So much of your mortgage is dependent on your credit score – from your interest rate, mortgage insurance premiums to the type of mortgage you can get. The better your credit score, the easier it is to get a mortgage. So if you need to improve your score, where do you start? Here are some tips to help you:
-Paying off or settling collections: Generally this will not help you, unless the underwriter is saying you have to pay off the collection. If the collection is older, paying it off will update the activity date and it can lower your score. Medical collections should not have to be paid off for you to get a mortgage. Other collections may need to be paid off. If an underwriter is saying you need to pay off the collection, do it close to closing so it doesn’t affect your credit score.
-Closing revolving accounts: If you close a revolving credit card account, you just lowered your available credit lines. That will lower your credit scores. You should have at least one tradeline that is a revolving account. Do not close revolving accounts – pay down the balances to at least a third of the available credit, but do not close them.
-Paying off student loans and car loans: When you pay off an installment loan, it will automatically update and report as a closed account. This can affect your credit history and your score. If you are in the process of looking to buy, hold off on paying off any accounts. No one wants to pay extra interest, but until you have bought your home, don’t pay off the car loans. If you need to pay them off to qualify for more, that’s ok but pay them off at closing on your new home – or just before, that way it can’t affect your score.
-Do you need to re-establish your credit? If you have little credit or maybe had credit issues, you may need to re-establish credit. In that case, open one or two credit cards, ideally bank cards and not store cards. Do not open several accounts –it will mean several inquiries and that can lower your score, along with new accounts. Use your new accounts sparingly, make sure you make payments every month and do not have any late payments. If you carry a balance on the new accounts, make sure it’s small and less than 30% of the available credit.
-Keep an eye on your credit report – that way you will know if there are any negative changes (or positive ones!). There are many ways to get your report these days, from your credit cards to credit karma to the annual credit report. Some cost money and some are free. The higher your credit score, the better for you – it helps with any loans from mortgages to cars, but can also help with car insurance and possible employment changes.
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
