I remember when I bought my first house. It was a great feeling of pride to be standing in a place that I owned, that I could call my home. Aside from being a place to rejuvenate from your busy day while you spend time with your family, a home is also a key step toward building a financial nest egg that you will rely on for years to come.
But did you know that buying a home can also hurt your credit? If you’re not careful, it can go from a positive experience to a negative experience — almost in the blink of an eye. Here’s how buying a home can hurt your credit if you’re not careful:
1. Taking too long to shop for a mortgage. Mortgages can be tens of thousands or even hundreds of thousands of dollars, so it makes sense to shop around for the best rate you can find. Your credit score (the measure of credit health that many mortgage lenders rely on) gives you a 14- to 45-day window (depending on the scoring model) to shop around for rates. Any mortgage inquiry you make within that 14- to 45-day window will only count as one inquiry (whether you make one credit inquiry or 10). Any inquiry outside of that window of time could count as an additional inquiry. So when you decide to start shopping for rates, try to make sure that you keep it all within two weeks to a month and a half.
[Related Article: The First Thing to Do Before Buying a Home]
2. Keeping up with your mortgage payments. One of the good credit habits that can have the biggest impact on your credit score is paying your debts on time and in full. Your mortgage payment is one of those bills and paying your monthly payment in full each time it is due (i.e. monthly or bi-monthly) can help you to build up the positive credit habits that contribute to higher credit scores. And as we’ve seen in recent years, struggling to keep up with mortgage payments can result in damaged credit and even foreclosure and bankruptcy. Before you buy your home, make sure you know exactly what your mortgage payments will be and make sure that you can afford them.
3. Forgetting to let everyone know that you’ve moved. This is a “silent killer” of credit scores everywhere! When you move, your address changes and that address change needs to be communicated to your creditors. If they’re still sending bills to your old address, and if you don’t get those bills, you run the risk of missing payments on your debt. Missing even a single payment could have a detrimental impact on your credit.
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4. Dealing with the high cost of moving. On moving day, you need to get all of your stuff to your new house. It’s a lot of work. It’s also costly. Maybe you need to buy boxes and tape, and you need to rent a moving truck, and buy pizza for all of the friends who have helped you move. Once you’re in your new place, you might need to get utilities and other services, which sometimes require a credit inquiry. Within a week of moving, you might end up with higher debt than usual and several credit inquiries for services to get hooked up.
5. Furnishing your home. If you’ve never bought a house before, or if you’ve upgraded from a smaller house to a larger house, you will probably need to fill it with furniture. Unless you’re really handy with a hammer, or you have a generous relative, that furniture may need to be purchased, resulting in another potential impact to your credit if you have to pay on credit to acquire your furnishings.
Homeownership is great. It’s so rewarding, if for no other reason than to have a place you own where you can be with your family. I’m definitely NOT trying to dissuade you from owning your home. However, buying a home can have an impact on your credit if you’re not careful. So if you’re in the market to buy a house, or might be soon, remember these five home-buying credit pitfalls and make sure you’re prepared for them.
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