Recent tallies show a third of U.S. credit scores fall below 649. While not impossible, acquiring a mortgage loan will likely be more difficult and more expensive at this level than with higher scores.
Here are the fundamentals to guide you in establishing and maintaining a healthy score:
The somewhat obvious:
- Borrow only what you can afford to repay
- Make all of your payments on time
- Avoid excessive requests or inquiries for credit
- Have an emergency account to pay for unexpected expenses
- Check your report annually to contest and remove any erroneous information
The not so obvious:
- Do not open new store credit cards just to save on a purchase. New accounts can lower your score, and too many payments can be difficult to manage. Saving 10% on a $300 lawn mower means little if it costs you even just fractionally more on a $300,000 home loan.
- Do not open new accounts just to transfer balances for an introductory rate. In addition to possibly lowering your score, these offers often have traps. Instead, use them to leverage a lower rate from your existing card company.
- Do not close old accounts. If you have a good record of payments on old accounts, these will benefit your score. Using them occasionally and conservatively will keep them active and contribute toward a good score.
- Do not be afraid to use credit. Without the use of credit, you will have no score, and that can be just as bad as a low one.
- Keep a high credit line and a low balance. Credit utilization ratios measure this relationship, and lower is better.
- Maintain a variety of account types. A combination of revolving, installment and secured financing along with excellent records of payment will yield a higher score. Still, don’t run out and open an account just to have diversity, as this is the least influential factor.
If you’re not sure where you stand on your credit score, you can obtain your credit report for free every 12 months from each reporting company (TransUnion, Equifax, Experian) by clicking here.
We are always available for questions regarding your credit score and how it relates to obtaining a mortgage or refinance. Feel free to contact us if you have any questions.