Know Your Credit Score Before You Buy
Applying for a Phoenix Mortgage Loan? Know Your Credit Score before You Begin!
If you’re applying for a Phoenix Mortgage loan, you should know that your credit score is very important. It is one of the first things a Phoenix mortgage lender will review. This is because your credit score is a good indicator of how likely you are to repay the loan in a timely fashion. You are entitled to receive one free credit report each year.
It’s best to obtain your credit report before you even begin your home search, so you can review it and contact creditors immediately regarding any errors. Disputing an issue on your credit report will immediately remove it, as well as its impact on your credit score, for 30 days while the problem is resolved.
A credit score over 700 is ideal for securing a Phoenix mortgage with low interest rates and fees. If your score is significantly lower than this, and you haven’t yet found a home you want to buy, you have time to improve your credit score.
What Makes Up Your Credit Score?
- 35%: Your payment history. Remember that lenders weigh recent late payments more heavily than those that occurred in the past, but late credit card or student loan payment can stay on your credit report for as long as seven years.
- 30%: Your outstanding debt, as a percentage of your available credit. For example, if you have a credit card with a $20,000 limit, and an unpaid balance of $10,000, your credit utilization is 50%.
- 15%: The length of your credit history. Opening new credit accounts will causes the average age of all your existing accounts to drop, which can negatively affect your score.
- 10%: How often you apply for “New Credit”. Applying for new credit frequently can be bad for your score.
- 10%: Other factors, such as the types of credit lines that you use.
Don’t Apply for a Home Loan in Phoenix before You Improve Your Credit Score
- Pay your bills on time.
- Reduce your credit balance to 10% to 30% of your available credit if at all possible.
- Ensure that you have a good mix of credit. For example, a student loan, a car loan, and one credit card are more appealing to a lender than three credit cards and no loans.
- Refrain from opening new accounts. Lenders view borrowers who take on a great deal of new credit as more likely to have problems paying their bills on-time. So, if you decide to apply for a new credit card before your Phoenix home mortgage is approved, the request could damage your chances of securing the loan.
Taking these steps should significantly improve in your credit score over the course of several months. This is the first step towards securing the Phoenix mortgage loan that you can afford.
