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How important is your credit score? Let’s just say it’s a big factor almost any time you borrow money. Lenders use it to judge your ability to repay a loan — and that’s especially true for big loans like a mortgage or home loan. It’s important to have a strong credit score when applying for a mortgage. A low credit score or a shaky credit history can only make your loan approval more difficult. By avoiding the common credit mistakes below, your path to homeownership could be much easier.
1. Not Knowing Your Credit History.
You should know exactly where you stand with creditors and lenders. No one likes surprises when it comes to loans. Familiarize yourself with the details of your credit history before applying for a home loan. The history of your debts — and how and when you’ve paid your bills — is essential to understanding and improving your overall credit score. Plus, there are many websites that you can visit to find your credit score.
If you’re a Mr. Cooper customer, you can learn more about your credit score by simply logging into your online account. If you’re concerned about your score, you can search online to request a free copy of your credit report, which can help you identify issues that may be hurting your score.
2. Not Having a Credit Card.
If you don’t already have a credit card, it might be time to get one. Why? Because having no credit history can be as big of a problem as having bad credit history. If you open a credit card account, make sure you use the card responsibly. According to FICO.com, having credit cards and installment loans with a good credit history can help your credit score. People without credit cards tend to be viewed as a higher risk than people who have managed credit cards responsibly, but it’s important to remember that delinquent, unpaid, or late, payments could be very harmful to your credit score. If you have a credit card, it’s important you maintain on-time payments
3. Having Too Many Open Accounts
Although it’s important to have a credit account, it’s also important not to have too many. Try not to create any additional debt by opening new accounts. The more your debt increases, the higher your debt-to-income (DTI) ratio could become. Lenders will focus on your DTI, so you want it to be as low as possible in order to get approved for a loan. In addition, your credit utilization ratio, or your credit card balances relative to your available credit, can also influence your credit score.
4. Not Paying Your Bills On Time.
It’s no surprise that paying your bills on time is important. Your on-time payment record can be a big factor in qualifying for a mortgage (or not). Luckily, this common credit mistake can be helped by modern technology. Here’s a tip: Set up automatic payments for bills online, and have your bank alert you with an email or text when you have an upcoming payment.
For more on why credit matters, check out our extensive guide here.
