When you're looking to buy a home in the near future, make sure your credit profile is on point so that you can get a home loan at an affordable interest rate. Lenders use your credit information to decide whether or not they'll approve your loan. They typically begin with an audit of your history and check it against the records maintained by the three major credit bureaus.
A lender like Orange Mortgage in San Antonio, TX, considers several factors when deciding if someone should be approved: income level, length-of term desired, amount requested for down payment relative to the overall household earnings, etc.
This blog post discusses three critical factors you should consider to improve your credit profile.
Review Your Credit Report
The first step you need to take is to obtain credit reports from the three major credit bureaus. When reviewing your credit report, don't be surprised if there are minor differences between them. If all three credit bureaus receive updated information about your accounts from different sources simultaneously and they don't match perfectly between each other, then that's not necessarily a bad thing! Your lenders may not report all of your accounts to every bureau or send updates on slightly different schedules, so it is perfectly normal for an account reported in one bureaus' statement not to appear on another two reports!
Keep the following points in mind when reviewing your credit report:
- If you have high account balances relative to your credit limits, paying off the debt will help improve your FICO score.
- Ensure all past-due accounts, charge-offs, or collections are paid off before applying for new loans.
- If you find any inaccuracies with your credit report, then follow the dispute process outlined by each of these bureaus.
Don't Apply for New Credit
Credit scores can suffer when you apply for credit or take on new debt. As the lenders perceive, the statistical risk of default tends to climb with a new loan application. This is why a slight drop in your score will occur; these dips are typically just one point at most and are temporary, but they should not be ignored before applying for mortgage financing!
Mortgage lenders consider your debt load in relation to income when deciding how much they're willing to lend you. That's why it makes sense not to make any major purchases with credit cards before applying for a mortgage. Instead, focus on managing monthly payments on other expensive debts, such as student loans or car loans.
A lender will look at the amount an applicant owes relative to their available assets and their level of creditworthiness, which can affect borrowing rates.
Before submitting mortgage applications, avoid large purchases because lenders want more assurance than ever on whether applicants can afford the monthly payments after considering all relevant expenses, such as taxes and insurance obligations already incurred during the purchase time frame.
Making Payments On-Time
Paying your bills on time is one of the quickest ways to boost your credit score, so in the months leading up to mortgage application, make sure you're paying every bill on time. Are there are any late payments or missed due dates recently that need attention now? Take care of them! Lenders might perceive a late payment within the 12 months leading up to your mortgage application as risky behavior. This could mean you'll pay higher interest rates.
Orange Mortgage is a leading mortgage company based in San Antonio, TX, with satisfied customers across Texas and Arizona.