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Buying a home for most of us means getting a mortgage.  Mortgage rates become a prime issue for home buyers as does their credit report.  The interest rate on that mortgage is determined in large part by your credit score.

Whether or not you qualify for a mortgage is often determined by your credit score alone.  It is true that income, debt and assets are important but your credit score is the first determining factor.  Your credit score must be at a certain level for the rest to matter.  Rates are based on your credit score as well.

Credit scores are vital to your financial well being in so many ways that have nothing to do with purchasing a home.  For example, your credit score can impact what you are charged for auto insurance or whether or not a utility company requires a security deposit in order to get the lights turned on in your new home.

Here’s a good tip to improve your credit score – don’t pay off your credit cards.  Get them down to half or less of what you’re allowed to charge.  Ellen Jacobson is a Senior Mortgage Banker with JP Morgan Chase and someone I’ve worked with for years.  She told me that most folks she sees make the same mistake.  They pay off one credit card at a time in an effort to have fewer credit cards.  “Nothing could be further from the truth” she told me.  In fact, she said that closing a credit card can hurt your credit score.

Of course no one is advocating that you maintain credit card debt.  If you do have several credit cards, try to make sure you keep them all no higher than 50% of what you are allowed.  This will improve your scores.  You may also want to get best balance transfer cards. It’s also a smart idea to consult with your mortgage banker before you do anything.  Being careful is always a good idea.

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