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You have made the decision to purchase a home, now it is time to get pre-qualified before you shop. Aside from the obvious affordability concern, the biggest factor to getting approved for a mortgage loan is your credit score. These days, it is almost impossible to get a loan with anything less than a 620 FICO score.
But how do you get and keep a good score. Again, the obvious answer is to pay your bills on time. But it is not enough to simply pay your bills on time. In order to truly optimize your score you must keep your revolving debt balances to thirty percent (30%) or less of your high credit limit.
I recently witnessed a credit score jump from below 620 to a 660, in less than one month. The only thing that changed about this person's credit was paying down balances to thirty percent or less on three revolving debts. Simple!
Good scores are more important now than ever before to get a mortgage. Even a 620 score is barely good enough these days. Many lenders are starting to "ding" folks for scores less than 660. You only hurt yourself by paying a higher interest rate if your score is not at least 660 or above. Don't wait! Start paying down your balances, pay them on time, and watch your score keep going up!
Denver home sales are still doing great and the competition for lower priced homes is unbelievable. I am still finding some nicely priced homes in the Denver Metro / Aurora areas, but everyone out there looking is submitting top dollar bids. So don't wait!
There is also the option of getting better credit scores by keeping your revoloving debt low. This article deals with "length of credit history." Length of history accounts for 15% of your FICO score. This part of the score looks at the age of your oldest account, the average of all accounts and the length of time certain accounts have not been used. Your score gets better the longer the history.
So how exactly would you maximize score? First, don't go crazy opening credit accounts. New credit will negatively affect your score. So if you don't need the new account, then don't open it! Do not close older accounts, unless the accounts are not being used. Closing accounts will reduce the average age of your accounts. Lastly, use the accounts you have. Even if you don't use the account often, use it once in a while just to keep some activity going. That does NOT mean that you need to carry balances. I am a firm believer in paying off your accounts every month so you don't have to pay interest.
My rule of thumb is never have less than 3 accounts and probably not more than 6 or 7 accounts. Those three minimum accounts could include a mortgage, car, credit card(s), student loan(s), etc. Also, all three accounts would need to be rated for at least 12 months and preferably 24 months or longer. Keeping the number of accounts open to a low roar is important.
So now you know to keep them paid on time, keep the balances low, and keep the number of accounts between three and six. I feel your scores skyrocketing already!