Should I try to optimize my credit score before applying for a loan?

2018-01-17 05:43:18

I am considering shopping for a house somewhere this year, which of course would involve shopping for a mortgage. And mortgage rates depend on the credit score. My credit history is clean from trouble, but short - which puts my score in the "OK, but not great" range (different agencies give varying numbers, from 711 on Experian to 800 of VantageScore). I can not change the length of the history, but I probably could lower the utilization somewhat, avoid getting new credit (I periodically sign up for some credit cards to get bonuses, etc. - I could stop doing that), wait until old credit inquires expire, etc. The question is - is it worth it? I'm sure mortgage rates do not depend on each point of the score - that would be too complicated to handle, there must be some thresholds. So would it be worth for me to gain some points on the score - I tried various simulators and got very different results, from basically nothing to 20-30 points - or it would not be worth the effor

  • The score you should be concerned with is the FICO score, generally the best mortgage rates require a 720 FICO (I have heard of some wanting as high as a 740 FICO). If you're middle score is greater than 740 I wouldn't worry to much about trying to improve yours scores.

    If not there are some easy things you can do to increase your score besides the obvious of paying your bills on time.

    Reduce your the percent of credit you are using on revolving accounts (both total and on individual lines). As far as FICO scores are concerned owing $500 on a credit card with a $500 limit is much worse than owing $5000 on a card with a $20000 limit. You want to reduce the overall percent of credit you are using as well as the percent of each credit line that you are using, ideally you want to stay under ~20% anything over 50% is going to have a real negative impact on your score. If you pay your cards off in full every month you can either not use them the 2 months before you apply for a mortgage

    2018-01-17 06:09:53
  • If your FICO score is > 700 you're ok. AFAIK, you need a 10-12 year history to maximize a FICO score. Note that most/all of the guidance online is based on FICO, and other scoring systems may vary.

    Paying off debt is always a good idea, so long as you don't impair your ability to make a down payment. Also traditionally, lenders don't like your housing debt payment to income ratio being above 28% (including property tax and insurance) and your back-end ratio being over 36%.

    2018-01-17 07:03:05