How Your Credit Score Will Impact Your Mortgage Application:
Credit scores have become a really important factor in the past 12 months. This is a big change from the past where a potential borrower could get a mortgage loan with credits scores as low as 580 -600. However nowadays, in order to get the best interest rates you will need to have a credit score in at least around the 680-700 range . A credit score of 580-600 is no longer high enough to secure a good interest rate and to get the best programs available to you.
Credit scores have become a really important item, because it is a measuring stick on how you will repay your debt. This way lenders can go over your whole credit history to see if you have been paying on time or not, and if you are a real credit user or not. So there is a very big emphasis on credit score ratings right now as opposed to the days before the real estate crash.
You can improve your credit score in a few different ways. Although this may sound elementary and very basic, however you can help improve your score greatly by just paying your debts on time. Many people don’t realize how much they can hurt their ratings by paying their credit card balances by even 1 day late. Usually most credit card companies will report you to the credit bureau if you have been late on 2 consecutive payments. However in some cases it can be just 2 late payments in a given year, and does not necessarily have to be consecutive late payments. This is the first thing with improving your credit score.
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The second most important thing in improving your credit score is that you should try to lower your debt as best that you can. It is not unusual to see people with 15- 20 credit cards that are all maxed out, with debts ranging far greater than $15,000- $30,000. In many cases their amount of debt is greater than their total net revenue for the year, this something lenders will definitely look at before approving any mortgage or refinance for that matter.
Regardless of whether you pay your debts on time, having a very high debt will hurt your credit scores because the credit bureau will look at the percentage of debt that you are at, and lower your credit score in accordance. So even if you pay your credit cards on time, the amount of debt that you have will certainly play an important factor in your credit score ratings.
For those who don’t have any available credit yet and want to establish some credit in order to qualify for a mortgage, there are quite a few programs available for those who have no credit history.
It is a very good idea to try to take out a loan, if you’ve never had credit before. You could first try to apply for a credit card, or some other form of installment debt, to start establishing a credit history.
There are programs available if you have never had any credit before and always used cash to make payments. Some of these programs may require that you make a downpayment , possibly 20-30 % of the available credit they may offer, such as pre paid credit cards etc. , but it is very important to establish some sort of credit before you really need it.
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