How Long Do Missed Payments Affect Credit Score?

If you've missed a payments on your credit card, a car loan, student loan, or mortgage, and a late payments was reported on your credit report, you might be wondering how long does a missed payment affect your credit score for? We will answer this question in much detail below.

How Long Do Missed Payments Affect Credit Score?

Missed payments affect your credit score for a minimum of 12 months to 18 months. Missed payments remain on your credit report for 7 years from the date you missed your payment. After 7 years, the late payment will automatically be removed from your credit report. As the late payment mark ages, its effect on your credit score lessens until it's ultimately removed from your credit report.

Typically, missed payments are only reported as late to the credit bureaus after the payment is 30+ late. Payments that are more than 30 days late result in a 30 day missed payment mark being added to your credit report.

A missed payment has the biggest effect on your credit score when it's first reported on your credit report. As the missed payment ages, its impact on your credit score will lessen until it's ultimately removed from your credit report after 7 years.

The exact number of points your credit score will drop as a result of a late payment depends on what is in your credit report. Typically, the higher your credit score, the bigger the drop will be. Persons who already have negative items bringing down their credit score may notice a lower drop in their credit score because it's already being dragged down by other negative items.

Furthermore, the affect on your credit score depends on whether your missed payment led to other negative items being added to your credit report.

For example, if you have several missed payments and your account was sold to a collection agency, the collection agency may added a collection account to your credit report further bringing down your credit score.

Another example would be missing a payment on your car loan. If you miss several payments, your vehicle may be repossessed, causing a repossession to appear on your credit report, affecting your credit score negatively and bringing it down significantly.

So the effect that a missed payment may depend not only on the late payment that's reported to the credit bureaus but also on the series of events that may follow a missed payment.

When Does a Missed Payment Affect Your Credit Score?

A missed payment typically affects your credit score when it's reported on your credit report. Missed payments are reported to the credit bureaus after the payment is 30+ days late. After your payment is 30 or more days late, the lender updates your account status as 30 days late, prompting the credit reporting bureaus to add a 30-day late payment notation to your account.

Even if you make your payment after the 30-day late payment notation is added to your credit report, the 30-day late payment notation will remain on your credit report for 7 years from the date you missed your payment. After the 7 year period, the late payment will be removed from your credit report. Late payments have the biggest effect on your credit score when they're first added. As the late payment ages, its impact on your credit score lessens.

Furthermore, if you fail to make subsequent payments, a 60-day late payment, a 90-day late payment, and 120-day late payment notations will be added to your credit report. So, as the delinquency increases, the negative impact on your credit score increases as more late payment notations are added.

So, if you've missed a payment, the best course of action to improve your credit score and prevent further damage is to continue making payments if you can afford to do so. This prevents further damage to your credit.

How Can You Know If a Missed Payment is Affecting Your Credit Score?

You can figure out whether a missed payment is affecting your credit score by reviewing a copy of your credit report. You can review a copy of your credit report online by using many of the free and paid services out there for checking your credit. A simple Google search for checking your credit report will reveal dozens of free and paid sites for you to choose from.

Once you've obtain a copy of your credit report, go to the accounts section and look at the payment history of each and every account that you have. If all payments are marked with a paid notation or green color, this means that you've made your payment on time. However, if there is a 30 day late payment notation, this means that your account has a missed payment and is therefore marked as being late.

Keep in mind, a single missed payment that is 30+ day late can affect your credit score, significantly bringing it down, especially if you had a high credit score before the late payment. The higher your credit score, the bigger the drop will be from a late payment.

What Should You Do If You've Missed a Payment On Your Credit Card, Loan, or Mortgage?

If you've missed a payment on your credit card, car loan, or mortgage, you have 30 days from the due date to make your payment without a late notation being added to your credit report. This is so because payments are only reported as late after 30 days of missing your payment. So, if it has been less than 30 days, you should try to make the payment even if it's late as this will prevent it from being reported as late on your credit report.

