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Are You in Financial Danger? Five Ways You Could Be Killing Your Credit!

Are You in Financial Danger? Five Ways You Could Be Killing Your Credit!

A few weeks ago, we made some national headlines when we listed a Victorian home that was featured in the Academy Award-winning 1991 thriller, The Silence of the Lambs. In the film, the house was owned by serial killer Buffalo Bill, though the 105-year-old home’s real history is not so scary at all. In keeping with that “killer” theme today, we’re examining a few ways that potential future home buyers can commit some unspeakable crimes against their own credit. When you’re planning to buy a house, it may be scary to think about; but, here are five ways to kill your credit in a hurry:

1. Miss Payments – We’ve probably all done it a time or two; but, there is something to be said about a borrower who is regularly late or who routinely misses credit card payments. Payment history is a major part of a person’s credit score, so a history of late or missed credit card payments will quickly derail a good credit score into the dinged-credit dungeon. Of course, when it comes to your credit, making a few late payments is a mere misdemeanor when compared to a borrower who stops paying debts altogether... but, that financial crime is too callous to consider!

2. Settle with Creditors – If a person runs into serious financial trouble where they are unable to pay the total amount of their credit card debts, it may seem like a great idea to reach a settlement with their credit card company. Their debts are forgiven and they don’t have to pay the bills in their entirety. While it may sound good in theory, it’s an instant way to choke your credit for several years. In the short term, it may help a person get back on their feet; but, those “settling” moves are dangerous! They stay with a person’s credit score for years.

3. Maintain High Balances – Contrary to what some conservative spenders may believe, exercising your credit is good for your credit score… within reason. Keeping high balances on credit cards can quickly kill your credit score. It’s all about keeping your credit use proportionate to your available credit. Put simply, when your credit balances continue to go up and up and up… your available credit (and your credit score) continue to go down… and down… and down.

4. Close Credit Cards – So, if you don’t want to maintain high balances on your credit cards, closing them when you reach a “zero” balance must be a good idea, right? WRONG! Closing a credit card simply because it has no balance only eliminates more of a person’s available credit. So, a person who had $10,000 of available credit, but closed a $5,000 credit card with a zero balance would cut their available credit line in half. Frankly, lenders would rather see more available credit than less open credit cards. Plus, if a person has had a credit card for a number of years, keeping it open shows they’ve successfully exercised their credit for that long. Closing the card erases the evidence of an already-established credit history.

5. Inquire About More Credit – Since closing credit cards can kill a credit score, one might think that the obvious way to bring life to an available credit line would be to apply for more credit cards; but, that can be just as dangerous! When you complete a new application for a credit card, a business will request a copy of your credit report. A lot of these “hard inquiries” could send your credit score in for some “hard times.” Why? Instead of upping your amount of available credit, you could just be taking on too much debt!

There is nothing scary about having credit cards and responsibly using your credit. But, for prospective home buyers who are planning to apply for a mortgage, the fear of walking into that transaction with bad credit and getting denied can be very real. Don’t make your credit score fall victim to murderous money-management ways. Whether you’re planning to buy a home soon or not, avoid these five killer ways to ruin your credit score!

 

This post is sponsored by PA Preferred Mortgage: Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.