When you meet with a mortgage lender, one of the pieces of information that they will rely heavily on in determining whether or not to lend you money at all, and if so, how much to lend you, is your credit score. If you’re hoping to buy a home in 2017 but your credit score isn’t where you would like it to be, either because of financial issues in your past or because you haven’t yet started to build credit – don’t worry! There is still time to work on repairing or building your credit so that you can buy the home of your dreams in 2017.
The higher your credit score is, the more likely you are to receive the lowest interest rate on your mortgage loan, which can save you literally thousands of dollars over the lifetime of your loan. If you have any questions about your credit score or credit history and how it may impact your ability to get approved for a mortgage loan, we recommend calling an experienced mortgage lender. Following the tips below should help you jump start repairing or building your credit and get you on the road to home ownership.
Payment history is taken heavily into consideration when calculating a credit score and even just one 30-day late payment can cause your score to drop. Any late payments of 60, 90 or more days late can cause scores to drop as much as 100 points. By paying on time every time, you ensure that your score won’t take any unexpected hits from late payments.
Prospective lenders want to see that you can utilize credit appropriately and mortgage lenders specifically want to see that you are able to repay your current credit obligations as well as any mortgage that they may extend to you. Your credit score will drop when you hold balances on your cards which are higher than 30% of your total available credit. One of the fastest ways to boost your score is by paying any credit card balances you are carrying to under 30% of the amount of available credit. If you have never had a credit card before but would like to buy a home, this may be the time to look into applying for a credit card. As said above, mortgage lenders want to see that you utilize credit responsibly, which may be difficult to prove to them if you have no credit history. By opening a card and charging and then paying off the balances (or paying down the balance) on the card, you’ll show your prospective lender that you manage your financial obligations responsibly.
Did you know that a recent study found that about 20% of consumers had some type of error listed on their credit report? These errors range from minor items which are unlikely to impact an individual’s ability to purchase a home to errors that include items which significantly impact your credit score, your credit history or your debt to income ratio - - all things that are taken into account by mortgage lenders when they evaluate whether or not to lend to you. By law, you may request one free copy of your credit report each year. We recommend reviewing your report on an annual basis for errors.
No matter your financial past – whether you’ve had some tough financial times in the past, made some financial mistakes or you are just starting out and have not yet built any credit – now is a great time to take charge of your financial future.
Do you have any tips about building credit that you can share? If so, tell us in the comments below!