Your credit score plays a major role in your financial health, not just when getting a mortgage. A higher credit score can:
On-time payments are the most crucial factor. Late payments, charge-offs, and missed high-dollar payments impact your score more than missing a low payment. Recent late payments (within the last two years) have more impact than old ones.
This measures the ratios between your outstanding balance and your available credit. Ideally, you should keep balances as close to zero as possible. Using under 10% of your limit is best, 30% is acceptable, 50% begins to raise concern, and 75% or more can negatively impact your score almost as much as a late payment.
For a healthier credit score, having three credit cards with $1,000 limits and low balances is better than having one card maxed out at $3,000. To improve your score, spread out your balances across multiple cards or increase your available credit, but avoid using that new available balance.
The longer your credit accounts have been open, the better. Keep older accounts open, even if you’re not using them actively, and avoid opening new accounts unless necessary.
A healthy mix of credit, such as credit cards, auto loans, and mortgages, is more favorable than having just credit cards alone.
Every time a lender pulls your credit, your score may drop slightly (typically 10–25 points). After ten inquiries, additional credit pulls generally won’t cause further decreases to your credit score. However, multiple mortgage inquiries within 14 days count as one. Pulling your own credit report does not affect your score.
Mistakes on credit reports are more common than you might think:
1. Make a copy of your credit report and circle any incorrect information (keep your original for your records).
2. Write a dispute letter to the credit reporting agency (CRA) that issued the report, clearly identifying the errors and requesting their removal. Be sure to include copies of any supporting documentation, such as proof of payment or account statements.
3. Prepare a letter to the creditor reporting the error, especially if you suspect fraud or identity theft. Clearly explain why the information is inaccurate and include any relevant documentation to support your dispute.
4. Send all correspondence via certified mail so you have a record of communication.
Example: Mr. Jones has a credit score of 664 and five credit cards, but one—his Visa—is nearly maxed out, while the others have relatively low balances. By redistributing the debt more evenly across all five cards, he improves the ratio of debt to available credit, which accounts for 30% of his credit score. As a result, Mr. Jones increases his score by 20 points with minimal effort.
Example: Mr. Smith has two credit cards that are both close to their limits, which negatively impacts his credit utilization. To improve his score, he opens two new credit cards, each with a $5,000 limit, and transfers part of his existing balances to the new accounts. While the new cards don’t have an established history, the increased available credit significantly improves his utilization ratio — a key factor in credit scoring, resulting in a higher credit score.
When you apply for a mortgage, we run a credit report for the underwriter, and each lender or loan program follows specific guidelines. During this time, your credit stability is essential. Avoid any actions that could negatively impact your score. We understand it’s tempting to purchase new appliances or furniture, especially if you’re preparing to move. However, this isn’t the right time to start charging large expenses to your credit cards. Maintaining a stable financial profile until your loan closes gives us the best chance to secure the most favorable interest rate for you.