When it comes to applying for a mortgage, your credit score is the main factor in determining everything from your interest rate, to your monthly payments, and the terms of your loan. Lenders use credit scores to determine the amount of risk they are taking when issuing a loan. The lower the credit score, the higher the risk that is associated with the borrower.
The good news is you don’t need a "perfect" credit score to secure financing. There are home loans available that only require a minimum of a 580-credit score. However, the better your score, the better your chances are of getting a favorable loan, and potentially better interest rates.
The great thing about credit is that no matter where you stand, you can improve your number — it is never permanent. The first step is knowing your credit score and reviewing your credit report for any inaccuracies. Having items listed on your credit report that are not yours can negatively affect your credit rating.
Here are a few tips to get you started on improving your credit score:
- Pay your bills on time. Enroll in a bill management program to help you. Some banks offer similar programs through email and text alerts.
- If you don’t have a credit card, get one. Lenders like to see regular credit card payments. Do your best to make the minimum payments (more if you can afford it) and stay below your credit card limit.
- Keep any credit card accounts that have an excellent history. Be sure to use them strategically, keeping your balance below 30% of their limits and only for small purchases that you can easily pay off in full at the end of each month
- Cut your debt-to-income ratio. It can be painful to eliminate those daily lattes or coffees, but paying off your debts should be priority number one.
Start by requesting your free credit report. Once you know what your credit score is, you can start working on credit repair. However, rebuilding your credit will take some time, follow the tips listed above and you'll be on your way to improving your credit score.
For additional information and tools to help improve your credit, speak with a GO Mortgage Home Loan Advisor today!