Thinking about buying a home? Your credit score will play a huge role when applying for a mortgage as it helps lenders determine how much risk they will be taking when they loan you money.
There are several factors that affect your score and often homebuyers simply overlook them or they take steps to increase their score when actually they are doing more harm than good. Here are some common mistakes consumers make so you can be sure to avoid them.
Falling Behind on Payments
Making all of your payments on time should be an obvious step in the right direction when maintaining or improving your credit. But did you know just how much of an impact payment history can have on your score?
As stated, there are several factors that contribute to your score.
- Payment History (35%)
- Amount Owed (30%)
- Length of Credit History (15%)
- New Credit (10%)
- Credit Mix in Use (10%)
As you can see, payment history makes up the highest percentage and will have a significant influence on your overall score. So be sure to make all payments on time as even one late payment can cause your score to decrease.
Closing too Many Accounts
Do you have a credit card that you haven’t used in years and it does’t even carry a balance? It may seem like closing accounts like these would help your credit. Less credit cards = less debt, right? Not exactly. If the account is in good standing and does not have a balance, don’t close it. Closing the account will actually decrease your amount of available credit, which in turn increases your debt to income ratio.
Settling for Bad Terms
Although it is possible to get a loan with bad credit, don’t make the mistake of accepting bad loan terms and paying more money than you have to. Take the time to improve your score before applying. You may be surprised at just how quickly you can repair your credit score.
There are also several loan options for those with less than perfect credit. For example, a FHA loan only requires a score of 580 and you only need to make a down payment of 3.5%.
Allowing Your Credit Score to Decrease Before Closing
Getting pre-approved for a loan is a must. It helps homebuyers realistically shop for a home because they know what they can afford. Not to mention, it gives the homebuyer more bargaining power when the seller knows the buyer is pre-approved and serious about moving forward.
However, be careful not to let your credit score drop from pre-approval to closing. The pre-approval is not a guarantee. At closing your lender will run your score again and if it has decreased, you may not be approved for the same terms as you were before.
Additional Information
Improving and Maintaining Your Credit Score for a Michigan Home Loan
How Can Negative Credit Impact your Eligibility For a Michigan Home Loan?
Michigan FHA Loans Can Help Homebuyers with Less Than Perfect Credit
About Michigan Mortgage Lender, Julie Krumholz
Julie Krumholz is has been helping Michigan homebuyers for over 30 years and has several loan programs available to help people with lower credit scores or those that need down payment assistance.
Call Julie from Superior National Bank today at: 586-382-5482and let her help you navigate through the loan process and answer any questions you may have.
