Be Smart About Your Credit History
Your credit rating doesn't have to be perfect to be good

If you have only a single blemish on an otherwise good credit history, mortgage lenders may ask you for a written explanation of the late payment. If your explanation is reasonable and believable, many lenders will overlook an isolated problem, especially if it occurred some time ago and your credit has been good since then.

Indeed, as far as lenders are concerned, the most important time period in your credit history is just the preceding year or two.  According to guidelines established by Fannie Mae (the Federal National Mortgage Association), you do have some leeway for occasional late payments.

Credit history records that lenders consider include:

• Revolving credit (credit cards), with no payments 60 days or more late and no more than two payments 30 days late
• Installment credit (an auto loan), with no payments 60 days or more late and no more than one payment 30 days late;
• Housing payments (mortgage or rent), with no late payments, proven by the payment history from a mortgage lender or by the borrower's canceled checks for the past 12 months

Credit scoring helps lenders decide to fund a loan.

As credit scoring has become more sophisticated, lenders now look at other factors in your credit history as well. Some lenders will also look at how many inquiries have been made into your credit report recently. They might believe that a large number of inquiries means that you have applied for a large amount of credit recently.

• If your credit cards are "maxed out," a lender might believe you could have future difficulties in managing debt and making payments
• If you have large lines of credit available, lenders might believe that you could run into unmanageable debt in the future
• Lenders also are wary if they believe that you are accumulating new credit accounts, which might indicate you have become a poor credit risk
• If you apply for new lines of credit, lenders might believe that you have been turned down by other lenders

"Compensating Factors" have a big influence on lending decisions.

Credit scoring can also work to your benefit, helping to overcome potential problems like a high debt-to-income ratio or a slightly imperfect credit past. Knowing about these compensating factors can help you to get the loan you need for the home you really want. Compensating factors include:

• A large down payment
• An energy-efficient property with up-to-date heating and power systems
• Previous large housing payments including high rent, which show the borrower's ability to channel a larger-than-normal proportion of income to payments
• A history of good credit and the potential to accumulate savings in the future
• The likelihood of career advancement and earnings increases due to strong education or job training (this is particularly helpful to young borrowers who carry student loan debt);
• A substantial net worth in spite of current low earnings

Review your credit history to optimize your borrowing ability.

Be sure that the information in your credit report is accurate. Inaccuracies or damage done by credit or identity fraud can seriously impact your credit rating and eligibility for the best mortgage loan programs.

Check your credit report regularly and review information placed on it, especially if you have had credit problems in the past.

You might not realize that a credit card account you opened years ago, but never closed, is still on your record as available credit.  If there is a significant amount of available credit, lenders may think it adds to your credit risk. Close unused or unneeded accounts before you apply for a mortgage.

Correct any inaccuracies in your credit record before you apply for a mortgage loan. The process can take up to 30 days, so reviewing your records well in advance of applying for a mortgage is also important.

Whether you're a first-time buyer or a seasoned homeowner looking to move up to a bigger or better house, how you have managed your consumer credit rating can have a real impact on both the amount and terms of your next mortgage.  Your mortgage broker can help you find the right program for you and your individual financial situation.

Contact the premier mortgage brokers who advertise in the LoanStar.net Mortgage Directory.  You will discover experienced, knowledgeable professionals who truly believe that every borrower deserves personal attention and the highest level of customer service.