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Should You Get a Cosigner for Your Mortgage? A Must-Read Guide
Jennifer Hernandez • January 15, 2024
If you're pursuing homeownership but encountering financial hurdles along the way, the idea of having a cosigner for your mortgage might have crossed your mind.
So, why would you consider having a cosigner? The primary reason often revolves around income. If your income alone doesn't quite satisfy the lender's requirements for the debt to income ratio, a cosigner can help bridge that gap. For instance, if you're a recent graduate with a limited income, having a family member or a close relation as a cosigner can significantly boost your chances of realizing your homeownership dream.
However, it's important to recognize that having a cosigner isn't a magical solution. They aren't just there to lend their name and vanish into the background. They have responsibilities too, including handling paperwork and undergoing the same financial scrutiny as you. Crucially, having a cosigner will still require ALL borrowers, including yourself, to have satisfactory credit. Lenders always consider the lowest credit score among all borrowers, meaning if your credit isn't in stellar shape, it could still pose challenges.
In this guide, we're here to debunk common misconceptions about cosigners, particularly the belief that they can miraculously erase or overlook bad credit. That's simply not the case.
Cosigner or Co-Borrower? There is a Difference
Now, let's delve a bit deeper into understanding what a cosigner is, ensuring we keep it clear and straightforward. So, what exactly is a cosigner, and how do they fit into your journey towards securing a mortgage?
The first crucial thing to understand, is that having a cosigner or co-borrower, the lender will have requirements that differ, depending on the loan type you are seeking. If your loan is an FHA loan, secured by the Housing Urban Development of the government, the requirements for a cosigner and co-borrower are more stringent. In fact, they must be an extremely close family member like a sibling, parent, step parent, or aunt or uncle. This is defined as a close family relation. The other type of common loan, Conventional, is more lenient in this aspect, so be sure to speak directly with a lender about the program you qualify for. If you are seeking a VA loan, which is a benefit for our veterans, there are no co-borrowers allowed other than the legal spouse.
A cosigner is signing only. They will provide income, asset and credit information, but will only appear on the mortgage note, not the title of the home itself. On the other hand, a co-borrower, is a borrower in entirety, and will also appear on the title of the home with the primary applicant.
These definitions are important as your support network decides how they would like to assist you. Many cosigners and/or co-borrowers will be concerned about their future qualification for a home of their own, if they co-borrower. My suggestion here is that they discuss thoroughly with your lender their finances, and potential future buying plans to be sure to have all of the facts straight before they commit.
Reasons to Consider a Cosigner
Now that we've covered what a cosigner is, let's dig into why having one could be a smart move. The most common reason people turn to cosigners is to boost their income. If your paycheck alone doesn't quite stack up to the lender's requirements for the dream mortgage you have in mind, a cosigner can come to the rescue.
Think about it this way: imagine you've just graduated from college, and you're all fired up to buy your first home. But there's a catch—your income is on the lower side, which might not align with what the lenders are looking for. It's a bit like having all the keys to your new home but missing the right one to unlock the door.
This is where a cosigner can step in and make a real difference. They bring their income and financial stability to the table, bolstering your chances of getting approved for the mortgage you need.
So, having a cosigner isn't just about having a safety net; it's a strategic move that can bridge the gap between your reality of homeownership and the reality of your current financial situation. In the next sections, we'll explore the roles and responsibilities of a cosigner and address some common myths about their impact on your mortgage journey.
The Role of a Cosigner
Now that you know why someone might become your cosigner, it's time to understand that they're not just there to nod silently in your mortgage journey. They take on specific responsibilities, which includes dealing with paperwork and having their financial situation carefully examined.
When you team up with a cosigner to apply for a mortgage, their financial background is put through the same thorough evaluation as yours. They should expect to provide pay stubs , bank statements and possibly other documents.
In the next section, we'll tackle common myths about cosigners to ensure you have a crystal-clear understanding of their role in your mortgage journey.
Common Myths About Cosigners
It's time to set the record straight on some misconceptions surrounding cosigners.
Myth #1. Having a cosigner can perform a magical vanishing act on bad credit.
In reality, this is not the case. Lenders play by a different rulebook—they always go with the lowest credit score among everyone involved in the mortgage, regardless of how impressive your cosigner's credit history might be.
