Your credit scores are one of the most important things that lenders use to decide if you qualify for a loan. Not only can your score determine if you can get a loan, but how much you will pay for it each month. Like it or not, these numbers can be your best or worst friend.
Because of the importance of your credit score, here are some points that you should be aware of that can affect your credit before starting the loan process. Credit score models use a variety of data in a credit report to calculate a score.
Primary Issues that Change Credit Scores:
- Amount of time since accounts were opened
- Number and type of accounts with balances
- Proportion of current balances to credit limits
- Number of late payments over 30 days past due
- How long delinquent accounts were past due
- Bankruptcy, judgments, liens, collection accounts
If you plan on applying for a home loan in the near future, there are certain things to avoid during the 2 to 3 month period prior to applying for a loan that can reduce your credit score, which could affect your chances of qualifying, plus raise the rate and your monthly payments.
Before Applying for a Loan:
- Do not apply for any new credit cards before getting a loan
- Do not open new accounts to transfer credit balances
- Avoid running up credit card balances, but reduce them instead
- Don’t buy a vehicle that requires getting new a loan financed
- It is not a good idea to close any accounts with or without a balance
- Do not allow any payments to go over 30 days late or to collection
Check for errors on your credit report and dispute the accuracy if you find any. Consumer disputes must be investigated by the credit reporting agencies within 30 days of reporting an error. If the derogatory information cannot be confirmed by the source during that time period, it must be removed from your report, which could boost your score.