How My Credit Score Almost Cost Me My Dream House

Leah Manderson
Posted

Mark and Leah MandersonIn our Money Mic series, we hand over the podium to people with controversial views about money. These are their views, not ours, but we welcome your responses.

Today, one woman recounts how her low credit score took her by surprise—and how she made sure she was never surprised again.

Last year, my husband Mark and I were on the cusp of buying a quaint 1940s bungalow in the heart of Atlanta.

We had been married for about six months, had both recently received raises at work (him in business development at a bank, me in investor relations for an asset management company), and were enjoying the benefits of having two salaries while saving for a down payment on a house. We were hopelessly optimistic in the way only two newly married, first-time homebuyers could be.

I knew that our credit scores would factor heavily into the interest rate we would be offered on our mortgage, so I checked my credit report online. I noticed no errors, congratulated myself on a long history of on-time payments and felt very confident about our ability to get a good interest rate.

I went to AnnualCreditReport.com, which gives you your report for free, but charges you to see your score. I didn’t bother paying the $20 for my score because I thought the report said it all. I assumed that it must be pretty high since there were no red flags and no late payments.

On the day of our loan meeting, my husband and I sat down in the glass-walled office of our regional bank and discussed our mortgage materials with the loan officer.

We reviewed our financial backgrounds and made small talk for an hour or so. The loan officer looked down at his computer to check our credit scores, and, after an unusually long pause, he stood up to close the door to his office. Returning to his desk, he said, “I think we may have a little problem.”

My heart sank into my stomach.

Looking at my husband’s score, the banker said, “Your average, Mark, is 816, which is really excellent. Great work.”

“If you’ll notice here,” he continued, turning to me and pointing at his printout, “your score is a 680, which increases your mortgage interest rate by an extra .5%.”

While my score didn’t disqualify us from getting the house, it would add over $20,000 in interest payments over the life of the mortgage.

I was mortified.

The Mistake that Nearly Cost Me

From the time I received my very first credit card in high school, I prided myself on having a good relationship with credit. I’ve never been a big spender. I paid my card off in full every month. In fact, when I went to buy a car a few years back, I got a 0% interest loan, which I thought was a clear indicator of a great credit score.

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Apparently, not so much.

As it turns out, I had three problems with my credit score: My credit utilization was too high, my account history was too short, and I had recently applied for new credit. I had heard that the bulk of your credit score was comprised of on-time payments, and I simply didn’t know that these other areas could bring down my score so dramatically.

The banker typed at his keyboard for a few minutes, and asked, “Mark, do you have any debt?”

Mark replied, “Nope. Completely debt-free.”

The banker smiled a little and presented his solution. “Here’s what we can do: We’ll take Leah’s name and information out of the mortgage, and you’ll be able to get the lower interest rate.”

Knowing this was the house we wanted, and not seeing a better solution, we went along with his suggestion. Not more than 10 minutes later, we were fully approved for a mortgage, and a few weeks later, we closed on the house. While I was happy about our ability to get our little bungalow on one income, I couldn’t get over the bitter sting of disappointment.

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I genuinely wanted to help with the mortgage to show that I was an equal financial partner in my marriage. I didn’t want my husband to feel like he was taking care of me, or that I wasn’t contributing to our shared lifestyle. While my husband insists there’s no resentment whatsoever (and I believe him fully when he says it), I feel like somehow I didn’t earn the house we live in—like I’ve cheated the system to get a house I didn’t deserve.

How I Got Back on the Credit Track

Wracked with guilt and fueled by determination, I started on a mission to get my credit score back in the “excellent” range. I was determined to show myself that I was deserving of the lower interest rate. Focusing on my problem areas (the credit utilization, the account history and the credit checks), I took four simple steps.

  • Nancy

    I raised my credit score 100 points too. I think it might have been this combination of events. I disputed an invalid address on my credit report. (I have never lived in Georgia.) I paid down a significant portion of a credit card that was nearly maxed out. (I had transferred a credit balance to a new lower-interest card, choosing a max just over what I owed.) I passed the 2-year mark living in the house I just purchased. (I’m not sure if that makes a difference?)

    My score is due to come up again soon, I think, due to the time I have held my oldest credit card. When I was married, we had a joint CC account that had been open for a very long time (maybe 20 years?). When we divorced, I cancelled that account. My oldest individual CC account was only a couple of years old. Words to the wise – have an individual credit account so, if something happens, you can keep longtime credit history even while cancelling joint accounts.

    Due to the divorce, I was shopping for a new house at the same time that my credit score took a dive. Luckily, my credit was still strong enough to qualify for the mortgage I wanted. I can only guess that I might have otherwise qualified for a lower interest rate, but I still got 4.25% due to the housing market, so I can’t complain too much. But it is nice to have my score back in the high 700s.