Imagine you have a not-so-great credit history, and you're thinking that a cosigner with excellent credit will make all those past financial hiccups disappear. This is actually not the case. All credit is considered, and the lender will consider the lower of the borrower's credit score for the final decision of the approval. If you need to work on your credit, sooner rather than later is better. If you are not wanting to talk to a lender yet, but are curious to see the credit score that most resembles what lenders pull, visit MyFICO.com. Getting your credit score up could save you hundreds of dollars a month on your mortgage payment and thousands over the life of your loan.
The primary role of a cosigner is to boost the income qualifications for your mortgage application. In other words, they can assist you in meeting the financial requirements that might be a bit out of reach on your own.
Myth #2. Cosigners will later not be able to get a home of their own.
True that the loan they cosigned for will be considered when they are later applying for their own credit. However, in many instances, the lender is able to obtain proof that the mortgage is being occupied and paid by you. Most of the time, 12 month proof of your payment will need to be obtained, so be sure to keep good records and pay using a bank account. When cashier checks or money orders are used, this can pose a verification problem later on. In reality, this is not the case. Lenders play by a different rulebook—they always go with the lowest credit score among everyone involved in the mortgage, regardless of how impressive your cosigner's credit history might be.
Myth #3. Cosigners can be anyone.
As mentioned before, this definition of close family relation will differ between an FHA loan, and a Conventional loan. These are the two most popular loan types, but by not means the only ones. Be sure to check with a mortgage lender to discuss your situation, and if your cosigner meets the defined criteria for the program.
Myth #4. Cosigners can sign without their spouses knowing or also signing.
This is a big one. Depending on the state you live in, this answer will be different. In community property states, the cosigners legal spouse will also need to sign at closing. This does not mean they will be on title, but they must acknowledge they know of the transaction. In addition, for some loan types, like FHA, the spouse of the cosigners credit will need to be pulled as well. This is because the income of the cosigner must be able to carry all the debts of their household as well.
Myth #5. If paid late, the cosigners credit will not be affected.
All signers credit will be affected in the case of a 30 day plus late payment. So be sure that you plan to have open communication with them , in case of a hardship down the line. Communicating about things ahead of time will help you preserve the relationship, rather than paying late, and risking damaging relationships later on.
As we approach the final stretch of our exploration into cosigners and mortgage loans, let's wrap it up with some valuable takeaways. When you're considering whether or not to involve a cosigner, take a moment to weigh the pros and cons thoughtfully. Think about your finances and also the finances of your cosigner, your credit situation, and even your relationship with the potential cosigner.
Reaching out to a mortgage loan officer can be a game-changer. Mortgage professionals are experts at helping provide exact answers so that you and your family can decide if a cosigner option is right for you.
As you move forward in your homeownership journey, take a step back if needed, gather all the facts, and make decisions that are best for you. Homeownership is a significant milestone, and with the right information, you're well on your way to achieving that dream.
Our mortgage team would be honored to provide answers to your questions about cosigners to help decide if this is your path for purchasing a home this year. We can be reached at
www.loanwithjen.com/contact
Buying a home is one of the biggest financial and emotional decisions you'll ever make. But how do you really know if you're ready? In this article, we’re breaking down five clear signs that you might be ready to buy a house—and one red flag that means you may want to wait. Whether you’re a first-time buyer or just testing the waters, this guide will help you move forward with clarity and confidence. Sign #1: You’re Financially Stable The first green light? Consistent income and job stability. If you’ve had a steady paycheck for at least two years (especially in the same industry), that’s a strong start. But it goes deeper than income: You should also have: An emergency fund covering at least 3–6 months of expenses Savings for a down payment (typically 3%–20% of the home price) Money for closing costs and moving expenses Pro Tip: Many buyers underestimate how much they’ll need after the down payment. Check out this