No matter what kind of mortgages you’re looking at or gauging your eligibility for, credit score will be a big factor. This score is one of the single largest factors that lenders use to assess your ability to repay your home loan, which is surely one of the largest debts you’ll ever hold.
At Primary Residential Mortgage in Fort Myers, we can help you with all aspects of your finances ahead of a mortgage, including your credit score. Let’s go over several mistakes related to your credit that you should avoid in advance of securing a mortgage.
The primary area you should be looking to avoid when it comes to credit score is falling behind on monthly credit card payments. Late or missed payments will lower the score, often significantly. Staying current on all your debt accounts should be a top priority.
A big area within credit score is your debt ratio, or the percentage of your available debt that you’re putting to use. You generally don’t want to exceed 30 percent of your available credit at any given point, and if you’re using amounts that push up against your maximum, that’s a big issue.
It may seem prudent to close out any accounts you aren’t using, but this might actually hurt your score. Part of the calculation for credit score, as we noted, is your debt ratio – closing out an account lowers your available credit, thereby increasing the percentage that you’re suing. This will lower your score. If accounts have no balance, it’s actually good for your score to keep them open.
Now, there are limits to the section above. If you start opening too many accounts in a short time to try and game the system when it comes to debt ratio, this will be considered a red flag and can lower your score. Space out applications over time, and only apply for cards you actually need.
While it may seem like a good idea to move all your balances to one card and consolidate, that can cause that individual card to have too high a debt ratio. Your goal should be to keep the percentage of debt to total balance on each card as low as you can.