Everything looking good. Submitted another application to purchase a house and land package.
Fast forward 17 months….
After settlement, he wanted to do some zero balance transfers and submitted 3 applications of credit with 2 different providers. Because there were 3 applications of credit in the last 6 months, with one balance transfer, his score dropped to under 700 which surprised me.
There were no late payments on any of his existing credit, so these applications were the only negative points on his file.
Why is a credit score of 700 important?
The reason that a 700 credit score is an important level to remember is that many lenders who credit score will automatically decline an application if a credit score is under this. So, the few hundred of dollars he saved in credit card interest costs from the zero 0 balance transfer or the low or zero 0 interest credit cards, it will probably cost him easily $1000 in interest he could have saved by refinancing his home loan. All we can do is wait until the credit card applications are not as recent and then his score should go up.
What is the biggest and most common mistake people make regarding their credit file?
They assume that their score is only made up of active or live liabilities/debt and don’t realise it is mainly from the amount of application and their frequency which impacts their score more.
A perfect example of this is a new client wanted to refinance and had:
- 2 home loans
- 3 credit cards
- 1 personal loan
Which is fairly common. The key is she had no missed payment on any old or existing debts.
Her score was 563 because she had 27 applications for credit in the last 3.5 years which is a lot. In one month she had 5 applications for credit cards with 3 issuers. My guess is it will take 12+ months and no more credit applications to get the score above 700.