I would appreciate if anyone with mortgage knowledge can chime in. I'm in the process of applying for a mortgage and my credit score isn't that great due to a few factors;
1) Age of my accounts, my oldest account is about 8 years.
2) I have a side business which I spend a lot of money on and the statements close with large balances.
Just to clarify I pay every dollar off in full every month and never paid a dime in interest. Will this effect my mortgage rate or would I be able to explain this and show proof and get a rate as if I had a 760 score?
(As a side, I try using only business cards so that it won't be on the report but that credit isn't currently enough)
The problem exists when your credit shows large balances on them. If the balances are on business cards, most of the time they dont report so thats a non-issue.
Even though you pay off your balances in full, if they are showing on credit when the bank runs it, the minimum payments reported will have to be included in your monthly obligations and debt-to-income ratio.
You can exclude these payments from DTI by paying off those balances and then proving to the bank that they were paid. But then you need to show where the money came from and that you didnt borrow it (usually needs to be seasoned in your accounts). And then the money used to pay off these balances cannot be used as "reserves" to show you have a cash-cusion after closing. Much easier to make sure anything showing on credit is paid before that credit is run by the bank.
Keep in mind that most banks will re-run credit right before closing so dont have any more debt showing at that point or that can really put a damper on things.
