One of the best long-term financial decisions that someone can make is to buy their home as opposed to renting. Due to high home prices, most people will need to take out a mortgage to finance the purchase of their home. To do this, you will need to have a good credit score.
While a quality credit score can take years to build, there are still many actions that you can make that will alter your score one way or another in a short period of time. This includes several credit mistakes that need to be avoided if you are aiming for mortgage approval.
Falling Behind on Payments
The most significant component of your credit score is your history of making credit and loan payments on time. If you have been able to do this for several years or more, you likely have a pretty strong credit score.
While you can spend years building up your credit score with a good payment history, suddenly missing even one payment can have a significant and immediate impact on your credit.
If this happens shortly before buying a home, it will be a major blow to your credit score and will likely impact either your approval or interest rate received.
Making a Big Purchase
When you are in the market to purchase a new home, you need to make your credit and application look as solid and credit worthy as possible. One of the worst things that you could do to ruin this would be to make a big purchase, such as a car.
If you are to buy or lease a car and take on another big obligation each month, it could throw of the bank’s underwriting for your application. Even if you paid for the car in cash, you would suddenly have a lot less in liquid assets to boast during the application process.
Don’t Close Accounts When Looking for Bad Credit Homes
If you are looking to buy a home and are worried about impacting your credit, you should also avoid closing out accounts or reducing your credit line commitments. There is often a lot of confusion about whether or not you have should a lot of open credit lines.
In most situations, having open accounts that are well managed and have a low balance are actually quite good for your credit score. Because of this, you should avoid closing these accounts too abruptly when you are looking to buy a new home.
Not Paying Attention to Credit
When it comes to your credit, the worst thing that you can do is ignore it and not review it regularly. Even if you pay all of your bills on time, you run the risk of having a bad score due to fraud or identity theft.
If you never check your report or score, you may not know if you have fallen victim. Because of this, you should make sure that you pull your credit report and score before you ever apply for a loan. This will give you time to have any errors of fraudulent information fixed.