If you're 30 or more days late on your payment, your lender or creditor is likely to report the payment as 30 days late, adding a 30-day late payment mark to your credit report. If you've missed a payment, you should try to make your remaining payments on time to avoid additional late payment marks from being added to your credit report. Making your payment will help you avoid additional damage to your credit.

Does Making a Partial Payment Affect Your Credit Score?

Unfortunately, making a partial payment that's less than the minimum amount due will affect your credit score as your account will still be reported as being late. This is so because you're legally obligated to make a payment in the full amount, anything less will cause your account as being marked late, lowering your credit score.

How to Avoid Missing Your Payments?

  1. Alerts - Set up alerts to alert you as to when your payment is due. This will prevent you from forgetting that your payment is due.
  2. Due Dates - Contact your card issuer or lender and ask them to change your due dates to align with your paycheck. This will ensure that you have money to make the payment at the time that it's due.
  3. Automatic Payments - Setting up automatic payments can be a great way to ensure that your credit cards and loans are paid on time. That said, you should be careful when setting up automatic payments, this is so because if you do not have sufficient funds in your account, your account may be overdrawn, resulting in overdraft fees.

Frequently Asked Questions (FAQs)

1. How long does 1 missed payment affect credit score for?

A single missed payment will affect your credit score 12 to 18 months. As the late payment ages, its impact on your credit score lessens until it's ultimately removed from your credit report.

2. Can I get a late payment removed from my credit report?

You cannot get a valid, accurate late payment removed from your credit report. However, if there is a late payment that is inaccurate, you can file a dispute with credit bureaus to have it removed from your credit report.

3. How long does it take to improve credit score after a late payment?

It takes 12 to 18 months for your credit score to recover from a missed or late payment. As the late payment ages, its effect on your credit score will lessen until it's removed from your credit report after 7 years.

4. How to fix my credit score after a late payment?

You can fix and improve your credit score after a late payment by making all of your payments on time, reducing your balances, refraining from applying for new credit, and keeping your old accounts open.


Do Multiple Mortgage Applications Hurt Credit?

If you are thinking about taking out a loan to buy a home, you might be wondering whether multiple mortgage applications will hurt your credit score? We will discuss the answer to this question in much detail below.

Do Multiple Mortgage Applications Hurt Your Credit?

Although multiple mortgage applications can hurt your credit score and lower it, applications made within a 14 to 45 day window while shopping for a mortgage will be counted as a single hard inquiry, only slightly lowering your credit score. Hard inquiries appear on your credit report whenever you're applying to borrow money and they remain on your credit report for 2 years from the date the lender reviews your credit report. Hard inquiries can slightly lower your credit score (by only a few points). That said, the credit reporting bureaus understand that many consumers shopping for home loans will apply with several lenders while seeking to obtain the largest loan amount at the best interest rate. Therefore, any inquiries incurred within a 14 to 45 day windows count as only one hard inquiry, slightly lowering your credit score.

Typically, when you go to a mortgage broker, the mortgage broker will apply for several home loans on your behalf. Each time a mortgage provider checks your credit, a separate hard inquiry will be added to your credit report. Each hard inquiry can lower your credit score by a few points. However, the credit reporting bureaus offer special treatment to those shopping for a mortgage, and therefore any hard inquiries placed while shopping for a home loan will only be counted as a single hard inquiry provided that they are made within a 14 to 45 day period, depending on what scoring model is used to calculate your credit score.

Hard inquiries can lower your credit score because they account for 10% of your credit score. The more hard inquiries you have on your credit report, the lower your credit score will be. Hard inquiries remain on your credit report for 2 years from the date that a mortgage lender reviews your credit report. After the 2 year period, they're automatically removed from your credit report. Experts agree that the impact of hard inquiries on your credit report begins to lessen as the hard inquiry ages. After 12 months, a hard inquiry should have no impact on your credit score.

