Optimize your mortgage negotiations, its one of the most significant and long-lasting financial commitments a person can make. As such, the process of obtaining and applying is challenging and time consuming. That being said, your credit report and score play a key role in bringing that deal to a close. When you begin to seriously consider buying a home one of your first steps should be to get your credit in tip top shape. A high score versus a low score can be the difference of more than $200,000 paid in interest over a 30 year mortgage, according to author Lita Epstein.
Begin by obtaining a copy of your credit report from each of the three bureaus, including your scores. This will help you get a sense for whether you need to work towards improving your score or simply maintain it. Do a credit check regularly as time passes and you get closer to submitting your application.
Carefully review and compare all three credit reports which can vary by bureau. Verify that all information is accurate. Mistakes can happen, so take the time to be sure that everything truly represents your credit history. Dispute inaccurate information with the credit bureaus; they are required by law to investigate. Allow 30 to 60 days minimum for disputes to process. Inaccurate information that affects your credit score is priority over irrelevant spelling mistakes, for example. Any information that does not belong to you merits a phone call to the bureaus and the creditor because it could indicate identity theft.
Work to improve credit habits that drive down your score. This may mean changing your behavior and aggressively paying down debt. Key factors include:
- Timely Payments: Consistently paying bills on time is a major contributor to a high credit score. On the contrary, late payments will make a strong negative influence on your score. It may take time, but you will want to recover with a history of on time payments before submitting a mortgage application.
- Credit Utilization Ratio: A significant factor towards your credit score, this measures the amount of credit charged at any given time on revolving credit accounts, aka credit cards, compared to your credit limits. A usage of 30 percent or less is recommended.
- Debt to Income Ratio: Not a factor for your credit score, but still a major consideration by mortgage lenders. Look at your monthly debt, including the addition of a mortgage, over your monthly income. A percentage of 30 percent or less is recommended.
- Hard Inquiries: Avoid submitting other applications for credit before your mortgage application closes. It can be deemed risky in the eyes of lenders who are more focused than ever on principles that maintain high quality of lending.