How To Get A Mortgage With Bad Credit Personal finance

If you have student loans, personal loans, or car payments, make sure you pay them on time and don’t miss a payment. Part of what makes up your credit score is payment history. Showing that you have the ability to pay your loans on time sends a positive signal to a lender that you are responsible for your debts.

Don’t close or get a new credit card

Closing an existing credit card account can affect your credit score in a number of ways.

The first is to reduce your available credit limit, which can affect your credit utilization rate, one of the things that makes up your score. Ideally, your utilization rate should not exceed 30%.

Generally speaking, the lower the ratio, the better. A credit utilization rate above 30% tells a lender that you may be relying on debt to pay for your living expenses and may indicate that you are at higher loan risk. If you reduce your available credit, your usage rate will increase.

The second effect, which is more relevant if the account you are closing is older, is to reduce the average age of your accounts payable. Longer credit history tends to raise your score.

Opening a new credit account can also affect your chances of getting approved for a mortgage. When you apply for a new credit card or loan, the lender does a thorough credit check, which can lower your credit score by a few points. It can also signal a lender that you are relying on credit to manage your spending.

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