Mortgage Loans: Your Credit Score Counts

A poor credit rating is a problem when you need to qualify for mortgage loans. Your interest rates will be higher, you may be asked to pay more in fees, and you will be a target for predatory lenders. Rather than accept questionable mortgage loans with high interest rates and restrictive riders, wait a little while and improve your credit score. Then try the market again, and see how much your offers improve.
Here are some tips for making your credit score more attractive to mortgage lenders:
* Reduce your current debt. For a good credit score, you should be paying 40% or less of your total monthly income toward your debt. Debt payments include all your credit cards, any student loans you still have, your auto payment, and all mortgage loans you are paying. Lenders will also consider the amount of the loan you are requesting when they calculate your debt to income ratio, so also swap out your current mortgage and swap in your prospective mortgage (or add in your prospective mortgage, if you do not have a mortgage right now) and make certain the number is still 40% or less of your income.
* Improve the ratio of credit you have available to credit you have used. The more credit you have available, and the less you have used, the better your score will look. Making yourself look more attractive involves not only reducing your debt, but raising the amount of your credit line. if you have a good relationship with your credit card companies, call them and ask whether they will raise the credit line on your existing credit cards. If you have a credit score that will allow you to take out new credit cards, apply for a new credit card. And dont close unused accounts! Common wisdom used to say that creditors should close unused accounts, but now this tactic worsens your credit score by lowering the amount of credit you can command.
* Examine your credit reports closely and dispute any black marks on your record that are inaccurate or incorrect. You may find that clearing up mistakes and misunderstandings will do wonders for your credit record.
* Let time do its work. Your credit rating is partly a function of time. The more time you spend paying your bills punctually and avoiding trouble, the less you are perceived as a credit risk. Lenders will consider you to be more stable, and thus more appealing, when you reapply for mortgage loans.
Applying for mortgage loans is hard enough with good credit. Poor credit can make the process agonizing. Before you apply for mortgage loans, tidy up your credit reports and improve your credit score, and make the process that much easier and more successful for yourself.