Shocking Things That Can Bring Down Your Credit Score and Impact a Sanibel Home Purchase

Shocking Things That Can Bring Down Your Credit Score and Impact a Sanibel Home PurchaseWhen it comes to purchasing a Sanibel Island home with a mortgage, your credit score will play a large role in the success of your application and the overall interest rate that you will be offered. The interest rate of a mortgage can impact the affordability of purchasing a home, even if your interest rate is adjusted just a few points or a fraction of a percent.

Making sure you know what impacts your credit score and what your credit score number currently is will help you to achieve your goals in finding and getting approved for an affordable mortgage so that you can purchase a Sanibel Island home that you can not only easily pay for, but also want to live in. 

Several factors contribute to the tabulation of your credit score. Some of them most of us are aware of and hear frequently from several different sources. Some factors that impact a credit score are not so widely known. Some, in fact, are pretty surprising to some potential homebuyers. 

Shocking Things That Can Bring Down a Credit Score

Opening a brand new line of credit

This one might not be a shock for everyone but it is for some. It is not uncommon for a potential homebuyer to apply for a mortgage and make another purchase that requires credit within a short period. Applying for a new line of credit can impact your score by up to five points. This is because it requires what is known as a hard inquiry and this shows up on your credit report.

Five points is not a lot in the grand scheme of a credit score. But if a home buyer is on the line between the rating of what is considered good and excellent it can cause a significant hit to the year mortgage loan you are offered. You want to avoid purchasing anything that requires a credit check or opening a new line of credit within 3 to 4 months of a mortgage application.

Missing payments on a business credit card

When you go to purchase a personal home and are applying for a loan for your personal use you may not consider the implications your business finances will have on that home purchase. If you are the owner of a company and have a business card to cover business expenses it seems like that should only apply to your business world and not your personal life.

As the owner of a business, you are personally liable for the success and finances of the business. This does not apply to employees that have use of corporate cards only the business owner. If you have issues in your business line of credit this can show up on your personal credit report as it is reported to credit bureaus. Just the action of opening a new credit card for your business card also causes a hit to your credit score. It is good to be knowledgeable that if you are a business owner business finances can impact your personal home purchase.

Not utilizing your credit cards

Everyone knows that having too much credit card debt will not look favorable on a mortgage application. But not having a balance on your credit cards at all could also set back your credit score and impact your mortgage application. To retain your credit cards you need to keep them active. If a credit card stays inactive for a long period the company holding the credit card may close the account. This can look unfavorable on a credit report and impact your score.

Likewise using your credit card very little to none at all could limit your amount of credit history. Not having ample credit history leaves lenders searching for hard proof that you are responsible for making payments.

Closing your old credit card accounts

If you have credit cards that have not been used in some time and you do not want to start carrying a balance on them again you may think it is better to just go ahead and close the credit cards altogether. This way they won't exist and be a problem at all. But to the contrary closing out a credit card can alter your debt to credit utilization ratio.

Your debt to credit utilization is a term used to describe how much debt you have accumulated on your credit accounts divided by the limit on your accounts. So if you only had one credit card, for example, and it had a $10,000 limit and you had $5000 of that limit used this would be a 50% debt to credit utilization. The ideal debt-to-credit utilization that a lender wants to see is below 30%.

So if you close a credit card this lowers your credit limit and can instantly and significantly increase your utilization ratio. So closing old credit cards that are not used can impact your utilization as well as your credit history two important factors that go into your overall credit score.

If you are hoping to get the best mortgage loan possible for your purchase of a Sanibel home, you want to make sure that you know your credit score and that you are doing everything you can to help increase it and keep it as high as possible.

If you are currently looking for a home in Sanibel I can help. Contact me anytime with any of your Sanibel real estate needs. I make it my duty to help my clients buy or sell homes with as little stress as possible.

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