When applying for a mortgage loan, it is in your best interest to be familiar with your credit report and hopefully possess a strong score. Your credit score correlates directly to loan opportunities, favorable rates, and the chance to establish revolving credit accounts. Mortgage Calculator suggests acquiring copies of your credit reports from all three major credit bureaus (Equifax, Experian and TransUnion) and reviewing them before applying for a mortgage. Look carefully for errors which occur in an estimated forty percent or more of all credit reports. Sheyna Steiner at Bankrate.com writes: investors demand higher yields from risky investments. This applies in the mortgage lending arenaLenders prefer borrowers with low balances, a long history of on-time payments and a mix of credit utilization -- for instance, a car loan and a couple of revolving accounts such as credit cards. The following a list of suggestions from Bankrate for keeping your credit score stable and ways to improve it:
Avoid late payments.
Paying bills on time is very important in maintaining a strong credit score. Blake Ellis for CNNMoney writes that payment history accounts for approximately 35% of yourscore so late payments on credit cards, student loans, mortgages or even doctors bills can all bring down your score if the company reports it to the credit bureaus.
Keep inquiries to a minimum.
Whenever you seek to open a new line of credit, an inquiry is made into your credit report. Inquiries typically stay on the report for two calendar years. Excessive inquiries in a short span of time are frowned upon. Ellis explains that: continually adding to your potential credit [is something] credit companies are going to look atas a risk. The concern is that you could become overextended at some point.
Keep card balances as low as possible.
Keeping credit card balances low, or even better, carrying no balance at all, shows you to be a lower risk for financial institutions. Mortgage Calculator advises: Carry low credit card balances, or pay them off, along with any other outstanding bills before applying for the mortgage. Ellis recommends keeping your balance low to ensure your credit utilization ratio (or percentage ofyour credit limit that you use) is in check. He writes that: with other measurements of your overall debt, this ratio accounts for about 30% of your credit score.
Don't close your unused accounts.
As surprising as it may seem, closing a line of unused credit can actually hurt your score. It can affect your credit ratio negatively, (giving you less potential credit to counteract the balances you could be carrying.) Mortgage Calculator counsels that a: positive credit score is a reflection of a good, positive standing with every creditor the consumer deals with, regardless of the account activity. The longer you maintain a positive credit history, the better the influence on your score. In essence, it is a good idea to keep old accountsopenrather than terminating the [unused] account these cards should be put away and the consumer should refrain from using them. Your credit score shouldnt be something you are afraid of and put off looking at. The more quickly you recognize problem areas, the more quickly they can be addressed. Remember these tips when preparing to apply for a mortgage loan and use the suggestions above to maintain your healthy credit score, or improve it if necessary.
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