Your Mortgage and your Credit Score

If you are shopping around for a new mortgage loan it is a good idea to make sure you understand the connection between your credit score and the mortgage rate and terms you may be offered before you actually begin to negotiate terms. Far too often, many consumers do not understand the importance their credit score can have on their mortgage loan until it is far too late. While it can be quite easy to pay a bill a little bit late and rack up perhaps more than we should on a credit card, when it comes to getting a mortgage loan all of that can easily come back to haunt us. Whether you’re looking for a new mortgage loan or you are interested in refinancing your existing mortgage, it’s a good idea to give some thoughtful consideration to the impact your credit score may have on the rate and terms you are offered.

While you may not have given much thought to your credit score and history lately, in reality your credit score began affecting you the moment you obtained your first credit card and opened your first bank account. There are actually a number of factors that can influence your score and therefore the types of rates and terms that are offered to you when you apply for a mortgage loan. Depending on how low your credit score may be or the types of items that are reported on your credit history report, you may be actually denied a mortgage loan. If your score falls somewhere in the mid-range, your credit history could also result in a higher interest rate than you might would have otherwise paid for your mortgage.

This, of course, is not to say that there is anything wrong with having a credit card. They can certainly be handy for emergencies and there are some instances in life when they are a necessity, such as renting a car, a hotel room or purchasing an airplane ticket. In order to make sure that your credit cards positively impact your score when it’s time to get a mortgage loan; however, it is imperative that you use your credit cards wisely. This means limiting yourself to just one cards and keeping that card paid down on a routine basis to 75% of the maximum credit line. Avoid maxing it out whenever possible. You should also make a strong effort to always make sure you pay your credit card bill as well as other bills on time. In addition, try to avoid switching balances back and forth between your credit cards. This can be a red flag to mortgage brokers and lenders that you may be experiencing financial difficulty and this could affect your ability to obtain a mortgage loan.

Whenever possible try to avoid opening numerous revolving credit accounts. This includes credit cards as well as department store cards. While you may not realize it, gasoline and fuel cards can also heavily impact your credit score as well.

In addition, avoid the temptation to complete a lot of credit applications, even if you have no intention of accepting the account or card. This can lower your credit score and possibly put your chances of obtaining a mortgage loan in jeopardy.

Finally, try to always be aware of how much outstanding debt you have and especially how it stacks up in relation to your income. Most mortgage brokers and lenders have strict guidelines regarding the maximum amount of debt you can have in relation to your income and still attain a mortgage loan.