Your Mortgage lender analyzes these five “steps” when considering your loan application and you can help the likelihood of being approved for a loan by knowing them.
#1) Payment History: The Good can outweigh the Bad… pay your bills on time. Pay even if you are late – do not wait until it goes to collections. The older a delinquent payment is the less it impacts your score.
The highest Credit score rate is 850. The best interest rates are given to those with scores above 740; a score under 620 is not likely to get approved through a traditional mortgage lender.
#2) Outstanding Debt: Keep balances low on revolving accounts; high balances will negatively impact your score, and you should have fewer cards with open lines of credit.
The Secret to credit card debt as it applies to your overall FICO score is to not carry a balance above 30% of that cards maximum borrowing amount.
#3) History of Credit Establishments: The scoring model the mortgage lenders look at are patterns of payments over time, those with more established payment histories are viewed as less risky. If someone has little or no credit, opening up too many items all at once can be considered risky by a lender.
The Secret to not hurting your credit score while shopping for a mortgage or Auto loan is to do it over a focused period of time (30 days). If you spread out this rate shopping behavior over several months it can hurt your credit score.
#4) Type of credit being used: If you are using more than 4 or 5 credit cards you are using too many. If all the store cards, and lines of credit were maxed out they could make your debt to income equation impossible for you to get a loan. Lenders have to look at this as a worse case scenario.
The proper mix of credit as seen by a mortgage lender is seen as the best use of your borrowing strategy. Such as one auto loan (paid on time) and one or two credit cards with low balances compared to the available credit on the account. .
#5) New Credit; Not all inquiries are scored the same… all auto and mortgage inquiries that occur within any 45 day period are treated as “ONE” inquiry. Credit inquiries remain on the credit report for two years, but impact the score for only one year.
The Following items DO NOT factor into score calculations: Marketing purposes such as pre-approval solicitations, inquiries made by the consumer through a repository, or employment inquiries.
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