Your credit can help or impair you ability to obtain a mortgage in Colorado, therefore, it’s extremely important you understand and know your credit. While your mortgage lender will review your credit report with you, it’s important you understand some basics to your credit report and score.
There are three major credit bureaus (Transunion, Equifax, and Experian) mortgage lenders use in the pre-approval process. A majority of mortgage lenders require you to have a median/middle score of at least 620 to qualify for a loan. Before you pull your own credit, know that every industry (auto, credit card, mortgage, consumer…) uses a unique scoring model to determine your credit score. Click here to obtain your mortgage credit scores, credit report, and credit analysis here.
Even though your credit score may be different based on who is pulling your credit, what affects your score doesn’t change. Payment history, debt utilization and credit history are the three main factors that determine your credit score. If you are want to improve your credit score these are three areas you need to focus on improving.
Payment history has the largest impact on your credit score. Late payments (payments over 30 days past due), collection accounts, bankruptcy, foreclosure, judgments, tax liens, and other derogatory accounts have negative effects on your credit score. Derogatory accounts can continue to report and impact your credit for 10 years, and paying off old derogatory accounts can initially lower your credit score. It is possible to permanently remove old derogatory accounts from your credit report which would increase your credit score immediately.
Debt utilization is determined by how many accounts you have open, type of credit (mortgage, credit cards, auto , personal, student loans), and balances compared to credit limits on revolving accounts (credit cards). Paying down your credit card balances is an easy and quick option to increase your credit score. You can receive a credit optimization report showing you the optimal balances on your credit cards to maximize your credit score when you receive your credit report from ColoradoHomesIQ.
The credit bureaus take in to consideration your overall length of credit history (the oldest open and active account) and your average account age. When you pay off your credit cards, DON’T close the account(s) as it will lower your average credit history and hurt your credit score. It’s also important you wait to apply and obtain new credit accounts until after you purchase your home.
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