How to Screw Up Your Credit Before Buying a House

In many cases, credit scoring is counter-intuitive. There are also a lot of rumors and “advice” that can help you destroy your credit score.

Aside from not paying bills on time, the following actions can screw up your credit.

Credit Cards Not having a credit card can result in a lower credit score, as can closing revolving (credit card) accounts. How you handle credit cards makes up about 30% of your credit score. Whether or not you pay your bills on time is 35%, so credit cards can affect your credit score almost as much as paying your bills! “How you handle your credit cards” refers to your utilization rate or the percentage of your credit limit that you owe. You would think that charging up your credit cards to near the limit and then paying them off over time would result in a higher score. Not so! In fact, keeping your balances very low (10% of your credit limit) will give you a much higher credit score. Want a 50 point bump in your credit score? Pay your credit cards down to 10% of your credit limit and wait 30 days. Voila! Want to lower your credit score, charge that baby up to the limit! Applying for every credit card at the Mall will also lower your credit score.

Medical collections There are rumors out there that medical collections don’t count in your credit scores. Not so, if you are planning to purchase a house. Mortgage credit scoring still counts medical collections in your credit score, although in most cases they do not have to be paid off to get a mortgage. So, pay your doctor bills before they are turned over to collections.

Paying your bills on time, or not Just because you call the car loan or credit card company and tell them you were laid off or cannot pay the bill on time this month, does not mean they won’t report it to the credit bureau. If the bill was paid less than 30 days late, it should not be reported. Document everything. Pay your bills online instead of mailing a check and NEVER pay with a money order! Also, paying part of the payment does not qualify as paying on time.

Student loans If they are in default, call the student loan company and find out what to do to get them out of default. It normally takes nine to twelve months of making payments on time. You can’t get a home mortgage with defaulted student loans.