Believe it or not, even the most financially responsible person can have things on their credit score that affect their mortgage opportunities. 

You might think you've got everything under control, but sometimes, pesky errors, like mysterious accounts you don't remember opening or late payments that slipped through the cracks, can sneak onto your credit report and throw a wrench in your home-buying plans.

We've seen it time and time again. That's why we wanted to show you the most typical problems we've noticed on credit reports that can negatively impact your credit score when it comes time to get a mortgage.

Five Factors that Determine Your Credit Score

We often get asked, "What are the biggest factors that negatively affect my credit score for a mortgage?" It's a really good question, and to answer it properly, we've got to dive into how credit scores are calculated. 

Payment History

This is by far the most important aspect of your FICO credit score/report because it accounts for 35% of it. It's determined by:

• Making payments on time
• How consistently you pay on time
• The length of time you've been making timely payments

A solid, reliable payment history signals to lenders that you're responsible with your financial commitments, making them more likely to extend you more credit.

Pro Tip: Missed payments are the fastest way to destroy your credit since they remain on your report for seven years; that's why it's essential to set up auto-pay so you never miss a payment. 

Amount of Debt You Have

This is the next largest piece of your credit score calculation, making up 30%. The amount of debt you have is determined by:

• Your total outstanding debt: This includes credit cards, loans, mortgages, and other financial obligations.
• Credit utilization ratio: This is the percentage of available credit you're using, and it's calculated by dividing your total outstanding revolving debt by your total available credit limit. 
• The number and types of accounts you have: This includes installment (loans with fixed payments) and revolving (credit cards and lines of credit).

It's important to note that carrying large amounts of installment debt isn't going to have as much of a negative impact as carrying a large amount of revolving debt. 

For instance, you can have a car payment and mortgage and several credit cards below 30% utilization and still have a good credit score. On the other hand, you can have the same installment debt and a high utilization and you'll have a lower credit score. 

Carrying a high amount of revolving debt or maxing out your credit cards is one of the fastest ways to lower your credit score and can make lenders wary of extending more credit. As a rule of thumb, keeping your revolving debt utilization below 30% is recommended.

Pro Tip: The best ways to keep your utilization in check include paying down high-interest debt first, maintaining low credit card balances, and avoiding accumulating unnecessary debt.

Age of Your Credit

In essence, the age of your credit refers to the length of time that you have been using credit, and it accounts for 15% of your total score. 

It's influenced by:

• Your oldest credit accounts
• Your newest credit accounts
• The average age of all your credit accounts combined

For example, if you opened a credit card at 18, got an auto loan at 25, and two more credit cards in your late 20s, you'd have a credit age of 12 by the age of 30. Now, if you let that first account close, your credit age drops to 5 years. 

Bottom line—You want to keep your oldest accounts open even if you don't use them frequently because a longer credit history demonstrates to lenders that you're reliable and experienced in managing your debt. 

Pro Tip: Try to establish your credit as soon as you're able and avoid opening several new credit accounts within a short time, as it will lower the average age of all of your credit accounts. 

Credit Mix

When you think of your credit score, you may only think of credit cards. But your credit mix includes all of the different types of credit accounts you have, such as:

• Credit cards
• Mortgages
• Personal loans
• Retail accounts
• Auto loans
• Lines of credit and more. 

A diverse credit mix accounts for 10% of your score and indicates that you can effectively manage different types of credit, which is appealing to lenders. 

For example, if you have a mortgage, a car loan, and a couple of credit cards, your credit mix reflects your ability to handle both installment and revolving credit responsibly.

Pro Tip: While having a varied credit mix can positively impact your credit score, you shouldn't open unnecessary accounts just for the sake of diversity. Instead, focus on responsibly managing the accounts you already have.

New Credit

As the name implies, new credit (which also accounts for 10% of your score) takes into consideration: 

• The number of credit accounts you've recently opened
• The number of hard inquiries on your credit report

Lenders will check your report to determine your creditworthiness whenever you apply for new credit, including a mortgage. This is known as a hard inquiry. 

A couple of hard inquiries over time won't do much to affect your credit score; however, several hard inquiries in a short amount of time can send up a red flag to lenders, signaling that you may be taking on too much credit or you're having financial problems.

Pro Tip: Space out your credit applications and focus on maintaining a healthy financial standing with your existing accounts. 

Top 3 Most Common Factors That Negatively Affect Credit Score For a Mortgage

Now that you know how your credit is calculated, let's look at the most common issues we see on credit reports that will keep you from getting the best rates and terms on your mortgage. 

Collections 

When you default on debt (or fail to make your payments), your creditor can sell your debt to a collection agency. This can severely damage your credit score and stay on your report for seven years.

It's proof that you didn't pay your debts, making you a riskier candidate for a loan—not something you want to do when applying for a mortgage.

To address collections on your report, you should:

• Verify the debt by requesting a debt validation letter from the collections agency to confirm the details.
• Dispute any inaccuracies you find and file them with the credit bureaus.
• Seek professional help before discussing a repayment plan or negotiating a settlement. Sometimes paying off a collections account can negatively affect your credit score. 

Late Payments

As discussed earlier, payment history plays a huge role in determining your overall credit score. When you pay your bills late, it sends a message to lenders that you're not great at managing your finances.

And what's worse is that they also stick around for seven years. Sure, missing one payment here and there might not have a significant impact, but if that happens every year, it becomes a consistent pattern that drags your score down.

The actual impact of a late payment depends on several factors, including:

• How late the payment is: Payments that are 30 days late will have less of a lasting effect than those that are 90 days or more late.
• Your credit history overall: If you have a reliable history of making payments on time, one late payment won't affect your credit score as much as having a history of late payments. 
• The type of credit account: A late payment on a credit card will have more of an impact than a late payment on a utility bill, for example.
• How often your payments are late: If you habitually make late payments, it will have a more lasting effect than a one-time late payment. 

Mortgage lenders want to see evidence that you'll repay them on time. If they see a history of late payments on your credit report, they might think twice about approving your application or applying higher interest rates to offset the risk.

High (Revolving) Utilization Rate 

A high revolving utilization rate means you're using a large chunk of your available credit, which signals that you're relying too heavily on credit and may be struggling to manage your debt.

When asking for a mortgage, you typically ask for a large amount of money. If lenders see a high (revolving) utilization rate, they might worry that you're stretched too thin.

To lower your credit utilization rate, you should: 

• Pay down your balances
• Ask to increase your credit limits (just be careful not to overspend with your new limit)
• Try to spread your spending across multiple cards to keep your utilization rate low on each one
• Monitor your credit utilization and aim to keep your utilization rate below 30%

Improve Your Credit and Achieve Your Mortgage Goals With Modern Day Lending

While there are many steps you can take to repair your credit, most people don't realize they can seek advice and help from their lenders. After all, they've seen it all and know exactly what you need to boost your chances of getting the mortgage you want.

At Modern Day Lending, we know how hard it is for people with low credit or who don't fit traditional bank requirements to obtain a mortgage. That's why we decided to offer credit repair services on top of our traditional mortgage services. 

We have extensive knowledge of consumer credit laws and credit bureau tactics. Our experts help you tackle credit obstacles by working tirelessly with creditors and bureaus to remove every derogatory remark we can find.

Once your credit's where it needs to be, we'll continue working with you until you close on your dream home. So, don't let your credit hold you back. 

Stop listening to no's and start moving towards your goals. Reach out to one of our professionals to get started.