It’s hard to believe that it’s almost the holiday season. Many stores are already displaying Christmas decorations, and I’ve started seeing Cyber Monday ads. Oh good? We haven’t even reached Halloween. Either way, the holiday season is also the spending season. With travel, meals, entertainment and gift shopping, it is easy for people to increase their debt structure. I thought it would be appropriate to remind you of some quick and easy ways to hurt your credit score so you can do the opposite.
Most shoppers receive an emotionless sales pitch from a store employee about opening a credit account to save 20% off a purchase. Don’t do it though. Why? First, it’s a credit check and can affect your score. Second, store cards are hardly granted with large credit limits and interest rates are normally 20% or more. As a general rule, avoid these offers. Outliers would be situations where you make a large purchase and the credit offer is 12-24 months like cash.
If you have a credit card that has a long history of on-time payments, it’s better to apply for a higher credit limit than to apply for an additional card. Why? This is not considered a new account. Established accounts help establish your credit ratings. New accounts have no history (obviously). Increasing your credit limit will help widen the range of your balance-to-limit ratio. You want to keep your monthly balance at or below 30% of your credit limit. Raising your limit gives you some room for additional spending without affecting this ratio.
Most car buyers don’t know that when dealer finance officers buy a rate for you, they let multiple banks get credit. That’s a ton of inquiries in a short time and can affect your credit score. Inquiries can lower your score by about five points per inquiry, so if the CFO buys your loan from six banks, 30 or more points could be wiped off your credit score. What if you were planning to buy or refinance a house soon? A score reduction of this level could result in you getting a higher mortgage rate, so research auto rates before you go car shopping. Then ask the finance manager to see the proposed rates before giving personal information for a credit check. This way, you avoid them “buying” for you.
These tips will help you protect your score, and not just on vacation. I have already published an article on credit, but this is an important topic since it is the most influential factor in determining mortgage interest rates.
This weekly sponsored column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and therefore empowering, clients to make the best possible financial decision for their situation. Contact Fontaine today.
Fountain Mortgage NMLS: 1138268