How To: Prepare Your Credit to Purchase a New Home
Your credit score plays a big role in the purchase of your new Jagoe Home because it affects your ability to secure a mortgage through our preferred lender, FBC Mortgage. Conventional mortgage lenders will typically want a FICO score of at least a 620, but those who score above 580 may still qualify for an FHA loan. With that in mind, here are some steps you can take to prepare your credit before applying for a mortgage.
Review Your Credit Report
Good credit is increasingly important for other things such as landing that new job or getting the best deal on insurance. You should check your report annually to contest and remove any erroneous information. Many people use Credit Karma, Experian and annualcreditreport.com for a free report.
Do NOT Open New Lines of Credit
New credit and even just inquiries can lower your FICO score. New debt has to be factored into your ability to qualify for your loan. A common and tempting mistake is to open new store credit cards to save on a purchase.
Do NOT Close Extra Credit Card Accounts
Closing account can actually hurt your credit score by increasing your “utilization ratio.” You should also refrain from transferring credit card balances to a new zero percent card. It’s smart to save on interest, but it will damage your score in the meantime. That can undermine your loan approval.
Do NOT Close Judgment and Collection Accounts
Paying off judgment and collection accounts can actually cause credit score to fall, especially if the accounts are old. It’s usually best to satisfy these at closing, but you should always ask your loan officer first.
Make ALL of Your Payments On Time
Keeping an emergency savings and automating payments so you won’t forget or have things lost in the mail are two great ways to assure timely payments. A recent 30 day late mortgage payment can actually drop your score by as much as 100 points. That’s huge! You may pay a late fee, but you may also pay a higher rate on financing and insurance. That can add up to many thousands of dollars over the life of a loan.
A Low Score DOES Affect Your Interest Rate
Low credit scores will often trigger “loan level price adjustments,” which will translate to higher interest rates.
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