Maintaining a strong credit score is one of the most important things potential buyers can do if they want to qualify for a mortgage, since credit scores are used by lenders to measure financial health. A recent study showed that 34% of potential buyers believe their current score will hurt their future ability to purchase a home.
If you’re concerned about your current credit rating, Yahoo! Finance offered some advice on common credit problems to avoid.
1. Don’t be late. Paying bills on time is essential, since a person’s payment history makes up 35% of the total credit score. A late bill payment of 30-60 days also gets reported to credit bureaus and stays on the credit report for a whopping seven years.
2. Applying for new credit. According the National Association of REALTORS®, applying and being approved for a new line of credit can cause concern with lenders who might take it as a sign that there’s a higher risk of default due to increased spending. Bottom line, if your potential buyers are planning to apply for a home loan in the near future, make sure they don’t apply for anything else around the same time, Yahoo! Finance warns.
3. Having high balances. Just making minimum credit card payments isn’t good enough for most mortgage companies. People who hold high credit balances are not looked as favorable loan candidates since high balances and maxed out cards raises the debt-to-income ratio, according to lenders.
4. Too much disputing. While it’s a good idea to keep tabs on the credit report and dispute false charges, doing so too-often will be a red flag to lenders who may chalk it up to gaming the score instead.
5. Not having a credit history at all. Credit can’t be established if there’s none to begin with, so if your clients have a thin credit file, let them know they need to start building their history before applying for a home loan.
The Bottom Line
Lets sit down and chat about any questions you have about if your credit is going to help or hurt your dream to purchase a home. I can set you up with the right resources to check your current credit or help you create a plan to repair credit with the idea of purchasing a home.
Source: “5 Credit Problems That Can Destroy Your Home Dreams,” Yahoo! Finance (May 27, 2016)