Taking Measures to Improve Your Credit Score
It’s no secret these days that when it comes to houses, prices are on the rise. On the other hand, it seems that it’s becoming somewhat difficult to get the mortgage you want nowadays.
A good credit score is one of the more important factors when trying to gain mortgage approval. Since it is also a factor in calculating the interest rate you’ll be given, a favourable score can also save you thousands of dollars over the course of your amortization. Therefore, it’s best to get your credit score in the best shape you can manage before you apply with any lender. If your score is lower than 600-650, or you would simply like to improve it as much as possible, there are a few simple tricks you can use.
Get a Copy of Your Credit Report and Dispute Any Errors You Find
One of the first steps you can and should take before applying is to request a copy of your credit report. You are entitled to one free copy of your report annually. Reviewing yours will not only let you know if you’re financially ready to take on a mortgage, it’s a way to discover any errors that are damaging your score and dispute them.
Build a Solid Credit History
Another thing that lenders like to see on a mortgage application is a solid credit history that’s at least one or two years long, with a variety of well-managed credit products in it. Not only will this show your lender that you’ve been dealing with your debts responsibly, it’s a good way of raising your credit score. Some payments, such as your utilities, phone, and cable bills are not recorded in your credit report and don’t generally affect your credit score. But, payments for your credit cards, loans, and other credit products certainly do. While it can take time, one of the easiest ways of improving your credit score is by making all your credit payments on time and in full.
Don’t Carry High Amounts of Debt
Plain and simple, the more debt you carry, the longer it will take you to pay it off and the more of a risk your lender will consider you. Maxing out your credit cards and having a large amount of other debt on your plate is a red flag that makes lenders think you won’t be able to juggle both your debts and your future mortgage payments.
Get a Secured Credit Card
As mentioned, one way of improving your score gradually is by making timely bill payments, which can be done using a credit card. However, it’s possible that your credit score is so low that you don’t even qualify for a regular credit card and therefore won’t qualify for a mortgage with many prime lenders. If that’s the case, you can get yourself a secured credit card. They’re called “secured” because they require a deposit in order to qualify, similar to other types of secured credit, where collateral is necessary. The deposit is usually equal to the credit limit you wish to have. With a secured card, you can rebuild your credit history by making regular, timely, and full payments. If you continue this behaviour, you should soon qualify for a regular card, which you can use until you’ve built your credit score back up to the point when mortgage lenders will consider you again. Once you cancel your secured card, your deposit will be returned.
Don’t Apply For Too Much New Credit Within a Short Period of Time
While getting your application declined by one lender might make you to want to shop with lenders all over town, doing so can actually damage your credit score. Every time a lender pulls a copy of your credit report, they’ll be performing a “hard inquiry”. Inquiries will be listed within your report and are visible to anyone reviews your credit report for any reason. Only hard inquiries cause your credit score to drop a few points. So, filling out multiple applications for mortgages, or any kind of credit products, for that matter, will surely damage your score. Therefore, it’s best to wait a few weeks between each official mortgage application with any lender.
As we said, if your credit score is below your lender’s standards, it’s possible that your first mortgage application won’t be approved. You may have gone through the pre-approval process and stress-test, only to discover that you don’t have the necessary finances to afford your future mortgage payments. With the introduction of the new mortgage regulations, many potential homeowners are finding themselves in a similar position.
You are not alone and there are ways you can improve your
credit to the point where you will be approved. For queries on credit scores, mortgage approval and other such financial information, log on to Agent ReVa.