Here’s the scenario: You’ve found a great house, and you’re excited about the prospect of moving in. You have an agent making sure all the I’s are dotted and all the T’s are crossed to get you to the closing table. It’s just a matter of time.
You drive by the house at least once every couple of days, you peruse the floor plan picturing where everything is going to go, but you just can’t envision most of your old furniture being the right style for the new space. You’ve upgraded your housing, your furniture needs to match, doesn’t it? You can just picture it – a living room straight out of HGTV’s Divine Design.
You plan a shopping trip for a new sofa, entertainment center, end tables, lamps…. Whoa! Stop right there! Your shopping spree could actually keep you from moving into that dream house of yours.
How, you ask? Well, it all has to do with a little thing called your credit score.
Yeah, I know. Your lender checked your credit score, and it was stellar. You think it’s a done deal, and all those financing worries are behind you, right?
Wrong. Maxing out your credit cards buying new stuff for your house, or financing the furniture through the store could be all it takes for you not to qualify for the loan you thought was a sure thing.
When your loan goes to underwriting at the lender, they’re going to take a look at your financial picture to make sure nothing has changed.
Look. A consumer credit score is made up of five key components which each contribute a different amount to your overall score:
- 35% comes from your Payment History. This includes accounts such as credit cards, consumer loans, and mortgages. Be sure to make your payments on time while you’re waiting to close on your house.
- 30% of your score is figured from the Balance Owed on your accounts. This is where you can really mess up. Don’t go putting a lot of new debt on your credit cards.
- 15% is from the Length of your Credit History. This would include the length of time since you opened your accounts, the most recent activity, etc. There’s not a whole lot to worry about here.
- 10% from New Credit. Don’t apply for any new credit cards or take out any new loans before you close on your house.
- 10% is Types of Credit Used Such as mortgage, credit, and retail accounts. If you pay attention to the first four items, you’ll be okay here. (Thanks to RIS Media for this info)
If you’ve gotten far enough along the path to your dream home or your first home, you’ve been disciplined enough to save money for a down payment and to manage your credit wisely enough for a lender to want to lend you money.
Now is the time to be patient just a little longer in order to be able to sit down at the closing table, sign papers until your fingers go numb, and feel the weight of that house key in your sweaty palm.
Don’t sabotage that moment by running up debt between the contract and the closing.