How Credit Scores Affect Your Mortgage
A good credit report and credit score are important factors in determining whether you will be approved for a mortgage. Following are some simple steps you can take to maintain a good credit history and improve your chances of being approved.
What Is A Credit Score?
Your credit score is a number that illustrates your financial health at a specific point in time. It also serves as an indicator of your financial past, and how consistently you pay off your bills and debts. This is one of the factors mortgage professionals consider in qualifying you for a mortgage.
Checking Your Credit Score
For a fee, these agencies will provide you with an online copy of your credit score as well as a credit report: a detailed summary of your credit history, employment history, and personal financial information on file. You can also obtain a free copy of your credit report by mail every year. If you find any errors in your report, notify the credit-reporting agency and the organization responsible for the inaccuracy immediately.
It’s important to begin building a credit history as early as possible. You can start by applying for and responsibly using a credit card. Your mortgage professional can help.
Boosting Your Credit Score
Planning ahead to ensure your credit is healthy before applying for a mortgage can translate into a better mortgage rate and product, which can save you significant money throughout the term of your mortgage.
Following are 5 steps you can use to help attain a speedy credit score boost:
- Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.
- Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score — credit formulas don’t take into account the fact that you may have paid the balance off the next month.
- Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Your best bet is to pay your balances down or off before your statement periods close.
- Keep old cards. Older credit is better credit. However, if you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and may not be as valuable — even though you have had the cards for a long time. You should use these cards periodically and then pay them off.
- Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.
If you have repeatedly missed payments on your credit cards, you may not be in a situation where refinancing or quickly boosting your credit score will be possible. Depending on the severity of your situation — and the reasons behind the delinquencies, including job loss, divorce, illness, and so on — we can help you address concerns through a variety of means and even refer you to other professionals to help get your credit situation in check.
As always, if you have any questions about you credit situation or your mortgage in general, we're here to help!