A Common Credit Roadblock to Home Financing
Filed under: Credit Issues
I think we all understand that credit and credit ratings are important. Unfortunately, sometimes we all make financial decisions that might seem like a good idea initially, only to find out later that it lowered our credit score. If you are looking to buy a home in the near future, or if you own a home already and could possibly see yourself refinancing within the next 12 months, you need to be aware of some common practices that could harm your credit and make it either more expensive or tougher to get home financing.
Here’s a VERY common situation…
Revolving Credit Payments
It is essential that you are careful to avoid the label of a “revolver,” which is a person who typically makes the minimum payment on their credit card bills each month and continuously rolls a balance to the next month. Statistics show that revolvers are a higher risk, because there is an increased likelihood that they will miss payments or be in a situation where they are unable to pay the remaining balance.
When lenders are evaluating your financial history, they want to see that you will be able to pay back the loan amount. Previously, credit reports didn’t show any information about the amount paid on balances each month, these reports only shared information about late and defaulted payments.
Now, lenders are able to access information about trends and patterns in the way you manage money. When a lender looks at your financial information, they will consider how your credit has been managed for the past two years. The lender will consider the amount of revolving debt that you owed each month, the payments that were made on a monthly basis, and the minimum payments that were required.
Improving Your Credit Score
If you want to qualify for a mortgage, then you need to make sure that you are setting the right trends with your credit management. Instead of only paying the minimums each month and rolling balances over, it is better to pay a higher amount and reduce the amount that is rolled from one month to the next.
This new information will be available starting on June 25th, and it will become a regular part of mortgage approval. Even if you aren’t planning to buy a home for a while, it is best for you to start improving your credit habits now so that you are prepared to get a mortgage in the future.
If you have questions about this or any other mortgage need, just let me know. I’d be happy to assist you and provide objective information.