5 credit score mistakes that could cost you thousands

Your credit score doesn't just determine whether you get approved for a mortgage. It determines the rate you pay for the life of the loan. The difference between a 720 and a 760 score can be 0.25 to 0.5 percent on your rate, which on a $400,000 loan over 30 years is roughly $25,000 to $50,000 in additional interest. These five mistakes are entirely avoidable — and more common than you'd think.

1 Opening new credit accounts before applying

Every time you apply for new credit, a hard inquiry appears on your report. Hard inquiries typically drop your score by 5 to 10 points each. That might not sound like much, but if you're on the border of a scoring tier, one new credit card application before your mortgage closes can push your rate higher or trigger re-underwriting.

Even if you're approved for the card, the new account lowers your average account age and increases your potential debt exposure, both of which hurt your score. The rule of thumb: don't open any new credit accounts in the 6 to 12 months before you plan to apply for a mortgage.

2 Closing old accounts

Closing a credit card seems like responsible financial behavior, but it can actually damage your score in two ways. First, it reduces your total available credit, which increases your credit utilization ratio. Second, it can shorten the average age of your credit accounts.

If you have a card you don't use, the better move before a mortgage application is to leave it open with a zero balance. A dormant card doing nothing costs you nothing and may actually help your score by keeping your available credit high.

3 Missing a payment, even one

Payment history is the single largest factor in your credit score, accounting for about 35 percent of your FICO calculation. One 30-day late payment can drop your score by 60 to 110 points, depending on your starting score. Higher scores have more to lose.

In the months before applying for a mortgage, set up autopay for every account — at minimum, the minimum payment. You don't need to pay in full, but you do need to pay on time, every time. A late payment that happens right before your application can be disqualifying at some lenders.

4 Making large purchases on credit before closing

You've been pre-approved. You're under contract. You start furniture shopping and put $8,000 on your credit card for the new living room set. Underwriting pulls your credit again before closing and sees a spike in your utilization and a new large balance. Your debt-to-income ratio changes. Your loan is now at risk.

Lenders typically pull credit twice: once at pre-approval and once just before closing. Anything that happens in between is visible to your underwriter. Wait until after you close to make large purchases — on credit or otherwise, since large cash withdrawals also draw scrutiny.

5 Not checking your credit report for errors before applying

About one in five credit reports contains an error significant enough to affect your score, according to the FTC. Common errors include accounts that don't belong to you, incorrectly reported late payments, balances that haven't been updated after payoff, and accounts that appear twice.

You're entitled to a free report from all three bureaus annually at annualcreditreport.com. Pull yours 3 to 6 months before you plan to apply. If you find an error, dispute it in writing with the bureau and allow 30 to 45 days for resolution. This timeline matters — errors don't get fixed overnight.

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The bottom line

Most credit damage before a mortgage application is accidental. People aren't trying to hurt their scores — they just don't know these rules apply. Now you do. Freeze your credit behavior in the months before applying, pay everything on time, check your report for errors, and let your score do its work for you.

If you're not sure where your score stands today, ask us. We can pull a soft inquiry that doesn't affect your score and give you a clear picture of where you are and what, if anything, to work on before you apply.