Thursday, July 27, 2017

How Credit Utilization Can Affect Your Mortgage Loan Approval

While you may know that your credit can affect your ability to be approved for a home loan at the Lake of the Ozarks, what do you know about how your credit score is determined? Your credit score is influenced by 5 different factors: payment history, level of debt/credit utilization, age of credit, mix of credit and credit inquiries. Credit utilization is the 2nd largest factor in determining your credit score. Today's blog from your Lake of the Ozarks mortgage lender discusses what credit utilization is and how you can manage it to get the best credit score.

What is Credit Utilization? 

Credit utilization measures the amount of your credit limit that is being used. It is the ratio of your credit card balances to the credit limits. For any easy example, let's say you have a credit limit of $1,000 on your credit card and you have bought $200 worth of stuff on it. Your credit utilization would currently be 20 percent. The lower your credit utilization percentage is, the better the effect it will have on your overall credit score. The FICO credit score model looks at your credit utilization in two ways; it looks at each card's utilization separately, and then it looks at your total credit utilization. A high percentage for either of those will have a negative effect on your credit score. Remember that the purpose of your credit score is to show your mortgage lender at the Lake of the Ozarks how likely you are to repay the money you borrow. High credit card and loan balances make you appear more likely to default on your mortgage loan payments.

Managing Your Credit Utilization 

The best way to manage your credit utilization is by keeping a low credit card balance. Keeping your credit utilization below 30 percent is ideal. One way to do this is to make your payments early, before the billing cycle ends and the payment is due. Just paying your bills in full each month isn't going to work, because the credit card companies send your information to the credit reporting agencies at the end of each billing cycle (which is before you get your bill and likely before you make any payments). The good thing is that high credit utilization won't hurt your credit score in the long run. As soon as you're able to pay down your balances, your credit utilization will decrease and your score will go up.

If you're concerned with your credit utilization and how it will affect your chances at getting approved for a mortgage, contact your local lake lender at 573-746-7211 to discuss your unique situation. Together, we can go over your options and see what needs to happen in order for you to be approved for a mortgage loan at the Lake of the Ozarks. I'm here to help you every step of the way, and get you into your dream home at the Lake!

For Lake area news, resources and tips on financial services, please 

Michael Lasson
Senior Loan Officer
NMLS #: 493712

4655 B Osage Beach Parkway
Osage Beach, MO 65065

Direct:  (573) 746-7211

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.

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