Credit Mistakes When Moving
While you’re packing your things, selling your home, and searching for a new one, don’t forget about your credit score. According to industry experts, consumers relocating from one home to another frequently make small mistakes that can ding their credit and cost them thousands in inflated interest on a new mortgage. Here’s how to avoid the most common credit slip-ups when relocating.
Most people cancel the water, gas and electric, but they frequently forget other expenses like gym memberships, homeowners’ association dues and sewage bills.
To ensure that you don’t miss any payments, Winston suggests that those moving switch as many bills as they can to automatic bill-pay, then set up bill-pay alerts to your e-mail or cell phone for the rest.
Clean Your Financial Closet Carefully
“When people move, they sometimes think it is a good time to ‘start fresh’ and cancel accounts,” says Kevin Gallegos, vice president of Freedom Debt Relief, a debt solutions firm headquartered in San Mateo, California. “Think twice about canceling a credit card with a long, positive history. The longer you hold a card, the more valuable it is in your credit score determination.”
Typically, 15 percent of your credit score is determined by the length of your credit history. Canceling a card you’ve had for a while could substantially lower your score.
Mind the Inquiries
Whether you’re shopping for a new apartment or a new mortgage, both landlords and banks will check your credit. Each time a new inquiry appears on your report, your credit score will temporarily drop, says Daniel Penrod, senior industry analyst with the California Credit Union League in Ontario, California.
“Once multiple inquiries start hitting your report, we see drops in 10-point increments,” Penrod says.
Fortunately there’s a loophole for those seeking mortgages. Once the first lender has pulled your report, home buyers have one to two weeks to comparison shop for better rates. Regardless of how many lenders pull your score in that time, it will only count as one inquiry on your report.
To ensure that your report doesn’t wind up with excessive inquiries, Denise Winston recommends that consumers approach potential lenders with their debt-to-credit ratio and credit score before applying for a loan.
“A lender can’t verbally decline or approve you, but if you walk in with your [credit profile], they can talk to you about their underwriting guidelines without pulling your score,” she says.
Having a clear idea of a potential lender’s policies can be especially helpful, Winston adds, if you need to apply for additional credit to cover moving expenses.
“[Applying for a new card] could drive down your score, and, if you’re on the edge, you could miss a 0.25 discount on your mortgage,” she says. “And that could cost you thousands.”
“If you don’t have your mail forwarded, there’s the potential that credit card or cell phone information can be sent to individuals who aren’t part of your household,” says Daniel Penrod. Keep on top of your credit report to make sure there are no erroneous charges or mistakes.
Balance Your Debt
Moving means renting a moving van, purchasing new appliances, buying boxes and paying transportation costs. All of that adds up. When paying moving expenses, Kevin Gallegos advises consumers to watch their debt and keep their credit balance within 35 percent of their credit limit.
“Anything over 35 percent is considered high and can impact credit scores,” he says. “Over 50 will have a definite negative impact on a credit score, and a maxed-out card will very negatively impact the score.”