Increase Credit Scores Before Applying For Mortgage

This Article Is About How To Increase Credit Scores Before Applying For Mortgage

Consumer credit report and credit scores are probably the most important factor that lenders and creditors take into account when applying for credit. Creditors of the mortgage loan, automobile loan, business loan, credit cards, or other types of credit will pull and thoroughly review credit scores and credit payment history as part of their credit approval process.

  • Poor payment history can have devastating effects and hinder chances of obtaining credit
  • A low credit score means a loan denial or high-interest rates
  • One late payment can plunge credit scores by more than 50 points
  • No credit is equivalent to bad credit
  • Bad credit can also mean a job denial or a job promotion opportunity
  • Bad credit can mean higher insurance premiums
  • Credit errors on a credit report mean lower credit scores which can cost thousands
  • I can hinder chances of getting a mortgage loan or other loans

Tips On How To Increase Credit Scores Before Applying For Mortgage

In the following paragraphs, we will be discussing ways of maximizing your credit scores via some simple tasks.

  • Every consumer should sign up for a credit monitoring service by Equifax, Experian, or Transunion
  • For a small monthly fee, consumers get an alert by the credit reporting agencies if there are any changes in the credit report and/or credit scores

Credit Card Balances

Common sense says dictates that paying off debts and having a zero credit balance on a credit card should maximize credit scores.

  • However, that is not the case
  • Little debt on credit balances will definitely maximize credit scores
  • However, a zero balance on a credit card will not maximize credit scores
  • It will not hurt or drop credit scores

It will not maximize credit scores due to the credit utilization ratio.

Credit Utilization Ratio

There is a factor known as your credit utilization ratio.

  • The credit utilization ratio is the percent of credit balance limit on a credit line
  • A zero balance will not factor into the credit utilization ratio factor

This particular ratio is the percent of credit limit that is being actively used and counts 30% of overall credit score.

How Are Credit Utilization Ratios Calculated

Below is how the credit utilization ratio is calculated:

  • Take available credit balance and divide it by current credit card balance
  • For example, if the credit card limit is $1,000 and the credit card balance is $900, divide $1000 by $800 and it will yield a factor of 0.80
  • Then multiply the factor, 0.80 by 100 which yields 80
  • The lower the factor, the better the results on increasing credit scores
  • Consumers who had a credit card balance of $100 and a credit card limit is $1,000, the factor will be 10
  • 10 is lower than 80, thus, having the lower credit card balance will maximize credit scores

This is a great way of boosting and How To Increase Credit Scores Before Applying For Mortgage.

Increase Credit Scores Before Applying For Mortgage: Having Zero Credit BalanceCredit Utilization Ratio

Having a zero credit card balance will yield a credit factor of zero, thus, hurting the borrower’s credit score.

  • $0 divided by $1,000 will yield a factor of zero
  • Always keep a $10 credit balance on credit card

Impacts Of High Credit Card Balances

Lenders, in general, consider those who have high credit card balances a high-risk borrower.

  • They normally want to see consumers have a credit card balance of 30% or less
  • Having a high credit card balance will definitely lower credit scores
  • Always keep credit card balances below 10% of the credit limit

If possible, keep credit card balances as low as possible but greater than zero.

Increase Credit Scores Before Applying For Mortgage: Negative Impact Of Late Payments

A recent late credit card monthly payment can and will drop credit scores dramatically.

  • One late payment can drop your scores by 30 points or more
  • In the event consumer had a recent late payment, contact the creditor
  • See if they can give a one time break and have the late payment not reported to the credit reporting agencies. 
  • Consumers who had a good payment history with their creditor and made payments timely, the creditor will probably give them a one time reprieve
  • There are a chance creditors will delete the late payment from the credit reporting agencies

Consumers who had a history of late payments, the creditor will most likely not do it.

Never Close Out Active Revolving Account Is Another Way On Maximize Your Credit Scores

Many consumers have a tendency to closing out active credit card accounts to avoid the urge of using them and not to be in debt. This is not a good way on How To Increase Credit Scores Before Applying For Mortgage.

  • However, this practice is detrimental to credit scores  
  • 15% of overall credit scores are determined by the longevity of past credit history
  • In closing an active credit account will shorten credit payment history
  • This holds especially true if they had the credit card for a long time
  • The more credit accounts that a consumer have that has been established, the more they maximize credit scores

Even if the consumer has a zero balance and has to pay an annual fee, please keep those credit cards active and do not close them out.

Credit Inquiries

What are the frequent credit inquiries

Credit inquiries can hurt credit scores.

  • Try to avoid applying for credit cards or other credit all at the same time
  • Consumers who have a dozen inquiries in a month, this will devastate their credit scores
  • This will alert the creditors that something is wrong and shows that they are desperate
  • These hard credit inquiries will stay on the credit report for 2 years and will hurt chances of future credit approvals
  • Try to apply for no more than 4 new credit and keep the inquires as low as possible

The ideal credit accounts a consumer should have is 5 to 10 and a 3 plus year credit history is ideal.

This BLOG On Increase Credit Scores Before Applying For Mortgage Was UPDATED On September 20th, 2020

Related> Maximize And Maintain Your Credit Scores

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