The Corona Virus, or COVID-19, has affected all aspects of our lives- including our current and future investment endeavors. The process of home buying and securing a Mortgage has especially been affected as a result of the financial challenges brought about by the pandemic.
Determining the amount of a Home Owner’s Loan you qualify for relies greatly on your credit score. As a result, we are sharing the Ten Commandments of Credit During the Mortgage Process to help you knock it out of the park when it comes time to get pre-approved.
Always pay your bills on time.
Paying your bills on time has the greatest impact on your credit score, accounting for 35% of your total credit score. As your bills come in, be sure to make your payments on or before their due dates. If you have to break the amount due into payments, be sure to contact the debtor to establish a payment plan (if applicable) to prevent your debts from going into collections. Late payments and items in collections have the greatest negative impact on your credit score. Items within the last two years carry more weight than older items, so make sure moving forward you maintain current balances for all accounts at all costs.
Keep credit card balances at about 30% of their allowance.
Did you know that maxing out a credit card can lower your credit score by up to 60 points? *CRINGE* To avoid credit cards from negatively impacting your credit score, only utilize about 30% of the total allowance per bill cycle, and pay the balance on time. Doing so will actually improve your credit score. If you have multiple credit cards, be sure to keep them in a rotation of use rather than favoring one above the others. We’ll talk more about this later.
Don’t close any account, especially credit cards.
Your credit history is important in determining your eligibility for a mortgage. Lenders want to see that you are capable of maintaining a credit line for a long period of time without defaulting on payments; after all, mortgages are generally a 30-year commitment, and lenders want to protect their investments. Closing a credit card will actually negatively impact your credit score since it disrupts the credit history. Your credit history accounts for 15% of your overall credit score.
Limit your credit inquiries.
Each time a lender runs your credit report, your credit score is negatively affected- sometimes by up to 15 points per inquiry. Do your homework before ever applying for any line of credit to be sure that the impact to your credit score is worth the risk. Credit checks through lenders have up to 10% impact on your overall credit score. You can utilize free credit check websites to obtain your scores without the negative impact. Not only are they accurate and contain information about what is showing on your credit report- they also provide suggestions for improvement.
Never co-sign anything- especially family members.
When you are a co-signer on a line of credit, it is as if you are the credit holder, too. That means if your friend or family member defaults on payments, your credit score is on the line to be affected just as much as theirs. You can assist with shopping around for the best credit deals, but never put your name on someone else’s dotted line.
Do sign up for credit monitoring.
Hackers are real, and so are fraudulent credit cases. And with time on their hands due to this pandemic, hackers are more likely than ever before to be up to no good. By using a credit monitoring service, you can keep an eye on all of the credit activity going on under your name and eliminate any activity right away that is not recognized as your own doing. If you suspect fraudulent activity, reach out to the lender immediately to have the situation addressed and the credit like blocked to prevent any future activity.
Do continue to use your credit as normal.
As previously mentioned, using your credit on a routine basis (without the inquiries and maxed credit cards of course) is healthy for your credit score. Be sure to use all active credit lines on a regular rotating basis to continue establishing a healthy credit history. Additionally, be aware that randomly changing your credit use patterns could send up a red flag to a credit holder. This could have a negative impact on your credit score. Remember that we want to build and keep going in a positive direction to maximize the chances of a mortgage pre-approval.
Set up automatic bill pay.
As previously mentioned, making timely payments on bills and debts is the number one head honcho of credit score affects. By setting up automatic bill pay, you eliminate the risk of forgetting to make a payment on time. Most companies offer automatic bill pay on their websites and using the automatic option is usually free. You can also put your credit card payments on automatic bill pay to be sure you maintain that 30% balance.
Have a good mix of credit.
Again, mortgage lenders want to be sure that when they grant a loan that their investment is protected. They guarantee this by making sure you have maintained a positive history for a decent time period, on a variety of platforms. A mix of good use of credit such as an auto loan, a student loan and credit cards will be efficient in establishing a desirable credit history. Credit usage accounts for 10% of your overall credit score.
Call in professional help.
Call the Sandi Meisse Team for more help about how to prepare your credit for a Home Owners Loan. Our agents are well versed in what exactly it is that mortgage lenders want to see on a credit report to grant a mortgage pre-approval. The Sandi Meisse Team can assist you with preparing for the goals you want to reach and offer guidance and support as you prepare your credit to find your dream home. Reach out to an agent today to get started!