September 23, 2022
Credit scores are a very important part of qualifying for an FHA mortgage, but they are not the only factor to pay attention to. What follows is information about the other credit-related factors your lender will consider.
To be sure, these factors may affect your FICO scores, but they are also viewed apart from your scores to determine your ability to realistically afford your mortgage. What are these factors?
On-Time Payments
Your participating FHA lender will review your credit report to see if there are late or missed payments, how many, and when they occurred.
In general–and this is advice you will read on any mortgage blog or bank official site–if you have late or missed payments in the last 12 months, it can hurt your ability to get a more affordable loan or be approved at all depending on circumstances.
Here’s some advice you may NOT read on other mortgage blogs. Sometimes the nature of the late payment may be a factor. If you have a SINGLE late payment made within 30 days of the due date, some–not all–lenders may be willing to overlook that.
However, if you have a 60-day late payment in the last year, your chances may diminish considerably. Your experience will vary depending on the lender’s standards.
Credit Utilization
Some do not realize that the percentage of your available credit you are currently using could be a factor. Some people erroneously believe that they should pay off their credit cards and close them completely in order to improve their credit.
But the reality here is that you should NOT close a credit account after paying it off. The age of your credit accounts is important–you will read that on many finance blogs and credit reporting agency official sites.
But what some do not realize is that you do not have to pay off your credit card completely to get an improved credit utilization score.
If you consistently make on-time payments AND ask for an increase of your credit limit, you lower your credit utilization and can improve your FICO scores over time.
The key to this strategy is to NEVER USE your higher credit limit before the loan closes. If you were at 90% of your credit limit before the increase, your credit utilization rate is thought to be poor on that card.
After your credit limit is increased, the extra “room” on your credit card is what the lender is looking for.
In other words, your loan officer wants to see that you are financially responsible and can keep your recurring debt to a reasonable level.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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