Many people ask what credit is, what their credit score is and how can they improve it.
A good credit score is very important when applying for a mortgage. You must have good credit in order to purchase a home and get a great interest rate. If you don’t have enough credit, a long enough credit history or a history of late payments, the mortgage companies and insurers may not approve you. Credit is a very important part of the mortgage financing approval process.
Lenders rely heavily on your history as an indication of how you will manage your mortgage and financing in the future. Unfortunately, lower credit ratings can decrease your chances of getting approved for a mortgage and may result in needing a co-signor or having to pay a higher rate and lender fee. I can help you learn about your credit score and make sure it’s where it needs to be to secure a mortgage. It’s also a good idea to find a trusted credit monitoring website to keep an eye on your balances, credit cards and loans. A few suggestions are:
Some sure-fire ways to help your credit score are:
- Have at least two types of credit at all times. Some examples would be a credit card (with a minimum limit of $2000), car loan or lease or a line of credit. This will show that you can manage your credit. Not having any credit at all is challenging, lenders need a track record of your credit in order to properly judge you for your mortgage financing.
- Make your payments each month and on time. NEVER skip a payment and always make at least the minimum payment owing.
- Do not exceed more then 70% of your available credit on your line of credit or credit cards and if you can, try to pay the credit cards off every month to avoid high interest charges. This is hard for some people to do, but if you can get in the habit of never charging more than you can pay then you won’t get caught in the credit trap. Exceeding your credit limit can substantially decrease your credit score and lenders view this as not responsibly managing your credit. There are always occasions where a credit card has to be used for an emergency expense, so keeping available credit open for these instances is important so it doesn’t hurt your credit score.
- Do not let your credit be pulled too often. Each credit pull affects the score so if you are searching for credit this will be reflected in your score. Your mortgage agent is required to take a full application and pull a credit bureau in order give you an idea of what a lender will offer you but we use the same credit bureau for multiple lenders so this is better than going from bank to bank looking for a mortgage. It’s also advisable NOT having your credit pulled for credit cards, line of credits or car loans often as this will lower your credit score and raise red flags. If you are declined for credit seek to learn why before applying at the next place.
I can discuss your credit file with you and provide suggestions on how to build, maintain or improve your credit scores.