The Importance of Good Credit Series – #9
Keeping Your Credit Strong
6. Guaranteeing a loan for another person that is not paid back. Any loan you co-sign for another person is your responsibility if your co-borrower defaults. Consider these consequences before you co-sign for a friend or relative.
7. Excessive credit inquiries. When you are shopping for a car loan or a home loan, be sure to comparison shop within a short period of time such as two weeks. If you apply for credit with many lenders over a long period of time, it can hurt your credit report. Many inquiries for credit with different lenders over a long period of time may look like you are being denied for credit or that you are looking for too much credit and will not be able to manage it all. You can also obtain your own credit report and your credit score and comparison shop using that information. Tell a lender that these are the facts about you and tell the lender not to obtain a credit report about you at this early comparison shopping stage. A lender will want to verify the credit information later once you are more interested in what they have to offer.
8. Too much debt. Banks and lenders consider your total debt when deciding if you qualify for a mortgage loan. Although it depends on the mortgage, as a guide 28% of your gross monthly income can be used for your principal, interest, property taxes and insurance (PITI). Furthermore, your total monthly debt and PITI should not exceed 36% of your total gross monthly income (before payroll deductions). For example, if your monthly income is $2,000, then $720 is the target amount. While this is only a guideline, if your debt-to-income ratio is above 36%, you need to increase your income or reduce the amount you owe—or both. Keep in mind that buying a home is an important goal for your entire family, and improving your credit and your overall financial picture is worth the hard work.
9. Job/income instability. Lenders look for borrowers’ employment or income stability for at least two years. If you changed jobs several times in the past two years (but remained in the same job industry), or if you were in school prior to working, be prepared to explain your job history to your prospective lender.
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