What happens when you go home loan shopping?
The number of credit accounts you have can affect your ability to get a home loan. How much of a balance you carry definitely has an effect.
How Many Credit Cards do you Have?
One of the first things a loan underwriter is going to look at is how many credit accounts you have. This could be everything from your car to revolving credit accounts from retailers to traditional credit cards. If every one of them has a payment, that cuts into your debt-to-income ratio. The provider is going to calculate this to see if they feel like you can afford to make their payments every month. They could care less about your other accounts, but if they feel you have too many payments going out every month, that could be a problem.
Now, some companies might simply count the number of cards you have and take that into consideration. Others might skip that altogether and simply calculate the payment totals. You just have to think about that before you go loan shopping.
What If You Have Problems With Some Of Those Accounts?
Let’s say, for instance, you had a credit card with a home improvement retailer. You never had that much on it to begin with, but there were problems with getting the payments in and getting them credited properly. So, there are a couple instances on your credit report where they reported you thirty days late on a payment.
Some underwriters might find that to be a little too much. Others will ask for a letter of explanation (which is not that hard to write, but you have to be honest because they can corroborate this stuff with customer service associate notes, etc.
You can take all of that a step further and check your credit report on your own. This means you take one of your free reports that you get every year and see what’s on it. When you find issues like this you should contact the creditor to see if you can have those reports removed from your credit report. Yes, they can contact the bureau and has this done, but you have to have a valid argument AND they have to agree with you.
Otherwise, you’re going to be writing a letter of explanation or looking for another loan provider.
How Do You Best Consolidate?
It might seem tempting to just get a brand new card and put all the balances on that one, but then you will have wiped out some cards that you have had for a long time. Good and longstanding credit relationships are very important to underwriters.
Instead of using a new card to consolidate, you should use a card that you’ve had for a while to consolidate. At the very least, you’re using you’re best-looking card to aid your credit. Plus, you will have taken care of all your smaller cards. Since the credit report shows when these accounts were paid off, the underwriter can see that you did some work on your credit.
Consolidation is not for everyone, but it is something to consider if you want to be in a better position to get a loan.
What’s The Bottom Line?
The bottom line is simple. You have to make sure that your credit is in order before you go shopping for a loan. At the very least, you need to check your report, handle any inaccuracies, and do some consolidation if necessary. Otherwise, you may end up being rejected and having to start the process all over again.
You may have had credit card fever, but there are ways to deal with it so that it is does not derail your attempts to get a loan. Just make sure you follow the steps to a healthier credit history.