Contrary to popular belief, a mortgage lender is not just going to look at your credit score and write you a loan. You may also be surprised that the person handling your application will not jump up and down over the numerous loans you have open – even if they are all current. Over-borrowing can do a lot more damage than you might expect.
Auto loans and leases have a positive impact on your credit as long as they are paid on time. However, you do have to keep in mind that lenders look at your debt-to-income (DTI), as well. So, if you have a high car payment and you have co-signed on an auto loan with your teenager, your debt-to-income will be high even though you are not necessarily making both payments every month. In this case, these loans can work against you.
DTI really comes into play here, as well. In most cases, if you have a current mortgage and other loans, a lender is not going to want to write you a new loan until that old mortgage is cleared. Lenders know that although you may hope to sell the home within a month, quite often things don’t go as planned. If they are going to write you a loan for another mortgage, they need to know that enough money is coming in monthly to make both payments in case the other house doesn’t sell as quickly as you hope.
Since student loans often linger on your credit for decades, they can really help increase your credit score, as long as they don’t get behind or default. However, they do increase your DTI ratio, but lenders are often more willing to work with a higher DTI that is due to student loans than one that is high because of other loans.
Payday loans can be quite helpful when you need a quick helping hand out of a financial bind. However, you definitely don’t want to get in the habit of obtaining them because you will be wasting a lot of money. The good news is that these do not affect your credit unless you default.
Applying for a mortgage can be stressful, especially if you expect to be approved, but get turned down. To make sure you put yourself in a strong position when looking for a mortgage, be sure to avoid opening any new loans prior to applying for your mortgage.