If you’re looking for a home, shopping around for mortgages is undoubtedly one of your first steps. Before you attempt to secure a home loan though, you should make sure your credit score won't affect your chances. Below are a few examples of credit card mistakes that could prevent you from getting a mortgage, and more importantly: how to avoid those mistakes.
1. Paying Late
If you’re paying your credit card bill late every month, that will have a very negative affect on your credit score. 35 percent of your FICO score is derived from the timeliness of paying your bills.
Correct this issue: The majority of banks allow for you to set up an online account, where you can then set up an automatic payment schedule for your bills. You can also sign up for alerts for when payments are due, and in most cases, there’s an App for that. If you have a smart phone, then you can have access to your bank accounts at the tip of your finger to monitor.
2. Over-utilizing Credit
A large amount of your FICO score (30 percent) is determined by the amount of what you owe on your credit accounts. “This category is heavily influenced by your credit utilization ratio, which is the credit you have used compared with your credit limit. Usually, it’s expressed as a percentage.” Additionally, 30 percent or more of your available credit on a credit card can cause your credit score to decrease.
Correct this issue: Find out how much 30 percent of your credit limit is, and don’t go over that amount.
3. Applying For too Many Cards at Once
Your first thought when applying for a mortgage loan is that you need to increase your credit, but signing up for a lot of credit cards is not the answer. Adding credit cards to your credit report could be destructive to your credit score.
Correct this issue: Don’t apply for credit cards while applying for a mortgage, unless your loan officer suggests it.
4. Never Getting a Credit Card At All
15 percent of your FICO score is decided based upon the length of your credit history. Thus, having a credit card is not only incredibly important, but getting one as soon as possible is even more important.
Correct this issue: Opening up a credit card will be the best way to get started if you don’t have any type of credit card currently.
5. Racking Up Debt
Debt can be a large problem when applying for a mortgage loan. Other than your credit scores, lenders also look at your debt-to-income ratio. If you’re carrying too much debt, then your DTI ratio could prevent you from getting a loan.
Correct this issue: Pay off as much of your credit card debt as fast as possible.
If you can keep these things in check, your dream home may not be too far out of your reach. Think you're already there? Check out today's rates.