“How good does my credit score need to be to apply for a mortgage?”
We get that question almost every day and the answer is that, it depends. Credit affects your eligibility for a mortgage in many ways and will depend on your current financial situation. While the best plan of action is to meet with a home loan expert, below we put together a short list to help you get your credit “Mortgage Ready”.
Keeping your balances low will help with what is referred to as your “credit utilization”. Simply put, your credit utilization is the ratio between your current debt and your total limits. For example, if you have one credit card that has a balance of $300.00 but your limit is $500.00, your credit utilization is 60%.
A credit utilization of over 30% is seen as risky by the lender and could make getting a mortgage tougher and more expensive.
Neglected credit can take years to recover. It is easier to maintain a good score than to repair a bad one. Make sure that you continue to pay all your bills on time. Missed payments, repossessions and even deferment can have a negative impact on your credit.
The amount of accounts you have currently open will impact your credit profile. Lenders like to see a variety of credit types with a lengthy history. If possible, avoid closing credit accounts such as credit cards. Closing out your credit cards could increase your credit utilization and also shorten your credit history.
Similarly, opening too many cards can also lead to negative affects on your credit. Every time you apply for credit, your score will take a small hit. Make sure when applying for a new line of credit, you weigh your options before applying. Think about the interest rate, the yearly fees and if this is something you can keep open for the long term.
Credit reports are not perfect and there can be issues with how things get reported. Make sure you keep a close eye on your credit and dispute any inaccuracies that come up. Inaccuracies can come up in the form of identity errors, inaccurate balances, incorrect account statuses or multiple accounts.
Finding these inaccuracies early will make it a lot easier to fix than if you wait until you need to get a mortgage.
While all these tips will help you prepare and improve your credit, the best thing you can do is sit down with a loan officer and analyze the situation. Click here and schedule your free consultation today. You will go over your current credit situation and develop a plan of action to get you into a home.