Prepping for a Mortgage: 5 Tips to Getting your Credit Score on the Right Path

In the past, just about anyone could get a mortgage loan through the sub-standard market with a low credit score. Today, you must have a mortgage-worthy credit profile before you can land an approval let alone land a good interest rate. If you want to receive the best rates for a conventional mortgage, you will need to have a score between 720 and 740. Unfortunately, not everyone who is financially prepared to buy a home is deemed to be creditworthy to secure a mortgage. If you know that your credit is not up to the standard, here are steps to prep your report so that it says what the lenders want to see.

Review Your Credit and Report Any Inaccuracies

The credit reporting agencies are not perfect. If you simply trust that your credit is good and your report does not contain any errors, it could be the difference between an approval and a denial. You should know exactly what your lender is going to see before they even see it so that you can monitor activity and verify that the score is near where you want it to be. If you do notice defaults, late payments, or accounts that you did not open, you should take action to have the errors corrected through all of the bureaus.

Leave the Oldest Accounts You Have on File Open

You might think that it is best to payoff credit accounts and close them, but this can be damaging when you want to show a lender you have an established credit file. With more seasoned lines of credit, you can show you are a responsible consumer with your tradelines. Major credit cards, car loans, student loans and other revolving lines of credit can be helpful, but be sure that the balance is not over 30 percent of the limit.

Use Your Credit But Pay it Off

If you are planning on applying for a mortgage in 12 to 24 months, one way to bump your credit score up is to use your credit wisely. You can swipe your credit card or use store lines of credit to make purchases, but don’t go overboard and pay off the entire balance every time that you get your bill. This shows that you are equipped to pay your bills and you aren’t living off of the credit.

Stop Buying on Credit Until You Close on a Loan

If you know that you will be applying for a mortgage you should avoid credit like the plaque. Premium Mortgage Corp and other experts in home financing all recommend that you avoid opening new lines of credit within six months of applying for a mortgage. If you are in the process and are approaching escrow, do not go out and charge a bunch of items on your credit cards before the loan is closed or it could disqualify your loan.

Avoid Moving Your Money Around

Its tempting to move things around when you are trying to get your finances in order. If you do this, it could be a red flag to the lender. Do not take large sums of money from CD’s and savings accounts or cash out your investment portfolio. If you do this, it will could make it really hard on you to prove where your money has gone.

Buying a home is more than likely one of the biggest purchases that you will make in your lifetime. If you want securing a mortgage to go as smoothly as it possibly can, you need to get your credit in order first. Be sure to give yourself ample time to build a mortgage-worthy profile and you will get a good loan.

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