In order to receive a home mortgage in Utah, you’ll need a pretty decent credit score.  Prior to the real estate bubble bursting, basically anybody who wanted a home could get one.  Mortgage companies placed very little emphasis on who could and could not receive a home loan.

Fast forward a few years after the real estate bubble has burst, and you’ll find receiving a home loan is more difficult than ever before.  Mortgage lenders are now much more concerned with protecting their downside, and justifiably so.

While every lender sets his or her own rules regarding who and who is not eligible for a home loan, most lenders require a credit score of 620.

Why Should I Care About My Credit Score When Applying for a Home Loan?

Besides the fact a good credit score actually helps you receive a home loan, an increasingly better credit score lowers the interest rate you’ll pay for your new home.

Say you are talking with a Utah mortgage broker who offers the best interest rates to potential borrowers with a credit score of 720.  Imagine your credit score is 718 – you’re just two points short of receiving the best interest rate!

The Fair Isaac Corporation, the creator of the FICO credit score (the most commonly used credit score), says those 2 points you’re short will increase rates on Utah mortgages 1/3 of a percentage point.  If you receive a fairly average 30-year fixed rate home loan of $165,000, you’ll pay around $10,000 in interest you wouldn’t have to pay if your credit score was 720 or above!

How Do You Improve Your Credit Score?

Fortunately, improving your credit score is not all that difficult, but there are some things to learn.  Here are a few things you can do to improve your credit score right now:

1. Get a credit report and see if you have any collections bills on your credit record.  Even 1 small collections bill of even a very small amount of money can negatively impact your credit score in a big way.

   Collections agencies are sometimes dishonest in nature, so seek the help of a nonprofit credit-counseling agency in removing collections bills from your credit report.

   The number one rule is to always get everything in writing.

2. Use less than 30% or more of all credit currently available to you.  In order to calculate this number, total up the maximum amount of credit you can obtain on all of your credit cards.

   Then, calculate the total amount of credit you are actually using.  Now, divide the current amount of credit you’re using by the total amount of credit you have available.  If the resulting number is .30 or larger, your credit score receives a significant negative impact.

   To address this issue, immediately pay down all of your credit balances to the best of your ability.  Even if you pay off all of your credit balances at the end of the month, the 30% rule still hurts you.It’s best if you pay off all of your outstanding credit balances in full at the end of the month.

3. Never totally close out any of your credit cards.  This will help you with the 30% rule discussed above.  Opening credit cards, which you may do to save a little money on a purchase right now, is fine to do as long as you don’t carry a balance of more than 30% of your total available credit at the end of the month.

   Speaking from a credit score perspective, never close any of your open credit accounts. A lengthy and on-time payment history is one of the largest factors in determining your credit score.  If you’re concerned about someone stealing your card, cut it up, throw it away, and use only the credit cards you need!

   Credit issuers may eventually try to close the account, but if you communicate with them you want it to remain open, they’ll certainly work with you.

Maintaining a Good Credit Score is Essential and Easy

If you know the rules of the game, maintaining a good credit score becomes fairly straightforward.  Today, you learned some of the most important rules affecting your credit score.

They’ll help you maintain a good credit score and save you a ton of stress and money in the long run!