Settlig the Credit Score When It Comes to Your Mortgage

A Home Buying Article Contributed by Robert Scalia

How Can Your Credit Card Delinquencies Come Back to Hurt Your Chances at a Mortgage?

Picture the above scenario. You have been a credit card holder for a number of years and have missed some of your monthly payments. You're thinking about buying a house and taking out a mortgage.

So you stroll down to your mortgage broker's office. You are surprised to find out that your credit score is poor. This means your mortgage interest will be higher. Determined to lower this mortgage interest and clear you name, you decide to pay off all your delinquent accounts and consolidate the remaining balances into one or two cards.

Confident that you have increased you chances at a more favorable mortgage, you stroll back into you mortgage broker's office only to find out that your credit score is even lower than it was before. So just what is it that went wrong, you ask?

What is the Wrong Way to Go about Clearing Credit for a Mortgage?

Clearly, trying to consolidate your credit card bills won't guarantee a better interest rate for your mortgage. In general, delinquencies will always reduce your credit scores because of the simple fact because that they are written proof that you are not committed to paying your bills and meeting your obligations. And that's a no-no for any mortgage broker or lender.

There is no doubt that some people might find this unfair. But life is rarely fair and you must understand that assessing mortgage borrowers is all about managing risk. And it's vital that anyone interested in taking out a mortgage realize that your perceived attitude toward debt and your apparent willingness to pay it back doesn't disappear with a check.

But that doesn't explain why the credit score was lowered in this case. The problem instead lies in the fact that the person decided to consolidate his debts. This in turn served to raise the ratio of balances to credit line. And when you apply for a mortgage, you must keep in mind that computers that score credit do not take very well to such a higher ratio. In fact, it will see this as a sign of financial distress. So the last thing you want to do if you are looking for a lower interest rate for your mortgage is consolidate your debts.

So What is the Ideal Credit Situation When Taking out a Mortgage?

Well, the ideal situation would be one in which you have never missed a credit payment. Period.

If this is simply not possible, then you want to at least be sure that you haven't had any payment delinquencies in the last two years and haven't purchased any new credit cards in the same period. And remember, don't just go out there an open new credit lines.

The same computerized system that hates high balance to credit ratios also dislikes potential mortgage borrowers who have opened multiple new accounts in a short period of time.

But don't run out tomorrow to open some more lines, because the genie also has a strong distaste for multiple new accounts in a short period of time. That can be another indicator of financial distress.