Credit is an important factor when it comes to buying a home. Mortgage companies run a tri-merge report pulling information from Experian, Equifax, and TransUnion. A mortgage credit report uses a different algorithm than say, a car loan credit report. So what is a good credit score? Let’s see first what makes up your credit score.
Credit Score Makeup
Credit history: Make your payments on time, even if you are making the minimum payments. A missed or late payment can lower your score by 80 to 120 points.
Credit utilization: Keep your balances low, generally between 20-25% of the high credit. Lenders calculate your debt to income ratio by comparing your spending habits (monthly obligations) to your earnings.
Length of credit history: Keep those credit cards you have had the longest open, whether you are using them or not. Once the account is closed, the history is lost.
Credit mix: Have multiple types of credit such a revolving accounts (credit cards), mortgages, installment loans (vehicles), etc.
Applying for new credit: A lot of new credit in a short period of time looks like you are desperate for credit and potentially a higher risk.
To ensure the best terms for your loan, a credit score of 740 or better is ideal; however, the minimum score for all loan programs is lower.
So, what steps can you take to improve your score?
Shop for rates for a specific loan within a short period of time
Pay your bills on time, even if it is just the minimum payment
Pay off debt rather than moving it around
Review your credit annually with the three bureaus
Do not close accounts as a strategy to raise your score; it often does not help
Monitor joint and co-signed accounts
Apply and open new accounts only as needed
Keep balances low on revolving accounts and credit cards
*Note: American Pacific Mortgage Corporation is not a credit repair company; this information is for information purposes only. We are not licensed credit repair specialists or counselors.
Wait times before you can finance a property
If you've experienced a credit event - such as a foreclosure, bankruptcy, or short sale - you may be able to finance a home purchase sooner than expected. Here are some general waiting period guidelines for common situations:
* Written permission from the bankruptcy court/trustee is required.
** 12 months payments and bankruptcy court approval may be required
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