We all want the best mortgage rate when we’re looking to buy a new home, and credit is one of the single largest factors here. Your credit score plays a huge role in both the kinds of mortgage programs you qualify for and the rates you can get within these programs.
At City Creek Mortgage, we’ve helped numerous clients organize their credit in smart ways to help qualify for great mortgage loan options. Here are some common mistakes that we offer tactics to help prevent:
A big reporting factor in your credit score is the percentage of your available credit that’s currently in use, or your debt utilization ratio. The higher this percentage is, the lower your score will generally be. A good threshold that most experts point to here is 30 percent – you should never be using more than this percentage of your overall credit limit.
Another specific event that will lower the credit score is a missed or late payment. Given the available technology today, including the ability to automate and pay bills completely online, there should be no reason why you fall behind on these payments as long as you have your finances in order.
Once you’ve paid down a particular credit account, it can be temping to close that account and remove an avenue toward future spending. But in reality, this will decrease your available credit, in turn increasing the percentage of debt you’re using without you even spending a single additional dollar. Rather, keep accounts open if they’ve been paid down.
In other cases, some people will try to move all their balances to a single card – usually one with the lowest interest rate. But this can actually lower your credit score by making it seem like that card has too high a debt ratio, and it’s generally better to keep balances spread between cards.
Too Many New Accounts
Given the above information, you may be thinking it’s wise to simply open several new credit accounts but not spend anything on them – this will raise your total available debt, after all. But credit bureaus are wise to this, and they will flag your profile and ding your score if you open too many accounts in a short period of time. You won’t get away with gaming the system here, so don’t try.
For more on avoiding mistakes with your credit score, or to learn about any of our mortgage solutions, speak to the pros at City Creek Mortgage today.