Four Elements To A Mortgage Approval
There are four factors that go into determining whether a person will qualify for a mortgage. These are the borrower’s income, debts, value of the property and credit score. The only one of these that a borrower has any control over is their credit score and because of this it is imperative you do everything possible to improve your score as much as possible before you submit your mortgage application.
You may think your credit score is some magical number that you have no control over but this is actually not the case.
Your credit score is determined when credit bureaus calculate several factors with an algorithm to come up with a number. These factors are your payment history (how often you pay your bills on time), the amount of money you owe compared to available credit, your years of credit history ou have, and how many new accounts you have opened in the past twelve months. Another factor is how many people have looked at your credit over the past several months. All of these things are combined to come up with your “magical” credit score.
You need to be pro-active in cleaning up your credit report and should start a minimum of three months before you intend to apply for a mortgage. The first thing you need to do is get a copy of your report from the three major credit bureaus, Equifax, Experian and Trans Union.
Free Credit Report Resource
If you visit AnnualCreditReport.com, you can request one free credit report a year. This is the one “free credit report” website where the credit report is actually free. It’s a federally mandated site for the purpose of consumer protection.
Once you get your credit reports you need to go through them carefully to see if there are any errors on them. You would be amazed at how much incorrect data can wind up on your credit report and cause your score to drop. If you are unsure of how to read a credit report then take them to the real estate agent or mortgage broker you plan on using and they will be happy to help you sort through them. A simple mistake on a credit report can really hurt your score.
Disputing Erroneous Credit Information
Once you have identified all of the mistakes on your report (including items that may be listed that do not even belong to you) it is time to go back online and open an inquiry with each of the credit bureaus.
You need to specifically identify all of the items that are incorrect and ask the credit agency to either remove them or correct them. By law a creditor must respond to your inquiry within thirty days and if they do not do so then the credit agency must make the changes you requested.
Pay Down Debt to 30% of Limit
Some other things you should do during this time are pay down your debts to an amount less than thirty percent of your maximum balance.
For example, if you have a credit card with a $1,000 limit you want to pay it down to below $300.00. This is one of the secret algorithms the credit agencies use to determine your score. Also, do not open up any new credit during this time. New credit inquiries lower your score.
Activate Old Cards
Lastly, another thing you can do is re-activate old credit cards you may have stopped using. As stated earlier, older established credit is good thing to have on your report. But if you stopped using a credit card for a long period of time it no longer carries the same weight it once did.
Take that old credit card and make a few small purchases over the coming months and make sure to pay that credit off in full at the end of the month. This will bring that old credit card “back to life” in the eyes of the credit bureaus and help increase your score.
Have more credit questions? Our reputable loan officers can pull your credit, analyze your score, and tell you if you qualify for a mortgage. Contact a loan officer here.