A credit check is a standard procedure of any home loan application. The prospective lender would check your credit report and analyze every single item on it before making a decision. In most cases, low creditworthiness is the deal-breaker. It could either cause a denial or force the lender to increase the interest due to the high level of risk involved.
Every responsible borrower is fully aware of which credit report items that could frighten mortgage providers. By keeping them out of the report, no red flag for a home loan in Utah, Texas, or anywhere in America is raised.
Unfortunately, according to a TransUnion study, 32.7% of Americans have never checked their credit report. If you’re one of them, you should pay attention to these items for they may be hauling your credit score without your knowledge:
Missed Alimony or Child Support Payments
Missing your alimony and child support payments wouldn’t normally impact your credit score negatively. However, falling behind on them so bad that they’ve been sent to collections would affect your creditworthiness. The drop in your credit score could be significant.
High Credit Card Balances
Debt level is the second biggest factor FICO considers when calculating your credit score. The safe number is 30%, which means owing any credit card debt higher than that would have a bad effect on your credentials. The key is to keep your balances far from your limits. Make every effort to keep your credit utilization low, or possibly zero every month.
There’s no harm in credit requests — as long as they’re no hard inquiries. A hard inquiry is a credit check done by a lender, which could lower your score as much as a new credit card application would. It would even stay on your report for two years. Although there’s no escaping a hard inquiry when you want to obtain a mortgage, apply for a loan only when necessary. Do this or else you would look like desperate for credit on paper and seem like a high-risk borrower.
Take good care of your credit score and make it a habit to review it once a year. Stop being a part of one-third of America that doesn’t monitor what’s going on their report. In finance, knowledge is power; the kind of power that gets you approved for a home loan with low interest.