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April 2, 2024

Surprising Things That Can Affect Your Credit Score

Surprising Things That Can Affect Your Credit Score

As a homebuyer, you probably already know that your credit score plays a crucial role in securing a mortgage loan. What you may not be aware of is that there are some surprising factors that can influence your credit score. These factors go beyond the usual suspects like missed payments and high credit card balances. Let’s explore some lesser-known elements that can affect your credit score and consider tips on how to mitigate their impact.

Wisely choose which accounts to close

One surprising factor that can impact your credit score is the number of unused lines of credit you have open. While it may seem counterintuitive, having too much available credit can be seen as a risk factor by lenders. They may worry that you could potentially rack up large amounts of debt across multiple cards or loans without being able to repay it all. On the other hand, having a mix of credit types is important, including both revolving and installment accounts, and the length of time these accounts have been open matters greatly. To maintain a healthy credit profile, consider keeping your oldest and more diverse accounts open and using them occasionally to keep them active. Consolidating or closing other unused lines of credit will simplify your financial profile and potentially boost your score.

Paying off a loan

While paying off a loan may seem like a positive step towards improving your financial health, it can have a temporary negative effect on your credit score. This is because it reduces the mix of credit types in your profile, which can lower your score. Additionally, if the closed account was your only installment loan, it could also impact the length of your credit history.

Applying for new credit or utilities

Another factor that can affect your credit score is the number of inquiries on your credit report. When you apply for new lines of credit or even new utility services, such as cable or internet, lenders will often check your credit report, resulting in what is known as a hard inquiry. Too many hard inquiries in a short period of time can signal to lenders that you are desperate for credit and may be a risky borrower. To minimize the impact on your credit score, aim to space out any applications and limit authorized inquiries over a short timeframe. It is important to only apply for loans or cards that you truly need.

Civil judgments

Did you know that certain public records such as civil judgments or tax liens can negatively impact your credit score? These items are typically reported by third-party agencies and stay on your report for several years. Even if you have paid off these debts, they can still linger on your report and drag down your score. It’s important to regularly review your credit report for any inaccuracies or outdated information and take steps to address them promptly.

Renting a car with a debit card

Some rental car companies conduct a hard inquiry on your credit report when you choose to pay with a debit card instead of a credit card. This inquiry could potentially affect your credit score and should be avoided if possible. If you must use a debit card for payment, ask the company if they can waive the credit check requirement.

Cosigning on loans

Cosigning on a loan for someone else may seem like an act of goodwill, but it can have serious consequences for your credit score if the borrower defaults on payments. As the cosigner, you are equally responsible for repaying the debt and any missed payments will reflect negatively on both parties’ credit reports.

Not checking your credit report regularly

Errors on your credit report can have a significant impact on your credit score. By not checking your report regularly, you may miss inaccurate information that could be dragging down your score. Make sure to review your report at least once a year and dispute any errors you find.

Your credit score is an essential piece of the puzzle when it comes to buying a home. By being aware of these surprising factors, you can take proactive steps to maintain or improve your score over time.

Ready to start your journey to homeownership? We build new homes for every stage in life in Oregon, Washington, Idaho, and Montana. Learn more about our home plans, new home communities, and the homebuying process on our website. We’re looking forward to welcoming you into a Hayden Homes community!