We’ve received some great feedback from people who appreciated my first blog explaining what you need to know about your credit score for a mortgage. Asking questions about the basics can be tough, so we planned this Part 2 to give you even more valuable information.
This blog is for anyone ready to take action to improve their credit score, as well as their chances of getting approved for a mortgage.
Let’s understand your credit score a bit further
Your credit score is also known as your FICO Score.It’s a number that reflects the factors described in our first blog on this series.
The higher your credit score for a mortgage, the better for you as a present or future homeowner. That’s because your credit score can determine the size of your monthly payments, not to mention how favorable your rate and terms are.
A credit score typically ranges between the low hundreds and 800-plus.
Here’s a more comprehensive rundown of credit score ranges and what they mean:
- Poor = Less than 580
- 580 – 669 = Fair
- 670 – 739 = Good
- 740 – 799 = Very Good
- 800+ = Exceptional
Depending on where you fall in these ranges, you may want to contact your local mortgage professional sooner than later. The lower your score, the more you can rely on their guidance to prepare you for an eventual home loan approval.
Remember, even if your credit score is currently on the lower side, you can get a mortgage, provided you take the right steps.
Next, let’s look at the top credit dos & don’ts to help you get the mortgage you were meant for.
DO: Pay your bills on time
Do you have credit cards, auto loans, or another line of credit that you pay down monthly? Being late on your bills can decrease your credit score, which may lessen your chance of getting a mortgage.
Are you able to pay early? That’s even better, especially if you enable autopay to make adequate payments every month.
DON’T: Don’t apply for any new lines of credit
“But I thought the more credit, the better….”
Not true at all.
The more lines of credit that you carry, the riskier you may appear in the eyes of lenders. The reason is simple. Lenders want to know that you won’t have any trouble paying off the home loan they’re giving you. The more you owe to other creditors, the more scrutiny you’re under regarding your ability to pay it back.
Hold off on that new car or a credit card to your favorite store until you’ve closed on your loan and spoken with a mortgage professional who you trust.
DO: Keep your balances low and your available credit limits high
Let’s get into an example to see what I mean by this.
To keep things simple, let’s say you carry a credit card with a $1,000 limit. Your balance is $250, so you figure it’s smart to pay it off and close it.
Not so fast! It is ok to pay off your credit cards every month, but make sure to use them regularly so they are not closed by the credit grantor for inactivity. If you are unable to pay them off every month, always keep your balance low and don’t close the account. A good rule of thumb is to NEVER let your credit card balances go over 30% of the credit limit – event if you pay them off every month. Maintaining a manageable balance can improve your score and demonstrate financial responsibility.
DON’T: Avoid credit check-ups with a mortgage expert
Keeping up to date on your credit score, report, and overall financial health is a great way to avoid headaches on your path to homeownership.
Here are some everyday things you can do to stay on top of your credit situation:
- Keep accurate records of all credit reports in a safe place.
- Check your credit report once a year for irregularities, potential errors, or unreported activity.
- Save your monthly credit card statements if you need to dispute anything.
- Visit www.annualcreditreport.com to get a free copy of your credit report.
Staying current on your financial situation is the best way to prevent issues from arising in the future.
Ready to become a homeowner?
Knowing your credit score for a mortgage is the first step to becoming a homeowner. Equipping yourself with the knowledge and financial tools needed is the key to getting a mortgage that works for you.
As always, we’re here to guide you through the process of getting a mortgage that puts you in control. Contact us with any questions you have. We’ll help get you home.