    • Leah Manderson

      Hey Nancy,

      Thanks for commenting, and congrats on bringing up your score, too!

      I’ve heard that divorce has a variety of effects on a credit score, and thanks for sharing your experience with how you managed that transition. I bet you could write a very useful LearnVest article on the topic!

  • SFKate

    Great story! Question for the author: As a financial blogger, I’m sure you are on top of this, but have you added your name to the mortgage since purchasing the home? I’m not 100% sure, but I think it’s doable and wouldn’t affect the interest rate. My concern is that you are protected should anything happen to your husband, that you would not get kicked out of your home?
    On a personal note, when my partner and I bought our house 2 years ago, we met with a mortgage broker *first* before we even started looking at houses. He ran a credit report for each of us that was more in-depth than the ones you get for free online and he was able to tell us what to do to “fix” certain red flags before we “officially” applied for a mortgage. He was a great member of our house buying team and we were so grateful to have him walk us through the process, as we too were nervous but excited first-time buyers.

    • Leah Manderson

      Hey Kate, I’m listed as an “owner” of the home, but my name isn’t yet on the mortgage. I have definitely thought about going that route, but have had other priorities in the meantime. This was a good reminder to get my butt in gear though! ;)
      It’s funny, I was so cocky about my credit history that I didn’t think I would have a problem. I have since learned to get my ego in check!

  • Jen

    What a ridiculous article. a credit score of 680 is above average and only raised her monthly mortgage payment $55. I’m not saying she shouldn’t have learned more about how to improve her credit score, but I find the fact her loan officer shamed her pretty ridiculous.

    • Leah Manderson

      Hey Jen,

      Thanks for reading, and I’m sorry you didn’t like the article.

      Yes, my score was above average, but it wasn’t enough to qualify me for the best rate on a mortgage. And, the whole point was that I THOUGHT my credit score was higher than it was, but I had some self-sabbotaging habits that I didn’t even know about until they bit me in the butt! After I learned all about credit utilization, length of credit history, etc. did to my credit, I wanted to shout it at the rooftops–informing other people of what I didn’t know!

      Anyhoo, again, thanks for taking the time to comment. I hope this illuminated the point I was hoping to make with the article.

      Warmly,

      Leah

  • Natalie

    This is an excellent, PRACTICAL article. Your suggestions are doable on any income and also give cautions for those not yet in such a situation. Thank you, thank you. I appreciate your advice and am trying to get my credit score up by 100 points, to a 780 (or higher!) I am a single parent with one income (and no child support) and I now have more knowledge and motivation to get where I want to be; even on a lower income and tight budget. This article was timely and just what I needed to read.

    • Leah Manderson

      Hey Natalie,

      You can totally do this! I strongly recommend trying out Credit Karma if you haven’t already. It was one of the most educational and influential factors in my success.

      Then, just use cash! No need to charge things on credit–even when everyone wants you to earn their rewards, points, miles, etc. It’s just not worth it :)

  • David T.

    Leah,
    I appreciate you being open and honest, and sharing everything. The details were great and the article was written well. I do think that you could focus a little less on your credit score and pleasing FICO. The credit score is based on debt, using debt to prove you deserve access to more debt, but in the long term debt only slows you down in life. I get the importance of having a good score, but it seems like you based alot of your life and personal fulfillment on a score that only gives you access to more debt in your life, which most people would agree racking up debt isn’t the way to go.
    You’re so smart and ahead of the game, pay off your home, and pay cash for the next one, let FICO find someone else to sell debt to.
    Kind regards,
    David

    • Leah Manderson

      Hey David,

      Thanks for your comment. You do make a good point in that credit score isn’t everything, and that FICO is a rigged game, but in truth, my credit score could have been the difference multiple tens of thousands of dollars in interest on a mortgage.

      I can also see how you might think that i based a lot of my personal fulfillment on the credit score, but please be aware that that was just the focus of this article–it wasn’t a place to talk about the myriad other goals I was working at in 2013 (like building my business, improving my marriage, travel, fun, etc.)

      Lastly, I think I was just trying to prove something to myself, not necessarily to FICO. It was important to me to *feel* like I deserved the low mortgage interest rate we got on our home.

      Anyhoo–you gave me lots to think about, and I hope this was a good clarification of some point!

      Warmly,

      Leah

  • rbel

    I enjoyed the article. I have a question though. My credit score is 746. I’m trying to raise it. My utilization is a problem too. Should I focus on paying down all of my cards to less than 30% or pay the card with the highest interest rate? My card with the highest utilization has the lowest rate. Thanks.

    • Leah Manderson

      For credit score purposes, pay down the one with the higher utilization. However, since your credit score is already “Excellent” there’s no pressing need to increase it. I would focus on saving money on interest, and paying down the highest rate card!