The 14 to 45 Day Window

When shopping for a mortgage, most people shop around for the best mortgage. So, any mortgages that you apply for within a 14 to 45 day period are treated as a single hard inquiry on your credit report. The 14 to 45 day period depends on which credit scoring model that's used to calculate your credit score. Different models use different periods during which to county hard inquiries as a single hard inquiry. Typically, the newest scoring models count hard inquiries when mortgage shopping within a 45 day period as a single hard inquiry, offering shoppers some leeway when it comes to finding the right mortgage. So, when you're applying for 1 mortgage or applying for 10, all of the hard inquiries you rack up within a 45 day period are counted as a single hard inquiry when calculating your credit score.

Proceed With Caution

The 45 day mortgage shopping window only applies when shopping for home loans and auto loans. It does not apply to credit card applications. If you want to open a credit card and submit multiple credit card applications, each application counts as a single hard inquiry. So, if you submit multiple credit card applications, the 45 day grace period does not apply and each hard inquiry will lower your credit score, so please proceed with caution. So, if you submit too many credit card applications within a short period of time, you can significantly lower your credit score because each hard inquiry counts as a single inquiry, lowering your credit score. This is different from home loan applications where multiple hard inquiries are grouped into a single hard inquiry.

Should You Submit Multiple Mortgage Applications?

As previously mentioned, no matter how mortgage applications you submit within a 45 day period count as a single hard inquiry. So, feel free to shop around for mortgages, just make sure that all of your applications are submitted within a very short time frame so all applications and resulting hard inquiries only count as a single hard inquiry on your credit report. Shopping for a mortgage this way will only drop your credit score by a few points since multiple mortgage applications will count as only a single hard inquiry. When you're seeking to make a large purchase, such as a home purchase, it's wise to shop around for the best rates, so submit as many applications as reasonably necessary to obtain the loan amount and interest rate that you're looking for. Finding the right mortgage can save you a substantial amount of money, so shop around and rest assured that all applications submitted within the 14 to 45 day window will only count as a single hard inquiry.

That said, to get your mortgage applications within the 14 to 45 day period, it's helpful for you to make a list of potential lenders that you want to apply to before submitting a single application. This ensures that all applications result in a credit review within the 14 to 45 day period. Also, make a list of questions that you have for your lenders so that you can ask them and have them answered within a short amount of time.

Even if you submit applications outside the 45 day window, your credit score will not significantly suffer as hard inquiries only account for 10% of your credit score. 65% of your credit score, however, depends on your payment history and the balances you keep on your accounts. So, as long as you continue to make your payments on time and keep low balances on your credit cards and loan accounts, an extra hard inquiry is unlikely to cause much damage to your credit score.

How much does a mortgage application affect your credit score?

Whenever you submit a mortgage application and a lender reviews your credit report, a hard inquiry is placed on your credit report. A single hard inquiry can lower your credit score by just a few points. For this reason, the credit reporting bureaus treat multiple credit reviews performed for the purpose of obtaining a mortgage within a 45 day period as a single hard inquiry, only slightly lowering your credit score.

Here Are Some Things to Avoid When Applying For a Mortgage

You should avoid doing the following things when applying for a mortgage to keep your credit score as high as possible to qualify for the large mortgage amount and the best interest rates:

  1. Credit Applications - Do not submit other credit applications. Refrain from applying for auto loans, credit cards, and personal loans until your mortgage is approved and you're sitting comfortably in your new home. This ensures that no other hard inquiries lower your credit score.
  2. Do Not Miss Payments - Do not miss any payments on your credit cards, auto loans, auto finance account, personal loans, and student loans. A single missed payment can cause significant damage to your credit score. So, if you've never missed a payment, continue the good streak to ensure that you're approved for the best home loan at the best interest rate.
  3. Do NOT close accounts in good standing - If you have accounts that are in good standing because this could lower your credit score. So, even if you have a credit card that you barely use, but you've built good credit behind, you should avoid closing the account as the account closure will reduce your mix of credit as well as lower your available credit, causing a drop in your credit score. So, avoid closing accounts in good standing when applying for a mortgage to ensure your credit score does not drop.
  4. Don't add to your debt - When applying for a mortgage, you should avoid raising the balances on your credit cards and other accounts. This is so because your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. Substantially raising your credit utilization can lower your credit score, so avoid racking up more debt to keep your credit score as high as possible. If you want to improve your credit utilization, pay down some of your balance and you could raise your credit score.

