Credit Issues to Solve Before Applying for a Mortgage
When you apply for a mortgage loan, your credit report and score both play a role in whether a lender will approve your mortgage loan application. Derogatory information, such as collection accounts, foreclosures, bankruptcies and late payments, all damage your credit. What you may not realize is that the way you manage your debts influences your scores, which in turn can influence your ability to qualify for a loan when you're ready to buy a home. Here are some credit issues to solve before applying for a mortgage to better improve your odds of loan approval.
Errors in Credit Reports
The credit reporting system is imperfect. Credit grantors, which are the source of much of the information that goes to the three credit bureaus, make mistakes. Some are due to sloppiness, some to confusion over names, and some are intentional. The credit bureaus also make mistakes. They have no financial interest in keeping anyone’s credit score low, but they do have a financial interest in managing their enormous databases at the lowest possible cost. Whatever the source, errors can adversely affect your credit report. It is a good idea to check your credit well before applying for a loan. This will give you time to get any errors fixed. This can take some time, so start as early as possible to avoid a delay once you're ready to move forward.
Having a random credit inquiry here and there is normal. Having multiple inquiries in a short amount of time could signal that your finances are shaky. Every time you allow a potential lender to pull your credit report, you risk generating a hard inquiry on your report. The impact of credit inquiries varies by the consumer, the credit score and the number of inquiries. The best way to avoid being declined is to minimize the number of hard inquiries being run on your report. Avoid taking out any unnecessary loans, opening any new credit lines, or purchasing a new vehicle until after your mortgage loan is finalized and you've closed on your new home.
Errors in Credit Reports
The credit reporting system is imperfect. Credit grantors, which are the source of much of the information that goes to the three credit bureaus, make mistakes. Some are due to sloppiness, some to confusion over names, and some are intentional. The credit bureaus also make mistakes. They have no financial interest in keeping anyone’s credit score low, but they do have a financial interest in managing their enormous databases at the lowest possible cost. Whatever the source, errors can adversely affect your credit report. It is a good idea to check your credit well before applying for a loan. This will give you time to get any errors fixed. This can take some time, so start as early as possible to avoid a delay once you're ready to move forward.
High Revolving Account Balances
Credit card debt definitely affects your chances of getting a mortgage loan. Borrowers with heavy debt burdens represent a larger risk to the lender. So they have a harder time qualifying for financing. And if they do get a loan approval, they typically end up paying a higher interest rate due to the higher risk associated with all of that debt. For this reason, you should consider reducing your credit card debt before buying a home.
Multiple Credit Inquiries
Having a random credit inquiry here and there is normal. Having multiple inquiries in a short amount of time could signal that your finances are shaky. Every time you allow a potential lender to pull your credit report, you risk generating a hard inquiry on your report. The impact of credit inquiries varies by the consumer, the credit score and the number of inquiries. The best way to avoid being declined is to minimize the number of hard inquiries being run on your report. Avoid taking out any unnecessary loans, opening any new credit lines, or purchasing a new vehicle until after your mortgage loan is finalized and you've closed on your new home.
Now that you know what lenders are looking for when it comes to your credit history, and how you can be proactive on making sure your credit is loan approval ready, time to check those reports and start your journey! If you're in need of a mortgage for a new home, or have any other questions pertaining to mortgage lending, trust in the mortgage professionals at MHQ - Mortgage HeadQuarters to have your best interest in mind. We can help you choose a mortgage program that's right for you and your specific needs!
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