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While considering a home purchase, you’ll often think of what New Braunfels neighborhood you want to live in, which school district you want your children to attend, how many bedrooms you need and how much lawn you’re willing to spend the weekends mowing. Less time is usually spent preparing your finances and credit for the inevitable mortgage application. However, I would argue that it’s crucial that the planning for the mortgage be as thorough as the plans for the house.
By law, you can pull your own credit score from each of the bureaus once a year. The website, www.annualcreditreport.com, will direct you to each of the bureaus for your free report. 
The score will not be included but can be purchased. However, the score is less important than the content of the report, until you’re ready to apply for a loan. Even though the score you pull as a consumer will be different (probably higher) than the score your lender will pull, it will still give you a good indication of where you stand.
I would also recommend joining a credit monitoring, or anti-theft program. These programs are offered by different organizations, such as credit agencies and banks for less than $15 per month. They can provide monitoring for fraud, identity theft, errors and late payments. You can get alerts for any unusual activity on your credit report, so that you can catch and fix issues before they become problems.
While the exact formulas for determining credit scores are closely guarded by the credit reporting agencies, it’s widely accepted that there are five factors that impact the score:
- Credit History. We all know that payment history is important. In actuality, paying your bills on time is only about 35% of your score. This is still the most important dynamic of the equation. You should never allow your payments to be over 30 days late. These “slow pays” take about two years to stop impacting your score.
- Less commonly known is the importance of the ratio of your credit card balance to your credit card limit. These balances should always be kept under 50% of your available limit. If you’re planning to apply for credit, reduce that balance to be under 20% 2-3 months before applying. This makes up about 30% of your score. This is generally the easiest way to raise your score.
- The length of your credit history makes up about 15% of your score. This is why it is best to keep credit cards that you’ve had for a while, even if they have higher interest rates than you’re other cards. You’ll sometimes find that transferring balances to zero Interest cards will damage your score while saving you money on interest, which could end up costing more in the long term.
- Ten percent of your credit score is derived from the combination of credit you have. The best recipe for a good score is a combination of installment loans, like auto loans, credit cards and mortgage. It’s important to have 2-4 credit cards, managed well, but you don’t want your report to be overloaded with credit card debt.
- Inquiries make up about 10% of your score. Too many inquiries can have a detrimental affect on your credit.
If you’ve decided that a home purchase is in your future, have your loan officer review your credit and finances at least six months before you’ll be ready to buy so that you can get a head-start on your mortgage planning. You’ll be told if there is anything you need to work on to improve your position to get the best mortgage for your situation.
Candy Williams, Sr. Loan Officer
NMLS #187126
2012 and 2013 Texas Monthly Five Star Professional
Company NMLS #131699
210-269-1774 cell
210-547-3490 office
210-547-3489 fax
email: cwilliams@ameriprofunding.com
Visit my website and apply online at http://cwilliams.
Highly energetic blog, I liked that a lot. Will there be a part 2?