Frequently Asked Questions (FAQs)

1. When submitting multiple mortgage applications, how long do hard inquiries stay on your credit report?

Hard inquiries stay on your credit report for 2 years from the date that the lender reviews your credit report. After the 2 year period, the hard inquiry will be automatically removed from your credit report. That said, experts have stated that even though it takes 2 years for a hard inquiry to be removed from your credit report, it no longer impacts your credit score after 12 months.

2. Does applying for multiple mortgages affect credit?

Yes, when you apply for a mortgage, hard inquiries are added to your credit report. Hard inquiries can lower your credit score.

3. Is it bad to apply for multiple mortgages (sending home loan applications)?

No, there is nothing wrong with applying for multiple mortgages. In fact, you should shop around for mortgages because finding the a reasonable mortgage could save you a substantial amount of money. Shopping around for a mortgage will not significantly impact your credit, as it only has a low impact.

4. How long does it take for a mortgage application to show up on your credit report?

A mortgage application shows up on your credit report as soon as a lender requests to review a copy of your credit report. The second a lender reviews your credit report, a hard inquiry will show up on your credit report, alerting you that a third party has accessed your credit report.


Can I Get a Mortgage With Late Payments On My Credit Report?

If you're like many Americans, you might be thinking about borrowing money to buy a home. We often get asked whether a person can get a mortgage if they have late payments on their credit report. We will answer this question in much detail below.

Can I Get a Mortgage With Late Payments on My Credit Report?

You can still get a mortgage with late payments on your credit report, however, this depends on the strength of your credit report, the lender's lending criteria, and how much damage you've done to your credit by making your payments late. Typically, the more late-payments and the longer the delinquencies, the more difficult it will be for you to get a mortgage. If you have strong credit despite having a few late payments, lenders may still be willing to offer you a mortgage at a decent interest rate and terms.

When determining whether to offer you a mortgage, lenders will review your credit report and place great emphasis on your past payment history. Payment history is important for mortgage lenders because it shows them how you've handled paying down debt in the past, which shows them how you are likely going to handle paying down your mortgage in the future. So, the better your payment history, the more likely you are to be approved for a mortgage. This is so because people who have paid their debts on time in the past are likely going to pay them on time in the future. The opposite applies, as well.

Having a late payment will raise some red flags for lenders, especially if the late payments are recent (within the past 12 months).

Nevertheless, as late payments age, not only will their impact on your credit score lessen, but old late payments will have less of an impact on a lender's decision to lend you money. Recent late payments, however, will, unfortunately, impact your ability to get a mortgage.

If a lender sees that you have recent late payments on your credit report, they might require you to place a bigger down payment and/or you might have to pay a higher interest rate than would a lender who has never missed any payments on his or her credit cards and loans. So, when seeking to get a mortgage, you should consider all of these factors before applying.

Pro Tip - Some experts state that if you have any late payments, you should wait for at least 12 months before applying for a mortgage. This waiting period is done to establish a track record of on-time payments to encourage lenders to approve you for a home loan. Making on-time payments prior to applying for a mortgage is critical to ensure that the lender does not ask for large cash reserves, bigger down payment, or other income sources prior to approving you for a home loan. So, although you can still get a home mortgage with late payments, you may be asked for a bigger down payment or cash reserves prior to being approved. So, make your payments on time for the best chances to be approved.

How to Improve Your Credit Score & Get a Mortgage With Late Payments on Your Credit Report?

