Once you apply for a mortgage, the lender accesses your credit report, which is based on data given by the three main credit-reporting agencies – Equifax, Experian and TransUnion. Your credit score should be somewhere between 300 and 850; this score is based on factors such as the length of your credit history, your available credit, the amount of credit you’ve used, and employment history. This number is your FICO score (named for the Fair Isaac Reporting Company).
Mortgage lenders consider several risk elements when deciding whether to approve a mortgage. A potential home buyer who pays all their bills on time and doesn’t have more credit than they can deal with is probably a safe risk when it comes to lending them the cost of a home. The higher your credit score, the more options and better interest rates you can qualify for.
So what should you do if you’re purchasing a house, but don’t have the best credit in the world? Amazingly, around 25% of credit reports have serious errors in them which can significantly affect the interest rate you’re offered – so the first thing you should do is to check yours and make sure it’s accurate. It’s fairly easy to fix any mistakes on a credit report, although it can take several months, so it’s a good idea to check your report before even beginning the house buying process.
Think twice about buying a new car if your credit is less than excellent – the amount of credit given to you can affect your score and the interest rate you’re offered. Unless your credit is excellent, try to wait and buy the car – or any big purchase – after you’ve closed on your new house.
Try to keep at least one long standing credit account – if you’ve had a credit card for several years, keep that one. Lenders approve of borrowers who have a long credit history and can show some stability. If you’ve department store credit, try to pay this off and keep an actual credit card. You might see an improvement in your credit score if you go for several months without applying for any new credit or loan; although checking your own credit score won’t affect it.
Paying your bills on time also helps build up your credit score. We all miss a payment occasionally, but you shouldn’t do it too often. Lenders are looking for a record of timely payments and stability; in fact, this is the single biggest factor when it comes to your credit score. If you know you’re going to be late paying a bill, notify the lender involved – this might allow you to keep the late payment from affecting your credit score.
Place your comment