July 16, 2021
Are you new to the mortgage loan process? It’s easy to make certain assumptions, especially where credit approval is concerned. What do you need to know about your credit report?
Don’t forget that how you use your credit, how much credit you use, and whether you pay on time are all factors that go into your FICO score calculations.
There are several factors that may help you make better choices about how to plan and apply for your mortgage.
Credit Report Factors To Consider
Your FICO scores, credit card use, plus information about the amount of credit you use per card (up to the credit limit and by how much) are all things your lender will need to see when looking at your report.
FICO scores are an important part of the loan approval process, but they are not the only determining factor.
Get Your Credit Reports
You are entitled, by law, to a free credit report each year from the three major credit reporting agencies, TransUnion, Equifax, and Experian. After you receive your free credit reports, continue to monitor your credit. You can do this by using a professional service.
You’ll want to know what’s affecting your credit report long before the lender sees it. If you need to dispute or correct something, it will take more time than you realize–the process can take months, not weeks.
Start working on your credit at least a year in advance of your home loan and you’ll be a lot closer to loan approval when it’s time to fill out the forms for your loan.
What Else Your Lender Considers Aside From FICO Scores
If the lender’s job is to make sure you can realistically afford your mortgage, your loan officer will need to see evidence that you are a good risk for the loan.
The FICO score number (580, 640, 720, etc.) is not the only part of your credit report your loan officer is interested in; the report tells the lender not only what your credit scores are, plus your record of on-time payments or late/missed payments, and your credit report will show your history of credit utilization.
Avoid New Lines Of Credit
Do you think your lender won’t check your credit score more than once before your loan closes? If so, think again.
In the year leading up to your home loan application, beware of applying for any other type of credit.
Some applicants hurt their chances at a major line of credit like a home loan, auto loan, or even a personal loan because they have other credit applications going out too close to the day they applied for the big line of credit.
The lender has to justify her decision to approve your loan–don’t make it harder for the lender to do this by applying for more than one line of credit at a time or applying for two lines of credit too soon one after the other.
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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