Here are a few tips on how to improve your credit score in order to get a mortgage with late payments on your credit report:

1. Make Timely Payments - Make all of your payments on all of your accounts on time. Your payment history accounts for 35% of your credit score and is the biggest factor that lenders look at when deciding to approve you for a mortgage. So, making timely payments will not only increase your credit score but will also increase your chances of being approved for a mortgage. If you have a late payment on your credit report, as the late payment ages and becomes older, its impact on your credit score will lessen and lenders will not view it as negative as a recent late payment. So, continue to make payments on your accounts and make sure that you do not make late payments for the best chance to be approved for a mortgage. Late payments will remain on your credit report for 7 years from the date you became late on your account. After 7 years it will be automatically removed from your credit report. That said, the impact of a late payment on your credit score and a lender's decision to give you a mortgage lessen as the late payment ages.

2. Reduce Balances - The second thing you can do to improve your credit score and still get a mortgage despite having late payments on your credit report is to reduce the balances on your accounts. Your credit utilization (how much of your available credit you're using) accounts for 35% of your credit score. So, a quick way to improve your credit score is to pay down the balances on your accounts. As a rule of thumb, you should strive to keep your account balances below 10% of your available credit, and to never exceed 30% utilization. If you exceed 30% of your available credit, you will notice a drop in your credit score because you're using too much of your available credit. Your credit score will drop because utilizing too much credit tells lenders that you may be having financial troubles, and are therefore relying too much on your credit cards. So, a quick way to improve your credit score and qualify for a mortgage is too pay down your accounts as much as you possibly can.

3. Makes Paste Due Accounts Current - If you have accounts that are passed due and/or reported as late on your credit report, you should make them current so that when the lender reviews your credit report, you're not behind on any payments, showing them that you're financially responsible. Additionally, making a past due account current will help your credit score because past due account can cause a significant drop to your credit score.

4. Review Your Credit Report - If you're not already in the habit of periodically reviewing your credit report, you should review it to ensure that there are no negative items bringing down your credit score. If you find an item that does not belong to you, you should dispute it to have it removed from your credit report. The dispute process typically takes a few days, but in some circumstances can take up to 30 days to complete.

How to Qualify For a Mortgage With Late Payments?

  1. Remove Late Payment - If you're wondering what you can do to qualify for a mortgage with late payments on your credit report, the first thing you should do is to contact your creditor and lender and ask them to remove the late payment(s) from your credit report. Some lenders will be willing to work with you while others will not. You will probably have more luck with this method if you have a very good payment history and relationship with the lender. If you contact a lender and the representative refuses to remove your late payment, ask them to speak to their supervisor. Supervisors have more leeway when it comes to helping customers. Be polite and explain your situation to the supervisor. You may be surprised, but this could help you.
  2. Larger Down Payment - If you want to get a mortgage to buy a home, but you have late payments on your credit report, some lenders will still be willing to work with you if you agree to make a larger downpayment. The larger downpayment shows borrowers that you are creditworthy and likely to pay your mortgage payments on time since you've invested a lot of money in your home. Also, a combination of bad credit and a small down payment doesn't play too well with lenders. So, this could be an option if you want to take out a loan to buy a home.
  3. Reduce Your Balances - Another way to show lenders that you're creditworthy and should be approved for a mortgage is to pay down the balances on your accounts. This shows lenders that you have the cash to pay your debts and shows them that you're not too reliant on credit.

Frequently Asked Questions (FAQs)

1. Can you buy a house with late payments?

Yes, you can still buy a house with late payments. However, recent late payments (less than 12 months old) will make it very difficult for you to buy a home. That said, you may still qualify for a mortgage, but the lender may require a bigger down payment.

2. Do missed payments affect your ability to get a mortgage?

Yes, late payments will make it difficult but not impossible to get a mortgage or home loan, especially if the late payments are recent. As late payments age and you make on-time payments on all your credit cards and loans, it's impact on your ability to qualify for a mortgage will lessen until the late payment is automatically removed after 7 years.

