Your credit has a big impact on the terms of a home mortgage. If you’re looking to buy a home in the near future, you should understand all of the different ways that your credit could be standing in the way of the best home mortgage loan, as well as what you can do about it.
Factors in Your Credit Score
You know that paying your bills on time every month is a big factor in your credit score — 35 percent, to be exact — but another major factor is the amount of credit utilization. This can trip up a lot of people, even those who pay the balance in full every month. What happens is, if you routinely use more than 25 percent of your available credit, your score can suffer. That’s because the balance is reported to credit bureaus on the statement closing date, not the date after the payment clears.
Factors like high credit utilization or collection accounts on your record can hurt you during the mortgage application process. Fortunately, you can take some steps to repair your credit.
Repairing Your Credit
One of the fastest ways to improve your credit score is to pay down your high credit card balances and keep those balances low. Be consistent about making payments on time every month too.
At the same time, some of the things you’d expect to improve your score can actually hurt it instead. For example, closing early accounts that you don’t use anymore will decrease the length of your credit history, a factor representing 15 percent of your credit score. Disputing mistakes would normally be a good thing, but if you’re about to buy a house, you don’t want anyone to see items under dispute on your credit report — that can keep you from closing a loan until they’re resolved.
FICO 9 Is Coming
With all that said, FICO 9 is going to be adopted soon by the mortgage industry, and it will come with some new standards. The biggest change is the way your credit report and credit score reflect unpaid medical bills. Now, it will be reported in its own category, reducing how harshly it affects your score.
Don’t wait on FICO 9 to repair your credit, though! Get started today by paying down those balances and doing your homework to make sure you’re in the best possible position when you begin the home mortgage application process. Then, when you’re ready for home insurance, give us a call!