mortgage planning article to avoid that mistake. Texas-Specific Tip: Texas has no state income tax—but property taxes are higher than the national average. Be sure to budget accordingly. You can estimate local taxes via the Texas Comptroller’s Property Tax site. https://comptroller.texas.gov/taxes/property-tax/rates/index.php Sign #2: You’ve Got Manageable Debt & Decent Credit Your debt-to-income ratio (DTI) and credit score directly impact your ability to qualify for a mortgage—and the rate you’ll get. A credit score above 620 is usually the minimum for most loan types The higher your score, the lower your interest rate—potentially saving you thousands over time If you're carrying high-interest debt, it might be wise to pause and reduce it before buying Your debt-to-income ratio is under 55%. Want to learn more? Watch How Your Credit Score Affects Your Mortgage . Sign #3: You’re Ready to Stay Put Buying a home makes more sense if you plan to stay in one place for at least 3–5 years. Why? Because selling a home comes with closing costs, commissions, and possibly capital gains taxes. If you move too soon, you may not have built enough equity to make it financially worthwhile. Ask yourself: Are you planning to stay in the same city or job? Do you feel ready to settle down a bit? Sign #4: You’re Ready for the Responsibilities of Ownership Homeownership isn’t just about finances—it’s a lifestyle shift. Are you ready to: Maintain a yard Handle repairs Budget for appliances or home upgrades These are everyday realities renters don’t usually deal with. If you’re ready to take that on, it’s a strong sign you’re ready to buy. Need a reality check? Watch The Real Cost of Homeownership for a behind-the-scenes look. Sign #5: You’ve Budgeted for the Full Cost of Homeownership It’s easy to focus just on your monthly mortgage payment—but that’s only part of the picture. You also need to budget for: Property taxes Homeowners insurance Maintenance and repairs HOA fees (if applicable) If you’ve run the numbers and still feel comfortable, you’re probably in good shape. Red Flag: You’re Buying Out of FOMO If your motivation to buy a house is: Everyone else is doing it You’re afraid of being priced out You feel pressured by social media or family Take a step back. Fear of Missing Out (FOMO) is not a solid reason to buy a home. Your decision should be based on your goals, your finances, and your lifestyle—not the market hype. Not Sure If You’re Ready? We’ve Got You Covered Download our free Homebuyer Readiness Checklist to see where you stand Check out our Blueprint to Homeownership course for a step-by-step guide through the buying process Bottom Line Buying a house isn’t something to rush—but with the right preparation, it can be one of the most rewarding decisions you ever make. If you feel financially stable, ready for long-term commitment, and confident in your lifestyle plans—you may be ready to take the next step. Have questions? Reach out here Book a 15 Mins Call and we’ll walk you through it. Want more clear, honest mortgage advice? Subscribe to Loan With Jen on YouTube
Think you can’t afford to buy a home? You might be surprised. The income you actually need may be lower than you think. In fact, most people are asking the wrong question entirely. In this post, we’ll break down: How lenders really decide what you qualify for A simple formula to estimate your price range Why your debt matters more than your income Plus—how first-time buyers get approved with less than you’d expect It’s Not Just About Income—It’s About Debt-to-Income Ratio (DTI) Most people think income alone determines your buying power. But lenders focus more on your Debt-to-Income Ratio (DTI) . Here’s how DTI works: Your total monthly debt ÷ your gross monthly income = your DTI Most lenders want this ratio to be 45% or lower , though some loan programs will allow more. This calculation includes: Your new mortgage payment Property taxes Insurance HOA fees (if applicable) Any car loans, student loans, or credit card minimum payments Example: Let’s say you make $75,000 per year—that’s $6,250/month gross income. 45% of that = $2,812 Now subtract your monthly debts: Car loan = $500 Credit card payments = $300 Total = $800 That leaves you with about $2,000/month for a mortgage payment. What Kind of House Does $2,000/Month Get You? With interest rates around 6.5% , that could get you a home priced at $260,000–$280,000 , depending on your: Down payment Property taxes Location HOA dues Of course, this is just an estimate. You can plug your numbers into a mortgage calculator to get a more accurate idea based on your location and situation. How Loan Types Impact Income Requirements Your loan program plays a big role in how much home you can afford. Here’s a quick breakdown: FHA Loans : Allow DTIs up to 50%, and only require 3.5% down VA Loans : For veterans—no down payment required and very flexible income requirements Conventional Loans : Stricter