3. Can you remove late payments from your credit report?

If a late payment is valid, meaning you were in fact late, it will be difficult to remove it from your credit report. This is so because the credit reporting bureaus are not obligated to remove accurate information from your credit file. You can contact the lender or creditor and ask for it to be removed. That said, if the late payment does not belong to you, you can file a dispute with the credit reporting bureau to remove it from your credit report. The credit reporting bureau will then investigate to determine whether the late payment is indeed valid. If it's valid, it will remain on your credit report. However, if it is indeed inaccurate or does not belong to you, it will be removed.


Do Preapprovals Affect Your Credit Score?

If you're over 18, you've probably received a ton of mail with preapproved credit card offers and preapproved mortgage offers, and so you may be wondering do those preapprovals affect your credit score? We will answer this question in much detail below.

Do Preapprovals Affect Your Credit Score?

Pre-approvals for credit cards and loans do not affect your credit score. This is so because preapprovals only result in what is known as a soft inquiry since a person who receives a preapproval did not actively apply for a credit card or loan. That said, if you follow up on a preapproval and actually apply for the advertised credit card or loan, a hard inquiry will be placed on your credit report and it will affect your credit score. On the other hand, a mortgage preapproval may slightly hurt your credit score as a hard inquiry is usually placed on your credit report by the loan officer pre-approving you for a mortgage loan.

A hard inquiry, commonly known as a hard pull, is placed on your credit report whenever you apply for credit cards, home loans, auto loans, and personal loans. A hard inquiry can lower your credit score by a few points and remains on your credit report for 2 years from the date your lender or creditor checks your credit report. After the 2 year period, the inquiry is automatically removed from your credit report.

Just to reiterate, preapproved credit card and loan offers that are sent to you will never appear on your credit report and will not affect your credit score unless you act upon such offer and proceed to apply for the advertised loan or card.

If you receive a preapproved offer in the mail or via email, a soft inquiry is performed. A soft inquiry does not appear on your credit report and has no impact on your credit score. A soft inquiry, for the purposes of preapproved offers, refers to the situation where a creditor accesses a copy of your credit report to pre-approve you for an offer.

If you do not act upon the preapproved offer, a hard inquiry will not be added to your credit report and the offer will have no impact on your credit score.

However, if you act upon the offer and apply for the pre-approved offer, the lender or creditor may approve you based on the pre-approval without performing a hard inquiry, however, most creditors will perform a hard pull and a hard inquiry will be added to your credit report upon applying for the advertised credit card or loan.

Opting Out of Pre-Approvals

If you do not want to receive pre-approved offers, federal law provides you with the option of opting out for such offers for five year or permanently. If you choose the 5 year opt out option, you won't receive any pre-approved credit cards or loans for 5 years. If you opt out permanently, you will never receive any pre-approved credit card, loan, and insurance offers.

Mortgage Preapproval vs Pre-Approved Credit Cards & Loans

Card issuers and lending institutions that pre-approve person for credit card offers and loans do so by screening millions of people and selecting a group of people who meet certain criteria to apply for either a credit card or loan. When a lender or creditor checks your credit report to approve you for such an offer, a soft inquiry is performed and has no effect on your credit.

This is different from mortgage pre-approval, which usually involves a person going to a bank to have a loan officer look over his or her financial history, including conducting a credit check to get pre-approved for a home loan. Mortgage pre-approvals often involve a hard inquiry since a loan officer wants to see an applicant's credit history before approving him or her for a home loan.

So, while a credit card pre-approval will not hurt your credit score, a mortgage pre-approval may have a small effect on your credit score as a hard inquiry is placed on your credit report as a loan officer requests a copy of your credit report to go over your credit history to pre-approve you for a home loan.

That said, a single hard inquiry is likely to drop your credit score by 5 to 10 points. So, you should not worry too much about it. Your credit score will likely recover within 12 months of the inquiry being placed on your credit report. Within 2 years, the hard inquiry will automatically be removed from your credit report.

