Bad Credit: Mortgage Application Killer

Marian Griffin knew about credit scoring before she visited a mortgage lender to apply for a home loan to purchase a town house.

But she was quite surprised to learn that her actual score was lower than she’d expected, Florida Today reports, despite a lifetime of clean credit.

The issue? Griffin had been late with two Florida home mortgage payments after her husband died, due to funeral expenses, delays in receiving the life insurance payout, and general emotional turmoil.

Each payment was 32 days late. Her loan had a 30-day cutoff.

When she first her mortgage company, she was able to get a 7 percent rate so that she could downsize to a town house.

But, by the time she sold her home and went back to the lender, her loan officer was able to get her a rate at 6.75 percent.

As Griffin found out the hard way, credit’s role in the mortgage process is more than approval or rejection. Credit scores also help determine whether you get the best home mortgage rates available, or pay more to compensate the lender for taking greater risk by approving you.

Credit reporting bureaus use a system to assign a number to each consumer, an indication of the quality of the person’s credit:

• The maximum is 850.
• Higher than 800 is rare.
• Higher than 700 is enough for red-carpet treatment, such as less paperwork and a lower down payment required.
• Lower than 620 spells complications for getting a mortgage.

The solution? Check your report now to give yourself time to clear up any mistakes or bump up your credit score. That’s the best way you can ensure that you’re getting the best treatment with the most important investment you’ll ever make. A bad credit mortgage loan is an option, but it’s an option you’re better off avoiding if you can. Here are some tips for making your score the best:

1. Make payments on time. Late payments are killers, particularly if they occurred within the past six months of your mortgage loan application. A late car payment a few months ago will cause your score to plummet. Rent and especially home mortgage payments are critical to your evaluation, as they show a lender how responsible you’ll be in that area and that you’re not likely to fall into the foreclosure abyss for any reason.

2. Establish credit. An account that shows no activity is inherently worthless. So is avoiding all credit altogether. If you’ve never had a loan of any sort, lenders will have no track record for judging your responsibility. Having 3-5 open accounts to establish a good credit score and keeping it safe by sticking with department store and/or gas station cards is the way to go.

3. Stay below your limit on credit cards. If your credit limit on a card is $1,000, and you carry a $880 balance, you’ll look maxed out, even if your debt obligation is low. Some people intentionally keep their credit limits low, to reduce exposure to fraud and identity theft.

4. Keep debt payments low. If you need to take out a car loan, keep the monthly payment down. Your monthly obligation is more important than the length of the term. Especially when it comes to qualifying for a home loan.