In this space, we discuss FHA home loans and how they get approved. And we talk a lot about the biggest credit mistake you can make leading up to your home loan application-missed payments.
And we’re not just talking about missed payments on one type of credit, we discuss the effects of missing a payment no matter what it is or how important to your financial bottom line.
But it is human nature to forget good advice when you only get it from one source, which is why we’re turning our attention today to the advice of one of the three biggest credit reporting agencies in existence: Experian.
Experian is 125 years old and has a lot to say about how to manage credit, improve credit ratings, and how credit works in the real world. Their advice, as a company that acts as a gatekeeper to FICO scores and credit reports, can be considered “from the source”.
What does Experian say about how potential home buyers and first
A 2018 article published on the credit reporting agency’s official site includes the following quote from Rod Griffin, Director of Consumer Education and Awareness at Experian. “The No. 1 thing that hurts people’s scores is late payments”.
As the Experian official site reminds, your FICO scores are calculated “based on payment history, how much you owe, your length of credit history, the types of credit you have and how often you apply for new credit”.
As you can see, there is no one single factor that determines your credit score. But the payment record is key since no lender will look at late or missed payments in the 12 months (minimum) leading up to the loan application without needing more information.
Late and missed payments are basically Kryptonite to a home loan application. The lender needs to justify the risk of the loan and establish on paper that an FHA home loan applicant can realistically afford the mortgage. This gets MUCH harder to do when there is a recent history of missing payments.
Credit utilization, the amount of credit you have, and the length of your credit history are factors, but the two biggest credit mistakes according to Experian are missing or late payments and carrying high credit card balances.
It’s easy to see why those two factors might run together in the lender’s mind, and understanding how a loan officer thinks when it comes to home loan approval is a very good thing.
Remember that checking your credit report is also crucial and it does not hurt your credit score doing so; it’s important to know the contents of your credit reports long before you fill out home loan paperwork.