Credit Score Planet Frequently Asked Questions

1. Does mortgage preapproval affect your credit score?

Yes, a mortgage pre-approval does hurt your credit score because loan officers will typically check your credit score to pre-approve you for your home mortgage. They do this because they have to check your financials to ensure that you're in good financial shape to receive a home loan.

2. Do preapproved credit cards affect your credit score?

No, pre-approved credit cards do not hurt your credit score because you're not applying for credit, a card issuer is simply looking over your credit report to determine whether you meet certain criteria to pre-approve you for a credit card. However, if you respond to a pre-approved credit card offer or apply for a credit card, your credit score will be affected as a hard inquiry is placed on your credit report.

3. Do pre-approvals hurt your credit?

Mortgage preapproval may hurt your credit score slightly as a loan officer checks your credit report. However, pre-approved credit cards do not hurt your credit score.

4. Can I get a pre-approval without a credit check?

In most cases, for a lender to pre-approve you for a home loan, they will have to check your credit report and credit score.


What Do Mortgage Lenders Look For?

If you're like most of us, you probably don't have the cash to purchase your home outright and will therefore resort to taking out a mortgage to buy your home. So, what do you need to qualify for a mortgage and what do mortgage lenders look for when deciding whether to approve you for a home loan? We will discuss the answers to these questions in much detail below.

What Do Mortgage Lenders Look For?

When you apply for a mortgage, mortgage lenders look at several things. They look at your credit score, your credit history, your income and expenses, your down payment, your employment history, your assets, and the term of your loan. We will explain each of these in more detail below.

Although your credit score gives lenders a good picture about how you've handled debt in the past, it does not provide lenders with the big picture required to assess your ability to handle a mortgage. Here is what your mortgage lender will look for in your credit report.

Credit Report - What Do Mortgage Lenders Look For in Your Credit Report?

The first thing that mortgage lenders will look at is your credit report. They will first look at your credit score and will then proceed to dive deeper into how you've handled borrowing and repaying money in the past. Here is what they'll look at when reviewing your credit report:

Payment History

Your payment history will be of primary concern for mortgage lenders as they will look at your track record of borrowing money and how you've handled repaying your debts. The better your payment history, the more likely you are to be approved for a mortgage. If you have missed payments on your credit report, your mortgage lender will ask you what caused you to miss your payments. If you have no history of missed payments, you're in the clear.

Recent Credit Applications

Next, mortgage lenders will look at your recent credit applications. Mortgage lenders like to see few credit applications. This is so because the more recent credit applications you have, the more reliant on credit you seem, which may indicate that you're having financial troubles. So, if you know that you're going to apply for a mortgage in the foreseeable future, you should avoid applying for too much new credit as this will raise red flags for your mortgage lender.

Credit Utilization

Mortgage lenders will also look at your credit utilization, that is, they will look at how much of your available credit you're utilizing. Mortgage lenders want to ensure that you haven't racked up so much debt that you're unable to comfortably make your mortgage payments. As a rule of thumb, mortgage lenders want to see your credit utilization below 30%. For example, if you have a $10,000 credit limit, lenders want to see that you're not using more than 30% of your available credit, which is a balance lower than $3,000. The higher your credit utilization, the riskier you will appear to mortgage lenders. So, if you know that you'll be applying for a mortgage in the foreseeable future, you should keep your credit utilization as low as possible, never exceeding 30% of your available credit.

Derogatory Marks

When assessing your creditworthiness, mortgage lenders will look for any derogatory marks on your credit report. Derogatory marks include missed payments, collection accounts, bankruptcies, foreclosures, repossession, and other negative events. If your mortgage lender finds any derogatory marks, you will have some explaining to do. If no derogatory marks appear on your credit report, you're in the clear.

Income - What Do Mortgage Lenders Look For in Terms of Income?

Your income is one of the major factors that mortgage lenders will look at when determining whether to approve you for a home loan. Mortgage lenders want to lend to someone who has sufficient and stable income to comfortably make his mortgage payment. Lenders will look at your main source of income, as well as additional sources of income, such as investment income.

