Remember that house you wanted a couple of years back but couldn’t afford?
Well, with the current housing market having turned in favor of buyers, now might be a very good time to take another look at possibly purchasing that property.
There is a drawback, though.
The other side of the coin is that credit terms have been tightened to prevent another housing market meltdown like the one we went through recently.
Understanding your credit score is the key to taking advantage of today’s situation.
In general, most mortgage lenders pull data from three credit bureaus: TransUnion, Equifax, and Experian.
Each bureau provides a score, and lenders use the average of the three scores to help determine whether they will let you borrow money.
Each bureau uses a similar scoring model.
The two biggest factors that influence the score are recent late payments and debt-to-limit ratios.
Recent Late Payments
If you are late on payments with your existing debt, why in the world would a lender want to step up to the plate and give you more credit?
If a buyer has a legitimate reason or explanation as to how such a situation occurred and why it is unlikely to happen again, it will likely go a long way toward getting a mortgage approved.
The debt-to-limit ratio is a comparison of how much you owe compared to how much you have available on a given line of credit.
Too many maxed-out credit cards will give a lender the impression that you are overextended and that you may need to pay down some debt prior to getting more credit. Maxed-out cards also tend to lower your credit score.