rights reserved. (You may publish
this article in its entirety with the following authors information with live
links only.)