guidelines; usually require 43–45% DTI and 3–5% down USDA Loans : No down payment, but must be in eligible rural areas and meet income caps And remember— a larger down payment means a smaller monthly mortgage , which helps you qualify for more. Credit Scores and Reserves Matter Too Even if you qualify on paper, your credit score and cash reserves play a key role: Higher credit score = lower interest rate = lower monthly payment Reserves are how much money you have in the bank after closing. Many lenders require at least 1–2 months of mortgage payments in reserves. Even if your income is borderline, having reserves can tip the scales in your favor. Real Buyer Stories: It’s More Possible Than You Think Story 1 : A couple earning $90K/year thought they needed to wait because of student loans. But with FHA, 3.5% down, and minimal other debt, they got approved for $325K—and closed on a home last month. Story 2 : A single teacher earning $52K/year bought a $210K condo using just 3% down and a first-time buyer grant. She didn’t think she qualified—until she did. Don’t Forget Side Income or Co-Buying You might qualify for more than you think if: You co-buy with a spouse, parent, or sibling You have side income (Uber, freelance, small business) that’s been on your taxes for at least 2 years That extra income can help you get approved. The Formula: Estimate What You Can Afford Here’s a quick formula to ballpark your buying power: Take your gross monthly income Multiply by 0.45 (max DTI) Subtract your monthly debts The remainder is your max mortgage payment (including taxes & insurance) Use a mortgage calculator to plug in that number and see what home price you might qualify for. Online mortgage calculators don’t take tax or insurance into consideration most times, but this will give you a ballpark figure. Before you get your heart set on a house though, reach out to a lender to find out your true buying power. It costs you nothing to get this information! Bottom Line: You Probably Don’t Need Six Figures to Buy a Home Most buyers are surprised by what they can afford. The key is understanding how lenders look at your full financial picture—not just your income. You don’t have to guess. And you don’t have to go it alone. Next Steps Take our FREE Blueprint to Homeownership course for a step-by-step guide Reach out to our team for a free strategy call —we’ll help you crunch the numbers and create a plan If you found this helpful: Subscribe to the Loan With Jen YouTube channel for weekly tips
You’re not starting over—you’re starting fresh. And yes, you can buy a home after a divorce. If you’re navigating a divorce or separation, I want to start with this: Big hug. Big kiss. This season of your life might feel uncertain or overwhelming, but you’re not broken. You’re rebuilding—and I’m here to help. Let’s walk through the 5 most common mistakes people make when trying to buy a house after divorce —and how to avoid them. 1. Your Credit Tells the Real Story—Not Just the Divorce Decree Here’s what most people miss: Even if a divorce decree says your ex is responsible for a shared mortgage or credit card, your name on the account means it’s your responsibility in the lender’s eyes. That means: Late payments by your ex will still hit your credit. A mortgage that your ex was supposed to refinance but didn’t? Still counts against your debt load. What to do: Pull your full credit report from all 3 bureaus : Experian, Equifax, and TransUnion Review all joint accounts : Are they closed? Paid off? Still open? Check if your ex has refinanced you off the mortgage —don’t assume, verify! Collect documentation if the mortgage responsibility was transferred Pro Tip: As a lender, I can do a soft credit pull for you—no ding to your score—to identify red flags before you apply! 2. Income After Divorce—What Counts (and What Doesn’t) Post-divorce income can be complex. Whether you're earning on your own or receiving support payments, lenders need proof of stability and consistency . What lenders typically require: W-2 income or 2 years of self-employment returns At least 3–6 months of child support or alimony payments (with documentation) A copy of your final divorce decree or court-ordered support agreement Watch out for: Informal payments (Venmo, cash) with no paper trail Newly ordered support that hasn’t been received yet Significant drops in income—these must be accounted for Pro Tip: If your income has decreased after divorce, we can explore co-borrowers, grants, or flexible loan programs to help you qualify. 