As prospective home buyers look at purchasing a home, they need to be careful with their credit. These days, to be eligible for a sizable loan such as a mortgage, you need to have some positive credit history and be in pretty good shape financially. Credit is a delicate thing. You get scores from the three credit bureaus, which are calculated with a complicated algorithm and fluctuate all the time. Your credit report can include items from up to 10 years ago, including accounts or other actions that are completely closed or resolved. They’re on there as a record. The more time that has passed since the event (a new account created, an account closed, a foreclosure, etc), the better. Your score will be affected by those things less and less as time goes on.
Many banks or other lenders require that you have two or more current lines of credit. Some common options are car loans and credit cards. But that doesn’t mean that if you don’t have two, you should just go out and get yourself a loan or open new accounts right before you buy a home. On the contrary; you should not do anything that affects your credit until after you have closed on your home, unless specifically guided to do so by your mortgage consultant or loan officer. That includes closing accounts, which can hurt your credit. A long, positive history with each account is what you should strive for.
So if you’re looking to buy a home in the near future, avoid opening or closing any accounts or getting new loans. Try to pay down some debt if you’re worried about your debt-to-income ratio, and absolutely make sure all of your payments are made on time. Late payments have a huge effect on your credit score. It’s your job to protect it so that you’ll be eligible for a good loan and good interest rate when you purchase a home. We offer a wonderful program called Ivory Financial Fitness to help you do just that. Give us a call to learn what we have to offer!
