Past Credit Behavior and Your Mortgage

Summary

Your credit rating is strongly influenced by your past credit behavior.

Your credit rating is used by mortgage lenders to decide what whether to approve you, what types of loans you qualify for, and what your interest rate will be.

A higher credit score will allow you to get a lower interest rate and a lower monthly mortgage payment. It can save you thousands of dollars.

Basics

Your past credit behavior is measured by:

• payment history
• resolving credit disputes

Payment History

Your credit report will indicate if you have been late on different credit lines, usually over the past seven years.

Your credit lines are categorized into three groups:

• open and current
• open and delinquent
• closed

An open and current account is one that has always been paid on time.

An open and delinquent account is a credit line where you still owe money and have been late on paying by 30, 60, 90, 120 or more days.

A closed account is one that either you or a creditor has closed. An account can be closed for good reasons, such as when you pay off a credit card and cancel it. It doesn't necessarily have to be negative.

Resolving Credit Disputes

Often times a borrower may end up having tiny disputes show up on their credit report and damage their credit.

This type of problems can arise from old cell phone and other bills. Even though they may be for small amounts, the delinquent amounts may be sent to collections and stand out like a sore thumb on your credit report.

From a lender's perspective many tiny delinquent amounts ($20, $50, etc.) can be quite irritating. It shows that a borrower is unwilling to clear up even minor items on their credit report. Either it is legitimately owed and the borrower has been late or the borrower has not successfully removed the error from their credit report.