3 reasons why bad credit ruins your future
Published Fri, Nov 15, 2013 Updated Tue, Feb 16, 2021
Finally you have saved enough money to buy your first home. You have filled out all the paper work and submitted everything to the mortgage company for approval. Now, instead of heading to the estate agent, the mortgage company calls and your hear the words, “You aren’t approved,” from the lips of the mortgage broker.
Too many searches can hurt your score
Recently you went to buy a car and the dealer convinced you to use their financing people rather than your bank. He seemed friendly enough, assuring you to not worry. They would compare your information until they got you the best interest rate. You forgot that two weeks ago you had stopped in two other car dealerships to test-drive other brands you like. They convinced you to do the same thing. Once home you got all these rejection letters several weeks later. Unless it is in the same week, multiple searches on your credit report can damage your credit score.
Late or missed payments reduce your credit score
If you think paying your credit card or car loan beyond its grace period is not a big deal, think again. Since 35% of your credit score is based on your record of timely payments, this can really do harm to your credit. Credit card and loan companies promptly report your late payments to the three credit bureaus, Equifax, Call Credit and Experian.
Closing your credit cards when they have credit available
You may think that closing your credit card out with a balance still on it is the best decision to make. After all, if it is not open you will not be tempted to buy another pair of shoes with it. However, this is a big mistake. Credit bureaus score you based on how much total credit you have extended to you. If a large chunk, your current balance, is removed it decreases the overall credit amount. This actually damages your score significantly. It also effectively increases your debt to income ratio, which is frowned upon.
Whether you consult with a debt management charity or decide to attack this on your own, it is imperative you order your credit report. When you are turned down or just want to review it, you are entitled to one free report yearly.
Often errors are on your report. If you find them, you have to explain in writing to the bureau and ask it to be removed. With Call Credit, for example, you can request any changes to be made online rather than going through the hassle of sending letters. Gradually you can improve your credit score. With patience and diligence you will get approved for that mortgage and get the keys to your new home.