Your credit score plays a significant role in the process of getting approved for your mortgage. It can affect the rate and amount of your loan, as well as how much you will need for your down payment. But being aware of your credit score is not as helpful as knowing how to improve it.
Key Takeaways
• Some factors that affect your credit include: late payments, foreclosures, amount of debt and lines of credit.
• Secured loans, such as a mortgage, home equity line of credit or car loan, are looked on more favorably than unsecured loans, like credit cards. A longer history with secured loans will typically raise your score.
• Credit history is one of the most significant factors in your credit score. To improve the score, strive for on-time payments, control your utilization (less than 30% of your limit per card), limit credit inquiries, and limit the number of lines of credit you open.
• A lower credit score can require a higher down payment and often means a higher interest rate on the mortgage. In some cases, poor credit can preclude you from approval altogether, so be aware of your credit score and avoid actions that can damage your credit in the time leading up to applying for a mortgage.
Videos are for informational purposes only and represent the opinions of the speakers. Chase does not warrant the completeness, timeliness or accuracy of the content.
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VIDEO TRANSCRIPT
Michael: Sometimes when we meet with clients there are some challenges on their credit report. Something as simple as a late payment on their credit card. It can be more complex like a foreclosure, or a short sale, a judgment.
Angi: When a credit report is ran you’re pulling from three different repositories: Equifax, Experian, and Transunion.
Michael: Types of credit also affect your score. Such as a mortgage, a home equity line of credit, an installment loan with a car. Those typically are looked on more favorably then unsecured lines of credit, credit cards, etcetera. So the more secure credit you have, and the longer you have that credit, the higher your score will be.
Angi: The other thing is lack of credit because there’s no way to judge someone’s ability or willingness to pay credit unless they’re actually using them.
Michael: Credit history has the most impact on the credit score. The philosophy is past behavior will indicate future behavior.
Angi: Ways to improve it would be to try and pay your credit on time, because credit lates will stay on the credit report for seven years. Bankruptcy is for ten years and the longer it’s been since the late the less it affects your score.
Michael: Utilizing your credit cards less. Typically you want to utilize less than thirty percent of your balance. For example, if you have a $10,000 credit card, you probably would not want to go above $3,000 being utilized at any one time.
Angi: Limit the number of people who are checking your credit because credit inquiries also affect your credit score. And I always tell people to avoid having a lot of credit cards with, say they have a lot of small balances but they all add up to a big total, it’s just to limit it to one or two credit cards and treat it as a monthly bill and pay it off each month.
Michael: Poor credit can affect, it can actually preclude you from buying a new home depending on the event.
Angi: The lower the credit score the more down payment it’s going to require. So it’s very important to keep your score as high as possible when you’re purchasing a home. One because of the down payment and two because of the rate you get. Because the lower the credit score the higher the rate is going to be.