In my experience working in the mortgage industry, I have found that many people have a misguided perception of credit. I want to help set the record straight about some common credit myths and provide you with valuable information about how you can protect your credit score. Higher credit scores lead to better interest rates on car loans, mortgages and other debts. The following tips can translate into a few extra dollars in your wallet each month.
1. Approximately 35 percent of your credit score is based on outstanding debts that are more than 30 days late. This means that if for some reason you are going to be late on a payment, do not let it slip past 30 days.
2. Canceling credit cards can actually hurt your credit score, particularly if they are an old and established part of your credit history. Since 15 percent of your score is based on the length of your credit history, even if you no longer use a card that is ten or twenty years old, it is typically better to shred the card and leave the account open with a zero balance. Additionally, keeping accounts open gives you a better debt-to-credit ratio, which makes up 30 percent of your credit score.
3. While not taking on any debt and paying for everything with cash seems like a logical choice for individuals who can afford this lifestyle, no credit means bad credit in the eyes of lenders. There is bound to be a time when you cannot buy something with cash, such as purchasing a home. So, open at least one credit card account (two accounts are recommended) and make occasional purchases with the card.
In my next post, I will share the remaining credit score secrets. Should you need any home-financing assistance or guidance in the meantime, please don’t hesitate to contact me.