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Cleaning Up Credit after the Holiday Rush

Read time 6 minutes

With the holiday madness now beginning to subside, it is time to put down the credit cards and assess the damage. Jessica Santana, one of our Seattle Affinity loan officers, sat down with me to talk about the most common credit-management mistakes that take place during the holiday season and what we can do to fix them here in the New Year. Some of these credit pitfalls might just surprise you.

Beware the Credit Card Promotion

One important credit pitfall Jessica hopes we avoided this holiday season is the allure of the promotional credit card. “People walk into a store with a promotion running offering an extra ten percent off if you open up a credit card today. They end up with ten credit cards that they never planned to get, along with 10 inquiries on their credit report.”

Those 10 inquiries can have a big effect on your credit score, says Jessica, and may ultimately determine whether or not you get a better interest rate or even which loan program you’re able to qualify for. “If possible, it’s better to avoid those credit cards entirely.”

Credit card balances should always stay below 25%

Unsecured debt, like all those holiday shopping credit cards, are very different from secured debt, like a car or mortgage. Those credit cards have a bigger impact on your credit score.

So what do you do if you did end up with a wallet full of credit cards after the holiday season? Jessica suggests you keep all your balances below 25% of your total credit limit with each card. “Once your balance goes over a quarter of your limit, it’s as though a siren goes off, alerting the bureaus to lower that credit score.” If you are stuck with 10 new credit cards, Jessica advises that you pay down all of your balances and maintain only one or two. “One or two credit cards that you can pay off in full every month is really the goal everybody should want to achieve.”

Credit After the Holiday Rush

If you’re working towards buying a home, keep your eyes on the prize

It’s a good idea to avoid big financial undertakings when you’re shaping up for purchasing a home. “I’ve seen borrowers go out and buy a car just before they come to see me. That lowers their buying power.” Says Jessica, “If your new car payment is $459 a month, that could be as much as $45,000 that you’ve just taken away from your home purchase.”

Jessica also notes that once you’re approved for a home loan, you need to play it smart. Buying appliances, for instance, is something she says quite a few potential borrowers are tempted to do. “If they’ve bought new appliances on credit, and we’re past the approval period of 90 days, I have to pull another credit report that will have all these new inquiries.” Instead, Jessica suggests, if you’re approved and looking for a home, use your debit card or just don’t buy it. You’re safer that way.

When in doubt, bring in the experts

If you’re ever wondering where your credit stands, there are a multitude of resources available through HomeStreet Bank that can help you get a better handle on your credit. HomeStreet partners with American Financial Solutions, a non-profit that specializes in helping you manage your debt.

If you’re working towards owning a home, Jessica and the rest of the non-commissioned Affinity loan officers are able to help. For example, if you’re working with a lower credit score, they can obtain a “Credit Expert Report”, a resource that can help set you on track to achieve the credit scores that meet your homeownership goals. “At that time I’ll set a deadline with my clients so that when their credit scores are high enough, we can start the loan process again and get them approved.” says Jessica.

Jessica says the best basic advice she can give to get your credit in gear and reach your New Year’s resolution of purchasing a home is to simply take the time to see where you’re at. “People assume they can’t buy a home when in fact they really can.” Says Jessica, “We can help you get there.”

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