3. The Old Mortgage Can Haunt You (Even If You Don’t Live There) Even if your ex is living in the home and paying the mortgage, if your name is still on the loan, it counts against your debt-to-income ratio. This can affect how much you qualify for—even if you’re renting now or planning to buy something smaller. How to handle it: Ask your ex to refinance the home and provide a release of liability from the lender. Ask the lender - before you are off the loan and still authorization to speak to the lender - to provide you with instructions on how to receive a release of liability. If refinancing isn’t happening, collect 12 months of canceled checks or bank statements showing your ex is paying from their own account If those options aren’t possible, you may need to wait until the home is sold or work with a lender who understands how to navigate this scenario 4. Don’t Skip the Emotional Prep—Buying a Home Is a Big Deal Divorce doesn’t just impact your finances—it affects your emotions, too. Even if you're financially ready to buy, make sure you’re mentally and emotionally ready to take on homeownership again. This is especially true if you're moving from a home that holds memories or are co-parenting with children. Ask yourself: Am I rushing to buy just to feel “settled”? Is this home choice based on my new lifestyle , not my old one? Do I have the support system and clarity to take on this responsibility? Mindset Tip: Your next home should support your fresh start , not keep you tied to the past. You’re building your life now—on your terms. 5. Timing Is Everything—Don’t Rush the Process After a divorce, it’s tempting to try and “fix” everything fast. But buying a home is a major financial move, and sometimes waiting just a few months can make a big difference. Reasons you may want to pause briefly: Waiting for credit to improve Gathering more documentation or saving for a down payment Giving support payments time to become “seasoned” (most lenders want 3–6 months of consistent payments) That said, you don’t have to put your life on hold forever. The key is working with someone who knows the post-divorce lending landscape and can help you make informed choices. You’re Not Alone—And You Can Do This Whether you're newly separated or a year into your new chapter, you deserve a place to call your own. And you don’t have to navigate this alone. Ready to get started? Here are your next steps Get a free credit and income readiness review —just message me Take my Blueprint to Homeownership course if you want a full step-by-step roadmap. You’ve got options. You’ve got support. And most importantly—you’ve got this. I’m here to help you rebuild with confidence. Let’s find your fresh start.
Did you know that buying a home doesn’t just build equity… it actually lowers your tax bill every single year ? Whether you're a first-time homebuyer or looking to grow your investment portfolio, real estate offers powerful tax advantages that most people don’t even realize exist. I even have a legal strategy that helps real estate investors defer taxes on hundreds of thousands of dollars in profit. Why Does Real Estate Have So Many Tax Perks? Simple: The government wants you to buy real estate. Homeownership and property investment fuel the economy, so the IRS offers major tax incentives just for owning property. But many people miss out on these benefits—either because they are unaware or didn’t plan ahead with a qualified professional. Tax Benefits for Homeowners (Primary Residence) If you’re buying a home to live in , here are the top 3 tax perks you need to know: 1. Mortgage Interest Deduction You can deduct the interest portion of your mortgage —which is a huge portion of your payment in the early years. For most people, the deduction applies to loan amounts up to $750,000 (if married filing jointly). Fo example, if your loan is $400,000 at 6% interest, you’re paying ~$24,000 in interest your first year—most of which may be deductible. 2. Property Tax Deduction You can deduct state and local property taxes , up to $10,000 per year (or $5,000 if married filing separately). While not as generous as it once was, it’s still a meaningful deduction, especially in higher-tax areas like Texas . For Texas-specific property tax resources, check out the Texas Comptroller’s Property Tax Help page. https://comptroller.texas.gov/taxes/property-tax/ 3. Capital Gains Exclusion When you sell your primary home, you may be able to exclude up to $250,000 of the profit (or $500,000 if you are married) from capital gains tax. The catch: You must have lived in the home for at least 2 of the last 5 years. That means if your home appreciated $400,000 and you're married—you could pay zero tax on that gain! Watch: How to Avoid Capital Gains Tax on Your Home Sale Tax Benefits for Real Estate Investors This is where the real tax magic happens. As an investor, you’re not just earning income—you’re tapping into one of the most tax-advantaged asset classes in the country. Here are five big tax breaks available to real estate investors: 1. Depreciation Even if your rental property is appreciating in value, the IRS lets you “pretend” it's losing value for tax purposes—this is called depreciation . A $275,000 rental property (excluding land) can generate $10,000/year in depreciation —offsetting your rental income on paper and lowering your taxable income.
