Top 4 Ways to Get Your Credit Score Ready for a Mortgage
12/28/2010
You may have found the home of your dreams and you may feel that you’re ready to take on a mortgage, but how is your credit score? If your credit score isn’t ready, you won’t qualify for the home mortgage loan you need and you won’t be able to complete your home purchase.
Follow these four steps to rebuild your credit score.
1. Keep a high limit with a low balance. This is one of the most important factors used when credit scoring agencies determine your score. The higher your limit, the more money you control. This makes you seem more responsible, but only if you never use it. That’s right. A high limit makes you look good, but a high balance makes you look desperate. Keep a high limit with a low balance, and you’ll be golden.
2. Don’t ever max anything out. Ever. Lenders and credit scoring agencies want to see financial stability when they look at your report. If you’ve ever maxed out a credit line, this will come across as a lack of control or possibly evidence of serious financial need.
3. Don’t close accounts or lower your limits. This is the opposite of what you want. You want high limits. You want a high amount of available credit. If you close old accounts or ask for your limits to be lowered, your available credit will decrease and you’ll seem less solvent.
4. Pay everything on time. Always. No exceptions. This is the single most important factor that affects your credit score. One late payment will destroy you. Make every payment, in full, on time, always. If you can manage this, your credit score will be in great shape.
If your credit score isn’t in great shape, take the time to rebuild it. It’s much better to wait a year before you purchase a home than to get stuck with a larger mortgage than you can handle. The lowest mortgage rates are reserved for borrowers with the highest credit. Build up your credit score or consider an alternative program, such as an FHA mortgage, to help compensate.
