Keeping Your Finances in Shape
Having ship-shape credit and a healthy debt-to-income ratio is essential if you’re planning to buy a home. Your mortgage lender will scrutinize your credit score, how much debt you have and how you manage that debt, so it’s a good idea to keep it clean and simple and avoid the common pitfalls that can ding your credit score or blemish your overall credit-worthiness. Here are a few tips that can help keep your credit in shape:
Don’t make any major purchases. The last thing you need factored into your ability to meet a monthly mortgage obligation is a sizable car payment or some other comparable debt obligation. Any purchase that could increase your debt-to-income ratio should be avoided, so simply hold off on any major purchases until after you’ve closed on the home purchase.
Be sure to check with your mortgage professional before you start moving around your money and credit card balances. It may be tempting to transfer some credit card balances from one card to another that offers a lower interest rate. But if you’re getting in shape to purchase a home, this move may max-out some of your available balances and maxed-out credit cards can ding your overall credit score.
On the flip side, paying off all your credit card debt also can ding your credit score or impact your overall credit-worthiness. Paying off your balances may eat up your savings and lenders like borrowers who have some cash in the bank. Additionally, carrying a zero balance on your credit cards means you have the option to take advantage of your credit limits and lenders may factor your ability to accrue that much potential credit card debt.
Your employment history also can affect your credit-worthiness, so keep your day job. Lenders prefer borrowers who have a solid work history, this usually means at least two consecutive years of employment. Some exceptions to this rule include trading up – leaving your current job for one that pays more money – or changing careers within the same field. If a career change is in order, discuss with your mortgage professional how the change may affect your ability to qualify for a home loan.