Down payment assistance programs (DPAs) sound like a dream come true—free money to help you buy a home! But before you get too excited, there are hidden costs and crucial details you need to be aware of. Let’s uncover the real impact of DPAs so you can decide if they’re the right fit for you. What Are Down Payment Assistance Programs? Down Payment Assistance Programs, or DPAs, are designed to help homebuyers, particularly those with limited income, afford a home. While many of these programs are for first-time buyers, some cater to repeat buyers as well. Here are the key factors to consider: Income Limits: Most DPAs have income restrictions based on your area’s average median income. Credit Score Requirements: Your credit score will need to meet a minimum threshold. Geographic Restrictions: While some programs are available statewide, others are limited to specific locations. Types of Down Payment Assistance Grants – Free money that doesn’t need to be repaid. These are typically reserved for first-time buyers. Forgivable Loans – A second mortgage that is forgiven after you live in the home for a set period (commonly 3, 10, or even 20 years, depending on the program). Deferred Payment Loans – A second lien with no required payments until you sell or refinance your home. This must be repaid when you pay off your first mortgage. Sounds great, right? Well, let’s dive into the hidden costs and fine print you need to be aware of. The Hidden Costs of Down Payment Assistance 1. Higher Interest Rates Most DPAs come with a higher interest rate compared to conventional financing. This means you could be paying thousands more in interest over the life of your loan. While some programs offer competitive rates, qualifying can be more difficult. 2. Increased Closing Costs In addition to a higher interest rate, many DPAs come with additional fees, such as: State Administration Fees: These can range from $500 to $600. Origination Fees: Some lenders charge a percentage of the loan to access the program. Before committing to a DPA, compare a loan estimate with and without assistance to see the true cost side by side. 3. Restrictions on Occupancy Many DPAs require you to live in the home as your primary residence for a set period. If you decide to rent it out, you could be required to pay back the assistance in full. 4. Income and Location Restrictions Most programs have income caps based on your area’s median income. If your income exceeds the limit, you won’t qualify. Some programs also require you to buy in specific areas. 5. Recapture Tax (Resale Requirements) Some programs include a recapture tax , meaning if you sell your home for a profit, the program can claim a portion of that profit as repayment for the assistance. This can be a significant financial setback if you weren’t expecting it.
Dreaming of owning a home but haven’t saved up for a down payment? You’re not alone—and good news: there are options for you! In this post, we’ll break down four powerful ways to buy a home with little or no money down —plus, a few key mistakes to avoid that could cost you thousands. These are real strategies we use with buyers every single month. 1. USDA Loans – For Rural Buyers The USDA loan program, which is backed by the United States Department of Agriculture , offers 0% down financing for eligible properties and borrowers. The catch? There are income and geographic restrictions . Good for : Rural or suburban buyers outside city limits Down payment : $0 Bonus : Lower mortgage insurance than FHA Check if a property qualifies for USDA Watch this video : Understanding USDA Loans with Jen 2. VA Loans – For Veterans and Their Families If you’re a veteran or the surviving spouse of a veteran, the VA loan offers a $0 down path to homeownership—with no mortgage insurance and loans available up to $2 million ! Good for : Active military, veterans, or qualified spouses Down payment : $0 Bonus : Flexible credit guidelines and competitive rates Watch this video : How VA Loans Work 3. Down Payment Assistance (DPA) If USDA or VA don’t fit your situation, down payment assistance programs (DPAs) might be your best option. These programs are provided at the state, county, or city level , and they can cover some or all of your down payment and/or closing costs. Good for : First-time and repeat buyers with limited savings Down payment : Partial or full assistance Bonus : Can sometimes be combined with seller credits Texas buyers, check out: 🔗 My First Texas Home Program 🔗 Texa s State Affordable Housing Corporation (TSAHC) Video breakdown : Down Payment Assistance Explained 4. Gift Funds – From Family or Close Friends Did you know you can receive money as a gift to help with your down payment? That’s right. FHA, VA, USDA, and Conventional loans all allow gift funds on primary residence purchases. But before you make a huge cash deposit, make sure you talk with your lender about how to document the gift. Good for : Buyers with supportive family Down payment : Fully or partially covered by gifts Note : Must be properly documented with a gift letter and proof of transfer Learn more : How to Use Gift Funds
