One of the most important factors determining what you are eligible for when you apply for a mortgage is your credit score. While many homebuyers are aware of this, they may not be aware of all the mistakes that they can make with their credit during the application process. Below, we go over some things to avoid with respect to managing your credit as you apply for a home loan.
6 Credit Mistakes When Applying for a Mortgage
- Not raising your score before you apply. If you are applying very soon for a home loan, you might think that whatever your credit score is right now is the score you are going to have to live with on your application. But making that assumption may be a mistake. Sometimes, it is not that difficult to raise your score, even without much time to do it in. Something as simple as paying off a small debt or reducing your credit utilization ratio could give your score a boost before you apply. Premier Lending Corp can offer you recommendations personalized to your situation during your consultation if you are looking for ideas for how you can quickly increase your score.
- Not checking your credit report. While you probably will think to check your credit score before you apply for a mortgage, have you thought about checking your credit report? Borrowers are often not aware that their credit report and credit score are two different things, or that they have more than one credit report (and more than one credit score, on that note). Your credit report tells you the information that is used to calculate your credit score. Sometimes, the information in that report is not correct. The Consumer Finance Protection Bureau states, “According to a study conducted by the Federal Trade Commission, one in five people have an error on at least one of their credit reports.” Considering just how prevalent errors are on credit reports, it is always a mistake not to check for errors before you apply for a mortgage. Just one error could end up costing you a lot of money over a long period of time, completely unnecessarily.
- Applying for credit during the mortgage process. Are you thinking about applying for a new line of credit while you are applying for a home loan? A lot of borrowers do this with the thought that it will help them increase their score. But if any of your applications for new credit trigger hard credit inquiries, your score will drop, which could affect your mortgage application. Moreover, if you are successful in opening a new account, the average age of your credit decreases. That also will not result in a favorable adjustment to your credit score.
- Closing credit accounts. Well, if opening credit accounts will not help you out, will closing them? This, too, is a common mistake. Just as opening new accounts can decrease the average age of your credit, so will closing old accounts. So, even if you are not using those accounts, and you are all caught up on your balance, keep them open.
- Making large purchases on credit while you are applying for a loan. Buying a home is complicated. There are a lot of things you are likely to need when you do. New furniture is a common example. But if you can, you should either use cash for those purchases or wait until after the home buying process is complete before you pay for them using credit. Dipping into your credit for large purchases while you are applying for a home loan will decrease your credit score by increasing your credit utilization.
- Co-signing on a loan for someone else. One more mistake to avoid making with your credit when you are applying for a mortgage is to co-sign a loan. Co-signing a loan can be a huge help to someone who does not have a high credit score. But you should wait until after you have completed the mortgage process before you provide that help. The reason is that it can lower your credit score to be a co-signer, because if the other person falls behind, you will owe what they did not pay.
PLC Can Answer Your Credit Questions
That wraps up our list of recommendations for top credit mistakes to avoid when you apply for a mortgage. If you have more questions about how to maximize and protect your credit score when applying for a home loan in Florida, we can help you out during your consultation. To schedule your consultation now, please give us a call at 954-840-8811. We look forward to helping you apply for an affordable mortgage.