Your credit score is important as it gives the lender an idea of your financial responsibility, and your history of paying back debt.
A score of 720 or higher generally indicates a positive financial history, while a score of 660 or below could be unfavorable. Some loan programs allow for a score as low as 620, but it is recommended that you have at least a 640 when applying. A lower credit score can mean higher interest rates and limited program options.
Mortgage lenders look for good credit scores and the absence of bad credit marks, such as:
- Defaults in payment
During the mortgage process, it’s extremely important to take caution when it comes to your credit.
Pay all of your bills on time, every time
- Even if your payments are a few days late, this can have a negative impact on your credit score.
- Keep your credit card balances low.
- If credit card balances every month are greater than 30% of your limits, your score is suffering.
Get current and stay current if you have missed payments
- The longer you pay on time, the more your score will increase
Check your credit report for any errors
- Errors include wrong information in name, address, social security number and employer, information from an ex-spouse, incorrect payment status, wrong notations for closed accounts, problems because of identity theft and more than one delinquent date on an account.
Things to Avoid:
Don’t close unused credit cards
- Shortening your credit history will lower your credit score. Lenders look at the history of the credit and past payment history to determine your future performance.
Don’t overextend yourself
- High, outstanding debt will affect your credit score and debt-to-income ratio. Keep balances under 50%; under 30% being very beneficial.
Don’t apply for new credit before your mortgage closes
- The lender checks your credit report right before closing. Opening new credit could increase your debt-to-income ratio disqualifying you for a mortgage.
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