Picture this, if you will: You’ve been on a house hunt for a while now and, after much trial and error and a pretty exhaustive search, have finally found your dream home.
Now normally, this is the part of the story where something goes wrong, and the carpet’s pulled out from under you before you can even pay for it. But that’s not gonna happen this time, cuz you came prepared!
Your FICO score’s up there with the best of them, so you confidently fill out the long list of necessary paperwork to apply for a mortgage, and afterwards, stop by IKEA to start looking for new furniture.
A couple of days later, you finally receive a phone call to let you know that your mortgage application has been denied. Whoa, wait, what?
How it happened?
You filled out your paperwork correctly, and your credit score is higher than most, so why was your mortgage application still rejected? Thanks to the current mortgage crisis, many consumers are finding that simply having a great credit score isn’t getting them as far as it once did. Banks are now much pickier about who they’re lending money to.
Unlike the lending days of yesteryear – where it seemed anyone with a source of income could apply for the best house on the block – banks and lenders are now going through each home loan applicants’ actual credit reports with a fine-tooth comb, looking for ANYTHING that might paint you as a financial risk in their eyes.
So if your high credit score alone is no longer good enough for lenders, what else are they looking for?
Not enough income. You may have a great credit score, but your credit accounts and reported income gave away the fact that you won’t be able to cover your monthly mortgage payments. No money, no mortgage.
Your credit accounts are too young. If the majority of accounts posted on your credit report haven’t been active for at least a year, it could seriously damage your chances of getting approved. Banks and lenders like to see that you have a history of positive credit under your belt – some preferring accounts as old as 2 years, and polished to perfection.
You have outstanding judgments on your credit report. Having just one of these can halt your chances of getting approved for a home loan before you’ve even started looking. Judgments can stay in your credit history for at least 7 years, and if a title search is done, can bring the process to an abrupt and rather unsatisfying conclusion.
Now more than ever, it’s important to make sure your credit history, not just your score, is looking good for the mortgage lenders and anyone else who may be peeking through it. If your score or credit report aren’t as well-polished as they should be, start working to fix your bad credit and settle any outstanding accounts before you go house hunting, either through an accredited credit repair service or on your own.
Marc Chase is head of operations for My Credit Group, one of the only credit repair companies to offer services that cover consumers' entire credit profiles.
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