4 Credit Score Pitfalls that Can Prevent You from Getting a Loan

Credit Pitfalls Home Loan illustration

Everyone knows how important it is to have a good credit score but are you aware of the four credit score pitfalls that can prevent you from getting a loan?  When you are seeking a loan for a new home, it is imperative that your credit score is high but there are some little things that can add up to big problems if you don’t stay on top of them.  Here are four things to avoid to help keep your credit score up.

Credit Pitfalls Home Loan

1)      Unpaid Bills

One of the items that creditors look at first is if you are paying your bills and paying them on time.  You may think that that little balance from the dentist or lawn service is too small to count, but if they have turned you over as delinquent it can show up on your credit report. 

It makes sense to scour your report to look for any negative marks.  If you have a small unpaid balance, pay it!  Even if you feel it is unjust or unwarranted, paying that small balance is better in the long run.  You can find out about damaging scores by checking your credit report at least yearly if not more often.  These days, it is easy and usually free to order a credit report from Experian, TransUnion and Equifax or subscribe to an on line free credit check for regular reports.

 2)      Inquires Add Up

Another harmful item that shows up on your credit report is credit inquiries.  While a few credit inquiries are perfectly fine, having too many requests can be a detrimental.  For instance, while you may want to shop around to compare rates for auto, home or other types of loans, beware about seeking this information over a long period of time.  Usually, if you shop around and have a flurry of inquiries within a 14 day period, they will show up as just one request.  If you space your shopping out or shop for multiple big ticket items over the year that involve financing, then these will show numerous credit inquiries that can scare away a lender.  You may not even be aware of all the requests that you make if you are not paying attention but these are triggered every time you ask for a financing quote on interest rates. 

3)      Using Your Credit – Too Much or Too Little

It may seem counterintuitive that using too little credit could create a problem but if you don’t generate any debt, then that too can be a concern to a lender.  They want to see that you are able to take out a loan and pay it back on time.  Not taking any risks does not give a lender a good look at your ability to manage debt and pay on time.  

Using too much credit is definitely something that can be a negative for you when seeking a new home loan.  Even if you are paying your bills responsibly each month, maxing out your credit limits will concern most lenders.  They look at your credit utilization ratio (the amount of credit in total you have and how much you use each month) to determine if you have enough left over to pay for a new loan.  Make sure that you have your credit cards paid down enough that you show a healthy gap between your maximum amount of credit and how much you actually use. 

4)      Bad Information

Even though you may believe that your credit score is perfect based on your spending and available credit limits, you may be marked down if there is a mistake on your report.  Let’s face it, everyone makes mistakes… even businesses, so it is always possible that someone attributed a debt to you that does not belong to you.  The best way to manage this is to pull your credit reports regularly and check to be sure that all the information is correct.  If you do find an error, call or write the credit bureau that issued the report and file a claim.  It is not a painless process and it can take time to get the error corrected but it is worthwhile to follow through on it.  Even small amounts of unpaid debt can make you look less trustworthy and can harm your ability to get a new home loan.

Tampa Real Estate

If you are seeking a new home and need help finding a good mortgage lender, check with the mortgage lenders that work with Homes by WestBay.  Some of the nation’s most respected lenders have preferred relationships with Homes by WestBay and can help you secure a mortgage for a new home.  Homes by WestBay is a Tampa Bay based new home builder that builds in some of Tampa’s most desirable new neighborhoods.