Applying for a mortgage can be a tedious process, especially if you have less than perfect credit. Besides being an extremely important qualification standard, your credit score plays a big part in your future mortgage endeavors as well. Refinancing or loan modification applications are also highly influenced by your credit standing. Luckily, there are a few ways to set yourself apart and give yourself a credit boost before applying.
Most people assume they need to “clean up” their credit before applying for a mortgage loan. While this may be a good rule of thumb, it really depends on the current state of your credit. For example, if you have a fairly good credit standing closing down paid off accounts is a bad idea. Why? Because having one or more active accounts with a zero balance actually improves your credit standing dramatically. Creditors want to see that you have the ability to maintain active lines of credit with minimal or paid off balances. Closing the account will only work against you in the long run by reducing your total amount of available credit.
If your credit score is considered “fair” or less, you may want to consider making a few changes to your credit accounts before applying for a mortgage. The most important step is to reduce your overall debt load in relation to your available credit. This means that you want to pay down your accounts until your debt balance is less than 30-40 percent of your total credit limit for that account. Further, pay off at least one account and leave that zero balance account open. If you are having trouble paying your debts, credit negotiations can help you reduce your debt load. However, remember that applying for a mortgage should never be done if you are in need of debt negotiations. Instead, wait 6 to 12 months after you can afford to repay your debts with ease.