Credit is the Key to a Great Rate                           
Now, more than ever, your credit is the key to obtaining a mortgage, whether you're a first-time homebuyer or approaching retirement and looking to down-size.  In light of the current market, credit will not only impact your rate, but make the difference between getting a mortgage that fits with your home finance goals and taking what might be available to you. 

In general, borrowers with credit scores of 602 or more can still obtain a mortgage.  The minor details are not everyone will make it with a score around 620 and, for those who do make the cut, the rate won't be the best with a score that low.  To get a great rate, you'll need scores of 740 or more.  Some lenders are now reserving their best rates for those with even higher scores, requiring 760 or 780. 

Government loan programs aren't quite this structured yet, but FHA is working on a comparable rate structure based on scores and there are rumblings that VA will follow. 

So, what can I do to make my credit the best it can be?  
First, apply some common-sense.  Pay your current obligations on time and for at least the minimum amount due.  This simple step repeated every month will impact your scores over the long term and compensate for minor negatives.  Adversely, a late payment can have an immediate impact of 50 points or more on your scores.  And, the credit scoring software is based on the premise that if someone makes a late payment, they're more likely to again in the future.  The only way to blunt the impact of a legitimate late payment is to make future payments on time over an extended time.

Second, actively manage your revolving credit (credit cards and lines of credit) rather than just hap-hazardly using it.  Max'ing out your credit card or even having a balance close to the limit looks to the scoring software like you're living on credit when the reality might be you're simply using the card to collect points or miles. 

Next, limit the number of inquiries on your credit report.  The scoring software frowns upon multiple inquiries over an extended period, whether for one single purpose or multiple reasons. 

If you're going to shop for a credit card or an auto loan (or a mortgage, for that matter), make all your requests in a short window of time - my usual suggestion is a week or so.  The software is set up to interpret multiple inquiries in a short period as shopping, negating the impact on your scores.  Longer stretches of multiple inquiries are viewed as unsuccessful attempts at obtaining credit or that you could be credit-happy (my words, not theirs) and the software reduces the scores to better reflect the risk (or even the potential for risk). 

Finally, don't assume the credit bureaus are watching out for your best interest.  Credit bureaus only report what's given to them from the creditors (who, by the way, pay to report the info).  Unfortunately, the credit bureaus operate from the premise that consumers are "Guilty 'til proven innocent."

Take advantage of the Federal law that requires each of the bureaus to give you a FREE credit report annually. (To learn more, click here.)  As you prepare to obtain a new mortgage, consider subscribing to a credit reporting service to monitor your credit info 'til you've settled on the new loan.  Keeping on top of it will pay off in the long run. 

These simple steps will signicantly impact your scores and ensure you have access to the best rates available when it's time to get a mortgage.