Credit 101

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
  • Lawsuits
  • Liens
  • Bankruptcies
  • Repossession
  • Foreclosure

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During the mortgage process, it’s extremely important to take caution when it comes to your credit.

To Do:

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.

Have further questions regarding this topic? Give me a call, I’m happy to help!

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