Obtaining a loan to buy a home is a major lifetime achievement for most people and thus requires one to exercise a lot of caution. It means a possible way to own a home, but still involves close monitoring of one’s strength and weakness, namely his/her financial status-credit rating included.
The life of your mortgage will become more manageable if you have good credit hence possessing a high credit score will make you enjoy low interest on the amount borrowed.
You do not have to be anxious if there’s a need to reinstate your credit score prior to application for a mortgage since it may be reinstated with proper planning and dedication. The following are the essential tips on how to improve credit score for a mortgage.
Understanding Credit Scores
To begin with, there is the need to define what a credit score is and how it is determined. Credit score is an indication of a person’s ability and willingness to pay back the borrowed amount and it ranges from 300 to 850.
Banks and other similar institutions utilize it to evaluate the possibility of you being default on the amount that has been given to you. In the United States, there are two main forms of credit scores including FICO and VantageScore. They consider several factors:
**Payment History (35%).** This is the most important traditional credit score element. Timely payments indicate reliability.
The credit utilization ratio is the measure of the overall credit limit and the utilized ratio is measured at 30% of credit. Lower utilization rates are better.
Length of Credit History (15%): This is longer because longer credit history is usually beneficial because it gives lenders more information about an individual financial conduct.
**New Credit (10%):** It is also dangerous to open several credit accounts within the past six months.
**Credit Mix (10%):** There are benefits to the credit mix; this includes credit card, instalment loans as well as mortgages.
Review Your Credit Report
The first activity, therefore, should be requesting for and examining the credit report for loans from investment mortgage lenders. There is a law stating that every citizen has a right to get credit report from three reporting agencies namely Equifax, Experian and TransUnion free of charge but annually only.
Order these reports and analyze them with much focus on possible mistakes or inaccuracies found. Most of the mistakes include; wrong personal details, identity belonging to other people, and wrong payment statuses.
You should correct any of the information that is erroneous with the particular credit bureau as soon as possible. Some of these mistakes have a positive effect which can help in increasing the credit score immediately after correcting the mistake.
Pay Bills On Time
The simplest way to enhance your credit standing is to make certain all the due payments are timely made. Payment history has the greatest influence over credit score hence making one payment missed or made late greatly affects the score.
This is especially helpful if the user would like to set up bills and payment reminders so that one would not miss to pay something at a particular time. If you are already in a situation of regularly receiving or making a payment that is one day late or two, try to get current, as the lenders are always likely to check your recent payment records.
For instance, if you are standing with a high balance, you can employ the so-called snowball approach, paying for minor amounts first and then combine the entire amount of the small balances to the greater ones or seek for an avalanche approach.
Conclusion
There are many things a consumer can do to get their credit score adjusted to meet the required mortgage rating and it takes time, effort and planning.
In this case, it is possible to improve credit worthiness through such ways as analyzing and rectifying credit reports, regularity in payment, low credit utilization ratio, avoiding too many credits appetite, and balanced credit mix.
Although credit score means enhancement cannot be done within a short period, with determination and right behavior, positive changes can be made. Begin now to start the process of creating a positive credit reputation.
