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Four Crucial Tips for Managing Your Credit Score

Mortgage lenders, landlords and even potential employers use your credit score as an important benchmark. Here are a few tips you can use to avoid hurting your credit score:

1.     Don’t max out your credit card spending limits.
A big factor in your credit score is your debt-to-credit ratio. When you hit your spending limit, your debt-to-credit ratio goes up and your credit score goes down. A good rule of thumb would be, always have more credit available than the amount charged on the card. Doing so not only increases your credit score, it keeps your payments low, and shows lenders your ability to manage debt.

2.     Weigh the pros and cons of cancelling credit cards.
Cancelling credit can actually damage your credit score. Why? Cancelling credit increases your debt-to-credit ratio just like maxing out a card, thus dropping your credit score. If you need to cancel a credit card, but obtain the same or higher amount of debt with a new card, it diminishes the effect.

3.     Stop applying for store credit cards at the time of checkout.
Applying for unnecessary credit can seriously damage your credit score. Lenders make a hard inquiry whenever you apply for a new card. This type of inquiry often lowers your credit score by several points, which accumulates when applying for multiple cards. A soft inquiry occurs when you check your own credit, which is highly encouraged routinely and before a major purchase. Although you may save 15% on a one-time purchase, the affect it may have on your credit score, may not be as tempting after all.

4.     Check with multiple lenders when shopping for a mortgage.
When multiple mortgage lenders run your credit within a 45-day period, it only generates a single credit penalty. When you apply for a mortgage, the lender performs a hard inquiry. It will lower your credit score by a bit, around 5 points.  So, applying at a few mortgage lenders only produces one minimal deduction to your credit score. It also ensures you get the best mortgage rate and terms, just like shopping around for a new car.

If you want to learn more or discuss your home buying or selling options, contact me. I’m here to help.

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Monica Guy

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