Buying a home is a major decision, and the last thing you want is to lock in a bad mortgage rate. Before purchasing a home for the first time, it’s a good idea to take certain steps to ensure that you have the best credit score available. In general, financial institutions want to see a FICO score of 720 to 740, but you can still qualify for an FHA loan if you have a credit score above 580. Here are some steps you can take to prepare your credit for procuring a mortgage.
Check Your Credit Card Report
We’re all guilty of making late payments from time to time, but you do not want to do this before applying for a mortgage. If you have late payments of negative issues with your credit card account, you will need to address your issues six to nine months before applying for a loan.
Are there any inaccuracies in your credit card statement? Make sure that you file a dispute with your credit card reporting agency to clear your name. It’s possible that credit card companies make errors, so don’t let them go unnoticed.
If you are looking for a conventional loan, you’ll probably need at least three different trade lines that have been active within the past 12 to 24 months, such as credit cards, car payments, or student loans. FHA loans only require two different trade lines. If you don’t have enough trade lines, open an account with a major credit card company instead of a store credit card. Ideally, you want to pay the full amount charged to your credit card each month and never charge more than 30 percent of your allowed limit.
Refrain From Closing Out Older Accounts
You may have older credit cards that you don’t even use, but you don’t necessarily want to close them out. If you have a good history of using that credit card, it adds positive points to your credit score.
No New Credit Cards Six Months Prior To Mortgage
Opening new credit lines can temporarily lower your credit score, so don’t do it.
Refrain From Buying On Credit
Prior to obtaining a mortgage, you want your debt utilization ratio above 30 percent could disqualify you from obtaining a loan. This is also a bad time to take on a car loan as well, so hold off on buying that car for now.
Stay With Your Current Banks
When you apply for a mortgage, you’ll have to provide several months of bank statements for both your checking and savings accounts. If you close out some of your accounts, this could prove to be much more difficult.
We hope that these tips help you clean up your credit score. Our Scottsdale mortgage brokers shop around several different financial institutions to find you the best mortgage rates today. We make the entire process as seamless and hassle-free as possible so that you can waste as little time as possible. Contact Scout Mortgage to get started today.