Although this pandemic has had an extremely negative effect on our lives, from a real estate perspective, it has created a great opportunity for those who are interested in buying a property. If you are in the market to buy now, very soon, or sometime in the future, it is wise to start looking at your credit. Your credit mix is an important factor a lender/underwriter is reviewing when trying to qualify you to buy a home. Just having the right credit score will not guarantee approval, your credit mix is just as important. The term ‘credit mix’ encompasses the items that make up your credit as well as the age of your credit report.
Your credit lines (or tradelines) are very important; generally speaking, a good mix is 2 – 3 unsecured tradelines lines, i.e. credit cards, lines of credit etc….; 1 – 2 installment loan(s), i.e. a car loan and/or fixed-rate loan with the occasional student loan mixed in for a good number of us! For your credit lines, you should try and keep your balances at 10% – 30% of the line amounts. An example of this is you have a credit card with a limit of $2,000, you want to keep the balance at no more than $200 – $600 while you are shopping for a home.
The age of your report is also important, you may have a great score and all the tradelines lines needed, but if your credit is only 1-year old, additional questions may be asked and you may not qualify because you haven’t established your credit. To verify your credit’s age, confirm how old your oldest tradeline is, which will determine the age of your credit.
Lastly, but most important, Do Not Use Your Credit While Homebuying! I can’t stress this enough to my clients who are buying. One inquiry could make the difference in you being in contract to purchase your new home, the lender pulls your credit again at closing, and your score dropped because of that inquiry and you do not qualify anymore. This is a sure-fire deal killer and I have seen it happen. Don’t let it happen to you!