Having a good credit score is of paramount essence as it affects your ability to access loans and borrow money. Your credit score rating influences the amount of mortgage you qualify for. You may want to continue reading to learn some exclusive tips from Mortgage Professionals that can help you repair your credit score...
How are Credit Scores Calculated?
According to Equifax.ca, 'Credit scores are intended to help financial risk managers and others make fair decisions on whether or not to “take a risk” on someone.' Some examples of risks may include loans, credit cards, and an apartment application. The main factors involved are payment history, used credit vs available credit, length of credit history, public records, and the number of inquiries into your credit file.
Each of the factors listed has a different weight on your credit rating:
- Payment History 35%
- Used Credit vs. Available Credit 30%
- Credit History 15%
- Public Records 10%
- Inquiries 10%
*Note: There are many different scoring models, above is an example of a general breakdown of factors the models consider*
Tip 1: Pay Your Bills on Time
When Lenders review your credit report and credit score, they are trying to find out if you actually pay your bills. Your past payment performance is usually a good indicator of how reliable you are. Make sure you pay ALL your bills on time, not just credit cards and loans but also your rent, utilities, phone bill, etc...
If you ever fall behind on ANY payments, bring them current as soon as possible. Late or missed payments may appear as negative information on your credit report for up 7 years but it will impact your credit score less and less over time. So set up automatic payments or use those calendar reminders to make sure you pay on time every month!
Tip 2: Lower Your Credit Utilization Ratio
Your Credit Utilization Ratio is another important factor in your credit score calculation. How do you calculate your Credit Utilization Ratio? Add all your credit card balances together and divide them by the amount of your total credit limit.
Credit Limit $10,000
Amount owing: $2000
Utilization Ratio= 20%
Lenders typically like to see low ratios of 30% or less, and most people with good credit scores ofter have low credit utilization ratios.
Tip 3: Dispute Any Inaccuracies on Your Credit Reports
You should check your credit reports for any inaccuracies that could drag down your score. Make sure that the accounts listed on your reports are correct and dispute any incorrect information right away! Monitoring your credit on a regular basis can help you spot inaccuracies before they can do some real damage!
Simply filing a dispute will have no impact on your credit score; however, if the information on your credit report changes after the dispute is processed, your credit scores could change. Whether the score goes up, down, or remains the same will be dependent on the outcome of the dispute.
There are options when qualifying for a mortgage with bad credit but they are usually more expensive, resulting in a higher monthly mortgage payment. That is why it is important to take steps to alter bad habits that resulted in a low credit score; this may help you improve your finances and give you access to lower interest rates for your mortgage. Speak with a Trusted Mortgage professional to go over your mortgage options. Talk soon!
Feel free to contact us for more details for your next mortgage pre-approval.