Loans that Can Impact Your Mortgage Application
When you apply for your mortgage the lender will look at your credit score, as well as all the factors contributing to your score. Some assume a number of loans equals great credit while others have been told to not open new loans prior to applying for a mortgage. The truth is that there is a happy medium that lenders prefer to see. Below are a few factors that can impact your credit score and thus your mortgage application.
Amount of Debt
Lenders are not just going to look at how much credit you have available on your credit cards, but they do like seeing that you are not maxed out across the board. They are primarily going to look at open loans and the amount you still owe.
Length of Credit History
Long credit history is looked upon favorably. New lines of credit can hurt your score. Plus, if you have recently applied for credit cards or loans, your credit score could have been impacted by the inquiries.
Payment History
On-time payments help to improve your credit score. However, in addition to looking at payment history, other factors considered in this category include bankruptcies, foreclosures and liens.
Loans Affecting Your Credit
- Student – You have been paying off those student loans so long you probably forgot to include them when asked about your monthly bills. Student loans generally strengthen credit because they are aged accounts, but they also increase your debt-to-income (DTI) ratio.
- Vehicle – Auto loans help increase your credit score, especially if the loan is at least a year old or older.
- Mortgage – Applying for a new mortgage when you still have one open tends to make things a little tricky. If you have very little debt aside from your current mortgage then it might not be an issue, but if you have several other loans open then a new mortgage likely won’t happen until the current one is closed.
- Payday – Remember that payday loan you took out six months ago when you needed to pay for car repairs between paychecks? Well, the good news: it’s likely not on your credit. Payday loans are not on your credit report unless you default, so you should not have to worry about this coming back to haunt your credit report.
When it comes to your credit report all loans impact it in different ways. Some loans can be both positive and negative, depending on your unique situation. Before putting together your mortgage application make sure you take the time to perform a “credit inventory,” addressing any and all concerns before you approach your lender.