Requirements For Bank Approval
How Credit Impacts Your Loan Amount
A borrower’s credit is one of the most important components in the mortgage approval process.
Down payment requirements, loan programs, flexibility on income and even current mortgage interest rates can be impacted by a slight bump or drop in a borrower’s credit score.
Factors That Influence A Credit Score
Lender’s look at a borrower’s credit score, number of open accounts, payment history, type of credit borrowed and a series of other factors when determining what level of risk to assess to each lending scenario. There are many key factors that come into play.
Key Factors Can Impact Your Score:
1. Payment History (35%)
It is very important to pay your credit bills on time. Every 30 days late, collection, judgment, or Bankruptcy can cause a significant drop in your score.
2. Amount You Owe Compared to Balances (30%)
Your available credit compared to the amount owed. It’s a good rule-of-thumb to be at 40% or less of the available balances.
3. Length of Credit History (15%)
A helpful advice to keep in mind: The longer your accounts are open, the more positive impact it will have on your overall credit score. In fact, if you happen to have a card that is over 10 years old with even a little activity, it would probably be a bad idea to close that card.
4. Mix of credit (10%)
Generally Speaking, if you have loans, such as a car loan, as well as open credit cards, it helps prove to creditors that you have experience borrowing money.
5. New Credit Applications (10%)
There is a model that compensates for people shopping rates on home and car loans, but it can hurt your credit score to have multiple reports pulled in a short amount of time.
Although time is a necessary factor for improving credit scores, this can be controlled by keeping accounts that are opened during the same period to a minimum.
By following these guidelines over an extended period of time, credit scores can be maintained and improved in order to improve the borrower’s loan potential and interest rate.
Jody Bruns / NMLS# 831033
Jody is a mortgage lender in Denver and is available at (720) 692-7245 if you have questions about home loans or mortgage programs in CO.
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