3 Ways To Get On Top Of Your Credit Score When Seeking A Mortgage
One of the main concerns people have when buying a home is being refused credit. With the market still in recovery following the global financial crisis, many people are finding their credit score just isn't good enough to obtain a mortgage. If you are concerned about this, there are a few things you can do to show mortgage lenders you are a responsible debtor:
Get a Recent Copy of Your Credit Report
Many people make the huge mistake of ignoring their credit report. They assume any bad credit will be notified to them directly, and so they believe they can keep track of their credit without buying their report. However, this mistake can be catastrophic – if you don't know exactly what your credit score is, you won't know which lenders to approach first.
Even if you have an idea of your overall score, you won't know the true details of your report without first buying a copy. There are a number of different things lenders take into consideration, such as your existing credit sources, the number of late payments on your report, and any court judgements against your name. Without knowing these, you are essentially going in blind when speaking to lenders, so it's important to have a thorough understanding of your current situation.
Therefore, you should order a copy of your credit report from the three main credit agencies (Experian, Equifax, and TransUnion). Different lenders use different agencies, so knowing where you stand with all three will give you the best chance of sourcing a mortgage.
Increase Your Existing Credit Payments
If you have a number of credit sources already open, it's important you can demonstrate the ability to pay these off over a specified period of time. This means you should be paying more than the required minimum payment, as minimum payments will incur a higher overall interest on your account.
Although lenders make more money out of minimum payments due to increased interest, they do not view this as responsible borrowing. Making the minimum payment suggests to many lenders you aren't fully committed to clearing your debt, which can make them wary of lending to you in the future.
Therefore, even if your credit score is currently low, start making more than the minimum payment on your accounts to show lenders you are a responsible borrower. Not only will this help when it comes to sourcing a mortgage on bad credit, it will also get rid of your existing debts much more quickly, giving you greater negotiation power when it comes to your mortgage's interest rate.
Don't Max Out Your Existing Credit
One of the main things borrowers look at in your credit report is your utilisation on existing credit. By utilisation, they mean the percentage of your available credit that has been spent. A high utilisation comes perilously close to maxing out your credit suggests you are currently in financial trouble and are unable to properly manage your income.
Many financial advisers will suggest ranking your current credit sources from lowest to highest and paying off the lowest balances first. The theory is this will give you the mental boost of clearing a debt in its entirety, motivating you to continue practicing proper budgeting habits down the line.
While this theory is indeed true for those trying to get out of debt, you may wish to adopt a different approach when looking for a mortgage. When looking for a mortgage, paying off one source of credit but maintaining full utilisation on others is not a good idea. Therefore, consider paying each card until they are all less than 50% utilisation. This will show potential lenders you are able to manage your current credit properly, ensuring them you will be a responsible borrower.
It takes time to improve your credit score, but with a strong commitment, you can make strides to improve your ability to purchase a home. If you are worried about your credit score affecting your ability to buy a property, contact a real estate lawyer, like Rella, Paolini & Rogers, who will be able to outline the process of buying and make recommendations as to how you can increase your chances of being accepted.