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The 9 Credit Commandments to Live By when Applying for a Loan

During your homebuying process, pay attention to our nine credit commandments (and keep the list handy)! These tips have a huge impact on your credit score, which can affect the mortgage rate you will receive for your home.

1 - ALWAYS PAY YOUR BILLS ON TIME

Paying off debts on time has the greatest positive impact on your credit score. Late payments, collections, charge offs and judgments will have a negative impact. Make sure you are budgeting (perhaps using an app like Mint) at the beginning of each month so that when the time comes to pay your credit card bill, you can do so comfortably.

2 - SET UP AUTO-PAY FOR YOUR CREDIT ACCOUNTS

One way to ensure you pay on time is to set up auto-pay for your credit accounts. Since 35% of your credit report represents your payment history, the longer you pay your bills on time the better. Auto-pay makes things easy and hassle-free so you don't have to worry about a missed payment. Before you set up auto-pay, make sure you have enough money in the connected accounts to cover your bills. You don't want an overdraft fee!

3 - CREDIT CARD BALANCES

Keep your credit card balances (revolving accounts) at or below 30% of the credit limits

to maximize your credit scores. Things can get out of hand quickly with credit card spending and you can find yourself in debt if you don't keep your balances low. Check your credit card app often and be sure to budget so that your balances stay at or below 30%!

4 - DON'T EVER CLOSE CREDIT CARD ACCOUNTS

This portion of your credit score indicates the length of time since a particular credit

line was established. These are all averaged to create your "age of credit history". The higher this age, the better, so keep this in mind when considering closing an account. It is often better to leave an older account open for this purpose.

5 - LIMIT YOUR CREDIT CARD INQUIRES

Each new credit inquiry can reduce your credit score. An inquiry refers to a request to access your credit, and it falls under two categories - hard and soft. Soft inquiries do not affect your credit score. These include:

●You check your own credit report.

●One of your creditors checks your report.

●An insurer pulls your credit for a quote.

●A company views your credit report for a background check.

●You seek preapproval for a loan or credit card or apply to prequalify for credit offers.

Hard inquiries, on the other hand, do affect your credit score. Hard inquiries include:

●Application for credit -

○such as a mortgage

○a credit card

○or an auto loan.

6 - NEVER CO-SIGN FOR ANYTHING - EVEN FOR FAMILY MEMBERS

It can be hard to say no to co-signing, but you have to keep in mind that if the person you cosigned for does not pay on time, it will negatively impact your credit score! Especially if you are considering buying a home in the near future, this is a no-go.

7 - CONTINUE TO USE YOUR CREDIT AS NORMAL

Don't change your credit pattern ahead of buying for a loan. If a red flag is raised, your credit score may go down. Red flags can include unusual purchases or a sharp increase in spending as compared to your usual amount. You want to show lenders that you are cool, calm, and consistent with your credit use.

8 - SIGN UP FOR CREDIT MONITORING

Monitoring your credit will inform you of any new credit activity that may impact your

credit scores. Credit monitoring will also protect you from any suspicious or fraudulent

activity which can lead to identity theft. A few good services for this are Equifax, Transunion, or an aggregator like CreditKarma that alerts you to any changes across any of the credit bureaus.

9 - HAVE A GOOD MIX OF CREDIT

You don't want to put all of your eggs in one basket when it comes to credit. A mix of credit such as an auto loan, mortgage, and student loan, (which are installment loans) along with one or two credit cards, (revolving accounts) will strengthen your credit score. 

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