How Credit Score Plays into Mortgage Approval
When it comes time to buy a home, your credit score can be a big part of the approval process for a home loan as well as the monthly mortgage rate you receive. In the eyes of mortgage lenders, your credit score reflects your history of paying off debt in a reliable, timely fashion.
Scores can range from 300 to 850. A good score is considered 670 to 739, with 740-799 being very good, and 800 or over being excellent – according to FICO, a data analytics company focused on credit scoring services. While it’s possible to be approved for a home loan with a lower score, your mortgage rate could be impacted due to perceived risk.
If you’re worried about a low credit score affecting your ability to afford a home loan, there are ways you can begin boosting your credit score to help you in the future.
Tips for raising your credit score
Mortgage lenders look at several factors in your credit report, in addition to your score. These tips may give you the best chance at feeling confident going into the mortgage process.
1. Don’t open too many credit accounts – especially within a short period of time.
If you know you are soon applying for a mortgage, it’s best to hold off on any big purchases (like a car) for a while. Keeping your credit accounts to a minimum shows mortgage lenders that you are consistent and reliable. Opening lots of accounts raises some red flags that you do not want to raise.
2. Check your credit report and dispute any errors you see.
Errors in credit reports happen sometimes, so it’s important to get them cleared from your report. Check your report periodically (you get one free report from Experian, Equifax, and TransUnion every 12 months) and at least a few months before applying for a mortgage loan. Also, you may find a long overdue payment that you forgot about that could be dragging your score down.
3. Focus on paying down remaining credit card debt.
Paying the minimum on monthly credit card bills isn’t enough to raise your credit score. Try to use a low percentage of your available credit by paying more than minimum every month. Staying below 30% of your available credit is good, and below 10% is ideal. You can try adding a mid-month payment to help knock down your balance.
4. Be very vigilant about paying every single bill on time.
The best way to remember monthly payments on bills is to not have to remember. If possible, Set up monthly payments that happen automatically, so you can be sure you never miss one.
At VRM Lending LLC, we are committed to helping you reach your home ownership dreams with the right mortgage to fit your specific needs. Contact us today and we’ll help you every step of the way.