There are few things more important to the process of financing a home than credit.
Better credit means more financing options and often better rates, which will save you money.
When you hear the term credit score, it actually means the middle of the three scores that lenders pull from three different credit bureaus.
The three credit bureaus are TransUnion, Experian and Equifax, and they are repositories of information sent to them by creditors, such as credit card and automobile financing companies.
A credit report is a representation of how much credit you have available to you and how well you manage it. Lenders want to know how you manage what you have now before they agree to lend you even more.
There are various components that make up your credit score. Two of the most important are:
Recent late payments
Lenders will look closely at this, thinking that if you are having challenges meeting your current payments, you perhaps should not be taking on any additional debt.
Even when you pay all your bills on time, if your credit cards are maxed out, lenders will see it as a sign that you need lots of credit to get through your daily life. Keep balances low – preferably below 25% of your credit limit.
Note that this doesn’t mean you should cut up all your credit cards. You need to have some open trade lines.
Many people believe that having no access to credit keeps them out of financial trouble. This is correct to a point, but you also need to be able to demonstrate to a lender your ability to manage credit, thus proving you are worthy of a mortgage.
Contact your mortgage professional, who can advise you on credit issues and your ability to get a mortgage.