Did you know that the better your credit score is, the better your interest rate will be? When you apply for a loan, your credit score and report are reviewed. Every bank and credit union has a required minimum credit score for loan approval. If your credit score barely meets the minimum requirements, the loan officer will assume that lending money to you is risky. If they decide to take a chance on you and approve your loan, it’ll be at a higher interest rate which means you’ll pay more interest over time.
If you work hard to maintain your credit rating, a loan approval at a higher interest rate is frustrating at best. How would you feel if you’re inadvertently causing your credit score to drop? If any of these five things are true, you might be sabotaging your own credit:
Too many inquiries. The more times you’ve applied for credit, the more credit inquiries show up on your credit report. Any number over six is considered excessive and will have a negative impact on your credit score. Not only that, if you’ve got a lot of credit inquiries, that’s a red flag to a lender.
Too many cards. Your credit report is used to calculate your debt-to-income (DTI) ratio. The DTI compares your monthly income to your monthly debt payments. Every open account on your credit report is factored into the DTI. The more credit you have, the higher your DTI could be. If your DTI is TOO high, you run the risk of being declined for that loan.
Account imbalance. Lenders want to see a healthy mix of installment loans and revolving credit on your credit report. If you’ve got too many of one or the other, it has the potential to cause your score to dip. Lenders want to know that you can manage a variety of types of credit, which is why credit mix is important.
Fraud or incorrect reporting. When was the last time you reviewed your credit report? If there is incorrect information or if you’ve been the victim of identity theft, chances are your credit score is taking a hit. The longer these mistakes go on, the more your credit will suffer.
You’re a co-signer. You may be tempted to help out a friend or family member by co-signing on a loan. If you do, understand the consequences. If there is a default on the loan, you’re on the hook. Your DTI may be affected, too. Know the risks before signing on the dotted line.
Thankfully, there are simple steps you can take to clean up your score and prevent more harm to your credit report. To learn more, grab your FREE copy of “5 Ways You’re Sabotaging Your Credit” HERE!