Your credit score indicates to lenders whether or not you are a “good investment” by relaying how long you’ve had credit, your habits in paying back that credit, and how much you currently owe in total. Your credit score is affected by how much debt you’re carrying in relation to the limit of each account, how many loans and credit accounts you have, the number of inquiries by creditors, and your history of repayment.
If you are considering getting your first mortgage, keep in mind that a credit score above 680 puts you in a good position to get financing, while a score below that may affect the rate of interest you’ll pay, or your ability to secure credit, and improvement is needed generally.
CREDIT REPORTS
To ensure your credit score remains in good standing, it is important to take a look at your credit report for any old or incorrect information. If you find any errors, contact Equifax to have them corrected or removed. Another important step would be to pay any outstanding collections listed on your report such as parking tickets or overdue bills.
CONSIDER THE 2-2-2 RULE
If you’re a young person and new to the world of credit, consider the 2-2-2 rule to help build up your credit. Lenders typically like to see 2 forms of revolving credit (i.e. credit cards) with a limit of no less than $2,000 and a clean history of payment for 2 years.
Achieving a great credit score entails using your credit accounts, paying the balance off monthly if possible, and keeping balances below 30 percent of the overall limit at any time. For a card with a limit of $2,000, this means having no more than $600 of it in use. Please note, if you carry a balance beyond one month, and you only make only the minimum required payment, you may be paying a high amount of interest. Be sure to know what rate of interest you’re being charged. It is also a good idea to check if your credit card has an annual fee and making sure you are up to date on that payment too.
The goal is not just to have credit, but to show potential lenders you use it responsibly.
REFINANCING
If you already own a home and you have other debts, consider refinancing your mortgage to help pay down your other credit obligations. If you compare the rate of interest on a mortgage with high-interest consumer debt, it sometimes makes sense to refinance depending on the new rate of your next mortgage. Using the equity in your home can sometimes be a way to consolidate debt to keep more money in your pocket at the end of the day. See your Mortgage Consultant to see if this option would be right for you.
Adapted from DLC Marketing