When assessing your ability to pay your mortgage, mortgage lenders will look at your debt to income ratio (DTI). Your debt to income ratio refers to the amount of your income and how much of your income goes to repaying your debts. This allows mortgage lenders a good picture of your ability to repay your debts as well as repaying your mortgage. If your debt to income ratio is too high, lenders may view you as over-leveraged and not able to handle additional debt, such as a mortgage.

If your DTI is too high, the mortgage lender may deny your mortgage application or approve you at a higher interest rate. So, if you foresee that you'll be applying for a mortgage, you should try to pay down your balances so that your debt to income ratio does not result in you being denied a home loan.

When you apply for a mortgage, you should not claim that you make more than you actually do. If you overstate your income, you could land yourself in big trouble because most lenders will verify your employment and income.

Your income may be verified by requesting a copy of your most recent federal income filing, as well as directly contacting your employer to verify your income. So, don't overstate your income and be truthful on your mortgage application.

Employment - What Do Mortgage Lenders Look For in Terms of Employment?

Mortgage lenders will look at your employment history. They want to make sure that you're employed or have a source of income that will enable you to pay back the money you're borrowing. Some lenders will only ask you for your current employment information, while others will ask for your employment history to assess whether you have a stable source of income. If you are unemployed for large chunks of time or are currently unemployed, your mortgage application may be denied.

Down Payment - What Do Mortgage Lenders Look For in Terms of a Down Payment?

Usually, the bigger your down payment, the more likely you are to be approved for a mortgage. If your credit score is on the low side, increasing your down payment may qualify you for a mortgage. This is so because a bigger down payment reduces the risk that the bank is taking by lending you money.

As a rule of thumb, many lenders require a down payment of at least 20% of the price of the home. For example, if you are looking to purchase a $500,000 home, you would need to make a down payment of at least $100,000. That said, there are various different types of home loans that don't require such a large down payment.

Making a large down payment will definitely qualify you for a better interest rate, but we understand that not everyone has 20% of the cost of a home to put down. In this case, you should look at an FHA loan, which allows you to purchase a home with a down payment as low as 3.5%.

That said, the bigger your down payment, the better the interest rate you'll be approved for. That said, you should not use all of the cash you have on hand for a down payment, you should keep a sizable amount of your money in your bank account in the event that you become unemployed so that you'll be able to continue making payments on your mortgage.

Assets - What Do Lenders Look For in Terms of Assets?

Oftentimes lenders will consider your assets as part of the process of assessing whether to lend you money. That said, your assets don't play as big of a role in their decision making as does your credit score and your income. Nevertheless, having assets will definitely make it easier for you to get approved for a mortgage. Assets includes things, such as real property, as well as personal property, such as a checking or savings account with money, an IRA account, and a stock account. Let's be honest, lenders like to see that you have assets because if you default on your mortgage payments, they can recoup their loss by going after them.

Credit Score Planet Frequently Asked Questions

1. What credit score do you need for a mortgage?

The minimum credit score that you need to be approved for a mortgage is a 620 credit score. The higher your credit score, the more lenders you will find who will be willing to work with you and the lower the interest rate on your mortgage.

2. Do mortgage lenders look at bank statements?

Most lenders will ask you for two to three months of bank statements to verify your income. So, yes, mortgage lenders will ask you for and will look at your bank statements.

3. How far back do mortgage lenders look?

Mortgage lenders will look at your credit report, which typically contains credit history for the past 7 to 10 years. That said, they will focus their attention the most at your most recent years. For example, some lenders will not approve persons who have submitted more than two credit applications in the past 6 months or 3 application in the past years.

4. What should you not do when applying for a mortgage?

Here are a few things that you should avoid at all costs when applying for a mortgage:

  • Don't quit your employment
  • Do not open new credit accounts
  • Don't close existing accounts
  • Do not pay any of your bills late
  • Don't rack up a ton of debt

These are some common sense things that you should not do when applying for a mortgage.