In addition, you should make sure your credit score is as high as possible. Lenders have become more restrictive and have raised credit score requirements. A higher score also means a lower rate on your loan, which translates to a lower house payment and/or a better house.
While the credit score is calculated on various formulas that aren't published, the following are the general portions that make up your score:
- 35% Your payment history Pay your bills on time. Automating payments online can help. Mortgage or rental lates are particularly damaging to your score.
- 30% How much you owe Keep balances on credit cards and other revolving accounts below 50% of your credit limit, preferably below 30% (lower is always better).
- 15% Length of your credit history Rather than let old cards go dormant, charge a latte a month (then pay it off). No activity lowers your score.
- 10% Your new credit Don't open unnecessary new accounts. And if you're rate shopping for a mortgage or an auto loan, do it within two weeks; multiple requests could ding your score.
- 10% Your mix of loans You can't do much to change this (except get a credit card if you don't have one). "No payment for 90 day" type loans are also a ding against your score.
Also, if you have any collections on your report, depending on how old they are, it may be wise to leave them alone. By paying them off, you make them a more recent factor in your score than they were before. If they are sufficiently old, it may make sense to pay them at the same time your mortgage loan closes.
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