The Wall Street Journal recently had an article that new mortgage applications over the past few months have been on a tear, however, lenders are only approving applicants with stellar credit.
Below are a few simple steps to help maximize your credit or the lender FICO score that is crucial in determining if you qualify for a mortgage in addition to other factors such as income, employment history and available assets.
Follow these crucial steps to get your mortgage approval:
- Check for and correct errors in your credit report. Mistakes happen and you don’t want someone’s credit issues showing up on your report. Sign up for credit monitoring such as Credit Karma, Experian, etc. You can also obtain a free 3 bureau credit report once per year through freecreditreport.com.
- Pay-off or down credit cards. If possible, pay off the entire balance every month. Doing balance transfers between cards can actually have an adverse impact on your credit report, so avoid where possible prior to applying for a mortgage.
- Don’t max out your credit cards. Part of your score is driven by your available credit, ideally you should have two-thirds availability on your credit limit.
- Have 12 months of solid payment history. You’re penalized less for problems after a year from both a credit score and lender perspective.
- Don’t purchase big-ticket items until your final loan approval during escrow. Adding to your debt increases your debt-to-income and may prevent you from obtaining that mortgage, even after your pre-approval.
- Don’t open new credit card accounts before applying for a mortgage. Having too much credit can lower your score and the lender views this as a risk.
- Shop for mortgage rates all at once. Too many credit applications / inquiries can lower your score, however, multiple inquiries from the same type of lender are counted as one if submitted during a short period.
- Avoid debt consolidation companies. Interest can be high and it may be considered a sign of poor credit management.
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