Your credit score is the key to unlocking your financial future. Understanding how it’s calculated can help you make better financial decisions and avoid costly mistakes. Many people find their credit score to be a mystery—sometimes it drops even when they make payments on time! If you've ever been frustrated by fluctuations in your score, this guide will break down the five key components of your credit score so you can take control and boost it effectively. Why Your Credit Score Matters Your credit score is a three-digit number that reflects your financial responsibility to creditors. It affects everything from securing a mortgage or auto loan to getting approved for credit cards and even determining your interest rates. The better your score, the more favorable your loan terms— lower interest rates, smaller deposits, and better financial opportunities . In fact, 90% of lenders use FICO scores as their primary credit evaluation tool ( source ). But how exactly is your FICO score calculated? Let’s break it down. The 5 Components of Your Credit Score 1. Payment History (35%) – Never Pay Late! Your payment history is the most important factor in your credit score. It includes: On-time vs. late payments (payments that are 30+ days late are reported to credit bureaus) Collections and charge-offs Bankruptcies or foreclosures 🔹 Pro Tip : Always pay at least the minimum payment by the due date. Setting up auto-pay can help prevent accidental late payments. If you’re struggling, reach out to creditors to discuss payment plans before you fall behind. 📌 More on improving your payment history: How Late Payments Affect Your Credit Score 2. Credit Utilization (35%) – Keep Your Balances Low Your credit utilization ratio refers to the percentage of available credit you’re using. High utilization can hurt your score, even if you pay your balance in full each month! 🔹 Best Practice : Keep your credit card balances between 10-30% of your credit limit. For example, if you have a $5,000 limit, don’t carry a balance higher than $1,500 at any time. 🔹 Secret Tip : Your balance is reported to the credit bureaus on your statement closing date , NOT when you make a payment. If you pay your credit card bill before the statement closing date, you can lower the reported balance and improve your utilization ratio. 📌 More on credit utilization: Mastering Your Credit Score 3. Length of Credit History (15%) – The Longer, the Better Credit bureaus consider how long your accounts have been open. Older accounts demonstrate stability and reliability . 🔹 Best Practice : Avoid closing old credit accounts, even if you don’t use them often. Keeping them open helps maintain your average account age . 📌 More on the importance of credit history: How are Credit Scores Made? 4. New Credit & Inquiries (10%) – Be Careful with Hard Pulls Every time you apply for credit, a hard inquiry is recorded on your report, which can slightly lower your score. Applying for multiple credit accounts in a short time signals to lenders that you may be in financial trouble. 🔹 Best Practice : Keep new credit applications to a minimum and only apply when necessary. 🔹 Good to Know : Soft inquiries (like checking your credit score on your own) do not affect your credit score! 📌 More on credit inquiries: Does a Hard Enquiry Damage My Credit Score? 5. Credit Mix (10%) – Variety Matters Having a healthy mix of credit types boosts your score. Lenders like to see that you can manage different types of credit responsibly . A strong credit mix includes: Installment loans (e.g., mortgages, auto loans, student loans) Revolving credit (e.g., credit cards, home equity lines of credit) 🔹 Best Practice : If you only have one type of credit, consider adding another responsibly (e.g., opening a credit card if you only have loans). 📌 More on credit mix: How Your Credit Mix Affects Your Score
Does a Hard Inquiry on Your Credit Really Hurt Your Score? If you're planning to buy a home in Texas, you may be wondering: Does a hard inquiry on your credit really damage your score, and how will it affect your chances of mortgage approval? Let's break down what a hard inquiry is, how it impacts your credit, and strategies to minimize its effect so you can confidently move forward with your home purchase. What is a Hard Inquiry? A hard inquiry occurs when a lender checks your credit report to assess your creditworthiness for a loan, credit card, auto loan, or mortgage. Unlike soft inquiries (which happen when you check your own credit or when a lender pre-qualifies you without a formal application), hard inquiries are recorded on your credit report and may impact your credit score. Inquiries remain on your credit report for up to two years , but the good news is that FICO scoring models (used by 90% of lenders) only consider them for one year. This means that while the inquiry stays visible on your report, its impact on your score diminishes after 12 months. How Hard Inquiries Affect Your Mortgage Approval A hard inquiry alone is unlikely to prevent you from getting pre-approved for a mortgage. However, here’s what you need to know: FICO Treats Multiple Mortgage Inquiries as One: If multiple mortgage lenders pull your credit within a 30-day window , it only counts as one inquiry for scoring purposes. This allows you to shop for the best mortgage rates without penalty. Other Inquiries Can Hurt Your Score: While mortgage inquiries are grouped together, applying for credit cards, auto loans, or personal loans during the same time frame can lower your score. Impact Depends on Your Existing Credit Score: If your credit is already strong (e.g., 700+ score ), a hard inquiry may have a minimal effect—think of it as a small “peck” on a steel building. However, if your credit is already struggling, an additional inquiry could have a more noticeable impact. 👉 For a deeper dive into credit scores and mortgages, check out Loan with Jen’s guide on mortgage pre-approvals .