5 Ways Your Credit Affects Your Mortgage Application

Summary

Your credit report tracks part of your financial health by reporting how you manage your credit.

There are some basic factors you need to know to make sure you have the best credit score you can. Mortgage lenders use these credit scores to approve borrowers and determine their interest rate.

Basics

Your credit is made up of 5 major factors:

• past credit behavior

• current credit balances

• depth of credit history

• number of credit lines

• number of credit inquiries

Past Credit Behavior

This is your timeliness on paying debts in the past. This is usually tracked for the past seven years.

Current Credit Balances

This measures how much of your different credit lines you are using up. As you get closer to your maximum available credit balance your credit may start declining.

Depth of Credit History

This is the amount of time you have had credit. Usually credit that has been opened for at least a year helps.

Some mortgage lenders can also use different payment histories to establish a financial picture of you. This may include an ongoing track record of paying cable, telephone, utility or other bills.

Number of Credit Lines

This is the number of credit lines you have. The more you have managed successfully the better your credit will be, generally speaking.

Number of Credit Inquiries

Too many recent credit inquiries may lower your credit rating. A person who is trying to establish too many new credit cards, or who is being repeatedly being rejected for new credit, may not be the best candidate for a mortgage approval.