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Six Common Money Mistakes

Mistake # 1: Transferring Credit Card Balances To Get A Lower Rate

Doing this with a new credit card opened just for the purpose of doing this causes two and maybe three events that will lower your credit scores. First it causes a credit inquiry on your credit reports. Credit score, down. Second if approved, you'll open a new account which may lower your score. If your new creditor requires you to close the one you've paid off, closing that account may lower your score. So if you can transfer balances among credit cards you already have, that’s one thing you may consider. I think these days it’s better to stay off the radar screen of the credit card companies and get them paid off fast.

Mistake #2: Having Too Many Credit Card Inquiries In a Short Period of Time

Rate shopping is a good idea when looking for mortgages and car loans but having a lot of credit card inquiries in a short time is NOT a good idea. It's a red flag to lenders. It may be an indicator that you are having or anticipating financial trouble and looking for easy money. Mortgage and car loan inquiries within a 30 day period are counted as one inquiry by the bureaus. Credit card inquiries are counted individually. Each inquiry lowers your credit score.

Mistake #3 Debt Consolidation Loans

A few problems with these… 1. You'll likely get charged a hefty fee to get into them which they'd be happy to roll into the new loan for you. So, you're going DEEPER in debt. 2. If you can't handle paid off credit cards and you run them up again, you’ll be worse off than before the consolidation.

Mistake #4 Not Investigating Mortgage Terms Less Than 30 Years

Your 30 year mortgage payment is going to be $800. If you got a 15 year mortgage what would your payment be? Hmmm. 30 years = $800...15 years is half the time so it must be double the payment, right? WRONG. It's no where near double. Simply ask your banker to give you the payments for a 10-15-20-25 and 30 year mortgage. If you can't swing the 15 year then a 20 or 25 year mortgage would be good too. Every 5 years you can knock off a mortgage will save you thousands of dollars in interest charges.

Mistake #5 Closing Credit Accounts

This one has a caveat attached. If you can't handle having easy access to available credit then PLEASE close unused credit accounts. However, if you can handle having unused credit cards, closing unused credit accounts can lower your scores needlessly. How? Let's say you have 4 credit cards with $10,000 in total available credit each for a grand total of $40,000. Assume your total indebtedness is $20,000 or 50% of your total limit. By closing one of the $10,000 cards that does not have a balance you now have $30,000 in available credit, $20,000 of which is used or 67% of the limit. In credit scoring it is far better to use 50% or less of your total available credit and of course, make on time payments.

Mistake #6 Not Knowing If You'll Qualify For A Loan Before You Apply

Huh? Don't we just fill out an application and pray we get approved? That's the way most people do it and it can often lower your credit score with unnecessary inquiries. Every lender has credit guidelines they live by. They pull your credit from one credit bureau. You want to know which one and you’ll want to know what YOUR score is with that agency. They won't lend to people with credit scores below a certain number. Ask them: What is that number? Credit scores below a certain number don't get the best interest rates available. Ask them: What is that number? If you have something unusual on your report like a bankruptcy or a repossession or six months of late payments you'll want to ask how that affects their decision. Get the answers to these questions BEFORE you apply for a loan and try to deal with companies that will pull your credit from the bureau where you have the highest score.

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About the Author

Bill Higbee, Berkshire Home and Business Services
90 downing Drive
Reading, PA 19610

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