Purpose of this mortgage tip: to explain the importance of good credit and show you ways to obtain it.

When you apply for a home mortgage loan, your credit will be placed under the microscope. Mortgage lenders will scrutinize your credit to find out what kind of risk category you fall into.

When your credit score is low, your risk factor is high. In this scenario, you'll likely have trouble obtaining a loan. But when the opposite is true (high credit score and low risk factor), you'll have a good chance of qualifying for a mortgage loan.

How to Maintain a Good Credit Score
You've probably heard the expression "An ounce of prevention is worth a pound of cure." These are words of wisdom when it comes to your credit. It's a lot easier to maintain good credit than it is to recover from bad credit. So try to stay out of that "neighborhood" to begin with.

Five Steps to a Better Credit Score

1. Keep your debt-to-income ratio at or below 20%. Mortgage lenders prefer your overall debt to be no more than 20% of your net monthly income. If your debt equals more than 20% of your income, try to pay it down as quickly as possible.

2. Be sure to pay all your bills on time. Paying bills on time will raise your credit score. On the contrary, a history of late payments will lower your score.

3. Don't let your credit card balances get away from you. This increases your overall debt, which leads to an unfavorable debt-to-income ratio. Remember the 20% rule from Step #1?

4. When you get a credit card bill, always pay at least the minimum amount that's due. If you can afford to pay more than the minimum, by all means do so. This will reduce your balance quicker and give you a more favorable debt-to-income ratio.

5. Don't apply for too many loans. Apply for credit too often, and you'll send a signal that you can't manage your finances properly. Use credit and loans sparingly, only when you need them.

Remember, the better your credit score, the better your chances of qualifying for a mortgage at a good interest rate. So be proactive in maintaining good credit. Start early and focus on the long-term.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author's note, and also leave the hyperlinks active.